KNOLL INC - FORM 10-Q - November 10, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
                                             
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2014
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                    to                       
 
Commission File No. 001-12907

KNOLL, INC.
 
A Delaware Corporation
 
I.R.S. Employer No. 13-3873847
 
1235 Water Street
East Greenville, PA 18041
Telephone Number (215) 679-7991
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x,
Accelerated filer o,
Non-accelerated filer o,
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes o No x
 
As of November 6, 2014, there were 48,678,124 ,shares (including 1,258,404 shares of non-voting restricted shares) of the Registrant’s common stock, par value $0.01 per share, outstanding.
 


KNOLL, INC.
 
TABLE OF CONTENTS FOR FORM 10-Q
 
Item
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

PART I - FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KNOLL, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except per share data)
 
September 30,
2014
 
December 31,
2013
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
15,700

 
$
12,026

Customer receivables, net
94,565

 
104,171

Inventories, net
138,728

 
96,449

Deferred income taxes
11,234

 
11,408

Prepaid and other current assets
22,158

 
12,145

Total current assets
282,385

 
236,199

Property, plant, and equipment, net
162,228

 
137,893

Goodwill
128,684

 
79,951

Intangible assets, net
254,539

 
214,695

Other non-trade receivables
3,800

 
4,250

Other noncurrent assets
6,231

 
4,346

Total Assets
$
837,867

 
$
677,334

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Current maturities of long-term debt
$
10,000

 
$
—

Accounts payable
97,477

 
91,378

Income taxes payable
10,425

 
249

Other current liabilities
91,679

 
76,676

Total current liabilities
209,581

 
168,303

Long-term debt
251,500

 
173,000

Deferred income taxes
76,013

 
75,670

Postretirement benefits other than pensions
9,066

 
8,908

Pension liability
21,040

 
5,615

Other noncurrent liabilities
30,957

 
17,396

Total Liabilities
598,157

 
448,892

Commitments and contingent liabilities


 


Equity:
 

 
 

Common stock, $0.01 par value; 200,000,000 shares authorized; 62,638,156 shares issued and 47,379,898 shares outstanding (net of 15,258,258 treasury shares) at September 30, 2014 and 61,826,778 shares issued and 47,059,458 shares outstanding (net of 14,767,320 treasury shares) at December 31, 2013
487

 
483

Additional paid-in capital
38,620

 
37,258

Retained earnings
201,908

 
184,799

Accumulated other comprehensive income (loss)
(1,484
)
 
5,902

Total Knoll, Inc. stockholders' equity
239,531

 
228,442

Noncontrolling interests
179

 
—

Total Equity
239,710

 
228,442

Total Liabilities and Equity
$
837,867

 
$
677,334

 
See accompanying notes to the condensed consolidated financial statements.

3

KNOLL, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands, except per share data)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
Net sales
$
268,297

 
$
216,898

 
$
763,425

 
$
631,796

Cost of sales
173,335

 
144,559

 
494,784

 
425,949

Gross profit
94,962

 
72,339

 
268,641

 
205,847

Selling, general, and administrative expenses
71,647

 
55,288

 
211,102

 
166,094

Restructuring charges
—

 
—

 
203

 
—

Operating profit
23,315

 
17,051

 
57,336

 
39,753

Interest expense
1,899

 
1,484

 
5,514

 
4,496

Other (income) expense, net
(3,294
)
 
2,224

 
(3,098
)
 
(1,273
)
Income before income tax expense
24,710

 
13,343

 
54,920

 
36,530

Income tax expense
9,088

 
4,793

 
20,266

 
14,018

Net earnings
15,622

 
8,550

 
34,654

 
22,512

Net earnings (loss) attributable to noncontrolling interests
(31
)
 
—

 
(39
)
 
—

Net earnings attributable to Knoll, Inc. stockholders
$
15,653

 
$
8,550

 
$
34,693

 
$
22,512

 
 
 
 
 
 
 
 
Net earnings per common share attributable to Knoll, Inc. stockholders:
 

 
 

 
 

 
 

   Basic
$
0.33

 
$
0.18

 
$
0.73

 
$
0.48

   Diluted
$
0.33

 
$
0.18

 
$
0.72

 
$
0.47

Dividends per share
$
0.12

 
$
0.12

 
$
0.36

 
$
0.36

Weighted-average number of common shares outstanding:
 

 
 

 
 

 
 

   Basic
47,376,605

 
46,915,660

 
47,314,810

 
46,882,362

   Diluted
48,072,632

 
47,679,422

 
48,032,710

 
47,615,305

 
 
 
 
 
 
 
 
Net earnings
$
15,622

 
$
8,550

 
$
34,654

 
$
22,512

Other comprehensive income (loss):
 

 
 

 
 

 
 

   Foreign currency translation adjustment
(7,488
)
 
4,047

 
(7,577
)
 
(3,164
)
   Pension and other post retirement liability adjustment, net
   of tax
64

 
913

 
191

 
2,782

   Total other comprehensive income (loss), net of tax
(7,424
)
 
4,960

 
(7,386
)
 
(382
)
Total comprehensive income
8,198

 
13,510

 
27,268

 
22,130

Comprehensive earnings (loss) attributable to noncontrolling interests
(31
)
 
—

 
(39
)
 
—

Comprehensive income attributable to Knoll, Inc. stockholders
$
8,229

 
$
13,510

 
$
27,307

 
$
22,130

 
See accompanying notes to the condensed consolidated financial statements.

4

KNOLL, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
 
 
Nine Months Ended 
 September 30,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 

 
 

Net earnings
$
34,654

 
$
22,512

Adjustments to reconcile net earnings to cash provided by (used in) operating activities:
 

 
 

Depreciation
11,740

 
11,176

Amortization expense (including deferred financing fees)
3,095

 
1,064

Loss on disposal of property, plant, and equipment
—

 
126

Unrealized foreign currency gains
(3,680
)
 
(2,177
)
Stock-based compensation
5,869

 
8,011

Other non-cash items
127

 
22

Changes in assets and liabilities, net of acquisition:
 

 
 

Customer receivables
10,239

 
15,259

Inventories
(18,595
)
 
3,878

Accounts payable
5,046

 
(9,646
)
Current and deferred income taxes
10,508

 
(2,241
)
Prepaid and other current assets
(3,994
)
 
532

Other current liabilities
(10,845
)
 
(16,570
)
Other noncurrent assets and liabilities
20,552

 
(597
)
Cash provided by operating activities
64,716

 
31,349

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Capital expenditures
(31,992
)
 
(20,486
)
Purchase of business, net of cash acquired
(93,349
)
 
—

Purchase of intangibles
(315
)
 
(275
)
Cash used in investing activities
(125,656
)
 
(20,761
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Proceeds from credit facility
692,000

 
206,000

Repayment of credit facility
(603,500
)
 
(216,000
)
Payment of financing fees
(1,930
)
 
(13
)
Payment of dividends
(17,015
)
 
(16,888
)
Proceeds from the issuance of common stock
2,788

 
2,234

Purchase of common stock for treasury
(6,412
)
 
(2,729
)
Excess tax benefit from the exercise of stock options and vesting of equity awards
210

 
246

Cash provided by (used in) financing activities
66,141

 
(27,150
)
Effect of exchange rate changes on cash and cash equivalents
(1,527
)
 
119

Increase (Decrease) in cash and cash equivalents
3,674

 
(16,443
)
Cash and cash equivalents at beginning of period
12,026

 
29,956

Cash and cash equivalents at end of period
$
15,700

 
$
13,513

 
See accompanying notes to the condensed consolidated financial statements.

5
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1. BASIS OF PRESENTATION
 
The accompanying unaudited condensed consolidated financial statements of Knoll, Inc. (the “Company”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.  The consolidated balance sheet of the Company, as of December 31, 2013, was derived from the Company’s audited consolidated balance sheet as of that date.  All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly the financial position of the Company and the results of the Company’s operations and cash flows for the periods presented.  All of these adjustments are of a normal recurring nature. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and any partially owned subsidiaries that the Company has the ability to control. All intercompany balances and transactions have been eliminated in consolidation.  These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2013.

New Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition, and most industry-specific guidance throughout the Accounting Standards Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. The guidance permits the use of either a full retrospective or modified retrospective transition method The Company has not yet selected a transition method and is currently evaluating the impact of the amended guidance on the consolidated financial position, results of operations and related disclosures.

NOTE 2. ACQUISITIONS

On February 3, 2014, the Company acquired Holly Hunt Enterprises, Inc (HOLLY HUNT®). The acquisition advances the Company's strategy of building its global capability as a resource for high-design workplaces and homes, including the commercial contract, decorator to-the-trade and consumer markets. The aggregate purchase price for the acquisition was $95.0 million, plus certain contingent payouts of up to $16.0 million in the aggregate based on the future performance of the business. The purchase price was funded from borrowings under the Company's revolving credit facility. The Company has recorded the acquisition of HOLLY HUNT using the acquisition method of accounting and has recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. The results of operations of HOLLY HUNT have been included in the Company's Studio segment beginning February 3, 2014.

The amount of net sales and net earnings that resulted from the acquisition and attributable to Knoll, Inc. stockholders included in the condensed consolidated statements of operations and comprehensive income during the three and nine months ended September 30, 2014 were as follows (in thousands):
 
Three months ended September 30, 2014
 
Nine months ended September 30, 2014
Net sales
$
29,495

 
$
74,004

Net earnings attributable to Knoll, Inc. stockholders
$
1,725

 
$
4,833


6
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 


NOTE 2. ACQUISITIONS (continued)

The following table summarizes the preliminary fair values assigned to the assets acquired and liabilities assumed as of the February 3, 2014 acquisition date (in thousands):
Working Capital (1)
$
14,939

Property, plant and equipment
5,995

Intangible assets
41,786

Contingent consideration
(16,000
)
Noncontrolling interests
(218
)
Other liabilities
(604
)
Fair value of acquired identifiable assets and liabilities
$
45,898

 
 
Purchase Price
$
95,000

Less: Fair value of acquired identifiable assets and liabilities
45,898

Goodwill
$
49,102


(1) Working capital accounts include cash, customer receivables, inventories, prepaid expenses and other current assets, accounts payable, and other current liabilities.

These above amounts are reflective of adjustments made during the third quarter of 2014, which include a $0.8 million increase to the fair value of acquired identifiable assets and liabilities and an offsetting reduction of $0.8 million to goodwill. Additionally, these amounts are determined based on certain valuations and studies that have yet to be finalized, and accordingly, the assets acquired and liabilities assumed, as detailed above, are subject to adjustment once the detailed analyses are finalized. The goodwill recorded is deductible for income tax purposes.

The following table summarizes the preliminary fair value of intangible assets as of the acquisition date (in thousands):

 
Fair Value
Weighted-Average Useful Life
Intangible assets:
 
 
    Tradename
$
23,479

Indefinite
    Non-competition Agreements
2,440

4
    Customer Relationships
15,867

10
Total intangible assets
$
41,786

 

The Company recorded acquisition costs in its condensed consolidated statement of operations and comprehensive income, within selling, general, and administrative expenses during the nine months ended September 30, 2014 as follows (in thousands):

 
Nine months ended September 30, 2014
Accounting and legal fees
$
435

Other
275

Total
$
710




7
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 



NOTE 2. ACQUISITIONS (continued)

The following unaudited pro forma summary financial information presents the operating results of the combined company, assuming the acquisition had occurred as of January 1, 2013 (in thousands): 

 
Three months ended September 30, 2013
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
Pro forma net sales
$
240,428

 
$
771,246

 
$
699,994

Pro forma net earnings attributable to Knoll, Inc stockholders
$
8,954

 
$
35,176

 
$
23,988


The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results that would have been attained had the acquisition occurred on January 1, 2013, nor is it indicative of results of operations for future periods. The pro forma information presented for the three months ended September 30, 2013 and nine months ended September 30, 2014 and 2013, include adjustments for acquisition costs, interest expense that would have been incurred to finance the acquisition, amortization and depreciation.

NOTE 3. INVENTORIES, NET

 Information regarding the Company's inventories is as follows (in thousands):
 
September 30,
2014
 
December 31,
2013
Raw materials
$
56,260

 
$
49,479

Work-in-process
8,232

 
6,598

Finished goods
74,236

 
40,372

Total
$
138,728

 
$
96,449

 
A significant portion of the increase in inventory since December 31, 2013 is attributable to the acquisition of HOLLY HUNT. Inventory reserves for obsolescence and other estimated losses were $8.0 million and $7.2 million at September 30, 2014 and December 31, 2013, respectively, and have been included in the amounts above.
 
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Information regarding the Company's other intangible assets is as follows (in thousands):
 
September 30, 2014
 
December 31, 2013
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Tradenames
$
231,300

 
$
—

 
$
231,300

 
$
207,821

 
$
—

 
$
207,821

Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Various
34,215

 
(10,976
)
 
23,239

 
15,593

 
(8,719
)
 
6,874

Total
$
265,515

 
$
(10,976
)
 
$
254,539

 
$
223,414

 
$
(8,719
)
 
$
214,695



8
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 


NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET (continued)

The increase in other intangible assets from December 31, 2013 is primarily due to the acquisition of HOLLY HUNT. The Company has preliminarily allocated $18.3 million of the purchase price to finite-lived intangible assets and $23.5 million to indefinite-lived intangible assets.

Estimated annual amortization expense for the full year of 2014 and each of the next four years is as follows (in thousands):

 
Estimated
Amortization
2014
$3,132
2015
3,289

2016
3,237

2017
3,200

2018
2,375


The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands):
 
Office
Segment
 
Studio
Segment
 
Coverings
Segment
 
Total
Balance, as of December 31, 2013
$
37,578

 
$
5,414

 
$
36,959

 
$
79,951

Goodwill acquired in HOLLY HUNT acquisition
—

 
49,102

 
—

 
49,102

Foreign currency translation adjustment
(436
)
 
67

 
—

 
(369
)
Balance, as of September 30, 2014
$
37,142

 
$
54,583

 
$
36,959

 
$
128,684


NOTE 5. INCOME TAXES
 
The Company’s income tax provision consists of federal, state, and foreign income taxes.  The tax provisions for the three months ended September 30, 2014 and 2013 were based on the estimated effective tax rates applicable for the full years ending December 31, 2014 and 2013, after giving effect to items specifically related to the interim periods.  The Company’s effective tax rate was 36.8% for the three months ended September 30, 2014 and 35.9% for the three months ended September 30, 2013. The Company’s effective tax rate was 36.9% for the nine months ended September 30, 2014 and 38.4% for the nine months ended September 30, 2013. The tax rates for each respective period are the result of the varying rates and mix of earnings in both the countries and U.S. states in which the Company operates.
 
As of September 30, 2014 and December 31, 2013, the Company had unrecognized tax benefits of approximately $0.8 million.  This unrecognized tax benefit amount would affect the effective tax rate, if recognized.  As of September 30, 2014, the Company is subject to U.S. Federal income tax examinations for the tax years 2010 through 2013 and to non-U.S. income tax examinations for the tax years 2005 through 2013.  In addition, the Company is subject to state and local income tax examinations for the tax years 2005 through 2013.
 

9
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.  DERIVATIVE FINANCIAL INSTRUMENTS
  
From time to time, the Company enters into foreign currency forward exchange contracts and foreign currency option contracts to manage its exposure to foreign exchange rates associated with short-term operating receivables of a Canadian subsidiary that are payable by the U.S. operations. The terms of these contracts are generally less than a year. Changes in the fair value of such contracts are reported in earnings as a component of “Other (income) expense, net.”
 
The Company entered into one foreign currency contract during the nine months ended September 30, 2014. The Company entered into two foreign currency contracts during the nine months ended September 30, 2013. These contracts expired unexercised during 2014 and 2013. There were no outstanding derivative contracts as of September 30, 2014 and December 31, 2013.
 
NOTE 7. CONTINGENT LIABILITIES AND COMMITMENTS
 
Litigation
 
The Company is currently involved in matters of litigation, including environmental contingencies, arising in the ordinary course of business.  The Company accrues for such matters when expenditures are probable and reasonably estimable.  Based upon information presently known, management is of the opinion that such litigation, either individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Warranty
 
The Company offers a warranty for all of its products.  The specific terms and conditions of those warranties vary depending upon the product.  The Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time product revenue is recognized.  Factors that affect the Company’s liability include historical product-failure experience and estimated repair costs for identified matters for each specific product category.  The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Changes in the warranty reserve are as follows (in thousands):
 
Balance, as of December 31, 2013
$
8,214

Provision for warranty claims
5,218

Warranty claims paid
(5,102
)
Foreign currency translation adjustment
(33
)
Balance, as of September 30, 2014
$
8,297

 
Warranty expense for the three months ended September 30, 2014 and 2013 was $1.9 million and $1.6 million, respectively. Warranty expense for the nine months ended September 30, 2014 and 2013 was $5.2 million and $5.1 million, respectively.
 
NOTE 8. INDEBTEDNESS
 
On May 20, 2014, the Company amended and restated its existing credit facility, dated February 3, 2012, with a new $500.0 million credit facility maturing on May 20, 2019, consisting of a revolving commitment in the amount of $300.0 million and a term loan commitment in the amount of $200.0 million. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility or incur incremental term loans by up to an additional $200.0 million, subject to the satisfaction of certain terms and conditions.
 

10
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 


NOTE 8. INDEBTEDNESS (continued)

Borrowings under the revolving credit facility may be repaid at any time, but no later than the maturity date on May 20, 2019.  The Company retains the right to terminate or reduce the size of the revolving credit facility at any time.  Borrowings under the term loan facility amortize in equal quarterly installments of $2.5 million, with the remaining borrowings due on the maturity date.

Interest on revolving credit and term loans will accrue, at the Company’s election, at (i) the Eurocurrency Rate (as defined in the Amended Credit Agreement), plus additional percentage points based on the Company’s leverage ratio or (ii) the Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by Bank of America, N.A., (b) the Federal Reserve System’s federal funds rate, plus .50% or (c) the Eurocurrency Rate plus 1.00%; Base Rate is defined in detail in the Amended Credit Agreement), plus additional percentage points based on the Company’s leverage ratio.

The Amended Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, engage in sale-leaseback transactions, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates and sell stock or assets. The Company was in compliance with the Amended Credit Agreement covenants at September 30, 2014.
 
Repayments under the Amended Credit Agreement can be accelerated by the lenders upon the occurrence of certain events of default, including, without limitation, a failure to pay any principal, interest or other amounts in respect of loans when due, breach by the Company (or its subsidiaries) of any of the covenants or representations contained in the Amended Credit Agreement or related loan documents, failure of the Company (or its material subsidiaries) to pay any amounts owed with respect to other significant indebtedness of the Company or such subsidiary, or a bankruptcy event with respect to the Company or any of its material subsidiaries.
 
In connection with the refinancing of the credit facility during the second quarter of 2014, the Company wrote off $0.3 million of unamortized deferred financing fees associated with the previous credit facility and incurred $1.9 million in new fees that will be amortized as a component of interest expense over the life of the facility.
 
NOTE 9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
The following table summarizes the changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2014 (in thousands):
 
 
Foreign
Currency
Translation
Adjustment
 
Pension and
Other Post Retirement
Liability
Adjustment
 
Total
Balance, as of December 31, 2013
$
15,131

 
$
(9,229
)
 
$
5,902

Other comprehensive income (loss) before reclassifications
(7,577
)
 
—

 
(7,577
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
191

 
191

Net current-period other comprehensive income (loss)
(7,577
)
 
191

 
(7,386
)
Balance, as of September 30, 2014
$
7,554

 
$
(9,038
)
 
$
(1,484
)


11
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 


NOTE 9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (continued)

The following reclassifications were made from accumulated other comprehensive income (loss) to the condensed consolidated statements of operations and other comprehensive income for the three months ended (in thousands):

 
September 30, 2014
 
September 30, 2013
Amortization of pension and other post retirement liability adjustments

 
 
Prior Service Costs (1)
$
(558
)
 
$
(840
)
Actuarial Losses (1)
656

 
2,348

Total Before Tax
98

 
1,508

Tax Benefit
(34
)
 
(595
)
Net of Tax
$
64

 
$
913


(1) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension costs. See Note 10 for additional information.

The following reclassifications were made from accumulated other comprehensive income (loss) to the condensed consolidated statements of operations and other comprehensive income for the nine months ended (in thousands):

 
September 30, 2014
 
September 30, 2013
Amortization of pension and other post retirement liability adjustments
 
 
 
Prior Service Costs (1)
$
(1,674
)
 
$
(2,520
)
Actuarial Losses (1)
1,968

 
7,044

Total Before Tax
294

 
4,524

Tax Benefit
(103
)
 
(1,742
)
Net of Tax
$
191

 
$
2,782


(1) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension costs. See Note 10 for additional information.

NOTE 10. PENSIONS AND OTHER POST RETIREMENT BENEFITS
 
The following tables summarize the costs of the Company’s employee pension and other post retirement benefit plans for the periods indicated (in thousands):

 
Pension Benefits
 
Other Benefits
 
Three months ended
 
Three months ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Service cost
$
1,734

 
$
2,002

 
$
6

 
$
9

Interest cost
3,335

 
3,016

 
91

 
81

Expected return on plan assets
(3,936
)
 
(3,478
)
 
—

 
—

Amortization of prior service cost
3

 
4

 
(561
)
 
(844
)
Recognized actuarial loss
502

 
2,156

 
154

 
192

Net periodic benefit cost
$
1,638

 
$
3,700

 
$
(310
)
 
$
(562
)

 

12
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 


NOTE 10. PENSIONS AND OTHER POST RETIREMENT BENEFITS (continued)

For the three months ended September 30, 2014, $0.9 million of pension expense was incurred in cost of sales and $0.7 million was incurred in selling, general, and administrative expenses. For the three months ended September 30, 2013, $2.2 million of pension expense was incurred in cost of sales and $1.5 million was incurred in selling, general, and administrative expenses. Due to prior years' payments in excess of minimum funding requirements, the Company does not expect to make any cash contributions to its pension plan during the remainder of fiscal 2014. As a result, the Company does not have a current liability for its pension plans as of September 30, 2014. The current liability for the Company's pension plans as of December 31, 2013 was $12.3 million.

 
Pension Benefits
 
Other Benefits
 
Nine months ended
 
Nine months ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Service cost
$
5,202

 
$
6,006

 
$
18

 
$
27

Interest cost
10,005

 
9,048

 
273

 
243

Expected return on plan assets
(11,808
)
 
(10,434
)
 
—

 
—

Amortization of prior service cost
9

 
12

 
(1,683
)
 
(2,532
)
Recognized actuarial loss
1,506

 
6,468

 
462

 
576

Net periodic benefit cost
$
4,914

 
$
11,100

 
$
(930
)
 
$
(1,686
)

For the nine months ended September 30, 2014, $2.8 million of pension expense was incurred in cost of sales and $2.1 million was incurred in selling, general, and administrative expenses. For the nine months ended September 30, 2013, $6.7 million of pension expense was incurred in cost of sales and $4.4 million was incurred in selling, general, and administrative expenses.
 
NOTE 11. COMMON STOCK AND EARNINGS PER SHARE
 
Basic earnings per share attributable to Knoll, Inc. stockholders excludes the dilutive effect of shares and potential shares and units issued under the stock incentive plans. Diluted earnings per share attributable to Knoll, Inc. stockholders includes the effect of shares and potential shares and units issued under the stock incentive plans. The following table sets forth the reconciliation from basic to diluted weighted-average number of common shares outstanding:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
 
(in thousands)
Weighted-average number of common shares outstanding - basic
47,377

 
46,916

 
47,315

 
46,882

Potentially dilutive shares resulting from stock plans
696

 
763

 
718

 
733

Weighted-average number of common shares outstanding - diluted
48,073

 
47,679

 
48,033

 
47,615

Antidilutive equity awards - Number of shares not included in the weighted-average common shares - diluted
124

 
164

 
144

 
164

 

13
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 


NOTE 11. COMMON STOCK AND EARNINGS PER SHARE (continued)

Common stock activity for the nine months ended September 30, 2014 and 2013 included the repurchase of 388,938 shares for $6.4 million and 158,234 shares for $2.7 million, respectively.  Common stock activity for the nine months ended September 30, 2014 also included the exercise of 211,057 stock options for $2.8 million and the vesting of 496,191 restricted shares.  Common stock activity for the nine months ended September 30, 2013 included the exercise of 190,036 stock options for $2.2 million and the vesting of 111,630 restricted shares. During the three and nine months ended September 30, 2014, the Company granted 25,000 and 1,106,919, respectively, equity-based awards to certain employees and the Company's Board of Directors. The vesting of these awards is subject to certain service, performance or market conditions.

NOTE 12. EQUITY
 
The following table shows the change in equity attributable to Knoll, Inc. stockholders and noncontrolling interests during the nine months ended September 30, 2014 (in thousands):

 
Equity Attributable to Knoll Inc., Stockholders
 
Noncontrolling Interests
 
Total
   Balance, as of December 31, 2013
$
228,442

 
$
—

 
$
228,442

Noncontrolling interest recognized in the acquisition of HOLLY HUNT
—

 
218

 
218

    Total comprehensive income:
 
 
 
 
 
Net earnings (loss) attributable to Knoll, Inc. stockholders and noncontrolling interests
34,693

 
(39
)
 
34,654

    Pension and other post retirement liability adjustment
191

 
—

 
191

    Foreign currency translation adjustment
(7,577
)
 
—

 
(7,577
)
   Total other comprehensive income, net of tax
(7,386
)
 
—

 
(7,386
)
   Total comprehensive income
$
27,307

 
$
(39
)
 
$
27,268

   Other changes in equity:
 
 
 
 
 
   Purchase of common stock for treasury
(6,412
)
 
—

 
(6,412
)
   Cash dividends declared
(17,585
)
 
—

 
(17,585
)
   Proceeds from the issuance of common stock
2,788

 
—

 
2,788

   Stock-based compensation
5,869

 
—

 
5,869

   Other
(878
)
 
—

 
(878
)
   Balance, as of September 30, 2014
$
239,531

 
$
179

 
$
239,710



NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following valuation techniques to measure fair value for its financial assets and financial liabilities:
 
·                  Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
·                  Level 2: Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
·                  Level 3: Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

14
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 



NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

The fair value of the Company's cash and cash equivalents, accounts receivable and accounts payable approximate carrying value due to their short maturities.

The fair value of the Company’s long-term debt approximates its carrying value, as it is variable rate debt and the terms are comparable to market terms as of the balance sheet dates. The Company's long-term debt is classified as Level 2 in the fair value hierarchy. 

Financial Instruments
 
Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following table represents the assets and liabilities, measured at fair value on a recurring basis as of September 30, 2014 and the basis for that measurement (in thousands):

 Liabilities:
Level 1
 
Level 2
 
Level 3
 
Total
Contingent purchase price payments related to the acquisition of HOLLY HUNT
$
—

 
$
—

 
$
16,000

 
$
16,000


Pursuant to the agreement governing the acquisition of HOLLY HUNT, the Company may be required to make annual contingent purchase price payments for the next three years. The payouts are based upon HOLLY HUNT reaching an annual net sales target, for each year over the next three calendar years, and are paid out by February 15 of the following calendar year. The Company classifies this as a Level 3 measurement and is required to remeasure this liability at fair value on a recurring basis. The fair value of such contingent purchase price payments was determined based upon net sales projections for HOLLY HUNT for 2014, 2015, and 2016. Excluding the initial recognition of the liability for the contingent purchase price payments and payments made to reduce the liability, any changes in the fair value would be included within selling, general and administrative expenses.

There were no assets and/or liabilities recorded at fair value on a recurring basis as of December 31, 2013.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The following table represents the assets and liabilities, measured at fair value on a nonrecurring basis as of December 31, 2013 and the basis for that measurement (in thousands):

 Assets:
Level 1
 
Level 2
 
Level 3
 
Total
Edelman Leather Tradename(1)
$
—

 
$
—

 
$
17,150

 
$
17,150


(1) The Company estimated the fair value of the indefinite-life intangible asset using the relief-from-royalty method under the income approach. The Company used a royalty rate of 5% based on comparable market rates and used a discount rate of 12.7%. 

In the fourth quarter of 2013, the Company completed the annual goodwill and indefinite-lived intangible assets impairment analysis and determined that the Edelman Leather Tradename was impaired. As a result, the carrying amount of the Edelman Leather Tradename was reduced from $26.1 million to $17.2 million, resulting in an impairment charge of $8.9 million. There were no assets or liabilities recorded at fair value on a nonrecurring basis as of September 30, 2014.

15
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 


NOTE 14. SEGMENT INFORMATION
 
The Company reports its segment results based on the following reportable segments: (i) Office; (ii) Studio; and (iii) Coverings. The Office segment serves corporate, government, healthcare, retail and other customers in the United States and Canada providing a portfolio of office furnishing solutions including systems, seating, storage, and KnollExtra® ergonomic accessories, and other products. The Studio segment includes KnollStudio®, Knoll Europe which sells primarily KnollStudio products, Richard Schultz® Design and HOLLY HUNT.  The KnollStudio portfolio includes a range of lounge seating; side, cafe and dining chairs; barstools; and conference, dining and occasional tables. Richard Schultz Design provides high-quality outdoor furniture. HOLLY HUNT provides high-end luxury residential furniture. The Coverings segment includes, KnollTextiles®, Spinneybeck®, Edelman® Leather and Filzfelt®. These businesses serve a wide range of customers offering high-quality textiles, felt, and leather.

The following information below categorizes certain financial information into the above-noted segments for the three and nine months ended September 30, 2014 and 2013:
 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
NET SALES
 

 
 

 
 

 
 

Office
$
166,788

 
$
150,545

 
$
471,971

 
$
436,095

Studio
72,236

 
37,701

 
204,271

 
113,370

Coverings
29,273

 
28,652

 
87,183

 
82,331

Total
$
268,297

 
$
216,898

 
$
763,425

 
$
631,796

 
 
 
 
 
 
 
 
INTERSEGMENT SALES (1)
 

 
 

 
 

 
 

Office
$
837

 
$
458

 
$
1,821

 
$
1,314

Studio
1,575

 
1,803

 
4,409

 
4,823

Coverings
2,438

 
2,578

 
7,851

 
7,343

Total
$
4,850

 
$
4,839

 
$
14,081

 
$
13,480

 
 
 
 
 
 
 
 
OPERATING PROFIT (2)
 

 
 

 
 

 
 

Office (3)
$
8,351

 
$
5,677

 
$
15,816

 
$
11,111

Studio
9,003

 
5,291

 
23,958

 
12,707

Coverings
5,961

 
6,083

 
17,562

 
15,935

Total
$
23,315

 
$
17,051

 
$
57,336

 
$
39,753

 
(1) Intersegment sales are presented on a cost plus basis which takes into consideration the effect of transfer prices between legal entities.
(2)  The Company does not allocate interest expense or other (income) expense, net to the reportable segments.
(3) Office operating profit includes $0.2 million of restructuring expenses incurred during the nine months ended September 30, 2014. These restructuring expenses were incurred to better utilize the Company's manufacturing capacity.



16
KNOLL, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 


15. RESTRUCTURING CHARGES
During the fourth quarter of 2013, the Company approved certain restructuring actions. These initiatives related primarily to headcount reductions in the Office segment as part of the Company's previously announced strategic supply chain transformation activities and headcount reductions in Europe in the Studio segment associated with factory overhead consolidations. As a result of these actions, the Company recorded restructuring charges of $2.7 million in the Office segment and $3.0 million in the Studio segment during the fourth quarter of 2013. These charges related to cash severance and employment termination-related expenses. Additionally, during the second quarter of 2014, $0.2 million of restructuring charges were incurred in the Office segment to better utilize the Company's manufacturing capacity. No additional charges or payments were made during the three months ended September 30, 2014. The Company does not expect any additional significant charges related to these restructuring actions in the future.

Below is a summary of the changes in the restructuring liability during 2014 (in thousands):
 
Office
Segment
 
Studio
Segment
 
Coverings
Segment
 
Total
Balance, as of December 31, 2013
$
2,721

 
$
2,975

 
$
—

 
$
5,696

Additions
203

 
—

 
—

 
203

Payments
(2,877
)
 
(1,782
)
 
—

 
(4,659
)
Balance, as of September 30, 2014
$
47

 
$
1,193

 
$
—

 
$
1,240




17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s discussion and analysis of financial condition and results of operations provides an account of our financial performance and financial condition that should be read in conjunction with the accompanying unaudited condensed consolidated financial statements.
 
Forward-looking Statements
 
This Quarterly report on Form 10-Q contains forward-looking statements, principally in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and "Risk Factors." Statements and financial discussion and analysis contained in this Form 10-Q that are not historical facts are forward-looking statements. These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. This includes, without limitation, our statements and expectations regarding any current or future recovery in our industry and publicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals, and our expectations with respect to leverage.  Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation: the risks described in Item 1A and Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2013; changes in the financial stability of our clients or the overall economic environment, resulting in decreased corporate spending and service sector employment; changes in relationships with clients; the mix of products sold and of clients purchasing our products; the success of new technology initiatives; changes in business strategies and decisions; competition from our competitors; our ability to recruit and retain an experienced management team; changes in raw material and commodity prices and availability; restrictions on government spending resulting in fewer sales to the U.S. government, one of our largest customers; our debt restrictions on spending; our ability to protect our patents, copyrights and trademarks; our reliance on furniture dealers to produce sales; lawsuits arising from patents, copyrights and trademark infringements; violations of environmental laws and regulations; potential labor disruptions; adequacy of our insurance policies; the availability of future capital; the overall strength and stability of our dealers, suppliers, and customers; access to necessary capital; our ability to successfully integrate acquired businesses; the success of our design and implementation of a new enterprise resource planning system; and currency rate fluctuations. The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material adverse effects on us. All forward-looking statements included in this Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements. Except as required under the Federal securities laws and rules and regulations of the SEC, we undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
 
Critical Accounting Policies
 
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the reported amounts and disclosures in the condensed consolidated financial statements.  Actual results may differ from such estimates. On an ongoing basis, we review our accounting policies and procedures.  A more detailed review of our critical accounting policies is contained in our Annual Report on Form 10-K for the year ended December 31, 2013.



18

Overview
 
The following is a summary of our results for the three months ended September 30, 2014.

Net sales during the third quarter of 2014 were $268.3 million, an increase of $51.4 million, or 23.7%, over the third quarter of 2013. Office segment sales increased to $166.8 million, or 10.8%, during the third quarter of 2014 when compared with the prior year. Studio segment sales increased to $72.2 million, or 91.5%, when compared to the third quarter of 2014. Coverings segment sales increased to $29.3 million, or an increase of 2.1% over the prior year.
 
For the third quarter of 2014, gross profit as a percentage of net sales increased 200 basis points to 35.4% versus the comparable quarter of the prior year. 
 
Operating expenses for the third quarter of 2014 were $71.6 million, or 26.7% of net sales, compared to $55.3 million, or 25.5% of net sales, for the third quarter of 2013. 
 
Operating profit for the second quarter of 2014 was $23.3 million, an increase of $6.2 million, or 36.3%, when compared to the same period in 2013.

During the third quarter of 2014, other (income) expense was ($3.3) million, which primarily related to foreign exchange gains. During the third quarter of 2013, other (income) expense was $2.2 million, which primarily related to foreign exchange losses.

Net income was $15.6 million during the third quarter of 2014 compared to $8.6 million during the third quarter of 2013.  Diluted earnings per share attributable to Knoll, Inc. stockholders was $0.33 for the third quarter of 2014 and $0.18 for the third quarter of 2013.
 
During the third quarter of 2014 and 2013, cash provided by operations was $33.4 million and $15.3 million, respectively. Capital expenditures for the third quarter of 2014 totaled $14.3 million compared to $3.3 million in the comparable period for 2013. During the third quarter of 2014, the Company paid a quarterly dividend of $5.7 million, or $0.12 per share, compared to a quarterly dividend of $5.6 million, or $0.12 per share, in the third quarter of 2013.

For the three months ended September 30, 2014, the Company experienced better than industry growth and marked the third quarter in a row where sales increased across all our business segments. The continued turn of our Office segment, double-digit organic growth, and the strength of our HOLLY HUNT acquisition are combining to deliver improved financial performance.







19

Results of Operations
 
Comparison of Three and Nine Months ended September 30, 2014 and 2013
 
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
 
(in thousands)
Condensed Consolidated Statement of Operations Data:
 
 
 
 
 
 
 
Net sales
$
268,297

 
$
216,898

 
$
763,425

 
$
631,796

Gross profit
94,962

 
72,339

 
268,641

 
205,847

Operating profit
23,315

 
17,051

 
57,336

 
39,753

Interest expense
1,899

 
1,484

 
5,514

 
4,496

Other (income) expense, net
(3,294
)
 
2,224

 
(3,098
)
 
(1,273
)
Income tax expense
9,088

 
4,793

 
20,266

 
14,018

Net earnings
15,622

 
8,550

 
34,654

 
22,512

 
 
 
 
 
 
 
 
Statistical and Other Data:
 

 
 

 
 

 
 

Sales growth (decline) from comparable prior year
23.7
%
 
(1.3
)%
 
20.8
%
 
(0.9
)%
Gross profit margin
35.4
%
 
33.4
 %
 
35.2
%
 
32.6
 %
 
Net Sales
 
Net sales for the third quarter of 2014 were $268.3 million, an increase of $51.4 million, or 23.7%, from net sales of $216.9 million for the same period in the prior year. Net sales for the nine months ended September 30, 2014 were $763.4 million, an increase of $131.6 million, or 20.8%, from net sales of $631.8 million for the same period in the prior year. Quarter-to-date as of September 30, 2014 and 2013, approximately 9.6% and 12.6%, respectively, of our sales were to U.S., state, and local governmental agencies. Year-to-date as of September 30, 2014 and 2013, approximately 11.1% and 13.1%, respectively, of our sales were to U.S., state, and local governmental agencies.
 
Gross Profit and Operating Profit
 
Gross profit for the third quarter of 2014 was $95.0 million, an increase of $22.7 million, or 31.4%, from gross profit of $72.3 million for the same period in the prior year. Gross profit for the nine months ended September 30, 2014 was $268.6 million, an increase of $62.8 million, or 30.5%, from gross profit of $205.8 million for the same period in the prior year. As a percentage of net sales, gross profit increased from 33.4% for the third quarter of 2013 to 35.4% for the third quarter of 2014. As a percentage of net sales, gross profit increased from 32.6% for the nine months ended September 30, 2013 to 35.2% for the nine months ended ended September 30, 2014. The increase in gross margin during the three and nine months ended September 30, 2014 mainly resulted from the richer mix of business due to the addition of HOLLY HUNT in the first quarter of 2014.

Operating profit for the third quarter of 2014 was $23.3 million, an increase of $6.2 million, or 36.3%, from operating profit of $17.1 million for the same period in the prior year. Operating profit for the nine months ended September 30, 2014 was $57.3 million, an increase of $17.5 million, or 44.0%, from operating profit of $39.8 million for the same period in the prior year. Operating profit as a percentage of net sales increased from 7.9% in the third quarter of 2013 to 8.7% for the same period of 2014. Operating profit as a percentage of net sales increased from 6.3% for the nine months ended September 30, 2013 to 7.5% in the same period for 2014.


20

Interest Expense
 
Interest expense for the third quarter of 2014 was $1.9 million, an increase of $0.4 million from $1.5 million for the same period in the prior year.  Interest expense for nine months ended September 30, 2014 was $5.5 million, an increase of $1.0 million from $4.5 million for the same period in the prior year. The increase in interest expense is the result of additional debt incurred to purchase HOLLY HUNT in the first quarter of 2014. The weighted-average interest rate for the three and nine months ended September 30, 2014 was 2.5%. The weighted-average interest rates for the three and nine months ended September 30, 2013 were 2.7% and 2.6%, respectively.
  
Other (Income) Expense, net
 
Other (income) expense for the third quarter of 2014 was ($3.3) million, which included $3.2 million of foreign exchange gains and $0.1 million of miscellaneous income. Other (income) expense for the third quarter of 2013 was $2.2 million and related to foreign exchange losses. Other (income) expense for the nine months ended September 30, 2014 was ($3.1) million, which included $3.3 million of foreign exchange gains, $0.1 million of miscellaneous income offset by $0.3 million related to the write-off of deferred financing fees. Other (income) expense for the nine months ended September 30, 2013 was ($1.3) million and related to foreign exchange gains.
 
Income Tax Expense
 
Our effective tax rate was 36.8% for the third quarter of 2014, as compared to 35.9% for the same period in 2013.  The effective tax rate was 36.9% for the nine months ended September 30, 2014, as compared to 38.4% for the same period in 2013. The tax rates for each respective period are the result of the varying tax rates and mix of earnings in the countries and U.S. states in which we operate.

Business Segment Analysis

The below table categorizes certain financial information into our Office, Studio, and Coverings segments for the three and nine months ended September 30, 2014 and 2013:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
NET SALES
 

 
 

 
 

 
 

Office
$
166,788

 
$
150,545

 
$
471,971

 
$
436,095

Studio
72,236

 
37,701

 
204,271

 
113,370

Coverings
29,273

 
28,652

 
87,183

 
82,331

Total
$
268,297

 
$
216,898

 
$
763,425

 
$
631,796

 
 
 
 
 
 
 
 
OPERATING PROFIT (1)
 

 
 

 
 

 
 

Office (2)
$
8,351

 
$
5,677

 
$
15,816

 
$
11,111

Studio
9,003

 
5,291

 
23,958

 
12,707

Coverings
5,961

 
6,083

 
17,562

 
15,935

Total
$
23,315

 
$
17,051

 
$
57,336

 
$
39,753

 
(1) The Company does not allocate interest expense or other (income) expense, net to the reportable segments.
(2) Office operating profit includes $0.2 million of restructuring expenses incurred during the nine months ended September 30, 2014. These restructuring expenses were incurred to better utilize the Company's manufacturing capacity.


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 Office:
 
Net sales for the Office segment for the third quarter of 2014 were $166.8 million, an increase of $16.3 million, or 10.8%, when compared with the same period in 2013.  Net sales for the Office segment for the nine months ended September 30, 2014 were $472.0 million, an increase of $35.9 million, or 8.2%, when compared with the same period in 2013. Increased sales for the three and nine months ended September 30, 2014 in the Office segment were the result of improved commercial sales. When compared to the prior year, commercial growth for this segment for the three and nine months ended September 30, 2014 was 15.4% and 8.9%, respectively. Office segment net sales for the three and nine months ended September 30, 2014 were negatively impacted by $0.4 million and $1.5 million, respectively, due to changes in foreign exchange rates when compared to the same periods in the prior year.

Operating profit for the third quarter of 2014 for the Office segment was $8.4 million, an increase of $2.7 million, or 47.4%, when compared with the same period in 2013. Operating profit for the nine months ended September 30, 2014 for the Office segment was $15.8 million, an increase of $4.7 million, or 42.3%, when compared with the same period in 2013. As a percentage of net sales, the Office segment operating profit for the three and nine months ended September 30, 2014 was 5.0% and 3.3%, respectively. As a percentage of net sales, the Office segment operating profit for the three and nine months ended September 30, 2013 was 3.8% and 2.5%, respectively. Office operating profit for the three and nine months ended September 30, 2014 improved in comparison to the prior year as a result of the leveraging of fixed costs on higher sales.
 
Studio:
 
Net sales for the Studio segment for the third quarter of 2014 were $72.2 million, an increase of $34.5 million, or 91.5%, when compared with the same period in 2013. Net sales for the Studio segment for the nine months ended September 30, 2014 were $204.3 million, an increase of $90.9 million, or 80.2%, when compared with the same period in 2013. The increase in sales in the Studio segment for the three and nine months ended September 30, 2014 was mainly the result of the acquisition of HOLLY HUNT during the first quarter of 2014 as well as organic growth in Europe and North America. Additionally, Studio segment net sales for the three and nine months ended September 30, 2014 were positively impacted by $0.6 million and $3.6 million, respectively, due to changes in foreign exchange rates when compared to the same periods in the prior year.
 
Operating profit for the third quarter of 2014 for the Studio segment was $9.0 million, an increase of $3.7 million, or 69.8%, when compared with the same period in 2013. Operating profit for the nine months ended September 30, 2014 for the Studio segment was $24.0 million, an increase of $11.3 million, or 89.0%, when compared with the same period in 2013. As a percentage of net sales, the Studio segment operating profit was 12.5% and 14.1% for the third quarter ended September 30, 2014 and September 30, 2013, respectively.  As a percentage of net sales, the Studio segment operating profit was 11.7% for the nine months ended September 30, 2014, up from 11.2% for the same period in the prior year. For the three months and nine months ended September 30, 2014, Studio profits were positively impacted by improved operating margins in Europe; this improvement was negatively impacted by lower operating margins in North America.

Coverings:
 
Net sales for the third quarter of 2014 for the Coverings segment were $29.3 million, an increase of $0.6 million, or 2.1%, when compared with the same period in 2013.  Net sales for the nine months ended September 30, 2014 for the Coverings segment were $87.2 million, an increase of $4.9 million, or 6.0%, when compared with the same period in 2013. The increase in net sales for the Coverings segment for the three and nine months ended September 30, 2014 was the result of increased sales by our leather and felt businesses. Coverings segment net sales for the three months ended September 30, 2014 were minimally impacted by changes in foreign exchange rates compared to the same period in the prior year. Coverings segment net sales for the nine months ended September 30, 2014 were positively impacted by $0.2 million due to changes in foreign exchange rates compared to the same period in the prior year.
 
Operating profit for the third quarter of 2014 for the Coverings segment was $6.0 million, a decrease of $0.1 million, or 1.6%, when compared with the same period of 2013. Operating profit for the nine months ended September 30, 2014 for the Coverings segment was $17.6 million, an increase of $1.7 million, or 10.7%, when compared with the same period in 2013. As a percentage of net sales, the Coverings segment operating profit was 20.5% for the third quarter ended September 30, 2014 and 21.3% for the third quarter ended September 30, 2013. As a percentage of net sales, the Coverings segment operating profit was 20.2% for the nine months ended September 30, 2014 and 19.3% for the same period in the prior year. For the three months ended September 30, 2014, our leather businesses experienced improved

22

operating margins; this improvement was offset by margin erosion in our textiles business. For the nine months ended September 30, 2014, operating profits were improved in both our leather and felt businesses; our textiles business operating margin remained consistent with the prior year.
 
Liquidity and Capital Resources
 
The following table highlights certain key cash flows and capital information pertinent to the discussion that follows:
 
 
Nine Months Ended
 
September 30,
2014
 
September 30,
2013
 
(in thousands)
Cash provided by operating activities
$
64,716

 
$
31,349

Capital expenditures
(31,992
)
 
(20,486
)
Purchase of a business, net of cash acquired
(93,349
)
 
—

Cash used in investing activities
(125,656
)
 
(20,761
)
Proceeds from credit facility
692,000

 
206,000

Repayment of credit facility
(603,500
)
 
(216,000
)
Payment of dividends
(17,015
)
 
(16,888
)
Proceeds from the issuance of common stock
2,788

 
2,234

Purchase of common stock for treasury
(6,412
)
 
(2,729
)
Cash provided by (used in) financing activities
66,141

 
(27,150
)
 
Historically, we have carried significant amounts of debt, and cash generated by operating activities has been used to fund working capital, capital expenditures, repurchase shares, pay quarterly dividends, and make payments of principal and interest on our indebtedness.  Our capital expenditures are typically for new product tooling and manufacturing equipment.  These capital expenditures support new products and continuous improvements in our manufacturing processes. In addition, continued expenditures related to our technology infrastructure upgrades with the implementation of a new enterprise resource planning system and investments and initiatives related to our supply chain transformation increased capital spending through September 30, 2014 when compared with the same period in the prior year. Moreover, in February 2013, we announced a three-year plan of strategic investments and initiatives intended to enable us to achieve our longer-term revenue and profitability goals.
 
For the nine months ended September 30, 2014, net cash provided by operations was $64.7 million, of which $51.8 million was provided by net income plus non-cash items and $12.9 million of favorable changes in operating assets and liabilities.  For the nine months ended September 2013, net cash provided by operations was $31.3 million, of which $40.7 million was provided by net income plus non-cash items, offset by $9.4 million of unfavorable changes in assets and liabilities.
 
For the nine months ended September 30, 2014, we used available cash, including $64.7 million of net cash from operating activities, to fund $32.0 million in capital expenditures, make dividend payments to shareholders totaling $17.0 million, repurchase $6.4 million of common stock for treasury, and fund working capital. During the nine months ended September 30, 2014, we also used cash of $93.3 million, net of cash acquired, in order to fund the acquisition of HOLLY HUNT. Total cash (used in) / provided by investing and financing activities was ($125.7) million and $66.1 million, respectively, for the nine months ended September 30, 2014.
 
For the nine months ended September 30, 2013, we used available cash, including $31.3 million of net cash from operating activities, to fund $20.5 million in capital expenditures, fund dividend payments to shareholders totaling $16.9 million, repurchase $2.7 million of common stock for treasury, and fund working capital. Total cash used in investing and financing activities was $20.8 million and $27.2 million, respectively, for the nine months ended September 30, 2013.
 
We use our revolving credit facility in the ordinary course of business to fund our working capital needs and, at times, make significant borrowings and repayments under the facility depending on our cash needs and availability at such time.  As of September 30, 2014 and December 31, 2013, there was $261.5 million and $173.0 million, respectively,

23

outstanding under the facility.  Borrowings under the revolving credit facility may be repaid at any time, but no later than May 2019.

Our revolving credit facility requires that we comply with two financial covenants: our consolidated leverage ratio, defined as the ratio of total indebtedness to consolidated EBITDA (as defined in our credit agreement) and our consolidated interest coverage ratio, defined as the ratio of our consolidated EBITDA (as defined in our credit agreement) to our consolidated interest expense.  Our leverage ratio cannot exceed 4.5 to 1.0 at the end of the third and fourth fiscal quarters of 2014 under our credit facility agreement. Thereafter, the leverage ratio cannot exceed 4.0 to 1.0. Our consolidated interest coverage ratio cannot be less than 3.0 to 1.0 as of the end of any fiscal quarter. We are also required to comply with various other affirmative and negative covenants including, without limitation, covenants that prevent or restrict our ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, make significant capital expenditures, engage in sale-leaseback transactions, alter our capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates and sell stock or assets. Two full quarters after the HOLLY HUNT acquisition, our bank leverage ratio is 2.73.

The following table reconciles net income to adjusted EBITDA and computes our bank leverage calculation as of September 30, 2014. Adjusted EBITDA, as used in our bank leverage calculation, is a non-GAAP financial measure that adjusts net income and excludes certain expenses. The bank leverage calculation is in accordance with our Second Amended and Restated Credit Agreement dated May 20, 2014.

 
September 30, 2014
 
(in millions)
Debt Levels (1)
$
283.7

LTM Net Income
39.1

LTM Adjustments
 
Interest
6.3

Taxes
21.7

Depreciation and Amortization
18.6

Non-cash items (2)
18.1

LTM Adjusted EBITDA (3)
$
103.8

Bank Leverage Calculation (4)
2.73


(1) - Outstanding debt levels include outstanding letters of credit and guarantee obligations. Excess cash over $15.0
million reduces outstanding debt per the terms of our credit facility, a copy of which was filed with the Securities and
Exchange Commission on May 21, 2014.
(2) - Non-cash items include, but are not limited to, stock-based compensation expenses and unrealized gains and losses on foreign exchange, an intangible asset impairment charge, and restructuring charges.
(3) - Includes an annualized pro forma EBITDA for HOLLY HUNT, which was acquired on February 3, 2014.
(4) - Debt divided by LTM (Last Twelve Months) Adjusted EBITDA, as calculated in accordance with our credit facility.

We are currently in compliance with all of the covenants and conditions under our credit facility. We believe that existing cash balances and internally generated cash flows, together with borrowings available under our revolving credit facility, will be sufficient to fund normal working capital needs, capital spending requirements, debt service requirements and dividend payments for at least the next twelve months. However, because of the financial covenants mentioned above, our capacity under our revolving credit facility could be reduced if our trailing consolidated EBITDA (as defined by our credit agreement) would decline.  Future principal debt payments may be paid out of cash flows from operations, from future refinancing of our debt or from equity issuances. However, our ability to make scheduled payments of principal, to pay interest on or to refinance our indebtedness, to satisfy our other debt obligations and to pay dividends to stockholders will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.

24

Contractual Obligations
 
Contractual obligations associated with our ongoing business will result in cash payments in future periods.  A table summarizing the amounts and timing of these future cash payments was previously provided in the Company's Form 10-K filing for the fiscal year ended December 31, 2013 and an updated version of this table as of September 30, 2014 is provided below.
 
 
Payments due by period
 
 
Less than
1 year
 
1 to 3
years
 
3 to 5
years
 
More than
5 years
 
Total
 
 
(in thousands)
Long-term debt and short-term borrowings (a)
 
$
15,351

 
$
33,228

 
$
245,066

 
$
—

 
$
293,645

Operating leases
 
23,355

 
41,846

 
34,014

 
42,988

 
142,203

Purchase commitments
 
9,557

 
358

 
—

 
—

 
9,915

Pension and post retirement plan obligations (b)
 
1,155

 
—

 
—

 
—

 
1.155

Other long-term liabilities (c)
 
5,000

 
11,000

 
 
 
 
 
16,000

Total
 
$
54,418

 
$
86,432

 
$
279,080

 
$
42,988

 
$
462,918


(a) Contractual obligations for long-term debt and short-term borrowings include principal and interest payments. Interest payments have been computed based on an estimated variable interest rate as of September 30, 2014. The estimated variable interest rate is based on the Company's expected consolidated leverage ratio and the forecasted LIBOR rate for each period presented. The computation of interest, as included in the above table, is based on our Amended Credit Agreement, dated May 20, 2014.
(b) Due to the uncertainty of future cash outflows, contributions to the pension and other post retirement benefit plans beyond one year have been excluded from the table above.
(c) Other long-term liabilities consists of a contingent payout due to HOLLY HUNT, which is based on the future performance of the business through fiscal year 2016.
Note: Due to the uncertainty of future cash outflows, uncertain tax positions have been excluded from the table above.

Environmental Matters
 
Our past and present business operations and the past and present ownership and operation of manufacturing plants on real property are subject to extensive and changing federal, state, local and foreign environmental laws and regulations, including those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by hazardous substances.  As a result, we are involved from time-to-time in administrative and judicial proceedings and inquiries relating to environmental matters and could become subject to fines or penalties related thereto.  We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist.  Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures by us, some of which may be material.  We have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) for remediation costs associated with waste disposal sites that we previously used.  The remediation costs and our allocated share at some of these CERCLA sites are unknown. We may also be subject to claims for personal injury or contribution relating to CERCLA sites.  We reserve amounts for such matters when expenditures are probable and reasonably estimable.

Off-Balance Sheet Arrangements
 
We do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange-traded contracts.  As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could have arisen if we had engaged in these relationships.

25

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We provided a discussion of our market risk in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2013. During the first nine months of 2014, there were changes in our market risk associated with our new credit facility. These changes in market risk are reflected in the information below. This discussion should be read in conjunction with Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2013.
 
During the normal course of business, we are routinely subjected to market risk associated with interest rate movements and foreign currency exchange rate movements. Interest rate risk arises from our debt obligations and foreign currency exchange rate risk arises from our non-U.S. operations and purchases of inventory from foreign suppliers.
 
We also have risk in our exposure to certain materials and transportation costs.  Steel, leather, textiles, wood products and plastics are all used in the manufacturing of our products. During the nine months ended September 30, 2014, there was minimal change in material and transportation costs when compared with the same period in the prior year. We continue to work to offset price changes in raw materials and transportation through our global sourcing initiatives, cost improvements and price increases to our products.
 
Interest Rate Risk
 
We have variable-rate debt obligations that are denominated in U.S. dollars.  A change in interest rates impacts the interest incurred and cash paid on our variable rate debt obligations.
 
In the past, we have used interest rate swaps and cap agreements for other than trading purposes in order to manage our exposure to fluctuations in interest rates on our variable-rate debt.  We will continue to review our exposure to interest rate fluctuations and evaluate whether we should manage such exposure through derivative instruments.

Our annualized weighted-average rate of interest for the nine months ended September 30, 2014 was 2.5%.  Our annualized weighted-average rate of interest for the same period of 2013 was 2.6%.
The following table summarizes our market risks associated with our debt obligations as of September 30, 2014. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by year of maturity.
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
 
(in thousands)
Rate-Sensitive Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable Rate
$2,500
 
$10,000
 
$10,000
 
$10,000
 
$10,000
 
$219,000
 
$261,500
Average Interest Rate
1.98%
 
1.90%
 
2.48%
 
3.35%
 
3.61%
 
3.86%
 
2.86%

The fair value of the Company’s long-term debt approximates its carrying value, as the variable rate debt and the associated terms are comparable to market terms as of the balance sheet date. 

For each period presented, the average interest rate is based on an estimated variable interest rate as of September 30, 2014. The estimated variable interest rate is based on the Company's expected consolidated leverage ratio and the forecasted LIBOR rate for each period presented. The computation of interest, as included in the above table, is based on our Amended Credit Agreement, dated May 20, 2014.
An increase in our effective interest rate of 1% would increase annual interest expense by approximately $2.4 million. We will continue to review our exposure to interest rate fluctuations and evaluate whether we should manage such exposures through derivative transactions. 

26

Foreign Currency Exchange Rate Risk
 
We manufacture our products in the United States, Canada and Italy, and source and sell our products worldwide.  Our foreign sales and certain expenses are transacted in foreign currencies.  Our production costs, profit margins and competitive position are affected by the strength of the currencies in countries where we manufacture or purchase goods relative to the strength of the currencies in countries where our products are sold.  Additionally, as we report currency in the U.S. dollar, our financial position is affected by the strength of the currencies in countries where we have operations relative to the strength of the U.S. dollar.  The principal foreign currencies in which we conduct business are the Canadian dollar and the Euro. Approximately 11.7% of our revenues during the first nine months of 2014 and 12.7% in the same period for 2013, and 30.4% of our cost of goods sold during the first nine months of 2014 and 33.6% in the same period of 2013, were denominated in currencies other than the U.S. dollar.  For the nine months ended September 30, 2014 and 2013, foreign exchange rate fluctuations included in other (income) expense, net resulted in $3.3 million and $1.3 million of translation gains, respectively.
 
From time to time, we enter into foreign currency forward exchange contracts and foreign currency option contracts for other than trading purposes in order to manage our exposure to foreign exchange rates - typically associated with short-term operating receivables of a Canadian subsidiary that are payable by our U.S. operations.  The terms of these contracts are generally less than a year.  Changes in the fair value of such contracts are reported in earnings in the period the value of the contract changes.  The net gain or loss upon settlement and the change in fair value of outstanding contracts is recorded as a component of other expense (income), net.  The Company entered into one foreign currency contract during the nine months ended September 30, 2014. The Company entered into two foreign currency contracts during the nine months ended September 30, 2013. These contracts expired unexercised during 2014 and 2013. There were no outstanding derivative contracts as of September 30, 2014 and December 31, 2013.

27

ITEM 4.  CONTROLS AND PROCEDURES
 
Evaluation of disclosure controls and procedures. We, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report, September 30, 2014 (“Disclosure Controls”). Based upon the Disclosure Controls evaluation, our principal executive officer and principal financial officer have concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that (i) information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
Changes in internal control over financial reporting. Our principal executive officer and principal financial officer also conducted an evaluation of our internal control over financial reporting (“Internal Control”) to determine whether any changes in Internal Control occurred during the quarter ended September 30, 2014 that have materially affected or which are reasonably likely to materially affect Internal Control.  Based on that evaluation, there has been no such change during the quarter ended September 30, 2014. Management is currently evaluating the impact of HOLLY HUNT on Knoll, Inc.'s internal control over financial reporting.


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PART II — OTHER INFORMATION

 ITEM 1. LEGAL PROCEEDINGS
 
During the first nine months of 2014, there have been no new material legal proceedings or material changes in the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 1A. RISK FACTORS
 
During the first nine months of 2014, there were no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND THE USE OF PROCEEDS
 
Repurchases of Equity Securities
 
The following is a summary of share repurchase activity during the three months ended September 30, 2014.
 
On August 17, 2005, our board of directors approved a stock repurchase program (the “Options Proceeds Program”), whereby it authorized us to purchase shares of our common stock in the open market using the cash proceeds received by us upon exercise of outstanding options to purchase shares of our common stock.
 
On February 2, 2006, our board of directors approved an additional stock repurchase program, pursuant to which we are authorized to purchase up to $50.0 million of our common stock in the open market, through privately negotiated transactions, or otherwise.  On February 4, 2008, our board of directors expanded this previously authorized $50.0 million stock repurchase program by an additional $50.0 million.
 
Period
 
Total Number
of Shares
Purchased
 
 
 
Average Price
paid per Share
 
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
 
Maximum
Dollar Value of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs (1)
July 1, 2014 - July 31, 2014
 
—

 

 
$
—

 
—

 
$
32,352,413

August 1, 2014 - August 31, 2014
 
3,440

 
(2)
 
$
18.56

 
3,440

 
$
32,352,413

September 1, 2014 - September 30, 2014
 
6,447

 
(2)
 
$
18.66

 
6,447

 
$
32,352,413

Total
 
9,887

 
 
 
 

 
9,887

 
 

 

(1)         There is no limit on the number or value of shares that may be purchased by us under the Options Proceeds Program.  Under our $50.0 million stock repurchase program, which was expanded by an additional $50.0 million in February of 2008, we are authorized to spend an aggregate of $100.0 million on stock repurchases.  Amounts in this column represent the amounts that remain available under the $100.0 million stock repurchase program as of the end of the period indicated.  There is no scheduled expiration date for the Option Proceeds Program or the stock repurchase program, but our board of directors may terminate either program in the future.
 
(2) These shares were purchased under the Options Proceeds Program.


29

ITEM 6.  EXHIBITS
 
Exhibit
Number
 
Description
 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
 
The following materials from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2014 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Operations and Other Comprehensive Income for the three and nine months ended September 30, 2014 and 2013, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*

* The Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

30

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
KNOLL, INC.
 
 
(Registrant)
 
 
 
 
 
Date: November 10, 2014
 
By:
/s/ Andrew B. Cogan
 
 
Andrew B. Cogan
 
 
Chief Executive Officer
 
 
 
Date: November 10, 2014
 
By:
/s/ Craig B. Spray
 
 
Craig B. Spray
 
 
Chief Financial Officer
 
 
(Chief Accounting Officer)

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