NOTE

–

SHAREHOLDERS’ EQUITY

Prior to

March

2012,

the Company had

two

classes of common stock – Class A Common Stock and Class B Common Stock. On

March

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

2012,

a single class of Common Stock in all respects. Following the

March

2012

event, the Company is authorized to issue

120

million shares of

$0.10

par value Common Stock.

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

The Company paid dividends totaling

$0.22

per share in

2016,

$0.18

per share in

2015

and

$0.14

per share during

2014,

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

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. During

2014,

the Company repurchased and retired

500,000

shares of common stock at an average purchase price of

$15.30

per share. 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.

In the

second

quarter of

2016,

the Company amended the share purchase program to authorize the repurchase of up to

$50

million of common stock. This amended program has no specific expiration date. 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

2015,

the Company repurchased and retired

650,000

shares of common stock at an average purchase price of

$20.47

per share.

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,

2015

and

2014.

	SHARES			AMOUNT			ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS (DEFICIT)			PENSION LIABILITY			FOREIGN CURRENCY TRANSLATION ADJUSTMENT
	(in thousands)
Balance, at December 29, 2013		66,311		$	6,631		$	374,597		$	24,226		$	(34,082	)	$	(30,585	)
Net income		0			0			0			24,808			0			0
Stock issuances under employee option plans		55			5			381			0			0			0
Other issuances of common stock		489			49			10,361			0			0			0
Unamortized stock compensation expense related to restricted stock awards		0			0			(10,410	)		0			0			0
Cash dividends paid		0			0			0			(9,297	)		0			0
Forfeitures and compensation expense related to stock awards		(387	)		(38	)		1,293			0			0			0
Share repurchases		(500	)		(50	)		(7,619	)		0			0			0
Pension liability adjustment		0			0			0			0			(15,280	)		0
Foreign currency translation adjustment		0			0			0			0			0			(28,351	)
Other		0			0			0			0			0			0
Balance, at December 28, 2014		65,968		$	6,597		$	368,603		$	39,737		$	(49,362	)	$	(58,936	)

	SHARES			AMOUNT			ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS (DEFICIT)			PENSION LIABILITY			FOREIGN CURRENCY TRANSLATION ADJUSTMENT
	(in thousands)
Balance, at December 28, 2014		65,968		$	6,597		$	368,603		$	39,737		$	(49,362	)	$	(58,936	)
Net income		0			0			0			72,418			0			0
Stock issuances under employee option plans		39			4			355			0			0			0
Other issuances of common stock		597			59			9,746			0			0			0
Unamortized stock compensation expense related to restricted stock awards		0			0			(9,806	)		0			0			0
Cash dividends paid		0			0			0			(11,885	)		0			0
Forfeitures and compensation expense related to stock awards		(253	)		(25	)		14,670			0			0			0
Share repurchases		(650	)		(65	)		(13,241	)		0			0			0
Pension liability adjustment		0			0			0			0			6,072			0
Foreign currency translation adjustment		0			0			0			0			0			(32,575	)
Other		0			0			0			0			0			0
Balance, at January 3, 2016		65,701		$	6,570		$	370,327		$	100,270		$	(43,290	)	$	(91,511	)

	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	)

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. In

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

2014

and therefore there were

stock option compensation expenses during

2014,

2015

2016.

The expense for stock options is included in selling, general and administrative expense on the Company’s consolidated statements of operations, as none of these stock options have been issued to production personnel.

The following table summarizes stock options outstanding as of

January

2017,

as well as activity during the previous fiscal year:

	Shares		Weighted Average Exercise Price
Outstanding at January 3, 2016		87,500	$	8.75
Granted		0		0
Exercised		0		0
Forfeited or cancelled		0		0
Outstanding at January 1, 2017 (a)		87,500	$	8.75

Exercisable at January 1, 2017 (b)		87,500	$	8.75

(a) At

January

2017,

the weighted-average remaining contractual life of options outstanding was

2.9

years.

(b) At

January

2017,

the weighted-average remaining contractual life of options exercisable was

2.9

years.

January

2017,

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

$0.9

million and

$0.9

million, respectively (the intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option).

The intrinsic value of stock options exercised in

2015

and

2014

was

$0.4

million and

$0.6

million, respectively. The cash proceeds related to stock options exercised in

2015

and

2014

were

$0.4

million and

$0.4

million, respectively.

The tax benefit recognized with respect to stock options during all presented years was not significant.

			Options Outstanding						Options Exercisable
Range of Exercise Prices			Number Outstanding at January 1, 2017		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable at January 1, 2017		Weighted Average Exercise Price

$4.01	–	$5.00		40,000		2.0	$	4.31		40,000	$	4.31
$12.00	–	$14.00		47,500		3.7		12.49		47,500		12.49
				87,500		2.9	$	8.75		87,500	$	8.75

Restricted Stock Awards

During fiscal years

2016,

2015

and

2014,

the Company granted restricted stock awards totaling

277,000,

597,000

and

489,000

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

Compensation expense related to the vesting of restricted stock was

$4.7

million,

$13.9

million and

$4.0

million for

2016,

2015

and

2014,

respectively. These grants are made primarily to executive-level personnel at the Company and, as a result, no compensation costs have been capitalized. Accounting standards require that the Company estimate forfeitures for restricted stock and reduce compensation expense accordingly. The Company has reduced its expense by the assumed forfeiture rate and will evaluate actual experience against the assumed forfeiture rate going forward. The forfeiture rate has been developed using historical data regarding actual forfeitures as well as an estimate of future expected forfeitures under our restricted stock grants.

The following table summarizes restricted stock activity as of

January

2017,

and during the previous fiscal year:

	Shares		Weighted Average Grant Date Fair Value
Outstanding at January 3, 2016		1,470,000	$	17.92
Granted		277,000		17.32
Vested		1,009,500		18.46
Forfeited or cancelled		232,500		16.73
Outstanding at January 1, 2017		505,000	$	17.05

As of

January

2017,

the unrecognized total compensation cost related to unvested restricted stock was

$2.8

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

2019.

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

The tax benefit recognized with respect to restricted stock during the years

2016,

2015

and

2014

was

$2.0

million,

$5.5

million and

$1.0

million, respectively.

Performance Share Awards

2016,

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

January

2017,

as well as the activity during the year:

	Performance Shares		Weighted Average Grant Date Fair Value
Outstanding at January 3, 2016		0	$	0
Granted		444,000		17.21
Vested		17,000		17.22
Forfeited or canceled		58,000		17.22
Outstanding at January 1, 2017		369,000	$	17.20

Compensation expense related to the performance shares for

2016

was

$1.2

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

$4.3

million as of

January

2017.

performance shares were granted or outstanding during

2015

2014.

There was

significant tax benefit recognized with regard to the performance shares in

2016.