Interface Reports Third Quarter 2001 Results

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October 23, 2001
ATLANTA, Georgia, October 23, 2001 -- Interface, Inc. (Nasdaq: IFSIA), a worldwide commercial interiors products and services company, today announced results for the third quarter ended September 30, 2001, which were consistent with guidance provided on October 1, 2001.

For the third quarter of 2001, the Company reported net income of $0.7 million, or $0.01 per diluted share, before a non-recurring restructuring charge, and sales of $263 million, compared with third quarter 2000 net income of $9.8 million, or $0.19 per diluted share, and sales of $336.7 million. Operating income for the third quarter of 2001 was $10.7 million, excluding the one-time restructuring charge, versus $25.2 million in the same period a year ago.

As previously announced, Interface recorded a pre-tax restructuring charge in the third quarter of approximately $62 million ($0.83 per diluted share after tax), primarily attributable to exiting European broadloom and rationalizing American broadloom and access flooring businesses. Including the charge, the net loss for the third quarter of 2001 was $41.3 million, or $(0.82) per diluted share.

Revenue and profit levels in the Company's domestic modular business remained healthy, despite the downturn in the commercial interiors sector. Interface attributes this segment's performance to the Company's leading position in modular carpet offerings and to market share gains carpet tile has made in the overall floorcoverings market. Nevertheless, carpet tile sales in Europe and Asia-Pacific softened in the aftermath of September 11th. Profitability in the Company's domestic broadloom operations improved from the second quarter of 2001, primarily due to lower raw material costs, stabilized energy prices, and the realization of increased manufacturing efficiencies resulting from steps taken over the past year to rationalize that business.

Revenue in the Company's U.S. broadloom and U.S. access flooring businesses declined moderately in the third quarter, due to industry conditions, though both showed firming trends in new orders and profitability. The interior fabrics segment also showed signs of stabilizing, as order and billing trends remained consistent with those of the second quarter of 2001. Re:Source Americas, the Company's floorcoverings dealer network, maintained break-even performance on sales declines in line with industry declines.

For the first nine months of 2001, net income was $6.4 million, or $0.13 per diluted share, before the third quarter restructuring charge, on sales of $856.9 million. This compared with net income of $21.9 million, or $0.43 per diluted share, before a non-recurring, pre-tax restructuring charge of approximately $20 million ($0.27 per diluted share after tax), on sales of $953.6 million for the same period a year ago. Excluding the one-time restructuring charge recorded in each period, operating income was $39.2 million for the 2001 nine-month period versus $64.8 million for the 2000 nine-month period.

Including the third quarter restructuring charge, reported net loss for the first nine months of 2001 was $35.6 million, or $(0.70) per diluted share, compared with net income of $8.0 million, or $0.16 per diluted share, for the first nine months of 2000.

The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.015 per share payable November 23, 2001 to shareholders of record as of November 9, 2001, which is a reduction from the previous quarterly dividend of $0.045 per share. The Company plans to increase the quarterly dividend when business conditions permit.

Daniel T. Hendrix, President and Chief Executive Officer, commented, "The downturn in the U.S. economy, exacerbated by the events of September 11th, continues to impact the commercial interiors industry and has resulted in the steepest decline ever in our industry. Over the past few months, corporate spending, overall employment, and demand from contract furniture manufacturers, all drivers of our business, have trended downward."

Mr. Hendrix added, "We are aggressively addressing the challenging business environment by taking steps to maintain our industry leadership, even in current economic conditions, and to secure our future when the economy rebounds. Our strategy includes six areas of focus. One, as we announced on October 1st, we are right-sizing our business to reflect both current and foreseeable demand, which has resulted in our recording a one-time $62 million restructuring charge against earnings for the third quarter. Major actions comprising the restructuring are our withdrawal from the European broadloom market, facilities consolidation in our access flooring operations, further rationalization of our U.S. broadloom operations, consolidation of certain Re:Source dealer locations, and headcount reductions across all of our operations. We expect that the restructuring will be completed by the second quarter of 2002, and project annualized cost reductions of $25 million."

He continued, "Two, we are continuing to scrutinize our expenses carefully to determine where we can make further reductions. Three, we are taking steps to match inventory and production levels even more closely to demand. Four, we are concentrating on supply chain management to reduce costs and inventories. Five, we are remaining focused on strengthening our balance sheet and paying down debt. And, finally, we are actively pursuing additional market share for our products in existing markets and are working to penetrate relatively untapped, less cyclical markets, such as the health care, education, and government sectors. As we carry out these actions, we are taking care to preserve our ability to respond to an increase in demand when business conditions improve."

Mr. Hendrix concluded, "It is extremely difficult to forecast sales and earnings due to the current level of economic uncertainty; however, our best estimate is that fourth quarter earnings will be in the range of $0.01 to $0.03 per diluted share, and sales will be between $245 million and $255 million. We intend to provide guidance on 2002 results at a later date, assuming market trends stabilize."

Interface, Inc. is a recognized leader in the worldwide commercial interiors market, offering floorcoverings, fabrics, interior architectural products and specialty chemicals. The Company is the world's largest manufacturer of modular carpet under the Interface, Heuga, Bentley and Prince Street brands, and through its Bentley Mills, Prince Street and Firth brands, enjoys a leading position in the high quality, designer-oriented segment of the broadloom and woven carpet market. The Company also provides specialized carpet replacement, installation and maintenance services through its Re:Source Americas service network. The Company is also a leading producer of interior fabrics and upholstery products, which it markets under the Guilford of Maine, Stevens Linen, Toltec, Intek, Chatham, Camborne and Glenside brands. In addition, the Company produces raised/access flooring systems under the C-Tec, Intercell and Atlantic brands; produces adhesives and chemicals used in various rubber and plastic products; offers Intersept, a proprietary antimicrobial used in a variety of interior finishes; and sponsors the Envirosense Consortium in its mission to address workplace environmental issues.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for historical information contained herein, the other matters set forth in this news release are forward-looking statements. The forward-looking statements set forth above involve a number of risks and uncertainties that could cause actual results to differ materially from any such statement, including risks and uncertainties associated with economic conditions in the commercial interiors industry as well as the risks and uncertainties discussed in the Company's Safe Harbor Compliance Statement for Forward-Looking Statements, included as Exhibit 99.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, which discussion is incorporated herein by this reference, including, but not limited to, the discussion of specific risks and uncertainties under the headings "Strong Competition: The Company competes with a large number of other manufacturers in the highly competitive commercial floorcovering products market, and certain of these competitors have financial resources in excess of the Company's," "Cyclical Nature of Industry: Sales of the Company's principal products may be affected by cycles in the construction and renovation of commercial and institutional buildings," "Reliance on Key Personnel: The Company's continued success depends to a significant extent upon the efforts, abilities and continued service of its senior management executives and its design consultants," "Risks of Foreign Operations: The Company's substantial international operations are subject to various political, economic and other uncertainties, such as foreign currency exchange restrictions," "Reliance on Petroleum-Based Raw Materials: Large increases in the cost of petroleum-based raw materials, which the Company is unable to pass through to its customers, could adversely affect the Company," "Reliance on Third Party for Supply of Fiber: Unanticipated termination or interruption of the Company's arrangement with its primary third-party supplier of synthetic fiber could have a material adverse effect on the Company," and "Restrictions Due to Substantial Indebtedness: The Company's indebtedness, which is substantial in relation to its shareholders' equity, requires the Company to dedicate a substantial portion of its cash flow from operations to service debt and governs certain other activities of the Company."


Consolidated Statements of Income
Three Months Ended
Nine Months Ended
(In thousands, except per share data)
Net Sales
$ 263,108
$ 336,663
$ 856,904
$ 953,606
Cost of Sales
Gross Profit
Selling, General & Administrative Expenses
Restructuring Charge
Operating Income (Loss)
Other Expense (Income)
Pretax Income (Loss)
Income Tax (Benefit) Expense
Net Income (Loss)
$ 9,759
$ 7,998
Earnings Per Share - Basic
Earnings Per Share - Diluted
Common Shares Outstanding
Consolidated Balance Sheets
(In thousands)
$ ---
$ 7,861
Accounts Receivable
Other Current Assets
Total Current Assets
Property, Plant & Equipment
Other Assets
Total Assets
$ 999,836
Current Liabilities
$ 186,403
$ 206,149
Long-Term Debt
Senior and Senior Subordinated Notes
Other Liabilities
Total Liabilities
Shareholders' Equity
Total Liabilities and Shareholders' Equity
$ 999,836

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