SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For Quarterly Period Ended ~~October 2, 2011~~

July 1, 2012

Commission File Number 001-33994

INTERFACE, INC.

(Exact name of registrant as specified in its charter)


GEORGIA
~~GEORGIA~~		58-1451243

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

2859 PACES FERRY ROAD, SUITE 2000, ATLANTA, GEORGIA 30339

(Address of principal executive offices and zip code)

(770) 437-6800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþx 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). Yesþx Noo¨

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):

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

Shares outstanding of each of the registrant’s classes of common stock at ~~November 4, 2011:~~

August 1, 2012:


Class
~~Class~~		Number of Shares

~~Class A~~ Common Stock, $.10 par value per share		~~58,598,808~~
~~Class B Common Stock, $.10 par value per share~~		~~6,880,407~~65,967,061

INTERFACE, INC.

INDEX


	~~PAGE~~
~~PART I. FINANCIAL INFORMATION~~
				PAGE
PART I.	FINANCIAL INFORMATION

	Item 1.		Financial Statements		3


Consolidated Condensed Balance Sheets ~~— October 2, 2011~~– July 1, 2012 and January ~~2, 2011~~1, 2012		3


Consolidated Condensed Statements of Operations —– Three Months and ~~Nine~~Six Months Ended ~~October 2,~~July 1, 2012 and July 3, 2011 ~~and October 3, 2010~~		4


Consolidated Statements of Comprehensive Income (Loss)— – Three Months and ~~Nine~~Six Months Ended ~~October 2,~~July 1, 2012 and July 3, 2011 ~~and October 3, 2010~~		5


Consolidated Condensed Statements of Cash Flows ~~— Nine~~– Six Months Ended ~~October 2,~~July 1, 2012 and July 3, 2011 ~~and October 3, 2010~~		6


Notes to Consolidated Condensed Financial Statements		7

	Item 2.
~~Item 2.~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations		2120

	Item 3.
~~Item 3.~~ Quantitative and Qualitative Disclosures about Market Risk		25

	Item 4.		Controls and Procedures		25

PART II.	OTHER INFORMATION

	Item 1.		Legal Proceedings		26

	Item 1A.
~~Item 4. Controls and Procedures~~Risk Factors		26

	Item 2.
~~PART II. OTHER INFORMATION~~

~~Item 1. Legal Proceedings~~		27

~~Item 1A. Risk Factors~~		27

~~Item 2.~~ Unregistered Sales of Equity Securities and Use of Proceeds		2726

~~Item 3. Defaults Upon Senior Securities~~		27

~~Item 4. Removed and Reserved~~		27

~~Item 5. Other Information~~		27

~~Item 6. Exhibits~~		27

~~Exhibit 31.1~~
~~Exhibit 31.2~~
~~Exhibit 32.1~~
~~Exhibit 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~~Item 3.	Defaults Upon Senior Securities	26

	Item 4.	Mine Safety Disclosures	26

	Item 5.	Other Information	26

	Item 6.	Exhibits	26

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(IN THOUSANDS)

OCT. 2, 2011 JAN. 2, 2011
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 44,386 $ 69,236
Accounts Receivable, Net 158,009 151,463
Inventories 171,116 136,766
Prepaid Expenses and Other Current Assets 28,365 24,362
Deferred Income Taxes 9,110 10,062
Assets of Business Held for Sale 1,200 1,200

TOTAL CURRENT ASSETS 412,186 393,089

PROPERTY AND EQUIPMENT, Less Accumulated Depreciation 188,070 177,792
DEFERRED TAX ASSET 46,997 53,022
GOODWILL 76,566 75,239
OTHER ASSETS 55,486 56,291

TOTAL ASSETS $ 779,305 $ 755,433

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 57,481 $ 55,859
Accrued Expenses 96,261 112,657

TOTAL CURRENT LIABILITIES 153,742 168,516

SENIOR NOTES 283,010 282,951
SENIOR SUBORDINATED NOTES 11,477 11,477
DEFERRED INCOME TAXES 8,471 7,563
OTHER 34,074 36,054

TOTAL LIABILITIES 490,774 506,561

Commitments and Contingencies

SHAREHOLDERS’ EQUITY:
Preferred Stock — —
Common Stock 6,546 6,445
Additional Paid-In Capital 360,184 349,662
Retained Earnings (Deficit) (19,369 ) (49,770 )
Accumulated Other Comprehensive Loss — Foreign Currency Translation Adjustment (27,601 ) (26,269 )
Accumulated Other Comprehensive Loss — Pension Liability (31,229 ) (31,196 )

TOTAL SHAREHOLDERS’ EQUITY 288,531 248,872

$ 779,305 $ 755,433


	JULY 1, 2012			JANUARY 1, 2012
	(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents	$	36,878		$	50,635
Accounts Receivable, net		141,132			156,170
Inventories		173,684			166,073
Prepaid Expenses and Other Current Assets		25,578			23,407
Deferred Income Taxes		10,442			9,699

TOTAL CURRENT ASSETS		387,714			405,984
PROPERTY AND EQUIPMENT, less accumulated depreciation		190,652			190,119
DEFERRED TAX ASSET		46,419			47,290
GOODWILL		72,132			74,557
OTHER ASSETS		54,653			54,322

TOTAL ASSETS	$	751,570		$	772,272

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts Payable	$	56,891		$	55,289
Accrued Expenses		85,072			93,884

TOTAL CURRENT LIABILITIES		141,963			149,173
SENIOR NOTES		283,070			283,030
SENIOR SUBORDINATED NOTES		—			11,477
DEFERRED INCOME TAXES		8,485			8,391
OTHER		37,188			39,162

TOTAL LIABILITIES		470,706			491,233
Commitments and Contingencies
SHAREHOLDERS’ EQUITY:
Preferred Stock		—			—
Common Stock		6,596			6,548
Additional Paid-In Capital		364,376			361,400
Retained Earnings (Deficit)		(15,067	)		(16,764	)
Accumulated Other Comprehensive Loss – Foreign Currency Translation Adjustment		(38,745	)		(33,883	)
Accumulated Other Comprehensive Loss – Pension Liability		(36,296	)		(36,262	)

TOTAL SHAREHOLDERS’ EQUITY		280,864			281,039

	$	751,570		$	772,272

See accompanying notes to consolidated condensed financial statements.

-3-

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED NINE MONTHS ENDED
OCT. 2, 2011 OCT. 3, 2010 OCT. 2, 2011 OCT. 3, 2010

NET SALES $ 273,106 $ 252,724 $ 786,148 $ 696,502
Cost of Sales 178,681 163,244 510,020 453,514

GROSS PROFIT ON SALES 94,425 89,480 276,128 242,988

Selling, General and Administrative Expenses 69,087 61,441 203,125 176,597
Restructuring Charge — — — 3,131

OPERATING INCOME 25,338 28,039 73,003 63,260

Interest Expense 6,428 8,409 19,867 25,346
Bond Retirement Expenses — — — 1,085
Other Expense (Income) (175 ) 463 (126 ) 1,008

INCOME BEFORE INCOME TAX EXPENSE 19,085 19,167 53,262 35,821
Income Tax Expense 6,917 6,825 18,456 13,365

NET INCOME 12,168 12,342 34,806 22,456

Income Attributable to Non-Controlling Interest in Subsidiary — (264 ) — (876 )

NET INCOME ATTRIBUTABLE TO INTERFACE, INC. $ 12,168 $ 12,078 $ 34,806 $ 21,580

Earnings Per Share Attributable to Interface, Inc. Common Shareholders — Basic $ 0.19 $ 0.19 $ 0.53 $ 0.34

Earnings Per Share Attributable to Interface, Inc. Common Shareholders — Diluted $ 0.19 $ 0.19 $ 0.53 $ 0.34

Common Shares Outstanding — Basic 65,469 64,025 65,228 63,623
Common Shares Outstanding — Diluted 65,676 64,578 65,457 64,106


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JULY 1, 2012		JULY 3, 2011		JULY 1, 2012		JULY 3, 2011
NET SALES	$	254,607	$	267,640	$	487,367	$	513,042
Cost of Sales		170,012		172,865		326,569		331,339

GROSS PROFIT ON SALES		84,595		94,775		160,798		181,703
Selling, General and Administrative Expenses		62,562		68,638		121,930		134,038
Restructuring and Asset Impairment Charge		—		—		16,316		—

OPERATING INCOME		22,033		26,137		22,552		47,665
Interest Expense		6,139		6,783		12,792		13,439
Other Expense		274		171		711		49

INCOME BEFORE INCOME TAX EXPENSE		15,620		19,183		9,049		34,177
Income Tax Expense		5,362		6,369		4,725		11,539

NET INCOME	$	10,258	$	12,814	$	4,324	$	22,638

Earnings Per Share – Basic	$	0.16	$	0.20	$	0.07	$	0.35

Earnings Per Share – Diluted	$	0.16	$	0.20	$	0.07	$	0.35

Common Shares Outstanding – Basic		65,952		65,398		65,701		65,108
Common Shares Outstanding – Diluted		66,128		65,677		65,868		65,363

See accompanying notes to consolidated condensed financial statements.

-4-

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(IN THOUSANDS)

THREE MONTHS ENDED NINE MONTHS ENDED
OCT. 2, 2011 OCT. 3, 2010 OCT. 2, 2011 OCT. 3, 2010

Net Income $ 12,168 $ 12,342 $ 34,806 $ 22,456
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment and Pension Liability Adjustment (13,723 ) 23,247 (1,365 ) 1,786

Comprehensive Income (Loss) $ (1,555 ) $ 35,589 $ 33,441 $ 24,242

Comprehensive Income Attributable to Non-Controlling Interest in Subsidiary — (1,081 ) — (1,957 )

Comprehensive Income (Loss) Attributable to Interface, Inc. $ (1,555 ) $ 34,508 $ 33,441 $ 22,285


	THREE MONTHS ENDED					SIX MONTHS ENDED
	JULY 1, 2012			JULY 3, 2011		JULY 1, 2012			JULY 3, 2011
Net Income	$	10,258		$	12,814	$	4,324		$	22,638
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment and Pension Liability Adjustment		(11,879	)		4,092		(4,896	)		12,358

Comprehensive Income (Loss)	$	(1,621	)	$	16,906	$	(572	)	$	34,996

See accompanying notes to consolidated condensed financial statements.

-5-

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

NINE MONTHS ENDED
OCT. 2, 2011 OCT. 3, 2010
OPERATING ACTIVITIES:
Net Income $ 34,806 $ 22,456
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:
Premiums Paid to Repurchase Senior Subordinated Notes — 792
Depreciation and Amortization 19,900 17,352
Stock Compensation Amortization Expense 8,558 1,901
Deferred Income Taxes and Other 8,244 (167 )
Working Capital Changes:
Accounts Receivable (6,808 ) (10,069 )
Inventories (34,862 ) (20,453 )
Prepaid Expenses (3,850 ) (7,404 )
Accounts Payable and Accrued Expenses (16,001 ) 27,196

CASH PROVIDED BY OPERATING ACTIVITIES: 9,987 31,604

INVESTING ACTIVITIES:
Capital Expenditures (30,759 ) (18,443 )
Other (1,624 ) (1,816 )

CASH USED IN INVESTING ACTIVITIES: (32,383 ) (20,259 )

FINANCING ACTIVITIES:
Repurchase of Senior and Senior Subordinated Notes — (39,586 )
Premiums Paid to Repurchase Senior Subordinated Notes — (792 )
Proceeds from Issuance of Common Stock 2,610 1,803
Dividends Paid to Interface, Inc. Shareholders (3,921 ) (1,435 )
Other (509 ) —
Dividends Paid to Joint Venture Partner — (7,904 )

CASH USED IN FINANCING ACTIVITIES: (1,820 ) (47,914 )

Net Cash Used in Operating, Investing and Financing Activities (24,216 ) (36,569 )
Effect of Exchange Rate Changes on Cash (634 ) 2,060

CASH AND CASH EQUIVALENTS:
Net Change During the Period (24,850 ) (34,509 )
Balance at Beginning of Period 69,236 115,363

Balance at End of Period $ 44,386 $ 80,854


	SIX MONTHS ENDED
	JULY 1, 2012			JULY 3, 2011
OPERATING ACTIVITIES:
Net Income	$	4,324		$	22,638
Adjustments to Reconcile Net Income to Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization		12,650			13,112
Stock Compensation Amortization Expense		2,164			8,120
Deferred Income Taxes and Other		(2,356	)		3,276
Working Capital Changes:
Accounts Receivable		14,751			(7,995	)
Inventories		(9,606	)		(30,010	)
Prepaid Expenses and Other Current Assets		(2,524	)		(4,083	)
Accounts Payable and Accrued Expenses		4,026			(26,442	)

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:		23,429			(21,384	)

INVESTING ACTIVITIES:
Capital Expenditures		(21,747	)		(18,814	)
Other		(1,137	)		(1,995	)

CASH USED IN INVESTING ACTIVITIES:		(22,884	)		(20,809	)

FINANCING ACTIVITIES:
Repurchase of Senior Subordinated Notes		(11,477	)		—
Other		—			(505	)
Proceeds from Issuance of Common Stock		131			2,579
Dividends Paid		(2,627	)		(2,612	)

CASH USED IN FINANCING ACTIVITIES:		(13,973	)		(538	)

Net Cash Used in Operating, Investing and Financing Activities		(13,428	)		(42,731	)
Effect of Exchange Rate Changes on Cash		(329	)		794

CASH AND CASH EQUIVALENTS:
Net Change During the Period		(13,757	)		(41,937	)
Balance at Beginning of Period		50,635			69,236

Balance at End of Period	$	36,878		$	27,299

See accompanying notes to consolidated condensed financial statements.

-6-

INTERFACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1 —– CONDENSED FOOTNOTES

As contemplated by the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the Company’s year-end audited consolidated financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended January ~~2, 2011,~~1, 2012, 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,~~1, 2012, 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~~where applicable.

Certain prior period amounts have been reclassified to conform to the current period presentation.

NOTE 2 —– INVENTORIES

Inventories are summarized as follows:

Oct. 2, 2011 Jan. 2, 2011
(In thousands)
Finished Goods $ 103,157 $ 78,303
Work in Process 20,114 16,731
Raw Materials 47,845 41,732

$ 171,116 $ 136,766


	July 1, 2012		January 1, 2012
	(In thousands)
Finished Goods	$	101,867	$	98,894
Work in Process		21,201		17,606
Raw Materials		50,616		49,573

	$	173,684	$	166,073

NOTE 3 —– EARNINGS PER SHARE

The Company computes basic earnings per share (“EPS”) ~~attributable to common shareholders~~ by dividing net income ~~attributable to 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 included in the calculation of basic and diluted EPS, 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. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. 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:

Three Months Ended Nine Months Ended
Oct. 2, 2011 Oct. 3, 2010 Oct. 2, 2011 Oct. 3, 2010
Basic Earnings Per Share Attributable to Common Shareholders:

Distributed Earnings $ 0.02 $ 0.01 $ 0.06 $ 0.02
Undistributed Earnings 0.17 0.18 0.47 0.32

Total $ 0.19 $ 0.19 $ 0.53 $ 0.34

Diluted Earnings Per Share Attributable to Common Shareholders:

Distributed Earnings $ 0.02 $ 0.01 $ 0.06 $ 0.02
Undistributed Earnings 0.17 0.18 0.47 0.32

Total $ 0.19 $ 0.19 $ 0.53 $ 0.34

-7-


	Three Months Ended				Six Months Ended
	July 1, 2012		July 3, 2011		July 1, 2012		July 3, 2011
Earnings Per Share
Basic Earnings Per Share:
Distributed Earnings	$	0.02	$	0.02	$	0.04	$	0.04
Undistributed Earnings		0.14		0.18		0.03		0.31

Total	$	0.16	$	0.20	$	0.07	$	0.35

Diluted Earnings Per Share:
Distributed Earnings	$	0.02	$	0.02	$	0.04	$	0.04
Undistributed Earnings		0.14		0.18		0.03		0.31

Total	$	0.16	$	0.20	$	0.07	$	0.35

The following ~~table presents~~tables present net income ~~and net income attributable to Interface, Inc.~~ that was attributable to participating securities:

Three Months Ended Nine Months Ended
Oct. 2, 2011 Oct. 3, 2010 Oct. 2, 2011 Oct. 3, 2010
(In millions)
Net Income $ 0.3 $ 0.3 $ 0.9 $ 0.6
Net Income Attributable to Interface, Inc. $ 0.3 $ 0.3 $ 0.9 $ 0.6


	Three Months Ended				Six Months Ended
	July 1, 2012		July 3, 2011		July 1, 2012		July 3, 2011
			(In millions)
Net Income	$	0.3	$	0.3	$	0.1	$	0.6

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

Three Months Ended Nine Months Ended
Oct. 2, 2011 Oct. 3, 2010 Oct. 2, 2011 Oct. 3, 2010
(In thousands)
Weighted Average Shares Outstanding 63,703 62,284 63,462 61,882
Participating Securities 1,766 1,741 1,766 1,741

Shares for Basic Earnings Per Share 65,469 64,025 65,228 63,623
Dilutive Effect of Stock Options 207 553 229 483

Shares for Diluted Earnings Per Share 65,676 64,578 65,457 64,106


	Three Months Ended				Six Months Ended
	July 1, 2012		July 3, 2011		July 1, 2012		July 3, 2011
			(In thousands)
Weighted Average Shares Outstanding		63,927		63,623		63,676		63,333
Participating Securities		2,025		1,775		2,025		1,775

Shares for Basic Earnings Per Share		65,952		65,398		65,701		65,108
Dilutive Effect of Stock Options		176		279		167		255

Shares for Diluted Earnings Per Share		66,128		65,677		65,868		65,363	��

For the ~~quarters~~three-month periods ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ options to purchase ~~249,000~~274,000 and ~~389,000~~20,000 shares of common stock, respectively, were not included in the computation of diluted EPS as their impact would be anti-dilutive. For the ~~nine-month~~six-month periods ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ options to purchase ~~20,000~~274,000 and ~~404,000~~20,000 shares of common stock, respectively, were not included in the computation of diluted EPS as their impact would be anti-dilutive.

NOTE 4 —– SEGMENT INFORMATION

Based on the quantitative thresholds specified ~~in applicable~~by accounting standards, the Company has determined that it has two reportable segments: (1) the Modular Carpet segment, which includes its Interface, 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.~~

operations, where applicable.

-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’s Annual Report on Form 10-K for the fiscal year ended January ~~2, 2011,~~1, 2012, as filed with the Commission. Segment amounts disclosed are prior to any elimination entries made in consolidation, except in the case of net sales, where intercompany sales have been eliminated. The chief operating decision-maker evaluates performance of the segments based on operating income. Costs excluded from this profit measure primarily consist of allocated corporate expenses, interest/other expense and income taxes. Corporate expenses are primarily comprised of corporate overhead expenses. Thus, operating income includes only the costs that are directly attributable to the operations of the individual segment. 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 October 2, 2011
Net Sales $ 248,721 $ 24,385 $ 273,106
Depreciation and Amortization 5,493 554 6,047
Operating Income (Loss) 26,333 (63 ) 26,270

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

Modular Bentley
Carpet Prince Street Total
(In thousands)
Nine Months Ended October 2, 2011
Net Sales $ 708,567 $ 77,581 $ 786,148
Depreciation and Amortization 20,296 1,677 21,973
Operating Income (Loss) 78,604 (124 ) 78,480

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


	Modular Carpet		Bentley Prince Street			Total
	(In thousands)
Three Months Ended July 1, 2012
Net Sales	$	229,546	$	25,061		$	254,607
Depreciation and Amortization		6,010		562			6,572
Operating Income (Loss)		24,034		(1,232	)		22,802
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

~~-9-~~

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

Three Months Ended Nine Months Ended
Oct. 2, 2011 Oct. 3, 2010 Oct. 2, 2011 Oct. 3, 2010
(In thousands) (In thousands)
DEPRECIATION AND AMORTIZATION
Total segment depreciation and amortization $ 6,047 $ 4,789 $ 21,973 $ 14,328
Corporate depreciation and amortization 1,179 1,562 6,485 4,925

Reported depreciation and amortization $ 7,226 $ 6,351 $ 28,458 $ 19,253

OPERATING INCOME
Total segment operating income $ 26,270 $ 29,495 $ 78,480 $ 69,493
Corporate income, expenses and other reconciling amounts (932 ) (1,456 ) (5,477 ) (6,233 )

Reported operating income $ 25,338 $ 28,039 $ 73,003 $ 63,260

Oct. 2, 2011 Jan. 2, 2011
ASSETS (In thousands)
Total segment assets $ 664,457 $ 610,024
Discontinued operations 1,200 1,200
Corporate assets and eliminations 113,648 144,209

Reported total assets $ 779,305 $ 755,433


	Three Months Ended						Six Months Ended
	July 1, 2012			July 3, 2011			July 1, 2012			July 3, 2011
	(In thousands)						(In thousands)
DEPRECIATION AND AMORTIZATION
Total segment depreciation and amortization	$	6,572		$	7,265		$	13,470		$	15,926
Corporate depreciation and amortization		698			1,385			1,344			5,306

Reported depreciation and amortization	$	7,270		$	8,650		$	14,814		$	21,232

OPERATING INCOME
Total segment operating income	$	22,802		$	27,033		$	23,290		$	52,210
Corporate income, expenses and other reconciling amounts		(769	)		(896	)		(738	)		(4,545	)

Reported operating income	$	22,033		$	26,137		$	22,552		$	47,665

-9-


	July 1, 2012		January 1, 2012
	(In thousands)
ASSETS
Total segment assets	$	644,061	$	658,190
Corporate assets and eliminations		107,509		114,082

Reported total assets	$	751,570	$	772,272

NOTE 5 —– LONG-TERM DEBT

7 5/8% Senior Notes

~~On December~~

As of both July 1, 2012, and July 3, ~~2010,~~2011, the Company ~~completed a private offering of~~had outstanding $275 million ~~aggregate principal amount of~~in 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 October 2, 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 ~~October 2,~~July 1, 2012, and July 3, 2011, based on then current market prices, was ~~$279.1 million.~~

$292.2 million and $288.1 million, respectively.

11 3/8% Senior Secured Notes

~~On June 5, 2009,~~

As of July 1, 2012, and July 3, 2011, the Company ~~completed a private offering of $150~~had outstanding $8.1 million ~~aggregate principal amount of~~and $8.0 million, respectively, in 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 October 2, 2011, the balance~~estimated fair value of the 11 3/8% Senior Secured Notes ~~outstanding, net of the remaining unamortized original issue discount, was approximately $8.0 million. The estimated fair value of the Senior Secured Notes~~ as of ~~October 2,~~July 1, 2012, and July 3, 2011, based on then current market prices, was $8.8 million and $8.1 ~~million.~~

million, respectively.

9.5% Senior Subordinated Notes

On ~~February 4, 2004,~~April 9, 2012, the Company ~~completed a private offering~~redeemed all of ~~$135~~the remaining $11.5 million of ~~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 October 2, 2011, the Company had~~its 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 October 2, 2011, based on then current market prices, was $11.5 million.~~

~~-10-~~

~~During the first quarter of 2010, the Company redeemed $25.0 million aggregate principal amount of the 9.5% Senior Subordinated Notes~~ at a price equal to ~~103.167%~~100% of the ~~face value~~principal amount of the ~~notes. Accordingly,~~notes, plus accrued interest through 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 Expense” line item in the Company’s consolidated condensed statements of operations.

date.

Credit Facilities

~~On June 24, 2011, the~~

The Company ~~amended and restated its primary~~maintains a domestic revolving credit ~~facility. Under the amended and restated facility~~agreement (the “Facility”)~~, as under its predecessor, the Company’s obligations are secured by~~ that provides 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 ~~the Company~~us at any one time ~~remains $100 million (with the~~(subject to a borrowing base) with an option for us to ~~further~~ increase that maximum aggregate amount to ~~up to a maximum of~~ $150 million ~~— the same option amount as in its predecessor — subject to~~(upon the satisfaction of certain ~~conditions),~~conditions, and subject to a borrowing ~~base described~~base). The Company is presently in compliance with all covenants under the ~~Facility. The~~ Facility ~~differs from its predecessor~~and anticipates that it will remain in compliance with 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 may incur or allow to exist.~~

	•		~~The 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 raised.~~

	•		~~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 certain 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 has been lowered to more than 50% of the aggregate amount of the lending commitments from more than 66 2/3% of the aggregate amount of the lending commitments.

covenants for the foreseeable future. As of ~~October 2, 2011,~~July 1, 2012, there were zero borrowings and ~~$5.2~~$3.9 million in letters of credit outstanding under the Facility. As of ~~October 2 2011,~~July 1, 2012, the Company could have incurred ~~$80.6~~$84.3 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~~The Royal Bank of Scotland N.V. (“RBS”). Under this Credit Agreement, ~~ABN AMRO~~RBS provides a credit facility, until further notice, for borrowings and bank guarantees ~~in varying aggregate amounts over time.~~of €20 million. As of ~~October 2, 2011,~~July 1, 2012, there were no borrowings outstanding under this facility, and the Company could have incurred ~~€14.0~~€20 million (approximately ~~$19.0~~$24.9 million) of additional borrowings under the facility.

Other non-U.S. subsidiaries of the Company have an aggregate of the equivalent of ~~$18.2~~$18.5 million of lines of credit available. As of ~~October 2, 2011,~~July 1, 2012, there were no borrowings outstanding under these lines of credit.

~~-11-~~

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.~~model that meets the criteria stated in the standard. 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.

-10-

During the first ~~nine~~six months of ~~2011~~2012 and ~~2010,~~2011, the Company recognized stock option compensation costs of ~~$0.7~~$0.4 million and ~~$1.1~~$0.6 million, respectively. In the ~~third~~second quarters of ~~2011~~2012 and ~~2010,~~2011, the Company recognized stock option compensation costs of $0.2 million and ~~$0.4~~$0.3 million, respectively. The remaining unrecognized compensation cost related to unvested ~~stock option~~ awards at ~~October 2, 2011,~~July 1, 2012, approximated ~~$0.7~~$0.2 million, and the weighted average period of time over which this cost will be recognized is approximately one year.

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 nine months of fiscal year 2010. There were no stock options granted in 2011.


	~~Nine Months Ended~~
	~~Oct. 3, 2010~~
~~Risk free interest rate~~		~~2.09~~	%
~~Expected life~~	~~5.5 years~~
~~Expected volatility~~		61	%
~~Expected dividend yield~~		~~0.3~~	%

~~The weighted average grant date fair value of stock options granted during the first nine months of fiscal 2010 was $6.79 per share.~~

The following table summarizes stock options outstanding as of ~~October 2, 2011,~~July 1, 2012, as well as activity during the ~~nine~~six months then ended:

Weighted Average
Shares Exercise Price
Outstanding at January 2, 2011 1,148,500 $ 7.51
Granted — —
Exercised 487,000 4.43
Forfeited or canceled 23,500 6.29

Outstanding at October 2, 2011 638,000 $ 7.19

Exercisable at October 2, 2011 498,000 $ 7.95


	Shares		Weighted Average Exercise Price
Outstanding at January 1, 2012		592,500	$	9.12
Granted		—		—
Exercised		23,500	$	5.59
Forfeited or canceled		34,000	$	11.72

Outstanding at July 1, 2012		535,000	$	8.85

Exercisable at July 1, 2012		419,200	$	7.80

At ~~October 2, 2011,~~July 1, 2012, the aggregate intrinsic value of in-the-money options outstanding and options exercisable was ~~$2.3~~$2.6 million and ~~$2.3~~$2.5 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).

~~-12-~~

Cash proceeds and intrinsic value related to total stock options exercised during the first ~~nine~~six months of fiscal years ~~2011~~2012 and ~~2010~~2011 are provided in the table below. The Company did not recognize any significant tax benefit with regard to stock options in either ~~period.~~

Nine Months Ended
Oct. 2, 2011 Oct. 3, 2010
(In millions)
Proceeds from stock options exercised $ 2.6 $ 1.8
Intrinsic value of stock options exercised $ 5.9 $ 3.9

period presented.


	Six Months Ended
	July 1, 2012		July 3, 2011
	(In thousands)
Proceeds from stock options exercised	$	131	$	2,579
Intrinsic value of stock options exercised		179		5,819

Restricted Stock Awards

During the ~~nine~~six months ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ the Company granted restricted stock awards for ~~668,000~~573,500 and ~~529,000~~668,000 shares, respectively, of ~~Class B~~ common stock. These awards (or a portion thereof) vest with respect to each recipient over a two to ~~five-year~~five year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date. Additionally, ~~these shares~~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 restricted stock grants was ~~$8.6~~$2.2 million and ~~$1.9~~$8.1 million for the ~~nine~~six months ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 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.

The following table summarizes restricted stock activity as of ~~October 2, 2011,~~July 1, 2012, and during the ~~nine~~six months then ended:

Weighted Average
Shares Grant Date Fair Value
Outstanding at January 2, 2011 1,740,000 $ 13.04
Granted 668,000 17.08
Vested 600,000 12.23
Forfeited or canceled 42,000 14.21

Outstanding at October 2, 2011 1,766,000 $ 15.03


	Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2012		1,749,000	$	15.08
Granted		573,500		13.25
Vested		241,500		13.20
Forfeited or canceled		56,000		15.11

Outstanding at July 1, 2012		2,025,000	$	14.79

-11-

As of ~~October 2, 2011,~~July 1, 2012, the unrecognized total compensation cost related to unvested restricted stock was ~~$13.3~~approximately $13.9 million. That cost is expected to be recognized by the end of 2015.

For the ~~nine~~six months ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ the Company recognized tax benefits ~~of $2.4 million and $0.5 million, respectively,~~ with regard to restricted ~~stock.~~

stock of $0.3 million and $2.1 million, respectively.

~~-13-~~

NOTE 7 —– EMPLOYEE BENEFIT PLANS

The following tables provide the components of net periodic benefit cost for the three-month and ~~nine-month~~six-month periods ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ respectively:

Three Months Ended Nine Months Ended
Defined Benefit Retirement Plan (Europe) Oct. 2, 2011 Oct. 3, 2010 Oct. 2, 2011 Oct. 3, 2010
(In thousands) (In thousands)
Service cost $ 72 $ 88 $ 217 $ 266
Interest cost 2,835 2,715 8,605 8,094
Expected return on assets (2,935 ) (2,772 ) (8,910 ) (8,264 )
Amortization of prior service costs 21 22 63 66
Recognized net actuarial (gains)/losses 149 413 454 1,226

Net periodic benefit cost $ 142 $ 466 $ 429 $ 1,388

Three Months Ended Nine Months Ended
Salary Continuation Plan (SCP) Oct. 2, 2011 Oct. 3, 2010 Oct. 2, 2011 Oct. 3, 2010
(In thousands) (In thousands)
Service cost $ 98 $ 86 $ 295 $ 257
Interest cost 284 280 853 841
Amortization of transition obligation 55 55 164 164
Amortization of prior service cost 12 12 36 36
Amortization of loss 93 68 277 205

Net periodic benefit cost $ 542 $ 501 $ 1,625 $ 1,503


	Three Months Ended						Six Months Ended
Defined Benefit Retirement Plan (Europe)	July 1, 2012			July 3, 2011			July 1, 2012			July 3, 2011
	(In thousands)						(In thousands)
Service cost	$	113		$	74		$	229		$	145
Interest cost		2,542			2,932			5,086			5,770
Expected return on assets		(2,817	)		(3,041	)		(5,638	)		(5,975	)
Amortization of prior service costs		13			21			26			42
Recognized net actuarial losses		231			155			460			305

Net periodic benefit cost	$	82		$	141		$	163		$	287


	Three Months Ended						Six Months Ended
Salary Continuation Plan (SCP)	July 1, 2012			July 3, 2011			July 1, 2012			July 3, 2011
	(In thousands)						(In thousands)
Service cost	$	113		$	98		$	226		$	196
Interest cost		254			284			507			568
Amortization of transition obligation		—			55			—			110
Amortization of prior service cost		12			12			24			24
Amortization of loss		67			95			134			185

Net periodic benefit cost	$	446		$	544		$	891		$	1,083

NOTE 8 ~~— 2010~~– RESTRUCTURING ~~CHARGE~~

CHARGES

2012 Restructuring Charge

In the first quarter of ~~2010,~~2012, the Company ~~adopted~~committed to a new restructuring plan ~~primarily related to workforce reduction~~ in its ~~European modular carpet operations. This reduction was~~continuing efforts to reduce costs across its worldwide operations and more closely align its operations with reduced demand levels in ~~response to the continued challenging economic climate~~certain markets. The plan primarily consists of ceasing manufacturing and warehousing operations at its facility 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.~~Shelf, England. In connection with this restructuring plan, the Company ~~recorded~~incurred a pre-tax restructuring and asset impairment charge in the first quarter of ~~$3.1~~2012 in an amount of $16.3 million. ~~Substantially all~~The charge is comprised of employee severance expenses of $5.4 million, other related exit costs of $1.6 million, and a charge for impairment of assets of approximately $9.3 million. Approximately $7 million of the charge will result in cash expenditures, primarily severance expense. Actions and expenses related to this plan were substantially completed by the end of the second quarter of 2012.

A summary of these restructuring activities is presented below:


	Total Restructuring Charge		Costs Incurred in 2012		Balance at July 1, 2012
	(In thousands)
Workforce Reduction		5,356		1,843		3,513
Fixed Asset Impairment		9,364		9,364		—
Other Related Exit Costs		1,596		—		1,596

-12-

The table below details these restructuring activities by segment:


	Modular Carpet		Bentley Prince Street		Corporate		Total
	(In thousands)
Total amounts expected to be incurred	$	16,316	$	—	$	—	$	16,316
Cumulative amounts incurred to date		11,207		—		—		11,207
Total amounts incurred in 2012		11,207		—		—		11,207

2011 Restructuring Charge

In the fourth quarter of 2011, the Company committed to a restructuring plan intended to reduce costs across its worldwide operations and more closely align its operations with reduced demand in certain markets. As a result of this plan, the Company incurred pre-tax restructuring and asset impairment charges of $6.2 million in the fourth quarter of 2011. The majority of this charge ~~involves~~($5.4 million) relates to the severance of approximately 110 employees in Europe, Asia and the United States. The remainder of the charge ($0.8 million) relates to contract termination and fixed asset impairment costs. Approximately $5.4 million of this charge will result in cash expenditures, primarily severance expenses. Actions and expenses related to this plan were substantially completed inby the ~~first quarter~~end of ~~2010.~~

2011.

A summary of these restructuring activities is presented below:

Total
Restructuring Costs Incurred Costs Incurred Balance at
Charge in 2010 in 2011 Oct. 2, 2011
(In thousands)
Workforce reduction $ 3,131 $ 2,674 $ 457 $ —


	Restructuring Charge		Costs Incurred in 2011		Costs Incurred in 2012		Balance at July 1, 2012
	(In thousands)
Workforce Reduction		5,401		1,147		2,572		1,682
Fixed Asset Impairment		776		776		—		—

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 2,951 180 — 3,131
Total amounts incurred in the nine-month period ended October 2, 2011 457 — — 457


	Modular Carpet		Bentley Prince Street		Corporate		Total
	(In thousands)
Total amounts expected to be incurred	$	5,755	$	422	$	—	$	6,177
Cumulative amounts incurred to date		4,073		422		—		4,495
Total amounts incurred in 2012		2,430		142		—		2,572

~~-14-~~

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.~~operations, where applicable. Assets and liabilities of this business segment have been reported in assets and liabilities held for sale, ~~for all periods presented.~~ where applicable.

Discontinued operations had no net sales and no net income or loss in either of the three-month or ~~nine-month~~six-month periods ended ~~October 2, 2011,~~July 1, 2012 and ~~October~~July 3, ~~2010.~~

2011.

NOTE 10 —– SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest amounted to $12.0 million and ~~$21.2~~$11.2 million for the ~~nine~~six months ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ respectively. Income tax payments amounted to ~~$15.2~~$6.0 million and ~~$10.8~~$11.1 million for the ~~nine~~six months ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ respectively.

-13-

NOTE 11 —– RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard regarding the performance of a company’s annual goodwill impairment evaluation. This standard allows companies to assess qualitative factors to determine if it is ~~more-likely-than-not~~more likely than not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test. This standard is effective for fiscal years beginning after December 31, 2011. ~~At this time the Company does not expect~~The adoption of this standard ~~will~~did not have any significant impact on ~~its~~the Company’s consolidated financial statements.

In June 2011, the 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, iswas to be effective for interim and annual periods ending after December 31, 2012, with earlier adoption permitted. In December of 2011, the FASB issued an amendment to this statement which defers the requirements of this standard. As this amendment only ~~effects~~affects 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.

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 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 ~~nine~~six months of ~~2011,~~2012, the Company increased its liability for unrecognized tax benefits by $0.1 million. As of ~~October 2, 2011,~~July 1, 2012, the Company had accrued approximately ~~$8.2~~$7.8 million ~~accrued~~ for unrecognized tax benefits.

~~-15-~~

NOTE 13 ~~— DIVIDEND TO NON-CONTROLLING INTEREST PARTNER~~

In– SHARE CONVERSION

On March 5, 2012, the ~~third quarter~~number of ~~2010,~~issued and outstanding shares of Class B Common Stock constituted less than 10% of 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, assetsaggregate number of issued 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~~outstanding shares of the ~~Thailand manufacturing joint venture~~Company’s Class A Common Stock and Class B Common Stock (that is, on that ~~were held by~~date, 6,459,556 shares of an aggregate of 65,372,375 shares), as the ~~non-controlling interest partner~~cumulative result of varied transactions that caused the conversion of shares of Class B Common Stock into shares of Class A Common Stock. Accordingly, in accordance with the respective terms for ~~approximately $4.3 million. After this purchase,~~ the ~~Company now owns all~~Class B Common Stock and the Class A Common Stock in Article V of the ~~shares~~Company’s Articles of Incorporation (the “Articles”), the Class A Common Stock and Class B Common Stock are now, irrevocably from March 5, 2012, a single class of Common Stock in all respects, with no distinction whatsoever between the voting rights or any other rights and privileges of the ~~Thailand venture.~~

holders of Class A Common Stock and the holders of Class B Common Stock. The Company intends to eliminate future uses of (or references to) the terms “Class A” and “Class B” in connection with the Common Stock, except for historical purposes or to facilitate transition by certain stock listing or administrative services organizations who are accustomed to the old designations for the Common Stock.

NOTE 14 —– SUBSEQUENT EVENT

– FIRE AT AUSTRALIAN MANUFACTURING FACILITY

On ~~October 26, 2011, the Company committed~~July 20, 2012, subsequent to a restructuring plan intended to reduce costs across its worldwide operations and more closely align its operations with reduced demand levels in certain markets. As a result of this plan, the Company expects to incur restructuring and asset impairment charges of approximately $6.5 million to $8.0 million during the fourth quarter of 2011. The majority of the charge will relate to reductions of approximately 100 employees (approximately $5-6 million) as well as smaller amounts for contract termination costs (approximately $0.5-1.0 million) and impairment of assets (approximately $0.8-1.0 million). The Company anticipates that approximately $5.5-6.5 million of this charge will result in future cash expenditures, primarily severance expense. Actions related to this restructuring plan are expected to be completed by the end of the ~~fourth~~second quarter of ~~2011,~~2012, a fire occurred at the Company’s manufacturing facility in Picton, Australia. The facility’s carpet production line, primarily comprised of tufting and backing machinery, sustained substantial damage and will be inoperable for an undetermined period of time. Other areas of the Company’s Picton site relating to yarn preparation and warehousing were undamaged by the fire. The finished goods inventory and some raw materials for the business are kept at separate offsite locations and were not affected by this incident.

The Picton facility serves the Company’s customers throughout Australia and New Zealand. It represents approximately 7% of the Company’s total annual production, 10% of its net sales, and 13% of its operating income. The Company will utilize adequate production capacity at its manufacturing facilities in Thailand and China to meet customer demand typically serviced from Picton. The Company does not expect any significant inconvenience to customers. The Company has business interruption and property damage insurance.

-14-

NOTE 15 – SUBSEQUENT EVENT – PENDING SALE OF BENTLEY PRINCE STREET

On July 25, 2012, the Company entered into a Stock Purchase Agreement with an affiliate of Dominus Capital, L.P., a private equity investment firm, for the sale of the Company’s Bentley Prince Street business segment. The aggregate purchase price under the Agreement would be $35.0 million paid in cash at the closing of the transaction, subject to possible working capital and/or other similar adjustments. The Company expects the closing of the transaction to occur in August of 2012. As of the end of the second quarter of 2012, Bentley Prince Street had net assets of approximately $49 million. The Company expects to ~~generate annual savings~~record exit costs related to the divestiture of approximately ~~$11.0 million~~$7-$9 million. The final loss on disposal will be calculated based on the ending balance sheet of Bentley Prince Street as ~~a result thereof.~~

of the date of closing.

NOTE ~~15 —~~16 – 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.

~~-16-~~

INTERFACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED ~~OCTOBER 2, 2011~~

INTERFACE, CONSOLIDATION
NON- INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
(IN THOUSANDS)

Net sales $ 182,658 $ 134,854 $ — $ (44,406 ) $ 273,106
Cost of sales 134,448 88,639 — (44,406 ) 178,681

Gross profit on sales 48,210 46,215 — — 94,425
Selling, general and administrative expenses 30,972 32,062 6,053 — 69,087

Operating income (loss) 17,238 14,153 (6,053 ) — 25,338
Interest/Other expense 7,823 2,763 (4,333 ) — 6,253

Income (loss) before taxes on income and equity in income of subsidiaries 9,415 11,390 (1,720 ) — 19,085
Income tax expense (benefit) 3,412 4,128 (623 ) — 6,917
Equity in income (loss) of subsidiaries — — 13,265 (13,265 ) —

Net income (loss) 6,003 7,262 12,168 (13,265 ) 12,168
Income attributable to non-controlling interest in subsidiary — — — — —

Net income (loss) attributable to Interface, Inc. $ 6,003 $ 7,262 $ 12,168 $ (13,265 ) $ 12,168

JULY 1, 2012


	GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES		INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(In thousands)
Net sales	$	167,714	$	117,526	$	—		$	(30,633	)	$	254,607
Cost of sales		121,595		79,050		—			(30,633	)		170,012

Gross profit on sales		46,119		38,476		—			—			84,595
Selling, general and administrative expenses		29,477		27,063		6,022			—			62,562

Operating income (loss)		16,642		11,413		(6,022	)		—			22,033
Interest/Other expense		11,007		2,870		(7,464	)		—			6,413

Income before taxes on income and equity in income of subsidiaries		5,635		8,543		1,442			—			15,620
Income tax expense		1,934		2,933		495			—			5,362
Equity in income (loss) of subsidiaries		—		—		9,311			(9,311	)		—

Net income (loss)	$	3,701	$	5,610	$	10,258		$	(9,311	)	$	10,258

~~-17-~~

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE ~~NINE~~SIX MONTHS ENDED ~~OCTOBER 2, 2011~~

NON- INTERFACE, INC. CONSOLIDATION AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
(IN THOUSANDS)

Net sales $ 512,183 $ 405,303 $ — $ (131,338 ) $ 786,148
Cost of sales 378,571 262,787 — (131,338 ) 510,020

Gross profit on sales 133,612 142,516 — — 276,128
Selling, general and administrative expenses 86,872 94,901 21,352 — 203,125

Operating income (loss) 46,740 47,615 (21,352 ) — 73,003
Interest/Other expense 20,654 9,689 (10,602 ) — 19,741

Income (loss) before taxes on income and equity in income of subsidiaries 26,086 37,926 (10,750 ) — 53,262
Income tax expense (benefit) 9,110 13,118 (3,772 ) — 18,456
Equity in income (loss) of subsidiaries — — 41,784 (41,784 ) —

Net income (loss) 16,976 24,808 34,806 (41,784 ) 34,806
Income attributable to non-controlling interest in subsidiary — — — — —

Net income (loss) attributable to Interface, Inc. $ 16,976 $ 24,808 $ 34,806 $ (41,784 ) $ 34,806

JULY 1, 2012


	GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(In thousands)
Net sales	$	310,498	$	238,181		$	—		$	(61,312	)	$	487,367
Cost of sales		227,938		159,943			—			(61,312	)		326,569

Gross profit on sales		82,560		78,238			—			—			160,798
Selling, general and administrative expenses		56,296		54,668			10,966			—			121,930
Restructuring and asset impairment charge		1,143		15,173			—			—			16,316

Operating income (loss)		25,121		8,397			(10,966	)		—			22,552
Interest/Other expense		18,242		6,603			(11,342	)		—			13,503

Income (loss) before taxes on income and equity in income of subsidiaries		6,879		1,794			376			—			9,049
Income tax expense		2,055		2,278			392			—			4,725
Equity in income (loss) of subsidiaries		—		—			4,340			(4,340	)		—

Net income (loss)	$	4,824	$	(484	)	$	4,324		$	(4,340	)	$	4,324

~~-18-~~

CONDENSED CONSOLIDATING BALANCE SHEET

~~OCTOBER 2, 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 $ 1,813 $ 30,456 $ 12,117 $ — $ 44,386
Accounts receivable 67,456 89,877 676 — 158,009
Inventories 96,980 74,136 — — 171,116
Prepaids and deferred income taxes 9,071 17,598 10,806 — 37,475
Assets of business held for sale — 1,200 — — 1,200

Total current assets 175,320 213,267 23,599 — 412,186
Property and equipment less accumulated depreciation 83,806 99,589 4,675 — 188,070
Investment in subsidiaries 241,113 153,434 189,892 (584,439 ) —
Goodwill 6,954 69,612 — — 76,566
Other assets 6,545 12,138 83,800 — 102,483

$ 513,738 $ 548,040 $ 301,966 $ (584,439 ) $ 779,305

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities $ 15,340 $ 52,044 $ 86,358 $ — $ 153,742
Senior notes and senior subordinated notes — — 294,487 — 294,487
Deferred income taxes 11,124 1,615 (4,268 ) — 8,471
Other 4,242 1,902 27,930 — 34,074

Total liabilities 30,706 55,561 404,507 — 490,774

Common stock 94,145 102,199 6,546 (196,344 ) 6,546
Additional paid-in capital 249,302 12,525 360,184 (261,827 ) 360,184
Retained earnings (deficit) 141,184 424,722 (460,115 ) (125,160 ) (19,369 )
Foreign currency translation adjustment (1,599 ) (19,119 ) (5,775 ) (1,108 ) (27,601 )
Pension liability — (27,848 ) (3,381 ) — (31,229 )

$ 513,738 $ 548,040 $ 301,966 $ (584,439 ) $ 779,305

JULY 1, 2012


	GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,446		$	26,419		$	9,013		$	—		$	36,878
Accounts receivable		66,614			73,936			582			—			141,132
Inventories		98,789			74,895			—			—			173,684
Prepaids and deferred income taxes		8,993			17,926			9,101			—			36,020

Total current assets		175,842			193,176			18,696			—			387,714
Property and equipment less accumulated depreciation		83,319			103,735			3,598			—			190,652
Investment in subsidiaries		267,400			198,892			124,800			(591,092	)		—
Goodwill		6,955			65,177			—			—			72,132
Other assets		5,680			10,552			84,840			—			101,072

	$	539,196		$	571,532		$	231,934		$	(591,092	)	$	751,570

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities	$	47,794		$	75,227		$	18,942		$	—		$	141,963
Senior notes		—			—			283,070			—			283,070
Deferred income taxes		188			11,302			(3,005	)		—			8,485
Other		1,406			8,565			27,217			—			37,188

Total liabilities		49,388			95,094			326,224			—			470,706
Common stock		94,145			102,199			6,596			(196,344	)		6,596
Additional paid-in capital		249,302			12,525			364,376			(261,827	)		364,376
Retained earnings (deficit)		148,441			425,226			(455,813	)		(132,921	)		(15,067	)
Foreign currency translation adjustment		(2,080	)		(29,647	)		(7,018	)		—			(38,745	)
Pension liability		—			(33,865	)		(2,431	)		—			(36,296	)

	$	539,196		$	571,532		$	231,934		$	(591,092	)	$	751,570

~~-19-~~

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE ~~NINE~~SIX MONTHS

ENDED ~~OCTOBER 2, 2011~~

NON- INTERFACE, INC. CONSOLIDATION
GUARANTOR GUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
(IN THOUSANDS)
Net cash provided by (used in) operating activities $ (7,940 ) $ 11,306 $ 5,694 $ 927 $ 9,987

Cash flows from investing activities:
Purchase of plant and equipment (15,048 ) (15,343 ) (368 ) — (30,759 )
Other (399 ) (1,083 ) (142 ) — (1,624 )

Net cash used for investing activities (15,447 ) (16,426 ) (510 ) — (32,383 )

Cash flows from financing activities:
Other 24,114 3,609 (27,305 ) ( 927 ) (509 )
Proceeds from issuance of common stock — — 2,610 — 2,610
Dividends paid to Interface, Inc. shareholders — — (3,921 ) — (3,921 )

Net cash used in financing activities 24,114 3,609 (28,616 ) (927 ) (1,820 )
Effect of exchange rate change on cash — (634 ) — — (634 )

Net increase (decrease) in cash 727 (2,145 ) (23,432 ) — (24,850 )
Cash at beginning of period 1,086 32,601 35,549 — 69,236

Cash at end of period $ 1,813 $ 30,456 $ 12,117 $ — $ 44,386

JULY 1, 2012


	GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(In thousands)
Net cash provided by operating activities	$	6,532		$	2,812		$	10,667		$	3,418		$	23,429

Cash flows from investing activities:
Purchase of plant and equipment		(7,292	)		(14,443	)		(12	)		—			(21,747	)
Other		390			(31	)		(1,496	)		—			(1,137	)

Net cash used for investing activities		(6,902	)		(14,474	)		(1,508	)		—			(22,884	)

Cash flows from financing activities:
Repurchase of senior subordinated notes		—			—			(11,477	)		—			(11,477	)
Other		715			2,536			167			(3,418	)		—
Proceeds from issuance of common stock		—			—			131			—			131
Dividends paid		—			—			(2,627	)		—			(2,627	)

Net cash provided by (used for) financing activities		715			2,536			(13,806	)		(3,418	)		(13,973	)
Effect of exchange rate change on cash		—			(329	)		—			—			(329	)

Net increase (decrease) in cash		345			(9,455	)		(4,647	)		—			(13,757	)
Cash at beginning of period		1,101			35,874			13,660			—			50,635

Cash at end of period	$	1,446		$	26,419		$	9,013		$	—		$	36,878

~~-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 ~~2, 2011,~~1, 2012, under Item 7 of that Form 10-K. Our discussions here focus on our results during the quarter and ~~nine~~six months ended, or as of, ~~October 2, 2011,~~July 1, 2012, and the comparable periods of ~~2010~~2011 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,~~1, 2012, 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 our 11 3/8% Senior Secured Notes and approximately $98.5 million aggregate principal amount of our 9.5% Senior Subordinated Notes pursuant to a Company tender offer.

2012 Restructuring ~~Plans~~

Charge

In the first quarter of ~~2010,~~2012, we ~~adopted~~committed to a new restructuring plan ~~primarily related to workforce reduction~~ in our ~~European modular carpet operations. This reduction was~~continuing efforts to reduce costs across our worldwide operations and more closely align our operations with reduced demand levels in ~~response to the continued challenging economic climate~~certain markets. The plan primarily consists of ceasing manufacturing and warehousing operations at our facility 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.~~Shelf, England. In connection with this restructuring plan, we ~~recorded~~incurred 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~~asset impairment charge in the first quarter of ~~2010.~~

2012 in an amount of $16.3 million. The charge is comprised of employee severance expenses of $5.4 million, other related exit costs of $1.6 million, and a charge for impairment of assets of approximately $9.3 million. Approximately $7 million of the charge will result in cash expenditures, primarily severance expense. The restructuring plan was substantially completed in the second quarter of 2012, and is expected to yield annualized cost savings of approximately $9 million.

2011 Restructuring Charge

In ~~October~~the fourth quarter of 2011, we committed to a restructuring plan intended to reduce costs across our worldwide operations and more closely align our operations with reduced demand ~~levels~~ in certain markets. As a result of this plan, we ~~expect to incur~~incurred pre-tax restructuring and asset impairment charges of ~~approximately $6.5~~$6.2 million ~~to $8.0 million during~~in the fourth quarter of 2011. The majority of this charge ($5.4 million) relates to the severance of approximately 110 employees in Europe, Asia and the United States. The remainder of the charge ~~will relate~~($0.8 million) relates to ~~reductions of approximately 100 employees (approximately $5-6 million) as well as smaller amounts for~~ contract termination ~~costs (approximately $0.5-1.0 million)~~ and fixed asset impairment ~~of assets (approximately $0.8-1.0 million). We anticipate that approximately $5.5-6.5~~costs. Approximately $5.4 million of this charge will result in ~~future~~ cash expenditures, primarily severance ~~expense.~~expenses. Actions and expenses related to this ~~restructuring~~ plan ~~are expected to be~~were substantially completed by the end of ~~the fourth quarter of 2011, and we expect to generate annual savings of approximately $11.0 million as a result thereof.~~

2011.

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.~~operations,”

where applicable.

Our discontinued operations had no net sales and no net income or loss in either of the three-month or ~~nine-month~~six-month periods ended ~~October 2, 2011~~July 1, 2012 and ~~October~~July 3, ~~2010.~~

2011.

Recent Events

In July 2012, a fire occurred at the Company’s facility in Picton, Australia, and the Company entered into an agreement to sell its Bentley Prince Street business segment. Please see Notes 14 and 15 in the notes to consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

~~-21-~~

~~General~~

During the quarter ended ~~October 2, 2011,~~July 1, 2012, we had net sales of ~~$273.1~~$254.6 million, compared with net sales of ~~$252.7~~$267.6 million in the ~~third~~second quarter last year. Fluctuations in currency exchange rates ~~positively~~negatively impacted ~~2011 third~~2012 second quarter sales by 4%3% (approximately ~~$10~~$7 million), compared with the prior year period. During the first ~~nine~~six months of fiscal year ~~2011,~~2012, we had net sales of ~~$768.1~~$487.4 million, compared with net sales of ~~$696.5~~$513.0 million in the first ~~nine~~six months of last year. Fluctuations in currency exchange rates ~~positively~~negatively impacted sales in the first ~~nine~~six months of ~~2011~~2012 by 4%2% (approximately ~~$26~~$10 million), compared with the prior year period.

Included in our results for the ~~nine~~six months ended ~~October 3, 2010~~July 1, 2012 is ~~$1.1~~a restructuring charge of $16.3 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 nine-month period ended October 3, 2010 is $3.1 million of restructuring charges, as described above.

During the ~~third~~second quarter of ~~2011,~~2012, we had net income ~~attributable to Interface, Inc.~~ of ~~$12.2~~$10.3 million, or $0.19 per diluted share, compared with net income attributable to Interface, Inc. of $12.1 million, or $0.19 per diluted share, in the third quarter of 2010. Net income in the third quarter of 2011 was $12.1 million, or $0.19$0.16 per diluted share, compared with net income of ~~$12.3~~$12.8 million, or ~~$0.19~~$0.20 per diluted share, in the ~~third~~second quarter of ~~2010.~~

2011. During the ~~nine~~six months ended ~~October 2, 2011,~~July 1, 2012, including the $16.3 million restructuring charge described above, we had net income ~~attributable to Interface, Inc.~~ of ~~$34.8~~$4.3 million, or ~~$0.53~~$0.07 per diluted share, compared with net income ~~attributable to Interface, Inc.~~ of ~~$21.6~~$22.6 million, or ~~$0.34~~$0.35 per diluted share, in the first ~~nine~~six months of 2010. Net income was $34.8 million, or $0.53 per diluted share, in the nine months ended October 2, 2011, compared with net income of $22.5 million, or $0.34 per diluted share, in the first nine months of 2010.

2011.

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-month~~six-month periods ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ respectively:

Three Months Ended Nine Months Ended
Oct. 2, 2011 Oct. 3, 2010 Oct. 2, 2011 Oct. 3, 2010

Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 65.4 64.6 64.9 65.1

Gross profit on sales 34.6 35.4 35.1 34.9
Selling, general and administrative expenses 25.3 24.3 25.8 25.4
Restructuring charge — — — 0.4

Operating income 9.3 11.1 9.3 9.1
Bond retirement expenses — — — 0.2
Interest/Other expenses 2.3 3.5 2.5 3.8

Income before tax expense 7.0 7.6 6.8 5.1
Income tax expense 2.5 2.7 2.3 1.9

Net income 4.5 4.9 4.4 3.2
Net income attributable to Interface, Inc. 4.5 4.8 4.4 3.1


	Three Months Ended						Six Months Ended
	July 1, 2012			July 3, 2011			July 1, 2012			July 3, 2011
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		66.8			64.6			67.0			64.6

Gross profit on sales		33.2			35.4			33.0			35.4
Selling, general and administrative expenses		24.6			25.6			25.0			26.1
Restructuring and asset impairment charge		—			—			3.3			—

Operating income		8.7			9.8			4.6			9.3
Interest/Other expenses		2.5			2.6			2.8			2.6

Income before tax expense		6.1			7.2			1.9			6.7
Income tax expense		2.1			2.4			1.0			2.2

Net income		4.0			4.8			0.9			4.4

Below we provide information regarding net sales for each of our operating segments, and analyze those results for the three-month and ~~nine-month~~six-month periods ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ respectively.

~~-22-~~

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 ~~nine-month~~six-month periods ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ respectively:

Three Months Ended Percentage
Oct. 2, 2011 Oct. 3, 2010 Change
Net Sales By Segment (In thousands)
Modular Carpet $ 248,721 $ 226,513 9.8 %
Bentley Prince Street 24,385 26,211 (7.0 )%

Total $ 273,106 $ 252,724 8.1 %

Nine Months Ended Percentage
Oct. 2, 2011 Oct. 3, 2010 Change
Net Sales By Segment (In thousands)
Modular Carpet $ 708,567 $ 623,215 13.7 %
Bentley Prince Street 77,581 73,287 5.9 %

Total $ 786,148 $ 696,502 12.9 %


	Three Months Ended				Percentage
Net Sales By Segment	July 1, 2012		July 3, 2011		Change
	(In thousands)
Modular Carpet	$	229,546	$	240,566		(4.6	)%
Bentley Prince Street		25,061		27,074		(7.4	)%

Total	$	254,607	$	267,640		(4.9	)%

-21-


	Six Months Ended				Percentage
Net Sales By Segment	July 1, 2012		July 3, 2011		Change
	(In thousands)
Modular Carpet	$	439,562	$	459,846		(4.4	)%
Bentley Prince Street		47,805		53,196		(10.1	)%

Total	$	487,367	$	513,042		(5.0	)%

Modular Carpet ~~Segment.~~Segment. For the quarter ended ~~October 2, 2011,~~July 1, 2012, net sales for the Modular Carpet segment ~~increased $22.2~~declined $11.0 million ~~(9.8%~~(4.6%) versus the comparable period in ~~2010.~~the prior year. On a geographic basis, sales increases in the Americas (up 6%) were offset by declines in the Europe (down 13% in U.S. dollars and 2% in local currencies) and Asia-Pacific (down 18%) regions. Sales growth in the Americas was due to increases in both the corporate office market (up 5%) and non-office markets. The strongest performing non-office market segments were residential (up 18%), retail (up 15%) and education (up 13%). The increase in the residential segment was due to new FLOR store openings as well as same store growth. These increases in the Americas were somewhat offset by declines in the government (down 25%) and healthcare (down 4%) market segments. In Europe, the sales decline was due primarily to negative currency translation impacts, as most market segments were flat in local currencies, with the exception of the retail (down 25% in local currencies and 33% in U.S. dollars) and government (down 10% in local currencies and 20% in U.S. dollars) market segments. Asia-Pacific, in the face of strong prior year comparable sales in the second quarter, saw declines in almost all market segments, with education (down 55%) showing the most significant decline due to the curtailment of government stimulus programs that had been in place in 2011 – particularly in Australia.

For the six months ended July 1, 2012, net sales for the Modular Carpet segment declined $20.3 million (4.4%) versus the comparable period in the prior year. On a geographic basis, we experienced increases in ~~net sales in~~ the Americas (up 8%3%) and Europe (up 19% in U.S. dollars, 9% in local currency). Asia-Pacific also saw a sales increase as compared to the third quarter of 2010 (up less than 1%). Worldwide, the increases were due to continued success in the corporate office market segment, success in certain non-office commercial market segments, and continuing strong demand in emerging markets. Sales growth in the Americas was driven primarily by the improving corporate office market segment (up 16%) as well as growth in the residential (up 38%) and education (up 13%) market segments. These increases were moderatedoffset by declines in ~~the retail~~Europe (down ~~13%)~~2% in local currencies and ~~hospitality (down 41%) market segments. Sales growth in Europe was due to the corporate office market segment (up 25%~~8% in U.S. dollars, 15% in local currency) as well as smaller increases in the education (up 25% in U.S. dollars, 14% in local currency) and hospitality (up 31% in U.S. dollars, 20% in local currency) market segments. Mitigating these increases were declines in the residential (down 53% in U.S. dollars, 57% in local currency) and retail (down 11% in U.S. dollars, 18% in local currency). Asia-Pacific saw increases in the corporate office (up 9%) and hospitality (up over 100%) market segments. These increases were primarily offset by a decline in the education market segment (down 43%).

For the nine months ended October 2, 2011, net sales for the Modular Carpet segment increased $85.4 million (13.7%) versus the comparable period in 2010. On a geographic basis, we experienced increases in net sales in all regions for the nine months ended October 2, 2011, versus the comparable period in 2010, with our Americas, Europedollars) and Asia-Pacific ~~regions experiencing sales growth of 11%, 19% and 13%, respectively, during the period (Europe experienced 11% sales growth in local currency)~~(down 17%). ~~The continued recovery of the corporate office market was the largest factor in this increase in sales, although smaller increases occurred in certain non-office commercial market segments.~~ In the Americas, the ~~corporate office~~residential market segment ~~saw an increase of 21% during~~made the ~~nine-month period. Success in certain non-office commercial markets also fueled the sales increase, particularly in the education~~largest gain (up 8%34%), residential (up 19%) and government (up 7%) market segments. These increases were offset somewhat by decreases in the retail (down 9%) and hospitality (down 30%) market segments. Sales growth in Europe was alsoparticularly due to the ~~strength~~opening of seven FLOR retail stores compared with the number of stores at the end of the second quarter of 2011. The education (up 9%), retail (up 6%) and corporate office (up 3%) market ~~segment (up 24% in U.S. dollars, 15% in local currency), as well as success in~~segments also experienced increases during the ~~government (up 21% in U.S. dollars, 13% in local currency) and education (up 22% in U.S. dollars, 12% in local currency) market segments.~~period. These gains were somewhat offset by a decline in the ~~residential~~government market segment (down ~~51%~~22%) during the first six months of 2012 versus the prior year period. In Europe, all market segments declined as reported in U.S. dollars ~~54%~~for the six months ended July 2, 2012, versus the comparable period in 2011, due to adverse currency translation impacts. However, in local ~~currency) in Europe. Asia-Pacific saw increases across almost all market segments, with the exception of the government (down 25%) and education (down 3%) market segments. As in other regions,~~currencies, the corporate office market segment ~~(up 17%)~~in Europe experienced an increase of 4%. Asia-Pacific saw the ~~most significant increase~~largest decline in the education segment (down 59%), primarily as a result of the curtailment of government stimulus programs that had been in place in 2011 – particularly in Australia. The corporate office (down 6%) and hospitality (down 45%) market segments also experienced declines in Asia-Pacific ~~region.~~

compared with the first six months of 2012.

Bentley Prince Street ~~Segment.~~Segment. In our Bentley Prince Street segment, net sales for the quarter ended ~~October 2, 2011, decreased $1.8~~July 1, 2012 declined $2.0 million ~~(7.0%~~(7.4%) versus the comparable period in 2011. The primary driver of the ~~prior year. The~~decrease in sales was the decline in the corporate office market ~~remained strong as compared to the third quarter of 2010, showing an increase in sales of 17%~~segment (down 21%). This ~~increase~~decrease was partially offset by ~~decreases~~increases in the ~~education (down 49%~~government (up 58%) and ~~government (down 35%~~hospitality (up over 100%) market ~~segments, as a result of spending reductions by federal, state and local governments.~~

segments.

~~-23-~~

For the ~~nine~~six months ended ~~October 2, 2011,~~July 1, 2012, net sales for the Bentley Prince Street segment ~~increased $4.3~~declined $5.4 million ~~(5.9%~~(10.1%) versus the comparable period in 2011. The decrease was primarily attributable to the ~~prior year. The~~ corporate office market segment ~~continues to be~~(down 17%) as well as a decline in the ~~driving force behind this increase, showing improvement of 27% versus the first nine months of 2010. This increase was~~government market segment (down 4%). These declines were partially mitigated by ~~declines~~increases in ~~almost all non-office commercial markets, particularly~~ the ~~government (down 33%~~healthcare (up 22%) and ~~education (down 19%~~hospitality (up 13%) market segments. ~~The retail market segment was the only non-office commercial segment to show an increase during the period (up 29%).~~

-22-

~~Costs~~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 ~~nine-month~~six-month periods ended ~~October 2,~~July 1, 2012, and July 3, 2011, ~~and October 3, 2010,~~ respectively:

Three Months Ended Percentage
Cost and Expenses Oct. 2, 2011 Oct. 3, 2010 Change
(In thousands)
Cost of sales $ 178,681 $ 163,244 9.5 %
Selling, general and administrative expenses 69,087 61,441 12.4 %

Total $ 247,768 $ 224,685 10.3 %

Nine Months Ended Percentage
Cost and Expenses Oct. 2, 2011 Oct. 3, 2010 Change
(In thousands)
Cost of sales $ 510,020 $ 453,514 12.5 %
Selling, general and administrative expenses 203,125 176,597 15.0 %

Total $ 713,145 $ 630,111 13.2 %


	Three Months Ended				Percentage
Cost and Expenses	July 1, 2012		July 3, 2011		Change
	(In thousands)
Cost of sales	$	170,012	$	172,865		(1.7	)%
Selling, general and administrative expenses		62,562		68,638		(8.9	)%

Total	$	232,574	$	241,503		(3.7	)%


	Six Months Ended				Percentage
Cost and Expenses	July 1, 2012		July 3, 2011		Change
	(In thousands)
Cost of sales	$	326,569	$	331,339		(1.4	)%
Selling, general and administrative expenses		121,930		134,038		(9.0	)%

Total	$	448,499	$	465,377		(3.6	)%

For the quarter ended ~~October 2, 2011,~~July 1, 2012, our cost of sales ~~increased $15.4~~decreased $2.9 million ~~(9.5%~~(1.7%) versus the comparable period in ~~2010. Fluctuations~~the prior year. Almost all of the decrease was attributable to fluctuations in currency ~~exchange~~ rates ~~accounted for approximately $6.0 million (4%) of the increase. An increase in raw material costs (up 10-12% year-over-year) was the most significant factor~~ in the ~~increase.~~second quarter of 2012 versus the second quarter of 2011. Our raw materials prices in the second quarter of 2012 were approximately 1-2% higher than in the comparable period of 2012. Due to ~~the increase in raw material costs, as well as~~ lower absorption of fixed ~~overhead~~ costs ~~due to~~associated with lower production volumes, ~~versus the third quarter of 2010,~~ as a percentage of sales, cost of sales increased to ~~65.4%~~66.8% for the ~~third~~three months ended July 1, 2012, versus 64.6% in the comparable prior year period. On a sequential basis versus the first quarter of ~~2011 versus 64.6% for the third quarter of 2011. As raw materials costs moderate,~~2012, we ~~expect to see~~saw an improvement in cost of sales as a percentage of sales. We believe that as the savings related to our first quarter 2012 restructuring plan are fully realized in the later part of 2012, cost of sales will further decrease as a percentage of ~~sales going forward.~~

sales.

For the ~~nine~~six months ended ~~October 2, 2011, our~~July 1, 2012, cost of sales ~~increased $56.5~~decreased $4.8 million ~~(12.5%~~(1.4%) versus the comparable period in ~~2010. Fluctuations in currency exchange rates~~the prior year. Currency fluctuation accounted for ~~approximately $17 million (4%)~~the majority of the ~~increase. The primary components of this increase in cost of sales were~~decline versus the ~~increases in~~2011 period. Our raw materials ~~costs (approximately $38 million) and labor costs (approximately $6 million) associated with~~prices were approximately 2-3% higher ~~production volumes, particularly in~~for the first six months of ~~2011, compared with the prior year period. Our raw materials costs during~~2012 versus the first ~~nine~~six months of ~~2011 were approximately 10-12% higher than raw materials~~2011. Due to this cost increase, coupled with lower absorption of fixed costs ~~in the corresponding period of the prior year. As a percentage of net sales,~~associated with lower production volumes, cost ~~of sales remained relatively consistent for the nine month period ended October 2, 2011, at 64.9% versus 65.1% in the comparable period of 2010. The slight improvement in costs~~ of sales as a percentage of sales ~~was primarily due~~increased to ~~higher absorption~~67.0% for the 2012 period versus 64.6% for the 2011 period. As noted above, we believe that as the savings related to our first quarter 2012 restructuring plan are fully realized in the later part of ~~fixed overhead costs~~2012, cost of sales will further decrease as a ~~result~~percentage of ~~higher production volumes in the first nine months of 2011 as compared to 2010, particularly in the first six months of 2011.~~

sales.

For the quarter ended ~~October 2, 2011,~~July 1, 2012, our selling, general and administrative ~~expenses increased $7.6~~expense decreased $6.1 million ~~(12.4%~~(8.9%) versus the comparable period in ~~2010.~~2011. Fluctuations in currency exchange rates accounted for approximately $2 million ~~(4%)~~of this decrease. The primary component of the ~~increase. The primary components of this increase~~decrease in selling, general and administrative expenses was lower selling and marketing expenses of approximately $3.0 million. This decrease was primarily due to the realization of savings from our restructuring plans which were ~~(1) a $5.1 million increase~~put in ~~selling expense, commensurate with the increase~~place in ~~sales~~late 2011 and early 2012, as well as selected investments made in our consumer market and diversification strategies, and (2) a $1.4 million increase in marketing expenses, primarily in international markets as we continued to grow our brand awareness and presence. These increases were somewhat offset by a $2.6 million decrease in incentives as performance targets were not achieved to the same levellower selling costs associated with lower sales volume in the ~~third~~second quarter of ~~2011 as they were~~2012 versus the comparable period in 2011. Administrative expenses also declined approximately $2.0 million in the ~~third quarter~~period versus the prior year, also a result of ~~2010.~~our restructuring programs. Due to ~~the above factors,~~these items, as a percentage of ~~net~~ sales our selling, general and administrative expenses ~~increased~~decreased to ~~25.3%~~24.6% for the ~~third~~second quarter of ~~2011~~2012 versus ~~24.3%~~25.6% for the ~~third~~second quarter of ~~2010.~~

2011.

~~-24-~~

For the ~~nine~~six months ended ~~October 2, 2011,~~July 1, 2012, our selling, general and administrative expenses ~~increased $26.5~~decreased $12.1 million ~~(15%~~(9.0%) versus the comparable period in ~~2010. Fluctuations~~the prior year. As noted above, this decrease was largely due to the impact of our restructuring plans put in ~~currency exchange rates accounted for~~place in late 2011 and early 2012. Selling and marketing expenses decreased by approximately $7$3.0 million ~~(4%)~~during the first six months of 2012 versus 2011 due to the ~~increase. The primary components~~savings from these plans, although this decrease was slightly offset by increased marketing costs due to trade show and similar expenses, primarily in the first three months of ~~this increase in selling, general and administrative~~2012. Administrative expenses ~~were (1) a $13.9~~declined by approximately $8.0 million ~~increase in selling expense, commensurate with~~during the ~~increase in sales~~2012 six-month period, due to savings from our restructuring plans, as well as selected investments made in our consumer market and diversification strategies, (2) a $3.9 million increase in marketing expenses, primarily in international markets as we continued to grow our brand awareness and presence, and (3) higher overall administrative costslower levels of ~~$7.9 million due, in part, to increases in~~ non-cash incentive ~~based pay during the first nine months of 2011, particularly~~compensation in the first six months of ~~the year. Due to these increases, as a percentage of net sales, selling, general and administrative expenses increased to 25.8% for the nine months ended October 2, 2011,~~2012 versus ~~25.4% for the corresponding period in 2010.~~

2011.

-23-

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:

Three Months Ended Percentage
Cost of Sales and Selling, General and Administrative Expenses (Combined) Oct. 2, 2011 Oct. 3, 2010 Change
(In thousands)
Modular Carpet $ 222,388 $ 197,063 12.9 %
Bentley Prince Street 24,448 26,166 (6.6 )%
Corporate Expenses and Eliminations 932 1,456 (36.0 )%

Total $ 247,768 $ 224,685 10.3 %

Nine Months Ended Percentage
Cost of Sales and Selling, General and Administrative Expenses (Combined) Oct. 2, 2011 Oct. 3, 2010 Change
(In thousands)
Modular Carpet $ 629,413 $ 548,278 14.8 %
Bentley Prince Street 77,705 75,600 2.8 %
Corporate Expenses and Eliminations 6,027 6,233 (3.3 )%

Total $ 713,145 $ 630,111 13.2 %


Cost of Sales and Selling, General and	Three Months Ended				Percentage
Administrative Expenses (Combined)	July 1, 2012		July 3, 2011		Change
	(In thousands)
Modular Carpet	$	205,512	$	213,630		(3.8	)%
Bentley Prince Street		26,293		26,978		(2.5	)%
Corporate Expenses and Eliminations		769		895		(14.1	)%

Total	$	232,574	$	241,503		(3.7	)%


Cost of Sales and Selling, General and	Six Months Ended				Percentage
Administrative Expenses (Combined)	July 1, 2012		July 3, 2011		Change
	(In thousands)
Modular Carpet	$	398,129	$	407,025		(2.2	)%
Bentley Prince Street		49,601		53,257		(6.9	)%
Corporate Expenses and Eliminations		769		5,095		(84.9	)%

Total	$	448,499	$	465,377		(3.6	)%

Interest ~~Expenses~~Expense

For the three-month period ended ~~October 2, 2011,~~July 1, 2012, our interest expense decreased ~~$2.0~~$0.7 million to ~~$6.4~~$6.1 million, versus ~~$8.4~~$6.8 million in the comparable period of 2011. The primary reason for this decrease was the redemption of the remaining $11.5 million of our 9.5% Senior Subordinated Notes early in ~~2010.~~the second quarter of 2012, leading to lower interest expense for the balance of the quarter. The decrease was also due in part to lower amounts of bank fees for the second quarter of 2012 versus 2011. For the six months ended July 1, 2012, our interest expense decreased by approximately $0.6 million to $12.8 million, versus $13.4 million in the comparable period of 2011. This decrease was due to the ~~issuance of our 7 5/8% Senior Notes in~~same factors described for 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 third quarter of 2010. For the nine-monththree-month period ended October 2, 2011, interest expense decreased by $5.5 million to $19.9 million versus $25.3 million in the comparable period in 2010 due to the factors identified above, as well as the repayment or redemption of $39.6 million of bonds in the first quarter of 2010.

July 1, 2012.

Liquidity and Capital Resources

General

At ~~October 2, 2011,~~July 1, 2012, we had ~~$44.4~~$36.9 million in cash. At that date, we had no borrowings and ~~$5.2~~$3.9 million in letters of credit outstanding under our domestic revolving credit facility, and no borrowings outstanding under our European credit facility. As of ~~October 2, 2011,~~July 1, 2012, we could have incurred ~~$80.6~~$84.3 million of additional borrowings under our domestic revolving credit facility and ~~€14.0~~€20.0 million (approximately ~~$19.0~~$24.9 million) of additional borrowings under our European credit facility. In addition, we could have incurred an additional ~~$18.2~~$18.5 million of borrowings under our other credit facilities in place at other non-U.S. subsidiaries.

~~-25-~~

Analysis of Cash Flows

Our primary ~~source~~sources of cash during the ~~nine~~six months ended ~~October 2, 2011 was $2.6~~July 1, 2012 were (1) $14.8 million ~~of cash received as~~due to a ~~result of exercises of employee stock options.~~reduction in accounts receivable, and (2) $4.0 million due to an increase in accounts payable and accrued expenses. Our primary uses of cash during this period were (1) ~~$34.9 million due to increased inventory levels as we produced to meet anticipated demand for the second half of 2011, (2) $30.8~~$21.7 million for capital expenditures, (2) $11.5 million for the redemption of our remaining 9.5% Senior Subordinated Notes, and (3) ~~$16.0~~$9.6 million ~~due to decreases in accounts payable and accruals.~~

for increased inventory levels.

-24-


~~ITEM 3.~~		~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

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,~~1, 2012, under Item 7A of that Form 10-K. Our discussion here focuses on the period ended ~~October 2, 2011,~~July 1, 2012, 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 ~~October 2, 2011,~~July 1, 2012, we recognized a ~~$1.3~~$4.9 million decrease in our foreign currency translation adjustment account compared ~~with~~to January ~~2, 2011,~~1, 2012, primarily because of the strengthening of the U.S. dollar against certain foreign currencies, ~~over~~particularly the ~~nine-month period.~~

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 ~~October 2, 2011.~~July 1, 2012. The values that result from these computations are compared with the market values of these financial instruments at ~~October 2, 2011.~~July 1, 2012. The differences in this comparison are the hypothetical gains or losses associated with each type of risk.

As of ~~October 2, 2011,~~July 1, 2012, 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 ~~$20.5~~$15.8 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 ~~$25.4~~$6.4 million.

As of ~~October 2, 2011,~~July 1, 2012, 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 ~~$10.2~~$8.4 million or an increase in the fair value of our financial instruments of ~~$8.3~~$6.8 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~~

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.

~~-26-~~

PART II —- OTHER INFORMATION


~~ITEM 1.~~		~~LEGAL PROCEEDINGS~~

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~~ITEM 1A. RISK FACTORS

The specific risk factor under the heading “The estate of our former Chairman currently has sufficient voting power to elect a majority of our Board of Directors,” set forth in ~~risk factors in the third quarter of 2011. For a discussion of risk factors, see~~ Part I, Item ~~1A, “Risk Factors,”~~IA in our Annual Report on Form 10-K for fiscal year ~~2010.~~

2011, is no longer applicable. For a discussion of risk factors, see that Item in our 2011 Form 10-K.


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

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

None


~~ITEM 3.~~		~~DEFAULTS UPON SENIOR SECURITIES~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None


~~ITEM 4.~~		~~REMOVED AND RESERVED~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable


~~ITEM 5.~~		~~OTHER INFORMATION~~

ITEM 5. OTHER INFORMATION

None


~~ITEM 6.~~		~~EXHIBITS~~

ITEM 6. EXHIBITS

The following exhibits are filed with this report:


EXHIBIT NUMBER
~~EXHIBIT~~
~~NUMBER~~				DESCRIPTION OF EXHIBIT

	~~10.1~~			Seventh 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 first on October 27, 2011, previously filed with the Commission and incorporated herein by reference).
	31.1			Section 302 Certification of Chief Executive Officer.
	~~31.2~~
31.2		Section 302 Certification of Chief Financial Officer.
	~~32.1~~
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
	~~32.2~~
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.

101.INS			XBRL Instance Document ~~(filed~~(furnished electronically herewith)*

101.SCH			XBRL Taxonomy Extension Schema Document ~~(filed~~(furnished electronically herewith)*

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document ~~(filed~~(furnished electronically herewith)*

101.LAB			XBRL Taxonomy Extension Label Linkbase Document ~~(filed~~(furnished electronically herewith)*

101.PRE			XBRL Taxonomy Presentation Linkbase Document ~~(filed~~(furnished electronically herewith)*

101.DEF			XBRL Taxonomy Definition Linkbase Document ~~(filed~~(furnished electronically herewith)*

*	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed”.

~~-27-~~

~~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.

Date: ~~November 10, 2011~~August 9, 2012		By:	/s/ Patrick C. Lynch

		Patrick C. Lynch

		Senior Vice President
			(Principal Financial Officer)

~~-28-~~

EXHIBIT

NUMBER

~~EXHIBIT INDEX~~


~~EXHIBIT~~
~~NUMBER~~			DESCRIPTION OF EXHIBIT


	31.1		Section 302 Certification of Chief Executive ~~Officer.~~Officer

	31.2		Section 302 Certification of Chief Financial ~~Officer.~~Officer

	32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. § ~~1350.~~1350

	32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. § ~~1350.~~1350

101.INS		XBRL Instance Document ~~(filed~~(furnished electronically herewith)*

101.SCH		XBRL Taxonomy Extension Schema Document ~~(filed~~(furnished electronically herewith)*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document ~~(filed~~(furnished electronically herewith)*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document ~~(filed~~(furnished electronically herewith)*

101.PRE		XBRL Taxonomy Presentation Linkbase Document ~~(filed~~(furnished electronically herewith)*

101.DEF		XBRL Taxonomy Definition Linkbase Document ~~(filed~~(furnished electronically herewith)*

*	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed”.

~~-29-~~-28-


	OCT. 2, 2011			JAN. 2, 2011
	(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents	$	44,386		$	69,236
Accounts Receivable, Net		158,009			151,463
Inventories		171,116			136,766
Prepaid Expenses and Other Current Assets		28,365			24,362
Deferred Income Taxes		9,110			10,062
Assets of Business Held for Sale		1,200			1,200

TOTAL CURRENT ASSETS		412,186			393,089

PROPERTY AND EQUIPMENT, Less Accumulated Depreciation		188,070			177,792
DEFERRED TAX ASSET		46,997			53,022
GOODWILL		76,566			75,239
OTHER ASSETS		55,486			56,291

TOTAL ASSETS	$	779,305		$	755,433


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts Payable	$	57,481		$	55,859
Accrued Expenses		96,261			112,657

TOTAL CURRENT LIABILITIES		153,742			168,516

SENIOR NOTES		283,010			282,951
SENIOR SUBORDINATED NOTES		11,477			11,477
DEFERRED INCOME TAXES		8,471			7,563
OTHER		34,074			36,054

TOTAL LIABILITIES		490,774			506,561

Commitments and Contingencies

SHAREHOLDERS’ EQUITY:
Preferred Stock		—			—
Common Stock		6,546			6,445
Additional Paid-In Capital		360,184			349,662
Retained Earnings (Deficit)		(19,369	)		(49,770	)
Accumulated Other Comprehensive Loss — Foreign Currency Translation Adjustment		(27,601	)		(26,269	)
Accumulated Other Comprehensive Loss — Pension Liability		(31,229	)		(31,196	)

TOTAL SHAREHOLDERS’ EQUITY		288,531			248,872

	$	779,305		$	755,433


	THREE MONTHS ENDED						NINE MONTHS ENDED
	OCT. 2, 2011			OCT. 3, 2010			OCT. 2, 2011			OCT. 3, 2010

NET SALES	$	273,106		$	252,724		$	786,148		$	696,502
Cost of Sales		178,681			163,244			510,020			453,514

GROSS PROFIT ON SALES		94,425			89,480			276,128			242,988

Selling, General and Administrative Expenses		69,087			61,441			203,125			176,597
Restructuring Charge		—			—			—			3,131

OPERATING INCOME		25,338			28,039			73,003			63,260

Interest Expense		6,428			8,409			19,867			25,346
Bond Retirement Expenses		—			—			—			1,085
Other Expense (Income)		(175	)		463			(126	)		1,008


INCOME BEFORE INCOME TAX EXPENSE		19,085			19,167			53,262			35,821
Income Tax Expense		6,917			6,825			18,456			13,365


NET INCOME		12,168			12,342			34,806			22,456

Income Attributable to Non-Controlling Interest in Subsidiary		—			(264	)		—			(876	)

NET INCOME ATTRIBUTABLE TO INTERFACE, INC.	$	12,168		$	12,078		$	34,806		$	21,580


Earnings Per Share Attributable to Interface, Inc. Common Shareholders — Basic	$	0.19		$	0.19		$	0.53		$	0.34


Earnings Per Share Attributable to Interface, Inc. Common Shareholders — Diluted	$	0.19		$	0.19		$	0.53		$	0.34


Common Shares Outstanding — Basic		65,469			64,025			65,228			63,623
Common Shares Outstanding — Diluted		65,676			64,578			65,457			64,106


	Modular		Bentley
	Carpet		Prince Street			Total
	(In thousands)
Three Months Ended October 2, 2011
Net Sales	$	248,721	$	24,385		$	273,106
Depreciation and Amortization		5,493		554			6,047
Operating Income (Loss)		26,333		(63	)		26,270

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


			Weighted Average
	Shares		Exercise Price
Outstanding at January 2, 2011		1,148,500	$	7.51
Granted		—		—
Exercised		487,000		4.43
Forfeited or canceled		23,500		6.29

Outstanding at October 2, 2011		638,000	$	7.19


Exercisable at October 2, 2011		498,000	$	7.95


			Weighted Average
	Shares		Grant Date Fair Value
Outstanding at January 2, 2011		1,740,000	$	13.04
Granted		668,000		17.08
Vested		600,000		12.23
Forfeited or canceled		42,000		14.21

Outstanding at October 2, 2011		1,766,000	$	15.03


	Total
	Restructuring		Costs Incurred		Costs Incurred		Balance at
	Charge		in 2010		in 2011		Oct. 2, 2011
	(In thousands)
Workforce reduction	$	3,131	$	2,674	$	457	$	—


					INTERFACE,			CONSOLIDATION
			NON-		INC.			AND
	GUARANTOR		GUARANTOR		(PARENT			ELIMINATION			CONSOLIDATED
	SUBSIDIARIES		SUBSIDIARIES		CORPORATION)			ENTRIES			TOTALS
	(IN THOUSANDS)

Net sales	$	182,658	$	134,854	$	—		$	(44,406	)	$	273,106
Cost of sales		134,448		88,639		—			(44,406	)		178,681

Gross profit on sales		48,210		46,215		—			—			94,425
Selling, general and administrative expenses		30,972		32,062		6,053			—			69,087

Operating income (loss)		17,238		14,153		(6,053	)		—			25,338
Interest/Other expense		7,823		2,763		(4,333	)		—			6,253

Income (loss) before taxes on income and equity in income of subsidiaries		9,415		11,390		(1,720	)		—			19,085
Income tax expense (benefit)		3,412		4,128		(623	)		—			6,917
Equity in income (loss) of subsidiaries		—		—		13,265			(13,265	)		—

Net income (loss)		6,003		7,262		12,168			(13,265	)		12,168
Income attributable to non-controlling interest in subsidiary		—		—		—			—			—

Net income (loss) attributable to Interface, Inc.	$	6,003	$	7,262	$	12,168		$	(13,265	)	$	12,168


			NON-		INTERFACE, INC.			CONSOLIDATION AND
	GUARANTOR		GUARANTOR		(PARENT			ELIMINATION			CONSOLIDATED
	SUBSIDIARIES		SUBSIDIARIES		CORPORATION)			ENTRIES			TOTALS
	(IN THOUSANDS)

Net sales	$	512,183	$	405,303	$	—		$	(131,338	)	$	786,148
Cost of sales		378,571		262,787		—			(131,338	)		510,020

Gross profit on sales		133,612		142,516		—			—			276,128
Selling, general and administrative expenses		86,872		94,901		21,352			—			203,125

Operating income (loss)		46,740		47,615		(21,352	)		—			73,003
Interest/Other expense		20,654		9,689		(10,602	)		—			19,741

Income (loss) before taxes on income and equity in income of subsidiaries		26,086		37,926		(10,750	)		—			53,262
Income tax expense (benefit)		9,110		13,118		(3,772	)		—			18,456
Equity in income (loss) of subsidiaries		—		—		41,784			(41,784	)		—

Net income (loss)		16,976		24,808		34,806			(41,784	)		34,806
Income attributable to non-controlling interest in subsidiary		—		—		—			—			—

Net income (loss) attributable to Interface, Inc.	$	16,976	$	24,808	$	34,806		$	(41,784	)	$	34,806


	Three Months Ended				Percentage
Cost of Sales and Selling, General and Administrative Expenses (Combined)	Oct. 2, 2011		Oct. 3, 2010		Change
	(In thousands)
Modular Carpet	$	222,388	$	197,063		12.9	%
Bentley Prince Street		24,448		26,166		(6.6	)%
Corporate Expenses and Eliminations		932		1,456		(36.0	)%

Total	$	247,768	$	224,685		10.3	%

Large accelerated filero

Accelerated filerþ

Non-accelerated filero

Smaller reporting companyo