NOTE

–

SHAREHOLDERS’ EQUITY

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. 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 cash dividends totaling

$0.26

per share in

2018,

$0.25

per share in

2017,

and

$0.22

per share in

2016,

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 Syndicated Credit Facility, which specifies 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.

October 7, 2014,

the Company announced a program to repurchase up to

500,000

shares of common stock per fiscal year, commencing with the

2014

fiscal year. On

November 19, 2015,

the Board of Directors amended the program to provide that the

500,000

shares of common stock previously approved for repurchases for the

2016

fiscal year

may

be repurchased by the Company, in management’s discretion, during the period commencing on

November 19, 2015

and ending at the conclusion of fiscal year

2016.

2016,

the Company adopted a share purchase program to authorize the repurchase of up to

$50

million of common stock. This program had

specific expiration date. During the

first

three

months of

2017,

the Company completed the

$50

million repurchase program. In the

second

quarter of

2017,

the Company adopted a new share repurchase program in which the Company is authorized to repurchase up to

$100

million of its outstanding shares of common stock. The program has

specific expiration date.

Pursuant to the above-described programs, the Company has repurchased shares in the past

three

years as follows. During

2016,

the Company repurchased and retired

1,177,600

shares of common stock at a weighted average purchase price of

$15.68

per share. During

2017,

the Company repurchased and retired a combined total of

4,628,300

shares under these plans, at an average purchase price of

$19.76

per share. During

2018,

the Company repurchased and retired a combined total of

615,000

shares under these plans, at an average purchase price of

$23.54

per share. As of

December 30, 2018,

the Company had approximately

$25.1

million of availability remaining to purchase shares under the repurchase program put in place in

2017.

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

2016

2018.

	SHARES			AMOUNT			ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS (DEFICIT)			PENSION LIABILITY			FOREIGN CURRENCY TRANSLATION ADJUSTMENT
	(in thousands)
Balance, at January 3, 2016		65,701		$	6,570		$	370,327		$	100,270		$	(43,290	)	$	(91,511	)
Net income		0			0			0			54,162			0			0
Stock issuances under employee plans		17			2			251			0			0			0
Other issuances of common stock		277			28			4,726			0			0			0
Unamortized stock compensation expense related to restricted stock awards		0			0			(4,754	)		0			0			0
Cash dividends paid		0			0			0			(14,285	)		0			0
Forfeitures and compensation expense related to stock awards		(579	)		(58	)		979			0			0			0
Share Repurchases		(1,178	)		(118	)		(18,378	)		0			0			0
Pension liability adjustment		0			0			0			0			(11,572	)		0
Foreign currency translation adjustment		0			0			0			0			0			(19,011	)
Windfall tax benefit - share-based payment awards		0			0			6,300			0			0			0
Other		0			0			0			91			0			0
Balance, at January 1, 2017		64,238		$	6,424		$	359,451		$	140,238		$	(54,862	)	$	(110,522	)

	SHARES			AMOUNT			ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS (DEFICIT)			PENSION LIABILITY			FOREIGN CURRENCY TRANSLATION ADJUSTMENT			CASH FLOW HEDGE
	(in thousands)
Balance, at January 1, 2017		64,238		$	6,424		$	359,451		$	140,238		$	(54,862	)	$	(110,522	)	$	0
Net income		0			0			0			53,246			0			0			0
Stock issuances under employee plans		36			4			508			0			0			0			0
Other issuances of common stock		253			25			4,507			0			0			0			0
Unamortized stock compensation expense related to restricted stock awards		0			0			(4,532	)		0			0			0			0
Cash dividends paid		0			0			0			(15,487	)		0			0			0
Forfeitures and compensation expense related to stock awards		(93	)		(9	)		5,574			0			0			0			0
Share Repurchases		(4,628	)		(463	)		(91,113	)		0			0			0			0
Pension liability adjustment		0			0			0			0			(1,692	)		0			0
Foreign currency translation adjustment		0			0			0			0			0			31,579			0
Cash flow hedge unrealized gain (loss)		0			0			0			0			0			0			904
Windfall tax benefit - share-based payment awards		0			0			(3,124	)		0			0			0			0
Adoption of new accounting standard - share-based payment awards		0			0			0			9,435			0			0			0
Balance, at December 31, 2017		59,806		$	5,981		$	271,271		$	187,432		$	(56,554	)	$	(78,943	)	$	904

	SHARES			AMOUNT			ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS (DEFICIT)			PENSION LIABILITY			FOREIGN CURRENCY TRANSLATION ADJUSTMENT			CASH FLOW HEDGE
	(in thousands)
Balance, at December 31, 2017		59,806		$	5,981		$	271,271		$	187,432		$	(56,554	)	$	(78,943	)	$	904
Net income		0			0			0			50,253			0			0			0
Stock issuances under employee plans		224			22			476			0			0			0			0
Other issuances of common stock		182			18			4,809			0			0			0			0
Unamortized stock compensation expense related to restricted stock awards		0			0			(4,710	)		0			0			0			0
Cash dividends paid		0			0			0			(15,471	)		0			0			0
Forfeitures and compensation expense related to stock awards		(89	)		(9	)		12,847			0			0			0			0
Share Repurchases		(615	)		(61	)		(14,424	)		0			0			0			0
Pension liability adjustment		0			0			0			0			12,944			0			0
Foreign currency translation adjustment		0			0			0			0			0			(22,544	)		0
Cash flow hedge unrealized gain		0			0			0			0			0			0			422
Balance, at December 30, 2018		59,508		$	5,951		$	270,269		$	222,214		$	(43,610	)	$	(101,487	)	$	1,326

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

five

years from the date of the grant. The Company’s options expire at the end of time periods ranging from

three

ten

years from the date of the grant.

May 2015,

the shareholders approved an amendment and restatement of the Omnibus Plan. This amendment and restatement extended the term of the Omnibus Plan until

February 2025,

and set the number of shares authorized for issuance or transfer on or after the effective date of the amendment and restatement at

5,161,020

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.

All outstanding stock options vested prior to

2015

and therefore there were

stock option compensation expenses during

2018,

2017

2016.

The following table summarizes stock options outstanding as of

December 30, 2018,

as well as activity during the previous fiscal year:

	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2017		82,500	$	8.53
Granted		0		0
Exercised		40,000		7.43
Forfeited or cancelled		0		0
Outstanding at December 30, 2018 (a)		42,500	$	9.56

Exercisable at December 30, 2018 (b)		42,500	$	9.56

(a) At

December 30, 2018,

the weighted-average remaining contractual life of options outstanding was

1.0

years.

(b) At

December 30, 2018,

the weighted-average remaining contractual life of options exercisable was

1.0

years.

December 30, 2018,

the aggregate intrinsic values of in-the-money options outstanding and options exercisable were

$0.2

million and

$0.2

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 range of exercise prices of the remaining stock options is from

$4.31

$12.43

per option.

Restricted Stock Awards

During fiscal years

2018,

2017

and

2016,

the Company granted restricted stock awards totaling

194,000,

253,000,

and

277,000

shares, respectively, of Common Stock. These awards (or a portion thereof) vest with respect to each recipient over a

two

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 in the event of a change in control of the Company, or upon involuntary termination without cause.

Compensation expense related to awards of restricted stock was

$4.1

million,

$2.8

million and

$4.7

million for

2018,

2017

and

2016,

respectively. These grants are made primarily to executive-level personnel at the Company and, as a result,

compensation costs have been capitalized. The Company estimates forfeitures for restricted stock and reduces 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 outstanding as of

December 30, 2018,

as well as activity during the previous fiscal year:

	Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2018		463,000	$	17.79
Granted		194,000		25.57
Vested		83,500		17.75
Forfeited or cancelled		24,500		20.41
Outstanding at December 30, 2018		549,000	$	27.65

As of

December 30, 2018,

the unrecognized total compensation cost related to unvested restricted stock was

$4.2

million. That cost is expected to be recognized by the end of

2021.

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.

Performance Share Awards

In each of the years

2016

2018,

the Company issued awards of performance shares to certain employees. These awards vest based on the achievement of certain performance-based goals over a performance period of

one

three

years, subject to the employee’s continued employment through the last date of the performance period, and will be settled in shares of our common stock or in cash at the Company’s election. The number of shares that

may

be issued in settlement of the performance shares to the award recipients

may

be greater (up to

200%

) or lesser than the nominal award amount depending on actual performance achieved as compared to the performance targets set forth in the awards. The expense related to these performance shares is captured in selling, general and administrative expense on the consolidated statement of operations.

The following table summarizes the performance shares outstanding as of

December 30, 2018,

as well as the activity during the year:

	Performance Shares		Weighted Average Grant Date Fair Value

Outstanding at January 1, 2018		669,500	$	17.51
Granted		261,000		25.69
Vested		134,000		17.72
Forfeited or canceled		37,000		19.93
Outstanding at December 30, 2018		759,500	$	20.17

Compensation expense related to the performance shares for

2018,

2017,

and

2016

was

$10.4

million,

$4.5

million and

$1.2

million, respectively. Unrecognized compensation expense related to these performance shares was approximately

$4.0

million as of

December 30, 2018.

The tax benefit recognized with respect to restricted stock and performance shares was

$2.4

million,

$2.6

million, and

$2.0

million in

2018,

2017,

and

2016,

respectively.