Interface : 2020 Annual Report

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EMBODIED BEAUTY™ COLLECTION

Dear Fellow Shareowners,

As I reflect on 2020 and l think about 2021, two words come to mind for Interface: resilience and optimism. We went into 2020 prepared for growth, and despite the unimaginable challenges for all, we remained committed to our growth strategy and our purpose to Lead Industry to Love the World. I am proud and grateful for how our Interface team adapted. With their ingenuity, innovation, and connectivity with our customers, Interface is well positioned to win as global markets begin to rebound.

We took swift action to protect our people's health and safety in response to the pandemic. We moved our office-based workforce to remote work, with new tools for virtual collaboration. We implemented stringent protocols to protect our manufacturing teams, and kept production going to serve our customers. Our sales teams adapted, hosting virtual customer meetings. And, our product innovation team delivered the industry's first carbon negative carpet tile products, when measured cradle-to-gate, as well as new collections across a broad range of price points to meet our evolving customer needs.

In the second quarter of 2020, we made the difficult decision to align staffing levels and our cost structure with our revised revenue projections for the year. We reduced our annualized run-rate for SG&A expenses by $80 million compared to 2019 levels, most of which will not return to our P&L in 2021. These changes protected our margins and cash flow even during 2020's COVID-19 environment. While we had to reduce headcount in some areas, we kept our selling organization largely intact because they are a critical part of our unique value proposition. Finally, in the fourth quarter of 2020, we strengthened our capital structure and created future operating flexibility by completing a $300 million bond deal. These combined steps kept us on solid footing, and we will continue to right size the company based on market demand.

Sustainability Momentum

Building on our Backings of the Future investment, we launched our first cradle-to-gate carbon negative carpet tiles in October 2020 in the Americas, and have expanded our offerings to EAAA in 2021. This is truly a differentiated innovation earning us a U.S. patent, which further cements our competitive advantage in the marketplace. We continue to receive global recognition for our sustainability initiatives, earning the United Nations Climate Action Now Award, and being named one of Fast Company's Most Innovative Companies.

The built environment is responsible for nearly 40% of global carbon emissions, and many of our global end user customers have declared time-bound goals to reduce carbon emissions across their enterprises to address this critical problem. We already see increasing requests for our carbon neutral and cradle-to-gate carbon negative products, and Interface is positioned to capitalize on expanding environmental initiatives. These efforts are good for Interface, good for our customers, and good for the planet.

Diversity, Equity and Inclusion (DEI)

Events in 2020 prompted a renewed and intentional focus on social justice. We established a global diversity, equity, and inclusion task force to develop our long-term strategy. We are seeking input from our employees to identify specific areas of opportunity, while engaging in dialogue and making sure that underrepresented voices are being heard. Our goal is to create a more diverse and inclusive company where every employee feels they belong and that they can thrive.

The Office of the Future

The pandemic has changed office-based work, and most employees expect to split their time between the office and remote

working environments in 2021 and after. We believe in the value of in-person connection and its influence on culture and innovation. The office's purpose and configuration may change in favor of open, collaborative spaces intended to bring people together. We're working with our clients as they reconfigure their spaces and we believe office demand could strengthen in the second half of 2021. We already see a return to the office in some countries across Asia and Europe, and as COVID-19 vaccines become more widely available, we believe this trend will follow in the Americas.

A Look Ahead

Heading into 2021, we remain focused on our growth strategy and continue to make disciplined investments in initiatives to grow our top line:

• Carpet tile growth:

Building on the increasing demand for low carbon building products, we're working with customers to make carbon specifiable.

Through our backing innovations, we're expanding our market opportunity for customers that prefer these new bio-based, non- PVC and non-bitumen backings.

We're continuing to convert traditional broadloom customers to modular solutions in key markets globally.

We're also expanding our dealer discretionary business to efficiently deliver our products through this channel. We also see continued growth opportunities through our Services business in the Americas.

Finally, we're investing in our FLOR catalog and online strategy to drive growth in residential.

• Resilient growth:

We continue to expand our resilient flooring portfolio and anticipate growth of our LVT and rubber flooring market share.

2020 turned out differently than anyone would have expected. I am humbled to have worked through its challenges with a talented team and grateful to the organization for embracing me upon my return to the business. Our senior leadership team stepped up

to meet our business's needs while supporting our employees, and our frontline manufacturing team members served as the true heroes of the pandemic, providing stability and reliability in uncertain times. I'm also grateful to the diverse expertise and support of our Board of Directors; they are pushing and inspiring Interface to make progress in every facet of our business.

As we move through 2021, carbon negative products are a point of differentiation for us and I am optimistic about the return to the office with the continued rollout of vaccines. We have the right combination of a strong global culture, beautiful and innovative products, and leadership to help us win in the marketplace, and the ability to come out of the pandemic even stronger than before it started. I'm excited to see what the future holds for Interface.

As always, thank you for your continued support, trust, and investment in Interface.

Daniel T. Hendrix

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

Form 10-K

• ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended January 3, 2021

• TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 001-33994

INTERFACE INC

(Exact name of registrant as specified in its charter)

Georgia				58-1451243
(State of incorporation)				(I.R.S. Employer Identification No.)
1280 West Peachtree Street	Atlanta	Georgia	30309
(Address of principal executive offices)				(zip code)
Registrant's telephone number, including area code:		[phone]

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered:
Common Stock, $0.10 Par Value Per Share	TILE	Nasdaq Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act:	None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer  Accelerated filer  Non-accelerated filer  Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No 

Aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of July 2, 2020: $438,070,155 (57,716,753 shares valued at the closing sale price of $7.59 on July 2, 2020). See Item 12.

Number of shares outstanding of each of the registrant's classes of Common Stock, as of February 18, 2021:

Class	Number of Shares
Common Stock, $0.10 par value per share	58,641,920

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2021 Annual Meeting of Shareholders are incorporated by reference into Part III.

TABLE OF CONTENTS
	Page
PART I.............................................................................................................................................................................	1
ITEM 1. BUSINESS .................................................................................................................................................	1
ITEM 1A. RISK FACTORS .....................................................................................................................................	9
ITEM 1B. UNRESOLVED STAFF COMMENTS...................................................................................................	17
ITEM 2. PROPERTIES.............................................................................................................................................	18
ITEM 3. LEGAL PROCEEDINGS...........................................................................................................................	18
ITEM 4. MINE SAFETY DISCLOSURES ..............................................................................................................	18
PART II ...........................................................................................................................................................................	19
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ...............................................................	19
ITEM 6. SELECTED FINANCIAL DATA..............................................................................................................	21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ..............................................................................................................................	22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........................	36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...........................................................	38
CONSOLIDATED STATEMENTS OF OPERATIONS..........................................................................................	38
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ................................................................	39
CONSOLIDATED BALANCE SHEETS.................................................................................................................	40
CONSOLIDATED STATEMENTS OF CASH FLOWS .........................................................................................	41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................................................................	42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM...................................................	90
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM...................................................	92
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ................................................................................................................................	93
ITEM 9A. CONTROLS AND PROCEDURES........................................................................................................	93
ITEM 9B. OTHER INFORMATION .......................................................................................................................	93
PART III ..........................................................................................................................................................................	93
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE..................................	93
ITEM 11. EXECUTIVE COMPENSATION............................................................................................................	93
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS ...........................................................................................................	94
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE .................................................................................................................................................	94
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES..........................................................................	94
PART IV..........................................................................................................................................................................	94
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES................................................................	94
ITEM 16. FORM 10-K SUMMARY ........................................................................................................................	98
SIGNATURES.................................................................................................................................................................	100

PART I

ITEM 1. BUSINESS

General

References in this Annual Report on Form 10-K to "Interface," "the Company," "we," "our," "ours" and "us" refer to Interface, Inc. and its subsidiaries or any of them, unless the context requires otherwise.

Interface is a global flooring company specializing in carpet tile and resilient flooring, including luxury vinyl tile ("LVT") and rubber flooring.

We are a worldwide leader in design, production and sales of modular carpet, also known as carpet tile. As a global company with a reputation for high quality, reliability and premium positioning, we market modular carpet under the established brand names Interface® and FLOR®, and we market LVT under the brand Interface®. On August 7, 2018, the Company acquired nora Holding GmbH ("nora"), a worldwide leader in the rubber flooring category under the established nora brands norament® and noraplan®.

Market Segmentation

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. We believe the appeal and utilization of modular carpet and resilient flooring will continue to grow in corporate office and non-corporate office market segments, and we are using our considerable skills and experience with designing, producing and marketing modular products that make us a market leader in the corporate office segment to support and facilitate our penetration into more non-corporate office market segments around the world. The nora acquisition continues to advance the Company's growth strategy to expand into new market segments, particularly in the healthcare, life sciences and education market segments.

In 2020, the COVID-19 pandemic impacted areas where we operate and sell our products and services. Government restrictions and shutdowns around the world resulted in lower corporate reinvestment and impacted sales in the corporate office market segment. To mitigate the effects of COVID-19 on our business, we capitalized on our ongoing market diversification strategy to increase our presence and market penetration for modular carpet and resilient flooring sales in non-corporateoffice market segments. As a result, our sales mix of corporate office versus non-corporateoffice market segments in the Americas and on a company-widebasis shifted more towards non-corporateoffice markets compared to prior years.

Below is a summary of our sales mix between corporate office and non-corporate office market segments for the last three fiscal years:

	2020		2019		2018
	Corporate	Non-Corporate		Corporate	Non-Corporate		Corporate	Non-Corporate
	Office	Office			Office	Office			Office	Office
Americas..............	37 %	63	%	47 %	53	%	45 %	55	%
Company-wide.....	47 %	53	%	61 %	39	%	60 %	40	%

Geographic Markets

We operate and sell our modular carpet and resilient flooring products and services in three principal geographic markets, the Americas, Europe and Asia-Pacific, where the percentages of our total net sales were approximately 54%, 32% and 14%, respectively, for fiscal year 2020. The percentages of our total net sales for Americas, Europe and Asia-Pacific in 2019 were 57%, 29% and 14%, respectively, and for 2018 those percentages were 58%, 27% and 15%, respectively.

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