Good day ladies and gentlemen and welcome to the Q3 2013 Interface Inc., Earnings Conference Call. My name is Steve and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a Q&A session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. And I’d like to turn the call over to Mr. David Foshee, Vice President. Please proceed, sir.

Thank you, Operator. Good morning and welcome to Interface's Conference Call regarding third quarter 2013 results. Joining us from the Company are Dan Hendrix, Chairman and Chief Executive Officer; and Patrick Lynch, Senior Vice President and Chief Financial Officer. Dan will review highlights from the quarter, as well as Interface's business outlook. Patrick will then review the company's key performance metrics and financial results. We will then open the call for Q&A. A copy of the earnings release can be downloaded off the Investor Relations section of Interface's website. An archived version of this conference call will also be available through that website. Before we begin the formal remarks, please note that during today's conference call Management's comments regarding Interface's business, which are not historical information, are forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including risks and uncertainties associated with the economic conditions in the commercial interiors industry, as well as the risks and uncertainties discussed under the heading Risk Factors in Item 1A of the Company's annual report on Form 10-K for the fiscal year ended December 30, 2012, which has been filed with the Securities and Exchange Commission. We direct all listeners to that document. Any such forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. The Company assumes no responsibility to update or revise forward-looking statements made during this call and cautions listeners not to place undue reliance on any such forward-looking statements. Management's remarks during this call refer to certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most comparable GAAP measures contained in the Company's results release in Form 8-K filed with the SEC yesterday. These documents can be found on the Investor Relations portion of the Company's website, www.interfaceglobal.com. Lastly, please note that this call is being recorded and broadcasted for Interface. It contains copyrighted material and may not be rerecorded or rebroadcast without Interface's expressed permission. Your participation on the call confirms your consent to the Company's taping and broadcasting of it. Now, I'd like to turn the call over to Dan Hendrix. Please go ahead, sir.

Thank you, David. Good morning everyone. We are really pleased with the way that third quarter shaped up with nice increases in sales, operating income, net income and earnings per share. We also continued our drive to raise gross profit margins, pushing it up to 36.1%, up 200 basis points year-over-year and up 70 basis points over the second quarter. And SG&A expenses came in where we forecasted in our last call at 25% sales. As we said in the earnings release, the Americas business was the star of the quarter with all time record sales and operating income for the region. It broke the previous sales record set in the third quarter last year and the next highest operating income was way back in the second quarter of 2008 prior to the worldwide financial crisis. Hitting these all time records is remarkable when you consider that we are still about 30% below the 2007 peak of the commercial market. I also was pleased that we generated $28 million in cash during the quarter. We finished the quarter with $89 million of cash on the balance sheet. As we announced a few weeks ago, we’ll soon be deploying a portion of our cash to redeem $27.5 million of our 7 5/8 senior notes. We saw some much needed improvement in our European business on a sequential basis with sales up 9% in the quarter compared with the second quarter. Year-over-year sales European sales were flat as reported in U.S. dollars but down 6% in local currency. However, the year-over-year order comparison in Europe turned positive for the month of September which is another good sign in Europe overall still maintain a respectable profit level despite the challenging conditions in that region. Our Asia Pacific business turned in a strong quarter…

Thank you and good morning everyone. I will take a few minutes to walk through the financial highlights for the quarter. To say as a quick reminder, given sale of Bentley’s Prince Street in 2012, the results for Bentley Prince Street for the third quarter of 2012 and all prior periods have been classified as discontinued operations. Sales in the third quarter of 2013 were up 4.8% to $254.5 million compared with $242.9 million in the third quarter of 2012. On a consolidated basis there was not a significant currency impact for the quarter. As anticipated in our second quarter call, we continued to see gross profit margin expansion in 2013. We saw an improvement in gross profit margin of 200 basis points versus the third quarter of 2012 and a sequential improvement at 70 basis points versus the second quarter of 2013. Dan has already mentioned the record quarter we experienced in Americas due to the success of our segmentation strategy as well as the continued rebound in the commercial market. We are very pleased with the success of our hospitality segment which showed improvement up 55% versus the second – 2012 third quarter. Our success in hospitality is a great validation of our investments in the segmentation strategy over the last several years. We are also encouraged by the improvement in the Asia Pacific market which experienced a sales increase of 10% during the quarter, on a segment basis our increases in the regions were led by the corporate office market retail and hospitality. Southeast Asia and China performed very well delivering double digits sales increases. We are also pleased to report that we turned a small profit in China for the quarter. On a local currency basis our sales in Australia were up 10% but due to…

Thanks. Thank you, ladies and gentlemen. (Operator Instructions) Please standby for your first question which comes from the line of David Macgregor from Longbow Research. Please go ahead David.

Yes. Good morning guys. Good luck, congratulations on the progress. Nice to see those margins up. Just to start with those margins if you will, you talked about -- the market is still down about 30% from the peak and so I guess, I’m just trying to get a sense of what the upside might be from a leverage standpoint and just how much available capacity you got today. Can you just review capacity utilization rates in the U.S. and Europe and Asia for us?

Yes. In the U.S., remember capacity is bottom there just not you go out and built a brand new plant.

Great.

In the U.S., we are running about 75% of capacity now today with the intention of expanding that next year pretty significantly. If you go to Asia Pacific, our Thailand plant is running 24/7, 7 days a week. But that’s going to be alleviated when we start the Australian plant up once that happens it will be at about 70% capacity. Our China plant as well as running about 100% capacity supply and product to Australia and that will go back down about 60% and the Australian plant will be at about 60%. In Europe, we have a lot of capacity. We are about 60% of capacity in Europe.

60% okay. And expansion in the U.S. for next year, what kind of capital will that require?

Well, we are looking at it right now as we are going to go through the budget season here in November, we will have further detail. But, right now we are just still kind of evaluating different options right now.

Do you have a sense of what kind of revenue potential the incremental capacity you are contemplating the support?

Not at this time, now.

Okay. And then just in Australia, you talked about the fact that there could be some first half 2014 margin pressures, you ramped that facility up. Can you lever a little further on that for us?

Sure. I think there will be a little bit naturally as we start up the facility, you might see 50 basis point kind of compression on a total basis in the early part of next year related to Australia. There is always what you are looking at, as you got downsize production in China and Thailand which create some disruption as you see there. And you got to increase the capacity in Australia and you ramp it up. You always have inefficiencies when you are moving around that kind of volume.

No, understood, understood. I mean nice to get that plants up and running. How quickly can you –

Oh, yes.

How quickly can you rebuild the Quickturn business that you have given up there?

Well, when we started up in January, it will be three weeks. So we are there as far as the Quickturn.

Okay. That’s great. And then just finally, you talked about the Chinese plant doing a small profit, can you elaborate on the expectations for 2014 given that you are going to have to move to a lower capacity utilization rate once Australia comes up.

Yes. I mean, we are going to – our idea is to grow the China business 15% that’s what we think the market is growing. And as you grow into that 15% growth you are going to take up some of that capacity that we are sending to Thailand, I mean, excuse me sending to Australia.

Okay.

We would expect China to be profitable next year.

Sorry, if I can just ask one more, you done well in a number of verticals that you highlighted in your press release, just wondering if you are gaining share or what you are seeing in terms of vertical market development and are you adding sales people as a driver behind those numbers?

Yes. All the three of those questions data points you asked, I think in the hospitality market, we are trying to convert the broadloom business to carpet tile and we are having success in that. I think it’s up 55%, if I got the number right in the U.S. or in Americas. We are also rolling Interface Australia out globally and carpet tile has a very, very, very minute share of the global hospitality market which we estimated around $1.5 billion. So yes, we are one of the only big players trying to convert the broadloom into carpet tile. That’s all market share gains for us.

Great. Congratulations in all the progress. Thank you.

Thanks.

And your next question comes from the line of Mike Wood from Macquarie Capital. Please go ahead.

[Technical Difficulty]

Hello?

He seems to have dropped off. Your next question comes from the line of Sam Darkatsh from Raymond James. Please go ahead.

Yes. Sam Darkatsh, Raymond James. Hi, Dan. Hi, Patrick. How are you?

Hi, Sam.

Yes.

First, couple of housekeeping questions. Piggybacking off of one of David’s questions, when you are talking about the 50 basis points in gross margin pressure early next year because of the rebalancing of the plants, are you talking companywide or are you talking just in Asia?

I was saying companywide on a sequential basis from Q4 to Q1.

Okay. On a sequential basis, okay, great. Just a concern there for a second. Second, housekeeping question, the FLOR business the overall growth was less than that of the comp store sales, I’m guessing the differential there is the web catalog business? Could you help with what the growth rates might have been there versus the stores?

Yes. That was high single or double digit kind of growth.

On the web catalog?

That’s right.

Okay. And then, Dan, my final question, it seems as though I know orders slowed tail end of Q3 but then it seems like they picked up a fair amount in October. So how do you -- you are balancing out -- it seems like you are being much more circumspect on your fourth quarter results despite the fact that it seems like orders may have picked up early in the quarter, help us reconcile those two things?

I mean the fourth quarter order is a pretty easy comp. Its $230 million last year I think. So if you are comparing it to – a comp is pretty easy.

I understand. Okay. So it’s more than directionally what you are seeing at a high level versus the absolute year-on-year change at this point is more concerning for you?

Right.

Okay. Got it. Thank you much.

And your next question from the line of Mike Wood from Macquarie Capital. Please go ahead Mike.

Hi, good morning. Hello? Hi, can you hear me?

Hello.

Oh, hi. Sorry, in terms of the recent order weakness that you talked about in the press release, can you give some more color in terms of what the office growth was in the Americas versus the non-office orders?

Well, we don’t track the segmentation by orders. We track segmentation by shipments. In the Americas, the corporate office was up 4% in Q3 and shipments and overall sales were up 6%. So, the non-corporate office piece was up, I guess in aggregate, I don’t know 8% or so.

Yes.

Got it. In terms of the trial off towards the end of the quarter, I guess, where there any specific pockets that saw that that may help shed light into whether it was government shutdown related or?

I would say that that what we are seeing is, there is a lot of projects that we are in the process of getting out, in getting specified on. And the major projects keep getting pushed out and they got pushed out during that period. The large corporations just didn’t pull the trigger on. When we are talking about being choppy, the large order business is not an instant hit part of our business and that seem to get delay those projects.

Okay. So that would be in office. And then in terms of the minimizing the downtime between turnover and the plans and the gross margin improvement that you saw, was that largely a one time fix was implemented or will there be ongoing margin benefits from continued process improvement?

I think you get the margin improvement. We have a process implements going with lean. Thailand we have very inefficient in Thailand and we have also been working on that U.S. business. And the margin improvements are also going to have to come through throughput. We need to increase the throughput for the plants to get continued margin improvement as well.

Got it. And also in terms of SG&A going into the fourth quarter, can you give us a sense of the absolute dollar directional change?

I think it will be sequentially flat.

Thank you.

And your next question from the line of John Baugh of Stifel. Please go ahead sir.

Thank you. Good morning. Nice quarter. I wanted to ask on the orders, can we go into a little more and you can do it sequentially or year-over-year doesn’t matter. Get into Europe and maybe parse it out U.K. versus everything else. And then, how I compare with the U.S., I feel flat, I think order number for the quarter? Thank you.

Yes. Orders in the second quarter, sorry in the third quarter were in the Americas will be up 2%, Europe and U.S. dollars were up 4% and then Asia Pacific was down includes Australia and Asia 18%. So balance for the whole quarter it was about quite flat 255 million orders.

So that Asia Pacific number or is it something timing or --

Yes. There, if you remember, we had the fire last year in -- right at the beginning of the third quarter. And so we had a lot of order influx in Australia where people were trying to place their orders to get in line for the production because I knew that we have longer lead times. So you had an [ph] abnormal amount of orders in Australia get entered in the third quarter.

Got it. And I don't, on earlier question that was implying that orders have rebounded significantly in October, did you say that or did I miss that or is that not a right conclusion or I’m confused?

Yes. We’ve talked about it the order trend in the first three weeks as a group we’re up 10% in the first three weeks. The Americas was 10%. The European business is up 20% in U.S. dollars and then Asia Pacific continues to be down around 15%.

Okay. And that would again refresh my memory on how much of that would ship in say this quarter versus in the next year?

We’re considering six to eight weekly time, half of the quarter’s orders are shipped.

Okay. And do you have any goals, I realized you are right in the middle of your budgeting process for next year. But I’m curious as to I guess a couple of numbers thoughts on the FLOR store expansion and then how we might think about SG&A in light of that and other obviously consolidated business? Thank you.

As far as the FLOR expansion, there is 10 more markets that we’re looking at, they are Tier 1 markets. So we’re going to go through that budget process and look at that. We’re also have in mindset to make money in FLOR next year, so we’re going to sort of balance the FLOR expansion with making money to some extent. What was the second part of that question?

Just a thought on SG&A and how that either in terms of revenue or dollars would play out next year?

I think we’ve got to start driving the SG&A percentage down, 25% is too high and so we’re going to really take a hard look at SG&A and what can grow the top line and what can’t and would be very selective about what we invest in.

Great, thank you. Good luck.

Thanks.

And your next question comes from the line of Kathryn Thompson from Thompson Research Group. Please go ahead.

Good morning. This is [indiscernible] sitting in for Kathryn. I just have one more question on margin, could you give more color on how much of the year-over-year margin improvement was better utilization versus price and mix?

Yes. I think it was better utilization, it was better execution specifically in our Americas manufacturing price mix on a year-over-year basis. So, it was pretty even pricings up a little bit, mix really didn’t have big impact, it’s really just on better efficiencies, better execution in our manufacturing facilities.

Okay. And how is your outlook on that question in the remainder of the year?

Seems to be the same, the raw material environment seems to be pretty stable as it has been for over 18 months now and the near term at least through the balance of 2013 that is expected to be pretty stable. So we may continue to -- hopefully continue to harvest the benefits of other lean manufacturing initiatives we put in place, so should be consistent through the balance of the year.

Okay. Thank you so much for taking my question.

Thank you.

Thank you. And your next question is from the line of Keith Hughes from SunTrust. Please go ahead. Keith Hughes – SunTrust: Thank you. You talked early about capacity expansions and so it appears you’re preparing for an off cycle run over some period of time. So I get back to your answers to the last question Dan, controlling SG&A, is not usually a period where SG&A dollars come down, how are you looking at SG&A for next year in light of capacity expansion?

I don't think they are going to come down. My anticipation is that as a percentage they are going to come down but not absolute dollars and we’re going to grow the top line. Keith Hughes – SunTrust: Do you have an internal goal to grow SG&A some percentage of what’s up, half of what sales grow or something along those lines?

Yes. We have -- we actually do it with a throughput model which you have to control SG&A to get the throughput on the sales line. So yes, we expect SG&A to be step function where you actually still go down as sales go up as a percentage. Yes. We have internal goals on how much will increase. Keith Hughes – SunTrust: Okay. And you have referred earlier to some bonds that you can bring in at the end of 2014, is it fair to say you try to generate cash and payoff as much as those as you can, are you looking to roll it over, what’s the long-term capital plan?

Sure. All of the above, we expect to continue to generate free cash and selectively repay the senior notes utilizing the call features that we have the 10% redemption feature and then the full call protections that’s in next December. So you know the new credit facility kind of is a first step in the process of addressing the capital structure and creating options for us, when that time comes next year to refinance, so we have options in front of us. But right now we haven’t made any decisions about that yet. Keith Hughes – SunTrust: Okay, thank you.

Thank you.

And your next question from the line of Glenn Wortman from Sidoti. Please go ahead. Glenn Wortman – Sidoti: Good morning guys.

Good morning.

Good morning Glenn Wortman – Sidoti: Just on the gross margin, would you expect that to ramp backup fairly quickly as you adjust your new plan coming online in 2014?

Yes. Yes. We expect to -- back to the margin we have in Asia Pacific in the second quarter next year. Glenn Wortman – Sidoti: Okay. And then second on Australia and how much sales now down from the peak and how should you think you can get back to prior levels?

Well, the peak was about $120 million right, but I would say the market is down. I think before the fire started, we read about $100 million -- little over $100 million in sales. We think we’re going to end a little over $80 million. So there is $17 million of market share that we think we can get back pretty quick. Glenn Wortman – Sidoti: Okay, all right. Thanks for taking my questions.

Thanks.

And your next question from the line of Philip Volpicelli from Deutsche Bank. Please go ahead.

Good morning. I’m Sean Wondrack on for Philip today. My first question for you as to do with your Americas business, you gave some good color on the hospitality portion, I was curious given the complications going on with the government, do you proceed it’s being a big headwind next year or with respect to orders and how you expect me to give a kind of play out?

Sure, I mean, we weren’t terribly bullish about the government business even going into 2013 and it’s kind of exceeded our expectation. I mean our government business year-to-date is up 12%. Yes, I would imagine going into 2014, we’ll continue to be in a negative five up five kind of category expectation around the government business in the U.S. and just to give you a sense total government for us in our Americas business is about 7% of the total portfolio.

7%, okay, thank you. And then also in terms of the education markets and some of your other markets, can you touch based on them a little bit what you’re seeing there, are you seeing some more investment?

Our education business again in the Americas business continues to do about what we thought and it’s up low single digits on a full year basis. So we’re doing probably better than we had anticipated it in the beginning of the year. And again, we will probably continue to bracket that in a similar fashion as we did in the government business going into 2014 kind of flat to up area.

Okay. Thank you. And then one last question, seems like you are turning the corner here with respect to the Australian fire, things seem to be coming back together obviously called 10% of your notes, what would you expect when you think about next year, excuse me one second, what would you expect, oh, I’m sorry, have you received the proceeds from the business interruption insurance yet or are you still awaiting this?

We have received $55 million in aggregate in proceeds. They have not been earmarked for any of the particular elements of the claim to-date. They have all been advanced kind of payment against our full claim. And so we’re not exactly clear what the $55 million is yet to-date that it’s really attributable to. We have better visibility here in Q4 when we have our kind of second round of face-to-face meetings with the insurance company.

Okay. And have you disclosed what your full claim was for that?

Full claim so far has been $80 million.

$80 million. And if everything were to workout, is there a timeline by which you think you might be able to realize all of that?

It’s unclear at this point. It’s just early stages of the negotiation.

Okay, fair enough. Thanks a lot and good luck next quarter.

Thank you.

And your next question is from the line of David Macgregor from Longbow Research. Please go ahead. David your line is open. You may be on mute.

Yes, thank you. Dan with respect to the previous question on FLOR, you had indicated that in 2014, the plan might be that you lighten up a little bit on growth and pursue profitability, is anyway you can talk about how profitable that business is today either at the gross margin or the EBIT margin line?

Can I exclude the money, we made significant investments in that business.

Okay.

At the gross profit level. it’s the highest gross profit business that we have by a lot actually.

Can you talk about what that it would be?

It’s in the 50% category gross profit margin and the --

Okay. Surely just about leveraging the SG&A at this point?

Correct.

Okay. How much stores were in the comp space?

15 on a year-over-year basis that have been up in 12 months of the 21.

And in fact 50% gross margin, how does that compare with where you were a year ago?

It’s right about the same, maybe up a little bit but it’s been, it’s been largely a pretty consistent gross profit margin in the mid to low 50s, pretty consistently --

Which we priced the product to be though.

Okay. Good. And just one last question just on Europe, I mean your orders have turned positive, that’s pretty encouraging but how much -- by how much do you think you have reduced your breakeven point in Europe over the last couple of years?

Well, I mean it’s been a profitable business all the way through. I mean we’ve put up 8% kind of EBIT margins here in Q3 in our European business. So it’s held in there at a decent level of profitability even on flat to down sales for the last three or four years. But we took out the manufacturing facility last spring, took out $10 million of fixed manufacturing cost. So we’ve right sized that business several times --

All right, yes.

Over the last decade –

Keep it profitable.

To maintain this level of profitability. So we should see some nice leverage going forward on top line growth in the division.

Yes. I guess David, one way to look at it is, its one of our highest contribution margin businesses once you get growth.

Yes, I was just about to ask what the contribution margins, there might be now.

Yes, 25 plus percent.

Yes. Okay, great. Thanks a lot guys.

Thank you.

And your next follow up question from the line of Steven Kim from Barclays. Please go ahead.

Hi, guys, it’s a John Coyle, running for Steve. I’m just trying to reconcile your commentary in the press release on orders or sorry on the fourth quarter and then what you’re seeing for orders in October, I mean to me it appears that the comps are a bit more difficult than the fourth quarter, was there an acceleration in orders last year sequentially from October into November, December that’s driving your commentary from the press release?

I would say that we had a deceleration of orders from third quarter, fourth quarter last year. And we’re running at a pretty high level in our manufacturing plants particularly United States that we have to back off based on order activity. With essentially lead times and so we pull on everything we can run and we’re seeing that we didn’t see the same level of activity in the last six weeks of the quarter that we had in the first six weeks. So we [ph] went into backlog on the U.S. business.

Got it. But in the fourth quarter of 2012, did order sequentially improve at the end of the year?

They declined.

They declined, okay.

That was about 255 to 230 from the third to fourth quarter last year.

So, from October to November and December, the comp should ease, correct?

Comps were fairly easy now, that’s why we’re up 10% in the first three weeks because we have a pretty easy comp in the fourth quarter last year.

Okay. All right, thank you.

Thank you.

There is no further question at this time. (Operator Instructions)

Well, thank you. Thank you for listening to our call and hope we will have a really good fourth quarter. Thanks. Thanks a lot.