SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x
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 April 3, 2011

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(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'sregistrant’s classes of common stock at May 6,August 5, 2011:

Class Number of Shares 
Class A Common Stock, $.10 par value per share  58,338,74658,579,758 
Class B Common Stock, $.10 par value per share  7,099,9696,895,457 



 




INTERFACE, INC.

INDEX
PAGE
PART I.FINANCIAL INFORMATION
Item 1.
Financial Statements
3
     
  
Consolidated Condensed Balance Sheets – April 3, 2011 and
January 2, 2011
3
PAGE		 
Consolidated Condensed Statements of Operations - Three Months Ended April 3, 2011 and April 4, 2010
4PART I. FINANCIAL INFORMATION
  Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended April 3, 2011 and April 4, 2010
5
Consolidated Condensed Statements of Cash Flows – Three Months Ended April 3, 2011 and April 4, 2010
6
Notes to Consolidated Condensed Financial Statements
7
 
     
Item 2.
1. Financial Statements
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
18
3 
     
Consolidated Condensed Balance Sheets — July 3, 2011 and January 2, 2011
Item 3.Quantitative and Qualitative Disclosures about Market Risk
21
3		 
     
Item 4.
ControlsConsolidated Condensed Statements of Operations — Three Months and ProceduresSix Months Ended July 3, 2011 and July 4, 2010
22
  
PART II.OTHER INFORMATION
Item 1.
Legal Proceedings
22
4		 
     
Item 1A.
Risk FactorsConsolidated Statements of Comprehensive Income (Loss) — Three Months and Six Months Ended July 3, 2011 and July 4, 2010
22
5 
     
Consolidated Condensed Statements of Cash Flows — Six Months Ended July 3, 2011 and July 4, 2010
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
23
6		 
     
Item 3.
Defaults Upon Senior SecuritiesNotes to Consolidated Condensed Financial Statements
23
7 
     
Item 4.
Removed2. Management’s Discussion and ReservedAnalysis of Financial Condition and Results of Operations
23
20 
     
Item 5.
Other Information3. Quantitative and Qualitative Disclosures about Market Risk
23
25 
     
Item 6.
Exhibits
244. Controls and Procedures
 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
26
Item 1A. Risk Factors
26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
26
Item 3. Defaults Upon Senior Securities
26
Item 4. Removed and Reserved
26
Item 5. Other Information
26
Item 6. Exhibits
26
EX-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



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PART I -— FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
 (IN
(IN THOUSANDS)
        
 APRIL 3, 2011  JANUARY 2, 2011  JULY 3, 2011 JANUARY 2, 2011 
 (UNAUDITED)     (UNAUDITED) 
ASSETS       
CURRENT ASSETS:       
Cash and Cash Equivalents $39,685  $69,236  $27,299 $69,236 
Accounts Receivable, net  147,524   151,463  163,173 151,463 
Inventories  159,699   136,766  170,517 136,766 
Prepaid Expenses and Other Current Assets  30,278   24,362  29,354 24,362 
Deferred Income Taxes  9,827   10,062  9,780 10,062 
Assets of Business Held for Sale  1,200   1,200  1,200 1,200 
     
TOTAL CURRENT ASSETS  388,213   393,089  401,323 393,089 
         
PROPERTY AND EQUIPMENT, less accumulated depreciation   184,717   177,792  188,290 177,792 
DEFERRED TAX ASSET  52,623   53,022  50,798 53,022 
GOODWILL  79,518   75,239  81,148 75,239 
OTHER ASSETS  57,562   56,291  57,678 56,291 
     
TOTAL ASSETS $762,633  $755,433  $779,237 $755,433 
     
         
LIABILITIES AND SHAREHOLDERS’ EQUITY         
CURRENT LIABILITIES:         
Accounts Payable $58,061  $55,859  $50,195 $55,859 
Accrued Expenses  93,016   112,657  100,680 112,657 
     
TOTAL CURRENT LIABILITIES  151,077   168,516  150,875 168,516 
         
SENIOR NOTES  282,971   282,951  282,990 282,951 
SENIOR SUBORDINATED NOTES  11,477   11,477  11,477 11,477 
DEFERRED INCOME TAXES  8,542   7,563  8,498 7,563 
OTHER  35,819   36,054  35,079 36,054 
     
TOTAL LIABILITIES  489,886   506,561  488,919 506,561 
         
Commitments and Contingencies         
         
SHAREHOLDERS’ EQUITY:         
Preferred Stock  --   --  — — 
Common Stock  6,504   6,445  6,546 6,445 
Additional Paid-In Capital  357,171   349,662  359,107 349,662 
Accumulated Deficit  (41,729)  (49,770)
Accumulated Other Comprehensive Income – Foreign Currency Translation Adjustment  (16,812)  (26,269)
Accumulated Other Comprehensive Income – Pension Liability  (32,387)  (31,196)
Retained Earnings (Deficit)  (30,228)  (49,770)
Accumulated Other Comprehensive Loss — Foreign Currency Translation Adjustment  (12,742)  (26,269)
Accumulated Other Comprehensive Loss — Pension Liability  (32,365)  (31,196)
     
TOTAL SHAREHOLDERS’ EQUITY  272,747   248,872  290,318 248,872 
 $762,633  $755,433      
 $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 
       
  APRIL 3, 2011  APRIL 4, 2010 
       
NET SALES $245,402  $217,191 
Cost of Sales  158,474   143,817 
         
GROSS PROFIT ON SALES  86,928   73,374 
Selling, General and Administrative Expenses  65,400   56,488 
Restructuring Charge   --   3,131 
OPERATING INCOME  21,528   13,755 
         
Interest Expense  6,656   8,822 
Bond Retirement Expenses  --   1,085 
Other Expense (Income)  (122)  98 
         
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE  14,994   3,750 
Income Tax Expense  5,170   1,644 
         
Income from Continuing Operations  9,824   2,106 
Loss from Discontinued Operations, Net of Tax  --   -- 
NET INCOME  9,824   2,106 
         
Net Income Attributable to Noncontrolling Interests in Subsidiary  --   (236)
NET INCOME ATTRIBUTABLE TO INTERFACE, INC. $9,824  $1,870 
         
Earnings Per Share Attributable to Interface, Inc. Common Shareholders – Basic        
Continuing Operations $0.15  $0.03 
Discontinued Operations  --   -- 
Earnings Per Share Attributable to Interface, Inc. Common Shareholders – Basic $0.15  $0.03 
         
Earnings Per Share Attributable to Interface, Inc. Common Shareholders – Diluted        
Continuing Operations $0.15  $0.03 
Discontinued Operations  --   -- 
Earnings Per Share Attributable to Interface, Inc. Common Shareholders – Diluted $0.15  $0.03 
         
Common Shares Outstanding – Basic  64,822   63,332 
Common Shares Outstanding – Diluted  65,190   63,874 

                 
  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                 
    THREE MONTHS ENDED SIX MONTHS ENDED 
 APRIL 3, 2011  APRIL 4, 2010  JULY 3, 2011 JULY 4, 2010 JULY 3, 2011 JULY 4, 2010 
       
Net Income $9,824  $2,106  $12,814 $8,008 $22,638 $10,114 
Other Comprehensive Income (Loss), Foreign Currency Translation        
Adjustment and Pension Liability Adjustment  8,266   (7,313)
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment and Pension Liability Adjustment 4,092  (14,149) 12,358  (21,462)
         
Comprehensive Income (Loss) $18,090  $(5,207) 16,906  (6,141) 34,996  (11,348)
Comprehensive Income Attributable to Noncontrolling Interests in Subsidiary  --   (516)
 
Comprehensive Income Attributable to Non-Controlling Interest in Subsidiary —  (358) —  (874)
         
Comprehensive Income (Loss) Attributable to Interface, Inc. $18,090  $(5,723) $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)

  THREE MONTHS ENDED 
  APRIL 3, 2011  APRIL 4, 2010 
OPERATING ACTIVITIES:      
Net income $9,824  $2,106 
Loss from discontinued operations  --   -- 
Income from continuing operations  9,824   2,106 
Adjustments to reconcile income to cash used in operating activities:        
Depreciation and amortization  12,582   6,124 
Deferred income taxes and other  766   (2,183)
Working capital changes:        
Accounts receivable  6,583   (1,464)
Inventories  (20,295)  (4,374)
Prepaid expenses  (5,404)  (6,227)
Accounts payable and accrued expenses  (22,260)  7,151 
         
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES  (18,204)  1,133 
         
INVESTING ACTIVITIES:        
Capital expenditures  (10,307)  (2,846)
Other  (1,450)  (896)
         
CASH USED IN INVESTING ACTIVITIES  (11,757)  (3,742)
         
FINANCING ACTIVITIES:        
Premiums paid to repurchase senior notes  --   (792)
Repurchase of senior and senior subordinated notes  --   (39,586)
Proceeds from issuance of common stock  1,468   296 
Dividends paid  (1,299)  (158)
Other  (107)  -- 
         
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:  62   (40,240)
         
Net cash used in operating, investing and        
financing activities  (29,899)  (42,849)
Effect of exchange rate changes on cash  348   (1,138)
         
CASH AND CASH EQUIVALENTS:        
Net change during the period  (29,551)  (43,987)
Balance at beginning of period  69,236   115,363 
         
Balance at end of period $39,685  $71,376 


         
  SIX MONTHS ENDED 
  JULY 3, 2011  JULY 4, 2010 
OPERATING ACTIVITIES:        
Net Income $22,638  $10,114 
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:        
Premiums Paid to Repurchase Senior Notes  —   792 
Depreciation and Amortization  13,112   11,415 
Stock Compensation Amortization Expense  8,120   1,488 
Deferred Income Taxes and Other  3,276   (929)
Working Capital Changes:        
Accounts Receivable  (7,995)  (7,077)
Inventories  (30,010)  (14,024)
Prepaid Expenses  (4,083)  (7,412)
Accounts Payable and Accrued Expenses  (26,442)  18,277 
       
         
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:  (21,384)  12,644 
       
         
INVESTING ACTIVITIES:        
Capital Expenditures  (18,814)  (11,312)
Other  (1,995)  (628)
       
         
CASH USED IN INVESTING ACTIVITIES:  (20,809)  (11,940)
       
         
FINANCING ACTIVITIES:        
Repurchase of Senior Notes  —   (39,586)
Other  (505)  — 
Premiums Paid to Repurchase Senior Notes  —   (792)
Proceeds from Issuance of Common Stock  2,579   1,174 
Dividends Paid  (2,612)  (794)
       
         
CASH USED IN FINANCING ACTIVITIES:  (538)  (39,998)
       
         
Net Cash Used in Operating, Investing and Financing Activities  (42,731)  (39,294)
Effect of Exchange Rate Changes on Cash  794   (2,901)
       
         
CASH AND CASH EQUIVALENTS:        
Net Change During the Period  (41,937)  (42,195)
Balance at Beginning of Period  69,236   115,363 
       
         
Balance at End of Period $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 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 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.

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


NOTE 2 –— INVENTORIES

Inventories are summarized as follows:

        
 April 3, 2011  January 2, 2011  July 3, 2011 January 2, 2011 
 (In thousands)  (In thousands) 
Finished Goods $97,111  $78,303  $109,170 $78,303 
Work in Process  18,290   16,731  18,979 16,731 
Raw Materials  44,298   41,732  42,368 41,732 
 $159,699  $136,766      
 $170,517 $136,766 
     
NOTE 3 –— EARNINGS PER SHARE

The Company computes basic earnings per share (“EPS”) attributable to common stockholdersshareholders by dividing income from continuing operations attributable to common stockholders,shareholders, income from discontinued operations attributable to common stockholdersshareholders and net income attributable to common stockholders,shareholders, by the weighted-averageweighted 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 included in the calculation of basic and diluted EPS from continuing operations, where applicable.

-7-

The Company includes 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 includes all outstanding restricted stock awards in the calculation of basic and diluted EPS. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. The following tables show distributed and undistributed earnings:

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  Three Months Ended 
  April 3, 2011  April 4, 2010 
Earnings Per Share from Continuing Operations      
       
Basic Earnings Per Share Attributable to      
Common Stockholders:      
Distributed Earnings $0.02  $-- 
Undistributed Earnings  0.13   0.03 
Total $0.15  $0.03 
         
Diluted Earnings Per Share Attributable to        
Common Stockholders:        
Distributed Earnings $0.02  $-- 
Undistributed Earnings  0.13   0.03 
Total $0.15  $0.03 
         
Earnings Per Share from Discontinued Operations        
         
Basic and Diluted Earnings Per Share Attributable to        
Common Stockholders:        
Distributed Earnings $--  $-- 
Undistributed Earnings  --   -- 
Total $--  $-- 
         
Basic Earnings Per Share $0.15  $0.03 
Diluted Earnings Per Share $0.15  $0.03 

                 
  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 the CompanyInterface, Inc. that was attributable to participating securities.securities:

 Three Months Ended                 
 April 3, 2011  April 4, 2010  Three Months Ended Six Months Ended 
 (In millions)  July 3, 2011 July 4, 2010 July 3, 2011 July 4, 2010 
Income from Continuing Operations $0.2  $0.0 
 (In millions) 
Net Income $0.3 $0.2 $0.6 $0.2 
Net Income Attributable to Interface, Inc.  0.2   0.0  $0.3 $0.1 $0.6 $0.2 
The weighted average shares outstanding for basic and diluted EPS were as follows:

                
 Three Months Ended  Three Months Ended Six Months Ended 
 April 3, 2011  April 4, 2010  July 3, 2011 July 4, 2010 July 3, 2011 July 4, 2010 
 (In thousands)  (In thousands) 
Weighted Average Shares Outstanding  63,246   62,121  63,623 62,277 63,333 62,185 
Participating Securities  1,576   1,211  1,775 1,238 1,775 1,238 
         
Shares for Basic Earnings Per Share  64,822   63,332  65,398 63,515 65,108 63,423 
Dilutive Effect of Stock Options  368   542  279 603 255 494 
         
Shares for Diluted Earnings Per Share  65,190   63,874  65,677 64,118 65,363 63,917 
         
For the three monthsthree-month periods ended AprilJuly 3, 2011, and AprilJuly 4, 2010, options to purchase 219,00020,000 and 205,000 shares of common stock, respectively, were not included in the computation of diluted EPS as their impact would be anti-dilutive. For the six-month periods ended July 3, 2011, and 225,000July 4, 2010, options to purchase 20,000 and 245,000 shares of common stock, respectively, were not included in the computation of diluted EPS 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.

-8-


The accounting policies of the operating segments are the same as those described in the Summary of Significant Accounting Policies contained in the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended January 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 makerdecision-maker evaluates performance of the segments based on operating income. Costs excluded from this profit measure primarily consist of allocated corporate expenses, interest/other expense and income taxes. Corporate expenses are primarily comprised of corporate overhead expenses. Thus, operating income includes only the costs that are directly attributable to the operations of the individual segment. Assets not identifiable to any individual segment are corporate assets, which are primarily comprised of cash and cash equivalents, short-term investments, intangible assets and intercompany amounts, which are eliminated in consolidation.

Segment Disclosures

Summary information by segment follows:
  Modular Carpet  Bentley Prince Street  Total 
  (In thousands) 
Three Months Ended April 3, 2011         
Net sales $219,280  $26,122  $245,402 
Depreciation and amortization  8,103   558   8,661 
Operating income (loss)  25,334   (157)  25,177 
             
Three Months Ended April 4, 2010            
Net sales $194,007  $23,184  $217,191 
Depreciation and amortization  3,665   559   4,224 
Operating income (loss)  17,180   (1,411)  15,769 
             
  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  Bentley    
  Carpet  Prince Street  Total 
  (In thousands) 
Six Months Ended July 3, 2011            
Net Sales $459,846  $53,196  $513,042 
Depreciation and Amortization  14,803   1,123   15,926 
Operating Income (Loss)  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 
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 
             
  Three Months Ended 
  April 3, 2011  April 4, 2010 
  (In thousands) 
DEPRECIATION AND AMORTIZATION      
Total segment depreciation and amortization $8,661  $4,224 
Corporate depreciation and amortization  3,921   1,900 
Reported depreciation and amortization $12,582  $6,124 
         
OPERATING INCOME        
Total segment operating income $25,177  $15,769 
Corporate expenses and other reconciling amounts  (3,649)  (2,014)
Reported operating income $21,528  $13,755 

-9-


  April 3, 2011  January 2, 2011 
   (In thousands) 
ASSETS   
Total segment assets $634,844  $610,024 
Discontinued operations  1,200   1,200 
Corporate assets and eliminations  126,589   144,209 
Reported total assets $762,633  $755,433 


 ��       
  July 3, 2011  January 2, 2011 
  (In thousands) 
ASSETS        
Total segment assets $667,659  $610,024 
Discontinued operations  1,200   1,200 
Corporate assets and eliminations  110,378   144,209 
       
Reported total assets $779,237  $755,433 
       
- 9 -


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 AprilJuly 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 AprilJuly 3, 2011, based on then current market prices, was $291.5$288.1 million.

11 3/8% Senior Secured Notes

On June 5, 2009, the Company completed a private offering of $150 million aggregate principal amount of 11 3/8% Senior Secured Notes due 2013 (the “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, 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 on a first-priority basis.

As of AprilJuly 3, 2011, and April 4, 2010, the balance of the 11 3/8% Senior Secured Notes outstanding, net of the remaining unamortized original issue discount, was approximately $8.0 million and $145.5 million, respectively, as $141.9 million aggregate principal amount of these notes were repurchased in connection with a tender offer during the fourth quarter of 2010.million. The estimated fair value of the Senior Secured Notes as of AprilJuly 3, 2011, and April 4, 2010, based on then current market prices, was $8.1 million and $168.6 million, respectively.million.

9.5% Senior Subordinated Notes

On February 4, 2004, the Company completed 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 AprilJuly 3, 2011, and April 4, 2010 the Company had outstanding $11.5 million and $110.0 million in 9.5% Senior Subordinated Notes due 2014 (the “9.5% Senior Subordinated Notes”), respectively.. The estimated fair value of the 9.5% Senior Subordinated Notes as of AprilJuly 3, 2011, and April 4, 2010, based on then current market prices, was $11.5 million and $112.5 million, respectively.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.  As discussed previously, in the fourth quarter of 2010

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Credit Facilities
On June 24, 2011, the Company repurchased approximately $98.5 million aggregate principal amounts of these notes in connection with a tender offer.

Credit Facilities

The Company maintains a domesticamended and restated its primary revolving credit agreementfacility. Under the amended and restated facility (the “Facility”) that provides, as under its predecessor, the Company’s obligations are secured by a first priority lien on substantially all of the assets of Interface, Inc. and each of its material domestic subsidiaries, which subsidiaries also guarantee the Facility. The 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 AprilJuly 3, 2011, there were zero borrowings and $5.2 million in letters of credit outstanding under the Facility. As of AprilJuly 3, 2011, the Company could have incurred $71.1$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 AprilJuly 3, 2011, there were no borrowings outstanding under this facility, and the Company could have incurred €20 million (approximately $28.3$28.9 million) of additional borrowings under the facility.


- 10 -




Other non-U.S. subsidiaries of the Company have an aggregate of the equivalent of $12.1$17.8 million of lines of credit available. As of AprilJuly 3, 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 accounting standards, the Company is required to select a valuation technique or option pricing model that meets the criteria as stated in the standard.model. The Company uses the Black-Scholes model. Accounting standards require that the Company estimate forfeitures for stock options and reduce compensation expense accordingly. The Company has reduced its stock compensation expense by the assumed forfeiture rate and will evaluate experience against this forfeiture rate going forward.

During the first threesix months of 2011 and 2010, the Company recognized stock option compensation costs of $0.6 million and $0.6 million, respectively. In the second quarters of 2011 and 2010, the Company recognized stock option compensation costs of $0.3 million and $0.3 million, respectively. The remaining unrecognized compensation cost related to unvested awards at AprilJuly 3, 2011, approximated $1.0$0.9 million, and the weighted average period of time over which this cost will be recognized is approximately one and one-half years.year.

-11-


The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.model with the following weighted average assumptions used for grants issued in the first six months of fiscal year 2010. There were no stock options granted in the first six months of 2011.
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 threesix months of fiscal 2011 or 2010.

2010 was $4.14 per share.
The following table summarizes stock options outstanding as of AprilJuly 3, 2011, as well as activity during the threesix months then ended:
        
 Weighted Average 
 Shares  
Weighted Average
Exercise Price
  Shares Exercise Price 
Outstanding at January 2, 2011  1,148,500  $7.51  1,148,500 $5.75 
Granted  --   --  — — 
Exercised  259,500   6.09  484,500 5.55 
Forfeited or canceled  7,000   11.47  7,000 11.47 
Outstanding at April 3, 2011  882,000  $7.90 
             
Exercisable at April 3, 2011  643,200  $6.31 
Outstanding at July 3, 2011 657,000 $8.92 
     
 
Exercisable at July 3, 2011 418,000 $7.05 
     
At AprilJuly 3, 2011, the aggregate intrinsic value of in-the-money options outstanding and options exercisable was $9.5$7.2 million and $8.0$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).

- 11 -



Cash proceeds and intrinsic value related to total stock options exercised during the first threesix months of fiscal years 2011 and 2010 are provided in the following table:
  Three Months Ended
  April 3, 2011 April 4, 2010
        (In thousands)
Proceeds from stock options exercised $1,468  $296 
Intrinsic value of stock options exercised $2,744  $479 

table below. The Company did not recognize any significant tax benefit with regard to stock options 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 threesix months ended AprilJuly 3, 2011, and July 4, 2010, the Company granted restricted stock awards for 468,000668,000 and 27,000 shares, respectively, of Class B common stock. There were no shares of restricted stock issued in the first quarter of 2010.  Awards of restricted stockThese 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, awards (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 $7.3$8.1 million and $0.8$1.5 million for the threesix months ended AprilJuly 3, 2011, and AprilJuly 4, 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.

-12-


The following table summarizes restricted stock activity as of AprilJuly 3, 2011, and during the threesix months then ended:

        
 Weighted Average 
 Shares  
Weighted Average
Grant Date
Fair Value
  Shares Grant Date Fair Value 
Outstanding at January 2, 2011  1,740,000  $13.04  1,740,000 $13.04 
Granted  468,000   17.26  668,000 17.08 
Vested  600,000   7.38  600,000 12.23 
Forfeited or canceled  33,000   14.13  33,000 14.13 
Outstanding at April 3, 2011  1,575,000  $12.97 
     
Outstanding at July 3, 2011 1,775,000 $15.03 
     
As of AprilJuly 3, 2011, the unrecognized total compensation cost related to unvested restricted stock was $13.7approximately $15.0 million. That cost is expected to be recognized by the end of 2013.2014.

DuringFor the quarterssix months ended AprilJuly 3, 2011, and AprilJuly 4, 2010, the Company recognized tax benefits of $1.8 million and $0.2 million, respectively, with regard to restricted stock.stock of $2.1 million and $0.3 million, respectively.


- 12 -


NOTE 7 –— EMPLOYEE BENEFIT PLANS

The following tables provide the components of net periodic benefit cost for the three-month and six-month periods ended AprilJuly 3, 2011, and AprilJuly 4, 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 
Defined Benefit Retirement Plan (Europe) April 3, 2011  April 4, 2010 
  (In thousands) 
Service cost $71  $92 
Interest cost  2,838   2,763 
Expected return on assets  (2,934)  (2,822)
Amortization of prior service costs  21   23 
Recognized net actuarial (gains)/losses  150   416 
Net periodic benefit cost $146  $472 

                
 Three Months Ended  Three Months Ended Six Months Ended 
Salary Continuation Plan (SCP) April 3, 2011  April 4, 2010  July 3, 2011 July 4, 2010 July 3, 2011 July 4, 2010 
 (In thousands)  (In thousands) (In thousands) 
Service cost $ 98  $ 86  $98 $86 $196 $171 
Interest cost  284   280  284 280 568 561 
Amortization of transition obligation  55   55  55 55 110 110 
Amortization of prior service cost  12   12  12 12 24 24 
Amortization of (gain)/loss  93   68 
Amortization of loss 95 68 185 137 
         
Net periodic benefit cost $542  $501  $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 involved cash expenditures, primarily severance expenses. Actions and expenses related to this plan were substantially completed in the first quarter of 2010.

-13-


A summary of these restructuring activities is presented below:

  
Total
Restructuring
Charge
  
Costs Incurred
 in 2010
  
Costs Incurred
 in 2011
  
Balance at
April 3, 2011
 
Workforce reduction $3,131  $2,674  $347  $110 

                 
  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
Carpet
  
Bentley
Prince Street
  Corporate  Total 
  (In thousands) 
             
Total amounts expected to be incurred $2,951  $180  $--  $3,131 
Cumulative amounts incurred to date  2,841   180   --   3,021 
Total amounts incurred in the period  347   --   --   347 


- 13 -



                 
  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 
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.

Discontinued operations had no net sales and no net income or loss in either of the three-month or six-month periods ended AprilJuly 3, 2011 and AprilJuly 4, 2010.


NOTE 10 –— SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest amounted to $0.9$11.2 million and $7.0$15.7 million for the three month periodssix months ended AprilJuly 3, 2011, and AprilJuly 4, 2010, respectively. Income tax payments amounted to $5.4$11.1 million and $3.8$7.5 million for the three month periodssix months ended AprilJuly 3, 2011, and AprilJuly 4, 2010, respectively.


NOTE 11 –— RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 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 performing Step 2 if qualitative factors indicate that it is more likely than not that an impairment to goodwill exists. This recent guidance is effective for fiscal years beginning after December 15, 2010, as well as for 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-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 became effective for the Company in the first quarter of 2011. The adoption of this standard did not have any significant impact on itsthe 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 threesix months of 2011, the Company increased its liability for unrecognized tax benefits by $0.3$0.5 million. As of AprilJuly 3, 2011, the Company had accrued approximately $8.5$8.7 million for unrecognized tax benefits.


NOTE 13 –— SUPPLEMENTAL CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS

The Guarantor Subsidiaries, which consist of the Company’s principal domestic subsidiaries, are guarantors of the Company’s 11 3/8% Senior Secured Notes due 2013, its 9.5% Senior Subordinated Notes due 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-




- 14 -



INTERFACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED APRILJULY 3, 2011
                     
      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-

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 3, 2011

                     
              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 $157,197  $131,604  $--  $(43,399) $245,402 
Cost of sales  117,353   84,520   --   (43,399)  158,474 
Gross profit on sales  39,844   47,084   --   --   86,928 
Selling, general and  administrative expenses  26,323   29,498   9,579    --   65,400 
Operating income (loss)  13,521   17,586   (9,579)  --   21,528 
Interest/Other expense  800    3,508   2,226   --   6,534 
Income (loss) before taxes on income and equity in income of subsidiaries  12,721   14,078   (11,805)  --   14,994 
Income tax (benefit) expense  4,386   4,854   (4,070)  --   5,170 
Equity in income (loss) of subsidiaries  --    --   17,559    (17,559)   -- 
Income (loss) from continuing operations  8,335   9,224   9,824   (17,559)  9,824 
Loss on discontinued operations, net of tax   --   --    --    --    -- 
Net income (loss)  8,335   9,224   9,824   (17,559)  9,824 
Net income (loss) attributable to Interface, Inc. $8,335  $9,224  $9,824  $(17,559) $9,824 
                     



- 15 -



CONDENSED CONSOLIDATING BALANCE SHEET

APRILJULY 3, 2011

                     
      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 
                

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GUARANTOR SUBSIDIARIES
  
NON-GUARANTOR SUBSIDIARIES
  
INTERFACE, INC.
(PARENT CORPORATION)
  
CONSOLIDATION AND ELIMINATION ENTRIES
  
CONSOLIDATED TOTALS
 
  (In thousands) 
ASSETS               
Current Assets:               
Cash and cash equivalents $1,528  $20,611  $17,546  $--  $39,685 
Accounts receivable  62,212   84,744   568   --   147,524 
Inventories  82,486   77,213   --   --   159,699 
Prepaids and deferred income taxes  10,633   18,740   10,732   --   40,105 
Assets of business held for sale  --    1,200   --    --    1,200 
Total current assets  156,859   202,508   28,846   --   388,213 
Property and equipment less accumulated depreciation  82,423   97,172   5,122   --   184,717 
Investment in subsidiaries  291,599   223,641   44,976   (560,216)  -- 
Goodwill  6,954   72,564   --   --   79,518 
Other assets   6,134   13,003   91,048   --   110,185 
  $543,969  $608,888  $169,992  $(560,216) $762,633 
                     
LIABILITIES AND SHAREHOLDERS' EQUITY                    
Current Liabilities $65,726  $105,049  $(19,698) $--  $151,077 
Senior secured notes and senior subordinated notes  --   --   294,448   --   294,448 
Deferred income taxes  1,615   11,245   (4,318)  --   8,542 
Other  2,053   6,145   27,621   --   35,819 
Total liabilities  69,394   122,439   298,053   --   489,886 
                     
Noncontrolling interest in subsidiary  --   --   --   --   -- 
Redeemable preferred stock  --   --   --   --   -- 
Common stock  94,145   102,199   6,504   (196,344)  6,504 
Additional paid-in capital  249,302   12,525   357,171   (261,827)  357,171 
Retained earnings (deficit)  132,543   409,138   (482,475)  (100,935)  (41,729)
AOCI - Foreign currency translation adjustment  (1,415)  (8,597)  (5,690)  (1,110)  (16,812)
AOCI - Pension liability  --   (28,816)  (3,571)   --   (32,387)
  $543,969  $608,888  $169,992  $(560,216) $762,633 
                     


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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREESIX MONTHS

ENDED APRILJULY 3, 2011

                     
      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 
                
  
GUARANTOR SUBSIDIARIES
  
NON-GUARANTOR SUBSIDIARIES
  
INTERFACE, INC.
(PARENT CORPORATION)
  
CONSOLIDATION AND ELIMINATION ENTRIES
  
CONSOLIDATED TOTALS
 
  (In thousands) 
Net cash provided by (used for) operating activities $(40) $(13,764) $(6,487) $2,087  $(18,204)
Cash flows from investing activities:                    
Purchase of plant and equipment  (5,647)  (4,411)  (249)  --   (10,307)
Other  3    (31)  (1,422)  --   (1,450)
Net cash used for investing activities  (5,644)  (4,442)  (1,671)  --   (11,757)
Cash flows from financing activities:                    
Proceeds from issuance of  common stock  --   --   1,468   --   1,468 
Other  6,126   5,868   (10,014)  (2,087)  (107)
Dividends paid  --    --   (1,299)  --   (1,299)
Net cash provided by (used for) financing activities  6,126   5,868   (9,845)  (2,087)  62 
Effect of exchange rate change on cash  --    348   --   --   348 
Net increase (decrease) in cash  442   (11,990)  (18,003)  --   (29,551)
Cash at beginning of period  1,086   32,601   35,549   --   69,236 
Cash at end of period $1,528  $20,611  $17,546  $--  $39,685 

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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 2, 2011, under Item 7 of that Form 10-K. Our discussions here focus on our results during the quarter and six months ended, or as of, AprilJuly 3, 2011, and the comparable periodperiods of 2010 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 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.

7 5/8% Senior Notes

On December 3, 2010, we 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. 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 theour 11 3/8% Senior Secured Notes and approximately $98.5 million aggregate principal amount of theour 9.5% Senior Subordinated Notes pursuant to a Company tender offer.

Restructuring Charges

2010 Restructuring Charge

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 involved cash expenditures, primarily severance expenses. Actions and expenses related to this plan were substantially completed in the first quarter of 2010.

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.”

Our discontinued operations had no net sales and no net income or loss in either of the three-month or six-month periods ended AprilJuly 3, 2011 and AprilJuly 4, 2010.


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General

During the quarter ended AprilJuly 3, 2011, we had net sales of $245.4$267.6 million, compared with net sales of $217.2$226.6 million in the firstsecond quarter last year. Fluctuations in currency exchange rates positively impacted 2011 firstsecond quarter sales by 2%6% (approximately $4$13 million), compared with the prior year period. During the first six months of fiscal year 2011, we had net sales of $513.0 million, compared with net sales of $443.8 million in the first six months of last year. Fluctuations in currency exchange rates positively impacted sales in the first six months of 2011 by 4% (approximately $17.0 million), compared with the prior year period.

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Included in our results for the quartersix months ended AprilJuly 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 in the Note entitled “Long-Term Debt” in Item 1. Also included in the six-month period ended July 4, 2010 is $3.1 million of restructuring charges, as described above.

During the firstsecond quarter of 2011, we had net income attributable to Interface, Inc. of $9.8$12.8 million, or $0.15$0.20 per diluted share, compared with net income attributable to Interface, Inc. of $1.9$7.6 million, or $0.03$0.12 per diluted share, in the firstsecond quarter last year.  Income from continuing operationsof 2010. Net income in the firstsecond quarter of 2011 was $9.8$12.8 million, or $0.20 per diluted share, compared with net income of $8.0 million, or $0.12 per diluted share, in the second quarter of 2010.
During the six months ended July 3, 2011, we had net income attributable to Interface, Inc. of $22.6 million, or $0.35 per diluted share, compared with net income attributable to Interface, Inc. of $9.5 million, or $0.15 per diluted share, in the first six months of 2010. Net income was $22.6 million, or $0.35 per diluted share, in the six months ended July 3, 2011, compared with net income from continuing operations of $2.1$10.1 million, or $0.03$0.15 per diluted share, in the first quarter last year.

six months of 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 six-month periods ended AprilJuly 3, 2011, and AprilJuly 4, 2010, respectively:

  Three Months Ended 
  April 3, 2011  April 4, 2010 
       
Net sales
  100.0%  100.0%
Cost of sales
  64.6   66.2 
Gross profit on sales
  35.4   33.8 
Selling, general and administrative expenses
  26.7   26.0 
Restructuring charge
  --   1.4 
Operating income
  8.8   6.3 
Bond retirement expenses
  --   0.5 
Interest/Other expense
  2.7   4.1 
Income (loss) from continuing operations before tax expense
  6.1   1.7 
Income tax expense (benefit)
  2.1   0.8 
Income (loss) from continuing operations
  4.0   1.0 
Discontinued operations, net of tax
  --   -- 
Net income (loss)
  4.0   1.0 
Net income (loss) attributable to Interface, Inc.
  4.0   0.9 

                 
  Three Months Ended  Six Months Ended 
  July 3, 2011  July 4, 2010  July 3, 2011  July 4, 2010 
                 
Net sales  100.0%  100.0%  100.0%  100.0%
Cost of sales  64.6   64.6   64.6   65.4 
             
Gross profit on sales  35.4   35.4   35.4   34.6 
Selling, general and administrative expenses  25.6   25.9   26.1   25.9 
Restructuring charge  —   —   —   0.7 
             
Operating income  9.8   9.5   9.3   7.9 
Bond retirement expense  —   —   —   0.2 
Interest/Other expenses  2.6   3.8   2.6   3.9 
             
Income from operations before tax expense  7.2   5.7   6.7   3.8 
Income tax expense  2.4   2.2   2.2   1.5 
             
Net income  4.8   3.5   4.4   2.3 
Net income attributable to Interface, Inc.  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 six-month periods ended AprilJuly 3, 2011, and AprilJuly 4, 2010, respectively.

Net Sales by Business Segment

Net sales by operating segment and for our Company as a whole were as follows for the three-month and six-month periods ended AprilJuly 3, 2011, and AprilJuly 4, 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 04/03/11  04/04/10  Change 
  (In thousands)    
Modular Carpet $219,280  $194,007   13.0%
Bentley Prince Street  26,122   23,184   12.7%
Total $245,402  $217,191   13.0%


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Modular Carpet Segment.For the quarter ended AprilJuly 3, 2011, net sales for the Modular Carpet segment increased $25.3$37.9 million (13.0%(18.7%) versus the comparable period in 2010. On a geographic basis, we experienced increases in net sales in all regions for the quarter ended AprilJuly 3, 2011 versus the comparable period in 2010, with our Americas, Europe and Asia-Pacific regions experiencing sales growth of 8%16%, 12%27%, and 31%11%, respectively, during the quarter. (Europe experienced 13%11% sales growth in local currency.) TheseGlobally, these increases were 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 climate. Sales growth in the Americas was driven primarily by the improving corporate office segmentmarket (up 24%), as well increases in the government (up 19%), education (up 14%) and healthcare (up 29%) market segments. Only the retail segment (down 17%) showed a decline in the Americas. Sales growth in Europe was driven primarily by the corporate office market (up 37% in U.S. dollars, 20% in local currency), but we also saw sales increases in other market segments, particularly in the education (up 31% in U.S. dollars, 15% in local currency) market segment. These increases in Europe were mitigated by a decline in the healthcare (down 20% in U.S. dollars, 30% in local currency) market segment. Asia-Pacific also experienced sales increases in the corporate office market (up 19%), as well as increases in all non-office market segments with the exception of government (down 45%).
For the six months ended July 3, 2011, net sales for the Modular Carpet segment increased $63.1 million (15.9%) versus the comparable period in 2010. On a geographic basis, we experienced increases in net sales in all regions for the six months ended July 3, 2011 versus the comparable period in 2010, with our Americas, Europe and Asia-Pacific regions experiencing sales growth of 12%, 20%, and 20%, respectively, during the period. (Europe experienced 12% sales growth in local currency.) The recovery of the corporate office market segment was the primary driver of these increases, coupled with growth from our end market diversification strategy and emerging markets. Sales growth in the Americas was due to increases in the corporate office market (up 24%) as well as the government (up 8%14%), education (up 6%) and retailhealthcare (up 4%14%) segments, butmarket segments. These increases were temperedpartially offset by decreases in ourthe retail (down 7%) and hospitality (down 41%23%) and education (down 6%)market segments. AsSales growth in the Americas, the European salesEurope was attributable to an increase was led byin the corporate office market (up 11%23% in U.S. dollars; 12%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 government market segmentsretail (up 54%10% in both U.S. dollars, and4% in local currency), but was market segments. These increases in Europe were somewhat offset somewhat by a decline in the residential market segmenthospitality (down 53%10% in both U.S. dollars, and16% in local currency). market segment. Asia-Pacific experienced sales growthsaw increases across all market segments as compared towith the prior year period,exception of government (down 23%), with the corporate office market being the most significant increase (up 25%22%) and education (up 57%) market segments representing particular bright spots.versus the comparable period in 2010.

Bentley Prince Street Segment.In our Bentley Prince Street segment, net sales for the quarter ended July 3, 2011 increased $2.9$3.2 million (12.7%($13.3%) versus the comparable period in 2010. The strength of the corporate office market (up 40%) was the primary driver behind this increase. We also saw increases in the education (up 19%) and residential (up 87%) market segments. These increases were partially offset by decreases in the government (down 58%), healthcare (down 26%) and hospitality (down 46%) market segments.
For the six months ended July 3, 2011, net sales for the Bentley Prince Street segment increased $6.1 million (13%) versus the comparable period in 2010. This sales increase was largely dueprimarily attributed to the continued recovery of the corporate office market (up 26%33%), as well as increased salesincreases in ourthe retail (up over 100%29%) and hospitalityresidential (up 71%30%) market segments, butsegments. These increases were temperedsomewhat mitigated by decreases in the government (down 31%) and healthcare (down 38%) and education (down 17%33%) market segments.

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Cost 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 six-month periods ended AprilJuly 3, 2011, and AprilJuly 4, 2010, 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  Six Months Ended Percentage 
Cost and Expenses 04/03/11  04/04/10  Change  July 3, 2011 July 4, 2010 Change 
 (In thousands)     (In thousands) 
Cost of sales $158,474  $143,817   10.2% $331,339 $290,270  14.1%
Selling, general and administrative expenses  65,400   56,488   15.8% 134,038 115,156  16.4%
       
Total $223,874  $200,305   11.8% $465,377 $405,426  14.8%
       
For the quarter ended AprilJuly 3, 2011, our cost of sales increased $14.7$26.4 million (10.2%(18.0%) versus the comparable period in 2010. Fluctuations in currency exchange rates accounted for approximately $3.0$8.0 million (2%(5%) of the increase. The primary components of the increase in cost of sales were increases in raw materials costs (approximately $10.0$18 million) and labor costs (approximately $1.5$2.6 million) associated with higher production and sales volumes in the firstsecond quarter of 2011 compared with the prior year period. Our raw materials prices in the firstsecond quarter of 2011 were approximately 8-10%10-12% higher than raw materials prices in the corresponding period of the prior year. As a percentage of net sales, cost of sales decreased toremained consistent at 64.6% for the firstsecond quarter of 2011, versus 66.2%64.6% in the firstsecond quarter of 2010.  This decrease was due to2010, as the increased raw materials costs were offset by the increased absorption of fixed manufacturing costs associated with higher sales and production volumes, as well as the increased efficiency of operations across all of our businesses.

volumes.
For the quartersix months ended AprilJuly 3, 2011, our selling, general and administrative expensescosts of sales increased $8.9$41.1 million (15.8%(14.1%) versus the comparable period in 2010. Fluctuations in currency exchange rates accounted for approximately $1.0$11.0 million (2.0%(4%) of the increase. The primary components of the increase in cost of sales were increases in raw materials costs (approximately $27 million) and labor costs (approximately $4 million) associated with higher production and sales volumes in the first six months of 2011 compared with the prior year period. Our raw materials prices in the first six months of 2011 were approximately 10-12% higher than raw materials prices in the corresponding period of the prior year. As a percentage of net sales, cost of goods sold decreased to 64.6% for the six months ended July 3, 2011, versus 65.4% in the comparable period in prior year. This decrease is due primarily to increased absorption of fixed costs associated with higher sales volumes, as well as improved manufacturing efficiency 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.
For the quarter ended July 3, 2011, our selling, general and administrative expenses increased $10.0 million (17.0%) versus the comparable period in 2010. Fluctuations in currency exchange rates accounted for approximately $3.5 million (6%) of this increase. The primary components of the increase in selling, general and administrative expenses were (1) a $4.9 million increase in selling expenses, commensurate with the increase in sales as well as continued investments in our consumer market and end market diversification strategy, and (2) a $2.6 million increase in marketing expenses, primarily in international markets as we continue to invest in our worldwide brand presence. Despite these increases, as a percentage of net sales, selling, general and administrative expenses decreased slightly to 25.6% for the quarter ended July 3, 2011, versus 25.9% for the 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 six months ended July 3, 2011, our selling, general and administrative expenses increased $18.9 million (16.4%) versus the comparable period in 2010. Fluctuations in currency exchange rates accounted for approximately $4.5 million (4%) of this increase. The primary components of the increase in selling, general and administrative expenses were (1) an $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 based pay during the quarter,first six months of 2011, and (2)(3) a $4.0$2.5 million increase in selling costs commensurate with the increase in sales volumes,marketing expenses associated with our global sales and marketing efforts, and investmentsas we invest in our consumer strategy inmarketing platforms around the United States. As a result,world. Due to these increases, as a percentage of net sales, selling, general and administrative expenses increased slightly to 26.7%26.1% for the quartersix months ended AprilJuly 3, 2011, versus 26.0%25.9% for the quarter ended April 4,corresponding period in 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)
 04/03/11  04/04/10  Change  July 3, 2011 July 4, 2010 Change 
 (In thousands)     (In thousands) 
Modular Carpet $193,395  $173,884   11.2% $407,025 $351,215  15.9%
Bentley Prince Street  26,279   24,407   7.7% 53,257 49,434  7.7%
Corporate Expenses and Eliminations  4,200   2,014   108.5% 5,095 4,777  6.7%
       
Total $223,874  $200,305   11.8% $465,377 $405,426  14.8%
       

Interest Expense

For the three monththree-month period ended AprilJuly 3, 2011, interest expense decreased $2.2$1.3 million to $6.7$6.8 million versus $8.8$8.1 million in the comparable period in 2010. This decrease was due to the issuance of our 7 5/8% Senior Notes in the fourth quarter of 2010, the 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 second quarter of 2010. For the six-month period ended July 3, 2011, interest expense decreased by $3.5 million to $13.4 million versus $16.9 million in the comparable period in 2010 due to the factors identified above, as well as the redemption of $39.6 million 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 decrease in interest expense was even more pronounced in the six-month period ended July 3, 2011 versus the three-month period ended July 3, 2011.
Liquidity and Capital Resources

General
General

At AprilJuly 3, 2011, we had $39.7$27.3 million in cash. AsAt that date, we had no borrowings and $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 AprilJuly 3, 2011, we could have incurred $71.1$83.2 million of additional borrowings under our domestic revolving credit facility and €20€20.0 million (approximately $28.3$28.9 million) of additional borrowings under our European credit facility. In addition, we could have incurred an additional $12.1$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 threesix months ended AprilJuly 3, 2011 were (1) $6.6 million due to a decrease in accounts receivable, and (2) $1.5was $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) $22.3 million due to decreases in accounts payable and accruals, (2) $20.3$30.0 million due to increased inventory levels as we produce to meet anticipated demand for the restsecond half of 2011, (2) $26.4 million due to decreases in accounts payable and accruals, and (3) $10.3$18.8 million for capital expenditures.

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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 2, 2011, under Item 7A of that Form 10-K. Our discussion here focuses on the quarterperiod ended AprilJuly 3, 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.

At AprilJuly 3, 2011, we recognized a $9.5$13.5 million increase in our foreign currency translation adjustment account compared to January 2, 2011, primarily because of the general weakening of the U.SU.S. dollar against certain foreign currencies.

currencies, particularly the Euro.
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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 AprilJuly 3, 2011. The values that result from these computations are compared with the market values of these financial instruments at AprilJuly 3, 2011. The differences in this comparison are the hypothetical gains or losses associated with each type of risk.

As of AprilJuly 3, 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 experiencebe impacted by a net decrease of approximately $20.0$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 $32.0$25.7 million.

As of AprilJuly 3, 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 $9.0$10.6 million or an increase in the fair value of our financial instruments of $7.3$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 wereare no material changes in risk factors in the firstsecond quarter of 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 2010.


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

None
The following table contains information with respect to purchases made by or on behalf of the Company, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during our first quarter ended April 3, 2011:

Period(1)
 
Total
Number of Shares Purchased(2)
  
Average
Price
Paid
Per Share(3)
  
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(4)
  
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(4)
 
             
January 3 – January 31, 2011  --   --   --   -- 
February 1 – February 28, 2011  84,451  $16.16   --   -- 
March 1 – March 31, 2011  --   --   --   -- 
April 1 – April 3, 2011  --   --   --   -- 
Total  84,451  $16.16   --   -- 

(1) The monthly periods identified above correspond to the Company’s fiscal first quarter of 2011, which commenced January 3, 2011 and ended April 3, 2011.
(2) The referenced shares were acquired by the Company from certain of our employees to satisfy income tax withholding obligations in connection with the vesting, in February 2011, of certain previous grants of restricted stock shares.
(3) The referenced price paid per share represents the fair market value of all shares acquired from employees on the date the shares vested, which is equal to the closing price of the Company’s Class A Common stock on the NASDAQ stock exchange on the vesting date.
(4) We do not currently have a publicly announced stock repurchase program in place.

On February 10, 2011 the Company issued 120,000 shares of Class A Common Stock within our 401(k) retirement investment plan in exchange for the same number of shares of Class B Common Stock on a one-for-one basis.  The transaction was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as it involved a security exchanged by the Company with its existing shareholder exclusively where no commission or other remuneration was paid or given directly or indirectly.  Shares of Class A Common Stock are convertible into Class B Common Stock on a one-for-one basis.

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

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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).
31.1 Section 302 Certification of Chief Executive Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
32.2 Certification 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: May 13,August 11, 2011By: /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
31.1 Section 302 Certification of Chief Executive Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
32.2 Certification 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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