07/25/2008 12:54 PM

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Interface, Ormat on Verge of Joining SB20 Core

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Interface, Inc. (Nasdaq: IFSIA)

Atlanta, GA
Market Cap: $730 million
P/E: 16.3
52 Week: $11-$20.55
Share Price: $11.59
Dividend Yield: 1%
www.interfaceinc.com

An outstanding role model through its efforts to radically reduce its environmental impact, Interface embodies the term "sustainable business." Championed by Founder and Chairman Ray Anderson, who's epiphany in 1994 drove a "stake through his heart" after realizing the damage his company was doing to the environment, he promised Interface would "be the first company that, by its deeds, shows the entire industrial world what sustainability is in all its dimensions: people, process, product, place and profits--by 2020--and in doing so, to become restorative through the power of influence."

Since then, Ray has traveled the world preaching the word of sustainability while pushing Interface toward Mission Zero. The website says, "The climb to the top of Mount Sustainability is an arduous, but rewarding, journey. Every foothold gained begins with a self-questioning analysis of our processes and materials and the determination to achieve even better results with less, and ultimately, no impact on our environment."

One of the world's largest floor covering companies, Interface is the largest producer of modular carpet for corporations, governments and institutions. Modular carpet fits perfectly with the company's sustainability strategy because it vastly reduces waste. When a section gets stained or wears out, Interface simply replaces (and recycles) the affected tiles, instead of the entire carpet. Tile is installed without adhesives or fasteners; the backing is made from recycled materials.

Interface now benefits from the growing adoption of carpet tile in the nonresidential real estate market and the accelerating trend toward green building. The company uses bio-based alternatives with ever-higher percentages of post-consumer waste that are composted or recycled into new products. These materials are now used in 25% of its floorcoverings, up from 0.5% in 1996. Its pioneering closed-loop manufacturing process eliminates waste and emissions.

Interface says, "For many companies, the first and most difficult step on that climb is not on the mountain itself, but rather admitting that the mountain exists. We see the mountain and we're climbing it."

Interface has laid out a path to sustainability on Seven Fronts:

1. Eliminate Waste: Eliminate all forms of waste in every area of business
2. Benign Emissions: Eliminate toxic substances from products, vehicles and facilities
3. Renewable Energy: Operate facilities with renewable energy sources - solar, wind, landfill gas, biomass and low impact hydroelectric
4. Close the Loop: Redesign processes and products to close the technical loop using recovered and bio-based materials
5. Resource-Efficient Transportation: Transport people and products efficiently to reduce waste and emissions
6. Sensitize Stakeholders: Create a culture that integrates sustainability principles and improves people's lives and livelihoods
7. Redesign Commerce: Create a new business model that demonstrates and supports the value of sustainability-based commerce.

Interface views existing laws and regulations governing commerce--which subsidize unsustainable industrial processes--as its biggest problem.

"We will need the cooperation of government and other industrial partners to shift taxation away from economic and social benefits, (labor, income and investment) to detriments, (pollution, waste, and the loss of primary resources)," the company says.

Waste is anything that doesn't provide value to the customer, according to Interface. Their unique definition of waste--which includes overuse of materials and inventory losses in addition to the usual off-quality goods and scrap--has reduced waste sent to landfills by 66%, saving them over $372 million since 1996. And they have reduced the energy used to make carpet by 45%, while increasing renewable energy to 27% of operations. Water use in production is down 75%.

While most companies take the easier route of benchmarking greenhouse gas emission reductions below 2002 or 2005 levels, the Interface baseline is 1996. Through improved efficiencies, process changes, and direct renewable energy purchases, emissions are down 33% from 1996 levels. They also offset emissions by another 49% from credits at its landfill gas project.

After a handful of years spent restructuring, Interface is profitable again and has strong prospects going forward. The company has successfully diversified beyond commercial markets into education, hospitality and other non-office segments. The first quarter of 2008 was the best in its history--sales rose 8% during what has historically been their slowest quarter and during a tough period in the construction industry. The company reported continued profit growth in 2Q08.

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