Interface Reports Fourth Quarter and Full Year 2004 Results

February 23, 2005
  • Fourth Quarter Sales Up 14.6% Year-Over-Year
  • Fourth Quarter Orders Up 20.7% Year-Over-Year
  • Income from Continuing Operations of $1.9 million, or $0.04 per share

ATLANTA, Feb. 23 /PRNewswire-FirstCall/ -- Interface, Inc. (Nasdaq: IFSIA), a worldwide floorcoverings and fabrics company, today announced results for the fourth quarter and full year ended January 2, 2005.

Fourth quarter 2004 results included a 14.6% increase in sales to $232.6 million, from $202.9 million in the year ago period. Operating income was $15.3 million in the fourth quarter 2004, a 29.3% increase over operating income of $11.8 million in the fourth quarter 2003. Income from continuing operations was $1.9 million, or $0.04 per share, in the fourth quarter 2004, compared with income from continuing operations of $0.5 million, or $0.01 per share, in the fourth quarter 2003.

As previously announced, the Company is exiting the owned dealer business. Consequently, it is reporting the results of operations for its owned Re:Source dealer businesses (as well as a small Australian dealer business and a small residential fabrics business) as "discontinued operations," in accordance with accounting standards. Those operations yielded a fourth quarter 2004 after-tax operating loss of $2.7 million. The Company's 2004 fourth quarter results also included a loss of $3.5 million, after-tax, related to the disposal of certain dealer businesses.

In comparison, in the fourth quarter of 2003, the Company recorded a charge of $1.6 million in connection with its previously-announced restructuring initiative designed to rationalize manufacturing operations in its fabrics division and further reduce worldwide workforce. Additionally, the fourth quarter 2003 results included a loss from discontinued operations of $4.6 million, composed of a $0.8 million operating loss related to the Company's U.S. raised/access flooring business and a $3.8 million operating loss primarily related to the dealer businesses.

Net loss for the fourth quarter 2004 was $4.4 million, or $0.08 per share, compared with a net loss in the fourth quarter 2003 of $4.1 million, or $0.08 per share.

"In 2004, we benefited from record sales in our U.S. modular business, improving trends in the corporate office market, an up-tick in our broadloom business, as well as our market segmentation strategy and cost reduction initiatives," said Daniel T. Hendrix, President and Chief Executive Officer. "Consequently, we were able to attain year-over-year growth in both sales and operating income in every quarter in 2004. Order activity remained robust throughout the year, with fourth quarter orders up almost 21% to $247.7 million, compared with the fourth quarter of last year. We expect this momentum to continue in 2005."

Mr. Hendrix continued, "Our worldwide modular business continued to gain market share, as Interface leads and shapes the expansion of this growth market. Sales in our worldwide modular business grew 21% for the fourth quarter 2004 because of the improving corporate office market and the success of our penetration into the non-corporate office markets. The increasing diversity in our end-markets also enabled us to deliver broadloom sales growth of 2% in the fourth quarter 2004, while cost-cutting initiatives and improvements in manufacturing efficiencies further contributed to broadloom operating profitability. While sales in our fabrics business for the fourth quarter 2004 were up only slightly, the business experienced a $10 million turnaround in operating profitability over the course of the year. We expect this business to become profitable again in the first quarter of 2005, underscoring the streamlining we have worked so hard to achieve over the past several quarters."

For the full year 2004, sales were $881.7 million, compared with $766.5 million for the same period a year ago, an increase of 15.0%. Operating income for the full year 2004 increased to $60.7 million, from $31.4 million in the comparable period last year (after pre-tax restructuring charges of $6.2 million, or $0.08 per share after-tax, in the 2003 period). Income from continuing operations during the full year 2004 was $6.4 million, versus a loss from continuing operations of $8.0 million, after the restructuring charge, in the full year 2003.

The full year 2004 after-tax loss from discontinued operations was $58.8 million, which included write-downs for the impairment of assets and goodwill of $17.5 million and $29.0 million, respectively, primarily related to the Re:Source dealer businesses. The Company's 2004 results also included a loss of $3.0 million, after-tax, related to the disposal of certain dealer businesses. In comparison, the Company's 2003 after-tax loss from discontinued operations was $16.4 million, which included a $12.0 million write-down for the impairment of assets related to the U.S. raised/access flooring business. The Company also recorded an $8.8 million after-tax loss in 2003 on the disposal of that business. Including the results of all discontinued operations, the Company reported a net loss of $55.4 million, or $1.06 per fully diluted share, for the full year 2004. This compares with net loss of $33.3 million, or $0.66 per fully diluted share, for the full year 2003.

Patrick C. Lynch, Vice President and Chief Financial Officer of Interface, commented, "Fiscal 2004 was an important year for Interface, as our results reflect the growth we have been experiencing and the operational strategies we have been executing. This was perhaps best evidenced by our growth in operating income, which nearly doubled as compared with 2003. During the fourth quarter of 2004, we felt the impact of higher raw material prices, and also incurred higher professional fees related to Sarbanes-Oxley compliance. Despite these factors, we still were able to improve our fourth quarter operating margin year-over-year. As previously announced, we are exiting our unprofitable dealer business, which will reduce our cost structure and working capital requirements and improve our cash flow. To date, we have sold or initiated closure of 10 of our 15 dealer locations, and we expect to complete our exit activities by the end of the second quarter of 2005."

Mr. Hendrix concluded, "We enter 2005 with a positive outlook. Interface continues to lead the growing modular market, while our market segmentation efforts and ongoing cost management program have led to higher sales levels and significant improvements in profitability. Based on the present trends, we expect continued sales growth and margin expansion in 2005. While increasing raw material costs will remain a challenge, we believe that the cost reduction actions we have taken position us well for further progress. Our focus moving into 2005 will include process improvements and continued cost management, to enhance margins in our broadloom business and enable our fabrics business to sustain profitability. Overall, we remain confident in Interface's growth prospects, given the fundamentals and momentum in all of our markets and the leverage that now exists in our operating model."

The Company will host a conference call tomorrow, February 24, 2005, at 9:00 a.m. Eastern Time, to discuss its fourth quarter and full year 2004 results. The conference call will be simultaneously broadcast live over the Internet. Listeners may access the conference call live over the Internet, please copy and paste the following link into your browser: eventDetails&c=112931&eventID=1012950 or through the Company's website at The archived version of the conference call will be available at these sites beginning approximately one hour after the call ends through February 23, 2006 at 11:59 p.m. Eastern Time.

Interface, Inc. is a recognized leader in the worldwide interiors market, offering floorcoverings and fabrics. The Company is committed to the goal of sustainability and doing business in ways that minimize the impact on the environment while enhancing shareholder value. 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 and Prince Street brands, enjoys a leading position in the high quality, designer-oriented segment of the broadloom carpet market. The Company is a leading producer of interior fabrics and upholstery products, which it markets under the Guilford of Maine, Toltec, Intek, Chatham and Camborne brands. In addition, the Company provides specialized fabric services through its TekSolutions business and produces InterCell brand raised/access flooring systems.

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 under the heading "Risk Factors" included in the amendment to the Company's registration statement on Form S-4 filed with the Securities and Exchange Commission on June 28, 2004, which discussion is incorporated herein by this reference, including, but not limited to, the discussion of specific risks and uncertainties under the headings "We compete with a large number of manufacturers in the highly competitive commercial floorcovering products market, and some of these competitors have greater financial resources than we do," "Sales of our principal products have been and may continue to be affected by adverse economic cycles in the construction and renovation of commercial and institutional buildings," "Our success depends significantly upon the efforts, abilities and continued service of our senior management executives and our principal design consultant, and our loss of any of them could affect us adversely," "Our substantial international operations are subject to various political, economic and other uncertainties that could adversely affect our business results, including by restrictive taxation or other government regulation and by foreign currency fluctuations," "Our Chairman, together with other insiders, currently has sufficient voting power to elect a majority of our Board of Directors," "Large increases in the cost of petroleum-based raw materials, which we are unable to pass through to our customers, could adversely affect us," "Unanticipated termination or interruption of any of our arrangements with our primary third-party suppliers of synthetic fiber could have a material adverse effect on us," "We have a significant amount of indebtedness which could have important negative consequences to us," and "Our Rights Agreement could discourage tender offers or other transactions for our stock that could result in shareholders receiving a premium over the market price for our stock." Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company assumes no responsibility to update or revise forward-looking statements made in this press release and cautions readers not to place undue reliance on any such forward-looking statements.

    Consolidated Statements of Income
    (in thousands, except per share data)

                              Three Months Ended       Twelve Months Ended
                            2-Jan-05    28-Dec-03     2-Jan-05    28-Dec-03

    Net Sales               $232,590     $202,898     $881,658     $766,494
    Cost of Sales            164,432      142,324      616,297      543,251
      Gross Profit            68,158       60,574      265,361      223,243
    Selling, General and
     Administrative Expenses  52,854       47,095      204,619      185,696
    Restructuring Charge          --        1,641           --        6,196
      Operating Income        15,304       11,838       60,742       31,351
    Interest Expense          11,271       11,394       46,023       42,820
    Other Expense (Income),
     Net                         756         (267)       4,235        1,143
      Income (Loss) Before
       Taxes                   3,277          711       10,484      (12,612)
    Income Tax Expense
     (Benefit)                 1,425          239        4,044       (4,600)
      Income (Loss) from
       Continuing Operations   1,852          472        6,440       (8,012)
    Discontinued Operations,
     Net of Tax               (2,748)      (4,575)     (58,815)     (16,420)
    Loss on Disposal, Net of
     Tax                      (3,492)          --       (3,027)      (8,825)
    Net Loss                 $(4,388)     $(4,103)    $(55,402)    $(33,257)

    Earnings (Loss) Per Share - Basic
     Continuing Operations     $0.04       $ 0.01        $0.13       $(0.16)
     Discontinued Operations   (0.05)       (0.09)       (1.16)       (0.32)
     Loss on Disposal          (0.07)          --        (0.06)       (0.18)
    Earnings (Loss) Per
     Share - Basic            $(0.08)      $(0.08)      $(1.09)      $(0.66)

    Earnings (Loss) Per Share - Diluted
     Continuing Operations     $0.04         0.01        $0.12       $(0.16)
     Discontinued Operations   (0.05)       (0.09)       (1.12)       (0.32)
     Loss on Disposal          (0.07)          --        (0.06)       (0.18)
    Earnings (Loss) Per
     Share - Diluted          $(0.08)      $(0.08)      $(1.06)      $(0.66)

    Common Shares
     Outstanding - Basic      51,026       50,296       50,682       50,282
    Common Shares
     Outstanding - Diluted    52,870       51,139       52,171       50,282

    Orders from Continuing
     Operations             $247,700     $205,271    $ 951,907     $808,908
    Continuing Operations
     Backlog (as of
     01/02/05 and
     respectively)                                     $91,700      $68,400

    Consolidated Condensed Balance Sheets
    (In thousands)                                  2-Jan-05      28-Dec-03

     Cash                                            $22,164         $2,890
     Accounts Receivable                             142,228        129,624
     Inventory                                       137,618        128,659
     Other Current Assets                             22,756         20,574
     Assets of Businesses Held for Sale               42,788        101,595
       Total Current Assets                          367,554        383,342
     Property, Plant & Equipment                     194,702        206,359
     Other Assets                                    307,542        289,969
       Total Assets                                 $869,798       $879,670

     Accounts Payable                                $46,466        $44,235
     Accrued Liabilities                              86,856         75,873
     Liabilities of Businesses Held for Sale           5,390         11,626
     Long-Term Debt                                       --             --

     Senior and Senior Subordinated Notes            460,000        445,000
     Other Long-Term Liabilities                      76,908         84,203
       Total Liabilities                             675,620        660,937
     Shareholders' Equity                            194,178        218,733
       Total Liabilities and Shareholders' Equity   $869,798       $879,670

    Consolidated Condensed Statements of Cash Flows
    (In millions)
                                                        Twelve Months Ended
                                                      2-Jan-05      28-Dec-03

    Net (Loss)                                         $(55.4)       $ (33.3)
    Depreciation, Amortization and other non-cash        33.3           34.1
    Deferreds and other non-cash items                   53.0           15.8
    Change in Working Capital
      Accounts Receivable                             --          (33.9)
      Inventories                                   (1.9)           3.2
      Prepaids                                       1.0           (0.8)
      Accounts Payable and Accrued Expenses         (1.9)          12.1
    Cash Provided from (used in) Operating
     Activities of Continuing Operations                 28.1           (2.8)
    Cash Used in Operating Activities
     of Discontinued Operations                         (18.6)          (9.0)
    Cash Provided from (used in) Operating Activities     9.5          (11.8)
    Cash Used in Investing Activities                    (7.8)          (7.5)
    Cash Provided from (used in) Financing Activities    15.2           (2.9)
    Effect of Exchange Rate Changes on Cash               2.3            1.6
    Net Increase (Decrease) in Cash                     $19.2         $(20.6)

    Consolidated Condensed Segment Reporting
    (In millions)

                      Three Months Ended          Twelve Months Ended
                     2-Jan-05 28-Dec-03  % Change 2-Jan-05 28-Dec-03  % Change
    Net Sales
    Modular Carpet    $ 151.8    $125.5    21.0%   $563.4    $473.7     18.9%
    Bentley Prince
     Street              31.0      30.5     1.6%    119.1     109.9      8.4%
    Fabrics Group        46.1      44.7     3.1%    186.4     173.5      7.4%
    Specialty Products    3.7       2.2    68.2%     12.8       9.3     37.6%
    Total             $ 232.6    $202.9    14.6%   $881.7    $766.4     15.0%

    Operating Income (Loss)
    Modular Carpet      $19.2     $13.4             $63.9     $45.8
    Bentley Prince
     Street               0.3       0.1               0.1      (2.4)
    Fabrics Group        (1.0)     (0.9)              0.8      (9.2)
    Specialty Products   (0.3)     (0.2)             (0.5)     (0.1)
    Corporate Expenses
     and Eliminations    (2.9)     (0.6)             (3.6)     (2.8)
    Total               $15.3     $11.8             $60.7     $31.3

Daniel T. Hendrix
 President and Chief Executive Officer
Patrick C. Lynch
Chief Financial Officer
Both of Interface, Inc.

Christine Mohrmann, or Jim Olecki
Both of Financial
Dynamics for Interface, Inc.