INTERFACE INC (Form: 10-K, Received: 02/28/2013 12:46:30)

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 30, 2012

Commission File No.: 001-33994

Interface, Inc.

(Exact name of registrant as specified in its charter)


Georgia		58-1451243
(State of incorporation)		(I.R.S. Employer Identification No.)

2859 Paces Ferry Road, Suite 2000 Atlanta, Georgia		30339
(Address of principal executive offices)		(zip code)

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

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered:
Common Stock, $0.10 Par Value Per Share		Nasdaq Global Select Market
Series B Participating Cumulative Preferred Stock Purchase Rights		Nasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such

files). YES x NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 a “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

Aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of June 29, 2012: $863,041,119 (63,319,231 shares valued at the last sales price of $13.63 on June 29, 2012). See Item 12.

Number of shares outstanding of each of the registrant’s classes of Common Stock, as of February 15, 2013:


Class	Number of Shares
Common Stock, $0.10 par value per share		66,173,420

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2013 Annual Meeting of Shareholders are incorporated by reference into Part III.

PART I

ITEM 1.

BUSINESS

Introduction and General

We are a worldwide leader in design, production and sales of modular carpet, also known as carpet tile. In recent years, modular carpet sales growth in the floorcovering industry has significantly outpaced the growth of the overall industry, as architects, designers and end users increasingly recognized the unique and superior attributes of modular carpet, including its dynamic design capabilities, greater economic value (which includes lower costs as a result of reduced waste in both installation and replacement), and installation ease and speed.

As a global company with a reputation for high quality, reliability and premium positioning, we market modular carpet in over 110 countries under the established brand names Interface ^® and FLOR ^® . Our principal geographic markets are the Americas, Europe and Asia-Pacific, where the percentages of our total net sales were approximately 55%, 30% and 15%, respectively, for fiscal year 2012.

Capitalizing on our leadership in modular carpet for the corporate office segment, we are executing a market diversification strategy to increase our presence and market share for modular carpet in non-corporate office market segments, such as government, education, healthcare, hospitality and retail space, which combined are almost twice the size of the approximately $1 billion U.S. corporate office market segment. Our diversification strategy also targets the approximately $11 billion U.S. residential market segment for carpet. As a result of our efforts, our mix of corporate office versus non-corporate office modular carpet sales in the Americas was 47% and 53%, respectively, for 2012. Company-wide, our mix of corporate office versus non-corporate office sales was 61% and 39%, respectively, in 2012. We believe the appeal and utilization of modular carpet is growing in each of these non-corporate office market segments, and we are using our considerable skills and experience with designing, producing and marketing modular products that make us the market leader in the corporate office segment to support and facilitate our penetration into these segments around the world.

On July 20, 2012, a fire occurred at our manufacturing facility in Picton, Australia. The facility’s carpet production line, primarily comprised of tufting and backing machinery, sustained extensive damage and was rendered inoperable. Other areas of the Picton site relating to yarn preparation and warehousing were largely undamaged by the fire. The finished goods inventory and some raw materials for the business are kept at a separate offsite location and were not affected by this incident. The Picton facility served our customers throughout Australia and New Zealand. It represented approximately 7% of our total annual production, 10% of our net sales, and 13% of our operating income. Since the fire, we have utilized adequate production capacity at our manufacturing facilities in Thailand, China and elsewhere to meet customer demand typically serviced from Picton. We have business interruption and property damage insurance. We are in the process of building a new manufacturing facility in Minto, Australia and expect it to become operational in late 2013.

In August of 2012, we sold our Bentley Prince Street business segment, which designed, manufactured and marketed high-end, designer-oriented broadloom and modular carpet. For additional information, please see Items 7 and 8 of this Annual Report.

Our Strengths

Our principal competitive strengths include:

Market Leader in Attractive Modular Carpet Segment. We are the world’s leading manufacturer of carpet tile. Modular carpet has become more prevalent across all commercial interiors markets as designers, architects and end users have become more familiar with its unique attributes. We continue to drive this trend with our product innovations and designs discussed below. According to the 2012 Floor Focus interiors industry survey of the top 250 designers in the United States, carpet tile was ranked as the number one “hot product” for the eleventh consecutive year. We believe that we are well positioned to lead and capitalize upon the continued shift to modular carpet, both domestically and around the world.

Established Brands and Reputation for Quality, Reliability and Leadership. Our products are known in the industry for their high quality, reliability and premium positioning in the marketplace. Our established brand names in carpets are leaders in the industry. The 2012 Floor Focus survey ranked our Interface brand first or second in each of the survey categories of performance, service and design. On the international front, Interface and Heuga ^® are well-recognized brand names in carpet tiles for commercial, institutional and residential use. More generally, as the appeal and utilization of modular carpet continues to expand into market segments such as government, healthcare, education, hospitality, and retail and residential space, our reputation as the pioneer of modular carpet — as well as our established brands and leading market position for modular carpet in the corporate office segment — will enhance our competitive advantage in marketing to the customers in these new markets.

Innovative Product Design and Development Capabilities. Our product design and development capabilities have long given us a significant competitive advantage, and they continue to do so as modular carpet’s appeal and utilization expand across virtually every market segment and around the globe. One of our best design innovations is our i2™ modular product line, which includes our popular Entropy ^® product for which we received a patent in 2005 on the key elements of its design. The i2 line introduced and features mergeable dye lots, and includes carpet tile products designed to be installed randomly without reference to the orientation of neighboring tiles. The i2 line offers cost-efficient installation and maintenance, interactive flexibility, and recycled and recyclable materials. Our i2 line of products, which now comprises approximately 38% of our total U.S. modular carpet business, represents a differentiated category of smart, environmentally sensitive and stylish modular carpet, and Entropy has been the fastest growing product in our history. The award-winning design firm David Oakey Designs had a pivotal role in developing our i2 product line, and our long-standing exclusive relationship with David Oakey Designs remains vibrant and augments our internal research, development and design staff. Another recent innovation is our patented TacTiles ^® carpet tile installation system, which uses small squares of adhesive plastic film to connect intersecting carpet tiles, thus eliminating the need for traditional carpet adhesive and resulting in a reduction in installation time and waste materials.

Made-to-Order and Global Manufacturing Capabilities. The success of our modernization and restructuring of operations over the past several years gives us a distinct competitive advantage in meeting two principal requirements of the specified products markets we primarily target — that is, providing custom samples quickly and on-time delivery of customized final products. We also can generate realistic digital samples that allow us to create a virtually unlimited number of new design concepts and distribute them instantly for customer review, while at the same time reducing sampling waste. Approximately 75% to 80% of our modular carpet products in the United States and Asia-Pacific markets are now made-to-order, and we are increasing our made-to-order production in Europe as well. Our made-to-order capabilities not only enhance our marketing and sales, they significantly improve our inventory turns. Our global manufacturing capabilities in modular carpet production are an important component of this strength, and give us an advantage in serving the needs of multinational corporate customers that require products and services at various locations around the world. Our manufacturing locations across four continents enable us to compete effectively with local producers in our international markets, while giving international customers more favorable delivery times and freight costs.

Recognized Global Leadership in Ecological Sustainability. Our long-standing goal and commitment to be ecologically “sustainable” — that is, the point at which we are no longer a net “taker” from the earth and do no harm to the biosphere — has emerged as a competitive strength for our business and remains a strategic initiative. It includes Mission Zero ^® , our global branding initiative, which represents our mission to eliminate any negative impact our companies may have on the environment by the year 2020. Our acknowledged leadership position and expertise in this area resonate deeply with many of our customers and prospects around the globe, and provide us with a differentiating advantage in competing for business among architects, designers and end users of our products, who increasingly make purchase decisions based on “green” factors. The 2012 Floor Focus survey, which named our Interface business the top among “Green Leaders”, found that 74% of the designers surveyed consider sustainability an added benefit and 23% consider it a “make or break” issue when deciding what products to recommend or purchase.

Strong Operating Leverage Position. Our operating leverage, which we define as our ability to realize profit on incremental sales, is strong and generally allows us to increase earnings at a higher rate than our rate of increase in net sales. Our operating leverage position is primarily a result of (1) the specified, high-end nature and premium positioning of our principal products in the marketplace, and (2) the mix of fixed and variable costs in our manufacturing processes that allow us to increase production of most of our products without significant increases in capital expenditures or fixed costs. For example, while net sales from our modular carpet increased from $646.2 million in 2005 to $930.7 million in 2007 (a period in which our industry and business were recovering from a prior downturn), our operating income from that segment increased from $77.4 million (12.0% of net sales) in 2005 to $133.7 million (14.4% of net sales) in 2007.

Experienced and Motivated Management and Sales Force. An important component of our competitive position is the quality of our management team and its commitment to developing and maintaining an engaged and accountable workforce. Our team is highly skilled and dedicated to guiding our overall growth and expansion into our targeted market segments, while maintaining our leadership in traditional markets and our high contribution margins. We utilize an internal marketing and predominantly commissioned sales force of approximately 630 experienced personnel, stationed at over 70 locations in over 30 countries, to market our products and services in person to our customers. Our incentive compensation and our sales and marketing training programs are tailored to promote performance and facilitate leadership by our executives both in strategic areas as well as the company as a whole.

Our Business Strategy and Principal Initiatives

Our business strategy is to continue to use our leading position in modular carpet and our product design and global made-to-order capabilities as a platform from which to drive acceptance of modular carpet products across several industry segments, while maintaining our leadership position in the corporate office market segment. We will seek to increase revenues and profitability by capitalizing on the above strengths and pursuing the following key strategic initiatives:

Continue to Penetrate Non-Corporate Office Market Segments. We will continue our strategic focus on product design and marketing and sales efforts for non-corporate office market segments such as government, education, healthcare, hospitality, retail and residential space. We began this initiative as part of our market diversification strategy in 2001 (when our initial objective was reducing our exposure to the more severe economic cyclicality of the corporate office segment), and it has become a principal strategy generally for growing our business and enhancing profitability. We have shifted our mix of corporate office versus non-corporate office modular carpet sales in the Americas to 47% and 53%, respectively, for fiscal 2012 from 64% and 36%, respectively, in fiscal 2001. To implement this strategy, we:

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introduced specialized product offerings tailored to the unique demands of these segments, including specific designs, functionalities and prices;

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created special sales teams dedicated to penetrating these segments at a high level, with a focus on specific customer accounts rather than geographic territories; and

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realigned incentives for our corporate office segment sales force generally in order to encourage their efforts, and where appropriate, to assist our penetration of these other segments.

As part of this strategy, our FLOR line of products focuses on the approximately $11 billion U.S. residential carpet market segment. These products were specifically created to bring high style modular carpet to the North American residential market. We offer FLOR directly and over the Internet, in a FLOR catalog and in our 18 FLOR retail stores, and we plan to add four or five more retail stores in 2013. FLOR is also offered by many specialty retailers and in a number of major retail catalogs. Through such direct and indirect retailing, FLOR sales have grown more than 100% from 2005 to 2012.

Penetrate Expanding Geographic Markets for Modular Products. The popularity of modular carpet continues to increase compared with other floorcovering products across most markets, internationally as well as in the United States. While maintaining our leadership in the corporate office segment, we will continue to build upon our position as the worldwide leader for modular carpet in order to promote sales in all market segments globally. A principal part of our international focus – which utilizes our global marketing capabilities and sales infrastructure – is the significant opportunities in several emerging geographic markets for modular carpet. Some of these markets, such as China, India and Eastern Europe, represent large and growing economies that are essentially new markets for modular carpet products. Others, such as Germany and Italy, are established markets that are transitioning to the use of modular carpet from historically low levels of penetration. Each of these emerging markets represents a significant growth opportunity for our modular carpet business.

Continue to Minimize Expenses and Invest Strategically. We have steadily trimmed costs from our operations for several years through multiple initiatives, which have made us leaner today and for the future. Our supply chain and other cost containment initiatives have improved our cost structure and yielded the operating efficiencies we sought. While we still seek to minimize our expenses in order to increase profitability, we will also take advantage of strategic opportunities to invest in systems, processes and personnel that can help us grow our business and increase profitability and value.

Sustain Leadership in Product Design and Development. As discussed above, our leadership position for product design and development is a competitive advantage and key strength. Our i2 products and TacTiles installation system have confirmed our position as an innovation leader in modular carpet. We will continue initiatives to sustain, augment and capitalize upon that strength to continue to increase our market share in targeted market segments. Our Mission Zero global branding initiative, which draws upon and promotes our ecological sustainability commitment, is part of those initiatives and includes placing our Mission Zero logo on many of our marketing and merchandising materials distributed throughout the world.

Use Strong Free Cash Flow Generation to De-leverage Our Balance Sheet. Our principal business has been structured – including through our rationalization and repositioning initiatives – to yield high contribution margins and generate strong free cash flow (by which we mean cash available to apply towards debt service and potential stock repurchases, strategic acquisitions and the like). Our historical investments in global manufacturing capabilities and mass customization techniques and facilities, which we have maintained, also contribute to our ability to generate substantial levels of free cash flow. We will use our strong free cash flow generation capability to continue to repay debt and strengthen our financial position. We will also continue to execute programs to reduce costs further and enhance free cash flow. In addition, our existing capacity to increase production levels without significant capital expenditures will further enhance our generation of free cash flow as demand for our products rises.

Challenges

In order to capitalize on our strengths and to implement successfully our business strategy and the principal initiatives discussed above, we will have to handle successfully several challenges that confront us or that affect our industry in general. As discussed in the Risk Factors in Item 1A of this Report, several factors could make it difficult for us, including:

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sales of our principal products have been and may continue to be affected by adverse economic cycles in the renovation and construction of commercial and institutional buildings;

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we compete with a large number of manufacturers in the highly competitive commercial floorcovering products market, and some of these competitors have greater financial resources than we do;

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our success depends significantly upon the efforts, abilities and continued service of our senior management executives and our principal design consultant, and our loss of any of them could affect us adversely;

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our substantial international operations are subject to various political, economic and other uncertainties that could adversely affect our business results;

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large increases in the cost of petroleum-based raw materials could adversely affect us if we are unable to pass these cost increases through to our customers;

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unanticipated termination or interruption of any of our arrangements with our primary third party suppliers of synthetic fiber could have a material adverse effect on us; and

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we have a significant amount of indebtedness, which could have important negative consequences to us.

We believe our business model is strong enough, and our strategic initiatives are properly calibrated, for us to handle these and other challenges we will encounter in our business.

Seasonality

Our first quarter has typically been our slowest quarter while our fourth quarter has typically been our best quarter, with sales generally increasing throughout the course of the fiscal year. However, in recent years, as our sales efforts and results in the education market segment (which has a heavy second quarter buying season) have increased, our second quarter sales have occasionally eclipsed our third or fourth quarter sales.

Our Products and Services

Modular Carpet

Interface is the world’s largest manufacturer and marketer of modular carpet. Our modular carpet system, which is marketed under the established global brands Interface and Heuga, utilizes carpet tiles cut in precise, dimensionally stable squares (usually 50 cm x 50 cm) or rectangles to produce a floorcovering that combines the appearance and texture of traditional soft floorcovering with the advantages of a modular carpet system. Our GlasBac ^® technology employs a fiberglass-reinforced polymeric composite backing that provides dimensional stability and reduces the need for adhesives or fasteners. We also make carpet tiles with a backing containing post-industrial and/or post-consumer recycled materials, which we market under the GlasBacRE brand. In 2008, we introduced the Convert ™ collection of carpet tile designed and manufactured with yarn containing varying degrees of post-consumer nylon, depending on the style and color. We received the 2012 and 2011 Best of NeoCon Silver Awards in the modular carpet category for our Urban Retreat™ and Luxe at Work™ Collections, respectively.

Our carpet tile has become popular for a number of reasons. Carpet tile incorporating our reinforced backing may be easily removed and replaced, permitting rearrangement of furniture without the inconvenience and expense associated with removing, replacing or repairing other soft surface flooring products, including broadloom carpeting. Because a relatively small portion of a carpet installation often receives the bulk of traffic and wear, the ability to rotate carpet tiles between high traffic and low traffic areas and to selectively replace worn tiles can significantly increase the average life and cost efficiency of the floorcovering. In addition, carpet tile facilitates access to sub-floor air delivery systems and telephone, electrical, computer and other wiring by lessening disruption of operations. It also eliminates the cumulative damage and unsightly appearance commonly associated with frequent cutting of conventional carpet as utility connections and disconnections are made. We believe that, within the overall floorcovering market, the worldwide demand for modular carpet is increasing as more customers recognize these advantages.

We use a number of conventional and technologically advanced methods of carpet construction to produce carpet tiles in a wide variety of colors, patterns, textures, pile heights and densities. These varieties are designed to meet both the practical and aesthetic needs of a broad spectrum of commercial interiors – particularly offices, healthcare facilities, airports, educational and other institutions, hospitality spaces, and retail facilities – and residential interiors. Our carpet tile systems permit distinctive styling and patterning that can be used to complement interior designs, to set off areas for particular purposes and to convey graphic information. While we continue to manufacture and sell a substantial portion of our carpet tile in standard styles, an increasing percentage of our modular carpet sales is custom or made-to-order product designed to meet customer specifications.

In addition to general uses of our carpet tile, we produce and sell a specially adapted version of our carpet tile for the healthcare facilities market. Our carpet tile possesses characteristics — such as the use of the Intersept antimicrobial, static-controlling nylon yarns, and thermally pigmented, colorfast yarns — which make it suitable for use in these facilities in place of hard surface flooring. Moreover, we launched our FLOR line of products to specifically target modular carpet sales to the residential market segment. Through our relationship with David Oakey Designs, we also have created modular carpet products (some of which are part of our i2 product line) specifically designed for each of the education, hospitality and retail market segments.

We also manufacture and sell two-meter roll goods that are structure-backed and offer many of the advantages of both carpet tile and broadloom carpet. These roll goods are often used in conjunction with carpet tiles to create special design effects. Our current principal customers for these products are in the education, healthcare and government market segments.

Broadloom Carpet

In August of 2012, we sold our Bentley Prince Street business segment to a third party. This business designed, manufactured and marketed high-end, designer-oriented broadloom and modular carpet for commercial and residential markets. As a result of this sale, we no longer have a presence in the broadloom carpet market.

Other Products and Services

We sell a proprietary antimicrobial chemical compound under the registered trademark Intersept that we incorporate in all of our modular carpet products and have licensed to another company for use in air filters. We also sell our TacTiles carpet tile installation system, along with a variety of traditional adhesives and products for carpet installation and maintenance that are manufactured by a third party. In addition, we continue to manufacture and sell our Intercell ^® brand raised/access flooring product in Europe. We also continue to provide “turnkey” project management services for national accounts and other large customers through our InterfaceSERVICES™ business.

Marketing and Sales

We have traditionally focused our carpet marketing strategy on major accounts, seeking to build lasting relationships with national and multinational end-users, and on architects, engineers, interior designers, contracting firms, and other specifiers who often make or significantly influence purchasing decisions. While most of our sales are in the corporate office segment, both new construction and renovation, we also emphasize sales in other segments, including retail space, government institutions, schools, healthcare facilities, tenant improvement space, hospitality centers, residences and home office space. Our marketing efforts are enhanced by the established and well-known brand names of our carpet products, including Interface, FLOR and Heuga . Our exclusive consulting agreement with the award-winning, premier design firm David Oakey Designs enabled us to introduce more than 20 new carpet designs in the United States in 2012 alone.

An important part of our marketing and sales efforts involves the preparation of custom-made samples of requested carpet designs, in conjunction with the development of innovative product designs and styles to meet the customer’s particular needs. Our mass customization initiative simplified our carpet manufacturing operations, which significantly improved our ability to respond quickly and efficiently to requests for samples. In most cases, we can produce samples to customer specifications in less than five days, which significantly enhances our marketing and sales efforts and has increased our volume of higher margin custom or made-to-order sales. In addition, through our websites, we have made it easy to view and request samples of our products. We also have technology which allows us to provide digital, simulated samples of our products, which helps reduce raw material and energy consumption associated with our samples.

We primarily use our internal marketing and sales force to market our carpet products. In order to implement our global marketing efforts, we have product showrooms or design studios in the United States, Canada, Mexico, Brazil, Denmark, England, France, Germany, Spain, the Netherlands, India, Australia, Norway, United Arab Emirates, Russia, Singapore, Hong Kong, Thailand, China and elsewhere. We expect to open offices in other locations around the world as necessary to capitalize on emerging marketing opportunities.

We distribute our product through two primary channels. (1) direct sales to end users; and (2) indirect sales through independent contractors or distributors. In each case, we may also call upon architects, engineers, interior designers, contracting firms and other specifiers who often make or substantially influence purchasing decisions. In 2010, we entered into a new distribution arrangement with the Bravo Network, which is comprised of independent flooring distributors that provide distribution logistics throughout the United States. Under this arrangement, the Bravo Network offers an exclusive collection of 10 distinct styles of our carpet tile. The collection sold through the Bravo Network targets the industry’s “main street” sector in the United States, comprised primarily of commercial customers purchasing non-specified products through flooring retail stores.

Manufacturing

We manufacture carpet at two locations in the United States and at facilities in the Netherlands, the United Kingdom, Thailand and China. Until July of 2012, we also manufactured carpet in Australia, but as a result of a fire this facility is no longer operational. We are in the process of building a new facility in Australia and expect it to become operational in late 2013.

Having foreign manufacturing operations enables us to supply our customers with carpet from the location offering the most advantageous delivery times, duties and tariffs, exchange rates, and freight expense, and enhances our ability to develop a strong local presence in foreign markets. We believe that the ability to offer consistent products and services on a worldwide basis at attractive prices is an important competitive advantage in servicing multinational customers seeking global supply relationships. We will consider additional locations for manufacturing operations in other parts of the world as necessary to meet the demands of customers in international markets.

To the extent practicable, we seek to standardize our worldwide modular carpet manufacturing procedures. In connection with the implementation of this plan, we strive to establish global standards for our tufting equipment, yarn systems and product styling. We previously had changed our standard carpet tile size to be 50 cm x 50 cm, which we believe has allowed us to reduce operational waste and fossil fuel energy consumption and to offer consistent product sizing for our global customers.

Our raw materials are generally available from multiple sources – both regionally and globally – with the exception of synthetic fiber (nylon yarn). For yarn, we principally rely upon two major global suppliers, but we also have significant relationships with at least two other suppliers. Although our number of principal yarn suppliers is limited, we do have the capability to manufacture carpet using face fiber produced from two separate polymer feedstocks – nylon 6 and nylon 6,6 – which provides additional flexibility with respect to yarn supply inputs, if needed. Our global sourcing strategy, including with respect to our principal yarn suppliers and dual polymer manufacturing capability, allows us to guard against any potential shortages of raw materials or raw material suppliers in a specific polymer supply chain.

We have a flexible-inputs carpet backing line, which we call “ Cool Blue™ ”, at our modular carpet manufacturing facility in LaGrange, Georgia. Using next generation thermoplastic technology, the custom-designed backing line dramatically improves our ability to keep reclaimed and waste carpet in the production “technical loop,” and further permits us to explore other plastics and polymers as inputs. We also have technology that more cleanly separates the face fiber and backing of reclaimed and waste carpet, thus making it easier to recycle some of its components and providing a purer supply of inputs for the Cool Blue process. This technology, which is part of our ReEntry ^® 2.0 carpet reclamation program, allows us to send some of the reclaimed face fiber back to our fiber supplier to be blended with virgin or other post-industrial materials and extruded into new fiber.

The environmental management systems of our floorcovering manufacturing facilities in LaGrange, Georgia, West Point, Georgia, Northern Ireland, the Netherlands and Thailand are certified under International Standards Organization (ISO) Standard No. 14001.

Our significant international operations are subject to various political, economic and other uncertainties, including risks of restrictive taxation policies, foreign exchange restrictions, changing political conditions and governmental regulations. We also receive a substantial portion of our revenues in currencies other than U.S. dollars, which makes us subject to the risks inherent in currency translations. Although our ability to manufacture and ship products from facilities in several foreign countries reduces the risks of foreign currency fluctuations we might otherwise experience, we also engage from time to time in hedging programs intended to further reduce those risks.

Competition

We compete, on a global basis, in the sale of our modular carpet products with other carpet manufacturers and manufacturers of vinyl and other types of floorcoverings, including broadloom carpet. Although the industry has experienced significant consolidation, a large number of manufacturers remain in the industry. We believe we are the largest manufacturer of modular carpet in the world. However, a number of domestic and foreign competitors manufacture modular carpet as one segment of their business, and some of these competitors have financial resources greater than ours. In addition, some of the competing carpet manufacturers have the ability to extrude at least some of their requirements for fiber used in carpet products, which decreases their dependence on third party suppliers of fiber.

We believe the principal competitive factors in our primary floorcovering markets are brand recognition, quality, design, service, broad product lines, product performance, marketing strategy and pricing. In the corporate office market segment, modular carpet competes with various floorcoverings, of which broadloom carpet is the most common. The quality, service, design, better and longer average product performance, flexibility (design options, selective rotation or replacement, use in combination with roll goods) and convenience of our modular carpet are our principal competitive advantages.

We believe we have competitive advantages in several other areas as well. First, our exclusive relationship with David Oakey Designs allows us to introduce numerous innovative and attractive carpet tile products to our customers. Additionally, we believe that our global manufacturing capabilities are an important competitive advantage in serving the needs of multinational corporate customers. We believe that the incorporation of the Intersept antimicrobial chemical agent into the backing of our modular carpet enhances our ability to compete successfully across all of our market segments generally, and specifically with resilient tile in the healthcare market.

In addition, we believe that our goal and commitment to be ecologically “sustainable” by 2020 is a brand-enhancing, competitive strength as well as a strategic initiative. Increasingly, our customers are concerned about the environmental and broader ecological implications of their operations and the products they use in them. Our leadership, knowledge and expertise in the area, especially in the “green building” movement and the related LEED certification program, resonate deeply with many of our customers and prospects around the globe, and these businesses are increasingly making purchase decisions based on “green” factors. Our modular carpet products historically have had inherent installation and maintenance advantages that translated into greater efficiency and waste reduction. We are using raw materials and production technologies, such as our Cool Blue backing line and our ReEntry 2.0 reclaimed carpet separation process, that directly reduce the adverse impact of those operations on the environment and limit our dependence on petrochemicals.

Product Design, Research and Development

We maintain an active research, development and design staff of approximately 80 people and also draw on the research and development efforts of our suppliers, particularly in the areas of fibers, yarns and modular carpet backing materials. Our research and development costs were $12.4 million, $12.1 million and $11.1 million in 2012, 2011, and 2010, respectively.

Our research and development team provides technical support and advanced materials research and development for us. The team assisted in the development of our NexStep ^® backing, which employs moisture-impervious polycarbite precoating technology with a chlorine-free urethane foam secondary backing, and also helped develop a post-consumer recycled content, polyvinyl chloride, or PVC, extruded sheet process that has been incorporated into our GlasBacRE modular carpet backing. Our post-consumer recycled content PVC extruded sheet exemplifies our commitment to “closing-the-loop” in recycling. More recently, this team developed our patented TacTiles carpet tile installation system, which uses small squares of adhesive plastic film to connect intersecting carpet tiles. The team also helped implement our Cool Blue flexible inputs backing line and our ReEntry 2.0 reclaimed carpet separation technology and post-consumer recycling technology for nylon face fibers. With a goal of supporting sustainable product designs in floorcoverings applications, we continue to evaluate renewable polymers for use in our products.

Our research and development team also is the coordinator of our QUEST and EcoSense initiatives (discussed below under “Environmental Initiatives”) and supports the dissemination, consultancies and technical communication of our global sustainability endeavors. This team also provides all biochemical and technical support to Intersept antimicrobial chemical product initiatives.

Innovation and increased customization in product design and styling are the principal focus of our product development efforts. Our carpet design and development team is recognized as an industry leader in carpet design and product engineering for the commercial and institutional markets.

David Oakey Designs provides carpet design and consulting services to us pursuant to a consulting agreement. David Oakey Designs’ services under the agreement include creating commercial carpet designs for use by our modular carpet businesses throughout the world, and overseeing product development, design and coloration functions for our modular carpet business in North America. The current agreement runs through April 2014. While the agreement is in effect, David Oakey Designs cannot provide similar services to any other carpet company. Through our relationship with David Oakey Designs, we introduced more than 20 new carpet designs in 2012 alone, and have enjoyed considerable success in winning U.S. carpet industry awards.

David Oakey Designs also contributed to our ability to efficiently produce many products from a single yarn system. Our mass customization production approach evolved, in major part, from this concept. In addition to increasing the number and variety of product designs, which enables us to increase high margin custom sales, the mass customization approach increases inventory turns and reduces inventory levels (for both raw materials and standard products) and their related costs because of our more rapid and flexible production capabilities.

Our i2 product line — which includes, among others, our patented Entropy modular carpet product — represents an innovative breakthrough in the design of modular carpet. The i2 line introduced and features mergeable dye lots, cost-efficient installation and maintenance, interactive flexibility and recycled and recyclable materials. Some of these products may be installed without regard to the directional orientation of the carpet tile, and their features also make installation, maintenance and replacement of modular carpet easier, less expensive and less wasteful.

Environmental Initiatives

In the latter part of 1994, we commenced a new industrial ecological sustainability initiative called EcoSense, inspired in part by the interest of customers concerned about the environmental implications of how they and their suppliers do business. EcoSense, which includes our QUEST waste reduction initiative, is directed towards the elimination of energy and raw materials waste in our businesses, and, on a broader and more long-term scale, the practical reclamation — and ultimate restoration — of shared environmental resources. The initiative involves a commitment by us:

•

to learn to meet our raw material and energy needs through recycling of carpet and other petrochemical products and harnessing benign energy sources; and

•

to pursue the creation of new processes to help sustain the earth’s non-renewable natural resources.

We have engaged some of the world’s leading authorities on global ecology as environmental advisors. The list of advisors includes: Paul Hawken, author of The Ecology of Commerce: A Declaration of Sustainability and The Next Economy, and co-author of Natural Capitalism: Creating the Next Industrial Revolution; Amory Lovins, energy consultant and co-founder of the Rocky Mountain Institute; John Picard, President of E2 Environmental Enterprises; Bill Browning, fellow and former director of the Rocky Mountain Institute’s Green Development Services; Janine M. Benyus, author of Biomimicry ; and Bob Fox, renowned architect.

Our leadership, knowledge and expertise in this area, especially in the “green building” movement and the related LEED certification program, resonate deeply with many of our customers and prospects around the globe, and these businesses are increasingly making purchase decisions based on “green” factors. As more customers in our target markets share our view that sustainability is good business and not just good deeds, our acknowledged leadership position should strengthen our brands and provide a differentiated advantage in competing for business.

To further raise awareness of our goal of becoming sustainable, we launched our Mission Zero global branding initiative, which represents our mission to eliminate any negative impact our companies may have on the environment by the year 2020. As part of this initiative, our Mission Zero logo appears on many of our marketing and merchandising materials distributed throughout the world.

Backlog

Our backlog of unshipped orders was approximately $108.4 million at February 15, 2013, compared with approximately $101.1 million at February 19, 2012. Historically, backlog is subject to significant fluctuations due to the timing of orders for individual large projects and currency fluctuations. All of the backlog orders at February 15, 2013 are expected to be shipped during the succeeding six to nine months.

Patents and Trademarks

We own numerous patents in the United States and abroad on floorcovering products and on manufacturing processes. The duration of United States patents is between 14 and 20 years from the date of filing of a patent application or issuance of the patent; the duration of patents issued in other countries varies from country to country. We maintain an active patent and trade secret program in order to protect our proprietary technology, know-how and trade secrets. Although we consider our patents to be very valuable assets, we consider our know-how and technology even more important to our current business than patents, and, accordingly, believe that expiration of existing patents or nonissuance of patents under pending applications would not have a material adverse effect on our operations.

We also own many trademarks in the United States and abroad. In addition to the United States, the primary countries in which we have registered our trademarks are the United Kingdom, Germany, Italy, France, Canada, Australia, Japan, and various countries in Central America, South America and Asia. Some of our more prominent registered trademarks include: Interface, FLOR, Heuga, Intersept, GlasBac, Intercell, and Mission Zero. Trademark registrations in the United States are valid for a period of 10 years and are renewable for additional 10-year periods as long as the mark remains in actual use. The duration of trademarks registered in other countries varies from country to country.

Financial Information by Operating Segments and Geographic Areas

The Notes to Consolidated Financial Statements appearing in Item 8 of this Report set forth information concerning our sales and long-lived assets by geographic areas. Following the sale of Bentley Prince Street, we have only one operating segment. Current and prior periods have been reclassified to include the results of operations and related disposal costs, gains and losses for the Bentley Prince Street business as discontinued operations. In addition, assets and liabilities of the Bentley Prince Street business have been reported in assets and liabilities held for sale for all reported periods.

Employees

At December 30, 2012, we employed a total of 3,146 employees worldwide. Of such employees, 1,748 were clerical, staff, sales, supervisory and management personnel and 1,398 were manufacturing personnel. We also utilized the services of 131 temporary personnel as of December 30, 2012.

Some of our production employees in Australia and the United Kingdom are represented by unions. In the Netherlands, a Works Council, the members of which are Interface employees, is required to be consulted by management with respect to certain matters relating to our operations in that country, such as a change in control of Interface Europe B.V. (our modular carpet subsidiary based in the Netherlands), and the approval of the Council is required for some of our actions, including changes in compensation scales or employee benefits. Our management believes that its relations with the Works Council, the unions and all of our employees are good.

Environmental Matters

Our operations are subject to laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on our financial condition or results of operations in the past and are not expected to have a material adverse impact in the future. The environmental management systems of our floorcovering manufacturing facilities in LaGrange, Georgia, West Point, Georgia, Northern Ireland, the Netherlands and Thailand are certified under ISO Standard No. 14001.

Executive Officers of the Registrant

Our executive officers, their ages as of December 30, 2012, and their principal positions with us are set forth below. Executive officers serve at the pleasure of the Board of Directors.


Name	Age	Principal Position(s)
Daniel T. Hendrix	58	President and Chief Executive Officer
Robert A. Coombs	54	Senior Vice President (Asia-Pacific)
Patrick C. Lynch	43	Senior Vice President and Chief Financial Officer
Lindsey K. Parnell	55	Senior Vice President (Europe)
John R. Wells	51	Senior Vice President (Americas)
Raymond S. Willoch	54	Senior Vice President-Administration, General Counsel and Secretary

Mr. Hendrix joined us in 1983 after having worked previously for a national accounting firm. He was promoted to Treasurer in 1984, Chief Financial Officer in 1985, Vice President-Finance in 1986, Senior Vice President in October 1995, Executive Vice President in October 2000, and President and Chief Executive Officer in July 2001. He was elected to the Board in October 1996 and has served on the Executive Committee of the Board since July 2001. In October 2011, Mr. Hendrix was elected as Chairman of the Board of Directors.

Mr. Coombs originally worked for us from 1988 to 1993 as a marketing manager for our Heuga carpet tile operations in the United Kingdom and later for all of our European floorcovering operations. In 1996, Mr. Coombs returned to us as Managing Director of our Australian operations. He was promoted in 1998 to Vice President-Sales and Marketing, Asia-Pacific, with responsibility for Australian operations and sales and marketing in Asia, which was followed by a promotion to Senior Vice President, Asia-Pacific. He was promoted to Senior Vice President, European Sales, in May 1999 and Senior Vice President, European Sales and Marketing, in April 2000. In February 2001, he was promoted to President and Chief Executive Officer of Interface Overseas Holdings, Inc. with responsibility for all of our floorcoverings operations in both Europe and the Asia-Pacific region, and he became a Vice President of Interface. In September 2002, Mr. Coombs relocated back to Australia, retaining responsibility for our floorcovering operations in the Asia-Pacific region while Mr. Parnell (see below) assumed responsibility for floorcovering operations in Europe. Mr. Coombs was promoted to Senior Vice President of Interface in July 2008.

Mr. Lynch joined us in 1996 after having previously worked for a national accounting firm. He became Assistant Corporate Controller in 1998 and Assistant Vice President and Corporate Controller in 2000. Mr. Lynch was promoted to Vice President and Chief Financial Officer in July 2001. Mr. Lynch was promoted to Senior Vice President in March 2007.

Mr. Parnell was the Production Director for Firth Carpets (our former European broadloom operations) at the time it was acquired by us in 1997. In 1998, Mr. Parnell was promoted to Vice President, Operations for the United Kingdom, and in 1999 he was promoted to Senior Vice President, Operations for our entire European floorcovering division. In September 2002, he was promoted to President and Chief Executive Officer of our floorcovering operations in Europe, and became a Vice President of Interface in October 2002. Mr. Parnell was promoted to Senior Vice President of Interface in July 2008.

Mr. Wells joined us in February 1994 as Vice President-Sales of Interface Flooring Systems, Inc. (now InterfaceFLOR, LLC), our principal U.S. modular carpet subsidiary. Mr. Wells was promoted to Senior Vice President-Sales & Marketing of Interface Flooring Systems in October 1994. He was promoted to Vice President of Interface and President of Interface Flooring Systems in July 1995. In March 1998, Mr. Wells was also named President of both Prince Street Technologies, Ltd. and Bentley Mills, Inc. (our former U.S. broadloom operations), making him President of all three of our U.S. carpet mills at that time. In November 1999, Mr. Wells was named Senior Vice President of Interface, and President and Chief Executive Officer of Interface Americas Holdings, LLC (formerly Interface Americas, Inc.), thereby assuming operations responsibility for all of our floorcovering businesses in the Americas.

Mr. Willoch, who previously practiced with an Atlanta law firm, joined us in June 1990 as Corporate Counsel. He was promoted to Assistant Secretary in 1991, Assistant Vice President in 1993, Vice President in January 1996, Secretary and General Counsel in August 1996, and Senior Vice President in February 1998. In July 2001, he was named Senior Vice President-Administration and assumed corporate responsibility for various staff functions.

Available Information

We make available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our Internet address is http://www.interface.com . The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The SEC’s website is http://www.sec.gov .

Interface, Inc. was incorporated in 1973 as a Georgia corporation.

Forward-Looking Statements

This report on Form 10-K contains “forward-looking statements” within the meaning of the Securities Act of 1933, and the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements include statements regarding the intent, belief or current expectations of our management team, as well as the assumptions on which such statements are based. Any forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. We undertake 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. 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 below in Item 1A, “Risk Factors”.

ITEM 1A.

RISK FACTORS

You should carefully consider the following factors, in addition to the other information included in this Annual Report on Form 10-K and the other documents incorporated herein by reference, before deciding whether to purchase or sell our common stock. Any or all of the following risk factors could have a material adverse effect on our business, financial condition, results of operations and prospects.

The ongoing worldwide financial and credit crisis could have a material adverse effect on our business, financial condition and results of operations.

The ongoing worldwide financial and credit crisis has reduced the availability of liquidity and credit to fund the continuation and expansion of many business operations worldwide. This shortage of liquidity and credit, combined with recent substantial losses in worldwide equity markets, could lead to a worldwide economic recession and result in a material adverse effect on our business, financial condition and results of operations. Specifically, the limited availability of credit and liquidity adversely affects the ability of customers and suppliers to obtain financing for significant purchases and operations. Consequently, customers may defer, delay or cancel renovation and construction projects where our carpet is used, resulting in decreased orders and sales for us, and they also may not be able to pay us for those products and services we already have provided to them. For the same reasons, suppliers may not be able to produce and deliver raw materials and other goods and services that we have ordered from them, thus disrupting our own manufacturing operations. In addition, our ability to obtain funding from capital markets may be severely restricted at a time when we would like, or need, to access those markets. This inability to obtain that funding could prevent us from pursuing important strategic growth plans, from reacting to changing economic and business conditions, and from refinancing existing debt (which in turn could lead to a default on our debt). The financial and credit crisis also could have an impact on the lenders under our credit facilities, causing them to fail to meet their obligations to provide us with loans and letters of credit, which are important sources of liquidity for us.

Our domestic revolving credit facility matures in June 2016 and our 7 5/8% Senior Notes mature in December 2018. We cannot assure you that we will be able to renegotiate or refinance this debt on commercially reasonable terms, or at all, especially given the ongoing worldwide financial and credit crisis.

Sales of our principal products have been and may continue to be affected by adverse economic cycles in the renovation and construction of commercial and institutional buildings.

Sales of our principal products are related to the renovation and construction of commercial and institutional buildings. This activity is cyclical and has been affected by the strength of a country’s or region’s general economy, prevailing interest rates and other factors that lead to cost control measures by businesses and other users of commercial or institutional space. The effects of cyclicality upon the corporate office segment tend to be more pronounced than the effects upon the institutional segment. Historically, we have generated more sales in the corporate office segment than in any other market. The effects of cyclicality upon the new construction segment of the market also tend to be more pronounced than the effects upon the renovation segment. These effects may recur and could be more pronounced if global economic conditions do not improve or are further weakened.

We compete with a large number of manufacturers in the highly competitive floorcovering products market, and some of these competitors have greater financial resources than we do.

The floorcovering industry is highly competitive. Globally, we compete for sales of floorcovering products with other carpet manufacturers and manufacturers of other types of floorcovering. Although the industry has experienced significant consolidation, a large number of manufacturers remain in the industry. Some of our competitors, including a number of large diversified domestic and foreign companies who manufacture modular carpet as one segment of their business, have greater financial resources than we do.

Our success depends significantly upon the efforts, abilities and continued service of our senior management executives and our principal design consultant, and our loss of any of them could affect us adversely.

We believe that our success depends to a significant extent upon the efforts and abilities of our senior management executives. In addition, we rely significantly on the leadership that David Oakey of David Oakey Designs provides to our internal design staff. Specifically, David Oakey Designs provides product design/production engineering services to us under an exclusive consulting contract that contains non-competition covenants. Our current agreement with David Oakey Designs extends to April 2014. The loss of any of these key persons could have an adverse impact on our business because each has a great deal of knowledge, training and experience in the carpet industry – particularly in the areas of sales, marketing, operations, product design and management – and could not easily or quickly be replaced.

Our substantial international operations are subject to various political, economic and other uncertainties that could adversely affect our business results, including by restrictive taxation or other government regulation and by foreign currency fluctuations.

We have substantial international operations. In 2012, approximately half of our net sales and a significant portion of our production were outside the United States, primarily in Europe and Asia-Pacific. Our corporate strategy includes the expansion and growth of our international business on a worldwide basis. As a result, our operations are subject to various political, economic and other uncertainties, including risks of restrictive taxation policies, changing political conditions and governmental regulations. We also make a substantial portion of our net sales in currencies other than U.S. dollars (approximately half of 2012 net sales), which subjects us to the risks inherent in currency translations. The scope and volume of our global operations make it impossible to eliminate completely all foreign currency translation risks as an influence on our financial results.

Concerns regarding the European sovereign debt crisis and market perceptions about the instability of the euro, the potential re-introduction of individual currencies within the Eurozone, or the potential dissolution of the euro entirely, could adversely affect our business, results of operations or financial condition.

As a result of the European sovereign debt crisis, concerns persist regarding the debt burden of certain countries using the euro as their currency (the “Eurozone”) and their ability to meet future financial obligations, the overall stability of the euro and the suitability of the euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. Despite remedial efforts being taken by the European Commission and others, these concerns have caused instability in the euro and could lead to the re-introduction of individual currencies in one or more Eurozone countries, or, in more extreme circumstances, the possible dissolution of the euro currency entirely. Should the euro dissolve entirely, the legal and contractual consequences for holders of euro-denominated obligations would be determined by laws in effect at such time. These potential developments, or market perceptions concerning these and related issues, could adversely affect the value of our euro-denominated assets and obligations or increase the risks of foreign currency fluctuations or cause the failure of hedging programs intended to reduce those risks. In addition, concerns over the effect of this financial crisis on financial institutions in Europe and globally could have an adverse impact on the capital markets generally, and more specifically on our ability and the ability of our customers, suppliers and lenders to finance our and their respective businesses, to access liquidity at acceptable financing costs, if at all, on the availability of supplies and materials, and on the demand for our products.

Large increases in the cost of petroleum-based raw materials could adversely affect us if we are unable to pass these cost increases through to our customers.

Petroleum-based products comprise the predominant portion of the cost of raw materials that we use in manufacturing. While we attempt to match cost increases with corresponding price increases, continued volatility in the cost of petroleum-based raw materials could adversely affect our financial results if we are unable to pass through such price increases to our customers.

Unanticipated termination or interruption of any of our arrangements with our primary third party suppliers of synthetic fiber could have a material adverse effect on us.

The unanticipated termination or interruption of any of our supply arrangements with our current suppliers of synthetic fiber (nylon), which typically are not pursuant to long-term agreements, could have a material adverse effect on us because we do not have the capability to manufacture our own fiber for use in our carpet products. If any of our supply arrangements with our primary suppliers of synthetic fiber is terminated or interrupted, we likely would incur increased manufacturing costs and experience delays in our manufacturing process (thus resulting in decreased sales and profitability) associated with shifting more of our synthetic fiber purchasing to another synthetic fiber supplier.

We have a significant amount of indebtedness, which could have important negative consequences to us.

Our significant indebtedness could have important negative consequences to us, including:

•

making it more difficult for us to satisfy our obligations with respect to such indebtedness;

•

increasing our vulnerability to adverse general economic and industry conditions;

•

limiting our ability to obtain additional financing to fund capital expenditures, acquisitions or other growth initiatives, and other general corporate requirements;

•

requiring us to dedicate a substantial portion of our cash flow from operations to interest and principal payments on our indebtedness, thereby reducing the availability of our cash flow to fund capital expenditures, acquisitions or other growth initiatives, and other general corporate requirements;

•

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•

placing us at a competitive disadvantage compared to our less leveraged competitors; and

•

limiting our ability to refinance our existing indebtedness as it matures.

As a consequence of our level of indebtedness, a substantial portion of our cash flow from operations must be dedicated to debt service requirements. In addition, the terms of our primary revolving credit facility in the U.S. and the indenture governing our 7 5/8% Senior Notes due 2018 limit our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments or investments in certain situations, consummate certain asset sales, enter into certain transactions with affiliates, create liens, merge or consolidate with any other person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets. They also require us to comply with certain other reporting, affirmative and negative covenants and, at times, meet certain financial tests. If we fail to satisfy these tests or comply with these covenants, a default may occur, in which case the lenders could accelerate the debt as well as any other debt to which cross-acceleration or cross-default provisions apply. We cannot assure you that we would be able to renegotiate, refinance or otherwise obtain the necessary funds to satisfy these obligations.

The market price of our common stock has been volatile and the value of your investment may decline.

The market price of our common stock has been volatile in the past and may continue to be volatile going forward. Such volatility may cause precipitous drops in the price of our common stock on the Nasdaq Global Select Market and may cause your investment in our common stock to lose significant value. As a general matter, market price volatility has had a significant effect on the market values of securities issued by many companies for reasons unrelated to their operating performance. We thus cannot predict the market price for our common stock going forward.

Our earnings in a future period could be adversely affected by non-cash adjustments to goodwill, if a future test of goodwill assets indicates a material impairment of those assets.

As prescribed by accounting standards governing goodwill and other intangible assets, we undertake an annual review of the goodwill asset balance reflected in our financial statements. Our review is conducted during the fourth quarter of the year, unless there has been a triggering event prescribed by applicable accounting rules that warrants an earlier interim testing for possible goodwill impairment. In the past, we have had non-cash adjustments for goodwill impairment as a result of such testings ($61.2 million in 2008 and $44.5 million in 2007). A future goodwill impairment test may result in a future non-cash adjustment, which could adversely affect our earnings for any such future period.

Our Rights Agreement could discourage tender offers or other transactions for our stock that could result in shareholders receiving a premium over the market price for our stock.

Our Board of Directors has adopted a Rights Agreement pursuant to which holders of our common stock will be entitled to purchase from us a fraction of a share of our Series B Participating Cumulative Preferred Stock if a third party acquires beneficial ownership of 15% or more of our common stock without our consent. In addition, the holders of our common stock will be entitled to purchase the stock of an Acquiring Person (as defined in the Rights Agreement) at a discount upon the occurrence of triggering events. These provisions of the Rights Agreements could have the effect of discouraging tender offers or other transactions that could result in shareholders receiving a premium over the market price for our common stock.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

We maintain our corporate headquarters in Atlanta, Georgia in approximately 20,000 square feet of leased space. The following table lists our principal manufacturing facilities and other material physical locations (some locations are comprised of multiple buildings), all of which we own except as otherwise noted:


Location	Floor Space (Sq. Ft.)
Bangkok, Thailand		275,946
Craigavon, N. Ireland(1)		80,986
LaGrange, Georgia		539,545
LaGrange, Georgia(1)		209,337
Minto, Australia(1)		259,356
Scherpenzeel, the Netherlands		245,420
Scherpenzeel, the Netherlands(1)		121,515
West Point, Georgia		250,000
Taicang, China(1)		71,375

(1)

Leased.

Until July of 2012, we manufactured carpet at an owned facility in Picton, Australia, but as a result of a fire this facility is no longer operational. We have leased a new facility in Minto, Australia and expect it to begin manufacturing operations in late 2013.

We maintain marketing offices in over 70 locations in over 30 countries and distribution facilities in approximately 40 locations in six countries. Most of our marketing locations and many of our distribution facilities are leased.

We believe that our manufacturing and distribution facilities and our marketing offices, particularly with the rebuilding of a manufacturing facility in Minto, Australia, are sufficient for our present operations. We will continue, however, to consider the desirability of establishing additional facilities and offices in other locations around the world as part of our business strategy to meet expanding global market demands. Substantially all of our owned properties in the United States, Europe and Australia are subject to mortgages, which secure borrowings under our debt instruments.

ITEM 3.

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 3.

ITEM 4.

MINING SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Prior to March 5, 2012, the Company had two classes of common stock – Class A Common Stock and Class B Common Stock. On March 5, 2012, the number of issued and outstanding shares of Class B Common Stock constituted less than 10% of the aggregate number of issued and outstanding shares of the Company’s Class A Common Stock and Class B Common Stock, as the cumulative result of varied transactions that caused the conversion of shares of Class B Common Stock into shares of Class A Common Stock. Accordingly, 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.

Our Common Stock is traded on the Nasdaq Global Select Market under the symbol TILE. As of February 15, 2013, we had 640 holders of record of our Common Stock. We estimate that there are in excess 5,500 beneficial holders of our Common Stock. The following table sets forth, for the periods indicated, the high and low sale prices of the Company’s Common Stock on the Nasdaq Global Select Market as well as dividends paid during such periods.


	High		Low		Dividends Per Share
2013
First Quarter (through February 15, 2013)	$	18.96	$	15.90	$	0.00
2012
Fourth Quarter	$	16.37	$	12.94	$	0.025
Third Quarter		14.79		11.62		0.025
Second Quarter		14.89		11.14		0.02
First Quarter		14.08		10.76		0.02
2011
Fourth Quarter	$	14.38	$	9.75	$	0.02
Third Quarter		20.48		11.02		0.02
Second Quarter		20.23		17.16		0.02
First Quarter		18.49		15.20		0.02

Future declaration and payment of dividends is at the discretion of our Board, and depends upon, among other things, our investment policy and opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant by our Board at the time of its determination. Such other factors include limitations contained in the agreement for our primary revolving credit facility and in an indenture for our public indebtedness, each of which specify conditions as to when any dividend payments may be made. As such, we may discontinue our dividend payments in the future if our Board determines that a cessation of dividend payments is proper in light of the factors indicated above.

Stock Performance

The following graph and table compare, for the five-year period ended December 30, 2012, the Company’s total returns to shareholders (stock price plus dividends, divided by beginning stock price) with that of (i) all companies listed on the Nasdaq Composite Index, and (ii) a self-determined peer group comprised primarily of companies in the commercial interiors industry, assuming an initial investment of $100 in each on December 30, 2007.

LOGO


	12/30/07		12/28/08		1/3/10		1/2/11		1/1/12		12/30/12
Interface, Inc.	$	100	$	32	$	52	$	98	$	73	$	100
NASDAQ Composite Index	$	100	$	58	$	87	$	102	$	102	$	117
Previous Self-Determined Peer Group (13 Stocks)	$	100	$	40	$	57	$	79	$	75	$	105
New Self-Determined Peer Group (14 Stocks)	$	100	$	41	$	63	$	86	$	84	$	118

Notes to Performance Graph

(1)

The lines represent annual index levels derived from compound daily returns that include all dividends.

(2)

The indices are re-weighted daily, using the market capitalization on the previous trading day.

(3)

If the annual interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.

(4)

The index level was set to $100 as of December 30, 2007 (the last day of fiscal 2007).

(5)

The Company’s fiscal year ends on the Sunday nearest December 31.

(6)

The following companies are included in the New Self-Determined Peer Group depicted above: Acuity Brands, Inc.; Albany International Corp.; Apogee Enterprises, Inc.; Armstrong World Industries, Inc.; BE Aerospace, Inc.; The Dixie Group, Inc.; Herman Miller, Inc.; HNI Corporation (formerly known as Hon Industries, Inc.); Kimball International, Inc.; Knoll, Inc.; Mohawk Industries, Inc.; Steelcase, Inc.; Unifi, Inc.; and USG Corp. The New Self-Determined Peer Group differs from the Previous Self-Determined Peer Group (also included above for comparison) in the following respects: (i) it includes Apogee Enterprises, Inc. and Armstrong World Industries, Inc., and (ii) it no longer includes Actuant Corp.

Securities Authorized for Issuance Under Equity Compensation Plans

See Item 12 of Part III of this Annual Report on Form 10-K.

ITEM 6.

SELECTED FINANCIAL DATA

We derived the summary consolidated financial data presented below from our audited consolidated financial statements and the notes thereto for the years indicated. You should read the summary financial data presented below together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and notes thereto included within this document. Amounts for all periods presented have been adjusted for discontinued operations.


	Selected Financial Data ⁽¹⁾
	2012			2011		2010			2009			2008
	*(in thousands, except per share data and ratios)*
Net sales	$	932,020		$	953,045	$	862,314		$	765,264		$	946,816
Cost of sales		614,841			618,303		549,184			499,078			605,897
Operating income ⁽²⁾		64,648			85,700		93,107			67,611			102,918
Income (loss) from continuing operations ⁽³⁾		22,899			38,270		10,297			15,777			26,850
Income (loss) from discontinued operations, net of tax ⁽⁴⁾		(16,956	)		451		(963	)		(4,013	)		(66,517	)
Net income (loss) attributable to Interface, Inc.		5,943			38,721		8,283			10,918			(40,873	)
Income (loss) from continuing operations per common share attributable to Interface, Inc.
Basic	$	0.35		$	0.59	$	0.14		$	0.24		$	0.43
Diluted	$	0.35		$	0.58	$	0.14		$	0.24		$	0.42
Average Shares Outstanding
Basic		65,767			65,291		63,794			63,213			63,005
Diluted		65,900			65,486		64,262			63,308			63,276
Cash dividends per common share	$	0.09		$	0.08	$	0.04		$	0.01		$	0.12
Property additions		42,428			38,050		31,715			8,753			29,300
Depreciation and amortization		29,175			35,317		27,927			25,189			23,664
Working capital	$	268,825		$	271,625	$	238,937		$	265,280		$	240,123
Total assets		789,367			772,272		755,433			727,239			706,035
Total long-term debt		275,000			294,507		294,428			280,184			287,588
Shareholders’ equity		295,702			281,039		248,872			246,181			217,437
Current ratio ⁽⁵⁾		2.7			2.8		2.4			2.9			2.6

(1)	In the third quarter of 2012, we sold our Bentley Prince Street business. The balances have been adjusted to reflect the discontinued operations of this business. For further analysis, see “Notes to Consolidated Financial Statements – Discontinued Operations” included in Item 8 of this Report.

(2)

The following charges and items are included in our operating income. In 2012, we recorded restructuring and asset impairment charges of $19.4 million as well as expenses related to the Australia fire of $1.7 million. In 2011, we recorded a restructuring and asset impairment charge of $5.8 million. In 2010 we recorded a restructuring charge of $2.9 million. In 2009, we recorded restructuring charges of $6.9 million. Also in 2009, we recorded income from litigation settlements of $5.9 million. In 2008, we recorded a restructuring charge of $10.9 million.

(3)	Included in the 2010 income from continuing operations are pre-tax expenses of $44.4 million related to bond retirement. Included in the 2008 loss from continuing operations is tax expense of $13.3 million related to the anticipated repatriation in 2009 of foreign earnings.

(4)

Included in loss from discontinued operations, net of tax, are goodwill and other intangible asset impairment charges of $61.2 million in 2008 related to our Bentley Prince Street business which was subsequently sold in 2012. Also included in loss from discontinued operations, net of tax, are charges for write-offs and impairments of other assets of $5.2 million in 2008 related to our former Fabrics business segment which was sold in 2007.

(5)

Current ratio is the ratio of current assets to current liabilities. For purposes of computing our current ratio: (a) current assets include assets of businesses held for sale of $60.7 million for 2011, $55.6 million for 2010, $55.3 million for 2009 and $71.5 million for 2008. Current liabilities include liabilities of businesses held for sale of $8.3 million for 2011, $7.9 million for 2010, $2.4 million for 2009 and $7.8 million for 2008.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Our revenues are derived from sales of floorcovering products, primarily modular carpet (we sold our broadloom carpet operations in August 2012). Our business, as well as the commercial interiors industry in general, is cyclical in nature and is impacted by economic conditions and trends that affect the markets for commercial and institutional business space. The commercial interiors industry, including the market for floorcovering products, is largely driven by reinvestment by corporations into their existing businesses in the form of new fixtures and furnishings for their workplaces. In significant part, the timing and amount of such reinvestments are impacted by the profitability of those corporations. As a result, macroeconomic factors such as employment rates, office vacancy rates, capital spending, productivity and efficiency gains that impact corporate profitability in general, also affect our business.

During the past several years, we have successfully focused more of our marketing and sales efforts on non-corporate office segments to reduce somewhat our exposure to economic cycles that affect the corporate office market segment more adversely, as well as to capture additional market share. Our mix of corporate office versus non-corporate office modular carpet sales in the Americas has shifted over the past several years to 47% and 53%, respectively, for 2012 compared with 64% and 36%, respectively, in 2001. Company-wide, our mix of corporate office versus non-corporate office sales was 61% and 39%, respectively, in 2012. We expect a further shift in the future as we continue to implement our market diversification strategy.

During 2012, we had net sales of $932.0 million, compared with $953.0 million in 2011. Operating income for 2012 was $64.6 million, compared with $85.7 million for 2011. Income from continuing operations for 2012 was $22.9 million, or $0.35 per diluted share, compared with $38.3 million, or $0.58 per diluted share, in 2011. Net income for 2012 was $5.9 million, or $0.09 per diluted share, compared with $38.7 million, or $0.59 per diluted share, in 2011.

Included for our results for 2012 are $19.4 million of restructuring and asset impairment charges and $1.7 million of expenses related to the fire at our Australian manufacturing facility, as discussed below. Also included in our 2012 results is a loss from discontinued operations, net of tax, of $17.0 million related to the now discontinued Bentley Prince Street business segment. Included in our results for 2011 are $5.8 million of restructuring charges. Included in our results for 2010 are bond retirement expenses of $44.4 million related to our repurchases of our 11 3/8% Senior Secured Notes and 9.5% Senior Subordinated Notes, as well as restructuring charges of $2.9 million.

Fire at Australia Facility

In July 2012, a fire occurred at our manufacturing facility in Picton, Australia. The fire caused extensive damage to the facility, as well as disruption to business activity in the region. We have taken steps towards re-adapting our supply chain with product from our facilities in China, Thailand, the U.S. and Europe. While this is being executed with success, there were, as expected, delays in shipments that affected sales following the fire. At this time, it is difficult to quantify the financial impacts of the fire, but we believe it negatively affected net sales by approximately $13-18 million during the balance of 2012. For additional information on the fire, please see the Note entitled “Fire at Australian Manufacturing Facility” in Item 8 of this Report.

Discontinued Operations

In the third quarter of 2012, we sold our Bentley Prince Street business segment. In accordance with applicable accounting standards, we have reported the results of operations for the former Bentley Prince Street business segment as “discontinued operations,” where applicable. Consequently, our discussion of sales and other results of operations (except for net income or loss amounts), including percentages derived from or based on such amounts, excludes these discontinued operations unless we indicate otherwise.

Our discontinued operations had net sales of $57.0 million, $104.0 million and $99.5 million in 2012, 2011 and 2010, respectively (these results are included in our statements of operations as part of the “Income (loss) from discontinued operations, net of tax”). Income (loss) from discontinued operations, inclusive of the loss on disposal as well as costs to sell the business, net of tax, was ($17.0) million in 2012, $0.5 million in 2011 and ($1.0) million in 2010. For additional information on discontinued operations, see the Notes entitled “Discontinued Operations” and “Taxes on Income” in Item 8 of this Report.

Restructuring Charges

2012 Restructuring Plan

In the first quarter of 2012, we committed to a new restructuring plan in our continuing efforts to reduce costs across our worldwide operations and more closely align our operations with reduced demand levels in certain markets. The plan primarily consisted of ceasing manufacturing and warehousing operations at our facility in Shelf, England. In connection with this restructuring plan, we incurred a pre-tax restructuring and asset impairment charge in the first quarter of 2012 in an amount of $16.3 million, as well as additional related charges of $0.8 million in the third quarter of 2012 and $2.3 million in the fourth quarter of 2012. These charges are comprised of severance expenses of $8.5 million for a reduction of 145 employees, other related exit costs of $1.6 million, and impairment of assets of approximately $9.4 million. Approximately $10.1 million of the charge will result in cash expenditures, primarily severance expense.

2011 Restructuring Plan

In 2011, we committed to a restructuring plan intended to reduce costs across our worldwide operations and more closely align our operations with reduced demand in certain markets. As a result of this plan, we incurred pre-tax restructuring and asset impairment charges of $5.8 million in 2011. The majority of this charge ($5.0 million) relates to the severance of approximately 90 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 $5.0 million of this charge will result in cash expenditures, primarily severance expenses. Actions and expense related to this plan were substantially completed by the end of 2011.

2010 Restructuring Plan

In 2010, we adopted a restructuring plan primarily related to workforce reduction in our European modular carpet operations. This reduction was in response to the continued challenging economic climate in that region. Smaller amounts were incurred in connection with restructuring activities in the Americas. A total of approximately 50 employees were affected by this restructuring plan. In connection with this plan, we recorded a pre-tax restructuring charge of $2.9 million. Substantially all of this charge involved cash expenditures, primarily severance expenses. Actions and expenses related to this plan were substantially completed in 2010.

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 (the first payment was on 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 tender offer we conducted in 2010. We incurred $44.4 million of bond retirement expenses in 2010 in connection with these repurchases pursuant to the tender offer.

11 3/8% Senior Secured Notes

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

Following the sale of our 7 5/8% Senior Notes and the repurchase of $141.9 million aggregate principal amount of our 11 3/8% Senior Secured Notes with the proceeds, $8.1 million aggregate principal amount of our 11 3/8% Senior Secured Notes remain outstanding.

The 11 3/8% Senior Secured Notes were sold at a price of 96.301% of their face value, resulting in $144.5 million of gross proceeds. The $5.5 million original issue discount is being amortized over the life of the notes through interest expense, although substantially all of this discount was accelerated and charged in 2010 as a result of our repurchases in the tender offer we conducted for these notes in connection with the issuance of our 7 5/8% Senior Notes.

Redemption of 9.5% Senior Subordinated Notes due 2014

In the first quarter of 2010, we redeemed $25 million aggregate principal amount of our 9.5% Senior Subordinated Notes (the “9.5% Senior Subordinated Notes”) at a price equal to 103.167% of the face value of the notes, plus accrued interest to the redemption date. We incurred $1.1 million of bond retirement expenses in connection with these repurchases. In the fourth quarter of 2010, we repurchased $98.5 million aggregate principal amount of these notes pursuant to the tender offer discussed above in connection with the issuance of the 7 5/8% Senior Notes. Following such redemption and repurchase of our 9.5% Senior Subordinated Notes, $11.5 million aggregate principal amount of our 9.5% Senior Subordinated Notes remained outstanding. In April 2012, we redeemed the balance of the 9.5% Senior Subordinated Notes at a price equal to 100% of the face value of the notes, plus accrued interest to the redemption date.

Analysis of Results of Operations

The following discussion and analyses reflect the factors and trends discussed in the preceding sections.

Our net sales that were denominated in currencies other than the U.S. dollar were approximately 51% in 2012, 54% in 2011, and 55% in 2010. Because we have such substantial international operations, we are impacted, from time to time, by international developments that affect foreign currency transactions. For example, the performance of the euro against the U.S. dollar, for purposes of the translation of European revenues into U.S. dollars, favorably affected our reported results during 2011, when the euro was strengthening relative to the U.S. dollar. During the years 2012 and 2010, the dollar strengthened versus the euro, having the opposite effect on our reported results. The following table presents the amount (in U.S. dollars) by which the exchange rates for converting euros into U.S. dollars have affected our net sales and operating income during the past three years:


	2012			2011		2010
	(in millions)
Net sales	$	(23.5	)	$	14.6	$	(14.4	)
Operating income		(2.0	)		1.4		(2.1	)

The following table presents, as a percentage of net sales, certain items included in our Consolidated Statements of Operations during the past three years:


	Fiscal Year
	2012			2011			2010
Net sales		100.0	%		100.0	%		100.0	%
Cost of sales		66.0			64.9			63.7

Gross profit on sales		34.0			35.1			36.3
Selling, general and administrative expenses		24.8			25.5			25.2
Restructuring and asset impairment charges		2.1			0.6			0.3
Expenses related to Australia fire		0.2			0.0			0.0

Operating income		6.9			9.0			10.8
Interest/Other expense		2.9			2.8			4.0
Bond retirement expenses		0.0			0.0			5.1

Income from continuing operations before tax		4.1			6.2			1.7
Income tax expense		1.6			2.2			0.5

Income from continuing operations		2.5			4.0			1.2
Discontinued operations, net of tax		(1.8	)		0.0			(0.1	)

Net income		0.6			4.1			1.1

Net income attributable to Interface, Inc.		0.6			4.1			1.0

Net Sales

Below we provide information regarding our net sales and analyze those results for each of the last three fiscal years. Fiscal years 2012, 2011 and 2010 were 52-week periods. (As a result of the sale of our Bentley Prince Street Segment in 2012, we currently have only one segment for segment reporting purposes.)


	Fiscal Year						Percentage Change
	*(in thousands)*						2012 compared			2011 compared
	2012		2011		2010		with 2011			with 2010
Net Sales	$	932,020	$	953,045	$	862,314		(2.2	)%		10.5	%

For 2012, net sales decreased $21.0 million (2.2%) versus 2011. On a worldwide basis, the general economic uncertainty has had an impact on buyers of our product, as we experienced declines in almost all market segments with the exception of the residential market. On a geographic basis, we experienced a sales increase in the Americas (up 5.1%), which was offset by decreases in Europe (down 8.1%) and Asia-Pacific (down 13.2%). In the Americas, the increase in sales was due to the continued rebound of the corporate office market (up 7%), as well as increases in the residential (up 23%) and education (up 6%) market segments. The increase in residential was largely as a result of the continuing roll-out of our FLOR stores, which now comprises 17 locations across the United States and one store in Canada. These increases in the Americas were somewhat offset by decreases in the government (down 10%) and healthcare (down 7%) market segments. The weighted average selling price per square yard in the Americas saw an increase of approximately 5% in 2012. In Europe, currency translation was the driving factor behind the 2012 decrease, as we experienced a decline of 8% as reported in U.S. dollars, but in local currency the sales were essentially even with the prior year. All market segments in Europe experienced a decline as reported in U.S. dollars, with corporate office being the most significant (down 6%). On a local currency basis, however, the corporate office segment saw a 2% increase, which was mitigated by smaller decreases in the retail (down 13%) and government (down 7%) market segments. The weighted average selling price per square yard in Europe was down approximately 3% in U.S. dollars, but up approximately 5% in local currency. Due largely to both the fire in our plant in Australia in July of 2012, as well as the lack of government stimulus funds in 2012 versus 2011, we experienced a sales decline in the Asia-Pacific region of 13% versus 2011. While it is difficult to quantify, we believe that the fire at our Australia facility and the related delays in shipments while we worked to stabilize our supply chain led to a reduction of $13-$18 million in net sales for 2012. The most significant decline was in the education market (down 52%) due to the curtailment of government stimulus in the region, particularly in Australia. The decline in Asia-Pacific was also fueled by lower sales in the hospitality (down 44%) and corporate office (down 3%) market segments. The weighted average selling price in the Asia-Pacific region was essentially even compared with 2011. We have begun building a new facility in Australia which we hope to have completed by the fourth quarter of 2013. We believe this new facility, coupled with the stabilization of our supply chain from other facilities, will help improve performance in Asia-Pacific in 2013.

For 2011, net sales increased $90.7 million (10.5%) versus 2010. The weighted average selling price per square yard increased approximately 4% in 2011 versus 2010. On a geographic basis, we experienced increases in net sales in all regions for 2011 versus 2010, with our Americas, Europe and Asia-Pacific regions experiencing sales growth of 9%, 15% and 7%, respectively (Europe experienced 10% sales growth in local currency). The 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 market segment saw an increase of 16% during 2011. Success in certain non-office commercial markets also fueled the sales increase, particularly in the education (up 8%), healthcare (up 14%) and retail (up 6%) market segments. Sales in the residential market segment, helped by the opening of 5 new FLOR stores during the year, showed an improvement of 22% during 2011. These increases were offset somewhat by sales decreases in the government (down 11%) and hospitality (down 39%) market segments. Sales growth in Europe was also due to the strength of the corporate office market segment (up 19% in U.S. dollars, 14% in local currency), as well as success in the government (up 11% in U.S. dollars, 5% in local currency) and education (up 13% in U.S. dollars, 6% in local currency) market segments. These gains were somewhat offset by a decline in the residential market segment (down 47% in U.S. dollars, 50% in local currency) in Europe. As in our other geographic areas, the increased sales in Asia-Pacific were due to the strength of the corporate office market segment (up 13%). Asia-Pacific also saw increases in the healthcare (up 40%) and hospitality (up 26%) market segments. These increases were partially offset by sales decreases in the education (down 15%) and government (down 18%) market segments.

Cost and Expenses

The following table presents our overall cost of sales and selling, general and administrative expenses during the past three years:


	Fiscal Year						Percentage Change
	2012		2011		2010		2012 compared with 2011			2011 compared with 2010
Cost and Expenses	*(in thousands)*
Cost of Sales	$	614,841	$	618,303	$	549,184		(0.5	)%		12.6	%
Selling, General and Administrative Expenses		231,358		243,287		217,080		(4.9	)%		12.1	%

Total	$	846,199	$	861,590	$	766,264		(1.8	)%		12.4	%

For 2012, our cost of sales decreased $3.5 million (0.5%) versus 2011. Fluctuations in currency exchange rates resulted in approximately $10 million of decrease in cost of sales, so absent currency translation effects, there was an increase in the cost of sales in 2012 versus 2011. The increase absent currency translation effects is primarily attributable to (1) a 3-4% increase in raw material prices in 2012 versus 2011, (2) lower absorption of fixed manufacturing costs associated with lower production volumes in 2012 versus 2011, and (3) supply chain disruption in the second half of 2012 as a result of the fire at our facility in Picton, Australia. Due to these factors, we saw in increase in cost of sales as a percentage of sales to 66.0% in 2012 versus 64.9% in 2011. We did see improvement in gross margin in the fourth quarter of 2012 versus the comparable period in 2011 due to higher absorption of fixed costs due to higher production volumes, as well as the beginning of realization of savings from our 2012 restructuring plans. However, this quarterly improvement was not substantial enough to counteract the above factors in the earlier parts of the year.

For 2011, our cost of sales increased $69.1 million (12.6%) versus 2010. Fluctuations in currency exchange rates accounted for approximately $17 million (approximately 3%) of the increase. The primary components of this increase in cost of sales were the increases in raw materials costs (approximately $46 million) and labor costs (approximately $7 million) associated with higher production volumes, particularly in the first six months of 2011, compared with 2010. In addition, our raw materials costs during 2011 were approximately 7-9% higher than raw materials costs in the prior year. As a percentage of net sales, cost of sales increased to 64.9% for 2011, versus 63.7% in 2010. This percentage increase is primarily due to the significant increase in raw materials costs we experienced during 2011. Reduced absorption of fixed manufacturing costs due to lower production volumes during the fourth quarter of 2011 also negatively impacted gross profit margins as well.

For 2012, our selling, general and administrative expenses decreased $11.9 million (4.9%) versus 2011. Fluctuations in currency exchange rates accounted for approximately $4 million (1.5%) of the decrease. The largest component of the change in selling, general and administrative expense was a decrease in administrative costs of approximately $14 million, which is due primarily to lower stock compensation expense of $6 million during the first six months of 2012, particularly in the Americas, as a result of performance goals not being obtained to the same degree as in 2011. There also was a decrease in administrative expenses due to the significant restructuring actions which took place in 2011 and 2012, particularly in our European operations. We also experienced a decrease of $4 million in marketing expense, particularly in the Americas, due to lower catalog circulation in our FLOR business (approximately $1 million), as well as reduced marketing programs as we evaluate the cost effectiveness of our marketing platform in light of market requirements. These decreases were offset somewhat by increased selling costs of $7 million, primarily in the Americas, due to both the FLOR store rollout (approximately $2 million) as well as sales personnel additions in the Americas in response to positive market conditions in that region, and increased selling costs due to increased sales in the Americas (approximately $3 million increase.) Due to the above factors, as a percentage of net sales, selling, general and administrative costs declined to 24.8% in 2012 versus 25.5% in 2011.

For 2011, our selling, general and administrative expenses increased $26.2 million (12.1%) versus 2010. Fluctuations in currency exchange rates accounted for approximately $7 million (3%) of the increase. The primary components of this increase in selling, general and administrative expenses were (1) a $14.1 million increase in selling expense, commensurate with the increase in sales as well as selected investments made in our consumer market and diversification strategies, (2) an $11.1 million increase in overall administrative costs due, in part, to increases in non-cash incentive based pay during 2011, particularly 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 25.5% for 2011, versus 25.2% for 2010.

Interest Expense

For 2012 interest expense decreased $1.3 million versus 2011. This decrease was primarily due to the redemption of the remaining $11.5 million our 9.5% Senior Subordinated Notes due 2014 in April of 2012.

For 2011 interest expense decreased $6.9 million versus 2010. This decrease was due to the issuance of our 7 5/8% Senior Notes in the fourth quarter of 2010, the proceeds of which we used to complete the repurchase of substantially all of our 11 3/8% Senior Secured Notes and our outstanding 9.5% Senior Subordinated Notes pursuant to the tender offer discussed above. Our use of the proceeds from our 7 5/8% Senior Notes to retire higher interest debt led to a significant reduction in our interest expense, as compared to 2010.

Tax

Our effective tax rate in 2012 was 39.9%, compared with an effective rate of 35.0% in 2011. This increase in effective rate was primarily attributable to (1) nondeductible business expenses associated with the fire at the Australia plant, and (2) a nondeductible reserve on capital assets associated with our 2012 restructuring plan. In addition, there were decreases in the effective rate attributable to the cash surrender value of life insurance policies and tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested, which were offset by increases in the effective rate for foreign and U.S tax effects attributable to foreign operations. For additional information on taxes and a reconciliation of effective tax rates to statutory tax rates, see the Note entitled “Taxes on Income” in Item 8 of this Report.

Our effective tax rate in 2011 was 35.0%, compared with an effective rate of 30.9% in 2010. This increase in effective rate was primarily attributable to (1) a decrease in the cash surrender value of life insurance policies associated with the funding of our nonqualified savings plan and salary continuation plan resulting in nondeductible losses in 2011 as compared with an increase in 2010, which resulted in nontaxable gains, (2) a decrease in state tax benefits due to less state net operating losses in 2011 as compared with 2010, and (3) less of a decrease in unrecognized tax benefits in 2011 as compared with 2010. The increase in effective rate was partially offset by a decrease in valuation allowances related to state net operating loss carryforwards and a decrease in the U.S. tax effects attributable to foreign operations related to Subpart F income. For additional information on taxes and a reconciliation of effective tax rates to statutory tax rates, see the Note entitled “Taxes on Income” in Item 8 of this Report.

Liquidity and Capital Resources

General

In our business, we require cash and other liquid assets primarily to purchase raw materials and to pay other manufacturing costs, in addition to funding normal course selling, general and administrative expenses, anticipated capital expenditures, interest expense and potential special projects. We generate our cash and other liquidity requirements primarily from our operations and from borrowings or letters of credit under our domestic revolving credit facility with a banking syndicate. We believe that we will be able to continue to enhance the generation of free cash flow through the following initiatives:

•

Improving our inventory turns by continuing to implement a made-to-order model throughout our organization;

•

Reducing our average days sales outstanding through improved credit and collection practices; and

•

Limiting the amount of our capital expenditures generally to those projects that have a short-term payback period.

Historically, we use more cash in the first half of the fiscal year, as we fund insurance premiums, tax payments, incentive compensation and inventory build-up in preparation for the holiday/vacation season of our international operations.

In addition, we have a high contribution margin business with low capital expenditure requirements. Contribution margin represents variable gross profit margin less the variable component of selling, general and administrative expenses, and for us is an indicator of profit on incremental sales after the fixed components of cost of goods sold and selling, general and administrative expenses have been recovered. While contribution margin should not be construed as a substitute for gross margin, which is determined in accordance with GAAP, it is included herein to provide additional information with respect to our potential for profitability. In addition, we believe that investors find contribution margin to be a useful tool for measuring our profitability on an operating basis.

At December 30, 2012, we had $90.5 million in cash. Approximately $50.3 million of this cash was located in the Unites States, and the remaining $40.2 million was located at our international locations. Our position is that the cash located outside of the United States is permanently reinvested in the respective jurisdictions (except as identified below). We believe that our strategic plans and business needs support the status of our cash in foreign locations (particularly as we build our new facility in Minto, Australia and review other international investment opportunities). Of the $40.2 million in cash in foreign jurisdictions, approximately $9.2 million represents earnings which we have determined are not permanently reinvested, and as such we have provided for U.S. federal and state income taxes on these amounts in accordance with applicable accounting standards.

As of December 30, 2012, we had no borrowings and $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 December 30, 2012, we could have incurred $62.8 million of additional borrowings under our domestic revolving credit facility and €20.0 million (approximately $26.5 million) of additional borrowings under our European credit facility. In addition, we could have incurred the equivalent of $18.9 million of borrowings under our other credit facilities in place at other non-U.S. subsidiaries.

We have approximately $65.1 million in contractual cash obligations due by the end of fiscal year 2013, which includes, among other things, pension cash contributions, interest payments on our debt and capital expenditure commitments. Based on current interest rate and debt levels, we expect our aggregate interest expense for 2013 to be between $23 million and $26 million. We estimate aggregate capital expenditures in 2013 to be between $30 million and $40 million, although we are not committed to these amounts.

On December 3, 2010, we completed a private offering of $275 million aggregate principal amount of 7 5/8% Senior Notes. Interest on the 7 5/8% Senior Notes is payable semi-annually on June 1 and December 1 (the first payment was made on 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 the 9.5% Senior Subordinated Notes, pursuant to a tender offer we conducted.

We also have $8.1 million aggregate principal amount outstanding of our 11 3/8% Senior Secured Notes.

It is important for you to consider that we have a significant amount of indebtedness. Our outstanding $8.1 million of 11 3/8% Senior Secured Notes mature in November 2013, our domestic revolving credit facility matures in June 2016, and our outstanding $275 million of 7 5/8% Senior Notes mature in 2018. We cannot assure you that we will be able to renegotiate or refinance any of our debt on commercially reasonable terms, or at all. If we are unable to refinance our debt or obtain new financing, we would have to consider other options, such as selling assets to meet our debt service obligations and other liquidity needs, or using cash, if available, that would have been used for other business purposes.

Domestic Revolving Credit Facility

We have a domestic revolving credit facility that provides for a maximum aggregate amount of loans and letters of credit of up to $100 million (with the option to increase it to a maximum of $150 million upon the satisfaction of certain conditions) at any one time, subject to the borrowing base described below. The key features of the domestic revolving credit facility are as follows:

•

The revolving credit facility currently matures on June 24, 2016;

•

The revolving credit facility includes a domestic U.S. dollar syndicated loan and letter of credit facility made available to Interface, Inc. up to the lesser of (1) $100 million, or (2) a borrowing base equal to the sum of specified percentages of eligible accounts receivable and inventory in the United States (the percentages and eligibility requirements for the borrowing base are specified in the credit facility), less certain reserves;

•

Advances under the facility are secured by a first-priority lien on substantially all of Interface, Inc.’s assets and the assets of each of its material domestic subsidiaries, which have guaranteed the revolving credit facility; and

•

The revolving credit facility contains a financial covenant (a fixed charge coverage ratio test) that becomes effective in the event that our excess borrowing availability falls below 12.5% of the aggregate loan commitments of the lenders. In such event, we must comply with the financial covenant for a period commencing on the last day of the fiscal quarter immediately preceding such event (unless such event occurs on the last day of a fiscal quarter, in which case the compliance period commences on such date) and ending on the last day of the fiscal quarter immediately following the fiscal quarter in which such event occurred.

The revolving credit facility also includes various reporting, affirmative and negative covenants, and other provisions that restrict our ability to take certain actions, including provisions that restrict our ability to repay our long-term indebtedness unless we meet a specified minimum excess availability test.

Interest Rates and Fees. Interest on base rate loans is charged at varying rates computed by applying a margin ranging from 0.75% to 1.25% over the applicable base interest rate (which is defined as the greatest of the prime rate, a specified federal funds rate plus 0.50%, or the one-month LIBOR rate), depending on our average excess borrowing availability during the most recently completed fiscal quarter. Interest on LIBOR-based loans and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.75% to 2.25% over the applicable LIBOR rate, depending on our average excess borrowing availability during the most recently completed fiscal quarter. In addition, we pay an unused line fee of 0.375% per annum on the facility.

Prepayments. The revolving credit facility requires prepayment from the proceeds of certain asset sales.

Covenants. The revolving credit facility also limits our ability, among other things, to:

•

repay our other indebtedness prior to maturity unless we meet a specified minimum excess availability test;

•

incur indebtedness or contingent obligations;

•

make acquisitions of or investments in businesses (in excess of certain specified amounts);

•

sell or dispose of assets (in excess of certain specified amounts);

•

create or incur liens on assets; and

•

enter into sale and leaseback transactions.

We are presently in compliance with all covenants under the revolving credit facility and anticipate that we will remain in compliance with the covenants for the foreseeable future.

Events of Default. If we breach or fail to perform any of the affirmative or negative covenants under the revolving credit facility, or if other specified events occur (such as a bankruptcy or similar event or a change of control of Interface, Inc. or certain subsidiaries, or if we breach or fail to perform any covenant or agreement contained in any instrument relating to any of our other indebtedness exceeding $15 million), after giving effect to any applicable notice and right to cure provisions, an event of default will exist. If an event of default exists and is continuing, the lenders’ agent may, and upon the written request of a specified percentage of the lender group, shall:

•

declare all commitments of the lenders under the facility terminated;

•

declare all amounts outstanding or accrued thereunder immediately due and payable; and

•

exercise other rights and remedies available to them under the agreement and applicable law.

Collateral. The facility is secured by substantially all of the assets of Interface, Inc. and its domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of our domestic subsidiaries and up to 65% of the stock of our first-tier material foreign subsidiaries. If an event of default occurs under the revolving credit facility, the lenders’ collateral agent may, upon the request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some instances, foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting accounts receivables, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign subsidiaries.

Foreign Credit Facilities

Our European subsidiary Interface Europe B.V. and certain of Interface Europe B.V.’s subsidiaries have a Credit Agreement with The Royal Bank of Scotland (as successor to ABN AMRO Bank N.V.) (“RBS”). Under the Credit Agreement, RBS provides a credit facility, until further notice, for borrowings and bank guarantees of up to €20 million.

Interest on borrowings under the facility is charged at varying rates computed by applying a margin of 1% over RBS’s euro base rate (consisting of the leading refinancing rate as determined from time to time by the European Central Bank plus a debit interest surcharge), which base rate is subject to a minimum of 3.5% per annum. Fees on bank guarantees and documentary letters of credit are charged at a rate of 1% per annum or part thereof on the maximum amount and for the maximum duration of each guarantee or documentary letter of credit issued. A facility fee of 0.5% per annum is payable with respect to the facility amount. The facility is secured by liens on certain real property, personal property and other assets of our principal European subsidiaries. The facility also includes certain financial covenants (which require the borrowers and their subsidiaries to maintain a minimum interest coverage ratio, total debt/EBITDA ratio and tangible net worth/total assets) and affirmative and negative covenants, and other provisions that restrict the borrowers’ ability (and the ability of certain of the borrowers’ subsidiaries) to take certain actions. As of December 30, 2012, there were no borrowings outstanding under this facility.

Some of our other non-U.S. subsidiaries have an aggregate of the equivalent of $18.9 million of lines of credit available. As of December 30, 2012, there were no borrowings outstanding under these lines of credit.

We are presently in compliance with all covenants under these foreign credit facilities and anticipate that we will remain in compliance with the covenants for the foreseeable future.

Senior and Senior Subordinated Notes

As of December 30, 2012, we had outstanding $275 million of our 7 5/8% Senior Notes and $8.1 million of our 11 3/8% Senior Secured Notes. The indentures governing these notes, on a collective basis, contain covenants that limit or restrict our ability to:

•

incur additional indebtedness;

•

make dividend payments or other restricted payments;

•

create liens on our assets;

•

sell our assets;

•

sell securities of our subsidiaries;

•

enter into transactions with shareholders and affiliates; and

•

enter into mergers, consolidations or sales of all or substantially all of our assets.

In addition, the indentures governing each series of notes contains a covenant that requires us to make an offer to purchase the outstanding notes under such indenture in the event of a change of control of Interface, Inc. (as defined in each respective indenture).

Each series of notes is guaranteed, fully, unconditionally, and jointly and severally, on an unsecured basis by each of our material U.S. subsidiaries. In addition, the 11 3/8% Senior Secured Notes (but not the 7 5/8% Senior Notes) are secured by a second-priority lien on substantially all of our and certain of our domestic subsidiaries’ assets that secure our domestic revolving credit facility (discussed above) on a first-priority basis.

If we breach or fail to perform any of the affirmative or negative covenants under one of these indentures, or if other specified events occur (such as a bankruptcy or similar event), after giving effect to any applicable notice and right to cure provisions, an event of default will exist. An event of default also will exist under the 7 5/8% Senior Notes indenture if we breach or fail to perform any covenant or agreement contained in any other instrument (including without limitation any other indenture) relating to any of our indebtedness exceeding $20 million and such default or failure results in the indebtedness becoming due and payable. If an event of default exists and is continuing, the trustee of the notes (or the holders of at least 25% of the principal amount of such notes) may declare the principal amount of the notes and accrued interest thereon immediately due and payable (except in the case of bankruptcy, in which case such amounts are immediately due and payable even in the absence of such a declaration). Also, the collateral agent for the 11 3/8% Senior Secured Notes may (subject to the rights of the first priority lien holders under the domestic revolving credit facility) exercise remedies with respect to the collateral securing those notes.

Analysis of Cash Flows

Our primary sources of cash during 2012 were: (1) $32.2 million of net proceeds from the sale of our Bentley Prince Street business segment; (2) $20.0 million as a result of reduction of accounts receivable; and (3) $20.7 million of proceeds from the insurance company with regard to the fire at our Australian facility. Our primary uses of cash during 2012 were: (1) $42.4 million of capital expenditures; (2) an increase of prepaid expenses and other current assets of $11.9 million, primarily related to the insurance receivable for our fire claim in Australia; and (3) $11.5 million for the redemption of the remainder of our 9.5% Senior Subordinated Notes.

Our primary sources of cash during 2011 were: (1) $2.7 million of cash received as a result of exercises of employee stock options; and (2) $1.4 million received due to a reduction of prepaid expenses. Our primary uses of cash during 2011 were: (1) $38.1 million for capital expenditures; (2) $31.6 million due to increased inventory levels; and (3) $17.6 million due to decreases in accounts payable and accruals.

Our primary sources of cash during 2010 were: (1) $275.0 million of gross proceeds from the issuance of our 7 5/8% Senior Notes; (2) $28.2 million due to an increase of accounts payable and accrued expenses; and (3) $3.1 million from the exercise of employee stock options. Our primary uses of cash during 2010 were: (1) $280.0 million used to repurchase a portion of our 11 3/8% Senior Secured Notes and former 9.5% Senior Subordinated Notes; (2) $36.4 million for premiums paid in connection with the repurchase of these senior and senior subordinated notes; (3) $31.7 million for capital expenditures; and (4) $23.1 million due to an increase in inventory.

We believe that our liquidity position will provide sufficient funds to meet our current commitments and other cash requirements for the foreseeable future.

Funding Obligations

We have various contractual obligations that we must fund as part of our normal operations. The following table discloses aggregate information about our contractual obligations (including the remaining contractual obligations related to our discontinued operations) and the periods in which payments are due. The amounts and time periods are measured from December 30, 2012.


			Payments Due by Period
	Total Payments Due		Less than 1 year		1-3 years		3-5 years		More than 5 years
	*(in thousands)*
Long-Term Debt Obligations	$	283,143	$	8,143	$	0	$	0	$	275,000
Operating Lease Obligations(1)		72,799		21,655		28,665		11,279		11,200
Expected Interest Payments(2)		124,838		21,741		41,938		41,938		19,221
Unconditional Purchase Obligations(3)		2,789		2,723		56		10		0
Pension Cash Obligations(4)		118,686		10,850		22,181		23,265		62,390

Total Contractual Cash Obligations(5)	$	602,255	$	65,112	$	92,840	$	76,492	$	367,811

(1)	Our capital lease obligations are insignificant.

(2)

Expected interest payments to be made in future periods reflect anticipated interest payments related to the $275.0 million of our 7 5/8% Senior Notes, and the $8.1 million of outstanding 11 3/8% Senior Secured Notes. We have also assumed in the presentation above that these notes will remain outstanding until maturity. We have excluded from the presentation interest payments and fees related to our revolving credit facilities (discussed above), because of the variability and timing of advances and repayments thereunder.

(3)	Unconditional purchase obligations do not include unconditional purchase obligations that are included as liabilities in our Consolidated Balance Sheet. Our capital expenditure commitments are not significant.

(4)

We have two foreign defined benefit plans and a domestic salary continuation plan. We have presented above the estimated cash obligations that will be paid under these plans over the next ten years. Such amounts are based on several estimates and assumptions and could differ materially should the underlying estimates and assumptions change. Our domestic salary continuation plan is an unfunded plan, and we do not currently have any commitments to make contributions to this plan. However, we do use insurance instruments to hedge our exposure under the salary continuation plan. Contributions to our other employee benefit plans are at our discretion.

(5)	The above table does not reflect unrecognized tax benefits of $25.2 million, the timing of which payments are uncertain. See the Note entitled “Taxes on Income” in Item 8 of this Report for further information.

Critical Accounting Policies

The policies discussed below are considered by management to be critical to an understanding of our consolidated financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimations about the effects of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events may not develop as forecasted, and the best estimates routinely require adjustment.

Revenue Recognition. Revenue is recognized when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, price to the buyer is fixed and determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership, which is generally on the date of shipment. Provisions for discounts, sales returns and allowances are estimated using historical experience, current economic trends, and the company’s quality performance. The related provision is recorded as a reduction of sales and cost of sales in the same period that the revenue is recognized. Material differences may result in the amount and timing of net sales for any period if management makes different judgments or uses different estimates.

Shipping and handling fees billed to customers are classified in net sales in the consolidated statements of operations. Shipping and handling costs incurred are classified in cost of sales in the consolidated statements of operations.

Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment at the asset group level whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment is indicated. A loss is then recognized for the difference, if any, between the fair value of the asset (as estimated by management using its best judgment) and the carrying value of the asset. If actual market value is less favorable than that estimated by management, additional write-downs may be required.

Deferred Income Tax Assets and Liabilities. The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies in accordance with applicable accounting standards, and are based on management’s assumptions and estimates regarding future operating results and levels of taxable income, as well as management’s judgment regarding the interpretation of the provisions of applicable accounting standards. The carrying values of liabilities for income taxes currently payable are based on management’s interpretations of applicable tax laws, and incorporate management’s assumptions and judgments regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes may result in materially different carrying values of income tax assets and liabilities and results of operations.

We evaluate the recoverability of these deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short and long-term business forecasts to provide insight. Further, our global business portfolio gives us the opportunity to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. As of December 30, 2012, and January 1, 2012, we had approximately $128.2 million and $96.2 million of U.S. federal net operating loss carryforwards, respectively. In addition, as of December 30, 2012, and January 1, 2012, we had state net operating loss carryforwards of $187.0 million and $128.0 million, respectively. As of December 30, 2012, and January 1, 2012, we had approximately $3.5 million and $1.5 million of foreign net operating loss carryforwards, respectively. Certain of these carryforwards are reserved with a valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. The remaining year-end 2012 amounts are expected to be fully recoverable within the applicable statutory expiration periods. If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted

Goodwill. Pursuant to applicable accounting standards, we test goodwill for impairment at least annually using a two step approach. In the first step of this approach, we prepare valuations of reporting units, using both a market comparable approach and an income approach, and those valuations are compared with the respective book values of the reporting units to determine whether any goodwill impairment exists. In preparing the valuations, past, present and expected future performance is considered. If impairment is indicated in this first step of the test, a step two valuation approach is performed. The step two valuation approach compares the implied fair value of goodwill to the book value of goodwill. The implied fair value of goodwill is determined by allocating the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit, including both recognized and unrecognized intangible assets, in the same manner as goodwill is determined in a business combination under applicable accounting standards. After completion of this step two test, a loss is recognized for the difference, if any, between the fair value of the goodwill associated with the reporting unit and the book value of that goodwill. If the actual fair value of the goodwill is determined to be less than that estimated, an additional write-down may be required.

During the fourth quarters of 2012, 2011 and 2010, we performed the annual goodwill impairment test. We perform this test at the reporting unit level. For our reporting units which carried a goodwill balance as of December 30, 2012, no impairment of goodwill was indicated. As of December 30, 2012, if our estimates of the fair value of our reporting units were 10% lower, we believe no additional goodwill impairment would have existed.

Inventories. We determine the value of inventories using the lower of cost or market. We write down inventories for the difference between the carrying value of the inventories and their net realizable value. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.

We estimate our reserves for inventory obsolescence by continuously examining our inventories to determine if there are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for our products and current economic conditions. While we believe that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences will continue to change and we could experience additional inventory write-downs in the future. Our inventory reserve on December 30, 2012, and January 1, 2012, was $12.9 million and $10.4 million, respectively. To the extent that actual obsolescence of our inventory differs from our estimate by 10%, our 2012 net income would be higher or lower by approximately $1.0 million, on an after-tax basis.

Pension Benefits. Net pension expense recorded is based on, among other things, assumptions about the discount rate, estimated return on plan assets and salary increases. While management believes these assumptions are reasonable, changes in these and other factors and differences between actual and assumed changes in the present value of liabilities or assets of our plans above certain thresholds could cause net annual expense to increase or decrease materially from year to year. The actuarial assumptions used in our salary continuation plan and our foreign defined benefit plans reporting are reviewed periodically and compared with external benchmarks to ensure that they appropriately account for our future pension benefit obligation. The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers. The table below represents the changes to the projected benefit obligation as a result of changes in discount rates assumptions:


	Increase (Decrease) in Projected Benefit Obligation
Foreign Defined Benefit Plans	(in millions)
1% increase in actuarial assumption for discount rate	$	(43.1	)
1% decrease in actuarial assumption for discount rate	$	49.6


	Increase (Decrease) in Projected Benefit Obligation
Domestic Salary Continuation Plan	(in millions)
1% increase in actuarial assumption for discount rate	$	(2.7	)
1% decrease in actuarial assumption for discount rate	$	3.3

Environmental Remediation. We provide for remediation costs and penalties when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. Remediation liabilities are accrued based on estimates of known environmental exposures and are discounted in certain instances. We regularly monitor the progress of environmental remediation. Should studies indicate that the cost of remediation is to be more than previously estimated, an additional accrual would be recorded in the period in which such determination is made. As of December 30, 2012, and January 1, 2012, no significant amounts were provided for remediation liabilities.

Allowances for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. Estimating this amount requires us to analyze the financial strengths of our customers. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. By its nature, such an estimate is highly subjective, and it is possible that the amount of accounts receivable that we are unable to collect may be different than the amount initially estimated. Our allowance for doubtful accounts on December 30, 2012, and January 1, 2012, was $8.8 million and $8.9 million, respectively. To the extent the actual collectability of our accounts receivable differs from our estimates by 10%, our 2012 net income would be higher or lower by approximately $0.5 million, on an after-tax basis, depending on whether the actual collectability was better or worse, respectively, than the estimated allowance.

Product Warranties. We typically provide limited warranties with respect to certain attributes of our carpet products (for example, warranties regarding excessive surface wear, edge ravel and static electricity) for periods ranging from ten to twenty years, depending on the particular carpet product and the environment in which the product is to be installed. We typically warrant that any services performed will be free from defects in workmanship for a period of one year following completion. In the event of a breach of warranty, the remedy typically is limited to repair of the problem or replacement of the affected product. We record a provision related to warranty costs based on historical experience and periodically adjust these provisions to reflect changes in actual experience. Our warranty reserve on December 30, 2012, and January 1, 2012, was $1.2 million and $0.9 million, respectively. Actual warranty expense incurred could vary significantly from amounts that we estimate. To the extent the actual warranty expense differs from our estimates by 10%, our 2012 net income would be higher or lower by approximately $0.1 million, on an after-tax basis, depending on whether the actual expense is lower or higher, respectively, than the estimated provision.

Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements.

Recent 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 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. The adoption of this standard did not have any significant impact on our 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, was 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 presentation, there is not expected to be any impact on the Company’s consolidated financial statements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

As a result of the scope of our global operations, we are exposed to an element of market risk from changes in interest rates and foreign currency exchange rates. Our results of operations and financial condition could be impacted by this risk. We manage our exposure to market risk through our regular operating and financial activities and, to the extent we deem appropriate, through the use of derivative financial instruments.

We employ derivative financial instruments as risk management tools and not for speculative or trading purposes. We monitor the use of derivative financial instruments through objective measurable systems, well-defined market and credit risk limits, and timely reports to senior management according to prescribed guidelines. We have established strict counter-party credit guidelines and enter into transactions only with financial institutions with a rating of investment grade or better. As a result, we consider the risk of counter-party default to be minimal.

Interest Rate Market Risk Exposure

Changes in interest rates affect the interest paid on certain of our debt. To mitigate the impact of fluctuations in interest rates, our management has developed and implemented a policy to maintain the percentage of fixed and variable rate debt within certain parameters. In the past, we have maintained a fixed/variable rate mix within these parameters either by borrowing on a fixed rate basis or entering into interest rate swap transactions. In the interest rate swaps, we agree to exchange, at specified levels, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal linked to LIBOR. As of December 30, 2012, and January 1, 2012, no such interest rate swaps were in place.

Foreign Currency Exchange Market Risk Exposure

A significant portion of our operations consists of manufacturing and sales activities in foreign jurisdictions. We manufacture our products in the United States, Northern Ireland, the Netherlands, China and Thailand, and sell our products in more than 100 countries. (In 2012, we ceased manufacturing operations at our facility in England. In addition, manufacturing in Australia has been suspended temporarily as we rebuild following a fire.) As a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we distribute our products. Our operating results are exposed to changes in exchange rates between the U.S. dollar and many other currencies, including the euro, British pound sterling, Canadian dollar, Australian dollar, Thai baht and Japanese yen. When the U.S. dollar strengthens against a foreign currency, the value of anticipated sales in those currencies decreases, and vice versa. Additionally, to the extent our foreign operations with functional currencies other than the U.S. dollar transact business in countries other than the United States, exchange rate changes between two foreign currencies could ultimately impact us. Finally, because we report in U.S. dollars on a consolidated basis, foreign currency exchange fluctuations could have a translation impact on our financial position.

At December 30, 2012, we recognized an $8.5 million increase in our foreign currency translation adjustment account compared with January 1, 2012, because of the weakening of the U.S. dollar against certain foreign currencies during 2012.

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 December 30, 2012. The values that result from these computations are then compared with the market values of the financial instruments. The differences are the hypothetical gains or losses associated with each type of risk.

Interest Rate Risk

Based on a hypothetical immediate 150 basis point increase in interest rates, with all other variables held constant, the fair value of our fixed rate long-term debt would be impacted by a net decrease of $13.5 million. Conversely, a 150 basis point decrease in interest rates would result in a net increase in the fair value of our fixed rate long-term debt of $8.0 million.

Foreign Currency Exchange Rate Risk

As of December 30, 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 short-term financial instruments (primarily cash, accounts receivable and accounts payable) of $9.4 million or an increase in the fair value of our financial instruments of $7.7 million, respectively. As the impact of offsetting changes in the fair market value of our net foreign investments is not included in the sensitivity model, these results are not indicative of our actual exposure to foreign currency exchange risk.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


	FISCAL YEAR
	2012			2011		2010
	(in thousands, except per share data)
Net sales	$	932,020		$	953,045	$	862,314
Cost of sales		614,841			618,303		549,184

Gross profit on sales		317,179			334,742		313,130
Selling, general and administrative expenses		231,358			243,287		217,080
Restructuring and asset impairment charges		19,425			5,755		2,943
Expenses related to Australia fire		1,748			0		0

Operating income		64,648			85,700		93,107

Interest expense		25,024			26,325		33,233
Bond retirement expenses		0			0		44,379
Other expense		1,521			465		582

Income from continuing operations before tax expense		38,103			58,910		14,913
Income tax expense		15,204			20,640		4,616

Income from continuing operations		22,899			38,270		10,297
Income (loss) from discontinued operations, net of tax		(16,956	)		451		(963	)

Net income		5,943			38,721		9,334
Net income attributable to noncontrolling interest in subsidiary		0			0		(1,051	)

Net income attributable to Interface, Inc.	$	5,943		$	38,721	$	8,283

Income (loss) per share attributable to Interface, Inc. common shareholders – basic
Continuing operations	$	0.35		$	0.59	$	0.14
Discontinued operations		(0.26	)		0.01		(0.01	)

Net income per share attributable to Interface, Inc. common shareholders – basic	$	0.09		$	0.59	$	0.13

Income (loss) per share attributable to Interface, Inc. common shareholders – diluted
Continuing operations	$	0.35		$	0.58	$	0.14
Discontinued operations		(0.26	)		0.01		(0.01	)

Net income per share attributable to Interface, Inc. common shareholders – diluted	$	0.09		$	0.59	$	0.13

Basic weighted average common shares outstanding		65,767			65,291		63,794
Diluted weighted average common shares outstanding		65,900			65,486		64,262

See accompanying notes to consolidated financial statements.

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	FISCAL YEAR
	2012		2011			2010
	(in thousands)
Net income	$	5,943	$	38,721		$	9,334
Other comprehensive income (loss)
Foreign currency translation adjustment		8,539		(7,614	)		(1,754	)
Pension liability adjustment		771		(5,066	)		1,990

Comprehensive income		15,253		26,041			9,570
Comprehensive income attributable to noncontrolling interest		0		0			(1,509	)

Comprehensive income attributable to Interface, Inc.	$	15,253	$	26,041		$	8,061

See accompanying notes to consolidated financial statements.

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	2012			2011
	(in thousands)
ASSETS
Current
Cash and cash equivalents	$	90,533		$	50,624
Accounts receivable, net		137,313			140,800
Inventories		141,176			140,485
Prepaid expenses and other current assets		51,358			20,522
Deferred income taxes		10,271			9,699
Assets of businesses held for sale		0			60,683

Total current assets		430,651			422,813
Property and equipment, net		165,725			177,925
Deferred tax asset		62,856			47,290
Goodwill		75,672			74,557
Other assets		54,463			49,687

	$	789,367		$	772,272

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	56,292		$	52,226
Accrued expenses		97,424			90,693
Current portion of long-term debt		8,110			0
Liabilities held for sale		0			8,269

Total current liabilities		161,826			151,188
Senior notes		275,000			283,030
Senior subordinated notes		0			11,477
Deferred income taxes		7,339			8,391
Other		49,500			37,147

Total liabilities		493,665			491,233

Commitments and contingencies
Shareholders’ equity
Preferred stock		0			0
Common stock		6,606			6,548
Additional paid-in capital		366,677			361,400
Retained deficit		(16,746	)		(16,764	)
Accumulated other comprehensive loss – foreign currency translation		(25,344	)		(33,883	)
Accumulated other comprehensive loss – pension liability		(35,491	)		(36,262	)

Total shareholders’ equity		295,702			281,039

	$	789,367		$	772,272

See accompanying notes to consolidated financial statements.

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	FISCAL YEAR
	2012			2011			2010
	(in thousands)
OPERATING ACTIVITIES:
Net income	$	5,943		$	38,721		$	9,334
Income (loss) on discontinued operations, net of taxes		(16,956	)		451			(963	)

Income from continuing operations		22,899			38,270			10,297
Adjustments to reconcile income to cash provided by operating activities
Depreciation and amortization		25,882			25,179			25,051
Stock compensation amortization expense		3,293			10,138			2,876
Premium paid to repurchase senior and senior subordinated notes		0			0			36,374
Bad debt expense		1,119			1,560			2,031
Deferred income taxes and other		(11,164	)		4,549			(6,999	)
Working capital changes:
Accounts receivable		19,994			(7,453	)		(21,418	)
Inventories		1,075			(31,629	)		(23,103	)
Prepaid expenses and other current assets		(11,948	)		1,359			(5,970	)
Accounts payable and accrued expenses		(4,262	)		(17,609	)		28,241

Cash provided by operating activities		46,888			24,364			47,380

INVESTING ACTIVITIES:
Capital expenditures		(42,428	)		(38,050	)		(31,715	)
Other		(2,629	)		(1,566	)		(5,328	)
Net proceeds from sale of Bentley Prince Street		32,174			0			0
Cash received from insurance company		20,718			0			0

Cash provided by (used in) investing activities		7,835			(39,616	)		(37,043	)

FINANCING ACTIVITIES:
Borrowing of long-term debt		0			0			275,000
Dividends paid		(5,925	)		(5,227	)		(2,721	)
Debt issuance costs		0			(1,025	)		(5,930	)
Repurchase of senior and senior subordinated notes		(11,477	)		0			(279,966	)
Premium paid to repurchase senior and senior subordinated notes		0			0			(36,374	)
Purchase of noncontrolling interest		0			0			(11,488	)
Proceeds from issuance of common stock		1,496			2,669			3,103

Cash used in financing activities		(15,906	)		(3,583	)		(58,376	)

Net cash provided by (used in) operating, investing and financing activities		38,817			(18,835	)		(48,039	)
Effect of exchange rate changes on cash		1,092			234			1,912

CASH AND CASH EQUIVALENTS:
Net increase (decrease)		39,909			(18,601	)		(46,127	)
Balance, beginning of year		50,624			69,225			115,352

Balance, end of year	$	90,533		$	50,624		$	69,225

See accompanying notes to consolidated financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Company is a recognized leader in the worldwide commercial interiors market, offering modular carpet. The Company manufactures modular carpet focusing on the high quality, designer-oriented sector of the market, and provides specialized carpet replacement, installation and maintenance services. Additionally, the Company offers Intersept , a proprietary antimicrobial used in a number of interior finishes.

In 2012, the Company sold its Bentley Prince Street business segment to a third party. Bentley Prince Street designed, manufactured and marketed broadloom and modular carpet. The results of operations and related disposal costs, gains and losses for the Bentley Prince Street business are classified as discontinued operations for all periods presented. In addition, assets and liabilities of the Bentley Prince Street business have been reported in assets and liabilities held for sale for all reported periods.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions are eliminated. Investments in which the Company does not have the ability to exercise significant influence are carried at fair value. The Company monitors investments for other than temporary declines in value and makes reductions in carrying values when appropriate. As of December 30, 2012 and January 1, 2012, the Company did not hold significant investments of this nature.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Examples include provisions for returns, bad debts, product claims reserves, rebates, inventory obsolescence and the length of product life cycles, accruals associated with restructuring activities, income tax exposures and valuation allowances, environmental liabilities, and the carrying value of goodwill and property and equipment. Actual results could vary from these estimates.

Revenue Recognition

Revenue is recognized when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, price to the buyer is fixed and determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership, which is generally on the date of shipment. Provisions for discounts, sales returns and allowances are estimated using historical experience, current economic trends, and the Company’s quality performance. The related provision is recorded as a reduction of sales and cost of sales in the same period that the revenue is recognized. Material differences may result in the amount and timing of net sales for any period if management makes different judgments or uses different estimates.

Research and Development

Research and development costs are expensed as incurred and are included in the selling, general and administrative expense caption in the consolidated statements of operations. Research and development expense was $12.4 million, $12.1 million and $11.1 million for the years 2012, 2011 and 2010, respectively.

Cash, Cash Equivalents and Short-Term Investments

Highly liquid investments with insignificant interest rate risk and with original maturities of three months or less are classified as cash and cash equivalents. Investments with maturities greater than three months and less than one year are classified as short-term investments. The Company did not hold any significant amounts of short-term investments at January 1, 2012 or January 2, 2011.

Cash payments for interest amounted to approximately $23.1 million, $23.7 million and $34.3 million for the years 2012, 2011 and 2010, respectively. Income tax payments amounted to approximately $10.0 million, $19.9 million and $13.9 million for the years 2012, 2011 and 2010, respectively. During the years 2012, 2011 and 2010, the Company received income tax refunds of $0.1 million, $4.4 million and $0.8 million, respectively.

Inventories

Inventories are carried at the lower of cost (standards approximating the first-in, first-out method) or market. Costs included in inventories are based on invoiced costs and/or production costs, as applicable. Included in production costs are material, direct labor and allocated overhead. The Company writes down inventories for the difference between the carrying value of the inventories and their estimated net realizable value. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.

Management estimates its reserves for inventory obsolescence by continuously examining its inventories to determine if there are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for the Company’s products, and current economic conditions. While management believes that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences will continue to change and the Company could experience additional inventory write-downs in the future.

Rebates

The Company has agreements to receive cash consideration from certain of its vendors, including rebates and cooperative marketing reimbursements. The amounts received from its vendors are generally presumed to be a reduction of the prices the Company pays for their products and, therefore, such amounts are reflected as either a reduction of cost of sales in the accompanying consolidated statements of operations, or, if the product inventory is still on hand at the reporting date, it is reflected as a reduction of “Inventories” on the accompanying consolidated balance sheets. Vendor rebates are typically dependent upon reaching minimum purchase thresholds. The Company evaluates the likelihood of reaching purchase thresholds using past experience and current year forecasts. When rebates can be reasonably estimated and receipt becomes probable, the Company records a portion of the rebate as the Company makes progress towards the purchase threshold.

When the Company receives direct reimbursements for costs incurred in marketing the vendor’s product or service, the amount received is recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of operations.

Assets and Liabilities of Businesses Held for Sale

The Company considers businesses to be held for sale when the Board or management, having the relevant authority to do so, approves and commits to a formal plan to actively market a business for sale and the sale is considered probable. Upon designation as held for sale, the carrying value of the assets of the business are recorded at the lower of their carrying value or their estimated fair value, less costs to sell. The Company ceases to record depreciation expense at that time.

Property and Equipment and Long-Lived Assets

Property and equipment are carried at cost. Depreciation is computed using the straight-line method over the following estimated useful lives: buildings and improvements – ten to forty years; and furniture and equipment – three to twelve years. Interest costs for the construction/development of certain long-term assets are capitalized and amortized over the related assets’ estimated useful lives. The Company capitalized net interest costs on qualifying expenditures of approximately $0.7 million, $0.6 million and $0.6 million for the fiscal years 2012, 2011 and 2010, respectively. Depreciation expense amounted to approximately $24.2 million, $22.3 million and $18.2 million for the years 2012, 2011 and 2010, respectively.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Repair and maintenance costs are charged to operating expense as incurred.

Goodwill and Other Intangible Assets

Goodwill is the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for as acquisitions. Accumulated amortization amounted to approximately $77.3 million at both December 30, 2012 and January 1, 2012, and cumulative impairment losses recognized were $212.6 million as of both December 30, 2012 and January 1, 2012.

As of December 30, 2012 and January 1, 2012, the net carrying amount of goodwill was $75.7 million and $74.6 million, respectively. Other intangible assets were $2.5 million and $2.0 million as of December 30, 2012, and January 1, 2012, respectively. The Company capitalizes patent defense costs when it determines that a successful defense is probable. Any patent defense costs are amortized over the remaining useful life of the patent. Amortization expense related to intangible assets during the years 2012, 2011 and 2010 was $0.4 million, $0.7 million, and $0.4 million, respectively.

During the fourth quarters of 2012, 2011 and 2010, the Company performed the annual goodwill impairment test required by applicable accounting standards. The Company performs this test at the reporting unit level, which is one level below the segment level for the Modular Carpet segment. In effecting the impairment testing, the Company prepared valuations of reporting units on both a market comparable methodology and an income methodology in accordance with the applicable standards, and those valuations were compared with the respective book values of the reporting units to determine whether any goodwill impairment existed. In preparing the valuations, past, present and future expectations of performance were considered. The annual testing indicated no potential of goodwill impairment in any of the years presented.

Each of the Company’s reporting units maintained fair values in excess of their respective carrying values as of the fourth quarter of 2012, and therefore no impairment was indicated during the impairment testing. As of December 30, 2012, if the Company’s estimates of the fair values of its reporting units which carry a goodwill balance were 10% lower, the Company still believes no goodwill impairment would have existed.

The changes in the carrying amounts of goodwill for the year ended December 30, 2012 are as follows:


BALANCE JANUARY 1, 2012		ACQUISITIONS		IMPAIRMENT		FOREIGN CURRENCY TRANSLATION		BALANCE DECEMBER 30, 2012
		(in thousands)
$	74,557	$	0	$	0	$	1,115	$	75,672

Product Warranties

The Company typically provides limited warranties with respect to certain attributes of its carpet products (for example, warranties regarding excessive surface wear, edge ravel and static electricity) for periods ranging from ten to twenty years, depending on the particular carpet product and the environment in which it is to be installed. The Company typically warrants that services performed will be free from defects in workmanship for a period of one year following completion. In the event of a breach of warranty, the remedy typically is limited to repair of the problem or replacement of the affected product.

The Company records a provision related to warranty costs based on historical experience and periodically adjusts these provisions to reflect changes in actual experience. Warranty reserves amounted to $1.2 million and $0.9 million as of December 30, 2012 and January 1, 2012, respectively, and are included in “Accrued Expenses” in the accompanying consolidated balance sheets.

Taxes on Income

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment date.

The Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will expire before realization of the benefit or that future deductibility is not probable. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future. This requires us to use estimates and make assumptions regarding significant future events such as the taxability of entities operating in the various taxing jurisdictions.

The Company does not record taxes collected from customers and remitted to governmental authorities on a gross basis.

For uncertain tax positions, the Company applies the provisions of relevant authoritative guidance, which requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The Company’s ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require significant judgment and can increase or decrease the Company’s effective tax rate as well as impact operating results. For further information, see the Note entitled “Taxes on Income.”

Fair Values of Financial Instruments

Fair values of cash and cash equivalents and short-term debt approximate cost due to the short period of time to maturity. Fair values of debt are based on quoted market prices or pricing models using current market rates.

Translation of Foreign Currencies

The financial position and results of operations of the Company’s foreign subsidiaries are measured generally using local currencies as the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each year-end. Income and expense items are translated at average exchange rates for the year. The resulting translation adjustments are recorded in the foreign currency translation adjustment account. In the event of a divestiture of a foreign subsidiary, the related foreign currency translation results are reversed from equity to income. Foreign currency exchange gains and losses are included in net income (loss). Foreign exchange translation gains (losses) were $8.5 million, ($7.6 million) and ($1.8 million) for the years 2012, 2011 and 2010, respectively.

Income (Loss) Per Share

Basic income (loss) per share is computed based on the average number of common shares outstanding. Diluted income (loss) per share reflects the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options, calculated using the treasury stock method.

Stock-Based Compensation

As of fiscal year 2012, the Company has stock-based employee compensation plans, which are described more fully in the “Shareholders’ Equity” Note below.

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 fiscal years 2011 and 2010 (there were no stock options granted in 2012):


	FISCAL YEAR
	2011			2010
Risk free interest rate		0.9	%		2.1	%
Expected option life		5.75 years			5.75 years
Expected volatility		65	%		61	%
Expected dividend yield		0.6	%		0.4	%

The weighted average fair value of stock options (as of grant date) granted during the years 2011 and 2010 was $7.37 and $6.86, respectively, per share.

The Company recognizes expense related to its restricted stock grants based on the grant date fair value of the stock issued, as determined by its market price at date of issue.

Derivative Financial Instruments

Accounting standards require a company to recognize all derivatives on the balance sheet at fair value. Derivatives that do not meet the criteria of an accounting hedge must be adjusted to fair value through income. If the derivative is a fair value hedge, changes in the fair value of the hedged assets, liabilities or firm commitments are recognized through earnings. If the derivative is a cash flow hedge, the effective portion of changes in the fair value of the derivative are recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. As of December 30, 2012 and January 1, 2012, the Company was not party to any significant derivative instruments.

Pension Benefits

Net pension expense recorded is based on, among other things, assumptions about the discount rate, estimated return on plan assets and salary increases. While the Company believes these assumptions are reasonable, changes in these and other factors and differences between actual and assumed changes in the present value of liabilities or assets of the Company’s plans above certain thresholds could cause net annual expense to increase or decrease materially from year to year. The actuarial assumptions used in the Company’s salary continuation plan and foreign defined benefit plans reporting are reviewed periodically and compared with external benchmarks to ensure that they appropriately account for our future pension benefit obligation. The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers.

Environmental Remediation

The Company provides for remediation costs and penalties when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. Remediation liabilities are accrued based on estimates of known environmental exposures and are discounted in certain instances. The Company regularly monitors the progress of environmental remediation. Should studies indicate that the cost of remediation is to be more than previously estimated, an additional accrual would be recorded in the period in which such determination is made. As of December 30, 2012 and January 1, 2012, no significant amounts were provided for remediation liabilities.

Allowances for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. Estimating this amount requires the Company to analyze the financial strengths of its customers. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. By its nature, such an estimate is highly subjective, and it is possible that the amount of accounts receivable that the Company is unable to collect may be different than the amount initially estimated. The Company’s allowance for doubtful accounts on December 30, 2012, and January 1, 2012, was $8.8 million and $8.9 million, respectively.

Reclassifications

Certain prior period amounts have been reclassified to conform to current year financial statement presentation.

Fiscal Year

The Company’s fiscal year is the 52 or 53 week period ending on the Sunday nearest December 31. All references herein to “2012,” “2011,” and “2010,” mean the fiscal years ended December 30, 2012, January 1, 2012 and January 2, 2011, respectively. Fiscal years 2012, 2011 and 2010 were each comprised of 52 weeks.

RECENT ACCOUNTING PRONOUNCEMENTS

RECEIVABLES

The Company has adopted credit policies and standards intended to reduce the inherent risk associated with potential increases in its concentration of credit risk due to increasing trade receivables from sales to owners and users of commercial office facilities and with specifiers such as architects, engineers and contracting firms. Management believes that credit risks are further moderated by the diversity of its end customers and geographic sales areas. The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral as deemed necessary. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As of December 30, 2012, and January 1, 2012, the allowance for bad debts amounted to $8.8 million and $8.9 million, respectively, for all accounts receivable of the Company. Reserves for sales returns and allowances amounted to $3.1 million and $4.3 million as of December 30, 2012, and January 1, 2012, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company does not have significant assets and liabilities measured at fair value on a recurring basis under applicable accounting standards as of the end of 2012. The Company does have approximately $22.3 million of Company-owned life insurance which is measured on readily determinable cash surrender value on a recurring basis. Due to the short maturity of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, their carrying values approximate fair value. The fair value of long term debt represented by the Company’s 7 5/8% Senior Notes and 11 3/8% Senior Secured Notes based on quoted market prices, was $296.5 million, and $8.1 million, respectively at December 30, 2012.

INVENTORIES

Inventories are summarized as follows:


	2012		2011
	(in thousands)
Finished goods	$	87,094	$	86,970
Work-in-process		7,030		8,920
Raw materials		47,052		44,595

	$	141,176	$	140,485

Reserves for inventory obsolescence amounted to $12.9 million and $10.4 million as of December 30, 2012, and January 1, 2012, respectively, and have been netted against amounts presented above.

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:


	2012			2011
	(in thousands)
Land	$	7,714		$	7,166
Buildings		104,296			92,204
Equipment		298,413			321,073

		410,423			420,443
Accumulated depreciation		(244,698	)		(242,518	)

	$	165,725		$	177,925

The estimated cost to complete construction-in-progress for which the Company was committed at December 30, 2012, was approximately $19.0 million.

ACCRUED EXPENSES

Accrued expenses are summarized as follows:


	2012		2011
	(in thousands)
Compensation	$	55,332	$	45,635
Interest		2,202		2,584
Restructuring		4,350		4,190
Taxes		10,579		3,875
Accrued purchases		1,439		3,949
Other		23,522		30,460

	$	97,424	$	90,693

Other non-current liabilities include pension liability of $23.7 million and $28.8 million as of December 30, 2012, and January 1, 2012, respectively (see the discussion below in the Note entitled “Employee Benefit Plans”).

BORROWINGS

Domestic Revolving Credit Facility

The Company has a domestic revolving credit facility that provides for a maximum aggregate amount of loans and letters of credit of up to $100 million (with the option to increase it to a maximum of $150 million upon the satisfaction of certain conditions) at any one time, subject to the borrowing base described below. The key features of the domestic revolving credit facility are as follows:

•

The revolving credit facility currently matures on June 24, 2016;

•

The revolving credit facility contains a financial covenant (a fixed charge coverage ratio test) that becomes effective in the event that the Company’s excess borrowing availability falls below 12.5% of the aggregate loan commitments of the lenders. In such event, the Company must comply with the financial covenant for a period commencing on the last day of the fiscal quarter immediately preceding such event (unless such event occurs on the last day of a fiscal quarter, in which case the compliance period commences on such date) and ending on the last day of the fiscal quarter immediately following the fiscal quarter in which such event occurred.

The revolving credit facility also includes various reporting, affirmative and negative covenants, and other provisions that restrict the Company’s ability to take certain actions, including provisions that restrict the Company’s ability to repay its long-term indebtedness unless it meets a specified minimum excess availability test.

Interest Rates and Fees. Interest on base rate loans is charged at varying rates computed by applying a margin ranging from 0.75% to 1.25% over the applicable base interest rate (which is defined as the greatest of the prime rate, a specified federal funds rate plus 0.50%, or the one-month LIBOR rate), depending on the Company’s average excess borrowing availability during the most recently completed fiscal quarter. Interest on LIBOR-based loans and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.75% to 2.25% over the applicable LIBOR rate, depending on the Company’s average excess borrowing availability during the most recently completed fiscal quarter. In addition, the Company pays an unused line fee of 0.375% per annum on the facility.

Prepayments. The revolving credit facility requires prepayment from the proceeds of certain asset sales.

Covenants. The revolving credit facility also limits the Company’s ability, among other things, to:

•

repay the Company’s other indebtedness prior to maturity unless the Company meets a specified minimum excess availability test;

•

incur indebtedness or contingent obligations;

•

make acquisitions of or investments in businesses (in excess of certain specified amounts);

•

sell or dispose of assets (in excess of certain specified amounts);

•

create or incur liens on assets; and

•

enter into sale and leaseback transactions.

The Company is presently in compliance with all covenants under the domestic revolving credit facility and anticipates that it will remain in compliance with the covenants for the foreseeable future.

Events of Default. If the Company breaches or fails to perform any of the affirmative or negative covenants under the revolving credit facility, or if other specified events occur (such as a bankruptcy or similar event or a change of control of Interface, Inc. or certain subsidiaries, or if the Company breaches or fails to perform any covenant or agreement contained in any instrument relating to any of the Company’s other indebtedness exceeding $15 million), after giving effect to any applicable notice and right to cure provisions, an event of default will exist. If an event of default exists and is continuing, the lenders’ agent may, and upon the written request of a specified percentage of the lender group shall:

•

declare all commitments of the lenders under the facility terminated;

•

declare all amounts outstanding or accrued thereunder immediately due and payable; and

•

exercise other rights and remedies available to them under the agreement and applicable law.

Collateral. The facility is secured by substantially all of the assets of Interface, Inc. and its domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of the Company’s domestic subsidiaries and up to 65% of the stock of its first-tier material foreign subsidiaries. If an event of default occurs under the revolving credit facility, the lenders’ collateral agent may, upon the request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some instances, foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting accounts receivables, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign subsidiaries.

As of December 30, 2012, the Company had no borrowings outstanding under this facility. At December 30, 2012, the Company had $3.9 million outstanding in letters of credit under this facility. As of December 30, 2012, the Company could have incurred $62.8 million of additional borrowings under this facility.

Credit Agreement with The Royal Bank of Scotland N.V.

The Company’s European subsidiary Interface Europe B.V. and certain of Interface Europe B.V.’s subsidiaries have a Credit Agreement with The Royal Bank of Scotland N.V. (as successor to ABN AMRO Bank N.V.) (“RBS”). Under the Credit Agreement, RBS provides a credit facility, until further notice, for borrowings and bank guarantees of up to €20.0 million.

Interest on borrowings under the facility is charged at varying rates computed by applying a margin of 1% over RBS’s euro base rate (consisting of the leading refinancing rate as determined from time to time by the European Central Bank plus a debit interest surcharge), which base rate is subject to a minimum of 3.5% per annum. Fees on bank guarantees and documentary letters of credit are charged at a rate of 1% per annum or part thereof on the maximum amount and for the maximum duration of each guarantee or documentary letter of credit issued. A facility fee of 0.5% per annum is payable with respect to the facility amount. The facility is secured by liens on certain real property, personal property and other assets of the Company’s principal European subsidiaries. The facility also includes certain financial covenants (which require the borrowers and their subsidiaries to maintain a minimum interest coverage ratio, total debt/EBITDA ratio and tangible net worth/total assets) and affirmative and negative covenants, and other provisions that restrict the borrowers’ ability (and the ability of certain of the borrowers’ subsidiaries) to take certain actions. As of December 30, 2012, there were no borrowings outstanding under this facility.

The Company is presently in compliance with all covenants under this facility and anticipates that it will remain in compliance with the covenants for the foreseeable future.

7 5/8% Senior Notes

On December 3, 2010, the Company completed a private offering of $275 million aggregate principal amount of 7 5/8% Senior Notes due 2018 (the “7 5/8% Senior Notes”). Interest on the 7 5/8% Senior Notes is payable semi-annually on June 1 and December 1 (the first payment was made on 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 11.375% Senior Secured Notes and approximately $98.5 million aggregate principal amount of the former 9.5% Senior Subordinated Notes, pursuant to a tender offer the Company conducted.

The 7 5/8% Senior Notes are guaranteed, fully, unconditionally, and jointly and severally, on an unsecured senior basis by certain of the Company’s domestic subsidiaries. The Company may redeem some or all of these notes at any time prior to December 1, 2014, at a redemption price equal to 100% of the principal amount plus a make-whole premium. Prior to December 1, 2014, the Company may redeem up to 10% of the aggregate principal amount of the 7 5/8% Senior Notes per 12-month period at a redemption price equal to 103% of the principal amount of the notes redeemed, plus accrued and unpaid interest. In addition, at any time prior to December 1, 2013, the Company may redeem up to 35% of the 7 5/8% Senior Notes with the net cash proceeds from specified equity offerings at a redemption price equal to 107.625% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In addition, the notes will become redeemable for cash after December 1, 2014 at the Company’s option, in whole or in part, initially at a redemption price equal to 103.813% of the principal amount, declining to 100% of the principal amount on December 1, 2016, plus accrued interest thereon to the date fixed for redemption. As of both December 30, 2012, and January 1, 2012, 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 December 30, 2012, and January 1, 2012, based on then current market prices, was $295.6 million and $288.8 million, respectively.

11 3/8% Senior Secured Notes

On June 5, 2009, the Company completed a private offering of $150 million aggregate principal amount of 11 3/8% Senior Secured Notes due 2013. Interest on the 11 3/8% Senior Secured Notes is payable semi-annually on May 1 and November 1 (the first payment was made on 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 11 3/8% 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.

The Company may redeem all or a part of the 11 3/8% Senior Secured Notes from time to time at a price equal to 100% of the principal amount plus a make-whole premium. As of both December 30, 2012, and January 1, 2012, the balance of the 11 3/8% Senior Secured Notes outstanding, net of the remaining unamortized original issue discount, was approximately $8.1 million. The estimated fair value of the 11 3/8% Senior Secured Notes as of both December 30, 2012, and January 1, 2012, based on then current market prices, was $8.1 million.

9.5% Senior Subordinated Notes

On February 4, 2004, the Company completed a private offering of $135 million in 9.5% Senior Subordinated Notes due 2014. Interest on these notes is payable semi-annually on February 1 and August 1 (the first payment was made on August 1, 2004). As of January 1, 2012, the Company had outstanding $11.5 million of 9.5% Senior Subordinated Notes due 2014. At January 1, 2012, the estimated fair value of these notes, based on then current market prices, was approximately $11.5 million. On April 9, 2012, the Company redeemed all of the remaining $11.5 million of these notes at a price equal to 100% of the principal amount of the notes plus accrued interest through the redemption date.

Other Lines of Credit

Subsidiaries of the Company have an aggregate of the equivalent of $18.9 million of other lines of credit available at interest rates ranging from 1% to 9%. As of December 30, 2012, and January 1, 2012, there were no borrowings outstanding under these lines of credit.

Borrowing Costs

Deferred borrowing costs, which include underwriting, legal and other direct costs related to the issuance of debt, net of accumulated amortization, were $5.4 million and $6.7 million, as of December 30, 2012, and January 1, 2012, respectively. The Company amortizes these costs over the life of the related debt. Expenses related to such costs for the years 2012, 2011 and 2010 amounted to $1.2 million, $1.4 million and $2.2 million, respectively. In addition to these expenses, the year 2010 includes $4.5 million of expense related to the write-down of debt costs associated with note repurchases.

Future Maturities

The aggregate maturities of borrowings for each of the five fiscal years subsequent to 2012, are as follows:


	AMOUNT
FISCAL YEAR	(in thousands)
2013		8,143
2014		0
2015		0
2016		0
2017		0
Thereafter		275,000

	$	283,143

PREFERRED STOCK

The Company is authorized to designate and issue up to 5,000,000 shares of $1.00 par value preferred stock in one or more series and to determine the rights and preferences of each series, to the extent permitted by the Articles of Incorporation, and to fix the terms of such preferred stock without any vote or action by the shareholders. The issuance of any series of preferred stock may have an adverse effect on the rights of holders of common stock and could decrease the amount of earnings and assets available for distribution to holders of common stock. In addition, any issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of the Company. As of December 30, 2012, and January 1, 2012, there were no shares of preferred stock issued.

Preferred Share Purchase Rights

The Company has previously issued one purchase right (a “Right”) in respect of each outstanding share of Common Stock pursuant to a Rights Agreement it entered into in March 2008. Each Right entitles the registered holder of the Common Stock to purchase from the Company one one-hundredth of a share (a “Unit”) of Series B Participating Cumulative Preferred Stock (the “Series B Preferred Stock”).

The Rights may have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that acquires (without the consent of the Company’s Board of Directors) 15% or more of the outstanding shares of Common Stock or if other specified events occur without the Rights having been redeemed or in the event of an exchange of the Rights for Common Stock as permitted under the Shareholder Rights Plan.

The dividend and liquidation rights of the Series B Preferred Stock are designed so that the value of one Unit of Series B Preferred Stock issuable upon exercise of each Right will approximate the same economic value as one share of Common Stock, including voting rights. The exercise price per Right is $90, subject to adjustment. Shares of Series B Preferred Stock will entitle the holder to a minimum preferential dividend of $1.00 per share, but will entitle the holder to an aggregate dividend payment of 100 times the dividend declared on each share of Common Stock. In the event of liquidation, each share of Series B Preferred Stock will be entitled to a minimum preferential liquidation payment of $1.00, plus accrued and unpaid dividends and distributions thereon, but will be entitled to an aggregate payment of 100 times the payment made per share of Common Stock. In the event of any merger, consolidation or other transaction in which Common Stock is exchanged for or changed into other stock or securities, cash or other property, each share of Series B Preferred Stock will be entitled to receive 100 times the amount received per share of Common Stock. Series B Preferred Stock is not convertible into Common Stock.

Each share of Series B Preferred Stock will be entitled to 100 votes on all matters submitted to a vote of the shareholders of the Company, and shares of Series B Preferred Stock will generally vote together as one class with the Common Stock and any other voting capital stock of the Company on all matters submitted to a vote of the Company’s shareholders.

Further, whenever dividends on the Series B Preferred Stock are in arrears in an amount equal to six quarterly payments, the Series B Preferred Stock, together with any other shares of preferred stock then entitled to elect directors, shall have the right, as a single class, to elect one director until the default has been cured.

Prior to entering into the March 2008 Rights Agreement, the Company maintained a substantially similar Rights Agreement that was entered into in 1998.

SHAREHOLDERS’ EQUITY

Prior to March 5, 2012, the Company had two classes of common stock – Class A Common Stock and Class B Common Stock. The Company was authorized to issue 80 million shares of $0.10 par value Class A Common Stock and 40 million shares of $0.10 par value Class B Common Stock. The Class A and Class B Common Stock had identical voting rights except for the election or removal of directors. Holders of Class B Common Stock were entitled as a class to elect a majority of the Board of Directors. Under the terms of the Class B Common Stock, its special voting rights to elect a majority of the Board members would terminate irrevocably if the total outstanding shares of Class B Common Stock ever comprised less than ten percent of the Company’s total issued and outstanding shares of Class A and Class B Common Stock.

On March 5, 2012, the number of issued and outstanding shares of Class B Common Stock of the Company constituted less than 10% of the aggregate number of issued and outstanding shares of the Company’s Class A Common Stock and Class B Common Stock (that is, 6,459,556 shares of an aggregate of 65,372,375 shares), as the 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 the Class B Common Stock and the Class A Common Stock in Article V of the 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 holders of Class A Common Stock and the holders of Class B Common Stock. The Company intends to eliminate 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. Following the March 5, 2012 event, the Company is authorized to issue 120 million shares of $0.10 par value Common Stock.

The Company’s Common Stock is traded on the Nasdaq Global Select Market under the symbol TILE.

The Company paid dividends totaling $0.09 per share during 2012, $0.08 per share during 2011, and $0.0425 per share during 2010, to each share of Common Stock. The future declaration and payment of dividends is at the discretion of the Company’s Board, and depends upon, among other things, the Company’s investment policy and opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant at the time of the Board’s determination. Such other factors include limitations contained in the agreement for its primary revolving credit facility and in the indentures for our public indebtedness, each of which specify conditions as to when any dividend payments may be made. As such, the Company may discontinue its dividend payments in the future if its Board determines that a cessation of dividend payments is proper in light of the factors indicated above.

All treasury stock is accounted for using the cost method.

The following tables depict the activity in the accounts which make up shareholders equity for the years 2012, 2011 and 2010.


	CLASS A SHARES		CLASS A AMOUNT		CLASS B SHARES			CLASS B AMOUNT			ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS (DEFICIT)			PENSION LIABILITY			FOREIGN CURRENCY TRANSLATION ADJUSTMENT			NON- CONTROLLING INTEREST IN SUBSIDIARY
	( in thousands)
Balance, at January 3, 2010		56,521	$	5,649		6,774		$	679		$	343,348		$	(55,332	)	$	(33,186	)	$	(24,057	)	$	9,080
Net income		0		0		0			0			0			8,283			0			0			1,051
Conversion of common stock		159		16		(159	)		(16	)		0			0			0			0			0
Stock issuances under employee plans		631		64		0			0			2,726			0			0			0			0
Other issuances of common stock		0		0		530			53			6,418			0			0			0			0
Unamortized stock compensation expense related to restricted stock awards		0		0		0			0			(6,471	)		0			0			0			0
Cash dividends paid		0		0		0			0			0			(2,721	)		0			0			0
Forfeitures and compensation expense related to stock awards		0		0		0			0			4,540			0			0			0			0
Pension liability adjustment		0		0		0			0			0			0			1,990			0			0
Foreign currency translation adjustment		0		0		0			0			0			0			0			(2,212	)		458
Dividend to Noncontrolling Interest Partner		0		0		0			0			0			0			0			0			(7,444	)
Repurchase of Minority Interest		0		0		0			0			(899	)		0			0			0			(3,145	)

Balance, at January 2, 2011		57,311	$	5,729		7,145		$	716		$	349,662		$	(49,770	)	$	(31,196	)	$	(26,269	)	$	0


	CLASS A SHARES		CLASS A AMOUNT		CLASS B SHARES			CLASS B AMOUNT			ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS (DEFICIT)			PENSION LIABILITY			FOREIGN CURRENCY TRANSLATION ADJUSTMENT
	(in thousands)
Balance, at January 2, 2011		57,311	$	5,729		7,145		$	716		$	349,662		$	(49,770	)	$	(31,196	)	$	(26,269	)
Net income		0		0		0			0			0			38,721			0			0
Conversion of common stock		593		59		(593	)		(59	)		0			0			0			0
Stock issuances under employee plans		502		50		0			0			210			0			0			0
Other issuances of common stock		0		0		527			53			11,336			0			0			0
Unamortized stock compensation expense related to restricted stock awards		0		0		0			0			(11,402	)		0			0			0
Cash dividends paid		0		0		0			0			0			(5,231	)		0			0
Forfeitures and compensation expense related to stock awards		0		0		0			0			11,594			0			0			0
Pension liability adjustment		0		0		0			0			0			0			(5,066	)		0
Foreign currency translation adjustment		0		0		0			0			0			0			0			(7,614	)
Other		0		0		0			0			0			(484	)		0			0
Balance, at January 1, 2012		58,406	$	5,839		7,078		$	709		$	361,400		$	(16,764	)	$	(36,262	)	$	(33,883	)


	SHARES			AMOUNT			ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS (DEFICIT)			PENSION LIABILITY			FOREIGN CURRENCY TRANSLATION ADJUSTMENT
	(in thousands)
Balance, at January 1, 2012		65,484		$	6,548		$	361,400		$	(16,764	)	$	(36,262	)	$	(33,883	)
Net income		0			0			0			5,943			0			0
Stock issuances under employee option plans		160			16			2,030			0			0			0
Other issuances of common stock		573			58			7,564			0			0			0
Unamortized stock compensation expense related to restricted stock awards		0			0			(7,610	)		0			0			0
Cash dividends paid		0			0			0			(5,925	)		0			0
Forfeitures and compensation expense related to stock awards		(155	)		(16	)		3,293			0			0			0
Pension liability adjustment		0			0			0			0			771			0
Foreign currency translation adjustment		0			0			0			0			0			8,539
Other		0			0			0			0			0			0

Balance, at December 30, 2012		66,062		$	6,606		$	366,677		$	(16,746	)	$	(35,491	)	$	(25,344	)

Stock Options

The Company has an Omnibus Stock Incentive Plan (“Omnibus Plan”) under which a committee of independent directors is authorized to grant directors and key employees, including officers, options to purchase the Company’s Common Stock. Options are exercisable for shares of Common Stock at a price not less than 100% of the fair market value on the date of grant. The options become exercisable either immediately upon the grant date or ratably over a time period ranging from one to five years from the date of the grant. The Company’s options expire at the end of time periods ranging from three to ten years from the date of the grant. In May 2010, the shareholders approved an amendment and restatement of the Omnibus Plan. This amendment and restatement extended the term of the Omnibus Plan until February 2020, and set the number of shares authorized for issuance or transfer on or after the effective date of the amendment and restatement at 6,558,263 shares, except that each share issued pursuant to an award other than a stock option reduces the number of such authorized shares by 1.33 shares.

Accounting standards require that the Company measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair market value of the award. That cost will be recognized over the period in which the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award. The grant date fair value for options and similar instruments will be estimated using option pricing models. Under accounting standards, the Company is required to select a valuation technique or option pricing model. 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 expense by the assumed forfeiture rate and will evaluate actual experience against the assumed forfeiture rate going forward. This expense reduction is not significant to the Company.

The Company recognized stock option compensation expense of $0.5 million in 2012, $0.8 million in 2011 and $1.2 million in 2010. The remaining unrecognized compensation cost related to unvested awards at December 30, 2012, approximated $0.1 million, and the weighted average period of time over which this cost will be recognized is approximately one year. The expense for stock options is included in selling, general and administrative expense on the Company’s consolidated statements of operations, as none of these stock options have been issued to production personnel.

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 2010 and 2011 (there were no stock options granted in 2012):


	FISCAL YEAR
	2011			2010
Risk free interest rate		0.9	%		2.1	%
Expected option life		5.75 years			5.75 years
Expected volatility		65	%		61	%
Expected dividend yield		0.5	%		0.4	%

The weighted average fair value of stock options (as of grant date) granted during the years 2011 and 2010 was $7.37 and $6.86, respectively, per share.

The following table summarizes stock options outstanding as of December 30, 2012, as well as activity during the previous fiscal year:


	Shares		Weighted Average Exercise Price
Outstanding at January 1, 2012		592,500	$	9.12
Granted		0		0
Exercised		160,000		9.33
Forfeited or cancelled		39,000		11.78

Outstanding at December 30, 2012 (a)		393,500	$	8.49

Exercisable at December 30, 2012 (b)		390,000	$	8.43

(a)	At December 30, 2012, the weighted-average remaining contractual life of options outstanding was 6.1 years.

(b)	At December 30, 2012, the weighted-average remaining contractual life of options exercisable was 6.1 years.

At December 30, 2012, the aggregate intrinsic values of in-the-money options outstanding and options exercisable were $2.9 million and $2.9 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).

The intrinsic value of stock options exercised in 2012, 2011 and 2010 was $0.9 million, $6.0 million and $5.5 million, respectively. The cash proceeds related to stock options exercised in 2012, 2011 and 2010 were $1.5 million, $2.7 million, and $3.1 million, respectively.

The tax benefit recognized with respect to stock options during the years 2012, 2011 and 2010 was not significant.


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at December 30, 2012		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable at December 30, 2012		Weighted Average Exercise Price
$1.49 - 3.00		35,500		1.35	$	2.44		35,500	$	2.44
3.01 - 5.00		142,000		5.95		4.25		142,000		4.25
5.01 - 12.00		20,000		6.82		7.78		20,000		7.78
12.01 - 15.00		196,000		7.00		12.81		192,500		12.81

		393,500		6.1	$	8.49		390,000	$	8.43

Restricted Stock Awards

During fiscal years 2012, 2011 and 2010, the Company granted restricted stock awards totaling 573,000, 668,000 and 529,000, respectively, of Common Stock. These awards (or a portion thereof) vest with respect to each recipient over a two to five year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date. Additionally, these shares (or a portion thereof) could vest earlier upon the attainment of certain performance criteria, in the event of a change in control of the Company, or upon involuntary termination without cause.

Compensation expense related to the vesting of restricted stock was $3.3 million, $10.1 million and $2.9 million for 2012, 2011 and 2010, respectively. These grants are made primarily to executive-level personnel at the Company and, as a result, no compensation costs have been capitalized. 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 actual experience against the assumed forfeiture rate going forward. The forfeiture rate has been developed using historical data regarding actual forfeitures as well as an estimate of future expected forfeitures under our restricted stock grants.

The following table summarizes restricted stock activity as of December 30, 2012, and during the previous fiscal year:


	Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2012		1,749,000	$	15.08
Granted		573,000		13.25
Vested		264,000		13.37
Forfeited or cancelled		84,500		14.87

Outstanding at December 30, 2012		1,973,500	$	14.79

As of December 30, 2012, the unrecognized total compensation cost related to unvested restricted stock was $9.9 million. That cost is expected to be recognized by the end of 2015.

As stated above, accounting standards require the Company to estimate forfeitures in calculating the expense related to stock-based compensation, as opposed to only recognizing these forfeitures and the corresponding reduction in expense as they occur.

The tax benefit recognized with respect to restricted stock during the years 2012, 2011 and 2010 was $0.7 million, $2.8 million, and $0.7 million, respectively.

INCOME (LOSS) PER SHARE

The Company computes basic earnings (loss) per share (“EPS”) attributable to Interface, Inc. common shareholders by dividing income (loss) from continuing operations attributable to Interface, Inc. common shareholders, income (loss) from discontinued operations attributable to Interface, Inc. common shareholders and net income (loss) attributable to Interface, Inc. common shareholders, by the weighted average common shares outstanding, including participating securities outstanding, during the period as depicted 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 is included in the computation of basic and diluted earnings per share, where applicable.

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


	Fiscal Year
	2012			2011		2010
Earnings per share from continuing operations:
Basic earnings per share attributable to Interface, Inc. common shareholders
Distributed earnings	$	0.09		$	0.08	$	0.04
Undistributed earnings		0.26			0.51		0.10

	$	0.35		$	0.59	$	0.14

Diluted earnings per share attributable to Interface, Inc. common shareholders
Distributed earnings	$	0.09		$	0.08	$	0.04
Undistributed earnings		0.26			0.50		0.10

	$	0.35		$	0.58	$	0.14

Earnings (Loss) per share from discontinued operations:
Basic earnings (loss) per share attributable to Interface, Inc. common shareholders
Distributed earnings	$	0.00		$	0.00	$	0.00
Undistributed earnings		(0.26	)		0.01		(0.01	)
Diluted earnings (loss) per share attributable to Interface, Inc. common shareholders
Distributed earnings	$	0.00		$	0.00	$	0.00
Undistributed earnings		(0.26	)		0.01		(0.01	)
Basic earnings per share attributable to Interface, Inc. common shareholders	$	0.09		$	0.59	$	0.13
Diluted earnings per share attributable to Interface, Inc. common shareholders	$	0.09		$	0.59	$	0.13

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


	Fiscal Year
	2012		2011		2010
	(in millions)
Income from Continuing Operations	$	0.7	$	1.0	$	0.3
Net Income Attributable to Interface, Inc.		0.2		1.0		0.2

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


	Fiscal Year
	2012		2011		2010
	(in thousands)
Weighted Average Shares Outstanding		63,793		63,542		62,054
Participating Securities		1,974		1,749		1,740

Shares for Basic Earnings Per Share		65,767		65,291		63,794
Dilutive Effect of Stock Options		133		195		468

Shares for Diluted Earnings Per Share		65,900		65,486		64,262

In 2012, 2011 and 2010, certain outstanding stock options were not included in the determination of diluted EPS as their impact would be anti-dilutive. The following table shows the shares excluded from the diluted EPS calculation for all periods presented.

Fiscal Year

2012

2011

2010

(in thousands)

Options excluded

191

249

357

RESTRUCTURING CHARGES

2012 Restructuring Plan

In the first quarter of 2012, the Company committed to a new restructuring plan in its continuing efforts to reduce costs across its worldwide operations and more closely align its operations with reduced demand levels in certain markets. The plan primarily consisted of ceasing manufacturing and warehousing operations at its facility in Shelf, England. In connection with this restructuring plan, the Company incurred a pre-tax restructuring and asset impairment charge in the first quarter of 2012 in an amount of $16.3 million. The charge was 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. In the third and fourth quarters of 2012, the Company recorded additional charges of $0.8 million and $2.3 million, respectively, of cash severance expenses related to the finalization of this plan for its European operations. As a result of these 2012 restructuring charges, approximately 145 employees were severed.

A summary of these restructuring activities is presented below:


	Total Restructuring Charge		Costs Incurred in 2012		Balance at Dec. 30 2012
	(In thousands)
Workforce Reduction	$	8,465	$	5,205	$	3,260
Fixed Asset Impairment		9,364		9,364		0
Other Related Exit Costs		1,596		1,168		428

2011 Restructuring Plan

In 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 $5.8 million in 2011. The majority of this charge ($5.0 million) relates to the severance of approximately 90 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 $5.0 million of this charge will result in cash expenditures, primarily severance expenses. Actions and expenses related to this plan were substantially completed by the end of 2011.

A summary of these restructuring activities is presented below:


	Total Restructuring Charge		Costs Incurred In 2011		Costs Incurred In 2012		Balance at December 30, 2012
	(in thousands)
Workforce reduction	$	4,979	$	867	$	3,450	$	662
Fixed asset impairment		776		776		0		0

2010 Restructuring Plan

In 2010, the Company adopted a restructuring plan primarily related to workforce reduction in its European modular carpet operations. This reduction was in response to the continued challenging economic climate in that region. Smaller amounts were incurred in connection with restructuring activities in the Americas. A total of approximately 50 employees were affected by this restructuring plan. In connection with this plan, the Company recorded a pre-tax restructuring charge of $2.9 million. Substantially all of this charge involved cash expenditures, primarily severance expenses. Actions and expenses related to this plan were substantially completed in 2010.

A summary of these restructuring activities is presented below:


	Total Restructuring Charge		Costs Incurred In 2010		Costs Incurred In 2011		Balance at January 1, 2012
	(in thousands)
Workforce reduction	$	2,943	$	2,486	$	457	$	0

TAXES ON INCOME

Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:


	FISCAL YEAR
	2012			2011		2010
	(in thousands)
Current expense/(benefit):
Federal	$	(134	)	$	316	$	(62	)
Foreign		5,319			11,123		12,617
State		602			922		530

		5,787			12,361		13,085

Deferred expense/(benefit):
Federal		1,928			6,204		(9,510	)
Foreign		17			2,304		994
State		(1,692	)		14		(533	)

		253			8,522		(9,049	)

	$	6,040		$	20,883	$	4,036

Income tax expense (benefit) is included in the accompanying consolidated statements of operations as follows:


	FISCAL YEAR
	2012			2011		2010
	(in thousands)
Continuing operations	$	15,204		$	20,640	$	4,616
Loss from discontinued operations		(9,164	)		243		(580	)

	$	6,040		$	20,883	$	4,036

Income (loss) from continuing operations before taxes on income consisted of the following:


	FISCAL YEAR
	2012		2011		2010
	(in thousands)
U.S. operations	$	27,332	$	15,592	$	(31,921	)
Foreign operations		10,771		43,318		46,834

	$	38,103	$	58,910	$	14,913

Deferred income taxes for the years ended December 30, 2012, and January 1, 2012, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

At December 30, 2012, the Company had approximately $155.1 million in federal net operating loss carryforwards with expiration dates through 2032, of which $26.9 million is from share-based payment awards. In accordance with applicable accounting standards, a financial statement benefit has not been recorded for the net operating loss related to the share-based payment awards. The Company’s foreign subsidiaries had approximately $3.5 million in net operating losses available for an unlimited carryforward period. The Company expects to utilize all of its federal and foreign carryforwards prior to their expiration. The Company had approximately $187 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2032. The Company had provided a valuation allowance against $63.9 million of such losses, which the Company does not expect to utilize. In addition, the Company has approximately $182.7 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.

The sources of the temporary differences and their effect on the net deferred tax asset are as follows:


	2012					2011
	ASSETS			LIABILITIES		ASSETS			LIABILITIES
	(in thousands)
Basis differences of property and equipment	$	0		$	9,985	$	0		$	10,397
Basis difference of intangible assets		0			426		0			402
Foreign currency loss		0			3,217		0			2,888
Net operating loss carryforwards		55,322			0		41,429			0
Valuation allowances on net operating loss carryforwards		(4,603	)		0		(4,892	)		0
Federal tax credits		3,164			0		676			0
Deferred compensation		18,633			0		17,853			0
Basis difference of prepaids, accruals and reserves		10,894			0		8,919			0
Pensions		499			0		2,592			0
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested		0			4,810		0			4,585
Basis difference of other assets and liabilities		317			0		293			0

	$	84,226		$	18,438	$	66,870		$	18,272

Deferred tax assets and liabilities are included in the accompanying balance sheets as follows:


	FISCAL YEAR
	2012			2011
	(in thousands)
Deferred income taxes (current asset)	$	10,271		$	9,699
Deferred tax asset (non-current asset)		62,856			47,290
Deferred income taxes (non-current liabilities)		(7,339	)		(8,391	)

	$	65,788		$	48,598

Management believes, based on the Company’s history of taxable income and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the deferred tax assets at December 30, 2012.

The Company’s effective tax rate from continuing operations was 39.9%, 35.0% and 31.0% for fiscal years 2012, 2011 and 2010, respectively. The following summary reconciles income taxes at the U.S. federal statutory rate of 35% to the Company’s actual income tax expense:


	FISCAL YEAR
	2012			2011			2010
	(in thousands)
Income taxes at U.S federal statutory rate	$	13,336		$	20,619		$	5,220
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax effect		1,116			940			(1,713	)
Non-deductible business expenses		1,009			373			354
Non-deductible employee compensation		469			587			399
Tax effects of Company owned life insurance		(448	)		283			(1,281	)
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested		321			774			960
Foreign and U.S. tax effects attributable to foreign operations		(1,174	)		(2,115	)		(491	)
Valuation allowance effect – State NOL		(187	)		(333	)		1,717
Non-deductible reserve against capital asset		1,188			0			0
Income attributable to noncontrolling interest in subsidiary		0			0			(368	)
Other		(426	)		(488	)		(181	)

Income tax expense	$	15,204		$	20,640		$	4,616

The Company does not provide for U.S. income taxes on the undistributed earnings of its foreign subsidiaries that are considered to be indefinitely reinvested outside of the U.S. as determination of the amount of unrecognized deferred U.S. income tax liability related to the indefinitely reinvested earnings is not practicable because of the complexities associated with its hypothetical calculation. Beginning in 2008, the Company has provided for approximately $15.4 million in U.S. federal and state income taxes and approximately $1.1 million in foreign withholding taxes on approximately $44.7 million of undistributed earnings from foreign subsidiaries that were no longer deemed to be indefinitely reinvested outside of the U.S. During 2009, 2010 and 2012, the Company repatriated $20.2 million, $12.2 million and $3.1 million, respectively, of these undistributed earnings on which the Company had provided $12.1 million in U.S. federal and state income taxes and $0.9 million in foreign withholding taxes. At December 30, 2012, the Company has provided for approximately $3.3 million in U.S. federal and state income taxes and approximately $0.2 million in foreign withholding taxes on approximately $9.2 million of the remaining undistributed earnings that it anticipates repatriating in the foreseeable future. At December 30, 2012, approximately $240 million of undistributed earnings of the Company’s foreign subsidiaries are deemed to be indefinitely reinvested outside of the U.S., on which withholding taxes of approximately $3.7 million would be payable upon remittance.

As of December 30, 2012 and January 1, 2012, the Company had $25.2 million and $7.7 million, respectively, of unrecognized tax benefits. The addition of unrecognized tax benefits in 2012 was attributable to an increase of approximately $18.1 million primarily related to its U.S. tax positions taken in the current year which was partially offset by a net decrease of approximately $0.6 million primarily related to its foreign tax positions taken in prior years. If the $25.2 million of unrecognized tax benefits as of December 30, 2012 are recognized, there would be a favorable impact on the Company’s effective tax rate in future periods. If the unrecognized tax benefits are not favorably settled, $7.4 million of the total amount of unrecognized tax benefits would require the use of cash in future periods.

The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense. As of December 30, 2012, the Company had accrued interest and penalties of $1.2 million, which is included in the total unrecognized tax benefit noted above.

The Company’s federal income tax returns are subject to examination for the years 2003 to the present. The Company files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities for the years 2007 to the present. The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years 2003 to the present.

In August 2006, the Canadian tax authorities (“CRA”) proposed a reassessment of taxable income for transfer pricing related adjustments for the years 2001 and 2002. In November 2006, the Company filed a submission with the CRA to set aside the reassessment of taxable income. In September 2008, the CRA issued a final notice of reassessment of tax, including interest, of approximately $0.9 million for the years 2001 and 2002. In December 2008, the Company filed an objection to the notice of reassessment of tax with the CRA. In May 2009, the Company filed a Joint Request for Competent Authority Assistance Pursuant to the Mutual Agreement Procedure (“MAP”) under the Canada-U.S. 1980 Tax Convention. In November 2010, the Company received notice from the Canadian Competent Authority Services Division that an agreement had been reached between the U.S. and Canadian Competent Authorities to reverse in its entirety the CRA audit initiated adjustments with respect to the transfer pricing related adjustments for the years 2001 and 2002. As a result, during 2010, the Company reduced its liability for unrecognized tax benefits relating to this reassessment.

In February 2008, the Company filed with the CRA and the Internal Revenue Service (“IRS”) an application for a Canada – U.S. bilateral advanced pricing agreement (“BAPA”) with respect to certain intercompany transactions (“Covered Transactions”) between Interface, Inc. (including its U.S. subsidiaries) and its Canadian subsidiary, InterfaceFLOR Canada, Inc. The BAPA covers tax years 2006 through 2011. The Covered Transactions include intercompany buy-sale distribution, contract manufacturing, provision of management services, and licensing intangibles. Some of the Covered Transactions are the same types of transactions that were the subject of dispute in the reassessment for tax years 2001 and 2002 described above.

Shortly after the BAPA submission, the Company was accepted into the BAPA program by both the CRA and the IRS. However, subsequently in late December 2008, the Company made a business decision to discontinue the manufacturing operation at its facility in Canada, thus affecting the majority of the Covered Transactions, where only the intercompany buy-sale distribution transactions were continued after February 2009. During 2009, the CRA and the IRS substantially completed their due diligence and currently the Company is working with both tax authorities to reach a final resolution. The Company expects a final resolution during 2013 and estimates recognition of tax benefits of approximately $2 million resulting from the resolution of the BAPA.

Management believes changes to our unrecognized tax benefits that are reasonably possible in the next 12 months, other than the Canadian BAPA discussed above, will not have a significant impact on our financial positions or results of operations. The timing of the ultimate resolution of the Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside the Company’s control.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:


	Fiscal Year
	2012			2011			2010
	(in thousands)
Balance at beginning of year	$	7,736		$	8,159		$	9,551
Increases related to tax positions taken during the current year		18,118			693			718
Increases related to tax positions taken during the prior years		150			250			538
Decreases related to tax positions taken during the prior years		(519	)		(1,237	)		0
Decreases related to settlements with taxing authorities		0			0			(1,778	)
Decreases related to lapse of applicable statute of limitations		(300	)		0			(712	)
Changes due to foreign currency translation		1			(129	)		(158	)

Balance at end of year	$	25,186		$	7,736		$	8,159

DISCONTINUED OPERATIONS

In the third quarter of 2012, the Company sold its Bentley Prince Street business segment to a third party. In accordance with applicable accounting standards, the Company has reported the results of operations for the former Bentley Prince Street business segment as “discontinued operations,” where applicable. Consequently, the Company’s discussion of sales and other results of operations (except for net income or loss amounts), including percentages derived from or based on such amounts, excludes these discontinued operations unless we indicate otherwise.

Summary operating results for the discontinued operations are as follows:


	FISCAL YEAR
	2012			2011		2010
	(in thousands)
Net sales	$	57,017		$	104,006		99,513
Income (loss) on operations before taxes		(26,120	)		694		(1,543	)
Taxes on income (benefit)		(9,164	)		243		(580	)
Income (loss) on operations, net of tax		(16,956	)		451		(963	)

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


	FISCAL YEAR
	2012		2011
	(in thousands)
Current assets		0	$	43,854
Property and equipment		0		12,194
Other assets		0		4,635
Current liabilities		0		6,254
Other liabilities		0		2,015

COMMITMENTS AND CONTINGENCIES

The Company leases certain production, distribution and marketing facilities and equipment. At December 30, 2012, aggregate minimum rent commitments under operating leases with initial or remaining terms of one year or more consisted of the following:


	AMOUNT
FISCAL YEAR	(in thousands)
2013	$	21,655
2014		16,318
2015		12,347
2016		7,727
2017		3,552
Thereafter		11,201

Rental expense amounted to approximately $22.8 million, $21.7 million and $21.0 million, for the years 2012, 2011 and 2010, respectively. This excludes rental expenses of approximately $2.6 million, $3.2 million and $3.0 million for the years 2012, 2011 and 2010, respectively, related to discontinued operations.

The Company is from time to time a party to routine litigation incidental to its business. Management does not believe that the resolution of any or all of such litigation will have a material adverse effect on the Company’s financial condition or results of operations.

EMPLOYEE BENEFIT PLANS

Defined Contribution and Deferred Compensation Plans

The Company has a 401(k) retirement investment plan (“401(k) Plan”), which is open to all otherwise eligible U.S. employees with at least six months of service. The 401(k) Plan calls for Company matching contributions on a sliding scale based on the level of the employee’s contribution. The Company may, at its discretion, make additional contributions to the 401(k) Plan based on the attainment of certain performance targets by its subsidiaries. The Company’s matching contributions are funded bi-monthly and totaled approximately $2.4 million, $2.1 million and $1.9 million for the years 2012, 2011 and 2010, respectively, for continuing operations. No discretionary contributions were made in 2012, 2011 or 2010.

Under the Company’s nonqualified savings plans (“NSPs”), the Company provides eligible employees the opportunity to enter into agreements for the deferral of a specified percentage of their compensation, as defined in the NSPs. The NSPs call for Company matching contributions on a sliding scale based on the level of the employee’s contribution. The obligations of the Company under such agreements to pay the deferred compensation in the future in accordance with the terms of the NSPs are unsecured general obligations of the Company. Participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The Company has established a rabbi trust to hold, invest and reinvest deferrals and contributions under the NSPs. If a change in control of the Company occurs, as defined in the NSPs, the Company will contribute an amount to the rabbi trust sufficient to pay the obligation owed to each participant. Deferred compensation in connection with the NSPs totaled $18.3 million at December 30, 2012. The Company invested the deferrals in insurance instruments with readily determinable cash surrender values.

Foreign Defined Benefit Plans

The Company has trusteed defined benefit retirement plans which cover many of its European employees. The benefits are generally based on years of service and the employee’s average monthly compensation. Pension expense was $0.8 million, $0.3 million and $1.8 million for the years 2012, 2011 and 2010, respectively. Plan assets are primarily invested in equity and fixed income securities. The Company uses a year-end measurement date for the plans. As of December 30, 2012, for the European plans, the Company had a net liability recorded of $2.6 million, an amount equal to their unfunded status, and has recorded in Other Comprehensive Income an amount equal to $31.5 million (net of taxes) related to the future amounts to be recorded in net post-retirement benefit costs.

The tables presented below set forth the funded status of the Company’s significant foreign defined benefit plans and required disclosures in accordance with applicable accounting standards


	FISCAL YEAR
	2012			2011
	(in thousands)
Change in benefit obligation
Benefit obligation, beginning of year	$	216,721		$	212,378
Service cost		505			469
Interest cost		10,212			11,386
Benefits and expenses paid		(9,969	)		(11,641	)
Actuarial loss (gain)		17,538			5,224
Member contributions		296			375
Currency translation adjustment		8,346			(1,470	)

Benefit obligation, end of year	$	243,649		$	216,721


	FISCAL YEAR
	2012			2011
	(in thousands)
Change in plan assets
Plan assets, beginning of year	$	206,402		$	205,810
Actual return on assets		31,204			8,769
Company contributions		5,248			5,112
Member contributions		0			0
Benefits paid		(9,704	)		(11,697	)
Currency translation adjustment		7,877			(1,592	)

Plan assets, end of year	$	241,027		$	206,402

Reconciliation to balance sheet
Funded status (benefit liability)	$	(2,622	)	$	(10,319	)

Net amount recognized	$	(2,622	)	$	(10,319	)

Amounts recognized in accumulated other comprehensive income (after tax)
Unrecognized actuarial loss	$	30,711		$	32,455
Unamortized prior service costs		774			809

Total amount recognized	$	31,485		$	33,264

The above disclosure represents the aggregation of information related to the Company’s two defined benefit plans which cover many of its European employees. As of December 30, 2012, and January 1, 2012, one of these plans, which primarily covers certain employees in the United Kingdom (the “UK Plan”), had an accumulated benefit obligation in excess of the plan assets. The other plan, which covers certain employees in Europe (the “Europe Plan”), had assets in excess of the accumulated benefit obligation. The following table summarizes this information as of December 30, 2012, and January 1, 2012.


	2012		2011
	(in thousands)
UK Plan
Projected Benefit Obligation	$	171,381	$	157,600
Accumulated Benefit Obligation		171,381		157,600
Plan Assets		162,998		139,796
Europe Plan
Projected Benefit Obligation	$	72,267	$	59,121
Accumulated Benefit Obligation		69,472		57,247
Plan Assets		78,029		66,606


	FISCAL YEAR
	2012			2011			2010
	(in thousands)
Components of net periodic benefit cost
Service cost	$	505		$	492		$	357
Interest cost		10,212			11,194			10,873
Expected return on plan assets		(11,203	)		(11,966	)		(11,058	)
Amortization of prior service cost		86			0			89
Recognized net actuarial (gains)/losses		1,189			602			1,566

Net periodic benefit cost	$	789		$	322		$	1,827

For 2013, it is estimated that approximately $0.8 million of expenses related to the amortization of unrecognized items will be included in the net periodic benefit cost. During 2012, other comprehensive income was impacted by approximately $2.7 million comprised of actuarial gain of approximately $1.8 million and amortization of $0.8 million


	FISCAL YEAR
	2012			2011			2010
Weighted average assumptions used to determine net periodic benefit cost
Discount rate		4.7	%		5.3	%		5.6	%
Expected return on plan assets		5.7	%		5.9	%		6.6	%
Rate of compensation		2.0	%		2.0	%		2.0	%
Weighted average assumptions used to determine benefit obligations
Discount rate		4.0	%		4.7	%		5.3	%
Rate of compensation		2.0	%		2.0	%		2.0	%

The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers.

The Company’s foreign defined benefit plans’ accumulated benefit obligations were in excess of the fair value of the plans’ assets. The projected benefit obligations, accumulated benefit obligations and fair value of these plan assets are as follows:


	FISCAL YEAR
	2012		2011
	(in thousands)
Projected benefit obligation	$	243,649	$	216,721
Accumulated benefit obligations		240,853		214,848
Fair value of plan assets		241,027		206,402

The investment objectives of the foreign defined benefit plans are to maximize the return on the investments without exceeding the limits of the prudent pension fund investment, to ensure that the assets would be sufficient to exceed minimum funding requirements, and to achieve a favorable return against the performance expectation based on historic and projected rates of return over the short term. The goal is to optimize the long-term return on plan assets at a moderate level of risk, by balancing higher-returning assets, such as equity securities, with less volatile assets, such as fixed income securities. The assets are managed by professional investment firms and performance is evaluated periodically against specific benchmarks. The plans’ net assets did not include the Company’s own stock at December 30, 2012, or January 1, 2012.

The Company’s actual weighted average asset allocations for 2012 and 2011, and the targeted asset allocation for 2013, of the foreign defined benefit plans by asset category, are as follows:


	FISCAL YEAR
	2013			2012			2011
	Target Allocation			Percentage of Plan Assets at Year End
Asset Category:
Equity Securities		55-65	%		68	%		66	%
Debt Securities		30-40	%		28	%		30	%
Other		0-5	%		4	%		4	%

		100	%		100	%		100	%

Fair Value Measurements of Plan Assets

Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure estimated fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under applicable accounting standards are described below:



Level 1		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2		Inputs to the valuation methodology include:

		• quoted prices for similar assets in active markets;

		• quoted prices for identical or similar assets in inactive markets;

		• inputs other than quoted prices that are observable for the asset; and

		• inputs that are derived principally or corroborated by observable data by correlation or other means.

Level 3		Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The following table sets forth by level within the fair value hierarchy the foreign defined benefit plans’ assets at fair value, as of December 30, 2012 and January 1, 2012. As required by accounting standards, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


	Pension Plan Assets by Category as of December 30, 2012
	Europe Plan		UK Plan		Total
			*(in thousands)*
Level 1	$	78,029	$	153,847	$	231,876
Level 2		0		0		0
Level 3		0		9,151		9,151

Total	$	78,029	$	162,998	$	241,027


	Pension Plan Assets by Category as of January 1, 2012
	Europe Plan		UK Plan		Total
			*(in thousands)*
Level 1	$	66,606	$	132,491	$	199,097
Level 2		0		0		0
Level 3		0		7,305		7,305

Total	$	66,606	$	139,796	$	206,402

The assets identified as level 3 above relate to insured annuities held by the UK Plan. The fair value of these assets was calculated using the present value of the future pension payments due under the insurance policies. The table below indicates the change in value related to these level 3 assets during 2012:


	(in thousands)
Balance of level 3 assets, beginning of year	$	7,305
Interest cost		380
Benefits paid		(1,129	)
Actuarial gain		2,243
Translation adjustment		352

Ending Balance of level 3 assets	$	9,151

During 2013, the Company expects to contribute $5.3 million to the plan trust and $10.0 million in the form of direct benefit payments for its foreign defined benefit plans. It is anticipated that future benefit payments for the foreign defined benefit plans will be as follows:


	EXPECTED PAYMENTS
FISCAL YEAR	(in thousands)
2013	$	10,003
2014		10,144
2015		10,343
2016		10,669
2017		10,902
2018-2022		55,684

Domestic Defined Benefit Plan

The Company maintains a domestic nonqualified salary continuation plan (“SCP”), which is designed to induce selected officers of the Company to remain in the employ of the Company by providing them with retirement, disability and death benefits in addition to those which they may receive under the Company’s other retirement plans and benefit programs. The SCP entitles participants to: (i) retirement benefits upon normal retirement at age 65 (or early retirement as early as age 55) after completing at least 15 years of service with the Company (unless otherwise provided in the SCP), payable for the remainder of their lives (or, if elected by a participant, a reduced benefit is payable for the remainder of the participant’s life and any surviving spouse’s life) and in no event less than 10 years under the death benefit feature; (ii) disability benefits payable for the period of any total disability; and (iii) death benefits payable to the designated beneficiary of the participant for a period of up to 10 years. Benefits are determined according to one of three formulas contained in the SCP, and the SCP is administered by the Compensation Committee of the Company’s Board of Directors, which has full discretion in choosing participants and the benefit formula applicable to each. The Company’s obligations under the SCP are currently unfunded (although the Company uses insurance instruments to hedge its exposure thereunder). The Company is required to contribute the present value of its obligations thereunder to an irrevocable grantor trust in the event of a change in control as defined in the SCP. The Company uses a year-end measurement date for the domestic SCP.

The tables presented below set forth the required disclosures in accordance with applicable accounting standards, and amounts recognized in the consolidated financial statements related to the domestic SCP.


	FISCAL YEAR
	2012			2011
	(in thousands)
Change in benefit obligation
Benefit obligation, beginning of year	$	19,308		$	19,008
Service cost		452			393
Interest cost		1,014			1,135
Benefits paid		(847	)		(949	)
Actuarial loss (gain)		1,996			(279	)

Benefit obligation, end of year	$	21,923		$	19,308

The amounts recognized in the consolidated balance sheets are as follows:


	2012		2011
	(in thousands)
Current liabilities	$	847	$	847
Non-current liabilities		21,076		18,461

	$	21,923	$	19,308

The components of the amounts in accumulated other comprehensive income, after tax, are as follows:


	2012		2011
	(in thousands)
Unrecognized actuarial loss	$	3,963	$	2,926
Unrecognized transition asset		0		0
Unamortized prior service cost		43		72

	$	4,006	$	2,998

The accumulated benefit obligation related to the SCP was $18.1 million and $16.0 million as of December 30, 2012, and January 1, 2012, respectively. The SCP is currently unfunded; as such, the benefit obligations disclosed are also the benefit obligations in excess of the plan assets. The Company uses insurance instruments to help limit its exposure under the SCP.


	2012			2011			2010
	(in thousands, except for assumptions)
Assumptions used to determine net periodic benefit cost
Discount rate		4.75	%		5.5	%		6.0	%
Rate of compensation		4.0	%		4.0	%		4.0	%
Assumptions used to determine benefit obligations
Discount rate		4.0	%		4.75	%		5.5	%
Rate of compensation		4.0	%		4.0	%		4.0	%
Components of net periodic benefit cost
Service cost	$	452		$	393		$	342
Interest cost		1,014			1,138			1,121
Amortizations		316			637			545

Net periodic benefit cost	$	1,782		$	2,168		$	2,008

The changes in other comprehensive income during 2012 related to this Plan were approximately $1.0 million, after tax, primarily comprised of a net loss during the period of $1.2 million.

For 2013, the Company estimates that approximately $0.3 million of expenses, after tax, related to the amortization of unrecognized items will be included in net periodic benefit cost for the SCP.

During 2012, the Company contributed $0.8 million in the form of direct benefit payments for its domestic SCP. It is anticipated that future benefit payments for the SCP will be as follows:


	EXPECTED PAYMENTS
FISCAL YEAR	(in thousands)
2013	$	847
2014		847
2015		847
2016		847
2017		847
2018-2022		6,706

DIVIDEND AND PURCHASE TRANSACTION INVOLVING NON-CONTROLLING INTEREST PARTNER

In the third quarter of 2010, the Company’s Thailand manufacturing joint venture paid dividends on a pro rata basis to its shareholders, including a dividend to the non-controlling interest partner in the joint venture. All operations, assets and liabilities of this joint venture are currently and have been previously consolidated by the Company. The dividend paid to the non-controlling interest partner was $7.5 million and had the effect of lowering the non-controlling interest in subsidiary balance as presented in the Company’s balance sheet.

On November 3, 2010, the Company purchased the shares of the Thailand manufacturing joint venture that were held by the non-controlling interest partner for approximately $4.0 million. After this purchase, the Company now owns all of the shares of the Thailand venture. The amount paid for the shares was greater than the carrying value of the non-controlling interest by approximately $0.9 million. In accordance with applicable accounting standards, this excess was recorded as a reduction of additional paid-in capital.

FIRE AT AUSTRALIAN MANUFACTURING FACILITY

On July 20, 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 extensive damage and was rendered inoperable. Other areas of the Company’s Picton site relating to yarn preparation and warehousing were largely undamaged by the fire. The finished goods inventory and some raw materials for the business are kept at a separate offsite location and were not affected by this incident.

The Picton facility served the Company’s customers throughout Australia and New Zealand. It represented approximately 7% of the Company’s total annual production, 10% of its net sales, and 13% of its operating income. Since the fire, the Company has utilized adequate production capacity at its manufacturing facilities in Thailand, China and elsewhere to meet customer demand typically serviced from Picton. The Company has business interruption and property damage insurance. The Company is in the process of building a new manufacturing facility in Minto, Australia and expects it to become operational in late 2013.

In 2012, the Company recorded a charge of approximately $22.3 million for impairment of fixed assets related to the fire, and incurred approximately $21.3 million of excess production costs related to the fire as it has utilized other facilities to service customers in the Australia and New Zealand markets. As of the end of 2012, the Company has determined that the receipt of reimbursement of these expenses from its insurer is probable in accordance with its insurance policies and has therefore recorded a receivable for these items. As of year-end 2012, the Company had received $20.7 million of reimbursement from the insurance company related to the fire at the Picton facility. The table below details the nature of expenses as well as insurance receivables and amounts already received related to the fire:


	2012
	(in millions)
Impairment of fixed assets at the Picton Facility	$	22.3
Incremental payroll costs		2.9
Incremental shipping costs		15.5
Other incremental costs		2.9

Total incurred costs through December 30, 2012	$	43.6

Insurance recovery receivable	$	22.9
Insurance recoveries already received	$	20.7

In addition to these additional production costs, the Company has incurred approximately $1.7 million of costs related to the fire that are non-production related and at this time are not considered probable of recovery from the insurance company. As a result, these amounts are included in the determination of operating income as shown on the line item “Expenses Related to Australia Fire” on the consolidated condensed statement of operations.

The Company is gathering information related to an insurance claim for lost profits as a result of the fire. As of the end of 2012, the Company has not recorded any receivables or amounts for lost profits, but expects to do so at a later date as information and analysis become more complete and recovery becomes probable.

ENTERPRISE-WIDE DISCLOSURES

The Company has a large and diverse customer base, which includes numerous customers located in foreign countries. No single unaffiliated customer accounted for more than 10% of total sales in any year during the past three years. Sales to customers in foreign markets in 2012, 2011 and 2010 were approximately 55%, 58% and 58%, respectively, of total net sales. These sales were primarily to customers in Europe, Canada, Asia, Australia and Latin America. With the exception of the United States, Australia and the United Kingdom, no one country represented more than 10% of the Company’s net sales. Revenue and long-lived assets related to operations in the United States and other countries are as follows:


	FISCAL YEAR
	2012		2011		2010
	(in thousands)
SALES TO UNAFFILIATED CUSTOMERS ⁽¹⁾
United States	$	421,355	$	400,569	$	365,568
United Kingdom		83,373		83,401		92,606
Australia		87,115		105,871		98,322
Other foreign countries		340,177		363,204		305,818

Net sales	$	932,020	$	953,045	$	862,314

LONG-LIVED ASSETS ⁽²⁾
United States	$	78,661	$	73,770
United Kingdom		10,093		22,399
Netherlands		33,122		22,659
Australia		11,895		26,807
China		15,589		16,623
Other foreign countries		16,365		15,667

Total long-lived assets	$	165,725	$	177,925

⁽¹⁾	Revenue attributed to geographic areas is based on the location of the customer.

⁽²⁾	Long-lived assets include tangible assets physically located in foreign countries.

QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)

The following tables set forth, for the fiscal periods indicated, selected consolidated financial data and information regarding the market price per share of the Company’s Common Stock. The prices represent the reported high and low sale prices during the period presented.


	FISCAL YEAR 2012
	FIRST QUARTER ⁽¹⁾			SECOND QUARTER			THIRD QUARTER ⁽²⁾			FOURTH QUARTER ⁽³⁾
	(in thousands, except per share data)
Net sales	$	210,016		$	229,546		$	242,863		$	249,595
Gross profit		70,518			78,702			82,861			85,098
Income (loss) from continuing operations		(6,051	)		10,491			11,067			7,392
Income (loss) from discontinued operations		117			(233	)		(16,840	)		0
Net income (loss)		(5,934	)		10,258			(5,773	)		7,392
Basic income (loss) per share:
Income (loss) from continuing operations	$	(0.10	)	$	0.16		$	0.17		$	0.11
Income (loss) from discontinued operations		0.00			0.00			(0.26	)		0.00

Net income (loss)	$	(0.09	)		0.16		$	(0.09	)	$	0.11
Diluted income (loss) per share:
Income (loss) from continuing operations	$	(0.10	)	$	0.16		$	0.17		$	0.11
Income (loss) from discontinued operations		0.00			0.00			(0.26	)		0.00

Net income (loss)	$	(0.09	)	$	0.16		$	(0.09	)	$	0.11
Share prices
High	$	14.08		$	14.89		$	14.79		$	16.37
Low		10.76			11.14			11.62			12.94

⁽¹⁾	Results for the first quarter of 2012 include restructuring and asset impairment charges of $16.3 million.

⁽²⁾	Results for the third quarter of 2012 include restructuring charges of $0.8 million and losses related to the Australia fire of $1.0 million.

⁽³⁾	Results for the fourth quarter of 2012 include restructuring charges of $2.3 million and losses related to the Australia fire of $0.7 million.


	FISCAL YEAR 2011
	FIRST QUARTER		SECOND QUARTER		THIRD QUARTER		FOURTH QUARTER ⁽¹⁾
	(in thousands, except per share data)
Net sales	$	219,280	$	240,566	$	248,721	$	244,478
Gross profit		80,005		87,677		87,185		79,875
Income from continuing operations		9,337		12,231		11,692		5,010
Income (loss) from discontinued operations		487		583		476		(1,095	)
Net income		9,824		12,814		12,168		3,915
Basic income per share:
Income from continuing operations	$	0.14	$	0.19	$	0.18	$	0.08
Income (loss) from discontinued operations		0.01		0.01		0.01		(0.02	)

Net income		0.15		0.20		0.19		0.06
Diluted income per share:
Income from continuing operations	$	0.14	$	0.19	$	0.18	$	0.08
Income (loss) from discontinued operations		0.01		0.01		0.01		(0.02	)

Net income		0.15		0.20		0.19		0.06
Share prices
High	$	18.49	$	20.23	$	20.48	$	14.38
Low		15.20		17.16		11.02		9.75

⁽¹⁾	Results for the fourth quarter of 2011 include restructuring charges of $5.8 million.

SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The “guarantor subsidiaries,” which consist of the Company’s principal domestic subsidiaries, are guarantors of the Company’s 11 3/8% Senior Secured Notes due 2013 and its 7 5/8% Senior Notes due 2018. The Supplemental Guarantor Financial Statements are presented herein pursuant to requirements of the Commission.

STATEMENT OF OPERATIONS FOR YEAR 2012


	GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES		INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(in thousands)
Net sales	$	589,330		$	487,947	$	0		$	(145,257	)	$	932,020
Cost of sales		433,949			326,149		0			(145,257	)		614,841

Gross profit on sales		155,381			161,798		0			0			317,179
Selling, general and administrative expenses		94,266			117,922		19,170			0			231,358
Expenses related to Australia fire		0			1,677		71			0			1,748
Restructuring and asset impairment charges		1,143			18,032		250			0			19,425

Operating income (loss)		59,972			24,167		(19,491	)		0			64,648
Interest/other expense		29,368			12,923		(15,746	)		0			26,545

Income (loss) before taxes on income and equity in income of subsidiaries		30,604			11,244		(3,745	)		0			38,103
Income tax expense (benefit)		10,512			5,613		(921	)		0			15,204
Equity in income (loss) of subsidiaries		0			0		8,767			(8,767	)		0

Income (loss) from continuing operations		20,092			5,631		5,943			(8,767	)		22,899
Income (loss) from discontinued operations, net of tax		(16,956	)		0		0			0			(16,956	)

Net income (loss)	$	3,136		$	5,631	$	5,943		$	(8,767	)	$	5,943

STATEMENT OF OPERATIONS FOR YEAR 2011


	GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(in thousands)
Net sales	$	584,294	$	538,616		$	0		$	(169,865	)	$	953,045
Cost of sales		437,063		351,105			0			(169,865	)		618,303

Gross profit on sales		147,231		187,511			0			0			334,742
Selling, general and administrative expenses		89,874		127,128			26,285			0			243,287
Restructuring and asset impairment charges		609		5,061			85			0			5,755

Operating income (loss)		56,748		55,322			(26,370	)		0			85,700
Interest/Other expense		28,453		14,754			(16,417	)		0			26,790

Income (loss) before taxes on income and equity in income of subsidiaries		28,295		40,568			(9,953	)		0			58,910
Income tax expense (benefit)		9,992		14,117			(3,469	)		0			20,640
Equity in income (loss) of subsidiaries		0		0			45,205			(45,205	)		0

Income (loss) from continuing operations		18,303		26,451			38,721			(45,205	)		38,270
Income (loss) on discontinued operations, net of tax		1,106		(655	)		0			0			451

Net income (loss)		19,409		25,796			38,721			(45,205	)		38,721
Income attributable to non-controlling interest in subsidiary		0		0			0			0			0

Net income (loss) attributable to Interface, Inc.	$	19,409	$	25,796		$	38,721		$	(45,205	)	$	38,721

STATEMENT OF OPERATIONS FOR YEAR 2010


	GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(in thousands)
Net sales	$	521,481		$	484,195		$	0		$	(143,362	)	$	862,314
Cost of sales		387,101			305,445			0			(143,362	)		549,184

Gross profit on sales		134,380			178,750			0			0			313,130
Selling, general and administrative expenses		78,393			117,173			21,514			0			217,080
Restructuring charges		230			2,713			0			0			2,943

Operating income (loss)		55,757			58,864			(21,514	)		0			93,107
Interest/Other expense		27,099			12,572			(5,856	)		0			33,815
Bond retirement expenses		0			0			44,379			0			44,379

Income (loss) before taxes on income and equity in income of subsidiaries		28,658			46,292			(60,037	)		0			14,913
Income tax expense (benefit)		11,373			18,225			(24,982	)		0			4,616
Equity in income (loss) of subsidiaries		0			0			43,338			(43,338	)		0

Income (loss) from continuing operations		17,285			28,067			8,283			(43,338	)		10,297
Income (loss) on discontinued operations, net of tax		(227	)		(736	)		0			0			(963	)

Net income (loss)		17,058			27,331			8,283			(43,338	)		9,334
Income attributable to non-controlling interest in subsidiary		0			(1,051	)		0			0			(1,051	)

Net income (loss) attributable to Interface, Inc.	$	17,058		$	26,280		$	8,283		$	(43,338	)	$	8,283

BALANCE SHEET AS OF DECEMBER 30, 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	$	4,072		$	36,186		$	50,275		$	0		$	90,533
Accounts receivable		59,108			77,710			495			0			137,313
Inventories		64,134			77,042			0			0			141,176
Prepaids and deferred income taxes		4,274			43,979			13,376			0			61,629
Assets of business held for sale		0			0			0			0			0

Total current assets		131,588			234,917			64,146			0			430,651
Property and equipment less accumulated depreciation		75,692			86,760			3,273			0			165,725
Investment in subsidiaries		492,576			193,625			(149,980	)		(536,221	)		0
Goodwill		6,542			69,130			0			0			75,672
Other assets		1,911			9,190			106,218			0			117,319

Total assets	$	708,309		$	593,622		$	23,657		$	(536,221	)	$	789,367

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:	$	56,766		$	82,300		$	22,760		$	0		$	161,826
Senior notes		0			0			275,000			0			275,000
Deferred income taxes		0			10,815			(3,476	)		0			7,339
Other		3			2,618			46,879			0			49,500

Total liabilities		56,769			95,733			341,163			0			493,665
Shareholders’ equity
Common stock		81,844			102,199			6,606			(184,043	)		6,606
Additional paid-in capital		182,782			12,525			366,677			(195,307	)		366,677
Retained earnings (deficit)		388,857			431,341			(680,073	)		(156,871	)		(16,746	)
Foreign currency translation adjustment		(1,943	)		(16,691	)		(6,710	)		0			(25,344	)
Pension liability		0			(31,485	)		(4,006	)		0			(35,491	)

Total shareholders’ equity	$	651,540		$	497,889		$	(317,506	)	$	(536,221	)	$	295,702

	$	708,309		$	593,622		$	23,657		$	(536,221	)	$	789,367

BALANCE SHEET AS OF JANUARY 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	$	1,090		$	35,874		$	13,660		$	0		$	50,624
Accounts receivable		57,745			82,429			626			0			140,800
Inventories		69,947			70,538			0			0			140,485
Prepaids and deferred income taxes		5,158			16,040			9,023			0			30,221
Assets of business held for sale		60,683			0			0			0			60,683

Total current assets		194,623			204,881			23,309			0			422,813
Property and equipment less accumulated depreciation		70,109			103,741			4,075			0			177,925
Investment in subsidiaries		286,328			184,108			116,316			(586,752	)		0
Goodwill		6,954			67,603			0			0			74,557
Other assets		1,197			9,680			86,100			0			96,977

Total assets	$	559,211		$	570,013		$	229,800		$	(586,752	)	$	772,272

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:	$	55,487		$	84,455		$	11,246		$	0		$	151,188
Senior notes and senior subordinated notes		0			0			294,507			0			294,507
Deferred income taxes		11,044			1,615			(4,268	)		0			8,391
Other		7,315			1,902			27,930			0			37,147

Total liabilities		73,846			87,972			329,415			0			491,233
Shareholders’ equity
Common stock		94,145			102,199			6,548			(196,344	)		6,548
Additional paid-in capital		249,302			12,525			361,400			(261,827	)		361,400
Retained earnings (deficit)		143,617			425,710			(457,510	)		(128,581	)		(16,764	)
Foreign currency translation adjustment		(1,699	)		(25,129	)		(7,055	)		0			(33,883	)
Pension liability		0			(33,264	)		(2,998	)		0			(36,262	)

Total shareholders’ equity	$	485,365		$	482,041		$	(99,615	)	$	(586,752	)	$	281,039

	$	559,211		$	570,013		$	229,800		$	(586,752	)	$	772,272

STATEMENT OF CASH FLOWS FOR YEAR 2012


	GUARANTOR SUBSIDIARIES			NON-GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(in thousands)
Net cash provided by (used for) operating activities	$	50,653		$	7,142		$	(15,498	)	$	4,591		$	46,888
Cash flows from investing activities:
Purchase of plant and equipment		(16,752	)		(25,617	)		(59	)		0			(42,428	)
Other		473			(286	)		(2,816	)		0			(2,629	)
Net proceeds from sale of Bentley Prince Street		0			0			32,174			0			32,174
Cash received from insurance company		0			20,718			0			0			20,718

Net cash used for investing activities		(16,279	)		(5,185	)		29,299			0			7,835
Cash flows from financing activities:
Repurchase of senior subordinated notes		0			0			(11,477	)		0			(11,477	)
Proceeds from issuance of common stock		0			0			1,496			0			1,496
Dividends paid		0			0			(5,925	)		0			(5,925	)
Other		(31,545	)		(2,584	)		38,720			(4,591	)		0

Net cash provided by (used for) financing activities		(31,545	)		(2,584	)		22,814			(4,591	)		(15,906	)
Effect of exchange rate change on cash		153			939			0			0			1,092

Net increase (decrease) in cash		2,982			312			36,615			0			39,909
Cash, at beginning of year		1,090			35,874			13,660			0			50,624

Cash, at end of year	$	4,072		$	36,186		$	50,275		$	0		$	90,533

STATEMENT OF CASH FLOWS FOR YEAR 2011


	GUARANTOR SUBSIDIARIES			NON-GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(in thousands)
Net cash provided by (used for) operating activities	$	(7,196	)	$	27,970		$	5,113		$	(1,523	)	$	24,364

Cash flows from investing activities:
Purchase of plant and equipment		(14,987	)		(23,013	)		(50	)		0			(38,050	)
Other		51			(1,080	)		(537	)		0			(1,566	)

Net cash used for investing activities		(14,936	)		(24,093	)		(587	)		0			(39,616	)

Cash flows from financing activities:
Proceeds from issuance of common stock		0			0			2,669			0			2,669
Dividends paid		0			0			(5,227	)		0			(5,227	)
Other		22,147			(838	)		(23,857	)		1,523			(1,025	)

Net cash provided by (used for) financing activities		22,147			(838	)		(26,415	)		1,523			(3,583	)

Effect of exchange rate change on cash		0			234			0			0			234

Net increase (decrease) in cash		15			3,273			(21,889	)		0			(18,601	)
Cash, at beginning of year		1,075			32,601			35,549			0			69,225

Cash, at end of year	$	1,090		$	35,874		$	13,660		$	0		$	50,624

STATEMENT OF CASH FLOWS FOR YEAR 2010


	GUARANTOR SUBSIDIARIES			NON-GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTALS
	(in thousands)
Net cash provided by (used for) operating activities	$	27,785		$	26,516		$	(9,872	)	$	2,951		$	47,380

Cash flows from investing activities:
Purchase of plant and equipment		(11,643	)		(18,163	)		(1,909	)		0			(31,715	)
Other		(682	)		84			(4,730	)		0			(5,328	)

Net cash used for investing activities		(12,325	)		(18,079	)		(6,639	)		0			(37,043	)

Cash flows from financing activities:
Issuance of Senior Notes		0			0			275,000			0			275,000
Repurchase of Senior and Senior Subordinated Notes		0			0			(279,966	)		0			(279,966	)
Purchase of non-controlling interest		0			(11,488	)		0			0			(11,488	)
Debt issuance costs		0			0			(5,930	)		0			(5,930	)
Premiums paid to repurchase Senior and Senior Subordinated Notes		0			0			(36,374	)		0			(36,374	)
Other		(14,919	)		(7,332	)		25,202			(2,951	)		0
Proceeds from issuance of common stock		0			0			3,103			0			3,103
Dividends paid		0			0			(2,721	)		0			(2,721	)

Net cash used for financing activities		(14,919	)		(18,820	)		(21,686	)		(2,951	)		(58,376	)
Effect of exchange rate change on cash		0			1,912			0			0			1,912

Net increase (decrease) in cash		541			(8,471	)		(38,197	)		0			(46,127	)
Cash, at beginning of period		534			41,072			73,746			0			115,352

Cash, at end of period	$	1,075		$	32,601		$	35,549		$	0		$	69,225

STATEMENT OF COMPREHENSIVE INCOME FOR YEAR 2012


	GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES		INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTAL
	(in thousands)

Net Income	$	3,136		$	5,631	$	5,943		$	(8,767	)	$	5,943
Currency Translation Adjustment		(244	)		8,438		345			0			8,539
Pension Liability Adjustment		0			1,779		(1,008	)		0			771

Comprehensive Income (Loss)	$	2,892		$	15,848	$	5,280		$	(8,767	)	$	15,253

STATEMENT OF COMPREHENSIVE INCOME FOR YEAR 2011


	GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTAL
	(in thousands)
Net Income	$	19,409		$	25,796		$	38,721		$	(45,205	)	$	38,721
Currency Translation Adjustment		(250	)		(6,782	)		(582	)		0			(7,614	)
Pension Liability Adjustment		0			(5,735	)		669			0			(5,066	)

Comprehensive Income (Loss)	$	19,159		$	13,279		$	38,808		$	(45,205	)	$	26,041

STATEMENT OF COMPREHENSIVE INCOME FOR YEAR 2010


	GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES			INTERFACE, INC. (PARENT CORPORATION)			CONSOLIDATION AND ELIMINATION ENTRIES			CONSOLIDATED TOTAL
	(in thousands)
Net Income	$	17,058	$	27,331		$	8,283		$	(43,338	)	$	9,334
Currency Translation Adjustment		31		(2,257	)		472			0			(1,754	)
Pension Liability Adjustment		0		2,442			(452	)		0			1,990
Comprehensive Income Attributable to Noncontrolling Interest		0		(1,509	)		0			0			(1,509	)

Comprehensive Income (Loss)	$	17,089	$	26,007		$	8,303		$	(43,338	)	$	8,061

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders of Interface, Inc. and Subsidiaries

Atlanta, Georgia

We have audited the accompanying consolidated balance sheets of Interface, Inc. and Subsidiaries as of December 30, 2012 and January 1, 2012 and the related consolidated statements of operations and comprehensive income and cash flows for each of the three years in the period ended December 30, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Interface, Inc. and Subsidiaries at December 30, 2012 and January 1, 2012, and the results of their operations and their cash flows for each of the three years in the period then ended December 30, 2012, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Interface, Inc. and Subsidiaries’ internal control over financial reporting as of December 30, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 28, 2013 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

Atlanta, Georgia

February 28, 2013

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders of Interface, Inc. and Subsidiaries

Atlanta, Georgia

We have audited Interface, Inc. and Subsidiaries’ internal control over financial reporting as of December 30, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Interface, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 30, 2012, based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Interface, Inc. and Subsidiaries as of December 30, 2012 and January 1, 2012, and the related consolidated statements of operations and comprehensive income and cash flows for each of the three years in the period ended December 30, 2012 and our report dated February 28, 2013 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

Atlanta, Georgia

February 28, 2013

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures . As of the end of the period covered by this Annual Report on Form 10-K, 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, 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 Annual Report.

Changes in Internal Control over Financial Reporting. 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.

Management’s Annual Report on Internal Control over Financial Reporting . The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 30, 2012 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework.” Based on that assessment, management concluded that, as of December 30, 2012, our internal control over financial reporting was effective based on those criteria.

Our independent auditors have issued an audit report on the effectiveness of our internal control over financial reporting. This report immediately precedes Item 9 of this Report.

ITEM 9B.

OTHER INFORMATION

None

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information contained under the captions “Nomination and Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Meetings and Committees of the Board of Directors” in our definitive Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 2012 fiscal year, is incorporated herein by reference. Pursuant to Instruction 3 to Paragraph (b) of Item 401 of Regulation S-K, information relating to our executive officers is included in Item 1 of this Report.

We have adopted the “Interface Code of Business Conduct and Ethics” (the “Code”) which applies to all of our employees, officers and directors, including the Chief Executive Officer and Chief Financial Officer. The Code may be viewed on our website at www.interface.com . Changes to the Code will be posted on our website. Any waiver of the Code for executive officers or directors may be made only by our Board of Directors and will be disclosed to the extent required by law or Nasdaq rules on our website or in a filing on Form 8-K.

ITEM 11.

EXECUTIVE COMPENSATION

The information contained under the captions “Executive Compensation and Related Items,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” and “Potential Payments upon Termination or Change in Control” in our definitive Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 2012 fiscal year, is incorporated herein by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained under the captions “Principal Shareholders and Management Stock Ownership” and “Equity Compensation Plan Information” in our definitive Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 2012 fiscal year, is incorporated herein by reference.

For purposes of determining the aggregate market value of our voting and non-voting stock held by non-affiliates, shares held by our directors and executive officers have been excluded. The exclusion of such shares is not intended to, and shall not, constitute a determination as to which persons or entities may be “affiliates” as that term is defined under federal securities laws.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information contained under the captions “Certain Relationships and Related Transactions” and “Director Independence” in our definitive Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 2012 fiscal year, is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained under the captions “Audit and Non-Audit Fees” and “Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors” in our definitive Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 2012 fiscal year, is incorporated herein by reference.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1. Financial Statements

The following Consolidated Financial Statements and Notes thereto of Interface, Inc. and subsidiaries and related Reports of Independent Registered Public Accounting Firm are contained in Item 8 of this Report:

Consolidated Statements of Operations and Comprehensive Income — fiscal years ended December 30, 2012, January 1, 2012 and January 2, 2011.

Consolidated Balance Sheets — December 30, 2012 and January 1, 2012.

Consolidated Statements of Cash Flows — fiscal years ended December 30, 2012, January 1, 2012 and January 2, 2011.

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

2. Financial Statement Schedule

The following Consolidated Financial Statement Schedule of Interface, Inc. and subsidiaries and related Report of Independent Registered Public Accounting Firm are included as part of this Report (see the pages immediately preceding the signatures in this Report.

Report of Independent Registered Public Accounting Firm

Schedule II — Valuation and Qualifying Accounts and Reserves

3. Exhibits

The following exhibits are included as part of this Report:


Exhibit Number		Description of Exhibit

2.1	—	Stock Purchase Agreement, dated as of July 25, 2012, among Interface Americas Holdings, LLC, Bentley Prince Street, Inc. and Bentley Prince Street Holdings, Inc. (included as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q filed on November 8, 2012, previously filed with the Commission and incorporated herein by reference).

3.1	—	Restated Articles of Incorporation and accompanying Clarification Certificate (included as Exhibit 3.1 to the Company’s quarterly report on Form 10-Q filed on May 10, 2012, previously filed with the Commission and incorporated herein by reference).

3.2	—	Bylaws, as amended and restated (included as Exhibit 3.1 to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2007, previously filed with the Commission and incorporated herein by reference).

4.1	—	See Exhibits 3.1 and 3.2 for provisions in the Company’s Articles of Incorporation and Bylaws defining the rights of holders of Common Stock of the Company.

4.2	—	Rights Agreement dated March 7, 2008 and effective as of March 17, 2008 between the Company and Computershare Trust Company, N.A. (included as Exhibit 4.1 to the Company’s current report on Form 8-K filed on March 7, 2008, previously filed with the Commission and incorporated herein by reference).

4.3	—	Indenture governing the Company’s 9.5% Senior Subordinated Notes due 2014, dated as of February 4, 2004, among the Company, certain subsidiaries of the Company, as guarantors, and SunTrust Bank, as Trustee (the “2004 Indenture”) (included as Exhibit 4.6 to the Company’s annual report on Form 10-K for the year ended December 28, 2003 (the “2003 10-K”), previously filed with the Commission and incorporated herein by reference); First Supplemental Indenture related to the 2004 Indenture, dated as of January 10, 2005 (included as Exhibit 99.3 to the Company’s current report on Form 8-K filed on February 16, 2005, previously filed with the Commission and incorporated herein by reference); and Second Supplemental Indenture related to the 2004 Indenture, dated as of November 17, 2010 (included as Exhibit 4.2 to the Company’s current report on Form 8-K filed on November 19, 2010, previously filed with the Commission and incorporated herein by reference).



4.4	—	Indenture governing the Company’s 11 3/8% Senior Secured Notes due 2013, among the Company, certain subsidiaries of the Company, as guarantors, and U.S. Bank National Association, as Trustee (the “2009 Indenture”) (included as Exhibit 4.1 to the Company’s current report on Form 8-K filed on June 11, 2009, previously filed with the Commission and incorporated herein by reference); Intercreditor Agreement, dated June 5, 2009, by and among the Company, certain subsidiaries of the Company, as guarantors, Wachovia Bank, National Association, in its capacity as domestic agent and collateral agent under the Company’s domestic revolving credit facility, and U.S. Bank National Association, as collateral agent under the 2009 Indenture (included as Exhibit 4.2 to the Company’s current report on Form 8-K filed on June 11, 2009, previously filed with the Commission and incorporated herein by reference); Pledge and Security Agreement, dated June 5, 2009, by and among the Company, certain subsidiaries of the Company, and U.S. Bank National Association, in its capacity as collateral agent for the holders of the 11 3/8% Senior Secured Notes (included as Exhibit 4.4 to the Company’s annual report on Form 10-K for the year ended January 3, 2010, previously filed with the Commission and incorporated herein by reference); and First Supplemental Indenture related to the 2009 Indenture, dated as of November 17, 2010 (included as Exhibit 4.1 to the Company’s current report on Form 8-K filed on November 19, 2010, previously filed with the Commission and incorporated herein by reference).

4.5	—	Indenture governing the Company’s 7 5/8% Senior Notes due 2018, dated as of December 3, 2010, among the Company, certain subsidiaries of the Company, as guarantors, and U.S. Bank National Association, as Trustee (included as Exhibit 4.1 to the Company’s current report on Form 8-K filed on December 7, 2010, previously filed with the Commission and incorporated herein by reference).

10.1	—	Salary Continuation Plan, dated May 7, 1982 (included as Exhibit 10.20 to the Company’s registration statement on Form S-1, File No. 2-82188, previously filed with the Commission and incorporated herein by reference).*

10.2	—	Form of Salary Continuation Agreement, dated as of January 1, 2008 (as used for Daniel T. Hendrix, Raymond S. Willoch and John R. Wells) (included as Exhibit 99.5 to the Company’s current report on Form 8-K filed on January 7, 2008, previously filed with the Commission and incorporated herein by reference).*

10.3	—	Interface, Inc. Omnibus Stock Incentive Plan (as amended and restated effective February 23, 2010) (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on May 26, 2010, previously filed with the Commission and incorporated herein by reference); Forms of Restricted Stock Agreement, as used for directors, executive officers and other key employees/consultants (included as Exhibits 99.1, 99.2 and 99.3, respectively, to the Company’s current report on Form 8-K filed on January 14, 2005, previously filed with the Commission and incorporated herein by reference); and Form of Restricted Stock Agreement, as used for executive officers (included as Exhibit 10.5 to the Company’s annual report on Form 10-K for the year ended December 30, 2007, previously filed with the Commission and incorporated herein by reference).*

10.4	—	Interface, Inc. Executive Bonus Plan, adopted on February 25, 2009 (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on May 28, 2009, previously filed with the Commission and incorporated herein by reference).*

10.5	—	Interface, Inc. Nonqualified Savings Plan (as amended and restated effective January 1, 2002) (included as Exhibit 10.4 to the Company’s annual report on Form 10-K for the year ended December 30, 2001, previously filed with the Commission and incorporated herein by reference); First Amendment thereto, dated as of December 20, 2002 (included as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q for the quarter ended June 29, 2003, previously filed with the Commission and incorporated herein by reference); Second Amendment thereto, dated as of December 30, 2002 (included as Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for the quarter ended June 29, 2003, previously filed with the Commission and incorporated herein by reference); Third Amendment thereto, dated as of May 8, 2003 (included as Exhibit 10.6 to the 2003 10-K, previously filed with the Commission and incorporated herein by reference); and Fourth Amendment thereto, dated as of December 31, 2003 (included as Exhibit 10.7 to the 2003 10-K, previously filed with the Commission and incorporated herein by reference).*



10.6	—	Amended and Restated Employment and Change in Control Agreement of Daniel T. Hendrix dated January 1, 2008 (included as Exhibit 99.2 to the Company’s current report on Form 8-K filed on January 7, 2008, previously filed with the Commission and incorporated herein by reference).*

10.7	—	Amended and Restated Employment and Change in Control Agreement of Patrick C. Lynch dated January 1, 2008 (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on January 7, 2008, previously filed with the Commission and incorporated herein by reference).*

10.8	—	Amended and Restated Employment and Change in Control Agreement of John R. Wells dated January 1, 2008 (included as Exhibit 99.3 to the Company’s current report on Form 8-K filed on January 7, 2008, previously filed with the Commission and incorporated herein by reference).*

10.9	—	Amended and Restated Employment and Change in Control Agreement of Raymond S. Willoch dated January 1, 2008 (included as Exhibit 99.4 to the Company’s current report on Form 8-K filed on January 7, 2008, previously filed with the Commission and incorporated herein by reference).*

10.10	—	UK Service Agreement between Interface Europe, Ltd. and Lindsey Kenneth Parnell dated March 13, 2007 (included as Exhibit 10.12 to the Company’s annual report on Form 10-K for the year ended December 31, 2006 (the “2006 10-K”), previously filed with the Commission and incorporated herein by reference).*

10.11	—	Overseas Service Agreement between Interface Europe, Ltd. and Lindsey Kenneth Parnell dated March 13, 2007 (included as Exhibit 10.13 to the 2006 10-K, previously filed with the Commission and incorporated herein by reference).*

10.12	—	Seventh Amended and Restated Credit Agreement, dated as of June 24, 2011, among the Company (and certain direct and indirect subsidiaries), 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).

10.13	—	Split Dollar Insurance Agreement, dated February 21, 1997, between the Company and Daniel T. Hendrix (included as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q for the quarter ended October 4, 1998, previously filed with the Commission and incorporated herein by reference); and Amendment thereto, dated December 29, 2008 (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on January 2, 2009, previously filed with the Commission and incorporated herein by reference).*

10.14	—	Form of Indemnity Agreement of Director (as used for directors of the Company) (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on November 30, 2005, previously filed with the Commission and incorporated herein by reference).*

10.15	—	Form of Indemnity Agreement of Officer (as used for certain officers of the Company, including Daniel T. Hendrix, John R. Wells, Patrick C. Lynch, Raymond S. Willoch, Lindsey K. Parnell and Robert A. Coombs) (included as Exhibit 99.2 to the Company’s current report on Form 8-K filed on November 30, 2005, previously filed with the Commission and incorporated herein by reference).*

10.16	—	Interface, Inc. Long-Term Care Insurance Plan and related Summary Plan Description (included as Exhibit 99.2 to the Company’s current report on Form 8-K filed on December 20, 2005, previously filed with the Commission and incorporated herein by reference).*



10.17	—	Credit Agreement, executed on April 24, 2009, among Interface Europe B.V. (and certain of its subsidiaries) and ABN AMRO Bank N.V. (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on April 29, 2009, previously filed with the Commission and incorporated herein by reference); Amendment Agreement thereto, executed on January 21, 2010 (included as Exhibit 99.1 to the Company’s current report on Form 8-K dated January 21, 2010 and filed on January 22, 2010, previously filed with the Commission and incorporated herein by reference); Second Amendment thereto, executed on December 17, 2010, among Interface Europe B.V. (and certain of its subsidiaries) and the Royal Bank of Scotland N.V. (as successor to ABN AMRO Bank N.V.) (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on November 30, 2011, previously filed with the Commission and incorporated herein by reference); and Third Amendment thereto, executed on November 24, 2011 (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on November 30, 2011, previously filed with the Commission and incorporated herein by reference).

10.18	—	Interface, Inc. Nonqualified Savings Plan II, as amended and restated effective January 1, 2009.*

10.19	—	First Amendment to the Interface, Inc. Nonqualified Savings Plan II, dated February 26, 2009.*

10.20	—	Second Amendment to the Interface, Inc. Nonqualified Savings Plan II, dated December 9, 2009.*

10.21	—	Third Amendment to the Interface, Inc. Nonqualified Savings Plan II, dated April 15, 2010.*

10.22	—	Fourth Amendment to the Interface, Inc. Nonqualified Savings Plan II, dated August 9, 2012.*

21	—	Subsidiaries of the Company.

23	—	Consent of BDO USA, LLP.

24	—	Power of Attorney (see signature page of this Report).

31.1	—	Certification of Chief Executive Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012.

31.2	—	Certification of Chief Financial Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012.

32.1	—	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Chief Executive Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012.

32.2	—	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Chief Financial Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012.

101.INS	—	XBRL Instance Document (filed electronically herewith)

101.SCH	—	XBRL Taxonomy Extension Schema Document (filed electronically herewith)

101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith)

101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith)

101.PRE	—	XBRL Taxonomy Presentation Linkbase Document (filed electronically herewith)

101.DEF	—	XBRL Taxonomy Definition Linkbase Document (filed electronically herewith)

*	Management contract or compensatory plan or agreement required to be filed pursuant to Item 15(b) of this Report.

Report of Independent Registered Public Accounting Firm

Interface, Inc. and Subsidiaries

Atlanta, Georgia

The audits referred to in our report dated February 28, 2013 relating to the consolidated financial statements of Interface, Inc. and Subsidiaries, which is contained in Item 8 of this Form 10-K also included the audit of the Financial Statement Schedule II (Valuation and Qualifying Accounts and Reserves) listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ BDO USA, LLP

Atlanta, Georgia

February 28, 2013

INTERFACE, INC. AND SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES


	COLUMN A		COLUMN B		COLUMN C		COLUMN D		COLUMN E
	BALANCE, AT BEGINNING OF YEAR		CHARGED TO COSTS AND EXPENSES (A)		CHARGED TO OTHER ACCOUNTS		DEDUCTIONS (DESCRIBE) (B)		BALANCE, AT END OF YEAR
	(in thousands)
Allowance for Doubtful Accounts:
Year Ended:
December 30, 2012	$	8,920	$	1,338	$	0	$	1,440	$	8,818
January 1, 2012		9,631		1,454		0		2,165		8,920
January 2, 2011		12,288		1,318		0		3,975		9,631

(A)	Includes changes in foreign currency exchange rates.

(B)	Write off of bad debt, and recovering of previously provided for amounts.


	COLUMN A		COLUMN B		COLUMN C		COLUMN D		COLUMN E
	BALANCE, AT BEGINNING OF YEAR		CHARGED TO COSTS AND EXPENSES (A)		CHARGED TO OTHER ACCOUNTS (B)		DEDUCTIONS (DESCRIBE) (C)		BALANCE, AT END OF YEAR
	(in thousands)
Restructuring Reserve:
Year Ended:
December 30, 2012	$	4,112	$	18,927	$	9,364	$	9,325	$	4,350
January 1, 2012		521		5,755		776		1,388		4,112
January 2, 2011		1,953		2,943		0		4,375		521

(A)	Includes changes in foreign currency exchange rates.

(B)	Reduction of asset carrying value.

(C)	Cash payments.


	COLUMN A		COLUMN B		COLUMN C		COLUMN D		COLUMN E
	BALANCE, AT BEGINNING OF YEAR		CHARGED TO COSTS AND EXPENSES (A)		CHARGED TO OTHER ACCOUNTS		DEDUCTIONS (DESCRIBE) (B)		BALANCE, AT END OF YEAR
	(in thousands)
Reserves for Sales Returns and Allowances:
Year ended:
December 30, 2012	$	4,276	$	1,441	$	0	$	2,618	$	3,099
January 1, 2012		4,475		1,887		0		2,086		4,276
January 2, 2011		3,334		3,195		0		2,054		4,475

(A)	Includes changes in foreign currency exchange rates.

(B)	Represents credits issued and adjustments to reflect actual exposure.


	COLUMN A		COLUMN B		COLUMN C		COLUMN D		COLUMN E
	BALANCE, AT BEGINNING OF YEAR		CHARGED TO COSTS AND EXPENSES (A)		CHARGED TO OTHER ACCOUNTS		DEDUCTIONS (DESCRIBE) (B)		BALANCE, AT END OF YEAR
	(in thousands)
Warranty Reserves:
Year ended:
December 30, 2012	$	871	$	361	$	0	$	0	$	1,232
January 1, 2012		830		41		0		0		871
January 2, 2011		841		489		0		500		830

(A)	Includes changes in foreign currency exchange rates.

(B)	Represents costs applied against reserve and adjustments to reflect actual exposure.


	COLUMN A		COLUMN B		COLUMN C		COLUMN D		COLUMN E
	BALANCE, AT BEGINNING OF YEAR		CHARGED TO COSTS AND EXPENSES (A)		CHARGED TO OTHER ACCOUNTS		DEDUCTIONS (DESCRIBE) (B)		BALANCE, AT END OF YEAR
	(in thousands)
Inventory Reserves:
Year ended:
December 30, 2012	$	10,366	$	4,252	$	0	$	1,672	$	12,946
January 1, 2012		10,733		2,644		0		3,011		10,366
January 2, 2011		13,044		3,391		0		5,702		10,733

(A)	Includes changes in foreign currency exchange rates.

(B)	Represents costs applied against reserve and adjustments to reflect actual exposure.

(All other Schedules for which provision is made in the applicable accounting requirements of the Securities and Exchange Commission are omitted because they are either not applicable or the required information is shown in the Company’s Consolidated Financial Statements or the Notes thereto.)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel T. Hendrix as attorney-in-fact, with power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Capacity	Date

/s/ DANIEL T. HENDRIX Daniel T. Hendrix	Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)	February 28, 2013

/s/ PATRICK C. LYNCH Patrick C. Lynch	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	February 28, 2013

/s/ EDWARD C. CALLAWAY	Director	February 28, 2013
Edward C. Callaway

	Director	February 28, 2013
Andrew B. Cogan

/s/ DIANNE DILLON-RIDGLEY	Director	February 28, 2013
Dianne Dillon-Ridgley

/s/ CARL I. GABLE	Director	February 28, 2013
Carl I. Gable

/s/ JUNE M. HENTON	Director	February 28, 2013
June M. Henton

	Director	February 28, 2013
Christopher G. Kennedy

/s/ K. DAVID KOHLER	Director	February 28, 2013
K. David Kohler

/s/ JAMES B. MILLER, JR.	Director	February 28, 2013
James B. Miller, Jr.

/s/ HAROLD M. PAISNER	Director	February 28, 2013
Harold M. Paisner

EXHIBIT INDEX


Exhibit Number

10.18		Interface, Inc. Nonqualified Savings Plan II, as amended and restated effective January 1, 2009.*

10.19		First Amendment to the Interface, Inc. Nonqualified Savings Plan II, dated February 26, 2009.*

10.20		Second Amendment to the Interface, Inc. Nonqualified Savings Plan II, dated December 9, 2009.*

10.21		Third Amendment to the Interface, Inc. Nonqualified Savings Plan II, dated April 15, 2010.*

10.22		Fourth Amendment to the Interface, Inc. Nonqualified Savings Plan II, dated August 9, 2012.*

21		Subsidiaries of the Company.

23		Consent of BDO USA, LLP.

24		Power of Attorney.

31.1		Certification of Chief Executive Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012.

31.2		Certification of Chief Financial Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012.

32.1		Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Chief Executive Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012.

32.2		Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Chief Financial Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2012.

101.INS		XBRL Instance Document (filed electronically herewith)

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

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

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

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

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

Exhibit 10.18

INTERFACE, INC.

NONQUALIFIED SAVINGS PLAN II

As Amended and Restated

Effective as of January 1, 2009

INTERFACE, INC.

NONQUALIFIED SAVINGS PLAN II

Effective as of the 1st day of January, 2009, Interface, Inc. (the “Controlling Company”) hereby amends and restates the Interface, Inc. Nonqualified Savings Plan II (the “Plan”).

BACKGROUND AND PURPOSE

A. Background . The Plan was initially adopted effective as of January 1, 2005, and was subsequently amended. Effective January 1, 2009, the Plan, as set forth in this document, is intended and should be construed as a restatement and continuation of the Plan as previously in effect.

B. Goal . The Controlling Company desires to provide its designated key management and highly compensated employees (and those of its affiliated companies that participate in the Plan) with an opportunity (i) to defer the receipt and income taxation of a portion of such employees’ annual compensation, and (ii) to receive, on a deferred basis, matching contributions made with respect to at least a portion of such employees’ own deferrals. The Controlling Company also desires to provide additional, supplemental, employer-provided retirement benefits for certain key management employees who have not been awarded salary continuation benefits through individual agreements with the Controlling Company.

C. Coordination with 401(k) Plan . The Plan generally is intended to allow eligible employees to maximize the retirement benefits they otherwise would be able to attain under the Controlling Company’s 401(k) plan (or the 401(k) plan of a participating affiliate company), but for the limits on contributions and benefits applicable to such plan under the Internal Revenue Code of 1986, as amended (the “Code”); including, without limitation, the maximum limits on compensation, employee deferrals and allocations (under Code Sections 401(a)(17), 402(g) and 415, respectively); and the discrimination testing limits (under Code Sections 401(k) and 401(m)).

D. Type of Plan . The Plan constitutes an unfunded, nonqualified deferred compensation plan that benefits certain designated employees who are within a select group of key management or highly compensated employees. It is intended that this Plan comply with Section 409A of the Internal Revenue Code of 1986, as amended.

STATEMENT OF AGREEMENT

To amend and restate the Plan with the purposes and goals as hereinabove described, the Controlling Company hereby sets forth the terms and provisions as follows:

INTERFACE, INC.

NONQUALIFIED SAVINGS PLAN II

TABLE OF CONTENTS


			Page
ARTICLE I DEFINITIONS				1
	1.1	Account		1
	1.2	Administrative Committee		1
	1.3	Base Pay		1
	1.4	Beneficiary		1
	1.5	Board		1
	1.6	Bonuses		1
	1.7	Cause		1
	1.8	Change in Control		2
		(a) General Definition		2
		(b) Definition Under Code Section 409A		3
	1.9	Code		3
	1.10	Code Section 409A		3
	1.11	Commissions		3
	1.12	Compensation		4
	1.13	Compensation Committee		4
	1.14	Controlled Group		4
	1.15	Controlling Company		4
	1.16	Deferral Contributions		5
	1.17	Deferral Election		5
	1.18	Disability or Disabled		5
		(a) General Definition		5
		(b) Definition under Code Section 409A		5
	1.19	Discretionary Contributions		5
	1.20	Effective Date		5
	1.21	Eligible Employee		5
	1.22	ERISA		5
	1.23	FICA Tax		5
	1.24	Financial Hardship		6
	1.25	Investment Election		6
	1.26	Investment Funds		6
	1.27	Involuntary Termination		6
	1.28	Key Employee		6
	1.29	Matching Contributions		6
	1.30	Participant		6
	1.31	Participating Company		7
	1.32	Permitted Holders		7
	1.33	Plan		7
	1.34	Plan Year		7


	1.35	Savings and Investment Plan	7
	1.36	Separate from Service or Separation from Service	7
		(a) Leaves of Absence	7
		(b) Status Change	7
		(c) Termination of Employment	8
	1.37	Surviving Spouse	8
	1.38	Trust or Trust Agreement	8
	1.39	Trustee	8
	1.40	Trust Fund	8
	1.41	Valuation Date	8
	1.42	Voluntary Termination	9
	1.43	Voting Stock	9
	1.44	Year of Service	9

ARTICLE II ELIGIBILITY AND PARTICIPATION			10
	2.1	Eligibility	10
		(a) Annual Participation	10
		(b) Interim Plan Year Participation	10
		(c) Eligibility for Supplemental Discretionary Contributions	10
	2.2	Procedure for Admission	10
	2.3	Cessation of Eligibility	10
		(a) Cessation of Eligible Status	10
		(b) Inactive Participant Status	11

ARTICLE III PARTICIPANTS’ ACCOUNTS; DEFERRALS AND CREDITING			12
	3.1	Participants’ Accounts	12
		(a) Establishment of Accounts	12
		(b) Nature of Contributions and Accounts	12
		(c) Several Liabilities	12
		(d) General Creditors	12
	3.2	Deferral Contributions	12
		(a) Effective Date	13
		(b) Term and Irrevocability of Elections	14
		(c) Amount	14
		(d) Crediting of Deferred Base Pay, Commissions and Bonuses	14
	3.3	Matching Contributions	14
		(a) Amount	14
		(b) Time of Crediting	15
	3.4	Discretionary Contributions	15
		(a) General	15
		(b) Supplemental Discretionary Contributions	15
	3.5	Impact of Code Section 409A on Prior Plan Amounts	15
	3.6	Debiting of Distributions	15
	3.7	Crediting of Earnings	15
		(a) Rate of Return	15
		(b) Amount Invested	16
		(c) Determination of Amount	16


	3.8	Vesting	16
		(a) General	16
		(b) Change in Control	16
		(c) Supplemental Discretionary Contributions	17
	3.9	Good Faith Valuation Binding	17
	3.10	Errors and Omissions in Accounts	17

ARTICLE IV INVESTMENT FUNDS			18
	4.1	Selection by Administrative Committee	18
	4.2	Participant Direction of Deemed Investments	18
		(a) Nature of Participant Direction	18
		(b) Investment of Contributions	18
		(c) Investment of Existing Account Balances	18
		(d) Administrative Committee Discretion	19

ARTICLE V PAYMENT OF ACCOUNT BALANCES			20
	5.1	Amount of Benefit Payments	20
	5.2	Timing of Distribution	20
		(a) General Rule	20
		(b) Separation from Service Distribution Date Election	20
		(c) In-Service Distribution Date Election	20
		(d) Modifications of Benefit Commencement Date	21
		(e) Distribution of Supplemental Discretionary Contributions	21
		(f) Number of Benefit Commencement Dates	21
		(g) Distributions to Key Employees	22
	5.3	Form of Distribution	22
		(a) Benefit Payments Upon Separation from Service	22
		(b) Scheduled In-Service Benefit Payments	22
		(c) Distribution of Supplemental Discretionary Contributions	23
	5.4	Death Benefits	24
	5.5	Hardship Distributions	24
	5.6	Beneficiary Designation	25
		(a) General	25
		(b) No Designation or Designee Dead or Missing	25
	5.7	Taxes	25
	5.8	Offset of Account by Amounts Owed to the Company	25
	5.9	No Acceleration of Payments	26

ARTICLE VI CLAIMS			27
	6.1	Claims	27
		(a) Procedure	27
		(b) Review Procedure	27
		(c) Satisfaction of Claims	28

ARTICLE VII SOURCE OF FUNDS; TRUST			29
	7.1	Source of Funds	29
	7.2	Trust	29
		(a) Establishment	29

iii


		(b) Distributions	29
		(c) Status of the Trust	29
		(d) Change in Control	30
	7.3	Funding Prohibition under Certain Circumstances	30

ARTICLE VIII ADMINISTRATIVE COMMITTEE			31
	8.1	Action	31
	8.2	Rights and Duties	31
	8.3	Compensation, Indemnity and Liability	32

ARTICLE IX AMENDMENT AND TERMINATION			33
	9.1	Amendments	33
	9.2	Termination of Plan	33

ARTICLE X MISCELLANEOUS			34
	10.1	Taxation	34
	10.2	Distribution Pursuant to a Domestic Relations Order	34
		(a) Distribution Due to Domestic Relations Order	34
		(b) Requirements of a Domestic Relations Order	34
		(c) Domestic Relations Order Review Authority	34
	10.3	No Employment Contract	35
	10.4	Headings	35
	10.5	Gender and Number	35
	10.6	Assignment of Benefits	35
	10.7	Legally Incompetent	35
	10.8	Governing Law	35

ARTICLE I

DEFINITIONS

For purposes of the Plan, the following terms, when used with an initial capital letter, shall have the meaning set forth below unless a different meaning plainly is required by the context.

1.1 Account shall mean, with respect to a Participant or Beneficiary, the total dollar amount or value evidenced by the last balance posted in accordance with the terms of the Plan to the account record established for such Participant or Beneficiary.

1.2 Administrative Committee shall mean the administrative committee of the Savings and Investment Plan, or such other committee as shall be appointed by the Board, which shall act on behalf of the Controlling Company to administer the Plan, all as provided in Article VIII.

1.3 Base Pay shall mean Compensation minus Bonuses and Commissions.

1.4 Beneficiary shall mean, with respect to a Participant, the person(s) designated in accordance with Section 5.4 to receive any death benefits that may be payable under the Plan upon the death of the Participant.

1.5 Board shall mean the Board of Directors of the Controlling Company.

1.6 Bonuses shall mean the portion of a Participant’s Compensation payable as an annual or quarterly bonus under (i) the Interface, Inc. Executive Bonus Plan, or (ii) the Controlling Company’s management bonus program applicable to other salaried employees, or a successor to either such plan or program.

1.7 Cause shall mean (i) an act that constitutes, on the part of a Participant, (A) fraud, dishonesty, gross negligence, or willful misconduct and (B) that directly results in material injury to the Controlling Company or any member of the Controlled Group, or (ii) the Participant’s conviction of a felony or other crime involving moral turpitude. A termination of the Participant shall not be considered a termination for Cause based on clause (i) of the preceding sentence unless, at least 30 days before such termination is effective, the Participating Company gives written notice of such termination to the Participant specifying the conduct deemed to qualify as Cause, and the Participating Company gives the Participant at least 30 days to remedy the events or circumstances constituting Cause to the reasonable satisfaction of the Controlling Company. A termination for Cause based on clause (ii) above shall take effect immediately upon the Controlling Company’s delivery of the termination notice.

1.8 Change in Control .

(a) General Definition . Except as provided in subsection (b), Change in Control shall mean, and a Change in Control shall be deemed to occur, on the earliest of, and upon any subsequent occurrence of, the following:

(i) A change of ownership or effective control of the Controlling Company, or a change in the ownership of a substantial portion of the assets of the Controlling Company, all within the meaning of Code Section 409A. As a general overview, Code Section 409A defines “change in control” as any of the following:

(A) Change in the Ownership of the Controlling Company . A change in ownership of the Controlling Company occurs on the date that any one person, or more than one person acting as a group, acquires ownership of stock of the Controlling Company that, together with stock then held by such person or group constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Controlling Company. However, if any one person, or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of the Controlling Company, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Controlling Company or to cause a change in the effective control of the Controlling Company. An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Controlling Company acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this clause (A). This clause (A) applies only when there is a transfer of stock of the Controlling Company (or issuance of stock of the Controlling Company) and stock in the Controlling Company remains outstanding after the transaction.

(B) Change in the Effective Control of the Controlling Company . A change in the effective control of the Controlling Company will occur on either of the following dates:

(1) The date any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Controlling Company possessing 30 percent or more of the total voting power of the stock of the Controlling Company; or

(2) The date a majority of members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Controlling Company’s Board before the date of the appointment or election.

(C) Change in the Ownership of a Substantial Portion of the Controlling Company’s Assets . A change in the ownership of a substantial portion of the Controlling Company’s assets occurs on the date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Controlling Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Controlling Company immediately before such acquisition or acquisitions.

(ii) The effective time of (A) a merger, consolidation or other business combination of the Controlling Company with one or more corporations as a result of which the holders of the outstanding voting stock of the Controlling Company immediately prior to such merger or consolidation hold less than 51 percent of the voting stock of the surviving or resulting corporation, or (B) a plan of complete liquidation of the Controlling Company.

(iii) During such period as the holders of the Controlling Company’s Class B common stock are entitled to elect a majority of the Controlling Company’s Board of Directors, (A) the date the Permitted Holders (defined below) shall at any time fail to be the “beneficial owners” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934) of a majority of the issued and outstanding shares of the Controlling Company’s Class B common stock; or (B) the date of the election to the Board of Directors of the Controlling Company, without the recommendation or approval of Ray C. Anderson if he is then serving on the Board of Directors, or, if he is not then serving, of the incumbent Board of Directors of the Controlling Company, of the lesser of (1) four directors, or (2) directors constituting a majority of the number of directors of the Controlling Company then in office.

(b) Definition Under Code Section 409A . Notwithstanding the foregoing, for purposes of Sections 5.2(e) and 5.3(c) of this Plan, “Change in Control” shall mean any of the events described in subsection (a)(i) above.

1.9 Code shall mean the Internal Revenue Code of 1986, as amended, and any succeeding federal tax provisions.

1.10 Code Section 409A shall mean Section 409A of the Code and all applicable regulations and other guidance issued thereunder.

1.11 Commissions shall mean Compensation in the form of sales commissions earned by a Participant. Commissions shall be treated as earned, and a Participant’s services related to a Commission payment shall be treated as performed, when the underlying sale giving rise to the Commission payment occurs.

1.12 Compensation shall mean, for a Participant for any Plan Year, the total of the amounts described in subsections (a), (b) and (c), minus the amounts described in subsections (d) and (e) below, as follows:

(a) All amounts that are wages within the meaning of Code Section 3401(a) and all other payments of compensation to a Participant by a member of the Controlled Group (in the course of the trade or business of the member of the Controlled Group) for which the member of the Controlled Group is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052 ( i.e. , all amounts reportable by members of the Controlled Group on IRS Form W-2); provided, such amounts shall be determined without regard to any rules that limit the remuneration included in wages based on the nature or location of employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)); plus

(b) Any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by a member of the Controlled Group at the election of the Participant and which is not includible in the gross income of the Participant by reason of Code Section 125, 457 or 132(f)(4), including any amounts not available to a Participant in cash in lieu of group health coverage because the Participant is unable to certify that he has other health coverage; plus

(d) All amounts included in subsection (a) that consist of any reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation and welfare benefits (even if includible in gross income); minus

(e) All amounts included in subsection (a) or (b) that consist of amounts paid or made available to a Participant after he Separates from Service or dies, other than amounts paid in a regularly scheduled paycheck and which consists of (i) regular compensation for services during the Participant’s regular working hours, or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses or other similar payments, and which would have been paid to the Participant prior to severance from employment if the Participant had continued in employment; or (ii) payment for unused accrued bona fide sick, vacation or other leave that the Participant would have been able to use if employment had continued and would have been included in Compensation under the Plan if paid prior to Separation from Service.

1.13 Compensation Committee shall mean the Compensation Committee of the Board.

1.14 Controlled Group shall mean all of the companies that are either (i) members of the same controlled group of corporations (within the meaning of Code Section 414(b)), or (ii) under common control (within the meaning of Code Section 414(c)), with the Controlling Company. Notwithstanding the foregoing, for purposes of determining whether a Participant has had a Separation from Service, the term “Controlled Group” will be determining in accordance with the preceding sentence but substituting the phrase “at least 50 percent” in place of the phrase “at least 80 percent” each place it appears under the Code Section 414(b) and Code Section 414(c) rules.

1.15 Controlling Company shall mean Interface, Inc., a corporation with its principal place of business in Atlanta, Georgia.

1.16 Deferral Contributions shall mean, for each Plan Year, that portion of a Participant’s Compensation deferred under the Plan pursuant to Section 3.2.

1.17 Deferral Election shall mean a written election form (or election in any other format permitted by the Administrative Committee) on which a Participant may elect to defer under the Plan a portion of his Base Pay, Commissions or Bonuses.

1 .18 Disability or Disabled .

(a) General Definition . Except as provided in subsection (b), Disability or Disabled shall mean a Participant’s inability, as a result of physical or mental incapacity, to substantially perform his duties for the Controlling Company or any member of the Controlled Group on a full-time basis for a period of 6 months.

(b) Definition under Code Section 409A . Notwithstanding the foregoing, for purposes of Sections 5.2(e) and 5.3(c) of this Plan, Disability or Disabled shall mean that a Participant either (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or (ii) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Participating Company that employs the Participant.

1.19 Discretionary Contributions shall mean, for each Plan Year, the amount credited to a Participant’s Account pursuant to Section 3.4.

1.20 Effective Date shall mean January 1, 2009, the date that this amendment and restatement of the Plan shall be effective. The Plan was initially effective on January 1, 2005.

1.21 Eligible Employee shall mean, for a Plan Year or portion of a Plan Year, an individual:

(a) Who is a member of a select group of highly compensated or key management employees who the Administrative Committee, in its sole discretion, determines is eligible to participate in the Plan; and

(b) Who has satisfied the minimum compensation and/or other classification requirements, if any, established from time to time by the Administrative Committee.

1.22 ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.

1.23 FICA Tax shall mean the Federal Insurance Contributions Act tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2).

1.24 Financial Hardship shall mean a severe financial hardship to the Participant resulting from (i) an illness or accident of the Participant, the Participant’s spouse, the Participant’s Beneficiary, or the Participant’s dependent (as defined in Code Section 152(a) without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof); (ii) loss of the Participant’s property due to casualty; (iii) or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Financial Hardship shall be determined by the Administrative Committee on the basis of the facts of each case, including information supplied by the Participant in accordance with uniform guidelines prescribed from time to time by the Administrative Committee; provided, the Participant will be deemed not to have a Financial Hardship to the extent that such hardship is or may be relieved:

(a) Through reimbursement or compensation by insurance or otherwise; or

(b) By liquidation of the Participant’s assets, to the extent the liquidation of assets would not itself cause severe financial hardship.

Examples of what are not considered to be Financial Hardships include the need to send a Participant’s child to college or the desire to purchase a home. Notwithstanding anything in the foregoing to the contrary, Financial Hardships shall be limited to circumstances constituting “unforeseeable emergencies” under Code Section 409A.

1.25 Investment Election shall mean an election, made in such form as the Administrative Committee may direct, pursuant to which a Participant may elect the Investment Funds in which the amounts credited to his Account shall be deemed to be invested.

1.26 Investment Funds shall mean the investment funds selected from time to time by the Administrative Committee for purposes of determining the rate of return on amounts deemed invested pursuant to the terms of the Plan.

1.27 Involuntary Termination shall mean termination of employment with the Controlling Company and all other members of the Controlled Group that is involuntary on the part of a Participant and that occurs for reasons other than for (i) Cause, (ii) Disability, or (iii) the Participant’s death.

1.28 Key Employee shall mean a Participant who is a “specified employee” as defined in Code Section 409A as of: (i) for a Participant who Separates from Service on or after the first day of a calendar year and before the first day of the fourth month of such calendar year, the December 31 of the second calendar year preceding the calendar year in which such Participant Separates from Service; or (ii) for any other Participant, the preceding December 31. For purposes of identifying Key Employees, the Participant’s compensation shall mean all of the items listed in Treasury Regulations Section 1.415(c)-2(b), and excluding all of the items listed in Treasury Regulations Section 1.415(c)-2(c).

1.29 Matching Contributions shall mean, for each Plan Year, the amount credited to a Participant’s Account pursuant to Section 3.3.

1.30 Participant shall mean any person who has been admitted to, and has not been removed from, participation in the Plan pursuant to the provisions of Article II.

1.31 Participating Company shall mean the Controlling Company and the participating companies as listed on Schedule A in the Savings and Investment Plan.

1.32 Permitted Holders shall mean Ray C. Anderson, Daniel T. Hendrix, John R. Wells, Raymond S. Willoch, Robert A. Coombs, Patrick C. Lynch, Lindsey K. Parnell, Carl I. Gable, and J. Smith Lanier, II; provided that, for purposes of this definition, the reference to each such individual shall be deemed to include the members of such individual’s immediate family, such individual’s estate, and any trusts created by such individual for the benefit of members of such individual’s immediate family.

1.33 Plan shall mean the Interface, Inc. Nonqualified Savings Plan II, as contained herein and all amendments hereto. For tax purposes and purposes of Title I of ERISA, the Plan is intended to be an unfunded, nonqualified deferred compensation plan covering certain designated employees who are within a select group of key management or highly compensated employees.

1.34 Plan Year shall mean the 12-consecutive-month period ending on December 31 of each year.

1.35 Savings and Investment Plan shall mean the Interface, Inc. Savings and Investment Plan, and any successor plan thereto.

1.36 Separate from Service or Separation from Service means, with respect to a Participant, that such Participant has separated from service, as defined under Code Section 409A and the guidance issued thereunder, with the Controlling Company and all members of the Controlled Group. Generally, a Participant separates from service if the Participant dies, retires, or otherwise has a termination of employment with the Controlling Company and all members of the Controlled Group (other than due to his death), as determined in accordance with the following:

(a) Leaves of Absence . The employment relationship is treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed 6 months, or, if longer, so long as the Participant retains a right to reemployment with the Controlling Company or a member of the Controlled Group under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only while there is a reasonable expectation that the Participant will return to perform services for the Controlling Company or a member of the Controlled Group. If the period of leave exceeds 6 months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period. Notwithstanding the foregoing, where a leave of absence is due to the Participant’s Disability, a 29-month period of absence will be substituted for such six-month period.

(b) Status Change . Generally, if a Participant performs services both as an employee and an independent contractor, such Participant must separate from service both as an employee, and as an independent contractor pursuant to standards set forth in Treasury Regulations, to be treated as having a Separation from Service. However, if a Participant provides services as an employee and as a member of the Board of Directors, the services provided as a director are not taken into account in determining whether the Participant has a Separation from Service as an employee for purposes of this Plan.

(c) Termination of Employment . Whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the Controlling Company, all members of the Controlled Group and the Participant reasonably anticipate (i) that no further services will be performed after a certain date, or (ii) the level of bona fide services the Participant will perform after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than 20 percent of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Controlling Company and all members of the Controlled Group if the Participant has been providing services to the Controlling Company and all members of the Controlled Group for less than 36 months). Facts and circumstances to be considered in making this determination include, but are not limited to, whether the Participant continues to be treated as an employee for other purposes (such as continuation of salary and participation in employee benefit programs), whether similarly situated service providers have been treated consistently, and whether the Participant is permitted, and realistically available, to perform services for other service recipients in the same line of business. For periods during which a Participant is on a paid bona fide leave of absence and has not otherwise terminated employment as described in subsection (a) hereof, for purposes of this subsection (c) the Participant is treated as providing bona fide services at a level equal to the level of services that the Participant would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which a Participant is on an unpaid bona fide leave of absence and has not otherwise terminated employment are disregarded for purposes of this subsection (c) (including for purposes of determining the applicable 36-month (or shorter) period).

1.37 Surviving Spouse shall mean, with respect to a Participant, the person who is treated as married to such Participant under the laws of the state in which the Participant resides. The determination of a Participant’s Surviving Spouse shall be made as of the date of such Participant’s death.

1.38 Trust or Trust Agreement shall mean the separate agreement or agreements between the Controlling Company and the Trustee governing the creation of the Trust Fund, and all amendments thereto.

1.39 Trustee shall mean the party or parties so designated from time to time pursuant to the terms of the Trust Agreement.

1.40 Trust Fund shall mean the total amount of cash and other property held by the Trustee (or any nominee thereof) at any time under the Trust Agreement.

1.41 Valuation Date shall mean each day the New York Stock Exchange is open for trading; provided, the value of an Account or the Trust Fund on any other date will be the value determined as of the immediately preceding data on which the New York Stock Exchange was open for trading.

1.42 Voluntary Termination shall mean termination of employment with the Controlling Company and all other members of the Controlled Group that is voluntary on the part of the Participant, and, in the judgment of the Participant, is due to (i) a reduction of the Participant’s responsibilities, title or status resulting from a formal change in such title or status, or from the assignment to the Participant of any duties inconsistent with his title, duties or responsibilities in effect within the year prior to a Change in Control; (ii) a reduction in the Participant’s compensation or benefits, or (iii) an employer-required involuntary relocation of the Participant’s place of residence or a significant increase in the Participant’s travel requirements. A termination shall not be considered voluntary if such termination is the result of Cause, Disability or the Participant’s death.

1.43 Voting Stock shall mean the Controlling Company’s outstanding capital stock entitled to vote for the election of directors.

1.44 Year of Service shall mean, with respect to a Participant, the number of whole 12-month periods of service the Participant has with the Controlling Company and the members of the Controlled Group. In determining a Participant’s number of whole 12-month periods of service for purposes of the Plan, nonsuccessive periods of service shall be aggregated on the basis of days of service, with 365 days (366 days in a leap year) of service equal to one Year of Service. Periods of service of less than 365 days (366 days in a leap year) shall be disregarded. To the extent determined by the Administrative Committee, set forth on a schedule hereto, and not otherwise counted hereunder, a Participant’s periods of employment with one or more companies or enterprises acquired by or merged into, or all or a portion of the assets or business of which are acquired by, the Controlling Company or any member of the Controlled Group, shall be taken into account in determining his Years of Service.

ARTICLE II

ELIGIBILITY AND PARTICIPATION

2.1 E ligibility .

(a) Annual Participation . Each individual who is both an Eligible Employee and eligible to participate in the Savings and Investment Plan as of the first day of a Plan Year shall be eligible to participate in the Plan for the entire Plan Year. Such individual’s participation shall become effective as of the first day of such Plan Year (assuming he satisfies the procedures for admission described below).

(b) Interim Plan Year Participation .

(i) Each individual who is an Eligible Employee and who becomes eligible to participate in the Savings and Investment Plan during a Plan Year, in the sole discretion of the Administrative Committee (which may make such a determination on an individual-by-individual basis), may be eligible to participate in the Plan for a portion of such Plan Year.

(ii) Each individual who is an Eligible Employee, but who is not yet eligible to participate in the Savings and Investment Plan, in the sole discretion of the Administrative Committee (which may make such a determination on an individual-by-individual basis), may be eligible to participate in the Plan for a portion of any Plan Year before he otherwise becomes eligible to participate pursuant to this Section 2.1.

(c) Eligibility for Supplemental Discretionary Contributions . The Compensation Committee, in its sole discretion, may (but is not required to) designate from time to time one or more key management employees to receive a supplemental Discretionary Contribution under Section 3.4(b).

2.2 Procedure for Admission .

Each Eligible Employee shall become eligible to make a Deferral Election by completing such forms and providing such data in a timely manner, as are required by the Administrative Committee. Such forms and data may include, without limitation, a Deferral Election, the Eligible Employee’s acceptance of the terms and conditions of the Plan, and the designation of a Beneficiary to receive any death benefits payable hereunder.

2.3 Cessation of Eligibility .

(a) Cessation of Eligible Status . If an individual ceases to satisfy the criteria which qualified him as an Eligible Employee, he will not be eligible to make subsequent Deferral Elections; provided, any Deferral Elections then in effect will continue to be effective until such time as the Deferral Election will expire or may be revoked pursuant to the terms of Article III.

(b) Inactive Participant Status . Even if his active participation in the Plan ends, an employee shall remain an inactive Participant in the Plan until the earlier of (i) the date the full amount of his vested Account (if any) is distributed from the Plan, or (ii) the date he again becomes an Eligible Employee and recommences participation in the Plan. During the period of time that an employee is an inactive Participant in the Plan, his vested Account shall continue to be credited with earnings as provided for in Section 3.7.

ARTICLE III

PARTICIPANTS’ ACCOUNTS; DEFERRALS AND CREDITING

3.1 Participants’ Accounts .

(a) Establishment of Accounts . The Administrative Committee shall establish and maintain, on behalf of each Participant, an Account. Each Account shall be credited with (i) Deferral Contributions, (ii) Matching Contributions, (iii) Discretionary Contributions, and (iv) earnings attributable to such Account, and shall be debited by distributions. Each Account of a Participant shall be maintained until the vested value thereof has been distributed to or on behalf of such Participant or his Beneficiary.

(b) Nature of Contributions and Accounts . The amounts credited to a Participant’s Account shall be represented solely by bookkeeping entries. Except as provided in Article VII, no monies or other assets shall actually be set aside for such Participant, and all payments to a Participant under the Plan shall be made from the general assets of the Participating Companies.

(c) Several Liabilities . Each Participating Company shall be severally (and not jointly) liable for the payment of benefits under the Plan in an amount equal to the total of (i) all undistributed Deferral Contributions withheld from Participants’ Compensation paid or payable by each such Participating Company, (ii) all undistributed Matching Contributions attributable to Deferral Contributions described in clause (i) hereof, (iii) all undistributed Discretionary Contributions attributable to such contributions made for periods while the benefiting Participants were employed by such Participating Company, and (iv) all undistributed earnings attributable thereto. The Administrative Committee shall allocate the total liability to pay benefits under the Plan among the Participating Companies pursuant to this formula, and the Administrative Committee’s determination shall be final and binding.

(d) General Creditors . Any assets which may be acquired by a Participating Company in anticipation of its obligations under the Plan shall be part of the general assets of such Participating Company. A Participating Company’s obligation to pay benefits under the Plan constitutes a mere promise of such Participating Company to pay such benefits, and a Participant or Beneficiary shall be and remain no more than an unsecured, general creditor of such Participating Company.

3.2 Deferral Contributions .

Each Eligible Employee who is or becomes eligible to participate in the Plan may elect to have Deferral Contributions made on his behalf by completing and delivering to the Administrative Committee (or its designee) Deferral Elections setting forth the terms of his election. Subject to the terms and conditions set forth below, Deferral Elections may provide for the reduction of an Eligible Employee’s (i) Base Pay earned during the Plan Year, (ii) Commissions earned during the Plan Year, and (iii) Bonuses earned during the Plan Year, for which the Deferral Elections are in effect. The following terms shall apply to such elections:

(a) Effective Date .

(i) General Deadline . A Participant’s Deferral Elections with respect to his Base Pay, Commissions or Bonuses for any Plan Year must be made before the first day of such Plan Year, except as provided in subsection (a)(ii) below. With respect to Base Pay, the Deferral Election will be effective beginning with the paycheck for the first regular payroll period beginning during the Plan Year. With respect to Commissions, the Deferral Election will be effective with respect to those Commissions earned ( i.e. , those for which the Participant’s services related to Commission payments are treated as performed) during the Plan Year. With respect to Bonuses, the Deferral Election will be effective with respect to Bonuses earned ( i.e. , Bonuses payable for services provided) during the Plan Year. If an Eligible Employee fails to submit Deferral Elections in a timely manner, he shall be deemed to have elected not to participate in the Plan for that Plan Year.

(ii) Special Rule for New Participants .

(A) If an Eligible Employee first becomes eligible to participate in the Plan on a date other than the first day of the Plan Year and does not make an initial Deferral Election within the time periods set forth in subsection (a)(i) above, in the sole discretion of the Administrative Committee, such Participant may be permitted to make a prospective Deferral Election within 30 days after the date on which his eligibility for participation becomes effective. Such election will apply to the Participant’s Compensation for services performed after the effective date of the election (more specifically, and to the extent applicable, (1) with respect to Base Pay earned beginning in the first pay period that begins in the next calendar month after the Deferral Election is made, (2) with respect to Bonuses earned beginning with the next calendar quarter that begins after the Deferral Election is made, and (3) with respect to Commissions earned beginning in the next calendar month after the Deferral Election is made).

(B) If a former Eligible Employee eligible to participate in the Plan again becomes an Eligible Employee eligible to participate in the Plan, the following rules shall apply in determining whether such individual shall be treated as newly eligible under the Plan upon return to eligible status: (i) if the former Eligible Employee has received distribution of the full amount of such individual’s Account balance attributable to Deferral Contributions and on or before the last such distribution payment the individual was not considered an Eligible Employee for periods after the last distribution payment, the Eligible Employee shall be treated as newly eligible under the Plan; and (ii) the former Eligible Employee will be treated as newly eligible if he has not been an Eligible Employee eligible to participate in the Plan at any time during the 24-month period ending on the date such individual again becomes eligible to participate in the Plan. In addition, if an Eligible Employee is or was eligible to participate in another plan that is aggregated with the elective deferral portion of this Plan under Code Section 409A, participation in such plan shall be treated as participation in the Plan for purposes of determining whether the Eligible Employee is newly eligible for the Plan.

(b) Term and Irrevocability of Elections . Each Participant’s Deferral Elections shall remain in effect for all such Base Pay, Commissions payable and Bonuses earned during a Plan Year and subsequent Plan Years until the earliest of (i) the date the Participant Separates from Service, or (ii) the date the Participant makes subsequent Deferral Elections applicable for amounts earned during a subsequent Plan Year. Upon the applicable deadline specified in subsection (a) preceding, the Participant’s Deferral Elections, or deemed election upon a failure to submit a timely election, will become irrevocable. If a Participant is transferred from the employment of one Participating Company to the employment of another Participating Company, his Deferral Elections with the first Participating Company will remain in effect and will apply to his Base Pay, Commissions and Bonuses from the second Participating Company. If a Participant is transferred from the employment of a Participating Company to another member of the Controlled Group (without a Separation from Service), his Deferral Elections with the Participating Company will remain in effect and will apply to his Base Pay, Commissions and Bonuses from the other member of the Controlled Group for the remainder of the Plan Year. Notwithstanding the foregoing, the Administrative Committee, in its sole discretion, may cancel a Participant’s Deferral Elections in accordance with Code Section 409A (for example, due to the Participant’s Financial Hardship); provided, a Participant may not elect whether his Deferral Elections will be cancelled pursuant to this sentence. The Administrative Committee will cancel a Participant’s Deferral Election upon the Participant’s hardship withdrawal from a Code Section 401(k) plan maintained by the Controlling Company or any member of the Controlled Group to the extent that such cancellation would be required under the terms of such Code Section 401(k) plan and will suspend participation in the Plan to the extent required under the terms of such Code Section 401(k) plan.

(c) Amount . A Participant may elect to defer (1) his Base Pay payable each payroll period in 1 percent increments, up to a maximum of 80 percent, (2) his Commissions payable each payroll period in 1 percent increments, up to a maximum of 80 percent, and (2) his Bonuses payable in 1 percent increments, up to a maximum of 100 percent.

(d) Crediting of Deferred Base Pay, Commissions and Bonuses . For each Plan Year that a Participant has Deferral Elections in effect, the Administrative Committee shall credit the amount of such Participant’s Deferral Contributions to his Account on, or as soon as practicable after, the Valuation Date on which such amount would have been paid to him but for his Deferral Elections.

3.3 Matching Contributions .

(a) Amount . The Administrative Committee shall credit to each Participant’s Account for each Plan Year a Matching Contribution equal to the difference between:

(i) 50 percent multiplied by the lesser of (A) the sum of the maximum amount of deferrals that the Participant could have made to the Savings and Investment Plan for such Plan Year, plus the Participant’s deferrals to the Plan for such Plan Year, or (B) 6 percent of the Participant’s Compensation for such Plan Year; and

(ii) The amount of matching contributions that would have been made to the Participant’s account under the Savings and Investment Plan for such Plan Year assuming the Participant deferred the maximum amount permitted under the Savings and Investment Plan.

(b) Time of Crediting . A Participant’s matching contributions for a Plan Year will be credited to his Account as of the earlier of (i) the date a Participant’s employment with the Controlling Company and all other members of the Controlled Group terminates during that Plan Year, or (ii) the first day of the immediately following Plan Year (or such other date or time as the Administrative Committee, in its sole discretion, determines from time-to-time).

3.4 Discretionary Contributions .

(a) General . The Administrative Committee may, but shall not be required to, credit to a Participant’s Account for any Plan Year a Discretionary Contribution. The amount and timing of any such Discretionary Contribution shall be determined in the discretion of the Administrative Committee.

(b) Supplemental Discretionary Contributions . The Compensation Committee, in its sole discretion, shall determine the amount (if any) of any supplemental Discretionary Contribution made under this Section 3.4(b). The amount may vary from Participant to Participant and from year to year. The Compensation Committee, in its sole discretion, may condition the receipt of any such Discretionary Contribution on the achievement of performance criteria (if any) that it establishes.

3.5 Impact of Code Section 409A on Prior Plan Amounts .

Any amounts under the Interface, Inc. Nonqualified Saving Plan to which Code Section 409A applies shall be subject to and governed under the terms of this Plan.

3.6 Debiting of Distributions .

As of each Valuation Date, the Administrative Committee shall debit each Participant’s Account for any amount distributed from such Account since the immediately preceding Valuation Date.

3.7 Crediting of Earnings .

As of each Valuation Date, the Administrative Committee shall credit to each Participant’s Account the amount of earnings and/or losses applicable thereto for the period since the immediately preceding Valuation Date. Such crediting of earnings and/or losses shall be effected as of each Valuation Date, as follows:

(a) Rate of Return . The Administrative Committee shall first determine a rate of return for the period since the immediately preceding Valuation Date for each of the Investment Funds;

(b) Amount Invested . The Administrative Committee next shall determine the amount of (i) each Participant’s Account that was deemed invested in each Investment Fund as of the immediately preceding Valuation Date; plus (ii) the amount of Deferral Contributions and Company Contributions credited to his Account since the immediately preceding Valuation Date; minus (iii) the amount of any distributions debited from the amount determined in clause (i) and (ii) since the immediately preceding Valuation Date; and

(c) Determination of Amount . The Administrative Committee shall then apply the rate of return for each Investment Fund for such Valuation Date (as determined in subsection (a) hereof) to the amount of the Participant’s Account deemed invested in such Investment Fund for such Valuation Date (as determined in subsection (b) hereof), and the total amount of earnings and/or losses resulting therefrom shall be credited to such Participant’s Account as of the applicable Valuation Date.

3.8 Vesting .

(a) General . A Participant shall at all times be fully vested in his Deferral Contributions, and the earnings credited to his Account with respect to such Deferral Contributions. The Matching and Discretionary Contributions (except as otherwise provided in subsection(c) hereof) credited to a Participant’s Account and the earnings credited with respect thereto shall vest in accordance with the following vesting schedule based on the Participant’s Years of Service:


Years of Service Completed by Participant	Vested Percentage of Participant’s Matching and Discretionary Contributions
Less than 1 year		0	%
1 year or more		20	%
2 years or more		40	%
3 years or more		60	%
4 years or more		80	%
5 years or more		100	%

Notwithstanding the foregoing, a Participant shall become 100 percent vested in the Matching and Discretionary Contributions credited to his Account and the earnings credited with respect thereto upon the occurrence of any of the following events while the Participant is actively employed by the Controlling Company or any other member of the Controlled Group: (i) the Participant’s attainment of age 65, (ii) the Participant’s Disability, or (iii) the Participant’s death.

(b) Change in Control . If a Change in Control occurs with respect to the Controlling Company and a Participant’s employment with the Controlling Company and all other members of the Controlled Group is terminated (i) within 24 months following the date of the Change in Control, or (ii) within 6 months prior to the date of the Change in Control and is related to such Change in Control, and in the case of either (i) or (ii) such termination is a result of Involuntary Termination or Voluntary Termination, then the Participant shall be immediately 100 percent vested in the Matching and Discretionary Contributions credited to his Account and the earnings credited with respect thereto as of the later of the date of such Change in Control or the date of such termination. Matching and Discretionary Contributions credited to a Participant’s Account after the date of a Change in Control and the earnings credited with respect thereto shall continue to vest in accordance with the vesting schedule.

(c) Supplemental Discretionary Contributions . A Participant shall vest in any supplemental Discretionary Contribution made under Section 3.4(b) upon the earliest to occur of the following:

(i) Unless the Compensation Committee designates a different vesting schedule with respect to a supplemental Discretionary Contribution made under Section 3.4(b), the date the Participant attains age 55 and completes 15 Years of Service;

(ii) The date the Participant dies or becomes Disabled while employed by the Controlling Company or a member of the Controlled Group; or

(iii) The date the Participant’s employment with the Controlling Company and all other members of the Controlled Group is terminated as a result of Involuntary Termination or Voluntary Termination either (A) within 24 months following the date of a Change in Control, or (B) within 6 months prior to the date of a Change in Control and is related to such Change in Control; provided, if such termination occurs before the date such Change in Control occurs, the vesting date will be such Change in Control date.

Notwithstanding the foregoing, the Compensation Committee, in its sole discretion and at any time, may choose to accelerate vesting of all or any portion of the supplemental Discretionary Contributions made under Section 3.4(b) made with respect to any Participant who has not yet terminated employment with the Controlling Company and all members of the Controlled Group.

3.9 Good Faith Valuation Binding .

In determining the value of the Accounts, the Administrative Committee shall exercise its best judgment, and all such determinations of value (in the absence of bad faith) shall be binding upon all Participants and their Beneficiaries.

3.10 Errors and Omissions in Accounts .

If an error or omission is discovered in the Account of a Participant or in the amount of a Participant’s deferrals, the Administrative Committee, in its sole discretion, shall cause appropriate, equitable adjustments to be made as soon as administratively practicable following the discovery of such error or omission.

ARTICLE IV

INVESTMENT FUNDS

4.1 Selection by Administrative Committee .

The Administrative Committee may change, add or remove Investment Funds on a prospective basis at any time(s) and in any manner it deems appropriate.

4.2 Participant Direction of Deemed Investments .

Each Participant generally may direct the manner in which his Account shall be deemed invested in and among the Investment Funds. Any Participant investment directions permitted hereunder shall be made in accordance with the following terms:

(a) Nature of Participant Direction . The selection of Investment Funds by a Participant shall be for the sole purpose of determining the rate of return to be credited to his Account, and shall not be treated or interpreted in any manner whatsoever as a requirement or direction to actually invest assets in any Investment Fund or any other investment media. The Plan, as an unfunded, nonqualified deferred compensation plan, at no time shall have any actual investment of assets relative to the benefits or Accounts hereunder. However, the Controlling Company may, under Section 7.2, require a Participating Company to transfer assets to the Trust sufficient to satisfy such Participating Company’s obligations under the Plan, and, at the direction of the Controlling Company, such assets may be invested in a manner intended to mirror the performance of the Investment Funds.

(b) Investment of Contributions . Each Participant may make an Investment Election prescribing the percentage of his future contributions thereto that will be deemed invested in each Investment Fund. An initial Investment Election of a Participant shall be made as of the date the Participant commences participation in the Plan and shall apply to all contributions credited to such Participant’s Account after such date. Such Participant may make subsequent Investment Elections as of any Valuation Date, and each such election shall apply to all future contributions credited to such Participant’s Account after the Administrative Committee (or its designee) has a reasonable opportunity to process such election pursuant to such procedures as the Administrative Committee may determine from time to time. Any Investment Election made pursuant to this subsection with respect to future contributions shall remain effective until changed by the Participant.

(c) Investment of Existing Account Balances . Each Participant may make an Investment Election prescribing the percentage of his existing Account balance that will be deemed invested in each Investment Fund. Such Participant may make such Investment Elections as of any Valuation Date, and each such election shall be effective after the Administrative Committee (or its designee) has a reasonable opportunity to process such election. Each such election shall remain in effect until changed by such Participant.

(d) Administrative Committee Discretion . The Administrative Committee shall have complete discretion to adopt and revise procedures to be followed in making such Investment Elections. Such procedures may include, but are not limited to, the process of making elections, the permitted frequency of making elections, the incremental size of elections, the contribution types to which such elections apply, the deadline for making elections and the effective date of such elections. Any procedures adopted by the Administrative Committee that are inconsistent with the deadlines or procedures specified in this Section shall supersede such provisions of this Section without the necessity of a Plan amendment.

ARTICLE V

PAYMENT OF ACCOUNT BALANCES

5.1 Amount of Benefit Payments .

At the time provided in Section 5.2 and in the form set forth in Section 5.3, the Participant (or his Beneficiary, if he dies before distribution of his Account) shall be entitled to receive or begin receiving a distribution of the total of: (i) the entire vested amount credited to his Account, determined as of the Valuation Date on which such distribution is processed; plus (ii) the vested amount of Deferral, Matching and Discretionary Contributions made since such Valuation Date; and minus (iii) the amount of any distributions made to the Participant since such Valuation Date. For purposes of this subsection, the “Valuation Date on which such distribution is processed” refers to the Valuation Date established for such purpose by administrative practice, even if actual payment is made or commenced at a later date due to delays in valuation, administration or any other procedure.

5.2 Timing of Distribution .

(a) General Rule . Except as provided in subsections (b), (c), (d) and (e) hereof, the vested benefit payable to a Participant under this Section shall be made or commenced (i) on the first day of the calendar quarter immediately following the date the Participant Separates from Service, in the case of a Participant who is not a Key Employee on the date he Separates from Service; or (ii) on the day 6 months after the date the Participant Separates from Service, in the case of a Participant who is a Key Employee on the date he Separates from Service.

(b) Separation from Service Distribution Date Election . A Participant may elect, at the time he makes a Deferral Election for each Plan Year, to have his Account balance attributable to Deferral, Matching and Discretionary Contributions made under Section 3.4(a) (including earnings) for such Plan Year (his “Annual Account Balance”) that becomes payable under subsection (a) hereof paid (or commenced) (i) on the first day of the calendar quarter immediately following the date the Participant Separates from Service, or (ii) February 1 of the calendar year immediately following the calendar year in which his Separation from Service occurs. Notwithstanding the foregoing, if the Participant is a Key Employee on the date he Separates from Service, any such amount shall be paid or commence on the day 6 months after the date the Participant Separates from Service, if such day is later than the time specified in subsection (b)(i) or (ii), as applicable.

(c) In-Service Distribution Date Election . A Participant may elect, at the time he makes a Deferral Election for each Plan Year, to have his Annual Account Balance paid (or commenced) on the earlier of April 1 of any year specified in such Deferral Election (but not earlier than the Plan Year immediately following the Plan Year for which the Deferral Election applies) or the date for payment described in subsection (a) hereof. A Participant’s election hereunder will apply to all subsequent years’ Annual Account Balances until he changes it. If a Participant does not make an election hereunder or to the extent that his Annual Account Balance is not fully vested as of the specified benefit commencement date, he shall be deemed to have elected the date described in subsection (a) hereof as the benefit commencement date for his vested Account balance. Notwithstanding anything herein to the contrary, a Participant may not make an election under this subsection (c) with respect to the portion of his Account balance attributable to supplemental Discretionary Contributions made under Section 3.4(b) (including earnings).

(d) Modifications of Benefit Commencement Date . With respect to any scheduled payment date elected in accordance with subsection (c) hereof or in accordance with this subsection (d), a Participant may make an election to delay the payment of his total benefit payable on such date (the “Original Payment Date”) to a later date (the “New Payment Date”); provided, any such election to delay payment will be effective only if (i) the Participant makes the election to delay payment at least 12 months before his Original Payment Date, and (ii) the Participant’s New Payment Date is at least 5 years after his Original Payment Date; and, provided further, the Participant’s benefit will be paid no later than the date described in subsection (a) hereof. A Participant may not modify any elections made in accordance with subsection (b) hereof.

(e) Distribution of Supplemental Discretionary Contributions . Notwithstanding anything in this Section 5.2 to the contrary, the following provisions shall apply to the timing of distribution of any supplemental Discretionary Contributions made under Section 3.4(b):

(i) The Participant may make an election as to the timing of distribution applicable to a supplemental Discretionary Contribution within 30 days after the supplemental Discretionary Contribution is awarded, provided that a Participant may make such an election only if the Participant could not vest in any part of the supplemental Discretionary Contribution pursuant to Section 3.8(c) (or any different vesting schedule designated by the Compensation Committee) for at least 13 months from the date on which it is awarded, other than accelerated vesting following death, Disability or a Change in Control pursuant to Section 3.8(c)(ii) or (iii) (and provided further that if vesting is accelerated as a result of death, Disability or a Change in Control within such 13 month period, the definitions of “Disability” and “Change in Control” contemplated in Code Section 409A and set forth in Sections 1.8(b) and 1.18(b), respectively, of this Plan shall apply and the deferral election by the Participant will not be given effect);

(ii) If the Participant does not make an election pursuant to subsection (i) with respect to a supplemental Discretionary Contribution, then such supplemental Discretionary Contribution will be distributed on the date for payment described in subsection (a) hereof; and

(iii) The Participant may change an initially scheduled benefit commencement date in accordance with subsection (d) above.

(f) Number of Benefit Commencement Dates . A Participant may elect a different benefit commencement date with respect to each Annual Account Balance. The Administrative Committee shall cause to be paid (or commence the payment of) the Participant’s benefit at the time(s) determined in this Section 5.2.

(g) Distributions to Key Employees . Notwithstanding anything to the contrary herein, if a Participant is a Key Employee and his Account (or a portion thereof) is payable as a result of his Separation from Service, such payment shall not be made (or commence) before the date which is 6 months after his Separation from Service.

5.3 Form of Distribution .

(a) Benefit Payments Upon Separation from Service . A Participant may elect to have his Annual Account Balance (or any portion thereof) that is payable under Section 5.2(a) or (b) as the result of the Participant’s Separation from Service, at the time he makes his Deferral Election for such Plan Year, paid in the form of a single-sum payment or in annual installments over a 2 to 10-year period, as elected by the Participant. A Participant’s election under this subsection (a) shall apply during the Plan Year and during subsequent Plan Years until the date the Participant makes a subsequent election under this subsection (a) applicable for amounts deferred during a subsequent Plan Year. If a Participant does not make an election under this subsection (a), then any portion of his Account that is payable under Section 5.2(a) or (b) shall be paid in the form of a single-sum payment. A Participant may not modify any elections made in accordance with this subsection (a). The following terms and conditions shall apply to installment payments made under this subsection (a):

(i) The installment payments shall be made in substantially equal annual installments and shall be adjusted for earnings between payments in the manner described in Section 3.7.

(ii) Installment payments made after the initial installment payment (made in accordance with the terms of Section 5.2(a) or Section 5.2(b), as applicable) shall be made on February 1 of the applicable calendar year.

(iii) If a Participant dies after payment of his benefit from the Plan has begun, but before his entire benefit has been distributed, the remaining amount of his benefit shall be distributed to the Participant’s designated Beneficiary in the form of a single-sum payment.

(iv) Notwithstanding a Participant’s election of installment payments under this subsection (a), if at the time any installment payment is scheduled to be made, the present value of the portion of the Participant’s Account to which such installment payment election applies is less than $25,000, his benefit shall be paid in the form of a single-sum payment.

(b) Scheduled In-Service Benefit Payments . If a Participant elects to have his Annual Account Balance paid upon a specified date in accordance with Section 5.2(c), he may elect, at the time he makes his Deferral Election for such Plan Year, to have his Annual Account Balance paid in the form of a single-sum payment or in annual installments over a 2 to 5-year period, as elected by the Participant.

(i) Installment Payments . The following terms and conditions shall apply to installment payments made under this subsection (b):

(A) The installment payments shall be made in substantially equal annual installments on April 1 of each applicable calendar year, and shall be adjusted for earnings between payments in the manner described in Section 3.7.

(B) If a Participant Separates from Service after payment of his Annual Account Balance from the Plan has begun, such Annual Account Balance shall continue to be paid in accordance with the terms of this subsection (b). If a Participant Separates from Service before payment of his Annual Account Balance from the Plan has begun, such Annual Account Balance shall be paid in accordance with the terms of subsection (a) hereof.

(C) If a Participant dies after payment of his Annual Account Balance from the Plan has begun, but before his entire Annual Account Balance has been distributed, the remaining amount of his Annual Account Balance shall be distributed to the Participant’s designated Beneficiary in the form of a single-sum payment.

(D) Notwithstanding a Participant’s election of installment payments under this subsection (b), if at the time any installment payment is scheduled to be made, the present value of the portion of the Participant’s Account to which such installment payment election applies is less than $5,000, his benefit shall be paid in the form of a single-sum payment.

(ii) Modifications of Form of Distribution . With respect to form of distribution specified in accordance with this subsection (b), a Participant may make an election to delay the payment (or commencement) of his total benefit payable on such date (the “Original Payment Date”) to a later date (the “New Payment Date”); provided, any such election to delay payment will be effective only if (i) the Participant makes the election to delay payment at least 12 months before his Original Payment Date, and (ii) the Participant’s New Payment Date is at least 5 years after his Original Payment Date; and, provided further, the Participant’s benefit will be paid no later than the date described in Section 5.2(a).

(c) Distribution of Supplemental Discretionary Contributions . Notwithstanding anything in this Section 5.3 to the contrary, the following provisions shall apply to the form of distribution of any supplemental Discretionary Contributions made under Section 3.4(b):

(i) The Participant may make an election as to the form of distribution applicable to a supplemental Discretionary Contribution within 30 days after the supplemental Discretionary Contribution is awarded, provided that a Participant may make such an election only if the Participant could not vest in any part of the supplemental Discretionary Contribution pursuant to Section 3.8(c) (or any different vesting schedule designated by the Compensation Committee) for at least 13 months from the date on which it is awarded, other than accelerated vesting following death, Disability or a Change in Control pursuant to Section 3.8(c)(ii) or (iii) (and provided further that if vesting is accelerated as a result of death, Disability or a Change in Control within such 13 month period, the definitions of “Disability and “Change in Control” contemplated in Code Section 409A and set forth in Sections 1.8(b) and 1.18(b), respectively, of this Plan shall apply and the deferral election by the Participant will not be given effect);

(ii) If the Participant makes an election pursuant to subsection (i) with respect to a supplemental Discretionary Contribution, then such supplemental Discretionary Contribution will be distributed in a lump-sum payment; and

(iii) The Participant may change an initially elected form of distribution in accordance with subsection (b) hereof.

5.4 Death Benefits .

If a Participant dies before payment of his benefit from the Plan is made or commenced, the Beneficiary or Beneficiaries designated by such Participant in his latest beneficiary designation form filed with the Administrative Committee shall be entitled to receive a distribution of the total of (i) the entire vested amount credited to such Participant’s Account, determined as of the Valuation Date on which such distribution is processed; plus (ii) the vested amount of Deferral, Matching and Discretionary Contributions made since such Valuation Date; and minus (iii) the amount of any distributions made to the Participant since such Valuation Date. The payment date to such Beneficiary or Beneficiaries shall be the day ninety (90) days after the date of the Participant’s death, and payment shall be made in the form of a single-sum payment.

5.5 Hardship Distributions .

Upon receipt of an application for an in-service hardship distribution and the Administrative Committee’s decision, made in its sole discretion, that a Participant has suffered a Financial Hardship, such Participant shall be entitled to receive an in-service distribution. Such distribution shall be paid in a single-sum payment on the date that the Administrative Committee makes its determination that the Participant has incurred a Financial Hardship (assuming that the Financial Hardship exists on that date), which must be prior to the Participant’s Separation from Service. The amount of such single-sum payment shall be limited to the amount that the Administrative Committee determines is reasonably necessary to meet the Participant’s requirements resulting from the Financial Hardship plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution. Determinations of amounts reasonably necessary to satisfy the emergency need shall take into account any additional compensation that is available under this Plan due to cancellation of a deferral election due to a Financial Hardship. However, the determination of amounts reasonably necessary to satisfy the emergency need shall not take into account any additional compensation that due to the Financial Hardship is available under this Plan or another nonqualified deferred compensation plan but has not actually been paid. The amount of such distribution shall reduce the Participant’s Account balance as provided in Section 3.6.

5.6 Beneficiary Designation .

(a) General . Participants shall designate and from time to time may redesignate their Beneficiaries in such form and manner as the Administrative Committee may determine.

(b) No Designation or Designee Dead or Missing . In the event that:

(i) a Participant dies without designating a Beneficiary;

(ii) the Beneficiary designated by a Participant is not surviving when a payment is to be made to such person under the Plan, and no contingent Beneficiary has been designated; or

(iii) the Beneficiary designated by a Participant cannot be located by the Administrative Committee;

then, in any of such events, the Beneficiary of such Participant with respect to any benefits that remain payable under the Plan shall be the Participant’s Surviving Spouse, if any, and if not, the estate of the Participant, and payment shall be made no later than the latest date permitted under Code Section 409A.

5.7 Taxes .

If the whole or any part of any Participant’s or Beneficiary’s benefit hereunder shall become subject to any estate, inheritance, income or other tax which the Participating Companies shall be required to pay or withhold at the time an amount becomes payable hereunder, the Participating Companies shall have the full power and authority to withhold and pay such tax out of any monies or other property in its hand for the account of the Participant or Beneficiary, excluding, except as provided in this Section, any portion of the Participant’s Account that is not then payable. If the whole or any part of any Participant’s or Beneficiary’s Account hereunder shall become subject to FICA Tax or any state, local or foreign tax obligations, which a Participating Company shall be required to pay or withhold prior to the time the Participant’s Account becomes payable hereunder, the Participating Company shall have the full power and authority to withhold and pay such tax and related taxes as permitted under Code Section 409A. Prior to making any payment, the Participating Companies may require such releases or other documents from any lawful taxing authority as it shall deem necessary.

5.8 Offset of Account by Amounts Owed to the Company .

Notwithstanding anything in the Plan to the contrary, the Administrative Committee may, in its sole discretion, offset any benefit payment or payments of a Participant’s or Beneficiary’s Account under the Plan by any amount owed by such Participant or Beneficiary (whether or not such obligation is related to the Plan) to the Controlling Company or any member of the Controlled Group; however, no such offset will apply if such offset would constitute an acceleration of payment of benefits under the Plan, unless the following requirements are met: (i) the debt owed to the Controlling Company or the member of the Controlled Group was incurred in the ordinary course of the relationship between the Participant and the Controlling Company or the member of the Controlled Group, (ii) the entire amount of offset to which this sentence applies in a single taxable year does not exceed $5,000, and (iii) the offset occurs at the same time and in the same amount as the debt otherwise would have been due and collected from the Participant or Beneficiary.

5.9 No Acceleration of Payments .

No payment scheduled to be made under this Article V may be accelerated except in accordance with Code Section 409A (for example, upon certain terminations of the Plan, limited cashouts or to avoid certain conflicts of interest); provided, that in no event may a Participant elect whether any scheduled payment will be accelerated. All payments scheduled to be made under this Article V shall be made no later than the date required under Code Section 409A.

ARTICLE VI

CLAIMS

6.1 Claims .

(a) Procedure . Claims for benefits under the Plan may be filed with the Administrative Committee on forms or in such other written documents, as the Administrative Committee may prescribe in accordance with subsection (a)(1) or (a)(2) hereof, as applicable.

(i) Generally . Except as provided in subsection (a)(2) hereof, the Administrative Committee shall furnish to the claimant written notice of the disposition of a claim within 90 days after the application therefor is filed. In the event the claim is denied, the notice of the disposition of the claim shall provide the specific reasons for the denial, citations of the pertinent provisions of the Plan, and, where appropriate, an explanation as to how the claimant can perfect the claim and/or submit the claim for review.

(ii) Claims Based on an Independent Determination of Disability . With respect to a claim for benefits under the Plan based on Disability, the Administrative Committee shall furnish to the claimant written notice of the disposition of a claim within 45 days after the application therefor is filed; provided, if matters beyond the control of the Administrative Committee require an extension of time for processing the claim, the Administrative Committee shall furnish written notice of the extension to the claimant prior to the end of the initial 45-day period, and such extension shall not exceed one additional, consecutive 30-day period; and, provided further, if matters beyond the control of the Administrative Committee require an additional extension of time for processing the claim, the Administrative Committee shall furnish written notice of the second extension to the claimant prior to the end of the initial 30-day extension period, and such extension shall not exceed an additional, consecutive 30-day period. Notice of any extension under this subsection (a)(2) shall specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues. In the event the claim is denied, the notice of the disposition of the claim shall provide the specific reasons for the denial, cites of the pertinent provisions of the Plan, an explanation as to how the claimant can perfect the claim and/or submit the claim for review (where appropriate), and a statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse determination on review.

(b) Review Procedure . Any Participant or Beneficiary who has been denied a benefit shall be entitled, upon request to the Administrative Committee, to appeal the denial of his claim in accordance with subsection (b)(1) or (b)(2) hereof, as applicable.

(i) Generally . Except as provided in subsection (b)(2) hereof, the claimant (or his duly authorized representative) may review pertinent documents related to the Plan and in the Administrative Committee’s possession in order to prepare the appeal. The request for review, together with written statement of the claimant’s position, must be filed with the Administrative Committee no later than 60 days after receipt of the written notification of denial of a claim provided for in subsection (a). The Administrative Committee’s decision shall be made within 60 days following the filing of the request for review. If unfavorable, the notice of the decision shall explain the reasons for denial and indicate the provisions of the Plan or other documents used to arrive at the decision.

(ii) Claims Based on an Independent Determination of Disability . With respect to an appeal of a denial of benefits under the Plan based on Disability, the claimant or his duly authorized representative may review pertinent documents related to the Plan and in the Administrative Committee’s possession in order to prepare the appeal. The form containing the request for review, together with a written statement of the claimant’s position, must be filed with the Administrative Committee no later than 180 days after receipt of the written notification of denial of a claim provided for in subsection (a) hereof. The Administrative Committee’s decision shall be made within 45 days following the filing of the request for review and shall be communicated in writing to the claimant; provided, if special circumstances require an extension of time for processing the appeal, the Administrative Committee shall furnish written notice to the claimant prior to the end of the initial 45-day period, and such an extension shall not exceed one additional 45-day period. The Administrative Committee’s review shall not afford deference to the initial adverse benefit determination and shall be conducted by an individual who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual. In deciding an appeal of any adverse benefit determination that is based in whole or in part on a medical judgment, the Administrative Committee shall consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment and who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual. If unfavorable, the notice of decision shall explain the reason or reasons for denial, indicate the provisions of the Plan or other documents used to arrive at the decision, state the claimant’s right to bring a civil action under ERISA Section 502(a), and identify all medical or vocational experts whose advice was obtained by the Administrative Committee in connection with a claimant’s adverse benefit determination.

(c) Satisfaction of Claims . Any payment to a Participant or Beneficiary shall to the extent thereof be in full satisfaction of all claims hereunder against the Administrative Committee and the Participating Companies, any of whom may require such Participant or Beneficiary, as a condition to such payment, to execute a receipt and release therefor in such form as shall be determined by the Administrative Committee or the Participating Companies. If receipt and release is required but the Participant or Beneficiary (as applicable) does not provide such receipt and release in a timely enough manner to permit a timely distribution in accordance with the general timing of distribution provisions in the Plan, the payment of any affected distribution may be delayed until the Administrative Committee or the Participating Companies receive a proper receipt and release.

ARTICLE VII

SOURCE OF FUNDS; TRUST

7.1 Source of Funds .

Except as provided in this Section and Section 7.2 (relating to the Trust), each Participating Company shall provide the benefits described in the Plan from its general assets. However, to the extent that funds in such Trust allocable to the benefits payable under the Plan are sufficient, the Trust assets may be used to pay benefits under the Plan. If such Trust assets are not sufficient to pay all benefits due under the Plan, then the appropriate Participating Company shall have the obligation, and the Participant or Beneficiary who is due such benefits shall look to such Participating Company, to provide the remaining portion of such benefits.

7.2 Trust .

(a) Establishment . To the extent determined by the Controlling Company, the Participating Companies shall transfer the funds necessary to fund benefits accrued hereunder to the Trustee to be held and administered by the Trustee pursuant to the terms of the Trust Agreement. Except as otherwise provided in the Trust Agreement, each transfer into the Trust Fund shall be irrevocable as long as a Participating Company has any liability or obligations under the Plan to pay benefits, such that the Trust property is in no way subject to use by the Participating Company; provided, it is the intent of the Controlling Company that the assets held by the Trust are and shall remain at all times subject to the claims of the general creditors of the Participating Companies.

(b) Distributions . Pursuant to the Trust Agreement, the Trustee shall make payments to Plan Participants and Beneficiaries in accordance with the terms of the Plan. The Participating Company shall make provisions for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay, or cause to be paid, amounts withheld to the appropriate taxing authorities.

(c) Status of the Trust . No Participant or Beneficiary shall have any interest in the assets held by the Trust or in the general assets of the Participating Companies other than as a general, unsecured creditor. Accordingly, a Participating Company shall not grant a security interest in the assets held by the Trust in favor of the Participants, Beneficiaries or any creditor.

(d) Change in Control . As soon as possible but in no event longer than 30 days after the Change in Control, the Participating Companies shall make an irrevocable transfer to the Trustee of an amount that is sufficient to pay each Plan Participant or Beneficiary the benefits to which Plan Participants or their Beneficiaries would be entitled pursuant to the terms of the Plan as of the date on which the Change in Control occurred. In such event, an independent bank or financial institution shall serve as Trustee. The terms of the Trust Agreement shall require the Trustee to make payments in accordance with the terms of the Plan and shall prohibit the Trustee from permitting a reversion to the Controlling Company or any member of the Controlled Group of any Trust assets until the Participating Companies’ obligations under the Plan shall be satisfied in full. The terms of the Trust Agreement also shall prohibit the investment in any equity interests of the Controlling Company or any member of the Controlled Group with any cash (or investment earnings attributable thereto) contributed with respect to the obligations hereunder. Notwithstanding this mandatory funding of the Trust, if the Trust Fund is insufficient or the Trustee for any reason is unable or unwilling to make the payments required hereunder, the Participating Companies shall make such payments.

7.3 Funding Prohibition under Certain Circumstances .

Notwithstanding anything in this Article VII to the contrary, no assets will be set aside to fund benefits under the Plan if such setting aside would be treated as a transfer of property under Code Section 83 pursuant to Code Section 409A(b).

ARTICLE VIII

ADMINISTRATIVE COMMITTEE

8.1 Action .

Action of the Administrative Committee may be taken with or without a meeting of committee members; provided, action shall be taken only upon the vote or other affirmative expression of a majority of the committee members qualified to vote with respect to such action. If a member of the committee is a Participant or Beneficiary, he shall not participate in any decision which solely affects his own benefit under the Plan. For purposes of administering the Plan, the Administrative Committee shall choose a secretary who shall keep minutes of the committee’s proceedings and all records and documents pertaining to the administration of the Plan. The secretary may execute any certificate or any other written direction on behalf of the Administrative Committee.

8.2 Rights and Duties .

The Administrative Committee shall administer the Plan and shall have all powers necessary to accomplish that purpose, including (but not limited to) the following:

(a) To construe, interpret and administer the Plan;

(b) To make determinations required by the Plan, and to maintain records regarding Participants’ and Beneficiaries’ benefits hereunder;

(c) To compute and certify to the Participating Companies the amount and kinds of benefits payable to Participants and Beneficiaries, and to determine the time and manner in which such benefits are to be paid;

(d) To authorize all disbursements by the Participating Companies pursuant to the Plan;

(e) To maintain all the necessary records of the administration of the Plan;

(f) To make and publish such rules for the regulation of the Plan as are not inconsistent with the terms hereof;

(g) To delegate to other individuals or entities from time to time the performance of any of its duties or responsibilities hereunder;

(h) To hire agents, accountants, actuaries, consultants and legal counsel to assist in operating and administering the Plan.

The Administrative Committee shall have the exclusive right to construe and interpret the Plan, to decide all questions of eligibility for benefits and to determine the amount of such benefits, and its decisions on such matters shall be final and conclusive on all parties.

8.3 Compensation, Indemnity and Liability .

The Administrative Committee and its members shall serve as such without bond and without compensation for services hereunder. All expenses of the Administrative Committee shall be paid by the Participating Companies. No member of the committee shall be liable for any act or omission of any other member of the committee, nor for any act or omission on his own part, excepting his own willful misconduct. The Participating Companies shall indemnify and hold harmless the Administrative Committee and each member thereof against any and all expenses and liabilities, including reasonable legal fees and expenses, arising out of his membership on the committee.

ARTICLE IX

AMENDMENT AND TERMINATION

9.1 Amendments .

The Administrative Committee shall have the right, in its sole discretion, to amend the Plan in whole or in part at any time and from time to time. Any amendment shall be in writing and executed by a duly authorized officer of the Controlling Company. An amendment to the Plan may modify its terms in any respect whatsoever, and may include, without limitation, a permanent or temporary freezing of the Plan such that the Plan shall remain in effect with respect to existing Account balances without permitting any new contributions; provided, no such action may reduce the amount already credited to a Participant’s Account without the affected Participant’s written consent. All Participants and Beneficiaries shall be bound by such amendment.

9.2 Termination of Plan .

The Controlling Company reserves the right to discontinue and terminate the Plan at any time, for any reason, subject to the restrictions provided under Code Section 409A. Any action to terminate the Plan shall be taken by the Administrative Committee in the form of a written Plan amendment executed by either the President, Chief Financial Officer or General Counsel of the Controlling Company. If the Plan is terminated, each Participant shall become 100 percent vested in his Account. Such termination shall be binding on all Participants and Beneficiaries. Notwithstanding the foregoing, the cancellations of Participants’ Deferral Elections and distribution of Accounts will be made upon termination of the Plan (including any partial termination relating to a specified group of Participants) only to the extent permitted under Code Section 409A.

ARTICLE X

MISCELLANEOUS

10.1 Taxation .

It is the intention of the Controlling Company that the benefits payable hereunder shall not be deductible by the Participating Companies nor taxable for federal income tax purposes to Participants or Beneficiaries until such benefits are paid by the Participating Companies, or the Trust, as the case may be, to such Participants or Beneficiaries. Without limiting the foregoing, it is intended that the Plan satisfy the requirements of Code Section 409A, and the Administrative Committee shall use its reasonable best efforts to interpret and administer the Plan in accordance with such requirements.

10.2 Distribution Pursuant to a Domestic Relations Order .

(a) Distribution Due to Domestic Relations Order . Upon receipt of a valid domestic relations order requiring the distribution of all or a portion of a Participant’s Account to an alternate payee, the Administrative Committee will cause the Controlling Company to pay a distribution to such alternate payee. The distribution will be paid in a single-sum payment in cash. The distribution will be completed as soon as administratively practicable after the Administrative Committee determines that the order meets the elements of a valid domestic relations order, as set forth in subsection (b) hereof, or if later, when the terms of the order have been modified to meet such elements. No distribution will be completed unless and until the order constitutes a valid domestic relations order.

(b) Requirements of a Domestic Relations Order . For purposes of this Section, a court order will be considered a valid domestic relations order if it relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of a Participant, and is made pursuant to the domestic relations law of a state. The order should clearly identify the name of the Participant and the alternate payee, the Plan, and the amount or percentage of the Participant’s Account to be paid to the alternate payee, or the manner in which such amount or percentage is to be determined. The order may not require payment of a type or form of benefit other than as provided in subsection (a) hereof, payment of increased benefits or benefits to which the Participant does not have a vested right, or payment of benefits required to be paid to another alternate payee under another order previously determined to be a valid domestic relations order.

(c) Domestic Relations Order Review Authority . The Administrative Committee will have authority to review and determine whether a court order meets the conditions of this Section, and to issue and adopt procedures that may be helpful in administering this Section.

10.3 No Employment Contract .

Nothing herein contained is intended to be nor shall be construed as constituting a contract or other arrangement between a Participating Company and any Participant to the effect that the Participant will be employed by the Participating Company for any specific period of time.

10.4 Headings .

The headings of the various articles and sections in the Plan are solely for convenience and shall not be relied upon in construing any provisions hereof. Any reference to a section shall refer to a section of the Plan unless specified otherwise.

10.5 Gender and Number .

Use of any gender in the Plan will be deemed to include all genders when appropriate, and use of the singular number will be deemed to include the plural when appropriate, and vice versa in each instance.

10.6 Assignment of Benefits .

The right of a Participant or his Beneficiary to receive payments under the Plan may not be anticipated, alienated, sold, assigned, transferred, pledged, encumbered, attached or garnished by creditors of such Participant or Beneficiary, except by will or by the laws of descent and distribution and then only to the extent permitted under the terms of the Plan.

10.7 Legally Incompetent .

The Administrative Committee, in its sole discretion, may direct that payment be made to an incompetent or disabled person, whether because of minority or mental or physical disability, to the guardian of such person or to the person having custody of such person, without further liability on the part of a Participating Company for the amount of such payment to the person on whose account such payment is made.

10.8 Governing Law .

The Plan shall be construed, administered and governed in all respects in accordance with applicable federal law (including ERISA) and, to the extent not preempted by federal law, in accordance with the laws of the State of Georgia. If any provisions of this instrument shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective.

IN WITNESS WHEREOF, the Controlling Company has caused the Plan to be executed by its duly authorized officer on the 19th day of December, 2008.


INTERFACE, INC.

By:		/s/ Raymond S. Willoch

Title:		Sr. Vice President

Exhibit 10.19

FIRST AMENDMENT TO THE

INTERFACE, INC. NONQUALIFIED SAVINGS PLAN II

(as amended and restated effective January 1, 2009)

THIS AMENDMENT to the Interface, Inc. Nonqualified Savings Plan II (the “Plan”) is made on this 26th day of February, 2009, by the Administrative Committee of the Plan (the “Administrative Committee”).

W I T N E S S E T H :

WHEREAS, Interface, Inc. (the “Company”) maintains the Plan for the benefit of its eligible key management and highly compensated employees; and

WHEREAS, Section 9.1 of the Plan provides that the Administrative Committee has the right to amend the Plan at any time; and

WHEREAS, due to current economic conditions, the Company desires to amend the Plan to reduce the rate of matching contributions for deferrals on or after March 1, 2009;

NOW, THEREFORE, the Plan is hereby amended as follows:

1.	Section 3.3(a) of the Plan is deleted in its entirety, and a new Section 3.3(a) is added to read as follows:

3.3

Matching Contributions .

(a)

Amount.

(i)

Deferrals for January and February 2009 . For deferrals made with respect to pay periods ending on or after January 1, 2009, and before March 1, 2009, the Administrative Committee shall credit to each Participant’s Account a Matching Contribution equal to the difference between:

(A)

50 percent multiplied by the lesser of (A) the sum of 1/6 of the maximum amount of deferrals that the Participant could have made to the Savings and Investment Plan on which matching contributions would have been made under the Savings and Investment Plan for 2009, plus the Participant’s deferrals to the Plan for such pay periods, or (B) 6 percent of the Participant’s Compensation for such pay periods; and

(B)

The amount of matching contributions that would have been made to the Participant’s account under the Savings and Investment Plan for such pay periods assuming the Participant deferred the maximum matchable amount permitted under the Savings and Investment Plan.

(ii)

Deferrals for March to December 2009 . For deferrals made with respect to pay periods ending on or after March 1, 2009, and before January 1, 2010, the Administrative Committee shall credit to each Participant’s Account a Matching Contribution equal to the difference between:

(A)

17 percent multiplied by the lesser of (A) the sum of 5/6 of the maximum amount of deferrals that the Participant could have made to the Savings and Investment Plan on which matching contributions would have been made under the Savings and Investment Plan for 2009, plus the Participant’s deferrals to the Plan for such pay periods, or (B) 6 percent of the Participant’s Compensation for such pay periods; and

(B)

(iii)

Bonuses . Notwithstanding the foregoing, in the event that a Participant had elected to defer a portion of his Compensation payable as a Bonus with respect to the fourth quarter of 2008, the Administrative Committee, in its discretion, may provide a Matching Contribution to the Participant’s Account at the rate described in Section 3.3(a)(i).

(iv)

Deferrals after 2009 . For deferrals made with respect to pay periods ending on or after January 1, 2010, the Administrative Committee shall credit to each Participant’s Account for each Plan Year a Matching Contribution equal to the difference between:

(A)

17 percent multiplied by the lesser of (A) the sum of the maximum amount of deferrals that the Participant could have made to the Savings and Investment Plan on which matching contributions would have been made under the Savings and Investment Plan for such Plan Year, plus the Participant’s deferrals to the Plan for such Plan Year, or (B) 6 percent of the Participant’s Compensation for such Plan Year; and

(B)

The amount of matching contributions that would have been made to the Participant’s account under the Savings and Investment Plan for such Plan Year assuming the Participant deferred the maximum matchable amount permitted under the Savings and Investment Plan.

2.	Except as specified herein, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, Interface, Inc. has caused the following duly authorized member of the Administrative Committee to execute this Amendment on the date first written above.


INTERFACE, INC.

By:		/s/ Raymond S. Willoch
Title:		Sr. VP

Exhibit 10.20

SECOND AMENDMENT TO THE

INTERFACE, INC. NONQUALIFIED SAVINGS PLAN II

(as amended and restated effective January 1, 2009)

THIS AMENDMENT to the Interface, Inc. Nonqualified Savings Plan II (the “Plan”) is made on this 9 ^th day of December, 2009, by the Administrative Committee of the Plan (the “Administrative Committee”).

W I T N E S S E T H :

WHEREAS, Interface, Inc. (the “Company”) maintains the Plan for the benefit of its eligible key management and highly compensated employees; and

WHEREAS, Section 9.1 of the Plan provides that the Administrative Committee has the right to amend the Plan at any time; and

WHEREAS, the Company desires to amend the Plan to increase the rate of matching contributions effective January 1, 2010;

NOW, THEREFORE, the Plan is hereby amended as follows:

1.	Effective for pay periods ending on or after January 1, 2010, Section 3.3(a) of the Plan is deleted in its entirety, and a new Section 3.3(a) is added to read as follows:

3.3 Matching Contributions .

(a) Amount . The Administrative Committee shall credit to each Participant’s Account a Matching Contribution equal to the difference between:

2.	Except as specified herein, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, Interface, Inc. has caused the following duly authorized member of the Administrative Committee to execute this Amendment on the date first written above.


INTERFACE, INC.

By:		/s/ Pebbles Holcombe
Title:		HR/Benefits Manager

Exhibit 10.21

THIRD AMENDMENT TO THE

INTERFACE, INC. NONQUALIFIED SAVINGS PLAN II

(as amended and restated effective January 1, 2009)

THIS AMENDMENT to the Interface, Inc. Nonqualified Savings Plan II (the “Plan”) is made on this 15th day of April, 2010, by the Administrative Committee of the Plan (the “Administrative Committee”).

W I T N E S S E T H :

WHEREAS , Interface, Inc. (the “Company”) maintains the Plan for the benefit of its eligible key management and highly compensated employees; and

WHEREAS , Section 9.1 of the Plan provides that the Administrative Committee has the right to amend the Plan at any time; and

WHEREAS , the Administrative Committee previously approved allowing participants to make a change to their elections regarding forms of distribution (as between lump sum and installments) under the Plan, but provisions regarding these election changes were inadvertently omitted from the Plan document;

WHEREAS , the Administrative Committee wishes to amend the Plan to allow participants to make a change to their elections regarding forms of distribution (as between lump sum and installments) under the Plan, subject to certain restrictions provided by Internal Revenue Code Section 409A;

NOW, THEREFORE , the Plan is hereby amended as follows, effective January 1, 2010:

1.	Section 5.3(a) is amended to read as follows:

(a) Benefit Payments Upon Separation from Service . A Participant may elect to have his Annual Account Balance (or any portion thereof) that is payable under Section 5.2(a) or (b) as the result of the Participant’s Separation from Service, at the time he makes his Deferral Election for such Plan Year, paid in the form of a single-sum payment or in annual installments over a 2 to 10-year period, as elected by the Participant under the terms of this subsection (a). A Participant’s election under this subsection (a) shall apply during the Plan Year and during subsequent Plan Years until the date the Participant makes a subsequent election under this subsection (a) applicable for amounts deferred during a subsequent Plan Year. If a Participant does not make an election under this subsection (a), then any portion of his Account that is payable under Section 5.2(a) or (b) shall be paid in the form of a single-sum payment.

(i) Terms of Installment Payments . The following terms and conditions shall apply to installment payments made under this subsection (a):

(A) Installments will be made annually over no less than a 2-year nor more than a 10-year period, as elected by the Participant.

(B) The installment payments will be made in substantially equal annual installments and shall be adjusted for earnings between payments in the manner described in Section 3.7.

(C) Installment payments made after the initial installment payment (made in accordance with the terms of Section 5.2(a) or Section 5.2(b), as applicable) will be made on February 1 of the applicable calendar year.

(D) If a Participant dies after payment of his benefit from the Plan has begun, but before his entire benefit has been distributed, the remaining amount of his benefit will be distributed to the Participant’s designated Beneficiary in the form of a single-sum payment.

(E) Notwithstanding a Participant’s election of installment payments under this subsection (a), if at the time any installment payment is scheduled to be made, the present value of the portion of the Participant’s Account to which such installment payment election applies is less than $25,000, his benefit shall be paid in the form of a single-sum payment.

(ii) Modifications of Form of Distribution . With respect to a form of distribution specified in accordance with this subsection (a), a Participant may an election for each Annual Account Balance to change from lump sum to installments (with such installments subject to subsection (i) above), to change from installments to a lump sum, or to change the number of installment payments previously elected. Any such election will be effective only if (i) the Participant makes the election to delay payment at least 12 months before the payment date that such Annual Account Balance would be paid (or distributions would commence), pursuant to Section 5.2(a) or (b) (as applicable for such Annual Account Balance), as in effect before the election change under this subsection (the “Previous Separation Payment Date”); and (ii) the payment (or commencement) of such Annual Account Balance is delayed at least 5 years after the Previous Separation Payment Date.

2.	Section 5.3(b)(ii) is amended to read as follows:

(ii) Modifications of Form of Distribution . With respect to a form of distribution specified in accordance with this subsection (b), a Participant may make an election for each Annual Account Balance to change from lump sum to installments, change from installments to a lump sum, or to change the number of installment payments previously elected. Any such election will be effective only if (i) the Participant makes the election to delay payment at least 12 months before the payment date that such Annual Account Balance would be paid (or distributions would commence), pursuant to Section 5.2(c) or (d), as in effect before the election change under this subsection (the “Original Payment Date”); and (ii) the payment (or commencement) of such Annual Account Balance is delayed at least 5 years after his Original Payment Date.

3.	Except as specified herein, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, Interface, Inc. has caused the following duly authorized member of the Administrative Committee to execute this Amendment on the date first written above.


INTERFACE, INC.

By:		/s/ Pebbles Holcombe

Exhibit 10.22

FOURTH AMENDMENT TO THE

INTERFACE, INC. NONQUALIFIED SAVINGS PLAN II

(as amended and restated effective January 1, 2009)

THIS AMENDMENT to the Interface, Inc. Nonqualified Savings Plan II (the “Plan”) is made on the date written below by the Administrative Committee of the Plan (the “Administrative Committee”).

W I T N E S S E T H :

WHEREAS , Interface, Inc. (the “Company”) maintains the Plan for the benefit of its eligible key management and highly compensated employees; and

WHEREAS , Section 9.1 of the Plan provides that the Administrative Committee has the right to amend the Plan at any time; and

WHEREAS , the Administrative Committee desires to amend the Plan to fully vest those participants who remain employed by Bentley Prince Street Holdings, Inc. immediately following its purchase of Bentley Prince Street, Inc. from Interface Americas Holdings, LLC (the Affected Participants”); and

WHEREAS , the Administrative Committee desires to amend the Plan to terminate and liquidate the Plan with respect to the Affected Participants in accordance with Section 409A of the Internal Revenue Code and Treasury Regulation Section 1.409A-3(j)(4)(ix)(B);

NOW, THEREFORE , the Plan is hereby amended as follows, effective as of the date of the sale of Bentley Prince Street, Inc. by Interface Americas Holdings, LLC to Bentley Prince Street Holdings, Inc.:

1.	The Account of each Affected Participants is 100 percent vested.

2.	In accordance with Treasury Regulation Section 1.409A-3(j)(4)(ix)(B), the Plan is terminated with respect to the Accounts of all Affected Participants.

3.	In accordance with Treasury Regulation Section 1.409A-3(j)(4)(ix)(B), all Accounts of all Affected Participants will be distributed to such Affected Participants within 12 months following the effective date of this Amendment.

4.	Except as specified herein, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, the Administrative Committee has caused the following duly authorized member of the Administrative Committee to execute this Amendment on the date written below.


				ADMINISTRATIVE COMMITTEE

8/9/12				/s/ Raymond S. Willoch
Date

Exhibit 21

SUBSIDIARIES OF INTERFACE, INC.


Subsidiary (1)		Jurisdiction of Organization
FLOR, Inc.		Georgia (USA)
Interface Americas Holdings, LLC ₍₂₎		Georgia (USA)
Interface Americas, Inc.		Georgia (USA)
Interface Americas Re:Source Technologies, LLC		Georgia (USA)
Interface Asia-Pacific (HK) Ltd.		Hong Kong
Interface Australia Holdings Pty Ltd. ₍₃₎		Australia
Interface Europe B.V. ₍₄₎		Netherlands
Interface Europe Holding B.V. ₍₅₎		Netherlands
Interface Europe, Ltd. ₍₆₎		England and Wales
InterfaceFLOR, LLC		Georgia (USA)
InterfaceFLOR Canada, Inc.		Canada
InterfaceFLOR (Thailand) Co., Ltd.		Thailand
Interface Global Company ApS		Denmark and Delaware
Interface Heuga Singapore Pte. Ltd.		Singapore
Interface Hong Kong Ltd.		Hong Kong
Interface International B.V. ₍₇₎		Netherlands
Interface Leasing, Inc.		Georgia (USA)
Interface Massachusetts Holdings, Inc.		Delaware (USA)
Interface Modular Carpet (China) Co. Ltd.		China
Interface North Carolina Holdings, Inc.		North Carolina (USA)
Interface Overseas Holdings, Inc. ₍₈₎		Georgia (USA)
InterfaceRAISE, LLC		Georgia (USA)
Interface Real Estate Holdings, LLC		Georgia (USA)
Interface Research Corporation		Georgia (USA)
Interface Securitization Corporation		Delaware (USA)
Interface Yarns, Inc.		Georgia (USA)
Quaker City International, Inc. ₍₉₎		Pennsylvania (USA)
Re:Source Americas Enterprises, Inc. ₍₁₀₎		Georgia (USA)
InterfaceSERVICES, Inc.		Georgia (USA)

(1)

The names of certain subsidiaries which, if considered in the aggregate as a single subsidiary, would not constitute a “significant subsidiary”, have been omitted. The names of consolidated wholly-owned multiple subsidiaries carrying on the same line of business have been omitted where the name of the immediate parent, the line of business, the number of omitted subsidiaries operating in the United States and the number operating in foreign countries have been given.

(2)

Interface Americas Holdings, LLC is the parent of six direct subsidiaries organized and operating in the United States, of which four are in the floorcovering products/services business (FLOR, Inc., Interface Americas, Inc., InterfaceFLOR, LLC and Re:Source Americas Enterprises, Inc.), and one is in the sustainability consulting business (InterfaceRAISE, LLC). Interface Americas Holdings, LLC’s other U.S. subsidiary (Interface Architectural Resources, Inc., which was in the access flooring business) sold substantially all of its assets during 2003. Interface Americas Holdings, LLC is also the parent of two direct subsidiaries organized and operating outside the U.S. in the floorcovering products/services business.

(3)	Interface Australia Holdings Pty Ltd. is the parent of six direct subsidiaries organized and operating in Australia in the floorcovering products/services business.

(4)	Interface Europe B.V. is the parent of four direct subsidiaries organized and operating outside of the United States (including Interface Europe Holding B.V., Interface Australia Holdings Pty Ltd. and Interface Hong Kong Ltd.) in the floorcovering products/services business.

(5)	Interface Europe Holding B.V. is the parent of seven direct subsidiaries organized and operating in the Netherlands, and twelve direct subsidiaries organized and operating in other countries outside of the United States, in the floorcovering products/services business.

(6)	Interface Europe, Ltd. is the parent of ten direct subsidiaries organized and operating in England and Wales, and one direct subsidiary organized and operating in Ireland, in the floorcovering products/services business.

(7)	Interface International B.V. is the parent of one direct subsidiary organized and operating in the Netherlands (Interface Nederland B.V.) in the floorcovering products/services business.

(8)	Interface Overseas Holdings, Inc. is the parent of three direct subsidiaries, which subsidiaries are organized and operating in Denmark (Interface Global Company ApS), Japan (ISM Japan Ltd.) and Thailand (Interface Holdings Co., Ltd.).

(9)	Quaker City International, Inc. is the parent of three direct subsidiaries organized in the United States (including Commercial Flooring Consultants, Inc.) in the floorcovering services business.

(10)

Re:Source Americas Enterprises, Inc. is the parent of ten direct subsidiaries organized in the United States (including Flooring Consultants, Inc., Re:Source Minnesota, Inc., Re:Source North Carolina, Inc., Re:Source New York, Inc., Re:Source Oregon, Inc., Re:Source Southern California, Inc., Re:Source Washington, D.C., Inc., Southern Contract Systems, Inc. and Superior/Reiser Flooring Resources, Inc. and Quaker City International, Inc.) in the floorcovering services business.

Exhibit 23

Consent of Independent Registered Public Accounting Firm

Interface, Inc. and Subsidiaries

Atlanta, Georgia

We hereby consent to the incorporation by reference in the Company’s previously filed registration statements on Form S-8, (No. 333-10377; No. 333-38675; No. 333-38677; No. 333-93679; No. 333-66956; No. 333-120813; No. 333-135781; and No. 333-168373) and Form S-3 (No. 333-46611; and No. 333-134168) of Interface, Inc. and Subsidiaries of our reports dated February 28, 2013, relating to the consolidated financial statements, the financial statement schedule and the effectiveness of internal control over financial reporting which appear in this Form 10-K.

/s/ BDO USA, LLP

Atlanta, Georgia

February 28, 2013

Exhibit 24

Power of Attorney

The signature page of Interface, Inc.’s Report on Form 10-K for the fiscal year ended December 30, 2012 includes the power of attorney given by each person whose signature appears on the Report on Form 10-K, which power of attorney constitutes and appoints Daniel T. Hendrix as attorney-in-fact, with power of substitution, for him or her in any and all capacities, to sign any amendments to the Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission.

Exhibit 31.1

CERTIFICATION

I, Daniel T. Hendrix, certify that:

1.	I have reviewed this annual report on Form 10-K of Interface, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2013

/s/ Daniel T. Hendrix

Daniel T. Hendrix

Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Patrick C. Lynch, certify that:

1.	I have reviewed this annual report on Form 10-K of Interface, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2013

/s/ Patrick C. Lynch

Patrick C. Lynch

Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

I, Daniel T. Hendrix, Chief Executive Officer of Interface, Inc. (the “Company”), certify, pursuant to 18 U.S.C. § 1350 as adopted by § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Annual Report on Form 10-K of the Company for the year ended December 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 28, 2013

/s/ Daniel T. Hendrix

Daniel T. Hendrix

Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

I, Patrick C. Lynch, Chief Financial Officer of Interface, Inc. (the “Company”), certify, pursuant to 18 U.S.C. § 1350 as adopted by § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Annual Report on Form 10-K of the Company for the year ended December 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 28, 2013

/s/ Patrick C. Lynch

Patrick C. Lynch

Chief Financial Officer