SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For Quarterly Period Ended July 3, 2011
For Quarterly Period Ended October 3, 2010

Commission File Number 001-33994

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

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


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

(770) 437-6800
 (Registrant’s
(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. Yesþ Noo

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). Yesþ Noo  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 filero
Accelerated filerþ
Non-accelerated filero
Smaller reporting companyo

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


Shares outstanding of each of the registrant’s classes of common stock at NovemberAugust 5, 2010:

2011:
 
Class Number of Shares 
Class A Common Stock, $.10 par value per share  57,034,13258,579,758 
Class B Common Stock, $.10 par value per share  7,244,0526,895,457 



 




INTERFACE, INC.

INDEX
 
PAGE
PART I.FINANCIAL INFORMATION
Item 1.
Financial Statements
3
Consolidated Condensed Balance Sheets – October 3, 2010 and January 3, 2010
3
Consolidated Condensed Statements of Operations – Three Months and Nine Months Ended October 3, 2010 and October 4, 2009
4
Consolidated Statements of Comprehensive Income – Three Months and Nine Months Ended October 3, 2010 and October 4, 2009
5
Consolidated Condensed Statements of Cash Flows – Nine Months Ended October 3, 2010 and October 4, 2009
6
Notes to Consolidated Condensed Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
    
 Item 3.Quantitative and Qualitative Disclosures about Market RiskPAGE
26
PART I. FINANCIAL INFORMATION
    
 Item 4.
Controls and Procedures
27
   
PART II.
Item 1. Financial Statements
OTHER INFORMATION3 
    
Consolidated Condensed Balance Sheets — July 3, 2011 and January 2, 2011
3
 Item 1.
Legal ProceedingsConsolidated Condensed Statements of Operations — Three Months and Six Months Ended July 3, 2011 and July 4, 2010
27
4
Consolidated Statements of Comprehensive Income (Loss) — Three Months and Six Months Ended July 3, 2011 and July 4, 2010
5
Consolidated Condensed Statements of Cash Flows — Six Months Ended July 3, 2011 and July 4, 2010
6
Notes to Consolidated Condensed Financial Statements
7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3. Quantitative and Qualitative Disclosures about Market Risk
25
Item 4. Controls and Procedures
25
PART II. OTHER INFORMATION
    
 
Item 1A.
Risk Factors1. Legal Proceedings
27
26
    
Item 1A. Risk Factors
26
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
26
    
Item 3.
Defaults Upon Senior Securities
28
26
    
Item 4.
Removed and Reserved
28
26
    
Item 5. Other Information
 Item 5.
Other Information
26
28
    
Item 6. Exhibits
26
 Item 6.
Exhibits
28EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT





PART I -— FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
 (IN
(IN THOUSANDS)
        
 OCT. 3, 2010  JAN. 3, 2010  JULY 3, 2011 JANUARY 2, 2011 
 (UNAUDITED)     (UNAUDITED) 
ASSETS       
CURRENT ASSETS:       
Cash and Cash Equivalents $80,854  $115,363  $27,299 $69,236 
Accounts Receivable, Net  140,759   129,833 
Accounts Receivable, net 163,173 151,463 
Inventories  133,774   112,249  170,517 136,766 
Prepaid Expenses and Other Current Assets  24,727   19,649  29,354 24,362 
Deferred Income Taxes  9,175   9,379  9,780 10,062 
Assets of Business Held for Sale  1,500   1,500  1,200 1,200 
     
TOTAL CURRENT ASSETS  390,789   387,973  401,323 393,089 
         
PROPERTY AND EQUIPMENT, Less Accumulated Depreciation   166,093   162,269 
PROPERTY AND EQUIPMENT, less accumulated depreciation 188,290 177,792 
DEFERRED TAX ASSET  42,295   44,210  50,798 53,022 
GOODWILL  76,951   80,519  81,148 75,239 
OTHER ASSETS  54,801   52,268  57,678 56,291 
     
TOTAL ASSETS $730,929  $727,239  $779,237 $755,433 
     
         
LIABILITIES AND SHAREHOLDERS’ EQUITY         
CURRENT LIABILITIES:         
Accounts Payable $48,962  $35,614  $50,195 $55,859 
Accrued Expenses  111,249   101,143  100,680 112,657 
Current Portion of Long-Term Debt  --   14,586 
     
TOTAL CURRENT LIABILITIES  160,211   151,343  150,875 168,516 
         
SENIOR NOTES  146,127   145,184  282,990 282,951 
SENIOR SUBORDINATED NOTES  110,000   135,000  11,477 11,477 
DEFERRED INCOME TAXES  7,079   7,029  8,498 7,563 
OTHER  41,102   42,502  35,079 36,054 
     
TOTAL LIABILITIES  464,519   481,058  488,919 506,561 
         
Commitments and Contingencies         
         
SHAREHOLDERS’ EQUITY:         
Preferred Stock  --   --  — — 
Common Stock  6,423   6,328  6,546 6,445 
Additional Paid-In Capital  348,580   343,348  359,107 349,662 
Retained Earnings (Deficit)  (35,187)  (55,332)  (30,228)  (49,770)
Accumulated Other Comprehensive Income – Foreign Currency Translation Adjustment  (24,307)  (24,057)
Accumulated Other Comprehensive Income – Pension Liability  (32,231)  (33,186)
TOTAL SHAREHOLDERS' EQUITY – Interface, Inc.  263,278   237,101 
Non-Controlling Interest in Subsidiary  3,132   9,080 
TOTAL SHAREHOLDERS' EQUITY  266,410   246,181 
Accumulated Other Comprehensive Loss — Foreign Currency Translation Adjustment  (12,742)  (26,269)
Accumulated Other Comprehensive Loss — Pension Liability  (32,365)  (31,196)
 $730,929  $727,239      
TOTAL SHAREHOLDERS’ EQUITY 290,318 248,872 
     
 $779,237 $755,433 
     
See accompanying notes to consolidated condensed financial statements.

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INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

 
 
 THREE MONTHS ENDED  NINE MONTHS ENDED 
             
 
 
 OCT. 3, 2010  OCT. 4, 2009  OCT. 3, 2010  OCT. 4, 2009 
             
NET SALES $252,724  $218,364  $696,502  $628,969 
Cost of Sales   163,244    145,952    453,514    424,282 
GROSS PROFIT ON SALES  89,480   72,412   242,988   204,687 
                 
Selling, General and Administrative Expenses  61,441   53,487   176,597   160,122 
Income from Litigation Settlements  --   --   --   (5,926)
Restructuring Charge  --   --   3,131   7,627 
OPERATING INCOME  28,039   18,925   63,260   42,864 
                 
Interest Expense  8,409   9,537   25,346   24,936 
Bond Retirement Expenses  --   --   1,085   6,096 
Other Expense  463   156   1,008   56 
            ��    
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE  19,167   9,232   35,821   11,776 
Income Tax Expense  6,825   3,542   13,365   5,661 
                 
Income from Continuing Operations  12,342   5,690   22,456   6,115 
Loss from Discontinued Operations, Net of Tax  --   --    --   (650)
NET INCOME  12,342   5,690   22,456   5,465 
                 
Income Attributable to Non-Controlling Interest in Subsidiary  (264)  (233)  (876)  (495)
NET INCOME ATTRIBUTABLE TO INTERFACE, INC. $12,078  $5,457  $21,580  $4,970 
                 
Earnings (Loss) Per Share Attributable to Interface, Inc. Common Shareholders – Basic                
Continuing Operations $0.19  $0.09  $0.34  $0.09 
Discontinued Operations  --   --   --   (0.01)
Earnings (Loss) Per Share Attributable to Interface, Inc. Common Shareholders – Basic $0.19  $0.09  $0.34  $0.08 
                 
Earnings (Loss) Per Share Attributable to Interface, Inc. Common Shareholders – Diluted                
Continuing Operations $0.19  $0.09  $0.34  $0.09 
Discontinued Operations  --   --    --   (0.01)
Earnings (Loss) Per Share Attributable to Interface, Inc. Common Shareholders – Diluted $0.19  $0.09  $0.34  $0.08 
                 
Common Shares Outstanding – Basic  64,025   63,190   63,623   63,197 
Common Shares Outstanding – Diluted  64,578   63,487   64,106   63,258 

                 
  THREE MONTHS ENDED  SIX MONTHS ENDED 
  JULY 3, 2011  JULY 4, 2010  JULY 3, 2011  JULY 4, 2010 
                 
NET SALES $267,640  $226,587  $513,042  $443,778 
Cost of Sales  172,865   146,453   331,339   290,270 
             
                 
GROSS PROFIT ON SALES  94,775   80,134   181,703   153,508 
Selling, General and Administrative Expenses  68,638   58,668   134,038   115,156 
Restructuring Charge  —   —   —   3,131 
             
OPERATING INCOME  26,137   21,466   47,665   35,221 
                 
Interest Expense  6,783   8,115   13,439   16,937 
Bond Retirement Expense  —   —   —   1,085 
Other Expense  171   447   49   545 
             
                 
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE  19,183   12,904   34,177   16,654 
Income Tax Expense  6,369   4,896   11,539   6,540 
             
                 
NET INCOME  12,814   8,008   22,638   10,114 
                 
Income Attributable to Non-Controlling Interest in Subsidiary  —   (376)  —   (612)
             
NET INCOME ATTRIBUTABLE TO INTERFACE, INC. $12,814  $7,632  $22,638  $9,502 
             
                 
Earnings Per Share Attributable to Interface, Inc. Common Shareholders — Basic $0.20  $0.12  $0.35  $0.15 
             
                 
Earnings Per Share Attributable to Interface, Inc. Common Shareholders — Diluted $0.20  $0.12  $0.35  $0.15 
             
                 
Common Shares Outstanding — Basic  65,398   63,515   65,108   63,423 
Common Shares Outstanding — Diluted  65,677   64,118   65,363   63,917 
See accompanying notes to consolidated condensed financial statements.

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

(IN THOUSANDS)

 
 
 THREE MONTHS ENDED  NINE MONTHS ENDED 
       
 
 
 OCT. 3, 2010  OCT. 4, 2009  OCT. 3, 2010  OCT. 4, 2009 
             
Net Income $12,342  $5,690  $22,456  $5,465 
Other Comprehensive Income, Foreign                
Currency Translation Adjustment and Pension Liability Adjustment  23,247   6,832   1,786   18,353 
Comprehensive Income $35,589  $12,522  $24,242  $23,818 
                 
Comprehensive Income Attributable to Non-Controlling Interest in Subsidiary  (1,081)  (353)  (1,957)  (739)
Comprehensive Income Attributable to Interface, Inc. $34,508  $12,169  $22,285  $23,079 


                 
  THREE MONTHS ENDED  SIX MONTHS ENDED 
  JULY 3, 2011  JULY 4, 2010  JULY 3, 2011  JULY 4, 2010 
                 
Net Income $12,814  $8,008  $22,638  $10,114 
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment and Pension Liability Adjustment  4,092   (14,149)  12,358   (21,462)
             
Comprehensive Income (Loss)  16,906   (6,141)  34,996   (11,348)
                 
Comprehensive Income Attributable to Non-Controlling Interest in Subsidiary  —   (358)  —   (874)
             
Comprehensive Income (Loss) Attributable to Interface, Inc. $16,906  $(6,499) $34,996  $(12,222)
             
See accompanying notes to consolidated condensed financial statements.

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

(UNAUDITED)

(IN THOUSANDS)

        
 NINE MONTHS ENDED  SIX MONTHS ENDED 
 OCT. 3, 2010  OCT. 4, 2009  JULY 3, 2011 JULY 4, 2010 
OPERATING ACTIVITIES:       
Net Income $22,456  $5,465  $22,638 $10,114 
Loss from Discontinued Operations  --   650 
Income from Continuing Operations  22,456   6,115 
Adjustments to Reconcile Income to Cash Provided by Operating Activities:        
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: 
Premiums Paid to Repurchase Senior Notes  792   5,264  — 792 
Depreciation and Amortization  19,253   18,856  13,112 11,415 
Stock Compensation Amortization Expense 8,120 1,488 
Deferred Income Taxes and Other  (167)  (3,863) 3,276  (929)
Working Capital Changes:         
Accounts Receivable  (10,069)  27,535   (7,995)  (7,077)
Inventories  (20,453)  13,457   (30,010)  (14,024)
Prepaid Expenses  (7,404)  (1,104)  (4,083)  (7,412)
Accounts Payable and Accrued Expenses  27,196   (20,399)  (26,442) 18,277 
             
CASH PROVIDED BY OPERATING ACTIVITIES:  31,604   45,861 
 
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:  (21,384) 12,644 
     
         
INVESTING ACTIVITIES:         
Capital Expenditures  (18,443)  (9,897)  (18,814)  (11,312)
Other  (1,816)  1,370   (1,995)  (628)
             
 
CASH USED IN INVESTING ACTIVITIES:  (20,259)  (8,527)  (20,809)  (11,940)
   ��         
 
FINANCING ACTIVITIES:         
Borrowing of Long-Term Debt  --   144,452 
Repurchase of Senior and Senior Subordinated Notes  (39,586)  (138,002)
Debt Issuance Costs  --   (6,161)
Premiums Paid to Repurchase Senior and Senior Subordinated Notes  (792)  (5,264)
Repurchase of Senior Notes —  (39,586)
Other  (505) — 
Premiums Paid to Repurchase Senior Notes —  (792)
Proceeds from Issuance of Common Stock  1,803   58  2,579 1,174 
Dividends Paid to Interface, Inc. Shareholders  (1,435)  (478)
Dividends Paid to Joint Venture Partner  (7,904)  -- 
Dividends Paid  (2,612)  (794)
     
         
CASH USED IN FINANCING ACTIVITIES:  (47,914)  (5,395)  (538)  (39,998)
             
Net Cash Provided by (Used in) Operating, Investing and        
Financing Activities  (36,569)  31,939 
 
Net Cash Used in Operating, Investing and Financing Activities  (42,731)  (39,294)
Effect of Exchange Rate Changes on Cash  2,060   2,242  794  (2,901)
     
         
CASH AND CASH EQUIVALENTS:         
Net Change During the Period  (34,509)  34,181   (41,937)  (42,195)
Balance at Beginning of Period  115,363   71,757  69,236 115,363 
             
 
Balance at End of Period $80,854  $105,938  $27,299 $73,168 
     
See accompanying notes to consolidated condensed financial statements.

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- 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 audited consolidated financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended January 3, 2010,2, 2011, 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 January 3, 2010,2, 2011, consolidated condensed balance sheet data was derived from audited consolidated 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:

        
 Oct. 3, 2010  Jan. 3, 2010  July 3, 2011 January 2, 2011 
 (In thousands)  (In thousands) 
Finished Goods $77,593  $65,478  $109,170 $78,303 
Work in Process  18,776   15,764  18,979 16,731 
Raw Materials  37,405   31,007  42,368 41,732 
 $133,774  $112,249      
 $170,517 $136,766 
     
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. 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. Income attributable to non-controlling interest in subsidiary is in cludedincluded in the calculation of basic and diluted EPS from continuing operations.operations, where applicable.

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In the first quarter of 2009, theThe Company adopted a newly issued accounting standard, which requires the Company to includeincludes 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 our basic and diluted EPS calculations when the inclusion of these shares would be dilutive. As a result, the Company has includedincludes all of its outstanding restricted stock awards in the calculation of basic and diluted EPS for all periods presented.  This accounting standard also requires additional disclosure of EPS for common stock and unvested share-based payment awards, separately disclosing distributed and undistributed earnings.EPS. Distributed earnings representinclude common stock dividends and dividends earned on unvested share-based paym entpayment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. Unvested share-based amountsawards of restricted stock are paid dividends equally with all other shares of common stock. The following table showstables show distributed and undistributed earnings:

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  Three Months Ended  Nine Months Ended 
  Oct. 3, 2010  Oct. 4, 2009  Oct. 3, 2010  Oct. 4, 2009 
             
Earnings Per Share from Continuing Operations            
             
Basic Earnings Per Share Attributable to            
Common Shareholders:            
Distributed Earnings $0.01  $0.01  $0.02  $0.01 
Undistributed Earnings  0.18   0.08   0.32   0.08 
Total $0.19  $0.09  $0.34  $0.09 
                 
Diluted Earnings Per Share Attributable to                
Common Shareholders:                
Distributed Earnings $0.01  $0.01  $0.02  $0.01 
Undistributed Earnings  0.18   0.08   0.32   0.08 
Total $0.19  $0.09  $0.34  $0.09 
                 
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 Per Share $0.19  $0.09  $0.34  $0.08 
Diluted Earnings Per Share $0.19  $0.09  $0.34  $0.08 

                 
  Three Months Ended  Six Months Ended 
  July 3, 2011  July 4, 2010  July 3, 2011  July 4, 2010 
     
Earnings Per Share
                
                 
Basic Earnings Per Share Attributable to Common Shareholders:                
Distributed Earnings $0.02  $0.01  $0.04  $0.01 
Undistributed Earnings  0.18   0.11   0.31   0.14 
             
Total $0.20  $0.12  $0.35  $0.15 
             
                 
Diluted Earnings Per Share Attributable to Common Shareholders:                
Distributed Earnings $0.02  $0.01  $0.04  $0.01 
Undistributed Earnings  0.18   0.11   0.31   0.14 
             
Total $0.20  $0.12  $0.35  $0.15 
             
The following table presentstables present net income from continuing operations and net income attributable to Interface, Inc. that was attributable to participating securities:

 Three Months Ended  Nine Months Ended                 
 Oct. 3, 2010  Oct. 4, 2009  Oct. 3, 2010  Oct. 4, 2009  Three Months Ended Six Months Ended 
    (In millions)     July 3, 2011 July 4, 2010 July 3, 2011 July 4, 2010 
Income from Continuing Operations $0.3  $0.1  $0.6  $0.1 
 (In millions) 
Net Income $0.3 $0.2 $0.6 $0.2 
Net Income Attributable to Interface, Inc.  0.3   0.1   0.6   0.1  $0.3 $0.1 $0.6 $0.2 
The weighted average shares outstanding for basic and diluted EPS were as follows:

                
 Three Months Ended  Nine Months Ended  Three Months Ended Six Months Ended 
 Oct. 3, 2010  Oct. 4, 2009  Oct. 3, 2010  Oct. 4, 2009  July 3, 2011 July 4, 2010 July 3, 2011 July 4, 2010 
    (In thousands)     (In thousands) 
Weighted Average Shares Outstanding  62,284   61,796   61,882   61,803  63,623 62,277 63,333 62,185 
Participating Securities  1,741   1,394   1,741   1,394  1,775 1,238 1,775 1,238 
         
Shares for Basic Earnings Per Share  64,025   63,190   63,623   63,197  65,398 63,515 65,108 63,423 
Dilutive Effect of Stock Options  553   297   483   61  279 603 255 494 
         
Shares for Diluted Earnings Per Share  64,578   63,487   64,106   63,258  65,677 64,118 65,363 63,917 
         
For the quartersthree-month periods ended OctoberJuly 3, 2010,2011, and OctoberJuly 4, 2009,2010, options to purchase 389,00020,000 and 292,000205,000 shares of common stock, respectively, were not included in the computation of diluted earnings per shareEPS as their impact would be anti-dilutive. For the nine-monthsix-month periods ended OctoberJuly 3, 20102011, and OctoberJuly 4, 2009,2010, options to purchase 404,00020,000 and 1,358,000245,000 shares of common stock, respectively, were not included in the computation of diluted earnings per shareEPS as their impact would be anti-dilutive.


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NOTE 4 –— SEGMENT INFORMATION

Based on the quantitative thresholds specified in applicableby accounting standards, 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.

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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 January 3, 2010,2, 2011, 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 o fof the individual segment.  The nine-month period ended October 4, 2009 includes $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  Bentley    
  Carpet  Prince Street  Total 
  (In thousands) 
Three Months Ended July 3, 2011            
Net Sales $240,566  $27,074  $267,640 
Depreciation and Amortization  6,700   565   7,265 
Operating Income  26,937   96   27,033 
             
Three Months Ended July 4, 2010            
Net Sales $202,695  $23,892  $226,587 
Depreciation and Amortization  4,752   563   5,315 
Operating Income (Loss)  25,374   (1,145)  24,229 
 Modular Carpet  Bentley Prince Street  Total             
 (In thousands)  Modular Bentley   
Three Months Ended October 3, 2010         
Net Sales $226,513  $26,211  $252,724 
Depreciation and Amortization  4,251   538   4,789 
Operating Income  29,450   45   29,495 
             Carpet Prince Street Total 
Three Months Ended October 4, 2009            
 (In thousands) 
Six Months Ended July 3, 2011 
Net Sales $194,107  $24,257  $218,364  $459,846 $53,196 $513,042 
Depreciation and Amortization  4,534   586   5,120  14,803 1,123 15,926 
Operating Income (Loss)  20,292   (1,024)  19,268  52,271  (61) 52,210 
 
Six Months Ended July 4, 2010 
Net Sales $396,702 $47,076 $443,778 
Depreciation and Amortization 8,417 1,122 9,539 
Operating Income (Loss) 42,554  (2,556) 39,998 

  
Modular
Carpet
  
Bentley
Prince Street
  Total 
  (In thousands) 
Nine Months Ended October 3, 2010         
Net Sales $623,215  $73,287  $696,502 
Depreciation and Amortization  12,668   1,660   14,328 
Operating Income (Loss)  72,004   (2,511)  69,493 
             
Nine Months Ended October 4, 2009            
Net Sales $557,127  $71,842  $628,969 
Depreciation and Amortization  13,153   1,847   15,000 
Operating Income (Loss)  44,442   (5,981)  38,461 


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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 3, 2011  July 4, 2010  July 3, 2011  July 4, 2010 
  (In thousands)  (In thousands) 
DEPRECIATION AND AMORTIZATION                
Total segment depreciation and amortization $7,265  $5,315  $15,926  $9,539 
Corporate depreciation and amortization  1,385   1,464   5,306   3,364 
             
Reported depreciation and amortization $8,650  $6,779  $21,232  $12,903 
             
                 
OPERATING INCOME                
Total segment operating income $27,033  $24,229  $52,210  $39,998 
Corporate income, expenses and other reconciling amounts  (896)  (2,763)  (4,545)  (4,777)
             
Reported operating income $26,137  $21,466  $47,665  $35,221 
             

-9-

  Three Months Ended  Nine Months Ended 
  Oct. 3, 2010  Oct. 4, 2009  Oct. 3, 2010  Oct. 4, 2009 
  (In thousands)  (In thousands) 
DEPRECIATION AND AMORTIZATION            
Total segment depreciation and amortization $4,789  $5,120  $14,328  $15,000 
Corporate depreciation and amortization  1,562   1,691   4,925   3,856 
Reported depreciation and amortization $6,351  $6,811  $19,253  $18,856 
                 
OPERATING INCOME                
Total segment operating income $29,495  $19,268  $69,493  $38,461 
Corporate income, expenses and other reconciling amounts  (1,456)  (343)  (6,233)  4,403 
Reported operating income $28,039  $18,925  $63,260  $42,864 

��       
 July 3, 2011 January 2, 2011 
 Oct. 3, 2010  Jan. 3, 2010  (In thousands) 
ASSETS (In thousands)        
Total segment assets $605,210  $561,948  $667,659 $610,024 
Discontinued operations  1,500   1,500  1,200 1,200 
Corporate assets and eliminations  124,219   163,791  110,378 144,209 
     
Reported total assets $730,929  $727,239  $779,237 $755,433 
     
NOTE 5 –— LONG-TERM DEBT

7 5/8% Senior Notes
On December 3, 2010, the Company completed a private offering of $275 million aggregate principal amount of 7 5/8% Senior Notes due 2018 (the “7 5/8% Senior Notes”). Interest on the 7 5/8% Senior Notes is payable semi-annually on June 1 and December 1, beginning June 1, 2011. The Company used the net proceeds from the sale of the 7 5/8% Senior Notes (plus cash on hand) in connection with the repurchase of approximately $141.9 million aggregate principal amount of the 11 3/8% Senior Secured Notes and approximately $98.5 million aggregate principal amount of the 9.5% Senior Subordinated Notes pursuant to a Company tender offer.

As of July 3, 2011, the balance of the 7 5/8% Senior Notes outstanding was $275 million. The estimated fair value of the 7 5/8% Senior Notes as of July 3, 2011, based on then current market prices, was $288.1 million.
11 3/8% Senior Secured Notes
On June 5, 2009, the Company completed ana private offering of $150 million aggregate principal amount of 11 3/8% Senior Secured Notes due 2013 (the “Senior“11 3/8% Senior Secured Notes”). Interest on the 11 3/8% Senior Secured Notes is payable semi-annually on May 1 and November 1.1, beginning November 1, 2009. The 11 3/8% 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 is being amortized over the life of the notes through interest expense.

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 OctoberJuly 3, 2010,2011, the balance of the 11 3/8% Senior Secured Notes outstanding, net of the remaining unamortized original issue discount, was approximately $146.1$8.0 million. The estimated fair value of the Senior Secured Notes as of OctoberJuly 3, 2010,2011, based on then current market prices, was $171.8$8.1 million.

10.375% Senior Notes

On February 1, 2010, the Company repaid the remaining balance of $14.6 million of these notes at maturity.

9.5% Senior Subordinated Notes

As of October 3, 2010,On February 4, 2004, the Company had outstanding $110.0completed a private offering of $135 million in 9.5% Senior Subordinated Notes due 2014. Interest on these notes is payable semi-annually on February 1 and August 1 beginning August 1, 2004. As of July 3, 2011, the Company had outstanding $11.5 million in 9.5% Senior Subordinated Notes due 2014 (the “9.5% Senior Subordinated Notes”). The estimated fair value of the 9.5% Senior Subordinated Notes as of OctoberJuly 3, 2010,2011, based on then current market prices, was $113.3$11.5 million. During the first quarter of 2010, the Company redeemed $25.0 million aggregate principal amount of these notes at a price equal to 103.167% of the face value of the notes. Accordingly, the premium paid in connection with this redemption was approximately $0.8 million. In addition, the Company wrote off the portion of the unamortized debt issuance costs related to the redeemed bonds, an amount equal to $0.3 million. These expenses are contained in the “Bond Retirement Expenses”Expense” line item in ourthe Company’s consolidated condensed statements of operations.

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Tender Offer

Credit Facilities
On November 3, 2010,June 24, 2011, the Company announcedamended and restated its primary revolving credit facility. Under the commencement ofamended and restated facility (the “Facility”), as under its predecessor, the Company’s obligations are secured by a tender offer relating tofirst priority lien on substantially all of the assets of Interface, Inc. and each of its outstanding Senior Secured Notes and Senior Subordinated Notes and a solicitation of consents frommaterial domestic subsidiaries, which subsidiaries also guarantee the holders of the notes to amend the indentures governing the notes.Facility. The tender offer is scheduled to expire at 11:59 P.M., Eastern Time, on December 2, 2010, unless extended or earlier terminated, and the consent solicitation is scheduled to expire at 5:00 P.M., Eastern Time, on November 17, 2010, unless extended or earlier terminated.

Credit Facilities

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 usthe Company at any one time (subjectremains $100 million (with the option to further increase that amount to up to a borrowing base) with an option for us to increase that maximum aggregate amount toof $150 million (upon— the same option amount as in its predecessor — subject to the satisfaction of certain conditions, andconditions), subject to a borrowing base).base described in the Facility. The Facility differs from its predecessor in the following key respects:
The stated maturity date of the Facility has been extended to June 24, 2016.
The borrowing base governing borrowing availability has been expanded in certain respects.
The applicable interest rates and unused line fees have been reduced. Interest is now charged at varying rates computed by applying a margin ranging from 0.75% to 2.25% (reduced from the range of 1.75% to 4.00%) over a baseline rate (such as the prime interest rate or LIBOR), depending on the type of borrowing and the average excess borrowing availability during the most recently completed fiscal quarter. The unused line fee was reduced to 0.375% per annum from 0.75% per annum.
The negative covenants have been relaxed in certain respects, including with respect to the amount of other indebtedness and liens the Company is presentlymay incur or allow to exist.
The dollar threshold to trigger the applicability of the Facility’s only financial covenant, a fixed charge coverage test, and the assertion of cash dominion by the lender group has been reduced.
The events of default have been amended to make certain of the events of default less restrictive by increasing the applicable dollar thresholds thereunder.
The lender group has been changed in compliance with all covenantscertain respects, and the lending commitments have been reallocated among the lenders. In addition, the threshold of “Required Lenders” for purposes of certain amendments and consents under the Facility and anticipates that it will remain in compliance withhas been lowered to more than 50% of the covenants foraggregate amount of the foreseeable future.  lending commitments from more than 66 2/3% of the aggregate amount of the lending commitments.
As of OctoberJuly 3, 2010,2011, there were zero borrowings and $8.1$5.2 million in letters of credit outstanding under the Facility. As of OctoberJuly 3, 2010,2011, the Company could have incurred $62.6$83.2 million of additional borrowings under the Facility.

Interface Europe B.V. (the Company’s modular carpet subsidiary based in the Netherlands) and certain of its subsidiaries maintain a Credit Agreement with ABN AMRO Bank N.V. Under this Credit Agreement, ABN AMRO provides a credit facility, until further notice, for borrowings and bank guarantees in varying aggregate amounts over time. As of OctoberJuly 3, 2010,2011, there were no borrowings outstanding under this facility, and the Company could have incurred €20€20 million (approximately $27.3$28.9 million) of additional borrowings under the facility.

Other non-U.S. subsidiaries of the Company have an aggregate of the equivalent of $11.4$17.8 million of lines of credit available. As of OctoberJuly 3, 2010,2011, there were no borrowings outstanding under these lines of credit.


NOTE 6 –— STOCK-BASED COMPENSATION
Stock Option Awards

In accordance with accounting standards, the Company measures 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 applicable accounting standards, the Company is required to select a valuation technique or option pricing model. The Company uses the Black-Scholes model. Accounting standards require that the Company estimate forfeitures for stock options and reduce compensation expense ac cordingly.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 ninesix months of 20102011 and 2009,2010, the Company recognized stock option compensation costs of $1.1$0.6 million and $1.0$0.6 million, respectively. In the thirdsecond quarters of 20102011 and 2009,2010, the Company recognized stock option compensation costs of $0.4$0.3 million and $0.4$0.3 million, respectively. The remaining unrecognized compensation cost related to unvested stock option awards at OctoberJuly 3, 2010,2011, approximated $1.6$0.9 million, and the weighted average period of time over which this cost will be recognized is approximately two years.one year.

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- 11 -


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 ninesix months of fiscal years 2010 and 2009:year 2010. There were no stock options granted in the first six months of 2011.

  
Nine Months Ended
Oct. 3, 2010
 
Nine Months Ended
Oct. 4, 2009
Risk free interest rate  2.09%  1.6%
Expected life 5.5 years  5.5 years 
Expected volatility  61%  61%
Expected dividend yield  0.3%  2.6%
Six Months Ended
July 4, 2010
Risk free interest rate2.3%
Expected life5.5 years
Expected volatility61%
Expected dividend yield0.5%
The weighted average grant date fair value of stock options granted during the first ninesix months of fiscal 2010 was $6.79$4.14 per share.

The following table summarizes stock options outstanding as of OctoberJuly 3, 2010,2011, as well as activity during the ninesix months then ended:
 Shares  
Weighted Average
Exercise Price
         
Outstanding at January 3, 2010  1,576,000  $5.75 
 Weighted Average 
 Shares Exercise Price 
Outstanding at January 2, 2011 1,148,500 $5.75 
Granted  239,000   12.43  — — 
Exercised  437,000   4.43  484,500 5.55 
Forfeited or canceled  32,500   6.29  7,000 11.47 
Outstanding at October 3, 2010  1,345,500  $7.19 
             
Exercisable at October 3, 2010  592,000  $7.95 
Outstanding at July 3, 2011 657,000 $8.92 
     
 
Exercisable at July 3, 2011 418,000 $7.05 
     
At OctoberJuly 3, 2010,2011, the aggregate intrinsic value of in-the-money options outstanding and options exercisable was $10.0$7.2 million and $4.0$5.4 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 ninesix months of fiscal years 20102011 and 20092010 are provided in the following table:
  Nine Months Ended 
  Oct. 3, 2010  Oct. 4, 2009 
  (In millions) 
Proceeds from stock options exercised $1.8  $0.1 
Intrinsic value of stock options exercised $3.9  $0.2 

For the nine months ended October 3, 2010 and October 4, 2009, thetable below. The Company recognized adid not recognize any significant tax benefit with regard to stock options of $0.2 million and $0.2 million, respectively.in either period presented.

         
  Six Months Ended 
  July 3, 2011  July 4, 2010 
  (In thousands) 
Proceeds from stock options exercised $2,579  $1,174 
Intrinsic value of stock options exercised  5,819   2,660 
Restricted Stock Awards

During the ninesix months ended OctoberJuly 3, 2010,2011, and OctoberJuly 4, 2009,2010, the Company granted restricted stock awards for 529,000668,000 and 27,000 shares, respectively, of Class B common stock. These awards (or a portion thereof) vest with respect to each recipient over a two to five-yearfive 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 outstanding restricted stock grants was $1.9$8.1 million and $1.5 million for the ninesix months ended OctoberJuly 3, 2010,2011, and OctoberJuly 4, 2009,2010, respectively. Accounting standards require 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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- 12 -


The following table summarizes restricted stock activity as of OctoberJuly 3, 2010,2011, and during the ninesix months then ended:

 Shares  
Weighted Average
Grant Date Fair Value
         
Outstanding at January 3, 2010  1,394,000  $13.04 
 Weighted Average 
 Shares Grant Date Fair Value 
Outstanding at January 2, 2011 1,740,000 $13.04 
Granted  529,000   12.22  668,000 17.08 
Vested  183,000   7.67  600,000 12.23 
Forfeited or canceled  --   --  33,000 14.13 
Outstanding at October 3, 2010  1,740,000  $12.22 
     
Outstanding at July 3, 2011 1,775,000 $15.03 
     
As of OctoberJuly 3, 2010,2011, the unrecognized total compensation cost related to unvested restricted stock was $13.8approximately $15.0 million. That cost is expected to be recognized by the end of 2015.

2014.
For the ninesix months ended OctoberJuly 3, 20102011, and OctoberJuly 4, 2009,2010, the Company recognized a tax benefitbenefits with regard to restricted stock of $0.5$2.1 million and $0.1$0.3 million, respectively.


NOTE 7 –— EMPLOYEE BENEFIT PLANS

The following tables provide the components of net periodic benefit cost for the three-month and nine-monthsix-month periods ended OctoberJuly 3, 2010,2011, and OctoberJuly 4, 2009,2010, respectively:

                 
  Three Months Ended  Six Months Ended 
Defined Benefit Retirement Plan (Europe) July 3, 2011  July 4, 2010  July 3, 2011  July 4, 2010 
  (In thousands)  (In thousands) 
Service cost $74  $86  $145  $178 
Interest cost  2,932   2,616   5,770   5,379 
Expected return on assets  (3,041)  (2,670)  (5,975)  (5,492)
Amortization of prior service costs  21   21   42   44 
Recognized net actuarial (gains)/losses  155   397   305   813 
             
Net periodic benefit cost $141  $450  $287  $922 
             
  Three Months Ended   Nine Months Ended 
Defined Benefit Retirement Plan (Europe) Oct. 3, 2010  Oct. 4, 2009  Oct. 3, 2010  Oct. 4, 2009 
  (In thousands)  (In thousands) 
Service cost $88  $584  $266  $1,655 
Interest cost  2,715   2,786   8,094   7,921 
Expected return on assets  (2,772)  (2,685)  (8,264)  (7,642)
Amortization of prior service costs  22   22   66   62 
Recognized net actuarial (gains)/losses  413   466   1,226   1,326 
Net periodic benefit cost $466  $1,173  $1,388  $3,322 

                
 Three Months Ended   Nine Months Ended  Three Months Ended Six Months Ended 
Salary Continuation Plan (SCP) Oct. 3, 2010  Oct. 4, 2009  Oct. 3, 2010  Oct. 4, 2009  July 3, 2011 July 4, 2010 July 3, 2011 July 4, 2010 
 (In thousands)  (In thousands)  (In thousands) (In thousands) 
Service cost $86  $81  $257  $243  $98 $86 $196 $171 
Interest cost  280   271   841   812  284 280 568 561 
Amortization of transition obligation  55   55   164   164  55 55 110 110 
Amortization of prior service cost  12   12   36   36  12 12 24 24 
Amortization of loss  68   70   205   209  95 68 185 137 
         
Net periodic benefit cost $501  $489  $1,503  $1,464  $544 $501 $1,083 $1,003 
         
NOTE 8 –— 2010 RESTRUCTURING CHARGES

2010 Restructuring Charge

CHARGE
In the first quarter of 2010, the Company adopted a restructuring plan primarily related to workforce reduction in its European modular carpet operations. This reduction was in response to the continued challenging economic climate in that region. Smaller amounts were incurred in connection with restructuring activities in the Americas. A total of approximately 50 employees were affected by this restructuring plan. In connection with this plan, the Company recorded a pre-tax restructuring charge of $3.1 million. Substantially all of this charge involvesinvolved cash expenditures, primarily severance expenses.  It is anticipated that this restructuring plan will generate annual savings of approximately $3.2 million. Actions and expenses related to this plan were s ubstantiallysubstantially completed in the first quarter of 2010.

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- 13 -


A summary of these restructuring activities is presented below:

  
Total
Restructuring
Charge
  
Costs Incurred
 in 2010
  
Balance at
Oct. 3, 2010
 
  (In thousands) 
Workforce reduction $3,131  $1,859  $1,272 

                 
  Total          
  Restructuring  Costs Incurred  Costs Incurred  Balance at 
  Charge  in 2010  in 2011  July 3, 2011 
  (In thousands) 
Workforce reduction $3,131  $2,674  $391  $66 
The table below details these restructuring activities by segment:

                 
  Modular  Bentley       
  Carpet  Prince Street  Corporate  Total 
  (In thousands) 
     
Total amounts expected to be incurred $2,951  $180  $—  $3,131 
Cumulative amounts incurred to date  2,885   180   —   3,065 
Total amounts incurred in the six-month period ended July 3, 2011  391   —   —   391 
  
Modular
Carpet
  
Bentley
Prince Street
  Corporate  Total 
  
(In thousands)
 
             
Total amounts expected to be incurred $2,951  $180  $--  $3,131 
Cumulative amounts incurred to date  1,679   180   --   1,859 
Total amounts incurred in the nine-month period ended October 3, 2010  1,679   180   --   1,859 

2009 Restructuring Plan

In the first quarter of 2009, the Company adopted a 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 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 costs to exit the Canadian manufacturing facilities, lease exit costs and other costs).  Approximately $5.2 million of the restructuring charge involves cash expenditures, primarily severance expense.  In the second quarter of 2009, the Company recorded an additional $1.9 million restructuring char ge as a continuation of this plan.  The charge in the second quarter of 2009 was due to approximately 80 additional employee reductions, and related entirely to employee severance expense.

A summary of these restructuring activities is presented below:

  
Total
Restructuring
Charges
  
Costs Incurred
 in 2009
  
Costs Incurred
 In 2010
  
Balance at
Oct. 3, 2010
 
  (In thousands) 
Facilities consolidation $970  $970  $--  $-- 
Workforce reduction  5,873   3,920   1,671   282 
Other charges  784   784   --   -- 
  $7,627  $5,674  $1,671  $282 

The table below details these restructuring activities 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  6,583   762   --   7,345 
Total amounts incurred in the nine-month period ended October 3, 2010  1,671   --   --   1,671 



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NOTE 9 –— DISCONTINUED OPERATIONS

In 2007, the Company sold its Fabrics Group business segment. All activity related to this business has been included in discontinued operations. 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 discontinuedDiscontinued operations are as follows:

Three Months EndedNine Months Ended
Oct. 3, 2010Oct. 4, 2009Oct. 3, 2010Oct. 4, 2009
(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)

Thehad no net sales and no net income or loss on operations for the nine months ended October 4, 2009 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 consistin either of the following:

  Oct. 3, 2010  Jan. 3, 2010 
  (In thousands) 
Current assets $--  $ -- 
Property and equipment  1,500   1,500 
Other assets  --   -- 
Current liabilities  --   -- 
Other liabilities  --   -- 


three-month or six-month periods ended July 3, 2011 and July 4, 2010.
NOTE 10 –— SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest amounted to $21.2$11.2 million and $27.9$15.7 million for the ninesix months ended OctoberJuly 3, 2010,2011, and OctoberJuly 4, 2009,2010, respectively. Income tax payments amounted to $10.8$11.1 million and $14.4$7.5 million for the ninesix months ended OctoberJuly 3, 2011, and July 4, 2010, and October 4, 2009, respectively.


NOTE 11 –— RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2010,June 2011, the Financial Accounting Standards Board (“FASB”) amended an accounting standard regarding the presentation of comprehensive income. This amendment will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amended guidance, which must be applied retroactively, is effective for interim and annual periods ending after December 31, 2012, with earlier adoption permitted. As this amendment only effects presentation, there is not expected to be any impact on the Company’s consolidated financial statements.
In December 2010, the FASB issued new accounting guidance to amend the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. Such criteria now require additional fair value related disclosures.  It also clarified existing fair value disclosureperforming Step 2 if qualitative factors indicate that it is more likely than not that an impairment to goodwill exists. This recent guidance about the level of disaggregation and about inputs and valuation techniques.  This new guidance wasis effective for the first reporting periodfiscal years beginning after December 15, 2009 except2010, as well as for certain disclosure requirements effective for the first reporting period beginning after December 15, 2010.interim periods within such years. The adoption of this standard did not have any significant impact on the Company’s consolidated condensed financial statements.

-14-


In October 2009, the FASB issued a new accounting standard which provides guidance for arrangements with multiple deliverables. Specifically, the new standard requires an entity to allocate consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In the absence of vendor-specific objective evidence or third partythird-party evidence of the selling prices, consideration must be allocated to the deliverables based on management’s best estimate of the selling prices. In addition, the new standard eliminates the use of the residual method of allocation. The standard will bebecame effective for the Company in the first quarter of 2011.  Early adoption is permitted.  The Company is currently evaluating the impact, if any, that the adoption of this standard may have on its consolidated financial statements.


- 15 -


In June 2009, the FASB issued a new standard which changes the consolidation model for variable interest entities.  This standard requires companies to qualitatively assess the determination of the primary beneficiary of a variable interest entity (“VIE”) based on whether the company (1) has the power to direct matters that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the company.  The standard was effective for the Company as of January 4, 2010. The adoption of this standard did not have any significant impact on the Company’s consolidated financial statements.


NOTE 12 –— INCOME TAXES

Accounting standards require that all tax positions 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. In the first ninesix months of 2010,2011, the Company increased its liability for unrecognized tax benefits by $0.3$0.5 million. As of OctoberJuly 3, 2010,2011, the Company had accrued approximately $9.9$8.7 million accrued for unrecognized tax benefits.


NOTE 13 – DIVIDEND TO NON-CONTROLLING INTEREST PARTNER

In the third quarter of 2010, the Company’s Thailand manufacturing joint venture paid dividends on a pro rata basis to its shareholders, including a dividend to the non-controlling interest partner in the joint venture.  All operations, assets and liabilities of this joint venture are currently and have been previously consolidated by the Company.  The dividend paid to the non-controlling interest partner was $7.9 million and had the effect of lowering the non-controlling interest in subsidiary balance as presented in the Company’s balance sheet.

On November 3, 2010, the Company purchased the shares of the Thailand manufacturing joint venture that were held by the non-controlling interest partner for approximately $4.3 million.  After this purchase, the Company now owns all of the shares of the Thailand venture.


NOTE 14 –— 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, and its 9.5% Senior Subordinated Notes due 2014.2014 and its 7 5/8% Senior Notes due 2018. These guarantees are full and unconditional. The Supplemental Guarantor Financial Statements are presented herein pursuant to requirements of the Commission.

-15-



- 16 -



INTERFACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE NINETHREE MONTHS ENDED OCTOBERJULY 3, 20102011

                     
      NON-  INTERFACE, INC.  CONSOLIDATION    
  GUARANTOR  GUARANTOR  (PARENT  AND ELIMINATION  CONSOLIDATED 
  SUBSIDIARIES  SUBSIDIARIES  CORPORATION)  ENTRIES  TOTALS 
  (In thousands) 
Net sales $172,328  $138,845  $—  $(43,533) $267,640 
Cost of sales  126,770   89,628   —   (43,533)  172,865 
                
Gross profit on sales  45,558   49,217   —   —   94,775 
Selling, general and administrative expenses  29,577   33,341   5,720   —   68,638 
                
Operating income  15,981   15,876   (5,720)  —   26,137 
Interest/Other expense  12,031   3,418   (8,495)  —   6,954 
                
Income (loss) before taxes on income and equity in income of subsidiaries  3,950   12,458   2,775   —   19,183 
Income tax expense (benefit)  1,311   4,136   922   —   6,369 
Equity in income (loss) of subsidiaries  —   —   10,961   (10,961)  — 
                
Net income (loss)  2,639   8,322   12,814   (10,961)  12,814 
Net income (loss) attributable to Interface, Inc. $2,639  $8,322  $12,814  $(10,961) $12,814 
                

-16-


  
GUARANTOR SUBSIDIARIES
  
NON-GUARANTOR SUBSIDIARIES
  
INTERFACE, INC.
(PARENT CORPORATION)
  
CONSOLIDATION AND ELIMINATION ENTRIES
  
CONSOLIDATED TOTALS
 
  (IN THOUSANDS) 
    
Net sales $448,398  $351,527  $--  $(103,423) $696,502 
Cost of sales    332,637   224,300   --   (103,423)  453,514 
Gross profit on sales  115,761   127,227   --   --   242,988 
Selling, general and administrative expenses  74,812   82,795   18,990   --   176,597 
Restructuring charges  418   2,713   --    --   3,131 
Operating income (loss)  40,531   41,719   (18,990)  --   63,260 
Interest/Other expense  18,726   8,059   (431)  --   26,354 
Bond retirement expenses  --   --   1,085    --   1,085 
Income (loss) before taxes on income and equity in income of subsidiaries  21,805   33,660   (19,644)  --   35,821 
Income tax expense (benefit)  8,559   13,069   (8,263)  --   13,365 
Equity in income (loss) of subsidiaries  --    --   32,961    (32,961)     -- 
Income (loss) from continuing operations  13,246   20,591   21,580   (32,961)  22,456 
Loss on discontinued operations, net of tax  --   --   --    --    -- 
Net income (loss)  13,246   20,591   21,580   (32,961)  22,456 
Income attributable to non-controlling interest in subsidiary  --   (876)  --   --   (876)
Net income (loss) attributable to Interface, Inc. $13,246  $19,715  $21,580  $(32,961) $21,580 



- 17 -



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREESIX MONTHS ENDED OCTOBERJULY 3, 20102011

                     
              CONSOLIDATION    
      NON-  INTERFACE, INC.  AND    
  GUARANTOR  GUARANTOR  (PARENT  ELIMINATION  CONSOLIDATED 
  SUBSIDIARIES  SUBSIDIARIES  CORPORATION)  ENTRIES  TOTALS 
  (In thousands) 
Net sales $329,525  $270,449  $—  $(86,932) $513,042 
Cost of sales  244,123   174,148   —   (86,932)  331,339 
                
Gross profit on sales  85,402   96,301   —   —   181,703 
Selling, general and administrative expenses  55,900   62,839   15,299   —   134,038 
                
Operating income (loss)  29,502   33,462   (15,299)  —   47,665 
Interest/Other expense  12,831   6,926   (6,269)  —   13,488 
Income (loss) before taxes on income and equity in income of subsidiaries  16,671   26,536   (9,030)  —   34,177 
Income tax expense (benefit)  5,697   8,990   (3,148)  —   11,539 
Equity in income (loss) of subsidiaries  —   —   28,520   (28,520)  — 
                
Net income (loss)  10,974   17,546   22,638   (28,520)  22,638 
Net income (loss) attributable to Interface, Inc. $10,974  $17,546  $22,638  $(28,520) $22,638 
                

-17-

  
GUARANTOR
SUBSIDIARIES
  
NON-
GUARANTOR
SUBSIDIARIES
  
INTERFACE, INC.
(PARENT
CORPORATION)
  
CONSOLIDATION
AND
ELIMINATION
ENTRIES
  
CONSOLIDATED
TOTALS
 
  (IN THOUSANDS) 
    
Net sales $174,146  $120,587  $--  $(42,009) $252,724 
Cost of sales  128,177   77,076   --   (42,009)  163,244 
Gross profit on sales  45,969   43,511   --   --   89,480 
Selling, general and administrative expenses  26,707   28,926   5,808   --   61,441 
Restructuring charges  --   --   --   --   -- 
Operating income (loss)  19,262   14,585   (5,808)  --   28,039 
Interest/Other expense  7,186   3,572   (1,886)  --   8,872 
Income (loss) before taxes on income and equity in income of subsidiaries  12,076   11,013   (3,922)  --   19,167 
Income tax expense (benefit)
  4,360   3,881   (1,416)  --   6,825 
Equity in income (loss) of subsidiaries  --   --   14,584   (14,584)  -- 
Income (loss) from continuing operations  7,716   7,132   12,078   (14,584)  12,342 
Loss on discontinued operations, net of tax    --    --    --    --    -- 
Net income (loss)  7,716   7,132   12,078   (14,584)  12,342 
Income attributable to non-controlling interest in subsidiary  --   (264)  --   --   (264)
Net income (loss) attributable to Interface, Inc. $7,716  $6,868  $12,078  $(14,584) $12,078 


- 18 -


CONDENSED CONSOLIDATING BALANCE SHEET

JULY 3, 2011
OCTOBER 3, 2010
                     
      NON-  INTERFACE, INC.  CONSOLIDATION    
  GUARANTOR  GUARANTOR  (PARENT  AND ELIMINATION  CONSOLIDATED 
  SUBSIDIARIES  SUBSIDIARIES  CORPORATION)  ENTRIES  TOTALS 
  (In thousands) 
ASSETS                    
Current Assets:                    
Cash and cash equivalents $1,210  $23,039  $3,050  $—  $27,299 
Accounts receivable  67,981   94,571   621   —   163,173 
Inventories  92,450   78,067   —   —   170,517 
Prepaids and deferred income taxes  9,745   18,576   10,813   —   39,134 
Assets of business held for sale  —   1,200   —   —   1,200 
                
Total current assets  171,386   215,453   14,484   —   401,323 
Property and equipment less accumulated depreciation  83,598   99,756   4,936   —   188,290 
Investment in subsidiaries  264,098   222,470   84,607   (571,175)  — 
Goodwill  6,954   74,194   —   —   81,148 
Other assets  6,232   12,859   89,385   —   108,476 
                
  $532,268  $624,732  $193,412  $(571,175) $779,237 
                
                     
LIABILITIES AND SHAREHOLDERS’ EQUITY                    
Current Liabilities $51,454  $109,689  $(10,268) $—  $150,875 
Senior notes and senior subordinated notes  —   —   294,467   —   294,467 
Deferred income taxes  1,614   11,175   (4,291)  —   8,498 
Other  1,978   5,083   28,018   —   35,079 
                
Total liabilities  55,046   125,947   307,926   —   488,919 
                     
Common stock  94,145   102,199   6,546   (196,344)  6,546 
Additional paid-in capital  249,302   12,525   359,107   (261,827)  359,107 
Retained earnings (deficit)  135,182   417,460   (470,974)  (111,896)  (30,228)
Foreign currency translation adjustment  (1,407)  (4,510)  (5,717)  (1,108)  (12,742)
Pension liability  —   (28,889)  (3,476)  —   (32,365)
                
  $532,268  $624,732  $193,412  $(571,175) $779,237 
                

-18-


  
GUARANTOR SUBSIDIARIES
  
NON-GUARANTOR SUBSIDIARIES
  
INTERFACE, INC.
(PARENT CORPORATION)
  
CONSOLIDATION AND ELIMINATION ENTRIES
  
CONSOLIDATED TOTALS
 
  (IN THOUSANDS) 
ASSETS               
Current Assets:               
Cash and cash equivalents $234  $48,489  $32,131  $--  $80,854 
Accounts receivable  63,900   75,537   1,322   --   140,759 
Inventories  66,816   66,958   --   --   133,774 
Prepaids and deferred income taxes  8,695   17,304   7,903   --   33,902 
Assets of business held for sale  --    1,500   --   --    1,500 
Total current assets  139,645   209,788   41,356   --   390,789 
Property and equipment less accumulated depreciation  75,169   85,645   5,279   --   166,093 
Investment in subsidiaries  289,057   195,828   46,657   (531,542)  -- 
Goodwill  6,954   69,997   --   --   76,951 
Other assets   8,576   13,145   75,375   --   97,096 
  $519,401  $574,403  $168,667  $(531,542) $730,929 
                     
LIABILITIES AND SHAREHOLDERS’ EQUITY                    
Current Liabilities: $53,200  $88,358  $18,653  $--  $160,211 
Senior secured notes and senior subordinated notes  --   --   256,127   --   256,127 
Deferred income taxes  1,615   10,455   (4,991)  --   7,079 
Other  2,204   10,558   28,340   --   41,102 
Total liabilities  57,019   109,371   298,129   --   464,519 
                     
Common stock  94,145   102,199   6,423   (196,344)  6,423 
Additional paid-in capital  249,302   12,525   348,580   (261,827)  348,580 
Retained earnings (deficit)  120,396   392,613   (475,933)  (72,263)  (35,187)
Foreign currency translation adjustment  (1,461)  (16,161)  (5,577)  (1,108)  (24,307)
Pension liability  --   (29,276)  (2,955)  --   (32,231)
Non-controlling interest in subsidiary  --   3,132    --   --   3,132 
  $519,401  $574,403  $168,667  $(531,542) $730,929 


- 19 -


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINESIX MONTHS
ENDED JULY 3, 2011
ENDED OCTOBER 3, 2010
                     
      NON-  INTERFACE, INC.  CONSOLIDATION AND    
  GUARANTOR  GUARANTOR  (PARENT  ELIMINATION  CONSOLIDATED 
  SUBSIDIARIES  SUBSIDIARIES  CORPORATION)  ENTRIES  TOTALS 
  (In thousands) 
Net cash provided by (used for) operating activities $(21,126) $(152) $2,804  $(2,910) $(21,384)
                
Cash flows from investing activities:                    
Purchase of plant and equipment  (10,006)  (8,456)  (352)  —   (18,814)
Other  (79)  (24)  (1,892)  —   (1,995)
                
Net cash used for investing activities  (10,085)  (8,480)  (2,244)  —   (20,809)
                
Cash flows from financing activities:                    
Other  31,335   (1,724)  (33,026)  2,910   (505)
Proceeds from issuance of common stock  —   —   2,579   —   2,579 
Dividends paid  —   —   (2,612)  —   (2,612)
                
Net cash provided by (used for) financing activities  31,335   (1,724)  (33,059)  2,910   (538)
Effect of exchange rate change on cash  —   794   —   —   794 
                
Net increase (decrease) in cash  124   (9,562)  (32,499)  —   (41,937)
Cash at beginning of period  1,086   32,601   35,549   —   69,236 
                
Cash at end of period $1,210  $23,039  $3,050  $—  $27,299 
                

-19-

  
GUARANTOR SUBSIDIARIES
  
NON-GUARANTOR SUBSIDIARIES
  
INTERFACE, INC.
(PARENT CORPORATION)
  
CONSOLIDATION AND ELIMINATION ENTRIES
  
CONSOLIDATED TOTALS
 
  (IN THOUSANDS) 
Net cash provided by (used in) operating activities $20,008  $17,322  $(9,290) $3,564  $31,604 
Cash flows from investing activities:                    
Purchase of plant and equipment  (7,950)  (8,808)  (1,685)  --   (18,443)
Other   (98)    (61)  (1,657)  --   (1,816)
Net cash used for  investing activities  (8,048)  (8,869)  (3,342)  --   (20,259)
Cash flows from financing activities:                    
Repurchase of Senior and Senior Subordinated Notes  --   --   (39,586)  --   (39,586)
Other  (12,275)  4,812   11,027   (3,564)  -- 
Proceeds from issuance of  common stock  --   --   1,803   --   1,803 
Premiums paid to repurchase Senior and Senior Subordinated Notes  --   --   (792)  --   (792)
Dividends paid to Interface, Inc. shareholders  --   --   (1,435)  --   (1,435)
Dividends paid to joint venture partner  --    (7,904)  --   --   (7,904)
Net cash used in financing activities  (12,275)  (3,092)  (28,983)  (3,564)  (47,914)
Effect of exchange rate change on cash  4    2,056   --   --   2,060 
Net increase (decrease) in cash  (311)  7,417   (41,615)  --   (34,509)
Cash at beginning of period  545   41,072   73,746   --   115,363 
Cash at end of period $234  $48,489  $32,131  $--  $80,854 


- 20 -


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2010,2, 2011, under Item 7 of that Form 10-K. Our discussions here focus on our results during the quarter and ninesix months ended, or as of, OctoberJuly 3, 2010,2011, and the comparable periods of 20092010 for comparison purposes, and, to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time. These discussions should be read in conjunction with that Form 10-K for more detailed and background information.

Forward-Looking Statements

This report contains statements which may constitute “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include risks and uncertainties associated with economic conditions in the commercial interiors industry as well as the risks and uncertainties discussed under the heading “Risk Factors” included in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2010,2, 2011, which discussion is hereby incorporated by reference. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

11 3/7 5/8% Senior Secured Notes

On June 5, 2009,December 3, 2010, we completed ana private offering of $150$275 million aggregate principal amount of 7 5/8% Senior Notes due 2018 (the “7 5/8% Senior Notes”). Interest on the 7 5/8% Senior Notes is payable semi-annually on June 1 and December 1, beginning June 1, 2011. We used the net proceeds from the sale of the 7 5/8% Senior Notes (plus cash on hand) in connection with the repurchase of approximately $141.9 million aggregate principal amount of our 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.  The Senior Secured Notes are guaranteed, jointly and severally, on a senior secured basis by certain of our domestic subsidiaries.  The Senior Secured Notes are secured by a second-priority lien on substantially all of our and certain of our domestic subsidiaries’ assets that secure our 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 is being 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.  We used $132.9 million of those net proceeds to repurchase $127.2 million aggregate principal amount of our 10.375% Senior Notes due 2010 pursuant to a tender offer we conducted.  (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, we used $4.5 million of the net proceeds to p ay accrued interest on the $127.2 million aggregate principal amount of the 10.375% Senior Notes due 2010 that we repurchased.  The remaining $2.1 million of the net proceeds was used to repay a portion of the 10.375% Senior Notes due 2010 that were fully repaid at maturity in February of 2010.

Partial Redemption of 9.5% Senior Subordinated Notes due 2014

In the first quarter of 2010, we redeemed $25approximately $98.5 million aggregate principal amount of our 9.5% Senior Subordinated Notes (the “Senior Subordinated Notes”) atpursuant to a price equal to 103.167% of the face value of the notes, plus accrued interest to the redemption date.

Tender Offer

On November 3, 2010, we announced the commencement of aCompany tender offer relating to all of our outstanding Senior Secured Notes and Senior Subordinated Notes and a solicitation of consents from the holders of the notes to amend the indentures governing the notes.  The tender offer is scheduled to expire at 11:59 P.M., Eastern Time, on December 2, 2010, unless extended or earlier terminated, and the consent solicitation is scheduled to expire at 5:00 P.M., Eastern Time, on November 17, 2010, unless extended or earlier terminated.offer.


- 21 -


Restructuring Plans

2010 Restructuring Plan

In the first quarter of 2010, we adopted a restructuring plan primarily related to workforce reduction in our European modular carpet operations. This reduction was in response to the continued challenging economic climate in that region. Smaller amounts were incurred in connection with restructuring activities in the Americas. A total of approximately 50 employees were affected by this restructuring plan. In connection with this plan, we recorded a pre-tax restructuring charge of $3.1 million. Substantially all of this charge involvesinvolved cash expenditures, primarily severance expenses.  It is anticipated that this restructuring plan will generate annual savings of approximately $3.2 million. Actions and expenses related to this plan were substantially completed in the first quarter of 2010.

2009 Restructuring Plan

In the first quarter of 2009, we adopted a restructuring plan, primarily comprised of a further reduction in our worldwide employee base by a total of approximately 290 employees and continuing actions taken to better align fixed costs with demand for our products on a global level.  In connection with the plan, we 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 costs to exit the Canadian manufacturing facilities, lease exit costs and other costs).  In the second quarter of 2009, we recorded an additional $1.9 million restructuring charge as a continuation of this plan.  The charge in the second quarter of 2009 was due to approximately 80 additional employee reductions, and related en tirely to employee severance expense.  Actions and expenses related to this plan were substantially completed in the first six months of 2009.

Discontinued Operations

In 2007, we sold our Fabrics Group business segment. In accordance with applicable accounting standards, we have reported the results of operations for the former Fabrics Group business segment for all periods reflected herein, as “discontinued operations.”  Consequently, our discussion of revenues or sales and other results of operations (except for net income or loss amounts), including percentages derived from or based on such amounts, excludes this discontinued operation unless we indicate otherwise.

Our discontinued operations had no net sales and a loss of $0.7 million in the nine-month period ended October 4, 2009 (these results are included in our statements of operations as part of the “Loss from Discontinued Operations, Net of Taxes”).  Our discontinued operations had no net sales or income or loss in either of the three-month and nine-monthor six-month periods ended OctoberJuly 3, 2011 and July 4, 2010.

General

During the quarter ended OctoberJuly 3, 2010,2011, we had net sales of $252.7$267.6 million, compared with net sales of $218.4$226.6 million in the thirdsecond quarter last year. Fluctuations in currency exchange rates negativelypositively impacted 2010 third2011 second quarter sales by 1%6% (approximately $2.5$13 million), compared with the prior year period. During the first ninesix months of fiscal 2010,year 2011, we had net sales of $696.5$513.0 million, compared with net sales of $629.0$443.8 million in the first ninesix months of last year. Fluctuations in currency exchange rates positively impacted sales in the first ninesix months of 20102011 by 2%4% (approximately $11$17.0 million), compared with the prior year period.

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Included in our results for the ninesix months ended October 3,July 4, 2010 is $1.1 million of bond retirement expenses (comprised of $0.8 million of premiums and $0.3 million of write-offs of unamortized debt issuance costs) related to the partial redemption of our 9.5% Senior Subordinated Notes discussed above.in the Note entitled “Long-Term Debt” in Item 1. Also included in the nine-monthsix-month period ended October 3,July 4, 2010 is $3.1 million of restructuring charges, as described above.

Included in our results for the nine-month period ended October 4, 2009 is $6.1 million of costs related to the tender offer for our 10.375% Senior Notes inDuring the second quarter of 2009.  In addition, this nine-month period also includes income of $5.9 million related to settlements of litigation.


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During the third quarter of 2010,2011, we had net income attributable to Interface, Inc. of $12.1$12.8 million, or $0.19$0.20 per diluted share, compared with net income attributable to Interface, Inc. of $5.5$7.6 million, or $0.9$0.12 per diluted share, in the thirdsecond quarter last year.  Income from continuing operationsof 2010. Net income in the thirdsecond quarter of 20102011 was $12.3$12.8 million, or $0.19$0.20 per diluted share, compared with net income from continuing operations of $5.7$8.0 million, or $0.09$0.12 per diluted share, in the thirdsecond quarter of 2009.

2010.
During the ninesix months ended OctoberJuly 3, 2010,2011, we had net income attributable to Interface, Inc. of $21.6$22.6 million, or $0.34$0.35 per diluted share, compared with net income attributable to Interface, Inc. of $5.0$9.5 million, or $0.08$0.15 per diluted share, in the first ninesix months of last year.  Income from continuing operations2010. Net income was $22.5$22.6 million, or $0.34$0.35 per diluted share, in the ninesix months ended OctoberJuly 3, 2010,2011, compared with net income from continuing operations of $6.1$10.1 million, or $0.09$0.15 per diluted share, in the first ninesix months of 2009.

2010.
Results of Operations

The following table presents, as a percentage of net sales, certain items included in our Consolidated Condensed Statements of Operations for the three-month and nine-monthsix-month periods ended OctoberJuly 3, 2010,2011, and OctoberJuly 4, 2009,2010, respectively:

                
 Three Months Ended  Nine Months Ended  Three Months Ended Six Months Ended 
 Oct. 3, 2010  Oct. 4, 2009  Oct. 3, 2010  Oct. 4, 2009  July 3, 2011 July 4, 2010 July 3, 2011 July 4, 2010 
             
Net sales
  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%
Cost of sales
  64.6   66.8   65.1   67.5  64.6 64.6 64.6 65.4 
         
Gross profit on sales
  35.4   33.2   34.9   32.5  35.4 35.4 35.4 34.6 
Selling, general and administrative expenses
  24.3   24.5   25.4   25.5  25.6 25.9 26.1 25.9 
Income from litigation settlements
  --   --   --   (0.9)
Restructuring charge
  --   --   0.4   1.2  — — — 0.7 
         
Operating income
  11.1   8.7   9.1   6.8  9.8 9.5 9.3 7.9 
Bond retirement expenses
  --   --   0.2   1.0 
Bond retirement expense — — — 0.2 
Interest/Other expenses
  3.5   4.4   3.8   4.0  2.6 3.8 2.6 3.9 
Income from continuing operations before tax expense
  7.6   4.2   5.1   1.9 
         
Income from operations before tax expense 7.2 5.7 6.7 3.8 
Income tax expense
  2.7   1.6   1.9   0.9  2.4 2.2 2.2 1.5 
Income from continuing operations
  4.9   2.6   3.2   1.0 
Discontinued operations, net of tax
  --   --   --   0.1 
         
Net income
  4.9   2.6   3.2   0.9  4.8 3.5 4.4 2.3 
Net income attributable to Interface, Inc.
  4.8   2.5   3.1   0.8  4.8 3.4 4.4 2.1 
         
Below we provide information regarding net sales for each of our operating segments, and analyze those results for the three-month and nine-monthsix-month periods ended OctoberJuly 3, 2010,2011, and OctoberJuly 4, 2009,2010, respectively.

Net Sales by Business Segment

Net sales by operating segment and for our companyCompany as a whole were as follows for the three-month and nine-monthsix-month periods ended OctoberJuly 3, 2010,2011, and OctoberJuly 4, 2009,2010, respectively:

             
  Three Months Ended  Percentage 
Net Sales By Segment July 3, 2011  July 4, 2010  Change 
  (In thousands)     
Modular Carpet $240,566  $202,695   18.7%
Bentley Prince Street  27,074   23,892   13.3%
          
Total $267,640  $226,587   18.1%
          

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  Six Months Ended  Percentage 
Net Sales By Segment July 3, 2011  July 4, 2010  Change 
  (In thousands)     
Modular Carpet $459,846  $396,702   15.9%
Bentley Prince Street  53,196   47,076   13.0%
          
Total $513,042  $443,778   15.6%
          
  Three Months Ended  Percentage
Net Sales By Segment Oct. 3, 2010  Oct. 4, 2009  Change
  (In thousands)    
Modular Carpet $226,513  $194,107   16.7%
Bentley Prince Street  26,211   24,257   8.1%
Total $252,724  $218,364   15.7%

  Nine Months Ended  Percentage
Net Sales By Segment Oct. 3, 2010  Oct. 4, 2009  Change
  (In thousands)    
Modular Carpet $623,215  $557,127   11.9%
Bentley Prince Street  73,287   71,842   2.0%
Total $696,502  $628,969   10.7%


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Modular Carpet Segment.For the quarter ended OctoberJuly 3, 2010,2011, net sales for the Modular Carpet segment increased $32.4$37.9 million (16.7%(18.7%) versus the comparable period in 2009.2010. On a geographic basis, we experienced increases in net sales in the Americas, Europe and Asia-Pacific (up 12%, 11% and 49%, respectively)all regions for the quarter ended OctoberJuly 3, 2010,2011 versus the comparable period in 2009.  (The2010, with our Americas, Europe and Asia-Pacific regions experiencing sales increase in Europegrowth of 16%, 27%, and 11%, respectively, during the quarter. (Europe experienced 11% sales growth in local currency was 22%.currency.) TheseGlobally, these increases arewere primarily attributable to the continued general rebound of the corporate office market, growth in our non-office commercial segments, particularly in the education, government, and healthcare segments, and increasing demand in emerging markets due to an improving overall economic climates in those regions.climate. Sales growth in the Americas is attributable towas driven primarily by the improving corporate office market segment(up 24%), as well increases in the government (up 19%), education (up 14%) and healthcare (up 29%) as well asmarket segments. Only the success of our end market diversification strategy.  With the exception of retail market segment (down 20%17%), all non-office markets showed a decline in the Americas sawAmericas. Sales growth in the quarter.  The sales increase in Europe was leddriven primarily by the corporate office market (up 13%37% in U.S. dollars, and 25%20% in local currency) and government, but we also saw sales increases in other market segments, particularly in the education (up 10%31% in U.S. dollars, and 22%15% in local currency) market segments.segment. These increases in Europe were offset somewhatmitigated by a decline in the healthcare market segment (down 47%20% in U.S. dollars, and 42%30% in local currency).  The market segment. Asia-Pacific also experienced sales growth in Asia-Pacific was due primarily to the strengthincreases in the corporate office market (up 38%19%) and education, as well as increases in all non-office market segment (up over 100%).  Withsegments with the exception of the hospitality market segmentgovernment (down 22%45%), all Asia-Pacific market segments saw increases in the period.

Our new modular carpet plant in China is currently under construction and we expect it to become fully operational during the fourth quarter of 2010.

.
For the ninesix months ended OctoberJuly 3, 2010,2011, net sales for the Modular Carpet segment increased $66.1$63.1 million (11.9%(15.9%) versus the comparable period in 2009.2010. On a geographic basis, we experienced increases in net sales in the Americas, Europe and Asia-Pacific (up 10%, 1% and 51%, respectively)all regions for the ninesix months ended OctoberJuly 3, 2010,2011 versus the comparable period in 2009.  (The2010, with our Americas, Europe and Asia-Pacific regions experiencing sales increase in Europegrowth of 12%, 20%, and 20%, respectively, during the period. (Europe experienced 12% sales growth in local currencycurrency.) The recovery of the corporate office market segment was 5%.)  Thesethe primary driver of these increases, are primarily attributable to the improving economic climates in those regions.coupled with growth from our end market diversification strategy and emerging markets. Sales growth in the Americas iswas due to the continued recoveryincreases in the corporate office market (up 24%) as well as increases in the government (up 14%), education (up 4%6%) and hospitalityhealthcare (up 21%14%) market segments. These increases were partially offset by decreases in the retail (down 7%) and hospitality (down 23%) market segments. Sales growth in Europe was attributable to an increase in the corporate office market (up 23% in U.S. dollars, 16% in local currency) as well as increases in the government (up 29% in U.S. dollars, 21% in local currency), education (up 20% in U.S. dollars, 11% in local currency) and retail (up 10% in U.S. dollars, 4% in local currency) market segments. These increases in Europe were somewhat offset by a decline in the retail market segmenthospitality (down 8% ).  The sales increase in Europe was led by the corporate office (up 1%10% in U.S. dollars, and 5% in local currency), retail (up 19% in U.S. dollars and 25% in local currency) and hospitality (up 18% in U.S. dollars and 22%16% in local currency) market segments.  Thesesegment. Asia-Pacific saw increases were mitigated by declines in the government (down 3% in U.S. dollars, up 2% in local currency) and healthcare (down 34% in U.S. dollars and 31% in local currency) market segments.  The sales growth in Asia-Pacific was across all market segments.segments with the exception of government (down 23%), with the corporate office market being the most significant increase (up 22%) versus the comparable period in 2010.

Bentley Prince Street Segment.In our Bentley Prince Street segment, net sales for the quarter ended OctoberJuly 3, 20102011 increased $2.0$3.2 million (8.1%($13.3%) versus the comparable period in 2009.2010. The increase was due to the strength of the corporate office market (up 12%40%) was the primary driver behind this increase. We also saw increases in the education (up 19%) and governmentresidential (up 27%87%) market segments. These increases were somewhatpartially offset by declinesdecreases in the government (down 58%), healthcare (down 51%26%) and residentialhospitality (down 30%46%) market segments.

For the ninesix months ended OctoberJuly 3, 2010,2011, net sales for the Bentley Prince Street segment increased $1.4$6.1 million (2.0%(13%) versus the comparable period in 2009.  During this period, Bentley Prince Street saw2010. This increase was primarily attributed to the corporate office market (up 33%) as well as increases in the governmentretail (up 41%29%) and corporate officeresidential (up 6%30%) market segments andsegments. These increases were somewhat mitigated by decreases in the government (down 31%) and healthcare (down 30%) and residential (down 58%33%) market segments.

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CostsCost and Expenses

Company Consolidated.The following table presents, on a consolidated basis for our operations, our overall cost of sales and selling, general and administrative expenses for the three-month and nine-monthsix-month periods ended OctoberJuly 3, 2011, and July 4, 2010, and October 4, 2009, respectively:

             
  Three Months Ended  Percentage 
Cost and Expenses July 3, 2011  July 4, 2010  Change 
  (In thousands)     
Cost of sales $172,865  $146,453   18.0%
Selling, general and administrative expenses  68,638   58,668   17.0%
          
Total $241,503  $205,121   17.7%
          
  Three Months Ended  Percentage
Cost and Expenses Oct. 3, 2010  Oct. 4, 2009  Change
  
(In thousands)
    
Cost of sales $163,244  $145,952   11.8%
Selling, general and administrative expenses  61,441   53,487   14.9%
Total $224,685  $199,439    12.7%

  Nine Months Ended  Percentage
Cost and Expenses Oct. 3, 2010  Oct. 4, 2009  Change
  (In thousands)    
Cost of sales $453,514  $424,282   6.9%
Selling, general and administrative expenses  176,597   160,122   10.3%
Total $630,111  $584,404     7.8%


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  Six Months Ended  Percentage 
Cost and Expenses July 3, 2011  July 4, 2010  Change 
  (In thousands)     
Cost of sales $331,339  $290,270   14.1%
Selling, general and administrative expenses  134,038   115,156   16.4%
          
Total $465,377  $405,426   14.8%
          
For the quarter ended OctoberJuly 3, 2010,2011, our cost of sales increased $17.3$26.4 million (11.8%(18.0%) versus the comparable period in 2009.  This comparison includes a negative impact of approximately $1 million (1%) due to fluctuations2010. Fluctuations in currency exchange rates.rates accounted for approximately $8.0 million (5%) of the increase. The primary components of the $17.3 million increase in cost of sales were increases in raw materialmaterials costs (approximately $11.5$18 million) and labor costs (approximately $1.7$2.6 million) associated with higher production and sales volumes in the thirdsecond quarter of 20102011 compared with the prior year period. Our raw materialmaterials prices in the thirdsecond quarter of 20102011 were approximately 3-4%10-12% higher than raw materialmaterials prices in the third quartercorresponding period of 2009.the prior year. As a percentage of net sales, cost of sales decreased toremained consistent at 64.6% for the second quarter ended October 3, 2010,of 2011, versus 66. 8%64.6% in the comparable period in 2009.  The percentage decrease was primarily due to improvedsecond quarter of 2010, as the increased raw materials costs were offset by the increased absorption of fixed manufacturing efficiencies in both our Modular Carpetcosts associated with higher sales and Bentley Prince Street business segments.  The improved manufacturing efficiencies are largely a result of the increase in sales volume as well as our continued focus on cost control across our business.

production volumes.
For the ninesix months ended OctoberJuly 3, 2010,2011, our costcosts of sales increased $29.2$41.1 million (6.9%(14.1%) versus the comparable period in 2009.2010. Fluctuations in currency exchange rates accounted for approximately $8$11.0 million (2%(4%) of the increase. The primary components of the $29.2 million increase in cost of sales were increases in raw materialmaterials costs (approximately $19.5$27 million) and labor costs (approximately $2.9$4 million) associated with higher production and sales volumes in the first ninesix months of 2010.2011 compared with the prior year period. Our raw materialmaterials prices in the first ninesix months of 20102011 were approximately 3-4%10-12% higher than raw materialmaterials prices in the first nine monthscorresponding period of 2009.the prior year. As a percentage of net sales, cost of salesgoods sold decreased to 65.1%64.6% for the nine-month periodsix months ended OctoberJuly 3, 2010,2011, versus 67.5%65.4% in the comparable period in 200 9.  The percentageprior year. This decrease wasis due primarily due to increased absorption of fixed costs associated with higher sales volumes, as well as improved manufacturing efficienciesefficiency and costs controls, especially in our Bentley Prince Street business segment. This improvement was somewhat offset by the increased price for raw materials experienced by both our Modular Carpet and Bentley Prince Street business segments.  The improved manufacturing efficiencies are largely a result of the increase in sales volume, coupled with the full realization of our restructuring plans implemented during early 2009.

For the quarter ended OctoberJuly 3, 2010,2011, our selling, general and administrative expenses increased $8.0$10.0 million (14.9%(17.0%) versus the comparable period in 2009.  This comparison includes a negative impact of approximately $1 million (2%) due to fluctuations2010. Fluctuations in currency exchange rates.rates accounted for approximately $3.5 million (6%) of this increase. The primary components of the $8.0 million increase in selling, general and administrative expenses were (1) a $2.9 million increase in incentive compensation due to the attainment of performance goals in the third quarter of 2010, (2) a $2.3$4.9 million increase in selling expenses, commensurate with the increase in sales volume as well as continued investments in our salesconsumer market and end market diversification strategy, and personnel, and (3)(2) a $3.3$2.6 million increase in marketing expenses, primarily in international markets as we continue to invest in our end market diversification strategy.  Du e to increased sales volume,worldwide brand presence. Despite these increases, as a percentage of net sales, selling, general and administrative expenses decreased slightly to 24.3%25.6% for the quarter ended OctoberJuly 3, 2010,2011, versus 24.5%25.9% for the comparable period in 2009.

quarter ended July 4, 2010. This decrease as a percentage of sales was due to the strong sales growth experienced during the quarter ended July 3, 2011.
For the ninesix months ended OctoberJuly 3, 2010,2011, our selling, general and administrative expenses increased $16.5$18.9 million (10.3%(16.4%) versus the comparable period in 2009.2010. Fluctuations in currency exchange rates accounted for approximately $2$4.5 million (1%(4%) of thethis increase. The primary components of the $16.5 million increase in selling, general and administrative expenses were (1) a $7.8an $8.9 million increase in selling expenses due to the increased sales volume during the period, as well as continued investment in our selling strategies, (2) a $6.9 million increase in overall administrative costs due, in part, to increases in non-cash incentive compensation due the attainment of performance goals inbased pay during the first ninesix months of 2010, (2)2011, and (3) a $6.7$2.5 million increase in marketing expenses due to the continued investmentas we invest in our end market diversification strategy and (3) a $4.0 million increase in selling expenses, commensurate withmarketing platforms around the increase in sales volumeworld. Due to these increases, as well as investments in our sales strategy and personnel.  As a percentage of net sales, selling, general and administrative expenses stayed relatively consistent (25.4%increased slightly to 26.1% for the six months ended July 3, 2011, versus 25.9% for the corresponding period in the first nine months of 2010 versus 25.5% in the first nine months of 2009) year-over-year.2010.

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Cost and Expenses by Segment.The following table presents the combined cost of sales and selling, general and administrative expenses for each of our operating segments:

             
Cost of Sales and Selling, General and Three Months Ended  Percentage 
Administrative Expenses (Combined) July 3, 2011  July 4, 2010  Change 
  (In thousands)     
Modular Carpet $213,630  $177,331   20.5%
Bentley Prince Street  26,978   25,027   7.8%
Corporate Expenses and Eliminations  895   2,763   (67.6%)
          
Total $241,503  $205,121   17.7%
          
            
Cost of Sales and Selling, General and Three Months Ended  Percentage Six Months Ended Percentage 
Administrative Expenses (Combined)  Oct. 3, 2010  Oct. 4, 2009  Change July 3, 2011 July 4, 2010 Change 
 
(In thousands)
     (In thousands) 
Modular Carpet $197,063  $173,815   13.4% $407,025 $351,215  15.9%
Bentley Prince Street  26,166   25,281   3.5% 53,257 49,434  7.7%
Corporate Expenses and Eliminations  1,456   343   324.5% 5,095 4,777  6.7%
       
Total $224,685  $199,439   12.7% $465,377 $405,426  14.8%
       


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Cost of Sales and Selling, General and Nine Months Ended  Percentage
Administrative Expenses (Combined)   Oct. 3, 2010  Oct. 4, 2009  Change
  (In thousands)    
Modular Carpet $548,278  $505,819   8.4%
Bentley Prince Street  75,600   77,061   (1.9%)
Corporate Expenses and Eliminations  6,233   1,524   309.0%
Total $630,111  $584,404   7.8%

Interest Expenses

Expense
For the three-month period ended OctoberJuly 3, 2010,2011, interest expense decreased $1.1$1.3 million to $8.4$6.8 million versus $9.5$8.1 million in the comparable period in 2009.2010. This decrease iswas due to lower debt levelsthe issuance of our 7 5/8% Senior Notes in the thirdfourth quarter of 2010, versus 2009, becausethe proceeds of which we used to complete the previously discussed tender offer for substantially all of our 11 3/8% Senior Secured Notes, as well as a portion of our outstanding 9.5% Senior Subordinated Notes. Our use of the proceeds from our 7 5/8% Senior Notes to retire higher interest debt led to a significant reduction in our quarterly interest expense, as compared to the firstsecond quarter of 2010 we repaid the remaining $14.6 million of Senior Notes due 2010 and redeemed $25.0 million of our Senior Subordinated Notes due 2014.2010. For the nine-monthsix-month period ended OctoberJuly 3, 2010,2011, interest expense increased $0.4decreased by $3.5 million to $25.3$13.4 million versus $24.9$16.9 million in the comparable period in 2009.  This increase was due primarily to our issuance of $150 million aggregate principle amount of 11 3/8% Senior Secured Notes in June of 2009.  These notes, which were issued at a discount to their face value, carry a hig her principal balance and rate of interest than the $127.2 million aggregate principal amount of 10.375% Senior Notes that were repaid with the issuance net proceeds.  Another factor in each of these increases was the amortization of the deferred debt costs associated with the Senior Secured Notes.  As discussed above,2010 due to the factors identified above, as well as the redemption of $39.6 million reduction of debt in the first quarter of 2010. As the first quarter of 2011 did not have this debt outstanding as compared to the first quarter of 2010, the increasedecrease in interest expense forwas even more pronounced in the nine monthssix-month period ended OctoberJuly 3, 2010 was less pronounced than in previous periods of 2010.

2011 versus the three-month period ended July 3, 2011.
Liquidity and Capital Resources

General

At OctoberJuly 3, 2010,2011, we had $80.9$27.3 million in cash. At that date, we had no borrowings and $8.1$5.2 million in letters of credit outstanding under our domestic revolving credit facility, and no borrowings outstanding under our European credit facility. As of OctoberJuly 3, 2010,2011, we could have incurred $62.6$83.2 million of additional borrowings under our domestic revolving credit facility and €20.0 million (approximately $27.3$28.9 million) of additional borrowings under our European credit facility. In addition, we could have incurred an additional $11.4$17.8 million of borrowings under our other credit facilities in place at other non-U.S. subsidiaries.

Analysis of Cash Flows

Our primary sourcessource of cash during the nine-month periodsix months ended OctoberJuly 3, 2010, were  (1) $27.2 million due to an increase in accounts payable and accrued expenses, and (2) $1.82011 was $2.6 million of cash received as a result of exercises of employee stock options. Our primary uses of cash during this period were (1) $25.8 million to redeem an aggregate principal amount of $25.0 million of our 9.5% Senior Subordinated Notes due 2014, (2) $20.5$30.0 million due to increased inventory levels as we produce to meet anticipated demand for the second half of 2011, (2) $26.4 million due to decreases in accounts payable and accruals, and (3) $18.4$18.8 million for capital expenditures, (4) $14.6 million to pay at maturity the remaining balance of our 10.375% Senior Notes due 2010, and (5) $7.9 million for the payment of a dividend to the joint venture partner of our Thailand manufacturing joint venture.expenditures.

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On October 28, 2010, we announced an increase in our regular quarterly cash dividend from $0.01 per share to $0.02 per share.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our discussion below in this Item 3 is based upon the more detailed discussions of our market risk and related matters included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2010,2, 2011, under Item 7A of that Form 10-K. Our discussion here focuses on the period ended OctoberJuly 3, 2010,2011, and any material changes from (or other important intervening developments since the time of) the information discussed in that Form 10-K. This discussion should be read in conjunction with that Form 10-K for more detailed and background information.

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At OctoberJuly 3, 2010,2011, we recognized a $0.3$13.5 million decreaseincrease in our foreign currency translation adjustment account compared withto January 3, 2010,2, 2011, primarily because of the strengthening of the U.S. dollar against the euro over the nine-month period.  This effect of the strengthening of the U.S. dollar versus the Euro was partially offset by the weakening of the U.S. dollar against certain foreign currencies, particularly the Australian dollar and Canadian dollar.Euro.

Sensitivity Analysis.For purposes of specific risk analysis, we use sensitivity analysis to measure the impact that market risk may have on the fair values of our market sensitive instruments.

To perform sensitivity analysis, we assess the risk of loss in fair values associated with the impact of hypothetical changes in interest rates and foreign currency exchange rates on market sensitive instruments. The market value of instruments affected by interest rate and foreign currency exchange rate risk is computed based on the present value of future cash flows as impacted by the changes in the rates attributable to the market risk being measured. The discount rates used for the present value computations were selected based on market interest and foreign currency exchange rates in effect at OctoberJuly 3, 2010.2011. The values that result from these computations are compared with the market values of these financial instruments at OctoberJuly 3, 2010.2011. The differences in this comparison are the hypothetical gains or losses associated with e acheach type of risk.

As of OctoberJuly 3, 2010,2011, based on a hypothetical immediate 150 basis point increase in interest rates, with all other variables held constant, the market value of our fixed rate long-term debt would be impacted by a net decrease of approximately $7.1$23.1 million. Conversely, a 150 basis point decrease in interest rates would result in a net increase in the market value of our fixed rate long-term debt of approximately $7.4$25.7 million.

As of OctoberJuly 3, 2010,2011, a 10% decrease or increase in the levels of foreign currency exchange rates against the U.S. dollar, with all other variables held constant, would result in a decrease in the fair value of our financial instruments of $11.4$10.6 million or an increase in the fair value of our financial instruments of $9.3$8.7 million, respectively. As the impact of offsetting changes in the fair market value of our net foreign investments is not included in the sensitivity model, these results are not indicative of our actual exposure to foreign currency exchange risk.


ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”), pursuant to Rule 13a-14(c) under the Act. Based on that evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II -— OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to various legal proceedings in the ordinary course of business, none of which is required to be disclosed under this Item 1.

ITEM 1A. RISK FACTORS

There are no material changes in risk factors in the thirdsecond quarter of 2010.2011. For a discussion of risk factors, see Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for fiscal year 2009.2010.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None


ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

On August 8, 2011, Ray C. Anderson, founder and Chairman of the Company, died at age 77 after a 20-month battle with cancer. The Company expects to elect a successor Chairman at its Board of Directors meeting in October 2011.
None


ITEM 6. EXHIBITS

The following exhibits are filed with this report:

EXHIBIT
NUMBER
DESCRIPTION OF EXHIBIT
  
EXHIBIT
NUMBERDESCRIPTION OF EXHIBIT
10.1Seventh Amended and Restated Credit Agreement, dated as of June 24, 2011, among Interface, Inc., InterfaceFLOR, LLC, the lenders listed therein, Wells Fargo Bank, National Association, and Bank of America, N.A. (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed June 30, 2011, previously filed with the Commission and incorporated herein by reference).
31.1Section 302 Certification of Chief Executive Officer.
31.2Section 302 Certification of Chief Financial Officer.
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.
101.INSXBRL Instance Document (filed electronically herewith).
101.SCHXBRL Taxonomy Extension Schema Document (filed electronically herewith).
101.CALXBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith).
101.LABXBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith).
101.PREXBRL Taxonomy Presentation Linkbase Document (filed electronically herewith).
101.DEFXBRL Taxonomy Definition Linkbase Document (filed electronically herewith).

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 INTERFACE, INC.
   
INTERFACE, INC.
Date: November 10, 2010August 11, 2011 By:
 /s//s/ Patrick C. Lynch  
  Patrick C. Lynch
  Senior Vice President
(Principal Financial Officer) 

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  (Principal Financial Officer)


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EXHIBIT INDEX

EXHIBIT
NUMBER
DESCRIPTION OF EXHIBIT
  
EXHIBIT
NUMBERDESCRIPTION OF EXHIBIT
31.1Section 302 Certification of Chief Executive Officer.
31.2Section 302 Certification of Chief Financial Officer.
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.
101.INSXBRL Instance Document (filed electronically herewith).
101.SCHXBRL Taxonomy Extension Schema Document (filed electronically herewith).
101.CALXBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith).
101.LABXBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith).
101.PREXBRL Taxonomy Presentation Linkbase Document (filed electronically herewith).
101.DEFXBRL Taxonomy Definition Linkbase Document (filed electronically herewith).

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