Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008, under Item 7 of that Form 10-K. Our discussions here focus on our results during the quarter ended, or as of, April 5, 2009, and the comparable period of 2008 for comparison purposes, and, to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time. These discussions should be read in conjunction with that Form 10-K for more detailed and background information.

Forward-Looking Statements

This report contains statements which may constitute "forward-looking statements" within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include risks and uncertainties associated with economic conditions in the commercial interiors industry as well as the risks and uncertainties discussed under the heading "Risk Factors" included in Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2008, which discussion is hereby incorporated by reference. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Restructuring Charges

2008 Restructuring Charge

In the fourth quarter of 2008, we committed to a restructuring plan intended to reduce costs across our worldwide operations, and more closely align our operations with demand levels. The reduction of the demand levels is primarily a result of the worldwide recession and the associated delays and reductions in the number of construction projects where our carpet products are used. The plan primarily consists of ceasing manufacturing operations at our facility in Belleville, Canada, and reducing our worldwide employee base by a total of approximately 530 employees in the areas of manufacturing, sales and administration. In connection with the restructuring plan, we recorded a pre-tax restructuring charge in the fourth quarter of 2008 of $11.0 million. We record our restructuring accruals under the provisions of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" or SFAS No. 112, "Employer's Accounting for Post-Employment Benefits, an Amendment of FASB Statements No. 5 and 43," as appropriate. The restructuring charge is comprised of employee severance expense of $7.8 million, impairment of assets of $2.6 million, and other exit costs of $0.7 million (primarily related to lease exit costs and other closure activities). Approximately $8.3 million of the restructuring charge will be cash expenditures, primarily severance expense. Actions and expenses related to this plan were substantially completed in the first quarter of 2009, and the plan is expected to yield annualized cost savings of approximately $30 million.

2009 Restructuring Charge

In the first quarter of 2009, we adopted a new restructuring plan, primarily comprised of a further reduction in our worldwide employee base by a total of approximately 290 employees and continuing actions taken to better align fixed costs with demand for our products on a global level. In connection with the new plan, we recorded a pre-tax restructuring charge of $5.7 million, comprised of $4.0 million of employee severance expense and $1.7 million of other exit costs (primarily costs to exit the Canadian manufacturing facilities, lease exit costs and other costs). Approximately $5.2 million of the restructuring charge will involve future cash expenditures, primarily severance expense. Actions and expenses related to this plan were substantially completed in the first quarter of 2009, and the plan is expected to yield annualized cost savings of approximately $17 million.

Discontinued Operations

In 2007, we sold our Fabrics Group business segment. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we have reported the results of operations for the former Fabrics Group business segment for all periods reflected herein, as "discontinued operations." Consequently, our discussion of revenues or sales and other results of operations (except for net income or loss amounts), including percentages derived from or based on such amounts, excludes this discontinued operation unless we indicate otherwise.

Our discontinued operations had no net sales and a loss of $0.7 million in the three-month period ended April 5, 2009 (these results are included in our statements of operations as part of the "Loss from Discontinued Operations, Net of Taxes"). Our discontinued operations had no net sales and no income or loss in the three-month period ended March 30, 2008.

General

During the quarter ended April 5, 2009, we had net sales of $199.3 million, compared with net sales of $261.7 million in the first quarter last year. Fluctuations in currency exchange rates negatively impacted 2009 first quarter sales by 9% (approximately $23 million), compared with the prior year period.

During the first quarter of 2009, we had net loss attributable to Interface, Inc. of $4.2 million, or $0.07 per share, compared with net income attributable to Interface, Inc. of $14.1 million, or $0.22 per diluted share, in the first quarter last year. Loss from continuing operations in the first quarter of 2009 was $3.4 million, or $0.06 per share, compared with income from continuing operations of $14.3 million, or $0.22 per diluted share, in the first quarter last year.

Results of Operations

The following table presents, as a percentage of net sales, certain items
included in our Consolidated Condensed Statements of Operations for the
three-month periods ended April 5, 2009, and March 30, 2008, respectively:

                                                                        Three Months Ended
                                                                April 5, 2009        March 30, 2008

Net sales                                                                100.0 %               100.0 %
Cost of sales                                                             68.3                  64.0
Gross profit on sales                                                     31.7                  36.0
Selling, general and administrative expenses                              27.3                  24.2
Restructuring charge                                                       2.9                    --
Operating income                                                           1.5                  11.8
Interest/Other expense                                                     3.5                   3.1
Income (loss) from continuing operations before tax expense               (1.9 )                 8.7
Income tax expense (benefit)                                              (0.2 )                 3.3
Income (loss) from continuing operations                                  (1.7 )                 5.4
Discontinued operations, net of tax                                       (0.3 )                  --
Loss on disposal                                                            --                    --
Net income (loss)                                                         (2.0 )                 5.4
Net income (loss) attributable to Interface, Inc.                         (2.1 )                 5.4

Below we provide information regarding net sales for each of our operating segments, and analyze those results for the three-month periods ended April 5, 2009, and March 30, 2008, respectively.

Net Sales by Business Segment

Net sales by operating segment and for our Company as a whole were as follows
for the three-month periods ended April 5, 2009, and March 30, 2008,
respectively:

                                      Three Months Ended         Percentage
            Net Sales By Segment    04/05/09      03/30/08         Change
                                        (In thousands)
            Modular Carpet          $ 176,452     $ 226,073            (21.9 %)
            Bentley Prince Street      22,856        35,663            (35.9 %)
            Total                   $ 199,308     $ 261,736            (23.9 %)

Modular Carpet Segment. For the quarter ended April 5, 2009, net sales for the modular carpet segment decreased $49.6 million (21.9%) versus the comparable period in 2008. This decline is primarily attributable to the reduced order activity for renovation and construction projects as a result of the worldwide financial and credit crisis. On a geographic basis, sales in the Americas and Asia-Pacific were down 13.3% and 23.3%, respectively. Sales in Europe were down 21.3% in local currency and 31.1% as reported in U.S. Dollars as a result of the continued strengthening of the U.S. Dollar versus the Euro and British Pound Sterling. The decline in the corporate office segment (down 28%) was the primary driver of the decrease in sales. The impact of this decline was somewhat mitigated as a result of our market diversification strategy, as we saw lesser decreases in the government (6% decline) and education (13% decline) segments as well as a slight increase in the retail segment (2% increase).

Bentley Prince Street Segment. In our Bentley Prince Street Segment, net sales for the quarter ended April 5, 2009 decreased $12.8 million (35.9%) versus the comparable period in 2008. This decrease is primarily attributable to the downturn in demand in response to the worldwide financial and credit crisis, as well as the general market movement away from broadloom carpet and toward carpet tile. The sales decrease at Bentley Prince Street occurred across both corporate
(down 32%) and non-corporate segments, particularly in the healthcare (down 35%)
and hospitality (down 72%) segments.

Cost and Expenses

Company Consolidated. The following table presents, on a consolidated basis for
our operations, our overall cost of sales and selling, general and
administrative expenses for the three-month periods ended April 5, 2009, and
March 30, 2008, respectively:

                                                  Three Months Ended         Percentage
              Cost and Expenses                 04/05/09      03/30/08         Change
                                                    (In thousands)
 Cost of sales                                  $ 136,139     $ 167,470            (18.7 %)
 Selling, general and administrative expenses      54,371        63,295            (14.1 %)
 Total                                          $ 190,510     $ 230,765            (17.4 %)

For the quarter ended April 5, 2009, our cost of sales decreased $31.3 million (18.7%) versus the comparable period in 2008. This decrease was a direct result of the reduced net sales across our worldwide operations as discussed above. The cost decrease was not as proportionally large as the decrease in net sales because our restructuring initiatives discussed above were not fully implemented for the entire quarter, resulting in an under-absorption of fixed overhead costs associated with the lower production volumes. As a result, as a percentage of net sales, cost of sales increased to 68.3% versus 64.0% in the comparable period in 2008. We believe that as our restructuring initiatives are substantially completed, our cost of sales will decline as a percentage of net sales for the remainder of the year.

For the quarter ended April 5, 2009, our selling, general and administrative expenses decreased $8.9 million (14.1%) versus the comparable period in 2008. The components of this decrease were (1) a $4.6 million reduction in selling costs associated with the decline in sales volume, (2) a $3.7 million reduction in marketing expense as programs were cut to better match anticipated demand, and (3) a $1.0 million reduction in incentive compensation as performance goals were not achieved to the same degree as they were in the comparable period in 2008. The decline in selling, general and administrative expenses was not as proportionately large as the decline in sales because the savings related to our restructuring plans were not fully realized in the first quarter. As a result, as a percentage of net sales, selling, general and administrative expenses increased to 27.3% for the three months ended April 5, 2009 versus 24.2% for the comparable period in 2008.

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

Cost of Sales and Selling, General and     Three Months Ended         Percentage
Administrative Expenses (Combined)       04/05/09      03/30/08         Change
                                             (In thousands)
Modular Carpet                           $ 164,444     $ 195,207            (15.8 %)
Bentley Prince Street                       25,427        34,074            (25.4 %)
Corporate Expenses and Eliminations            639         1,484            (56.9 %)
Total                                    $ 190,510     $ 230,765            (17.4 %)

Interest Expenses

For the three-month period ended April 5, 2009, interest expense decreased $0.1 million to $7.7 million, versus $7.8 million in the comparable period in 2008. This decrease was due primarily to the lower levels of debt outstanding on a daily basis during the first quarter of 2009 (mostly through the repurchase of $10.8 million of our 10.375% Senior Notes in March 2009) versus the comparable period in 2008.

Liquidity and Capital Resources

General

At April 5, 2009, we had $54.9 million in cash. At that date, we had no borrowings and $9.1 million in letters of credit outstanding under our domestic revolving credit facility, and no borrowings outstanding under our European credit facility. As of April 5, 2009, we could have incurred $42.1 million of additional borrowings under our domestic revolving credit facility (this amount would have been $49.4 million with the receipt of a landlord lien waiver that we expect to receive for one inventory location) and €10.0 million (approximately $13.2 million) of additional borrowings under our European credit facility. In addition, we could have incurred an additional $9.8 million of borrowings under our other credit facilities in place at other non-U.S. subsidiaries.

Subsequent to the end of the first quarter of 2009, on April 24, 2009, we expanded our European credit facility. For a discussion of this expanded facility, see Note 13 ("Subsequent Event") to our consolidated condensed financial statements in Part 1, Item 1 of this report.

Analysis of Cash Flows

Our primary sources of cash during the three month period ended April 5, 2009 were (1) $30.1 million received as a reduction of accounts receivable, and (2) $2.3 million as a reduction in inventories. Our primary uses of cash during this period were (1) $27.7 million as a reduction in accounts payable and accruals (of which $15.8 million was related to interest payments), (2) $10.3 million used to repurchase a portion of our 10.375% Senior Notes, and (3) $5.6 million for additions to property, plant and equipment, primarily at our manufacturing facilities.

Maturing Indebtedness in Future Years

Our domestic revolving credit facility matures in December 2012, and our outstanding 10.375% Senior Notes and 9.5% Senior Subordinated Notes mature on February 1, 2010 and February 1, 2014, respectively. We cannot assure you that we will be able to renegotiate or refinance any of these notes or our other debt on commercially reasonable terms, or at all, especially given the unprecedented worldwide financial and credit crisis that developed in the second half of 2008 and its continuing impact on the availability of credit. As of April 5, 2009 we had $141.3 million outstanding of our 10.375% Senior Notes.

With respect to the 10.375% Senior Notes due 2010, we believe the following will allow for the repayment or refinancing of the $141.8 million outstanding principal amount of these notes:

· Available financing in the capital markets. We are exploring possibilities with respect to domestic credit facilities as well as monitoring public bond and equity markets, and we believe that there may be availability in these capital markets in 2009, particularly in light of the aggressive legislative and other governmental economic stimulus actions taken by the United States and other countries around the world. We believe the level of bond financing activity in the first four months of 2009, particularly in the high yield bond market, has improved and reflects well on our ability to refinance our 10.375% Senior Notes. If an opportunity arises to refinance these notes on terms acceptable to us, then we intend to do so. It should be noted, however, that in these circumstances we might have to accept financing on terms which we normally would not consider favorable.

· Cash on hand and cash generation. As April 5, 2009, we had approximately $54.9 million of cash on hand. This cash, coupled with an expected generation of $35-$50 million of cash from operating activities in 2009, should enable us to repay a substantial portion of these notes. As part of our efforts to generate such cash from operations, we have undertaken significant restructuring activities in the fourth quarter of 2008 and the first quarter of 2009 as well as other cost-cutting initiatives that we anticipate will generate savings of over $47 million in 2009.

· Availability under revolving credit lines. As of April 5, 2009, we had $42.1 million of borrowing availability under our domestic credit facility (this amount would have been $49.4 million with the receipt of a landlord lien waiver that we expect to receive for one inventory location) and approximately $23 million of borrowing availability under our international credit facilities. These facilities bear interest at rates ranging from 1% to 9% and represent a possible source of funds to retire a portion of any debt that cannot be refinanced or repaid via cash on hand and cash generation. Subsequent to the end of the first quarter, certain of our European subsidiaries entered into an amended and restated credit agreement which increased the maximum borrowing capacity thereunder from 10 million Euros to 32 million Euros (an increase of 22 million Euros, or the equivalent of approximately $30 million).

If we are unable to refinance our 10.375% Senior Notes prior to February 1, 2010 on terms favorable to us, and we are required to use all or a significant portion of our cash on hand and credit facilities or sell assets to repay the notes, our liquidity position may not provide sufficient funds to meet our current commitments and other cash requirements following such a repayment approach. In that case, we will have to consider other options to meet our ongoing debt service obligations and other liquidity needs, such as selling additional assets or using cash that otherwise would have been used for other business purposes.

If we are successful in refinancing our 10.375% Senior Notes on terms we consider acceptably advantageous, we believe that our liquidity position will provide sufficient funds to meet our current commitments and other cash requirements for the foreseeable future.