form10-q.htm



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

þ
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For Quarterly Period Ended July 5, 2009

Commission File Number 0-12016

INTERFACE, INC.
 (Exact name of registrant as specified in its charter)

GEORGIA
 
58-1451243
(State or other jurisdiction of
 
 (I.R.S. Employer
incorporation or organization)
 
 Identification No.)


2859 PACES FERRY ROAD, SUITE 2000, ATLANTA, GEORGIA 30339
 (Address of principal executive offices and zip code)

(770) 437-6800
 (Registrant’s telephone number, including area code)


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 þ    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted 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 o  No o

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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

Shares outstanding of each of the registrant’s classes of common stock at August 7, 2009:

 
Class
 
Number of Shares
 
 
Class A Common Stock, $.10 par value per share
    56,437,428  
 
Class B Common Stock, $.10 par value per share
    6,754,016  



 

 
                      



INTERFACE, INC.

INDEX
   
PAGE
PART I.
FINANCIAL INFORMATION
 
     
 
Item 1.
 
Financial Statements
3
   
Consolidated Condensed Balance Sheets – July 5, 2009 and December 28, 2008
 
3
   
Consolidated Condensed Statements of Operations – Three Months and Six Months Ended July 5, 2009 and June 29, 2008
 
4
   
Consolidated Statements of Comprehensive Income (Loss) – Three Months and Six Months Ended July 5, 2009 and June 29, 2008
 
5
   
Consolidated Condensed Statements of Cash Flows – Six Months Ended July 5, 2009 and June 29, 2008
 
6
   
Notes to Consolidated Condensed Financial Statements
 
7
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
23
       
 
Item 3.
 
Quantitative and Qualitative Disclosures about Market Risk
28
       
 
Item 4.
 
Controls and Procedures
29
     
PART II.
OTHER INFORMATION
 
     
 
Item 1.
Legal Proceedings
30
       
 
Item 1A.
Risk Factors
30
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30
       
 
Item 3.
Defaults Upon Senior Securities
30
       
 
Item 4.
Submission of Matters to a Vote of Security Holders
30
       
 
Item 5.
Other Information
31
       
 
Item 6.
Exhibits
32



 

 
                      


PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
 (IN THOUSANDS)
   
JULY 5, 2009
   
DECEMBER 28, 2008
 
   
(UNAUDITED)
       
ASSETS
           
CURRENT ASSETS:
           
Cash and Cash Equivalents
  $ 89,867     $ 71,757  
Accounts Receivable, net
    122,758       144,783  
Inventories
    122,854       128,923  
Prepaid Expenses and Other Current Assets
    22,177       21,070  
Deferred Income Taxes
    7,223       6,272  
Assets of Business Held for Sale
    2,150       3,150  
TOTAL CURRENT ASSETS
    367,029       375,955  
                 
PROPERTY AND EQUIPMENT, less accumulated depreciation   
    164,097       160,717  
DEFERRED TAX ASSET
    46,393       42,999  
GOODWILL
    79,512       78,489  
OTHER ASSETS
    48,434       47,875  
TOTAL ASSETS
  $ 705,465     $ 706,035  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Accounts Payable
  $ 38,263     $ 52,040  
Accrued Expenses
    92,971       102,592  
Current Portion of Long-Term Debt
    14,586       --  
TOTAL CURRENT LIABILITIES
    145,820       154,632  
                 
SENIOR NOTES
    144,556       152,588  
SENIOR SUBORDINATED NOTES
    135,000       135,000  
DEFERRED INCOME TAXES
    8,225       7,506  
OTHER
    41,383       38,872  
TOTAL LIABILITIES
    474,984       488,598  
                 
Commitments and Contingencies
               
                 
SHAREHOLDERS’ EQUITY:
               
Preferred Stock
    --       --  
Common Stock
    6,319       6,316  
Additional Paid-In Capital
    341,716       339,776  
Retained Earnings (Deficit)
    (66,422 )     (65,616 )
Accumulated Other Comprehensive Income – Foreign Currency Translation Adjustment
    (28,480 )     (42,210 )
Accumulated Other Comprehensive Income – Pension Liability
    (30,979 )     (28,770 )
TOTAL SHAREHOLDERS' EQUITY – Interface, Inc.
    222,154       209,496  
Non-controlling Interest in Subsidiary
    8,327       7,941  
TOTAL SHAREHOLDERS' EQUITY
    230,481       217,437  
    $ 705,465     $ 706,035  

See accompanying notes to consolidated condensed financial statements.

 
- 3 -

 
                      


INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

   
THREE MONTHS ENDED
   
SIX MONTHS ENDED
 
                         
   
JULY 5, 2009
   
JUNE 29, 2008
   
JULY 5, 2009
   
JUNE 29, 2008
 
                         
NET SALES
  $ 211,297     $ 295,005     $ 410,605     $ 556,741  
Cost of Sales
    142,191       189,712       278,330       357,182  
                                 
GROSS PROFIT ON SALES
    69,106       105,293       132,275       199,559  
Selling, General and Administrative Expenses
    52,263       71,857       106,634       135,152  
Income from Litigation Settlements
    (5,926 )     --       (5,926 )     --  
Restructuring Charge
    1,903       --       7,627       --  
OPERATING INCOME
    20,866       33,436       23,940       64,407  
                                 
Interest Expense
    7,726       8,108       15,399       15,936  
Bond Offering Expense
    6,096       --       6,096       --  
Other Expense (Income)
    650       (168 )     (100 )      20  
                                 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
    6,394       25,496       2,545       48,451  
Income Tax Expense
    2,595       9,204       2,119       17,862  
                                 
Income from Continuing Operations
    3,799       16,292       426       30,589  
Loss from Discontinued Operations, Net of Tax
    --       --       (650 )     --  
NET INCOME (LOSS)
    3,799       16,292       (224 )     30,589  
                                 
Income Attributable to Non-Controlling Interest in Subsidiary
    (133 )     (416 )     (262 )     (591 )
NET INCOME (LOSS) ATTRIBUTABLE TO INTERFACE, INC.
  $ 3,666     $ 15,876     $ (486 )   $ 29,998  
                                 
Earnings (Loss) Per Share Attributable to Interface, Inc. Common Shareholders – Basic
                               
Continuing Operations
  $ 0.06     $ 0.25     $ 0.00     $ 0.48  
Discontinued Operations
    --       --       (0.01 )     --  
Earnings (Loss) Per Share Attributable to Interface, Inc. Common Shareholders – Basic
  $ 0.06     $ 0.25     $ (0.01 )   $ 0.48  
                                 
Earnings (Loss) Per Share Attributable to Interface, Inc. Common Shareholders – Diluted
                               
Continuing Operations
  $ 0.06     $ 0.25     $ 0.00     $ 0.47  
Discontinued Operations
    --       --       (0.01 )     --  
Earnings (Loss) Per Share Attributable to Interface, Inc. Common Shareholders – Diluted
  $ 0.06     $ 0.25     $ (0.01 )   $ 0.47  
                                 
Common Shares Outstanding – Basic
    63,201       62,999       63,199       62,901  
Common Shares Outstanding – Diluted
    63,299       63,343       63,224       63,260  

See accompanying notes to consolidated condensed financial statements.

 
- 4 -

 
                      



INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

(IN THOUSANDS)

   
THREE MONTHS ENDED
   
SIX MONTHS ENDED
 
             
   
JULY 5, 2009
   
JUNE 29, 2008
   
JULY 5, 2009
   
JUNE 29, 2008
 
                         
Net Income (Loss)
  $ 3,799     $ 16,292     $ (224 )   $ 30,589  
Other Comprehensive Income (Loss), Foreign
                               
Currency Translation Adjustment and Pension Liability Adjustment
    18,818        (2,501 )     11,521       10,832  
Comprehensive Income
    22,617       13,791       11,297       41,421  
                                 
Comprehensive Loss (Income) Attributable to Non-Controlling Interest in Subsidiary
    (477 )     175       (386 )     (572 )
Comprehensive Income Attributable to Interface, Inc.
  $ 22,140     $ 13,966     $ 10,911     $ 40,849  


See accompanying notes to consolidated condensed financial statements.

 
- 5 -

 
                      



INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(IN THOUSANDS)

   
SIX MONTHS ENDED
 
   
JULY 5, 2009
   
JUNE 29, 2008
 
OPERATING ACTIVITIES:
           
Net Income (Loss)
  $ (224 )   $ 30,589  
Loss from Discontinued Operations
    650       --  
Income from Continuing Operations
    426       30,589  
Adjustments to Reconcile Income to Cash Provided by Operating Activities:
               
Premiums Paid to Repurchase Senior Notes
    5,264       --  
Depreciation and Amortization
    12,045       11,984  
Deferred Income Taxes and Other
    (3,820 )     2,495  
Working Capital Changes:
               
Accounts Receivable
    27,907       7,085  
Inventories
    8,869       (23,330 )
Prepaid Expenses
    3,891       (3,703 )
Accounts Payable and Accrued Expenses
    (26,777 )     (3,923 )
                 
CASH PROVIDED BY OPERATING ACTIVITIES:
    27,805       21,197  
                 
INVESTING ACTIVITIES:
               
Capital Expenditures
    (7,401 )     (14,079 )
Other
    1,611       (4,434 )
                 
CASH USED IN INVESTING ACTIVITIES:
    (5,790 )     (18,513 )
                 
FINANCING ACTIVITIES:
               
Borrowing of Long-Term Debt
    144,452       --  
Repurchase of Senior Notes
    (138,002 )     --  
Debt Issuance Costs
    (5,787 )     --  
Premiums Paid to Repurchase Senior Notes
    (5,264 )     --  
Proceeds from Issuance of Common Stock
    --       946  
Dividends Paid
    (320 )     (3,778 )
                 
CASH USED IN FINANCING ACTIVITIES:
    (4,921 )     (2,832 )
                 
Net Cash Provided by (Used in) Operating, Investing and
               
Financing Activities
    17,094       (148 )
Effect of Exchange Rate Changes on Cash
    1,016       1,389  
                 
CASH AND CASH EQUIVALENTS:
               
Net Change During the Period
    18,110       1,241  
Balance at Beginning of Period
    71,757       82,375  
                 
Balance at End of Period
  $ 89,867     $ 83,616  


See accompanying notes to consolidated condensed financial statements.


 
- 6 -

 
                      


INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1 – CONDENSED FOOTNOTES

As contemplated by the Securities and Exchange Commission (the "Commission") instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the Company’s year-end financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended December 28, 2008, as filed with the Commission.

The financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the financial information included in this report contains all adjustments (all of which are normal and recurring) necessary for a fair presentation of the results for the interim periods. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year.  The December 28, 2008, consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

As described below in Note 9, the Company has sold its Fabrics Group business segment.  The results of operations and related disposal costs, gains and losses for this business are classified as discontinued operations for all periods presented.

Additionally, certain prior period amounts have been reclassified to conform to the current period presentation.

NOTE 2 – INVENTORIES

Inventories are summarized as follows:

   
July 5, 2009
   
December 28, 2008
 
   
(In thousands)
 
Finished Goods
  $ 70,841     $ 72,495  
Work in Process
    20,519       21,610  
Raw Materials
    31,494       34,818  
    $ 122,854     $ 128,923  

NOTE 3 – EARNINGS (LOSS) PER SHARE

 
The Company computes basic earnings (loss) per share (“EPS”) attributable to common shareholders by dividing income from continuing operations attributable to common shareholders, income from discontinued operations attributable to common shareholders and net income attributable to Interface, Inc. common shareholders, by the weighted-average common shares outstanding, including participating securities outstanding, during the period as discussed below.  Income attributable to non-controlling interest in subsidiary is not included in the calculation of basic or diluted EPS.  Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings.
 
In the first quarter of 2009, the Company adopted FSP EITF No. 03-6-1, which requires the Company to include all unvested stock awards which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding in basic and diluted EPS calculations when the inclusion of these shares would be dilutive.  As a result, the Company has included all of its outstanding restricted stock awards in the calculation of basic and diluted EPS for all periods presented.  FSP EITF No. 03-6-1 also requires additional disclosure of EPS for common stock and unvested share-based payment awards, separately disclosing distributed and undistributed earnings. Distributed earnings represent common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed.  Common stock and unvested share-based payment awards earn dividends equally as shown in the table below:

 
- 7 -

 
                      



   
Three Months Ended
   
Six Months Ended
 
   
July 5, 2009
   
June 29, 2008
   
July 5, 2009
   
June 29, 2008
 
                         
Earnings Per Share from Continuing Operations
                       
                         
Basic Earnings Per Share Attributable to
                       
Common Shareholders:
                       
Distributed Earnings
  $ 0.00     $ 0.03     $ 0.00     $ 0.06  
Undistributed Earnings
    0.06       0.22       0.00       0.42  
Total
  $ 0.06     $ 0.25     $ 0.00     $ 0.48  
                                 
Diluted Earnings Per Share Attributable to
                               
Common Shareholders:
                               
Distributed Earnings
  $ 0.00     $ 0.03     $ 0.00     $ 0.06  
Undistributed Earnings
    0.06       0.22       0.00       0.41  
Total
  $ 0.06     $ 0.25     $ 0.00     $ 0.47  
                                 
Earnings (Loss) Per Share from Discontinued Operations
                               
                                 
Basic and Diluted Earnings (Loss) Per Share Attributable to
                               
Common Shareholders:
                               
Distributed Earnings
  $ --     $ --     $ --     $ --  
Undistributed Earnings (Loss)
     --        --       (0.01 )      --  
Total
  $ --     $ --     $ (0.01 )   $ --  
                                 
Basic Earnings (Loss) Per Share
  $ 0.06     $ 0.25     $ (0.01 )   $ 0.48  
Diluted Earnings (Loss) Per Share
  $ 0.06     $ 0.25     $ (0.01 )   $ 0.47  

The following table presents income from continuing operations and net income attributable to Interface, Inc. that was attributable to participating securities:

   
Three Months Ended
   
Six Months Ended
 
   
July 5, 2009
   
June 29, 2008
   
July 5, 2009
   
June 29, 2008
 
         
(In millions)
       
Income from Continuing Operations
  $ 0.1     $ 0.4     $ 0.0     $ 0.7  
Net Income Attributable to Interface, Inc.
  $ 0.1     $ 0.4     $ 0.0     $ 0.7  

The weighted average shares for basic and diluted EPS were as follows:

   
Three Months Ended
   
Six Months Ended
 
   
July 5, 2009
   
June 29, 2008
   
July 5, 2009
   
June 29, 2008
 
         
(In thousands)
       
Weighted Average Shares Outstanding
    61,787       61,523       61,785       61,425  
Participating Securities
    1,414       1,476       1,414       1,476  
Shares for Basic Earnings (Loss) Per Share
    63,201       62,999       63,199       62,901  
Dilutive Effect of Stock Options
    98       344       25       359  
Shares for Diluted Earnings (Loss) Per Share
    63,299       63,343       63,224       63,260  

For the quarters ended July 5, 2009, and June 29, 2008, options to purchase 1,330,000 and 195,000 shares of common stock, respectively, were not included in the computation of diluted earnings per share as their impact would be anti-dilutive.  For the six-month periods ended July 5, 2009 and June 29, 2008, options to purchase 1,504,000 and 195,000 shares of common stock, respectively, were not included in the computation of diluted earnings per share as their impact would be anti-dilutive.


 
- 8 -

 
                      


NOTE 4 – SEGMENT INFORMATION

Based on the quantitative thresholds specified in Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company has determined that it has two reportable segments: (1) the Modular Carpet segment, which includes its InterfaceFLOR, Heuga and FLOR modular carpet businesses, as well as its Intersept antimicrobial sales and licensing program, and (2) the Bentley Prince Street segment, which includes its Bentley Prince Street broadloom, modular carpet and area rug businesses.  In 2007, the Company sold its former Fabrics Group business segment (see Note 9 for further information).  Accordingly, the Company has included the operations of the former Fabrics Group business segment in discontinued operations.

The accounting policies of the operating segments are the same as those described in the Summary of Significant Accounting Policies contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2008, as filed with the Commission. Segment amounts disclosed are prior to any elimination entries made in consolidation, except in the case of net sales, where intercompany sales have been eliminated. The chief operating decision-maker evaluates performance of the segments based on operating income. Costs excluded from this profit measure primarily consist of allocated corporate expenses, interest/other expense and income taxes. Corporate expenses are primarily comprised of corporate overhead expenses.  Thus, operating income includes only the costs that are directly attributable to the operations of the individual segment.  The three-month and six-month periods ended July 5, 2009 include $5.9 million of income at the Corporate level from litigation settlements.  Assets not identifiable to any individual segment are corporate assets, which are primarily comprised of cash and cash equivalents, short-term investments, intangible assets and intercompany amounts, which are eliminated in consolidation.

Segment Disclosures

Summary information by segment follows:

   
Modular Carpet
   
Bentley Prince Street
   
Total
 
   
(In thousands)
 
Three Months Ended July 5, 2009
                 
Net Sales
  $ 186,568     $ 24,729     $ 211,297  
Depreciation and Amortization
    4,038       615       4,653  
Operating Income (Loss)
    17,452       (1,971 )     15,481  
                         
Three Months Ended June 29, 2008
                       
Net Sales
  $ 259,313     $ 35,692     $ 295,005  
Depreciation and Amortization
    3,767       632       4,399  
Operating Income
    35,367       200       35,567  

   
Modular
Carpet
   
Bentley
Prince Street
   
Total
 
   
(In thousands)
 
Six Months Ended July 5, 2009
                 
Net Sales
  $ 363,020     $ 47,585     $ 410,605  
Depreciation and Amortization
    8,619       1,261       9,880  
Operating Income (Loss)
    24,150       (4,957 )     19,193  
                         
Six Months Ended June 29, 2008
                       
Net Sales
  $ 485,386     $ 71,355     $ 556,741  
Depreciation and Amortization
    7,360       1,140       8,500  
Operating Income
    66,233       1,789       68,022  


 
- 9 -

 
                      


A reconciliation of the Company’s total segment operating income, depreciation and amortization, and assets to the corresponding consolidated amounts follows:

   
Three Months Ended
   
Six Months Ended
 
   
July 5, 2009
   
June 29, 2008
   
July 5, 2009
   
June 29, 2008
 
   
(In thousands)
   
(In thousands)
 
DEPRECIATION AND AMORTIZATION
                       
Total segment depreciation and amortization
  $ 4,653     $ 4,399     $ 9,880     $ 8,500  
Corporate depreciation and amortization
    1,145       1,090       2,165       3,484  
Reported depreciation and amortization
  $ 5,798     $ 5,489     $ 12,045     $ 11,984  
                                 
OPERATING INCOME
                               
Total segment operating income
  $ 15,481     $ 35,567     $ 19,193     $ 68,022  
Corporate income, expenses and other reconciling amounts
    5,385       (2,131 )     4,747       (3,615 )
Reported operating income
  $ 20,866     $ 33,436     $ 23,940     $ 64,407  

   
July 5, 2009
   
December 28, 2008
 
ASSETS
 
(In thousands)
 
Total segment assets
  $ 556,619     $ 569,913  
Discontinued operations
    2,150       3,150  
Corporate assets and eliminations
    146,696       132,972  
Reported total assets
  $ 705,465     $ 706,035  


NOTE 5 – LONG-TERM DEBT

11 3/8% Senior Secured Notes

On June 5, 2009, the Company completed a private offering of $150 million aggregate principal amount of 11 3/8% Senior Secured Notes due 2013 (the “Senior Secured Notes”).  Interest on the Senior Secured Notes is payable semi-annually on May 1 and November 1 beginning November 1, 2009.  The Senior Secured Notes are guaranteed, jointly and severally, on a senior secured basis by certain of the Company’s domestic subsidiaries.  The Senior Secured Notes are secured by a second-priority lien on substantially all of the Company’s and certain of the Company’s domestic subsidiaries’ assets that secure the Company’s domestic revolving credit facility (discussed below) on a first-priority basis.

The Senior Secured Notes were sold at a price of 96.301% of their face value, resulting in $144.5 million of gross proceeds.  The $5.5 million original issue discount will be amortized over the life of the notes through interest expense.  After deducting the initial purchasers’ discount and other fees and expenses associated with the sale, net proceeds were $139.5 million.  The Company used $132.9 million of those net proceeds to repurchase $127.2 million aggregate principal amount of its 10.375% Senior Notes due 2010 pursuant to a tender offer conducted by the Company.  (Included in the $132.9 million used to repurchase the $127.2 million aggregate principal amount of 10.375% Senior Notes was a purchase price premium of $5.7 million).  In addition, the Company used $4.5 million of the net proceeds to pay accrued interest on the $127.2 million aggregate principal amount of the 10.375% Senior Notes due 2010 that the Company repurchased.  The remaining $2.1 million of the net proceeds will be used to repay a portion of the 10.375% Senior Notes due 2010 that remain outstanding.

The Company may redeem all or a part of the Senior Secured Notes from time to time at a price equal to 100% of the principal amount plus a make-whole premium.  Prior to May 1, 2012, the Company may redeem up to 35% of the Senior Secured Notes with cash proceeds from specified equity offerings at a price equal to 111.375% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption.  As of July 5, 2009 the balance of the Senior Secured Notes outstanding, net of the remaining unamortized original issue discount, was approximately $144.6 million.  The estimated fair value of the Senior Secured Notes as of July 5, 2009, based on then current market prices, was $154.7 million.


 
- 10 -

 
                      


10.375% Senior Notes

In the first six months of 2009, the Company repurchased $138.0 million aggregate principal amount of its 10.375% Senior Notes due 2010 (of which $127.2 million aggregate principal amount were repurchased in the second quarter of 2009 pursuant to the tender offer conducted by the Company).  As of July 5, 2009, the Company had $14.6 million in outstanding 10.375% Senior Notes.  The estimated fair value of the outstanding 10.375% Senior Notes as of July 5, 2009, based on then current market prices, was $15.0 million.

9.5% Senior Subordinated Notes

As of July 5, 2009, the Company had outstanding $135.0 million in 9.5% Senior Subordinated Notes.  The estimated fair value of the 9.5% Senior Subordinated Notes as of July 5, 2009, based on then current market prices, was $123.7 million.

Domestic Revolving Credit Facility

The Company maintains a domestic revolving credit agreement (the “Facility”) that provides a maximum aggregate amount of $100 million of loans and letters of credit available to us at any one time (subject to a borrowing base) with an option for us to increase that maximum aggregate amount to $150 million (upon the satisfaction of certain conditions, and subject to a borrowing base).  On May 14, 2009, the Company entered into a Second Amendment (the “Second Amendment”) to the Facility, pursuant to which:

·  
Subject to certain terms and conditions, we were permitted under the Facility to incur additional indebtedness represented by a series of senior notes in an aggregate amount up to $175 million, provided that the net proceeds from any such additional senior notes were first used to repay, repurchase or otherwise discharge our 10.375% Senior Notes due 2010.  (See the discussion above in this Note 5 regarding our issuance, subsequent to the Second Amendment, of Senior Secured Notes.)

·  
The applicable interest rates for loans were increased.  Interest on base rate loans is now charged at varying rates computed by applying a margin ranging from 1.75% to 2.50% (increased from the range of 0.00% to 0.25%) over the applicable base interest rate (which is now defined as the greatest of the prime rate, a specified federal funds rate plus 0.50%, or the one-month LIBOR rate), depending on our average excess borrowing availability during the most recently completed fiscal quarter.  Interest on LIBOR-based loans is now charged at varying rates computed by applying a margin ranging from 3.25% to 4.00% (increased from the range of 1.00% to 2.00%) over the applicable LIBOR rate (but now in no event less than the three-month LIBOR rate), depending on our average excess borrowing availability during the most recently completed fiscal quarter.

·  
The unused line fee on the Facility was increased to 0.75% (up from the prior range of 0.25% to 0.375% depending on our average excess borrowing availability during the most recently completed fiscal quarter).

·  
The minimum fixed charge coverage ratio set forth in the Facility’s financial covenant (which becomes effective in the event that our excess borrowing availability falls below $20 million) was changed from “1.00 to 1.00” to “1.10 to 1.00”.

·  
The borrowing base was amended to remove equipment and to remove our option to add real estate to the borrowing base.

·  
The rights of the parties and procedures with respect to defaulting lenders were modified and clarified in several respects.

·  
The mortgage requirements with respect to owned real estate properties were clarified.

The Company is presently in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future.  As of July 5, 2009, there were zero borrowings and $8.8 million in letters of credit outstanding under the Facility.  As of July 5, 2009, the Company could have incurred $49.9 million of additional borrowings under the Facility.


 
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Credit Agreement with ABN AMRO Bank N.V.

On April 24, 2009, Interface Europe B.V. (our modular carpet subsidiary based in the Netherlands) and certain of its subsidiaries entered into an amended and restated Credit Agreement with ABN AMRO Bank N.V.  Under the Credit Agreement (which replaces the prior credit agreement with ABN AMRO Bank, N.V. executed on March 9, 2007), ABN AMRO provides a credit facility, until further notice, for borrowings and bank guarantees in varying aggregate amounts over time as follows:

Period
 
Maximum Amount in Euros (in millions)
May 1, 2009 – September 30, 2009
 
32
 
October 1, 2009 – September 30, 2010
   
26
 
October 1, 2010 –September 30, 2011
   
20
 
October 1, 2011 –September 30, 2012
   
14
 
From October 1, 2012
   
8
 

Interest on borrowings under the facility is charged at varying rates computed by applying a margin of 1% over ABN AMRO’s euro base rate (consisting of the leading refinancing rate as determined from time to time by the European Central Bank plus a debit interest surcharge), which base rate is subject to a minimum of 3.5% per annum.  Fees on bank guarantees and documentary letters of credit are charged at a rate of 1% per annum or part thereof on the maximum amount and for the maximum duration of each guarantee or documentary letter of credit issued.  A facility fee of 0.5% per annum is payable with respect to the facility amount.  The facility is secured by liens on certain real property, personal property and other assets of our principal European subsidiaries.  The facility also includes certain financial covenants (which require the borrowers and their subsidiaries to maintain a minimum interest coverage ratio, total debt/EBITDA ratio and tangible net worth/total assets) and affirmative and negative covenants, and other provisions that restrict the borrowers’ ability (and the ability of certain of the borrowers’ subsidiaries) to take certain actions.  As of July 5, 2009, there were no borrowings outstanding under this facility.

Other Lines of Credit

Other non-U.S. subsidiaries of the Company have an aggregate of the equivalent of $9.5 million of lines of credit available.  As of July 5, 2009, there were no borrowings outstanding under these lines of credit.


NOTE 6 – STOCK-BASED COMPENSATION
 
Stock Option Awards

SFAS No. 123R, “Share-Based Payments,” which revises SFAS No. 123, “Accounting for Stock-Based Compensation,” requires that the Company measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award.  That cost will be recognized over the period in which the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award.  The grant date fair value for options and similar instruments will be estimated using option pricing models.  Under SFAS No. 123R, the Company is required to select a valuation technique or option pricing model that meets the criteria as stated in the standard, which includes a binomial model and the Black-Scholes model.  The Company continues to use the Black-Scholes model.  SFAS No. 123R requires that the Company estimate forfeitures for stock options and reduce compensation expense accordingly. The Company has reduced its stock compensation expense by the assumed forfeiture rate and will evaluate experience against this forfeiture rate going forward.

During the first six months of 2009 and 2008, the Company recognized stock option compensation costs of $0.7 million and $0.2 million, respectively.  In the second quarters of 2009 and 2008, the Company recognized stock option compensation costs of $0.3 million and $0.1 million, respectively. The remaining unrecognized compensation cost related to unvested awards at July 5, 2009, approximated $1.8 million, and the weighted average period of time over which this cost will be recognized is approximately two years.
 

 
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The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants issued in the first six months of fiscal years 2009 and 2008:

   
Six Months Ended
July 5, 2009
   
Six Months Ended
June 29, 2008
 
Risk free interest rate
    1.6 %     3.9 %
Expected life
 
5.5 years
   
3.25 years
 
Expected volatility
    61 %     61 %
Expected dividend yield
    2.6 %     0.57 %

The weighted average grant date fair value of stock options granted during the first six months of fiscal 2009 was $1.91 per share.

The following table summarizes stock options outstanding as of July 5, 2009, as well as activity during the six months then ended:
 
   
Shares
   
Weighted Average
Exercise Price
 
Outstanding at December 28, 2008
    679,000     $ 7.43  
Granted
    1,060,000       4.30  
Exercised
    --       --  
Forfeited or canceled
    42,000       6.71  
Outstanding at July 5, 2009 (a)
    1,697,000     $ 5.66  
                 
Exercisable at July 5, 2009 (b)
    567,000     $ 5.90  

(a) At July 5, 2009, the weighted average remaining contractual life of options outstanding was 6.8 years.
(b) At July 5, 2009, the weighted average remaining contractual life of options exercisable was 2.0 years.

At July 5, 2009, the aggregate intrinsic value of in-the-money options outstanding and options exercisable was $2.3 million and $0.6 million, respectively (the intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option).
  
Cash proceeds and intrinsic value related to total stock options exercised during the first six months of fiscal years 2009 and 2008 are provided in the following table:
 
   
Six Months Ended
 
   
July 5, 2009
   
June 29, 2008
 
   
(In thousands)
 
Proceeds from stock options exercised
  $ --     $ 946  
Intrinsic value of stock options exercised
  $ --     $ 1,257  

Restricted Stock Awards

During the six months ended July 5, 2009, and June 29, 2008, the Company granted restricted stock awards for 27,000 and 1,012,000 shares, respectively, of Class B common stock.  These awards (or a portion thereof) vest with respect to each recipient over a three to five-year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date.  Additionally, these shares (or a portion thereof) could vest earlier upon the attainment of certain performance criteria, in the event of a change in control of the Company, or upon involuntary termination without cause.

Compensation expense related to restricted stock grants was $1.3 million and $4.1 million for the six months ended July 5, 2009, and June 29, 2008, respectively.  SFAS No. 123R requires that the Company estimate forfeitures for restricted stock and reduce compensation expense accordingly.  The Company has reduced its expense by the assumed forfeiture rate and will evaluate experience against this forfeiture rate going forward.


 
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The following table summarizes restricted stock activity as of July 5, 2009, and during the six months then ended:

   
Shares
   
Weighted Average
Grant Date Fair Value
 
Outstanding at December 28, 2008
    1,550,000     $ 12.70  
Granted
    27,000       4.31  
Vested
    163,000       8.62  
Forfeited or canceled
    --       --  
Outstanding at July 5, 2009
    1,414,000     $ 12.04  

As of July 5, 2009, the unrecognized total compensation cost related to unvested restricted stock was $12.0 million.  That cost is expected to be recognized by the end of 2012.

NOTE 7 – EMPLOYEE BENEFIT PLANS

The following tables provide the components of net periodic benefit cost for the three-month and six-month periods ended July 5, 2009, and June 29, 2008, respectively:

   
Three Months Ended 
   
Six Months Ended
 
Defined Benefit Retirement Plan (Europe)
 
July 5, 2009
   
June 29, 2008
   
July 5, 2009
   
June 29, 2008
 
   
(In thousands)
   
(In thousands)
 
Service cost
  $ 557     $ 696     $ 1,071     $ 1,393  
Interest cost
    2,657       3,324       5,135       6,638  
Expected return on assets
    (2,562 )     (3,874 )     (4,956 )     (7,739 )
Amortization of prior service costs
    20       --       40       --  
Recognized net actuarial (gains)/losses
    447       364       860       728  
Net periodic benefit cost
  $ 1,119     $ 510     $ 2,150     $ 1,020  

   
Three Months Ended 
   
Six Months Ended
 
Salary Continuation Plan (SCP)
 
July 5, 2009
   
June 29, 2008
   
July 5, 2009
   
June 29, 2008
 
   
(In thousands)
   
(In thousands)
 
Service cost
  $ 81     $ 67     $ 162     $ 134  
Interest cost
    271       237       541       475  
Amortization of transition obligation
    55       55       110       110  
Amortization of prior service cost
    12       12       24       24  
Amortization of loss
    70       74       140       147  
Net periodic benefit cost
  $ 489     $ 445     $ 977     $ 890  

NOTE 8 – RESTRUCTURING CHARGES

2008 Restructuring Plan

In the fourth quarter of 2008, the Company committed to a restructuring plan intended to reduce costs across its worldwide operations, and more closely align the Company’s operations with reduced demand levels.  The reduction of the demand levels is primarily a result of the worldwide recession and the associated delays and reductions in the number of construction projects where the Company’s carpet products are used.  The plan primarily consists of ceasing manufacturing operations at its facility in Belleville, Canada, and reducing its worldwide employee base by a total of approximately 530 employees in the areas of manufacturing, sales and administration.  In connection with the restructuring plan, the Company recorded a pre-tax restructuring charge in the fourth quarter of 2008 of $11.0 million.  The Company records its restructuring accruals under the provisions of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” or SFAS No. 112, “Employer’s Accounting for Post-Employment Benefits, an Amendment of FASB Statements No. 5 and 43,” as appropriate.  The restructuring charge is comprised of employee severance expense of $7.8 million, impairment of assets of $2.6 million, and other exit costs of $0.7 million (primarily related to lease exit costs and other closure activities).  Approximately $8.3 million of the restructuring charge will be cash expenditures, primarily severance expense.  Actions and expenses related to this plan were substantially completed in the first quarter of 2009.


 
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A summary of these restructuring activities is presented below:

   
Total
Restructuring
Charge
   
Costs Incurred
 in 2008
   
Costs Incurred
 in 2009
   
Balance at
July 5, 2009
 
   
(In thousands)
 
Facilities consolidation
  $ 2,559     $ 2,559     $ --     $ --  
Workforce reduction
    7,751       1,464       5,079       1,208  
Other charges
    665       --       207       458  
    $ 10,975     $ 4,023     $ 5,286     $ 1,666  

The table below details these restructuring activities by segment:

   
Modular
Carpet
   
Bentley
Prince Street
   
Corporate
   
Total
 
   
(In thousands)
 
                         
Total amounts expected to be incurred
  $ 10,710     $ 120     $ 145     $ 10,975  
Cumulative amounts incurred to date
    9,044       120       145       9,309  
Total amounts incurred in 2009
    5,021       120       145       5,286  

2009 Restructuring Plan

In the first quarter of 2009, the Company adopted a new restructuring plan, primarily comprised of a further reduction in the Company’s worldwide employee base by a total of approximately 290 employees and continuing actions taken to better align fixed costs with demand for its products on a global level.  In connection with the new plan, the Company recorded a pre-tax restructuring charge of $5.7 million, comprised of $4.0 million of employee severance expense and $1.7 million of other exit costs (primarily including costs to exit the Canadian manufacturing facilities, lease exit costs and other costs).  Approximately $5.2 million of the restructuring charge will involve cash expenditures, primarily severance expense.  In the second quarter of 2009, the Company recorded an additional $1.9 million restructuring charge as a continuation of this plan.  The charge in the second quarter of 2009 is due to approximately 80 additional employee reductions, and relates entirely to employee severance expense.

A summary of these restructuring activities is presented below:

   
Total
Restructuring
Charges
   
Costs Incurred
 in 2009
   
Balance at
July 5, 2009
 
   
(In thousands)
 
Facilities consolidation
  $ 970     $ 780     $ 190  
Workforce reduction
    5,873       2,447       3,426  
Other charges
    784       661       123  
    $ 7,627     $ 3,888     $ 3,739  

The table below details these restructuring activities undertaken in 2009 by segment:

   
Modular
Carpet
   
Bentley
Prince Street
   
Corporate
   
Total
 
   
(In thousands)
 
Total amounts expected to be incurred
  $ 6,865       762     $ --     $ 7,627  
Cumulative amounts incurred to date
    3,261       627       --       3,888  
Total amounts incurred 2009
    3,261       627       --       3,888  



 
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NOTE 9 – DISCONTINUED OPERATIONS

In 2007, the Company sold its Fabrics Group business segment.  Current and prior periods have been restated to include the results of operations and related disposal costs, gains and losses for this business segment as discontinued operations.  In addition, assets and liabilities of this business segment have been reported in assets and liabilities held for sale for all reported periods.

Summary operating results for the above-described discontinued operations are as follows:

   
Three Months Ended
   
Six Months Ended
 
   
July 5, 2009
   
June 29, 2008
   
July 5, 2009
   
June 29, 2008
 
   
(In thousands)
   
(In thousands)
 
Net sales
  $ --     $ --     $ --     $ --  
Loss on operations before taxes on income
    --       --       (1,000 )     --  
Tax benefit
    --       --       350       --  
Loss on operations, net of tax
    --       --       (650 )     --  

The loss on operations reflects charges taken to reduce the carrying value of long-lived assets to their approximate fair market value.

Assets and liabilities, including reserves, related to the above-described discontinued operations that were held for sale consist of the following:

   
July 5, 2009
   
December 28, 2008
 
   
(In thousands)
 
Current assets
  $ --     $  --  
Property and equipment
    2,150       3,150  
Other assets
    --       --  
Current liabilities
    --       --  
Other liabilities
    --       --  


NOTE 10 – SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest amounted to $20.3 million and $16.3 million for the six months ended July 5, 2009, and June 29, 2008, respectively.  Income tax payments amounted to $10.1 million and $9.1 million for the six months ended July 5, 2009, and June 29, 2008, respectively.


NOTE 11 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162.”  The statement confirmed that the FASB Accounting Standards Codification (the “Codification”) will become the single official source of authoritative U.S. generally accepted accounting principles (“GAAP”) (other than guidance issued by the Securities and Exchange Commission), superseding existing guidance of the FASB, the American Institute of Certified Public Accountants, the Emerging Issues Task Force, and related literature.  The Codification, which changes the referencing of financial standards, becomes effective for interim and annual periods ending on or after September 15, 2009.  After that date, only one level of authoritative U.S. GAAP will exist.  All other literature will be considered non-authoritative.  The Codification does not change U.S. GAAP; instead, it introduces a new structure that is organized in an online research system.  The Company will apply the Codification beginning in the third quarter of fiscal 2009.  The adoption of this standard is not expected to have any significant impact on the Company’s consolidated financial statements.


 
- 16 -

 
                      


In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.”  SFAS No. 165 establishes the general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  It requires entities to disclose the date through which it has evaluated subsequent events and the basis for the date.  SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009.  SFAS No. 165 was effective for the Company as of July 5, 2009.  The adoption of SFAS No. 165 did not have any significant impact on the Company’s financial statements.  The Company has evaluated subsequent events through August 14, 2009, the date of the filing of this Quarterly Report on Form 10-Q.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-6-1”). The FASB declared that unvested share-based payout awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method under SFAS No. 128, “Earnings Per Share,” when dilutive. FSP EITF 03-6-1 became effective for the Company on December 29, 2008.  The adoption of this standard had the impact of a $0.01 per share reduction of basic and diluted earnings per share for the second quarter of 2008 and a $0.01 reduction in basic and diluted earnings per share for the six months ended June 29, 2008.  See Footnote 3, “Earnings (Loss) Per Share,” for more discussion on the adoption of this standard.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative instruments and Hedging Activities.”  The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable better understanding of the effects on financial position, financial performance, and cash flows.  The effective date is for fiscal years and interim periods beginning after November 15, 2008.  The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements because the Company is not a party to any significant derivative transactions.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – an amendment to ARB No. 51.”  SFAS No. 160 establishes standards of accounting and reporting of non-controlling interests in subsidiaries, currently known as minority interest, in consolidated financial statements, provides guidance on accounting for changes in the parent’s ownership interest in a subsidiary and establishes standards of accounting of the deconsolidation of a subsidiary due to the loss of control.  SFAS No. 160 requires an entity to present minority interests as a component of equity.  Additionally, SFAS No. 160 requires an entity to present net income and consolidated comprehensive income attributable to the parent and the minority interest separately on the face of the consolidated financial statements.  This standard became effective beginning with the Company’s fiscal year 2009 and interim periods thereof.  The adoption of this standard resulted in a reclassification of $7.9 million and $8.3 million of minority interest to equity as of December 28, 2008, and July 5, 2009, respectively.  The Company also has adjusted its consolidated condensed statements of operations for the periods presented to reflect the income from the minority interest as a component of net income.  The adjustment resulted in decreases in other expense of $0.1 million and $0.4 million for the three-month periods ended July 5, 2009, and June 29, 2008, respectively.  The adjustment resulted in decreases in other expense of $0.3 million and $0.6 million for the six-month periods ended July 5, 2009, and June 29, 2008, respectively.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.”  SFAS No. 141R requires the acquiring entity to recognize and measure at an acquisition date fair value all identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree.  The statement recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase.  SFAS No. 141R requires disclosures about the nature and financial effect of the business combination and also changes the accounting for certain income tax assets recorded in purchase accounting.  This standard is effective for the fiscal year beginning after December 15, 2008.  The adoption of this pronouncement did not have any significant impact on the Company’s consolidated financial statements.


 
- 17 -

 
                      


In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”  This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  For financial assets subject to fair value measurements, SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  In November 2007, the FASB granted a deferral for the application of SFAS No. 157 with regard to non-financial assets until fiscal years beginning after November 15, 2008.  The adoption of the pronouncement for financial assets did not have a material impact on the Company’s consolidated financial statements.  The Company’s annual fair value measurement of its reporting units under step 1 of the SFAS No. 142 goodwill impairment test represents the only significant fair value measurement on a recurring basis for which the Company expects to be impacted by the adoption of SFAS No. 157 with regard to non-financial assets in 2009.  In addition, any fair value measurements related to long-lived asset impairments under SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” would be subject to the provisions of SFAS No. 157 as well.  The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.


NOTE 12 – INCOME TAXES

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” In summary, FIN 48 requires that all tax positions subject to SFAS No. 109, “Accounting for Income Taxes,” be analyzed using a two-step approach. The first step requires an entity to determine if a tax position is more-likely-than-not to be sustained upon examination. In the second step, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, that is more-likely-than-not to be realized upon ultimate settlement. FIN 48 was effective as of January 1, 2007, with any adjustment in a company’s tax provision being accounted for as a cumulative effect of accounting change in beginning equity.  On January 1, 2007, the Company adopted the provisions of FIN 48.  As required by FIN 48, the cumulative effect of applying the provisions of the Interpretation were reported as an adjustment to the Company’s retained earnings balance as of January 1, 2007.  The Company recognized a $4.6 million increase in its liability for unrecognized tax benefits with a corresponding decrease to the fiscal year 2007 opening balance of retained earnings.  In the first six months of 2009, the Company increased its liability for unrecognized tax benefits by $0.8 million.  As of July 5, 2009, the Company had approximately $8.3 million accrued for unrecognized tax benefits.


NOTE 13 – SUPPLEMENTAL CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS

The Guarantor Subsidiaries, which consist of the Company’s principal domestic subsidiaries, are guarantors of the Company’s 11 3/8% Senior Secured Notes due 2013, 10.375% Senior Notes due 2010 and its 9.5% Senior Subordinated Notes due 2014.  These guarantees are full and unconditional.  The Supplemental Guarantor Financial Statements are presented herein pursuant to requirements of the Commission.


 
- 18 -

 
                      



INTERFACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 5, 2009


   
GUARANTOR SUBSIDIARIES
   
NON-GUARANTOR SUBSIDIARIES
   
INTERFACE, INC.
(PARENT CORPORATION)
   
CONSOLIDATION AND ELIMINATION ENTRIES
   
CONSOLIDATED TOTALS
 
   
(IN THOUSANDS)
 
Net sales
  $ 123,637     $ 115,073     $ --     $ (27,413 )   $ 211,297  
Cost of sales
    89,708        79,896       --       (27,413 )     142,191  
Gross profit on sales
    33,929       35,177       --       --       69,106  
Selling, general and administrative expenses
    24,376       22,841       5,046       --       52,263  
Income from litigation settlements
    --       --       (5,926 )     --       (5,926 )
Restructuring charge
    500       1,403       --        --       1,903  
Operating income
    9,053       10,933       880       --       20,866  
Interest/Other expense
    6,025       2,113       238       --       8,376  
Bond offering expense
    --       --       6,096        --       6,096  
Income (loss) before taxes on income and equity in income of subsidiaries
    3,028       8,820       (5,454 )     --       6,394  
Income tax expense (benefit)
    1,255       3,601       (2,261 )     --       2,595  
Equity in income (loss) of subsidiaries
    --        --       6,859        (6,859 )       --  
Income (loss) from continuing operations
    1,773       5,219       3,666       (6,859 )     3,799  
Loss on discontinued operations, net of tax
    --       --       --        --        --  
Net income (loss)
    1,773       5,219       3,666       (6,859 )     3,799  
Income attributable to non-controlling interest in subsidiary
    --       (133 )     --       --       (133 )
Net income (loss) attributable to Interface, Inc.
  $ 1,773     $ 5,086     $ 3,666     $ (6,859 )   $ 3,666  



 
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 5, 2009

   
GUARANTOR
SUBSIDIARIES
   
NON-
GUARANTOR
SUBSIDIARIES
   
INTERFACE, INC.
(PARENT
CORPORATION)
   
CONSOLIDATION
AND
ELIMINATION
ENTRIES
   
CONSOLIDATED
TOTALS
 
   
(IN THOUSANDS)
 
Net sales
  $ 242,953     $ 218,581     $ --     $ (50,929 )   $ 410,605  
Cost of sales
    181,129       148,130       --       (50,929 )     278,330  
Gross profit on sales
    61,824       70,451       --       --       132,275  
Selling, general and administrative expenses
    44,577       51,966       10,091       --       106,634  
Income from litigation settlements
    --       --       (5,926 )     --       (5,926 )
Restructuring charges
    3,960       3,667       --       --       7,627  
Operating income (loss)
    13,287       14,818       (4,165 )     --       23,940  
Interest/Other expense
    10,209       3,349       1,741       --       15,299  
Bond offering expense
    --       --       6,096       --       6,096  
Income (loss) before taxes on income and equity in income of subsidiaries
    3,078       11,469       (12,002 )     --       2,545  
Income tax expense (benefit)
    1,261       3,902       (3,044 )     --       2,119  
Equity in income (loss) of subsidiaries
    --       --       8,472       (8,472 )     --  
Income (loss) from continuing operations
    1,817       7,567       (486 )     (8,472 )     426  
Income (loss) on discontinued operations, net of tax
      --       (650 )      --        --        (650 )
Net income (loss)
    1,817       6,917       (486 )     (8,472 )     (224 )
Income attributable to non-controlling interest in subsidiary
    --       (262 )     --       --       (262 )
Net income (loss) attributable to Interface, Inc.
  $ 1,817     $ 6,655     $ (486 )   $ (8,472 )   $ (486 )


 
- 20 -

 
                      


CONDENSED CONSOLIDATING BALANCE SHEET

JULY 5, 2009

   
GUARANTOR SUBSIDIARIES
   
NON-GUARANTOR SUBSIDIARIES
   
INTERFACE, INC.
(PARENT CORPORATION)
   
CONSOLIDATION AND ELIMINATION ENTRIES
   
CONSOLIDATED TOTALS
 
   
(IN THOUSANDS)
 
ASSETS
                             
Current Assets:
                             
Cash and cash equivalents
  $ 182     $ 31,937     $ 57,748     $ --     $ 89,867  
Accounts receivable
    51,385       69,951       1,422       --       122,758  
Inventories
    68,237       54,617       --       --       122,854  
Prepaids and deferred income taxes
    8,625       15,023       5,752       --       29,400  
Assets of business held for sale
    --        2,150       --       --