Mohawk Industries Inc: Form 10-Q for the period ended Jul 1, 2023

Overview

During the past three decades, the Company has grown significantly. Its current geographic breadth and diverse product offering are reflected in three reporting segments: Global Ceramic, Flooring North America (“Flooring NA”) and Flooring Rest of the World (“Flooring ROW”). Global Ceramic designs, manufactures, sources and markets a broad line of ceramic tile, porcelain tile, natural stone tile and other products including natural stone, porcelain slabs and quartz countertops, which it distributes primarily in North America, Europe, Brazil and Russia through various selling channels, which include company-owned stores, independent distributors and home centers. Flooring NA designs, manufactures, sources and markets its floor covering products, including broadloom carpet, carpet tile, carpet cushion, rugs, laminate, vinyl products, including luxury vinyl tile (“LVT”) and sheet vinyl, and wood flooring, all of which it distributes through its network of regional distribution centers and satellite warehouses using Company-operated trucks, common carriers or rail transportation. The Segment’s product lines are sold through various channels, including independent floor covering retailers, independent distributors, home centers, mass merchandisers, department stores, shop at home, online retailers, buying groups, commercial contractors and commercial end users. Flooring ROW designs, manufactures, sources, licenses and markets laminate, vinyl products, including LVT and sheet vinyl, wood flooring, roofing panels, insulation boards, medium-density fiberboard (“MDF”) and chipboards, which it distributes primarily in Europe, Russia, Australia and New Zealand through various channels, including independent floor covering retailers, independent distributors, company-owned distributors, home centers, commercial contractors and commercial end users.

Mohawk is a significant supplier of every major flooring category with manufacturing operations in 19 nations and sales in approximately 170 countries. Based on its annual sales, the Company believes it is the world’s largest flooring manufacturer. A majority of the Company’s long-lived assets are located in the United States and Europe, which are also the Company’s primary markets. Additionally, the Company maintains operations in Australia, Brazil, Malaysia, Mexico, New Zealand, Russia and other parts of the world. The Company is a leading provider of flooring for residential and commercial markets and has earned significant recognition for its innovation in design and performance as well as sustainability.

Due to its global footprint, Mohawk’s business is sensitive to macroeconomic events in the United States and abroad. The Company may continue to see fluctuating demand across a number of its markets. In addition, as a result of Russian military actions in Ukraine, the Company experienced supply chain disruption of raw materials sourced from Ukraine (primarily clay), as well as other materials and spare parts needed in the Company’s operations. The Company was also impacted by global increases in the cost of natural gas, oil and oil-based raw materials and chemicals that were among the broader consequences of Russia’s actions. In addition, the United States, the European Union and other governments have imposed and extended sanctions on Russia as well as on certain individuals and financial institutions and have proposed the use of broader economic sanctions. Russia also imposed reciprocal sanctions against the United States and the European Union. Since the first quarter of 2022, the Company has suspended new investments in Russia. The broader consequences of this conflict, which may include further economic sanctions, embargoes, regional instability, and geopolitical shifts; potential retaliatory actions, including nationalization of foreign-owned businesses; increased tensions between the United States and countries in which the Company operates; and the extent of the conflict’s effect on the Company’s business and results of operations, as well as the global economy, cannot be predicted.

During 2022, rapid cost escalations in materials, energy, transportation and labor impacted the Company’s profitability across all segments, and high inflation and rising interest rates affected new home construction and residential remodeling in most of the Company’s markets. As consumers faced a higher cost of living, discretionary spending – including flooring purchases – declined; and, as a result, the Company’s customers reduced inventories, which continued into 2023. Despite multiple pricing actions, improved product mix; productivity gains and cost containment measures, the Company did not completely offset inflation in the first half of 2023. Recently, material and energy prices have declined, which will benefit the Company’s future results as the costs flow through the statement of operations. To further address energy price volatility, the Company has invested in renewable energy initiatives, which provide lower cost power to its facilities. During the first half of 2023, energy from the Company’s biomass plants lowered its cost and benefited its performance. During 2023 and 2022, the Company took actions to enhance future performance including facility and product rationalizations, restructuring initiatives and workforce reductions. The Company has continued to reduce costs across the enterprise by enhancing productivity, streamlining processes, controlling administrative expenses and executing restructuring actions. The Company anticipates these global actions will deliver annual savings of approximately $95 to $100 million, with an estimated cost of approximately $165 to $170 million.

The Company believes it is well positioned with a strong balance sheet and limited debt. Based on its current liquidity and available credit, the Company is in a position to finance internal investments, acquisitions and/or additional stock purchases. For information on risks that could impact the Company’s results, please refer to Risk Factors in Part I, Item 1A in the Company’s 2022 Annual Report filed on Form 10-K.

During the first quarter of 2023, the Company acquired two ceramic tile businesses in Brazil and Mexico. During 2022, the Company completed five small, bolt-on acquisitions: a wood veneer plant in Romania; a sheet vinyl producer in Poland; a mezzanine flooring manufacturer in Germany; a nonwoven carpet and rug producer in the U.S.; and a commercial flooring trim and accessories business in the U.S.

In 2023, the Company plans to invest approximately $600 million to complete existing projects and commence new initiatives. The Company plans to invest in cost reduction initiatives, upgrades in recent acquisitions, previously initiated expansion projects and general maintenance across the business. The primary investment areas include the Company’s LVT portfolio to upgrade its product offering and improve profitability; premium waterproof laminate in North America and Europe; and quartz countertop and porcelain slab expansion in North America and Europe, respectively.

For the three months ended July 1, 2023, net earnings attributable to the Company were $101.2 million compared to net earnings attributable to the Company of $280.4 million for the three months ended July 2, 2022. The change in net earnings was primarily attributable to lower sales volume; legal settlements, reserves and fees; higher inflation; higher restructuring, acquisition and integration-related, and other costs; the unfavorable impact of temporary plant shutdowns; the unfavorable net impact of price and product mix; higher interest expense and the unfavorable net impact of foreign exchange rates. The unfavorable impact of the aforementioned items was partially offset by lower taxes due to decreased earnings in 2023 compared to the prior year and productivity gains. The Company believes that a number of circumstances may influence trends in 2023, including the impact of inflation and material availability due to disruptions in the global supply chain, but the extent and duration of such impact cannot be predicted.

For the six months ended July 1, 2023, net earnings attributable to the Company were $181.5 million compared to net earnings attributable to the Company of $525.8 million for the six months ended July 2, 2022. The change in net earnings was primarily attributable to higher inflation; lower sales volume; higher restructuring, acquisition and integration-related, and other costs; the unfavorable impact of temporary plant shutdowns; legal settlements, reserves and fees; higher interest expense; higher costs associated with investments in new product development and marketing costs and the unfavorable net impact of foreign exchange rates. The unfavorable impact of the aforementioned items was partially offset by lower taxes due to decreased earnings in 2023 compared to the prior year; the favorable net impact of price and product mix and productivity gains. The Company believes that a number of circumstances may influence trends in 2023, including the impact of inflation and material availability due to disruptions in the global supply chain, but the extent and duration of such impact cannot be predicted.

For the six months ended July 1, 2023, the Company generated $520.9 million of cash from operating activities. As of July 1, 2023, the Company had cash and cash equivalents of $570.9 million, of which $393.3 million was in the United States and $177.6 million was in foreign countries.

Results of Operations

Quarter Ended July 1, 2023, as compared with Quarter Ended July 2, 2022

Net sales

Net sales for the three months ended July 1, 2023 were $2,950.4 million, reflecting a decrease of $202.8 million, or 6.4%, from $3,153.2 million reported for the three months ended July 2, 2022. The decrease was primarily attributable to lower legacy sales volume of approximately $256 million, the unfavorable net impact of price and product mix of approximately $46 million, the unfavorable net impact of foreign exchange rates of approximately $19 million and one less shipping day in the second quarter of 2023 of approximately $17 million, partially offset by higher sales volume attributable to acquisitions of approximately $135 million.

*Global Ceramic—*Net sales for the three months ended July 1, 2023 were $1,155.4 million, reflecting a decrease of $3.2 million, or 0.3%, from $1,158.6 million reported for the three months ended July 2, 2022. The decrease was primarily attributable to lower legacy sales volume of approximately $85 million, the unfavorable net impact of foreign exchange rates of approximately $12 million and one less shipping day in the second quarter of 2023 of approximately $5 million, partially offset by higher sales volume attributable to acquisitions of approximately $91 million and the favorable net impact of price and product mix of approximately $8 million.

*Flooring NA—*Net sales for the three months ended July 1, 2023 were $1,001.7 million, reflecting a decrease of $97.8 million, or 8.9%, from $1,099.5 million reported for the three months ended July 2, 2022. The decrease was primarily attributable to lower legacy sales volume of approximately $84 million and the unfavorable net impact of price and product mix of approximately $49 million, partially offset by higher sales volume attributable to acquisitions of approximately $35 million.

*Flooring ROW—*Net sales for the three months ended July 1, 2023 were $793.4 million, reflecting a decrease of $101.7 million, or 11.4%, from $895.1 million for the three months ended July 2, 2022. The decrease was primarily attributable to lower legacy sales volume of approximately $87 million, one less shipping day in the second quarter of 2023 of approximately $13 million, the unfavorable net impact of foreign exchange rates of approximately $7 million and the unfavorable net impact of price and product mix of approximately $5 million, partially offset by higher sales volume attributable to acquisitions of approximately $10 million.

Gross profit

Gross profit for the three months ended July 1, 2023 was $731.9 million (24.8% of net sales), a decrease of $141.3 million, or 16.2%, compared to gross profit of $873.2 million (27.7% of net sales) for the three months ended July 2, 2022. As a percentage of net sales, gross profit decreased 290 basis points. The decrease in gross profit dollars was primarily attributable to lower sales volume of approximately $58 million; higher restructuring, acquisition and integration-related, and other costs of approximately $31 million; the unfavorable impact of temporary plant shutdowns of approximately $30 million; the unfavorable net impact of price and product mix of approximately $25 million; higher inflation of approximately $18 million and the unfavorable net impact of foreign exchange rates of approximately $8 million, partially offset by productivity gains of approximately $25 million.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended July 1, 2023 were $578.9 million (19.6% of net sales), an increase of $73.6 million compared to $505.3 million (16.0% of net sales) for the three months ended July 2, 2022. As a percentage of net sales, selling, general and administrative expenses increased 360 basis points. The increase in selling, general and administrative expenses in dollars was primarily attributable to legal settlements, reserves and fees of approximately $48 million; higher inflation of approximately $13 million; higher restructuring, acquisition and integration-related, and other costs of approximately $10 million and the net impact of acquired businesses of approximately $9 million, partially offset by productivity gains of approximately $2 million.

Operating income

Operating income for the three months ended July 1, 2023 was $153.0 million (5.2% of net sales), reflecting a decrease of $214.9 million, or 58.4%, compared to operating income of $367.9 million (11.7% of net sales) for the three months ended July 2, 2022. The decrease in operating income was primarily attributable to lower sales volume of approximately $67 million; legal settlements, reserves and fees of approximately $48 million; higher restructuring, acquisition and integration-related, and other costs of approximately $41 million; higher inflation of approximately $30 million; the unfavorable impact of temporary plant shutdowns of approximately $30 million; the unfavorable net impact of price and product mix of approximately $24 million and the unfavorable net impact of foreign exchange rates of approximately $8 million, partially offset by productivity gains of approximately $27 million.

*Global Ceramic—*Operating income was $84.0 million (7.3% of segment net sales) for the three months ended July 1, 2023, reflecting a decrease of $70.3 million compared to operating income of $154.3 million (13.3% of segment net sales) for the three months ended July 2, 2022. The decrease in operating income was primarily attributable to higher inflation of approximately $41 million; lower sales volume of approximately $24 million; higher restructuring, acquisition and integration-related, and other costs of approximately $15 million and the unfavorable impact of temporary plant shutdowns of approximately $14 million, partially offset by productivity gains of approximately $15 million; the favorable net impact of price and product mix of approximately $5 million and the favorable net impact of foreign exchange rates of approximately $3 million.

*Flooring NA—*Operating income was $37.2 million (3.7% of segment net sales) for the three months ended July 1, 2023, reflecting a decrease of $62.8 million compared to operating income of $100.0 million (9.1% of segment net sales) for the three months ended July 2, 2022. The decrease in operating income was primarily attributable to the unfavorable net impact of price and product mix of approximately $26 million; higher restructuring, acquisition and integration-related, and other costs of approximately $19 million; lower sales volume of approximately $19 million; the unfavorable impact of temporary plant shutdowns of approximately $9 million and legal settlements, reserves and fees of approximately $5 million, partially offset by lower inflation of approximately $11 million.

*Flooring ROW—*Operating income was $86.9 million (11.0% of segment net sales) for the three months ended July 1, 2023, reflecting a decrease of $37.2 million compared to operating income of $124.1 million (13.9% of segment net sales) for the three months ended July 2, 2022. The decrease in operating income was primarily attributable to lower sales volume of approximately $25 million; the unfavorable net impact of foreign exchange rates of approximately $11 million; higher restructuring, acquisition and integration-related, and other costs of approximately $7 million and the unfavorable impact of temporary plant shutdowns of approximately $7 million, partially offset by productivity gains of approximately $12 million.

Interest expense

Interest expense was $22.9 million for the three months ended July 1, 2023, reflecting an increase of $10.8 million compared to interest expense of $12.1 million for the three months ended July 2, 2022. The increase in interest expense was primarily due to a significant increase in interest rates, as well as increased borrowing due to the acquisitions made in 2022 and the first quarter of 2023.

Other (income) expense, net

Other expense, net was $2.2 million for the three months ended July 1, 2023, reflecting an unfavorable change of $5.0 million compared to other income, net of $2.8 million for the three months ended July 2, 2022. The change was primarily attributable to the unfavorable net impact of foreign exchange rates of approximately $7 million.

Income tax expense

For the three months ended July 1, 2023, the Company recorded income tax expense of $26.8 million on earnings before income taxes of $128.0 million, for an effective tax rate of 20.9%. For the three months ended July 2, 2022, the Company recorded income tax expense of $78.2 million on earnings before income taxes of $358.7 million, for an effective tax rate of 21.8%. The decrease in the effective tax rate was primarily driven by lower earnings before income taxes and the Company’s geographic dispersion of profits and losses for the respective periods, partially offset by an increase in unrecognized tax benefits in the three months ended July 1, 2023.

Six Months Ended July 1, 2023, as compared with Six Months Ended July 2, 2022

Net sales

Net sales for the six months ended July 1, 2023 were $5,756.7 million, reflecting a decrease of $412.2 million, or 6.7%, from $6,168.9 million reported for the six months ended July 2, 2022. The decrease was primarily attributable to lower legacy sales volume of approximately $665 million, the unfavorable net impact of foreign exchange rates of approximately $50 million and the unfavorable impact from fewer shipping days for the six months ended July 1, 2023 of approximately $16 million, partially offset by higher sales volume attributable to acquisitions of approximately $209 million and the favorable net impact of price and product mix of approximately $115 million.

*Global Ceramic—*Net sales for the six months ended July 1, 2023 were $2,214.7 million, reflecting a decrease of $8.6 million, or 0.4%, from $2,223.3 million reported for the six months ended July 2, 2022. The decrease was primarily attributable to lower legacy sales volume of approximately $223 million, the unfavorable net impact of foreign exchange rates of approximately $6 million and the unfavorable impact from fewer shipping days for the six months ended July 1, 2023 of approximately $4 million, partially offset by higher sales volume attributable to acquisitions of approximately $131 million and the favorable net impact of price and product mix of approximately $93 million.

*Flooring NA—*Net sales for the six months ended July 1, 2023 were $1,955.1 million, reflecting a decrease of $216.3 million, or 10.0%, from $2,171.4 million reported for the six months ended July 2, 2022. The decrease was primarily attributable to lower legacy sales volume of approximately $226 million and the unfavorable net impact of price and product mix of approximately $50 million, partially offset by higher sales volume attributable to acquisitions of approximately $60 million.

*Flooring ROW—*Net sales for the six months ended July 1, 2023 were $1,586.8 million, reflecting a decrease of $187.3 million, or 10.6%, from $1,774.1 million reported for the six months ended July 2, 2022. The decrease was primarily attributable to lower legacy sales volume of approximately $216 million, the unfavorable net impact of foreign exchange rates of approximately $45 million and the unfavorable impact from fewer shipping days for the six months ended July 1, 2023 of approximately $13 million, partially offset by the favorable net impact of price and product mix of approximately $71 million and higher sales volume attributable to acquisitions of approximately $18 million.

Gross profit

Gross profit for the six months ended July 1, 2023 was $1,375.4 million (23.9% of net sales), a decrease of $299.9 million or 17.9%, compared to gross profit of $1,675.3 million (27.2% of net sales) for the six months ended July 2, 2022. As a percentage of net sales, gross profit decreased 330 basis points. The decrease in gross profit dollars was primarily attributable to lower sales volume of approximately $173 million; higher inflation of approximately $159 million; the unfavorable impact of temporary plant shutdowns of approximately $72 million; higher restructuring, acquisition and integration-related, and other costs of approximately $62 million and the unfavorable net impact of foreign exchange rates of approximately $11 million, partially offset by the favorable net impact of price and product mix of approximately $125 million and productivity gains of approximately $43 million.

Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended July 1, 2023 were $1,096.5 million (19.0% of net sales), an increase of $109.9 million compared to $986.6 million (16.0% of net sales) for the six months ended July 2, 2022. As a percentage of net sales, selling, general and administrative expenses increased 300 basis points. The increase in selling, general and administrative expenses in dollars was primarily attributable to legal settlements, reserves and fees of approximately $49 million; higher inflation of approximately $30 million; and the net impact of acquired businesses of approximately $14 million; higher costs associated with investments in new product development and marketing costs of approximately $14 million and higher restructuring, acquisition and integration-related, and other costs of approximately $12 million, partially offset by productivity gains of approximately $6 million and the favorable net impact of foreign exchange rates of approximately $4 million.

Operating income

Operating income for the six months ended July 1, 2023 was $278.8 million (4.8% of net sales), reflecting a decrease of $409.9 million, or 59.5%, compared to operating income of $688.7 million (11.2% of net sales) for the six months ended July 2, 2022. The decrease in operating income was primarily attributable to higher inflation of approximately $189 million; lower sales volume of approximately $187 million; higher restructuring, acquisition and integration-related, and other costs of approximately $74 million; the unfavorable impact of temporary plant shutdowns of approximately $72 million; legal settlements, reserves and fees of approximately $49 million; higher costs associated with investments in new product development and marketing costs of approximately $14 million and the unfavorable net impact of foreign exchange rates of approximately $7 million, partially offset by the favorable net impact of price and product mix of approximately $122 million and productivity gains of approximately $49 million.

*Global Ceramic—*Operating income was $147.4 million (6.7% of segment net sales) for the six months ended July 1, 2023, reflecting a decrease of $107.2 million compared to operating income of $254.6 million (11.5% of segment net sales) for the six months ended July 2, 2022. The decrease in operating income was primarily attributable to higher inflation of approximately $92 million; lower sales volume of approximately $71 million; the unfavorable impact of temporary plant shutdowns of approximately $26 million and higher restructuring, acquisition and integration-related, and other costs of approximately $19 million, partially offset by the favorable net impact of price and product mix of approximately $63 million, productivity gains of approximately $28 million and the favorable net impact of foreign exchange rates of approximately $9 million.

*Flooring NA—*Operating income was $35.2 million (1.8% of segment net sales) for the six months ended July 1, 2023, reflecting a decrease of $160.2 million compared to operating income of $195.4 million (9.0% of segment net sales) for the six months ended July 2, 2022. The decrease in operating income was primarily attributable to lower sales volume of approximately $50 million; higher inflation of approximately $40 million; the unfavorable impact of temporary plant shutdowns of approximately $26 million; higher restructuring, acquisition and integration-related, and other costs of approximately $25 million; higher costs associated with investments in new product development and marketing costs of approximately $14 million; the unfavorable net impact of price and product mix of approximately $11 million and legal settlements, reserves and fees of approximately $5 million, partially offset by productivity gains of approximately $9 million.

*Flooring ROW—*Operating income was $162.2 million (10.2% of segment net sales) for the six months ended July 1, 2023, reflecting a decrease of $96.6 million compared to operating income of $258.8 million (14.6% of segment net sales) for the six months ended July 2, 2022. The decrease in operating income was primarily attributable to lower sales volume of approximately $67 million; higher inflation of approximately $54 million; higher restructuring, acquisition and integration-related, and other costs of approximately $30 million; the unfavorable impact of temporary plant shutdowns of approximately $20 million and the unfavorable net impact of foreign exchange rates of approximately $16 million, partially offset by the favorable net impact of price and product mix of approximately $70 million and productivity gains of approximately $12 million.

Interest expense

Interest expense was $40.0 million for the six months ended July 1, 2023, reflecting an increase of $16.5 million compared to interest expense of $23.5 million for the six months ended July 2, 2022. The increase in interest expense was primarily due to a significant increase in interest rates, as well as increased borrowing due to the acquisitions made in 2022 and the first quarter of 2023.

Other (income) expense, net

Other expense, net was $1.6 million for the six months ended July 1, 2023, reflecting an unfavorable change of $2.0 million compared to other income, net of $0.4 million for the six months ended July 2, 2022. The change was primarily attributable to the unfavorable net impact of foreign exchange rates of approximately $11 million, partially offset by the reversal of an uncertain tax position recorded with the Emil acquisition of approximately $7 million during the six months ended July 2, 2022.

Income tax expense

For the six months ended July 1, 2023, the Company recorded income tax expense of $55.7 million on earnings before income taxes of $237.2 million for an effective tax rate of 23.5%, as compared to an income tax expense of $139.6 million on earnings before income taxes of $665.6 million, for an effective tax rate of 21.0% for the six months ended July 2, 2022. The increase in the effective tax rate was primarily driven by an increase in unrecognized tax benefits in the six months ended July 1, 2023, and an Italian benefit associated with the release of an uncertain tax liability in the six months ended July 2, 2022, partially offset by lower earnings before income taxes and the Company’s geographic dispersion of profits and losses for the respective periods.

Liquidity and Capital Resources

The Company’s primary capital requirements are for working capital, capital expenditures and acquisitions. The Company’s capital needs are met primarily through a combination of internally generated funds, commercial paper, bank credit lines, term and senior notes and credit terms from suppliers.

Net cash provided by operating activities in the first six months of 2023 was $520.9 million, compared to net cash provided by operating activities of $202.7 million in the first six months of 2022. The increase of $318.2 million in 2023 was primarily attributable to the change in inventory and accounts receivable, partially offset by lower net earnings and the change in accounts payable.

Net cash used in investing activities in the first six months of 2023 was $602.6 million compared to net cash used in investing activities of $221.1 million in the first six months of 2022. The increase was primarily due to the increase in acquisition costs of $516.4 million, partially offset by an increase in the redemptions of short-term investments of $100.0 million (net of purchases of short-term investments).

Net cash provided by financing activities in the first six months of 2023 was $156.3 million compared to net cash used in financing activities of $42.8 million in the first six months of 2022. The change in cash provided by financing activities is primarily attributable to lower share repurchase of $307.2 million, partially offset by lower proceeds from commercial paper of $92.2 million (net of borrowing of commercial paper).

As of July 1, 2023, the Company had cash of $570.9 million, of which $177.6 million was held outside the United States. The Company plans to permanently reinvest the cash held outside the United States. The Company believes that its cash and cash equivalents on hand, cash generated from operations and availability under its existing credit facilities will be sufficient to meet its capital expenditure, working capital and debt servicing requirements over at least the next twelve months. The Company continually evaluates its projected needs and may conduct additional debt financings, subject to market conditions, to increase its liquidity and to take advantage of attractive financing opportunities.

On February 10, 2022, the Company’s Board of Directors approved a new share repurchase program, authorizing the Company to repurchase up to $500 million of its common stock (the “2022 Share Repurchase Program”). As of July 1, 2023, there remained $229.2 million authorized under the 2022 Share Repurchase Program.

See Note 18, Debt, of the notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for further discussion of the Company’s long-term debt. The Company may continue, from time to time, to retire its outstanding debt through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amount involved may be material.

Contractual Obligations

There have been no significant changes to the Company’s contractual obligations as disclosed in the Company’s 2022 Annual Report filed on Form 10-K except as described herein.

As of July 1, 2023, approximately 37% of the Company’s debt portfolio was comprised of fixed-rate debt and 63% was floating-rate debt. A 1.0 percentage point increase in the interest rate of the floating-rate debt would have resulted in an increase in interest expense of $4.8 million and $9.7 million for the three and six months ended July 1, 2023.

There have been no significant changes to the Company’s exposure to market risk as disclosed in the Company’s 2022 Annual Report filed on Form 10-K.

Based on an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), which have been designed to provide reasonable assurance that such controls and procedures will meet their objectives, as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were effective at a reasonable assurance level for the period covered by this report.

There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes in the Company’s risk factors from those disclosed in Part I, Item 1A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The risk factors disclosed in these reports, in addition to the other information set forth in this report, could materially affect the Company's business, financial condition or results.