Impact of the COVID-19 Pandemic
OnMarch 1, 2020 , theWorld Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our products and services. The COVID-19 pandemic has had material adverse effects on our business, results of operations, and financial condition, and it is anticipated that this will continue for an indefinite period of time. The duration of the pandemic will ultimately determine the extent to which our operations are impacted. We continue to monitor our operations and have implemented various programs to mitigate the effects on our business including reductions in employees, labor costs, marketing expenses, consulting expenses, travel costs, various other costs, and capital expenditures, as well as reducing the amount of the cash dividend that we pay on our common stock and suspending and reducing shifts in our production facilities, temporarily furloughing employees, and implementing other cost reduction or avoidance initiatives. During fiscal year 2020, the COVID-19 pandemic resulted in lower revenues across all geographic regions. Our sales mix shifted towards more non-corporate office market segments as the COVID-19 pandemic reduced corporate spending impacting sales in the corporate office market. In 2020, consolidated net sales declined 17.9% compared to 2019 primarily due to COVID-19. As discussed above, the Company implemented, and continues to implement, various cost cutting initiatives to mitigate the effects of COVID-19 on our operations. During 2020, the Company recorded$12.9 million of voluntary and involuntary severance costs, which are included in selling, general and administrative expenses in the consolidated statements of operations. We anticipate future annualized savings of approximately$15 million as a result of these separation initiatives. During the first quarter of 2020, as a result of changes in macroeconomic conditions related to the COVID-19 pandemic, we recognized a charge of$121.3 million for the impairment of goodwill and certain intangible assets. See Note 12 entitled "Goodwill and Intangible Assets" of Part II, Item 8 of this Annual Report for additional information. In response to the reduced demand and to enhance employee safety measures, we temporarily suspended production in ourU.S. manufacturing facilities fromMarch 18, 2020 toMarch 23, 2020 , and then again fromApril 6, 2020 toApril 13, 2020 . We also substantially reduced production in our Craigavon,U.K. facility beginning onApril 20, 2020 through the end of the third quarter, and ourThailand ,China , andAustralia plants were at times operating in reduced shifts in light of reduced demand. During the first quarter of 2020, ourAsia-Pacific region was primarily impacted by COVID-19 due to government shutdowns inChina and the temporary closure of ourChina plant in lateJanuary 2020 toFebruary 9, 2020 . In addition, almost all of our salesforce and administrative employees globally continue to work remotely in accordance with the Company's ongoing safety measures, as well as any local government orders and "shelter in place" directives in place from time to time. As a result of the COVID-19 pandemic, government grants and payroll protection programs are available in various countries globally to provide assistance to companies impacted by the pandemic. The CARES Act enacted inthe United States (see Note 17 entitled "Income Taxes" included in Item 8 of this Annual Report on Form 10-K for additional information) and a payroll protection program enacted inthe Netherlands (the "NOW Program") provide benefits related to payroll costs either as reimbursements, lower payroll tax rates or deferral of payroll tax payments. The NOW Program provides eligible companies with reimbursement of labor costs as an incentive to retain employees and continue paying them in accordance with the Company's customary compensation practices. During fiscal year 2020, the Company qualified for benefits under several payroll protection programs and recognized a reduction in payroll costs of approximately$7.3 million , which are recorded as a$6.1 million reduction of selling, general and administrative expenses and a$1.2 million reduction of cost of sales in the consolidated statements of operations, as the Company believes it is probable that the benefits received will not be repaid.
General
Our revenues are derived from sales of floorcovering products, primarily modular carpet, luxury vinyl tile ("LVT") and, starting inAugust 2018 , rubber flooring products. Our business, as well as the commercial interiors industry in general, is cyclical in nature and is impacted by economic conditions and trends that affect the markets for commercial and institutional business space. The commercial interiors industry, including the market for floorcovering products, is largely driven by reinvestment by corporations into their existing businesses in the form of new fixtures and furnishings for their workplaces. In significant part, the timing and amount of such reinvestments are impacted by the profitability of those corporations. As a result, macroeconomic factors such as employment rates, office vacancy rates, capital spending, productivity and efficiency gains that impact corporate profitability in general, also affect our business. 26
-------------------------------------------------------------------------------- Table of Contents As noted above, our sales mix of corporate office verses non-corporate office market segments has shifted towards non-corporate office markets in fiscal year 2020 primarily due to the impacts of COVID-19 on the corporate office market. We focus our marketing and sales efforts on both corporate office and non-corporate office segments, to reduce somewhat our exposure to economic cycles that affect the corporate office market segment more adversely, as well as to capture additional market share. Our mix of modular carpet and resilient flooring sales in corporate office verses non-corporate office market segments for the last three fiscal years is summarized below: 2020 2019 2018 Corporate Office Non-Corporate Office Corporate Office Non-Corporate Office
Corporate Office Non-Corporate Office Americas 37 % 63 % 47 % 53 % 45 % 55 % Company-wide 47 % 53 % 61 % 39 % 60 % 40 % During 2020, we had net sales of$1,103.3 million , down 17.9% compared to$1,343.0 million in 2019, primarily due to the impacts of COVID-19. The operating loss for 2020 was$39.3 million compared to operating income of$130.9 million in 2019. Net loss for 2020 was$71.9 million , or$1.23 per share, compared to net income of$79.2 million , or$1.34 per share, in 2019. The 2020 period was impacted by a$121.3 million goodwill and intangible asset impairment loss recorded in the first quarter and$12.9 million of severance charges related to cost saving initiatives in response to COVID-19. These charges were partially offset by$9.3 million of lower payroll costs due to furloughs and credits from payroll protection programs. During 2019, we had net sales of$1,343.0 million , up 13.9% compared to$1,179.6 million in 2018. Operating income for 2019 was$130.9 million as compared to$76.4 million in 2018. Net income for 2019 was$79.2 million , or$1.34 per share, compared with$50.3 million , or$0.84 per share, in 2018. The 2019 period included the results of the acquired nora business for the full fiscal year,$5.9 million of purchase accounting amortization in connection with the nora acquisition, and$12.9 million of restructuring and other charges. The 2018 period included the results of the nora acquisition (described below) fromAugust 7, 2018 through the end of the 2018 fiscal year. OnAugust 7, 2018 , the Company completed the acquisition of nora for a purchase price of €385.1 million, or$447.2 million at the exchange rate as of the transaction date, including acquired cash of €40.0 million ($46.5 million ) for a net purchase price of €345.1 million ($400.7 million ). Nora is an industry leader in the rubber flooring market, and the acquisition has expanded the Company's presence within non-corporate office market segments since the acquisition date.
Restructuring Plans
OnDecember 23, 2019 , the Company committed to a new restructuring plan to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy. The plan involved a reduction of approximately 105 employees and early termination of two office leases. As a result of this plan, the Company recorded a pre-tax restructuring charge in the fourth quarter of 2019 of approximately$9.0 million . The charge was comprised of severance expenses ($8.8 million ) and lease exit costs ($0.2 million ). The restructuring charge was expected to result in future cash expenditures of approximately$9.0 million for payment of these employee severance and lease exit costs. The Company expected the plan to yield annualized savings of approximately$6.0 million . A portion of the annualized savings was realized on the income statement in fiscal year 2020, with the remaining portion of the annualized savings expected to be realized in fiscal year 2021. 27
-------------------------------------------------------------------------------- Table of Contents OnDecember 29, 2018 , the Company committed to a new restructuring plan in its continuing efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy. The plan involved (i) a restructuring of its sales and administrative operations in theUnited Kingdom , (ii) a reduction of approximately 200 employees, primarily in theEurope andAsia-Pacific geographic regions, and (iii) the write-down of certain underutilized and impaired assets that included information technology assets and obsolete manufacturing equipment. As a result of this plan, the Company recorded a pre-tax restructuring and asset impairment charge in the fourth quarter of 2018 of approximately$20.5 million . The charge was comprised of severance expenses (approximately$10.8 million ), impairment of assets (approximately$8.6 million ) and other items (approximately$1.1 million ). The charge was expected to result in future cash expenditures of$12 million , primarily for severance payments (approximately$10.8 million ). The restructuring plan was completed at the end of fiscal year 2020.Goodwill , Intangible Asset and Fixed Asset Impairment During 2020, we recognized a charge of$121.3 million for the impairment of goodwill and certain intangible assets. See Note 12 entitled "Goodwill and Intangible Assets" of Part II, Item 8 of this Annual Report for additional information. During 2020, we recognized fixed asset impairment charges of$5.0 million primarily related to certainFLOR design center closures and other projects that were abandoned or indefinitely delayed. These charges are included in selling, general and administrative expenses in the consolidated statements of operations. 28 -------------------------------------------------------------------------------- Table of Contents Analysis of Results of Operations
The following discussion and analyses reflect the factors and trends discussed in the preceding sections.
Net sales denominated in currencies other than theU.S. dollar were approximately 51% in 2020, 49% in 2019, and 49% in 2018. Because we have such substantial international operations, we are impacted, from time to time, by international developments that affect foreign currency transactions. In 2020, the strengthening of the Euro, British pound sterling and Chinese Renminbi against theU.S. dollar had a positive impact on our net sales and operating income. In 2019, the weakening of the Euro, British pound sterling, Australian dollar, Canadian dollar and Chinese Renminbi against theU.S. dollar had a negative impact on our net sales and operating income. In 2018, the strengthening of the Euro and British pound sterling against theU.S. dollar had a positive impact on our net sales and operating income. The following table presents the amounts (inU.S. dollars) by which the exchange rates for translating Euros, British pounds sterling, Australian dollars and Canadian dollars intoU.S. dollars have affected our net sales and operating income during the past three years: 2020
2019 2018
(in
millions)
Impact of changes in foreign currency on net sales
The following table presents, as a percentage of net sales, certain items included in our consolidated statements of operations during the past three years: Fiscal Year 2020 2019 2018 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 62.8 60.3 63.6 Gross profit on sales 37.2 39.7 36.4 Selling, general and administrative expenses 30.2 29.0
28.2
Restructuring, asset impairment and other charges (0.4) 1.0
1.7
Goodwill and intangible asset impairment charge 11.0 - - Operating income (loss) (3.6) 9.7 6.5 Interest/Other expense 3.6 2.2 1.8 Income (loss) before income tax expense (7.2) 7.5 4.7 Income tax expense (benefit) (0.7) 1.7 0.4 Net income (loss) (6.5) % 5.8 % 4.3 % Net Sales Below we provide information regarding our net sales and analyze those results for each of the last three fiscal years. Fiscal year 2020 includes 53 weeks, and fiscal years 2019 and 2018 were both 52 week periods. Fiscal Year Percentage Change 2020 2019 2018 2020 compared with 2019 compared with (in thousands) 2019 2018 Net sales Americas$ 593,418 $ 757,112 $ 682,261 (21.6) % 11.0 % Europe 351,287 393,194 319,677 (10.7) % 23.0 % Asia-Pacific 158,557 192,723 177,635 (17.7) % 8.5 % Net sales$ 1,103,262 $ 1,343,029 $ 1,179,573 (17.9) % 13.9 % 29
-------------------------------------------------------------------------------- Table of Contents Net sales for 2020 compared with 2019 For fiscal year 2020, our net sales decreased$239.8 million (17.9%) compared to 2019. As discussed above, the decrease was primarily due to the impacts of COVID-19 resulting in lower sales volumes globally. Fluctuations in currency exchange rates had a positive impact on our year-over-year sales comparison of approximately$7.1 million , meaning that if currency levels had remained constant year over year our 2020 sales would have been lower by this amount. On a geographic basis, we experienced sales declines across all our regions. Sales in theAmericas were down 21.6%, sales inEurope were down 10.7% as reported inU.S. dollars, and sales in ourAsia-Pacific region were down 17.7%. The sales decrease of 21.6% in theAmericas in 2020 was due primarily to the impacts of COVID-19 and lower carpet tile sales volumes. On a market segment basis, the sales decrease in theAmericas was most significant in the corporate office (down 33.8%), retail (down 34.8%), healthcare (down 15.2%) and education (down 8.3%) market segments, partially offset by increases in the residential living (up 23.8%) and public buildings (up 8.2%) market segments. InEurope , net sales in the region decreased both inU.S. dollars (down 10.7%) and local currency (down 12.5%). The decrease in sales was due primarily to the impacts of COVID-19 and lower carpet tile sales volumes, partially offset by the strengthening of the Euro and British pound sterling against theU.S. dollar. On a market segment basis, the sales decrease inEurope was most significant in the corporate office (down 18.0%), hospitality (down 47.5%) and public buildings (down 14.2%) market segments, partially offset by increases in the transportation (up 40.3%), leisure (up 57.1%), healthcare (up 10.5%) and education (up 9.0%) market segments. In theAsia-Pacific region , net sales decreased 17.7% primarily due to the impacts of COVID-19 and lower carpet tile sales volumes. This sales decrease was partially offset by the strengthening of the Chinese Renminbi against theU.S. dollar. On a market segment basis, the sales decrease inAsia-Pacific was most significant in the corporate office (down 21.4%), retail (down 43.2%), healthcare (down 32.6%), hospitality (down 34.3%) and public buildings (down 20.3%) market segments, partially offset by increases in the leisure (up 63.5%) and education (up 15.5%) market segments.
Net sales for 2019 compared with 2018
For 2019, our net sales increased$163.5 million (13.9%) compared to 2018. As discussed above, the 2019 period included revenue from the nora acquisition for the full fiscal year. The 2018 period included nora revenue only from the acquisition date onAugust 7, 2018 to the end of the 2018 fiscal year of$112.6 million during that stub period. The increase in net sales was primarily volume related and not materially impacted by changing prices. Fluctuations in currency exchange rates had a negative impact on our year-over-year sales comparison of approximately$26.2 million , meaning that if currency levels had remained constant year over year, our 2019 sales would have been higher by this amount. On a geographic basis, including the impact of the nora acquisition, we experienced sales growth across all of our regions. Sales in theAmericas were up 11.0%, sales inEurope were up 23.0% as reported inU.S. dollars, and sales inAsia-Pacific were up 8.5%. The sales increase of 11.0% in theAmericas in 2019 was due primarily to the impact of the nora acquisition and growth from our LVT products. The legacyAmericas carpet and LVT business grew approximately 3.6% for the year. This increase in the legacy business was due to increased sales in the corporate office market segment (up 8.6%) as well as increases in the healthcare (up 18.2%) and education (up 7.6%) market segments. These legacy sales increases were partially offset by a decline in the retail market segment (down 24.6%). InEurope , sales in the region were up in bothU.S. dollars (up 23.0%) and local currency (up 29.1%). This increase was due primarily to the impact of the nora acquisition and growth from our LVT products offset by weakening of the Euro and British pound sterling against theU.S. dollar. The legacy European carpet and LVT business declined 2.7% on aU.S. dollar basis, but grew 2.6% in local currency. The sales growth in local currency in the legacy European business was most pronounced in the corporate office segment (up 6.9%). The decline in legacy sales on aU.S. dollars basis was primarily due to the weakening of the Euro and British pound sterling against theU.S. dollar. InAsia-Pacific , sales increased 8.5% primarily due to the impact of the nora acquisition and growth in our LVT products. This sales increase was partially offset by the weakening of the Australian dollar and lower sales inAustralia . The legacyAsia-Pacific carpet and LVT business declined 3.9% on aU.S. dollar basis, but increased 0.1% in local currency. The sales decline in the legacyAsia-Pacific business was primarily in the corporate (down 5.7%) and government (down 17.9%) market segments, partially offset by increases in the retail market segment (up 12.0%). 30
-------------------------------------------------------------------------------- Table of Contents Cost and Expenses
The following table presents our overall cost of sales and selling, general and administrative ("SG&A") expenses during the past three years:
Fiscal Year Percentage Change 2020 2019 2018 2020 compared 2019 compared (in thousands) with 2019 with 2018 Cost of sales$ 692,688 $ 810,062 $ 749,690 (14.5) % 8.1 % Selling, general and administrative expenses 333,229 389,117 332,975 (14.4) % 16.9 % For 2020, our costs of sales decreased$117.4 million (14.5%) compared to 2019, primarily due to lower net sales. Currency translation had a$4.7 million (0.6%) negative impact on the year-over-year comparison. As a percentage of sales, our costs of sales increased to 62.8% in 2020 versus 60.3% in 2019, primarily due to changes in fixed cost absorption driven by lower production volumes due to the impact of COVID-19. For 2019, our costs of sales increased$60.4 million (8.1%) compared with 2018. Included in 2019 are costs of sales for the acquired nora business for the full year, which includes purchase accounting amortization of$5.9 million related to acquired intangible assets. Fluctuations in currency exchange rates had a 1.8% positive impact on the year-over-year comparison. In absolute dollars, the increase in costs of sales was a result of higher sales for 2019 as compared to 2018, as well as the full year impact of the acquired nora business. As a percentage of sales, our costs of sales decreased to 60.3% in 2019 versus 63.6% in 2018. This decrease was primarily due to productivity initiatives and the nora non-recurring inventory step-up amortization which occurred in 2018, but did not recur in 2019. For 2020, our SG&A expenses decreased$55.9 million (14.4%) versus 2019. Currency translation had a$1.5 million (0.4%) negative impact on the year-over-year comparison. SG&A expenses were lower in 2020 primarily due to (1) lower selling expenses of$54.8 million due to lower net sales, (2)$7.3 million of payroll expense credits related to COVID-19 wage support government assistance programs, and (3)$9.2 million lower performance-based compensation due to forfeitures and target performance measures not being met due to COVID-19. These reductions were partially offset by$12.9 million of severance expenses due to voluntary and involuntary separations, and a$5.0 million fine to settle theSEC matter as referenced in Item 8 Note 18 - "Commitments and Contingencies". As a percentage of sales, SG&A expenses increased to 30.2% in 2020 versus 29.0% in 2019 primarily due to lower net sales. For 2019, our SG&A expenses increased$56.1 million (16.9%) versus 2018. Included in the 2019 period were a full year of SG&A expenses for the acquired nora business versus only a stub period of approximately five months in 2018. Fluctuations in currency rates had a 1.5% favorable impact on SG&A expenses. The increase in SG&A expenses during the year was primarily due to (1) higher selling expenses for the full year impact in 2019 of the acquired nora business, (2) higher year-over-year legal expenses of$3.5 million related to theSEC matter discussed in Note 18 - "Commitments and Contingencies", and (3) higher selling expenses related to bringing the Company's global sales organization together for a meeting to accelerate the nora integration, advance our selling system transformation, and engage the sales force in the Company's sustainability mission. These increases were partially offset by lower stock compensation expense of$5.8 million compared to prior year. As a percentage of sales, SG&A expenses increased to 29.0% in 2019 versus 28.2% in 2018.
Interest Expense
For 2020, our interest expense increased$3.6 million to$29.2 million , versus$25.6 million in 2019, primarily due to (1) a$3.6 million loss on extinguishment of debt to amend the Syndicated Credit Facility and repay a portion of outstanding indebtedness thereunder, and (2) a$3.9 million reclassification from accumulated other comprehensive income for deferred interest rate swap losses due to the termination of our interest rate swap contracts. These increases were partially offset by lower average interest rates on our borrowings under the Syndicated Credit Facility (our average borrowing rate for 2020 was 1.89% compared to 3.27% in 2019) and lower outstanding borrowings under the Syndicated Credit Facility compared to 2019. 31 -------------------------------------------------------------------------------- Table of Contents For 2019, our interest expense increased$10.2 million to$25.6 million , versus$15.4 million in 2018. This increase was a result of higher outstanding borrowings incurred inAugust 2018 to complete the nora acquisition offset slightly by lower average interest rates on our borrowings (our average borrowing rate, including the impact of interest rate swaps, for 2019 was 3.27% as compared to 3.50% for 2018). Our interest rate swaps, entered into in 2017 and 2019, had approximately$0.2 million impact on interest expense for 2019.
Tax
For the year endedJanuary 3, 2021 , the Company recorded an income tax benefit of$7.5 million on pre-tax loss of$79.4 million resulting in an effective tax rate of 9.4%. The effective tax rate for this period was significantly impacted by a non-deductible goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions taken in prior years on discontinued operations. Excluding the impact of the non-deductible goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions on discontinued operations, the effective tax rate was 14.1% for 2020 compared to 22.2% in 2019. The decrease in the effective tax rate, excluding the goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions on discontinued operations, was primarily due to the favorable impacts of amending prior year tax returns, retroactive election of theGILTI High -tax Exclusion in the 2019 tax return and reduction in non-deductible employee compensation. This decrease was partially offset by the non-deductibleSEC penalty. Our effective tax rate in 2019 was 22.2%, compared with an effective tax rate of 8.6% in 2018. The increase in our effective tax rate in 2019 compared to 2018 was primarily due to a nonrecurring$6.7 million tax benefit realized in 2018 related to the impacts of theU.S. Tax Cuts and Jobs Act enacted into law in 2017. In addition, there was a net increase in our effective tax rate in 2019 due to lessU.S. federal and foreign tax credits which was partially offset by a reduction in non-deductible expenses, favorable change in unrecognized tax benefits and a higher portion of income earned in foreign jurisdictions not subject toU.S. state income taxes.
Liquidity and Capital Resources
General
In our business, we require cash and other liquid assets primarily to purchase raw materials and to pay other manufacturing costs, in addition to funding normal course SG&A expenses, anticipated capital expenditures, interest expense and potential special projects. We generate our cash and other liquidity requirements primarily from our operations and from borrowings or letters of credit under our Syndicated Credit Facility and Senior Notes discussed below. We anticipate that our liquidity is sufficient to meet our obligations for the next 12 months. Historically, we use more cash in the first half of the fiscal year, as we pay insurance premiums, taxes and incentive compensation and build up inventory in preparation for the holiday/vacation season of our international operations. AtJanuary 3, 2021 , we had$103.1 million in cash. Approximately$1.7 million of this cash was located in theU.S. , and the remaining$101.4 million was located outside of theU.S. The cash located outside of theU.S. is indefinitely reinvested in the respective jurisdictions (except as identified below). We believe that our strategic plans and business needs, particularly for working capital needs and capital expenditure requirements inEurope ,Asia , andAustralia , support our assertion that a portion of our cash in foreign locations will be reinvested and remittance will be postponed indefinitely. Of the$101.4 million of cash in foreign jurisdictions, approximately$13.7 million represents earnings which we have determined are not permanently reinvested, and as such we have provided for foreign withholding andU.S. state income taxes on these amounts in accordance with applicable accounting standards. As ofJanuary 3, 2021 , we had$285.2 million of borrowings outstanding under our Syndicated Credit Facility, of which$282.2 million were term loan borrowings and$3.0 million were revolving loan borrowings. Additionally,$1.6 million in letters of credit were outstanding under the Syndicated Credit Facility at the end of fiscal year 2020. As ofJanuary 3, 2021 , we had additional borrowing capacity of$295.4 million under the Syndicated Credit Facility and$6.0 million of additional borrowing capacity under our other credit facilities in place at other non-U.S. subsidiaries. OnNovember 17, 2020 , we issued$300 million aggregate principal amount of 5.50% Senior Notes due 2028 (the "Senior Notes"), which are discussed further below. As ofJanuary 3, 2021 , we had$300.0 million of Senior Notes outstanding. 32 -------------------------------------------------------------------------------- Table of Contents We have approximately$81.2 million in contractual cash obligations due by the end of fiscal year 2021, which includes, among other things, pension cash contributions, interest payments on our debt and lease commitments. Based on current interest rates and debt levels, we expect our aggregate interest expense for 2021 to be between$32 million and$33 million . We estimate aggregate capital expenditures in 2021 to be approximately$30 million , although we are not committed to these amounts. It is important for you to consider that we have a significant amount of indebtedness. Our Syndicated Credit Facility matures in November of 2025 and the Senior Notes, as discussed below, mature inDecember 2028 . We cannot assure you that we will be able to renegotiate or refinance any of our debt on commercially reasonable terms, or at all. If we are unable to refinance our debt or obtain new financing, we would have to consider other options, such as selling assets to meet our debt service obligations and other liquidity needs, or using cash, if available, that would have been used for other business purposes. It is also important for you to consider that borrowings under our Syndicated Credit Facility comprise a substantial portion of our indebtedness, and that these borrowings are based on variable interest rates (as described below) that expose the Company to the risk that short-term interest may increase. During 2020, we entered into fixed rate Senior Notes (as described below) which reduced the amount of indebtedness subject to interest rate risk. In the fourth quarter of 2020, we terminated our interest rate swaps that were previously being used to fix a portion of our variable rate debt. For information regarding the current variable interest rates of these borrowings, the potential impact on our interest expense from hypothetical increases in short term interest rates, and the interest rate swap transaction, please see the discussion in Item 7A of this Report. Syndicated Credit Facility OnAugust 7, 2018 , we amended and restated our Syndicated Credit Facility (the "Facility") in connection with the nora acquisition. The purpose of the amended and restated Facility was to fund the nora purchase price and related fees and expenses of the acquisition, and to increase the credit available to us and our subsidiaries following the closing of the nora acquisition in view of the larger enterprise. OnDecember 18, 2019 , the Company again amended the Facility, with certain of its wholly-owned foreign subsidiaries as co-borrowers. The primary purpose of this amendment was to allow the Company to make various intercompany transactions. OnJuly 15, 2020 andNovember 17, 2020 , the Company entered into the second and third amendments, respectively, to its Facility. The primary purpose of the second amendment was to provide the Company with a less restrictive consolidated net leverage ratio covenant in response to the COVID-19 pandemic. The primary purpose of the third amendment was to extend the maturity date of the Facility toNovember 2025 , replace the consolidated net leverage ratio covenant with a consolidated secured net leverage ratio, and modify various interest rate provisions. See Note 9 - "Long-Term Debt" in Item 8 of this Report for additional information.
At
In connection with the 2018 amendment to the Facility as discussed above, we recorded$8.8 million of debt issuance costs associated with the new term loans that are reflected as a reduction of long-term debt. In connection with the second and third amendments to the Facility as discussed above, the Company recorded debt issuance costs of$1.5 million and$0.9 million , respectively. These debt issuance costs were allocated between term and revolving loans and a portion recorded as a reduction of long-term debt ($1.1 million ) for the term loans and other assets ($1.3 million ) for the revolving loans, in accordance with applicable accounting standards. As ofJanuary 3, 2021 , total outstanding debt issuance costs were$10.6 million .
Interest Rates and Fees
Under the Facility, interest on base rate loans is charged at varying rates computed by applying a margin ranging from 0.25% to 2.00%, depending on the Company's consolidated net leverage ratio (as defined in the Facility agreement) as of the most recently completed fiscal quarter. Interest on Eurocurrency-based loans and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.25% to 3.00% over the applicable Eurocurrency rate, depending on the Company's consolidated net leverage ratio as of the most recently completed fiscal quarter. In addition, the Company pays a commitment fee ranging from 0.20% to 0.40% per annum (depending on the Company's consolidated net leverage ratio as of the most recently completed fiscal quarter) on the unused portion of the Facility. 33 -------------------------------------------------------------------------------- Table of Contents Covenants The Facility contains standard and customary covenants for agreements of this type, including various reporting, affirmative and negative covenants. Among other things, these covenants limit our ability to: •create or incur liens on assets; •make acquisitions of or investments in businesses (in excess of certain specified amounts); •engage in any material line of business substantially different from the Company's current lines of business; •incur indebtedness or contingent obligations; •sell or dispose of assets (in excess of certain specified amounts); •pay dividends or repurchase our stock (in excess of certain specified amounts); •repay other indebtedness prior to maturity unless we meet certain conditions; and •enter into sale and leaseback transactions.
The Facility also requires us to remain in compliance with the following financial covenants as of the end of each fiscal quarter, based on our consolidated results for the year then ended:
•Consolidated Secured Net Leverage Ratio: Must be no greater than 3.00:1.00. •Consolidated Interest Coverage Ratio: Must be no less than 2.25:1.00.
Events of Default
If we breach or fail to perform any of the affirmative or negative covenants under the Facility, or if other specified events occur (such as a bankruptcy or similar event or a change of control ofInterface, Inc. or certain subsidiaries, or if we breach or fail to perform any covenant or agreement contained in any instrument relating to any of our other indebtedness exceeding$20 million ), after giving effect to any applicable notice and right to cure provisions, an event of default will exist. If an event of default exists and is continuing, the lenders' Administrative Agent may, and upon the written request of a specified percentage of the lender group shall: •declare all commitments of the lenders under the facility terminated; •declare all amounts outstanding or accrued thereunder immediately due and payable; and •exercise other rights and remedies available to them under the agreement and applicable law. 34
-------------------------------------------------------------------------------- Table of Contents Collateral Pursuant to a Second Amended and Restated Security and Pledge Agreement, the Facility is secured by substantially all of the assets ofInterface, Inc. and our domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of our domestic subsidiaries and up to 65% of the stock of our first-tier material foreign subsidiaries. If an event of default occurs under the Facility, the lenders' Administrative Agent may, upon the request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some instances, foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting accounts receivables, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign subsidiaries. As ofJanuary 3, 2021 , we had outstanding$282.2 million of term loan borrowing and$3.0 million of revolving loan borrowings under the Facility, and had$1.6 million in letters of credit outstanding under the Facility. As ofJanuary 3, 2021 , the weighted average interest rate on borrowings outstanding under the Facility was 1.89%. Under the Facility, we are required to make quarterly amortization payments of the term loan borrowings, which commenced in the fourth quarter of 2018. The amortization payments are due on the last day of the calendar quarter.
We are currently in compliance with all covenants under the Facility and anticipate that we will remain in compliance with the covenants for the foreseeable future.
In the third quarter of 2017 and first quarter of 2019, we entered into interest rate swap transactions that fixed the variable interest rate with respect to$100 million and$150 million , respectively, of the term loan borrowings then outstanding under the Syndicated Credit Facility. In the fourth quarter of 2020, we terminated both interest rate swaps and paid approximately$13 million to terminate the swap agreements. For additional information on interest rates, please see Item 7A and Note 9 entitled "Long-Term Debt" in Item 8 of this Report.
Senior Notes
OnNovember 17, 2020 , the Company issued$300 million aggregate principal amount of 5.50% Senior Notes due 2028. The Senior Notes bear an interest rate at 5.50% per annum and mature onDecember 1, 2028 . Interest is paid semi-annually onJune 1 andDecember 1 of each year, beginning onJune 1, 2021 . The Company used the net proceeds to repay$269.7 million of outstanding term loan borrowings and$21.0 million of outstanding revolving loan borrowings under the Facility. In connection with the issuance of the Senior Notes, the Company recorded$5.7 million of debt issuance costs. These debt issuance costs were recorded as a reduction of long-term debt in the consolidated balance sheets and will be amortized over the life of the outstanding debt. The Senior Notes are unsecured and are guaranteed, jointly and severally, by each of the Company's material domestic subsidiaries, all of which also guarantee the obligations of the Company under its existing Facility. The Company's foreign subsidiaries and certain non-material domestic subsidiaries are considered non-guarantors. Net sales for the non-guarantor subsidiaries were approximately$548 million for fiscal year 2020. Total indebtedness of the non-guarantor subsidiaries was approximately$88 million as ofJanuary 3, 2021 . The Senior Notes can be redeemed on or afterDecember 1, 2023 at specified redemption prices. See Note 9 - entitled "Long-Term Debt" in Item 8 of this report for additional information. 35 -------------------------------------------------------------------------------- Table of Contents Analysis of Cash Flows The following table presents a summary of cash flows for fiscal years 2020, 2019, and 2018: Fiscal Year 2020 2019 2018 (in thousands) Net cash provided by (used in): Operating activities$ 119,070 $ 141,768 $ 91,767 Investing activities (61,689) (74,222) (455,685) Financing activities (42,715) (66,677) 361,526 Effect of exchange rate changes on cash 7,086 (557) (3,656) Net change in cash and cash equivalents 21,752 312
(6,048)
Cash and cash equivalents at beginning of period 81,301 80,989
87,037
Cash and cash equivalents at end of period
We ended 2020 with
•Cash provided by operating activities was$119.1 million for 2020, which represents a decrease of$22.7 million compared to 2019. The decrease was primarily due to lower net income due to the impacts of COVID-19, offset by working capital sources of cash, specifically a decrease in accounts receivable of$40.1 million , lower inventories of$38.7 million and lower prepaid and other expenses of$13.0 million . These sources of cash were offset by a$60.9 million use of cash in accounts payable and accrued expenses to fund normal operations. •Cash used in investing activities was$61.7 million for 2020, which represents a decrease of$12.5 million from 2019. The decrease was primarily due to lower capital expenditures compared to 2019 due to fewer project demands and lower capital investment as a result of the impacts of COVID-19. •Cash used in financing activities was$42.7 million for 2020, which represents a decrease of$24.0 million compared to 2019. Financing activities for 2020 include higher loan borrowings of$320.0 million due to the issuance of$300 million of Senior Notes, offset by (1) higher repayments of revolving and term loan borrowings as the proceeds from the issuance of the Senior Notes were used to repay$290.7 million of outstanding term and revolving loan borrowings under the Syndicated Credit Facility and (2) a decrease in dividends paid of$9.8 million . We ended 2019 with$81.3 million in cash, an increase of$0.3 million during the year. The most significant uses of cash in 2019 were (1) repayments on our Syndicated Credit Facility of$111.7 million offset by borrowings of$90 million , (2) capital expenditures of$74.6 million , (3)$25.2 million to repurchase 1.6 million shares of the Company's outstanding common stock, and (3) dividend payments of$15.4 million These uses were offset by cash flow from operations of$141.8 million , primarily generated from (1) net income of$79.2 million , (2)$19.4 million for increases in accounts payable and accrued expenses, and (3)$2.6 million due to a decrease in inventories. These sources of cash were reduced by working capital uses of (1)$9.7 million due to increases in prepaid expenses and (2)$0.9 million due to increases in accounts receivable. We ended 2018 with$81.0 million in cash, a decrease of$6.0 million during the year. During 2018, we borrowed$462.8 million of new term loan debt to finance the acquisition of nora. The cash purchase price for nora, net of cash acquired, was$400.7 million . Other than the nora purchase transaction, the most significant uses of cash in 2018 were (1) repayments on our Syndicated Credit Facility of$64.5 million , (2) capital expenditures of$54.9 million , (3) dividend payments of$15.5 million and (4)$14.5 million of cash used to repurchase our common stock. These uses were offset by cash flow generated by operations of$91.8 million . Our cash flow from operations was primarily generated by net income of$50.3 million . This net income was offset by working capital uses, primarily$18.8 million for an increase in inventory and$15.5 million due to increases in prepaid and other current assets. The Company generated cash of$9.9 million for increases in accounts payable and accrued expenses. In addition to working capital generation of cash, the Company also borrowed$17 million under its Syndicated Credit Facility during 2018.
We believe that our liquidity position will provide sufficient funds to meet our current commitments and other cash requirements for the foreseeable future.
36 -------------------------------------------------------------------------------- Table of Contents Funding Obligations We have various contractual obligations that we must fund as part of our normal operations. The following table discloses aggregate information about our contractual obligations and the periods in which payments are due. The amounts and time periods are measured fromJanuary 3, 2021 . Payments Due by Period Total Payments Less than More than Due 1 year 1-3 years 3-5 years 5 years (in thousands) Long-Term Debt Obligations(1)$ 585,215 $
15,319
143,198 20,653 30,457 21,344 70,744 Expected Interest Payments(3) 160,257 23,439 45,729 41,589 49,500 Unconditional Purchase Obligations(4) 14,529 14,529 - - - Pension Cash Obligations(5) 36,923 7,262 6,315 6,624 16,722
Total Contractual Cash Obligations(6)
(1)Total long-term debt in the consolidated balance sheet includes a reduction for unamortized debt issuance costs of$8.6 million which are excluded from the long-term debt obligations in the table above. The table above includes$15.3 million classified as the current portion of long-term debt in the consolidated balance sheet ofJanuary 3, 2021 .
(2)Operating and finance lease obligations represent undiscounted future lease payments.
(3)Expected interest payments to be made in future periods reflect anticipated interest payments related to the$300.0 million of 5.50% Senior Notes due 2028 outstanding,$282.2 million of Term Loan borrowings outstanding and the$3.0 million of revolving loan borrowings outstanding under our Syndicated Credit Facility as ofJanuary 3, 2021 . We have also assumed in the presentation above that these borrowings will remain outstanding until maturity with the exception of the required amortization payments for our term loan borrowings. (4)Unconditional purchase obligations do not include unconditional purchase obligations that are included as liabilities in our consolidated balance sheet. Our capital expenditure commitments of approximately$9.6 million are included in the table above. (5)We have three foreign defined benefit plans and a domestic salary continuation plan. Our domestic salary continuation plan and the nora plan are unfunded plans, and we do not currently have any commitments to make contributions to these plans. However, the table above includes the expected benefit payments for these unfunded plans which will be paid by the Company. We use insurance instruments to hedge our exposure under the salary continuation plan. Contributions to our other employee benefit plans are at our discretion. The above table does not reflect expected benefit payments for two of our funded foreign defined benefit plans of approximately$114.8 million , which will be paid by the plans over the next ten years. (6)The above table does not reflect unrecognized tax benefits of$10.8 million , the timing of which payments are uncertain. See Note 17 entitled "Income Taxes" in Item 8 of this Report for further information. 37
-------------------------------------------------------------------------------- Table of Contents Forward-Looking Statement on Impact of COVID-19 While we are aggressively managing our response to the COVID-19 pandemic, its impacts on our full year fiscal 2021 results and beyond are uncertain. We believe the most significant elements of uncertainty are (1) the intensity and duration of the impact on construction, renovation, and remodeling; (2) corporate, government, and consumer spending levels and sentiment; and (3) the ability of our sales channels, supply chain, manufacturing, and distribution partners to continue operating through disruptions. Any or all of these factors could negatively impact our financial position, results of operations, cash flows, and outlook. As the impact of the COVID-19 pandemic continues to affect companies with global operations, we anticipate that our business and results in the first quarter of 2021 will continue to be adversely affected, and the timeline and pace of recovery is uncertain. Due to customary seasonality and the impact of COVID-19, we anticipate a sequential decrease in revenue and operating income in the first quarter of fiscal year 2021 compared with the fourth quarter of 2020. During 2020, the Company implemented several cost reduction and avoidance initiatives to align with anticipated customer demand, including a voluntary employee separation program, temporary employee furloughs and other time-and-pay reduction programs, involuntary employee separations where necessary to streamline roles and responsibilities, and various other cost reducing initiatives. The Company also suspended merit-based salary increases, as well as its 401(k) and Non-Qualified Savings Plan (NSP) matching contributions, and benefited from lower than originally anticipated performance-based compensation and variable compensation for 2020. In addition, the Company reduced its capital spending plans. InJanuary 2021 , the Company resumed its 401(k) and NSP matching contributions on a prospective basis, as well as customary merit-based salary increases for fiscal year 2021. The Company will also establish new performance-based compensation and variable compensation targets for fiscal year 2021. All of these items will increase costs compared to fiscal year 2020. Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements. However, the Company's cash flows from operations can be affected by numerous factors including the uncertainty of COVID-19 and its impact on global operations, raw material availability and cost, demand for our products, and other factors described in "Risk Factors" included in Part I, Item 1A of this Annual Report on Form 10-K. 38 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies The policies discussed below are considered by management to be critical to an understanding of our consolidated financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimations about the effects of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events may not develop as forecasted, and the best estimates routinely require adjustment. Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment at the asset group level whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment is indicated. A loss is then recognized for the difference, if any, between the fair value of the asset (as estimated by management using its best judgment) and the carrying value of the asset. The management estimate of fair value considers undiscounted cash flows, market conditions and trends, and other industry specific metrics. If actual market value is less favorable than that estimated by management, additional write-downs may be required. Deferred Income Tax Assets and Liabilities. The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies in accordance with applicable accounting standards and are based on management's assumptions and estimates regarding future operating results and levels of taxable income, as well as management's judgment regarding the interpretation of the provisions of applicable accounting standards. The carrying values of liabilities for income taxes currently payable are based on management's interpretations of applicable tax laws and incorporate management's assumptions and judgments regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes may result in materially different carrying values of income tax assets and liabilities and results of operations. We evaluate the recoverability of these deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short and long-term business forecasts to provide insight. Further, our global business portfolio gives us the opportunity to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. As ofJanuary 3, 2021 , andDecember 29, 2019 , we had state net operating loss carryforwards of$142.7 million and$87.6 million , respectively. Certain of these state net operating loss carryforwards are reserved with a valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. The remaining year-end 2020 amounts are expected to be fully recoverable within the applicable statutory expiration periods. If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.Goodwill . Prior to the adoption of ASU 2017-04 "Intangibles-Goodwill and Other", we tested goodwill for impairment at least annually using a two-step approach. In the first step of this approach, we prepared valuations of reporting units, using both a market comparable approach and an income approach, and those valuations are compared with the respective book values of the reporting units to determine whether any goodwill impairment exists. In preparing the valuations, past, present and expected future performance is considered. If impairment was indicated in this first step of the test, a step two valuation approach was performed. The step two valuation approach compared the implied fair value of goodwill to the book value of goodwill. The implied fair value of goodwill was determined by allocating the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit, including both recognized and unrecognized intangible assets, in the same manner as goodwill is determined in a business combination under applicable accounting standards. After completion of this step two test, a loss was recognized for the difference, if any, between the fair value of the goodwill associated with the reporting unit and the book value of that goodwill. If the actual fair value of the goodwill was determined to be less than that estimated, an additional write-down may be required. OnDecember 30, 2019 , the Company adopted Accounting Standards Update 2017-04, "Intangibles -Goodwill and Other," that provides for the elimination of Step 2 from the goodwill impairment test. Under the new guidance, impairment charges are recognized to the extent the carrying amount of a reporting unit exceeds its fair value with certain limitations. 39 -------------------------------------------------------------------------------- Table of Contents In accordance with applicable accounting standards, the Company tests goodwill for impairment annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. During the fourth quarters of 2020, 2019 and 2018, we performed the annual goodwill impairment test. We perform this test at the reporting unit level. For our reporting units which carried a goodwill balance as ofJanuary 3, 2021 , no impairment of goodwill was indicated. As ofJanuary 3, 2021 , if our estimates of the fair value of our reporting units were 10% lower, we believe no additional goodwill impairment would have existed. However, the full extent of the future impact of COVID-19 on the Company's operations is uncertain, and a prolonged COVID-19 pandemic could result in additional impairment of goodwill. Inventories. We determine the value of inventories using the lower of cost or net realizable value. We write down inventories for the difference between the carrying value of the inventories and their net realizable value. If actual market conditions are less favorable than those projected by management, additional write-downs may be required. We estimate our reserves for inventory obsolescence by continuously examining our inventories to determine if there are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for our products and current economic conditions. While we believe that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences will continue to change and we could experience additional inventory write-downs in the future. Our inventory reserve onJanuary 3, 2021 andDecember 29, 2019 , was$35.0 million and$28.3 million , respectively. To the extent that actual obsolescence of our inventory differs from our estimate by 10%, our 2020 net income would be higher or lower by approximately$3.2 million , on an after-tax basis. Pension Benefits. Net pension expense recorded is based on, among other things, assumptions about the discount rate, estimated return on plan assets and salary increases. While management believes these assumptions are reasonable, changes in these and other factors and differences between actual and assumed changes in the present value of liabilities or assets of our plans above certain thresholds could cause net annual expense to increase or decrease materially from year to year. The actuarial assumptions used in our salary continuation plan and our foreign defined benefit plans reporting are reviewed periodically and compared with external benchmarks to ensure that they appropriately account for our future pension benefit obligation. The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers. The table below represents the changes to the projected benefit obligation as a result of changes in discount rate assumptions: Increase (Decrease) in Projected Benefit Foreign Defined Benefit Plans Obligation (in millions) 1% increase in actuarial assumption for discount rate $
(55.8)
1% decrease in actuarial assumption for discount rate 72.0 Increase (Decrease) in Projected Benefit Domestic Salary Continuation Plan
Obligation
(in millions) 1% increase in actuarial assumption for discount rate $ (3.5) 1% decrease in actuarial assumption for discount rate 4.3 40
-------------------------------------------------------------------------------- Table of Contents Allowances for Expected Credit Losses. We maintain allowances for expected credit losses resulting from the inability of customers to make required payments. Estimating the amount of future expected losses requires us to consider historical losses from our customers, as well as current market conditions and future forecasts of our customers' ability to make payments for goods and services. By its nature, such an estimate is highly subjective, and it is possible that the amount of accounts receivable that we are unable to collect may be different than the amount initially estimated. Our allowance for expected credit losses onJanuary 3, 2021 andDecember 29, 2019 , was$6.6 million and$3.8 million , respectively. To the extent the actual collectability of our accounts receivable differs from our estimates by 10%, our 2020 net income would be higher or lower by approximately$0.6 million , on an after-tax basis, depending on whether the actual collectability was better or worse, respectively, than the estimated allowance. Product Warranties. We typically provide limited warranties with respect to certain attributes of our carpet products (for example, warranties regarding excessive surface wear, edge ravel and static electricity) for periods ranging from ten to twenty years, depending on the particular carpet product and the environment in which the product is to be installed. Similar limited warranties are provided on certain attributes of our rubber and LVT products, typically for a period of 5 to 15 years. We typically warrant that any services performed will be free from defects in workmanship for a period of one year following completion. In the event of a breach of warranty, the remedy typically is limited to repair of the problem or replacement of the affected product. We record a provision related to warranty costs based on historical experience and periodically adjust these provisions to reflect changes in actual experience. Our warranty and sales allowance reserve onJanuary 3, 2021 andDecember 29, 2019 , was$3.2 million and$3.9 million , respectively. Actual warranty expense incurred could vary significantly from amounts that we estimate. To the extent the actual warranty expense differs from our estimates by 10%, our 2020 net income would be higher or lower by approximately$0.3 million , on an after-tax basis, depending on whether the actual expense is lower or higher, respectively, than the estimated provision. nora Acquisition. We are required to estimate the fair value of the assets acquired and liabilities assumed in business combinations as of the acquisition date, including identified intangible assets. The amount of purchase price paid in excess of the net assets acquired is recorded as goodwill. The fair values are estimated in accordance with accounting standards which define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair values of the net assets acquired are determined primarily using Level 3 inputs (inputs that are unobservable to the marketplace participant). The most significant of the fair value estimates is related to intangible assets not subject to amortization and intangible assets subject to amortization. We acquired$103.3 million of intangible assets in connection with the nora acquisition. This amount of intangible assets was determined based primarily on nora's projected cash flows. The projected cash flows include various assumptions, including the timing of projects embedded in backlog, success in securing future business, profitability of the business, and the appropriate risk-adjusted discount rate used to discount the projected cash flows. AtJanuary 3, 2021 intangible assets, net of amortization and impairments, were approximately$87.7 million . The final residual value assigned to goodwill related to the nora acquisition was$201.9 million , at the acquisition date exchange rate. We completed our final valuation of the assets acquired and liabilities assumed at the acquisition date in the second quarter of 2019. AtJanuary 3, 2021 , goodwill, net of impairments, was$165.8 million .
Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements.
Recent Accounting Pronouncements
Please see Note 2 entitled "Recent Accounting Pronouncements" in Item 8 of this Report for discussion of these items.
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