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Contents
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Page
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Report of Independent Registered Public Accounting Firm
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1
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Financial Statements
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Statements of Net Assets Available for Benefits –
December 31, 2012 and 2011
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2
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Statements of Changes in Net Assets Available for Benefits –
Years Ended December 31, 2012 and 2011
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3
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Notes to Financial Statements
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4
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| Signatures | 12 | ||
| Exhibit Index | 13 | ||
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Supplemental Schedule
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Schedule H, Line 4i, Schedule of Assets (Held at End of Year) –
December 31, 2012
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15
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December 31,
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2012
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2011
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Assets
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Cash and cash equivalents
Investments, at fair value:
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$ | -- | $ | 34,370 | ||||
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Common/collective trust
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20,375,034 | 23,011,423 | ||||||
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Mutual funds
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61,255,476 | 57,687,831 | ||||||
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Interface, Inc. stock fund
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7,939,368 | 7,785,900 | ||||||
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TradeLink Investments – self-directed brokerage
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342,556 | 343,930 | ||||||
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Total Investments
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89,912,434 | 88,829,084 | ||||||
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Receivables
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Participant contributions
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141,870 | 138,054 | ||||||
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Notes receivable from participants
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3,260,290 | 3,420,666 | ||||||
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Employer contributions
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55,137 | 54,214 | ||||||
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Total Receivables
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3,457,297 | 3,612,934 | ||||||
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Net assets available for benefits at fair value
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93,369,731 | 92,476,388 | ||||||
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Adjustment from fair value to contract value for fully benefit-responsive investment contracts
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(839,819 | ) | (802,516 | ) | ||||
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Net assets available for benefits
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$ | 92,529,912 | $ | 91,673,872 | ||||
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Years ended December 31,
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2012
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2011
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Additions to (deductions from) net assets available for benefits attributed to:
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Investment income (loss):
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Interest and dividend income from mutual funds
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$ | 1,689,707 | $ | 1,000,926 | ||||
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Interest income from common collective trust
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470,294 | 639,140 | ||||||
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Dividend income from Interface, Inc. stock fund
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54,304 | 53,011 | ||||||
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Net appreciation (depreciation) in fair value of Interface, Inc. stock fund
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2,636,826 | (2,234,800 | ) | |||||
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Net appreciation (depreciation) in fair value of mutual funds
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7,126,632 | (2,228,308 | ) | |||||
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Net investment income (loss)
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11,977,763 | (2,770,031 | ) | |||||
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Interest income from notes receivable from participants
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148,556 | 143,461 | ||||||
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Contributions:
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Participant
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6,394,313 | 6,381,865 | ||||||
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Employer
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2,529,248 | 2,463,720 | ||||||
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Participant rollovers
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354,977 | 174,475 | ||||||
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Total contributions
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9,278,538 | 9,020,060 | ||||||
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Total additions
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21,404,857 | 6,393,490 | ||||||
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Deductions from net assets available for benefits attributed to:
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Benefits paid to participants
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20,524,321 | 6,621,456 | ||||||
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Administrative expenses
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24,496 | 23,716 | ||||||
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Total deductions
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20,548,817 | 6,645,172 | ||||||
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Net increase (decrease) in net assets available for benefits
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856,040 | (251,682 | ) | |||||
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Net assets available for benefits, beginning of year
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91,673,872 | 91,925,554 | ||||||
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Net assets available for benefits, end of year
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$ | 92,529,912 | $ | 91,673,872 | ||||
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1. Description
of Plan
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The following description of the Interface, Inc. (the “Company”) Savings and Investment Plan (the “Plan”) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
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a.
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General - The Plan is a defined contribution plan established on October 1, 1988 covering substantially all full-time employees of Interface, Inc. and adopting domestic subsidiaries who have six months of service and are age eighteen or older. The Plan also covers part-time employees of the Company who have twelve months of service and are age eighteen or older. The Interface, Inc. Administrative Committee is responsible for oversight of the Plan, including the determination of the appropriateness of the Plan’s investment offerings and monitoring of the investment performance.
The Plan was amended on August 9, 2012 to fully vest participants that remained employed with Bentley Prince Street, Inc., and removed Bentley Prince Street, Inc. as a participating company, upon the sale of that company on August 17, 2012. As a result of this transaction, those participants were entitled to an elective distribution from the Plan (including, but not limited to, rolling over their existing account and outstanding loans) to the new established Bentley Prince Street, Inc. 401(k) Plan. The plan assets of the participants that were distributed to the Bentley Prince Street, Inc. 401(k) Plan totaled $7,151,708.
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b.
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Contributions – Each year, participants may contribute up to 40 percent of pretax annual compensation, as defined in the Plan, up to a maximum of $17,000 for 2012 and a maximum of $16,500 for 2011. Participants who have attained age 50 before the end of the plan year were eligible to make catch-up contributions of $5,500 for each of 2012 and 2011. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans (rollover). Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan includes an auto-enrollment provision whereby all newly eligible employees are automatically enrolled in the Plan unless they affirmatively elect not to participate in the Plan. Automatically enrolled participants have their deferral rate set at three percent of eligible compensation and their contributions are invested in the appropriate target date fund until changed by the participant. Deferral percentages for automatically enrolled participants increase one percent annually up to ten percent. The Company contributes fifty percent of the first six percent of eligible compensation that a participant contributes to the Plan. Additional profit-sharing amounts may be contributed at the option of the Company’s Board of Directors in the form of cash or Company common stock. No additional profit-sharing amounts were contributed by the Company to the Plan during the years ended December 31, 2012 and 2011. Contributions are subject to certain limitations.
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c.
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Participant Accounts - Each participant’s account is credited with the participant’s contributions and Company matching contributions as well as allocations of (i) the Company’s profit sharing contribution, and (ii) Plan earnings, and charged with an allocation of certain administrative expenses. Allocations are based on participant account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
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d.
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Vesting - Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Company’s contribution portion of their accounts is based ratably on years of continuous service. A participant is 100 percent vested after five years of credited service beginning with 20 percent after year one.
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e.
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Notes receivable from participants – Participants may borrow from their accounts a minimum of $1,000 up to a maximum amount equal to the lesser of $50,000 or 50 percent of their account balance. Each loan is secured by the balance in the borrowing participant’s account and bears interest at a rate commensurate with local prevailing rates as determined by the Plan Administrator on the date of the loan. Interest rates are currently equal to the prime rate plus one percent. Principal and interest are paid ratably through payroll deductions.
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f.
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Payment of Benefits - Upon termination of service due to death, disability, retirement, or separation of service, a participant is eligible to receive a lump sum amount equal to the value of the participant’s vested interest in his or her account. Vested balances less than $1,000 may be automatically distributed in the form of cash after termination of employment. Withdrawals from the Plan may also be made upon circumstances of financial hardship, in accordance with provisions specified in the Plan.
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g.
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Forfeited Accounts - Forfeited nonvested accounts are used to reduce employer contributions. During the Plan years ended December 31, 2012 and 2011, Plan forfeitures totaling $77,363 and $133,829 were used to reduce employer contributions. Unallocated forfeitures at December 31, 2012 and 2011 were $5,016 and $6,256, respectively.
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2. Summary of
Accounting
Policies
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Basis of Accounting
The accompanying financial statements of the Plan are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were able to initiate permitted transactions under the terms of the Plan. Accordingly, the Statement of Net Assets Available for Benefits presents the estimated fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The Statement of Changes in Net Assets Available for Benefits is prepared using the contract value basis for fully benefit-responsive investment contracts.
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| Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which converges the fair value measurement guidance in U.S. GAAP and International Financial Reporting Standards. Some amendments clarify the application of existing fair value measurement requirements and others change a particular principle for measuring fair value for disclosing fair value measurement information. In addition, this standard requires additional fair value disclosures which change certain fair value measurement principles and enhance the disclosure requirements, particularly for level 3 fair value investments. This standard was effective for reporting periods beginning on or after December 15, 2011. The adoption of this pronouncement did not have a material impact on the Plan’s financial statements.
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Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
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Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value. Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Plan’s Administrative Committee determines the Plan’s valuation policies utilizing information provided by the Trustee. See Note 4 for further discussion of fair value measurements. Shares of mutual funds are valued at the net asset value of shares held by the Plan at year end. Common collective trusts are valued at contract value. The Company common stock fund is valued based upon the quoted market price for Interface, Inc. Common Stock. Self-directed brokerage accounts are valued at the asset value of investments held at year end. There have been no changes in the valuation methodology used at December 31, 2012 and 2011.
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Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Net appreciation (depreciation) in the fair value of investments includes the Plan’s gains and losses on investments bought and sold as well as held during the Plan year.
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Payment of Benefits
Benefits are recorded when paid.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income is recorded on the accrual basis. Related fees are recorded as administrative expenses when they are incurred. No allowance for credit losses has been recorded as of December 31, 2012 and 2011. If a participant ceases to make loan repayments and the plan administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit payment is recorded.
Administrative Expenses
Certain expenses of maintaining the Plan are paid directly by the Company and are excluded from these financial statements. Fees related to the administration of notes receivable from participants are charged directly to the participant’s account and are included in administrative expenses. Investment related expenses are included in net appreciation of fair value of investments.
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3.
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Investments
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The estimated fair market value of individual investments that represent five percent or more of the Plan’s net assets are as follows:
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December 31,
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2012
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2011
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T. Rowe Price Stable Value Fund (common/collective trust)
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$ | 20,375,034 | $ | 23,011,423 | |||||
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T. Rowe Price Equity Income Fund
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$ | 9,032,638 | $ | 9,420,784 | |||||
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T. Rowe Price Blue Chip Growth Fund
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$ | 8,442,340 | $ | 8,250,907 | |||||
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T. Rowe Price Balanced Fund
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$ | 7,360,295 | $ | 8,130,767 | |||||
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Interface, Inc. Stock Fund
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$ | 7,939,368 | $ | 7,785,900 | |||||
| 4. |
Fair Value
Measurements
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The framework for measuring fair value provides a 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 accounting standards are described below:
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Level 1
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Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
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Level 2
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Inputs to the valuation methodology include:
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· Quoted prices for similar assets in active markets;
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· Quoted prices for identical or similar assets in inactive markets;
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· Inputs other than quoted prices that are observable for the asset; and
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· Inputs that are derived principally from or corroborated by observable data by correlation or other means.
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Level 3
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Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
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| Assets at Fair Value as of December 31, 2012 | ||||||||||||||||
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Investment Type
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds (by class)
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Money Market
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$ | 1,638,674 | $ | -- | $ | -- | $ | 1,638,674 | ||||||||
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Stock
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30,880,531 | -- | -- | 30,880,531 | ||||||||||||
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Bond
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6,304,298 | -- | -- | 6,304,298 | ||||||||||||
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Multi-Class
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7,360,295 | -- | -- | 7,360,295 | ||||||||||||
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Target Date Fund
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15,071,678 | -- | -- | 15,071,678 | ||||||||||||
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Total Mutual Funds
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61,255,476 | -- | -- | 61,255,476 | ||||||||||||
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Interface, Inc. Stock Fund
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7,939,368 | -- | -- | 7,939,368 | ||||||||||||
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Common/Collective Trust
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-- | 20,375,034 | -- | 20,375,034 | ||||||||||||
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Self Directed Brokerage
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Common Stock
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342,556 | -- | -- | 342,556 | ||||||||||||
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Total assets at fair value
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$ | 69,537,400 | $ | 20,375,034 | $ | -- | $ | 89,912,434 | ||||||||
| Assets at Fair Value as of December 31, 2011 | ||||||||||||||||
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Investment Type
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds (by class)
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Money Market
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$ | 2,020,514 | $ | -- | $ | -- | $ | 2,020,514 | ||||||||
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Stock
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30,587,606 | -- | -- | 30,587,606 | ||||||||||||
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Bond
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4,675,341 | -- | -- | 4,675,341 | ||||||||||||
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Multi-Class
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8,130,767 | -- | -- | 8,130,767 | ||||||||||||
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Target Date Fund
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12,273,603 | -- | -- | 12,273,603 | ||||||||||||
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Total Mutual Funds
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57,687,831 | -- | -- | 57,687,831 | ||||||||||||
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Interface, Inc. Stock Fund
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7,785,900 | -- | -- | 7,785,900 | ||||||||||||
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Common/Collective Trust
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-- | 23,011,423 | -- | 23,011,423 | ||||||||||||
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Self-Directed Brokerage
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Common Stock
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343,930 | -- | -- | 343,930 | ||||||||||||
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Total assets at fair value
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$ | 65,817,661 | $ | 23,011,423 | $ | -- | $ | 88,829,084 | ||||||||
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5.
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Related Party
Transactions
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Certain Plan investments are shares of mutual funds and units of a stable value fund managed by T. Rowe Price Trust Company. T. Rowe Price Trust Company is the Trustee as defined by the Plan and, therefore, these transactions qualify as party-in-interest. Fees incurred by the Plan for investment management services are included in net appreciation (depreciation) in fair value of the investment as they are paid through revenue sharing. The Plan Sponsor pays directly any other fees related to the Plan’s operations.
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At December 31, 2012 and 2011, the Plan held 494,049 and 674,688 shares, respectively, of common stock of Interface, Inc., the sponsoring employer. The Plan also issues loans to participants that are secured by the balances in the respective participants’ accounts. Administrative expenses for the year ended December 31, 2012 and 2011 were $24,496 and $23,716, respectively, and are included in deductions from net assets in the statement of changes in net assets available for Plan benefits.
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6.
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Plan Termination
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Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time, and to amend or terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would become 100 percent vested in their employer contributions.
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7.
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Tax Status
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On January 6, 2009, the Company requested that a favorable letter of determination be issued to the Company to confirm that the Plan, as amended and restated, is qualified in its entirety pursuant to the applicable requirements of the Internal Revenue Code (“IRC”).
The Internal Revenue Service (“IRS”) has determined and informed the Company by a letter dated July 22, 2009, that the Plan and related trust are designed in accordance with applicable sections of the IRC. The Plan has been amended since receiving the determination letter. However, the Plan Administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC and, therefore, believes that the Plan is qualified and the related trust is tax-exempt. Therefore, no provision for income taxes has been included in the Plan’s financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits relative to the Plan for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2009.
U.S. GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2012, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements.
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8.
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Risks and
Uncertainties
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The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
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9.
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Reconciliation of the
Financial
Statements
to Form 5500
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The following is a reconciliation of net assets available for benefits per the financial statements at December 31, 2012 and 2011 to Form 5500:
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December 31,
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2012
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2011
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Net assets available for benefits per the financial statements
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$ | 92,529,912 | $ | 91,673,872 | |||||
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Adjustment from fair value to contract value for common/collective trust
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839,819 | 802,516 | |||||||
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Net assets available for benefits per Form 5500
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$ | 93,369,731 | $ | 92,476,388 | |||||
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The following is a reconciliation of the net increase (decrease) in assets available for benefits per the financial statements for the years ended December 31, 2012 and 2011 to Form 5500.
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December 31,
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2012
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2011
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Net increase (decrease) in assets available for benefits per the financial statements:
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$ | 856,040 | $ | (251,682 | ) | ||||
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Adjustment from fair value to contract value for common/collective trust
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37,303 | 90,943 | |||||||
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Net increase (decrease) in assets available for benefits per Form 5500
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$ | 893,343 | $ | (160,739 | ) | ||||
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Exhibit No.
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Document
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23.1
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Consent of Independent Registered Public Accounting Firm
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(b)
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(c)
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(e)
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Identity of Issuer,
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Description of
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(d)
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Current
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(a)
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Borrower, Lessor, or Similar Party
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Investment
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Cost**
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Value
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Common Collective Trust:
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| * |
T. Rowe Price Stable Value Fund
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19,535,215 units
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20,375,034 | ||||||
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Mutual Funds:
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Ariel Appreciation Fund
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78,164 shares
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3,206,297 | |||||||
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N&B Socially Responsible Fund
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30,254 shares
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820,495 | |||||||
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Harbor International Fund
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35,190 shares
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2,186,027 | |||||||
| Janus Overseas Fund | 9,561 shares | 326,876 | |||||||
| Munder Midcap Core GR FD Fund | 73,511 shares | 2,407,488 | |||||||
| * |
T. Rowe Price Equity Index 500 Fund
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62,340 shares
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2,393,868 | ||||||
| * |
T. Rowe Price Balanced Fund
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356,603 shares
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7,360,295 | ||||||
| * |
T. Rowe Price Equity Income Fund
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341,499 shares
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9,032,638 | ||||||
| * |
T. Rowe Price Spectrum Income Fund
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332,387 shares
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4,321,034 | ||||||
| * |
T. Rowe Price Blue Chip Growth Fund
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185,017 shares
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8,442,340 | ||||||
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William Blair Small Cap Growth Fund
Vanguard Prime Money Market Fund
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49,528 shares
1,638,674 shares
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1,172,827 1,638,674 | |||||||
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Allianz RCM Technology Admin Fund
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19,456 shares
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891,676 | |||||||
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Stadion Managed Portfolio A Fund
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0 shares
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0 | |||||||
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Oppenheimer International Bond Fund
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59,983 shares
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394,690 | |||||||
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PIMCO Total Return Admin Fund
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141,332 shares
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1,588,573 | |||||||
| * |
Retirement Income Fund
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2,268 shares
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31,636 | ||||||
| * |
Retirement 2005 Fund
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5,117 shares
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62,118 | ||||||
| * |
Retirement 2010 Fund
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11,851 shares
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195,181 | ||||||
| * |
Retirement 2015 Fund
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64,853 shares
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835,312 | ||||||
| * |
Retirement 2020 Fund
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167,479 shares
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2,994,532 | ||||||
| * |
Retirement 2025 Fund
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180,836 shares
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2,372,568 | ||||||
| * |
Retirement 2030 Fund
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138,435 shares
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2,619,198 | ||||||
| * |
Retirement 2035 Fund
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146,402 shares
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1,958,865 | ||||||
| * |
Retirement 2040 Fund
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93,916 shares
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1,792,856 | ||||||
| Retirement 2045 Fund | 110,326 shares | 1,402,247 | |||||||
| Retirement 2050 Fund | 62,876 shares | 670,255 | |||||||
| * * * |
Retirement 2055 Fund
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12,990 shares
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136,910 | ||||||
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Total Mutual Funds
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$ | 61,255,476 | |||||||
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TradeLink Investments – Self-Directed Brokerage
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various publicly traded equity investments
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342,556 | |||||||
| * |
Interface, Inc. Stock Fund – Employer Securities
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494,049 shares
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7,939,368 | ||||||
| * |
Notes Receivable from Participants
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1,127 loans with interest rates of 4.25 to 9.50 percent
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3,260,290 | ||||||
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Total Investments
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$ | 93,172,724 | |||||||
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*Party-in-interest
** The cost of participant-directed investments is not required to be disclosed.
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