Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - KNOLL INC | exh991proformafinancialsta.htm |
| 8-K/A - 8-K/A - KNOLL INC | a8-ka.htm |
1
MUUTO Holdings ApS
Financial Statements as of and for the year ended December 31, 2017
Exhibit 99.2
2
TABLE OF CONTENTS
Independent Auditor's Report
Consolidated Financial Statements
Consolidated Balance Sheet as of December 31, 2017
Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2017
Consolidated Statement of Stockholders' Equity as of and for the year ended December 31, 2017
Consolidated Statement of Cash Flows for the years ended December 31, 2017
Notes to the Consolidated Financial Statements
1. Description of the Business
2. Summary of Significant Accounting Policies
3. Inventories
4. Property, Plant and Equipment
5. Intangible Assets, net
6. Other Current Liabilities
7. Leases
8. Indebtedness
9. Contingent Liabilities and Commitments
10. Stockholders' Equity
11. Income Taxes
12. Other Expense, net
13. Subsequent Events
3
4
5
6
7
8
8
12
12
13
13
13
14
14
14
15
16
16
3
INDEPENDENT AUDITORS' REPORT
To the shareholders and the Board of Directors of Muuto Holdings ApS
We have audited the accompanying financial statements of Muuto Holdings ApS (the "Company"), which comprise the balance sheet
as of December 31, 2017, and the related statements of operations and comprehensive income, stockholders' equity, and cash flows
for the year then ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting
principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due
to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly,
we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Muuto
Holdings ApS as of December 31, 2017, and the results of its operations and its cash flows for the year then ended in accordance
with accounting principles generally accepted in the United States of America.
Copenhagen, Denmark
April 12, 2018
/s/ Deloitte,
Statsautoriseret Revisionspartnerselskab
CVR no: 33963556
/s/ Henrik Hjort Kjelgaard
State Authorised Public Accountant
MUUTO HOLDINGS ApS
CONSOLIDATED BALANCE SHEET
(Amounts in Danish Kroner)
4
December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents 32,458,475
Customer receivables, net of allowance for doubtful accounts of 987,844 62,391,941
Inventories 54,233,399
Deferred income taxes 595,000
Prepaid expenses 4,273,494
Other current assets 1,936,626
Total current assets 155,888,935
Property, plant, and equipment, net 7,779,486
Goodwill 283,831,473
Intangible assets, net 5,237,297
Advances to suppliers 1,915,541
Total Assets 454,652,732
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt 15,000,000
Accounts payable 40,868,748
Income taxes payable 25,096,050
Customer deposits 3,218,081
Employee related liabilities 5,970,601
Other current liabilities 36,646,265
Total current liabilities 126,799,745
Long-term debt 75,000,000
Total liabilities 201,799,745
Commitments and contingent liabilities
Equity:
Common stock 25,000,000
Additional paid-in capital 80,520,936
Retained earnings 147,088,398
Accumulated other comprehensive income 243,653
Total equity 252,852,987
Total Liabilities and Equity 454,652,732
See accompanying notes to the consolidated financial statements.
MUUTO HOLDINGS ApS
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in Danish Kroner)
5
Year Ended December 31, 2017
Sales 470,100,780
Cost of sales 222,928,482
Gross profit 247,172,298
Selling, general and administrative expenses 151,162,530
Operating profit 96,009,768
Interest expense 4,189,784
Other expense, net 4,877,390
Income before income tax expense 86,942,594
Income tax expense 28,079,162
Net earnings 58,863,432
Net earnings 58,863,432
Other comprehensive income (loss):
Foreign currency translation adjustment 243,570
Total other comprehensive (loss), net of tax 243,570
Total comprehensive income 59,107,002
See accompanying notes to the consolidated financial statements.
MUUTO HOLDINGS ApS
CONSOLIDATED STATEMENT OF EQUITY
(Amounts in Danish Kroner)
6
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
Balance at January 1, 2017 25,000,000 80,520,936 88,224,966 83 193,745,985
Net earnings — — 58,863,432 — 58,863,432
Other comprehensive income — — — 243,570 243,570
Balance at December 31, 2017 25,000,000 80,520,936 147,088,398 243,653 252,852,987
See accompanying notes to the consolidated financial statements.
MUUTO HOLDINGS ApS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Danish Kroner)
7
Year Ended December 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings 58,863,432
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization expense 4,274,742
Unrealized foreign currency losses (gains) 2,069,293
Changes in assets and liabilities:
Customer receivables (21,357,882)
Inventories (6,103,330)
Accounts payable 5,669,563
Prepaid expenses (1,233,128)
Current and deferred income taxes 10,819,006
Other current assets and liabilities 27,024,916
Cash provided by operating activities 80,026,612
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,330,094)
Purchase of intangible assets (3,125,589)
Cash used in investing activities (6,455,683)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt instruments (72,000,000)
Cash used in financing activities (72,000,000)
Effect of exchange rate changes on cash and cash equivalents (291,716)
Net increase in cash and cash equivalents 1,279,213
Cash and cash equivalents at beginning of year 31,179,262
Cash and cash equivalents at end of year 32,458,475
Supplemental disclosure of cash flow information:
Cash paid for interest 4,068,518
Cash paid for income taxes 17,042,444
See accompanying notes to the consolidated financial statements.
MUUTO HOLDINGS ApS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
8
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
Muuto Holdings ApS. and its subsidiaries (the “Company”) are engaged in the design, manufacture, market and sale of
furniture products and accessories. The Company primarily operates in Denmark, the United States (“U.S.”) and Europe, and
sells its products primarily through a broad network of contract dealers and distribution partners, through a direct sales force,
and through its showrooms, as well as online.
Basis of Presentation
These financial statements have been prepared solely for the purpose of meeting the requirements of U.S. Securities and
Exchange Commission (“SEC”) Rule 3-05 of Regulation S-X. These financial statements are not the statutory financial statements
of the Company. No comparative information has been presented in these financial statements as no comparatives are required
for the Company's circumstances under SEC Rule 3-05 of Regulation S-X. The financial statements have been prepared in
accordance with the accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB establishes
accounting principles generally accepted in the United States (“GAAP”). References to GAAP issued by the FASB in these
footnotes are to the FASB Accounting Standards Codification (“ASC”), which serves as a single source of authoritative non-
Securities and Exchange Commission accounting and reporting standards to be applied by non-governmental entities. All amounts
are presented in Danish kroner (“DKK”), unless otherwise noted.
Entry into a Material Definitive Agreement
On December 10, 2017, Knoll Denmark ApS (“Buyer”), a wholly owned subsidiary of Knoll, Inc., entered into a share
purchase agreement (the “Agreement”) pursuant to which Buyer will acquire one hundred percent (100%) of the shares of Muuto
Holding ApS and MIE4 Holding 5 ApS, which collectively hold substantially all the business operations of Muuto. Pursuant to
the Agreement, the purchase price for the shares will be approximately $300.0 million USD, less certain customary adjustments.
Consummation of the transaction is subject to limited closing conditions. See Note 13 for additional information.
For the year ended December 31, 2017, the Company incurred 30,590,466 of costs related to the Agreement, which are
currently included in “Selling, general and administrative expenses” line on the Consolidated Statement of Operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company and its wholly owned
subsidiaries and any partially owned subsidiaries that the Company has the ability to control through direct or indirect majority
interest in such entity. Significant intercompany transactions and balances have been eliminated in consolidation. The subsidiaries
of the Company include Muuto A/S and Muuto Inc.
Use of Estimates
The preparation of the consolidated financial statements in conformity with United States GAAP requires management
to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying
notes. Actual results may differ from such estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of three months
or less at the date of purchase.
Revenue Recognition
The Company recognizes revenue when performance obligations under the terms of a contract with our customer are
satisfied. This occurs when the control of the goods have been transferred to the customer. Accordingly, revenue for sale of
goods is typically recognized upon shipment or delivery depending on the shipping terms of the underlying contract. Revenue
is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The Company
occasionally receives deposits from customers before revenue is recognized, thus resulting in the recognition of a contract
liability (customer deposits). Revenue is recognized net of value added tax, duties and sales discounts.
MUUTO HOLDINGS ApS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
9
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers
to make required payments. The allowance is determined through an analysis of the aging of accounts receivable and assessments
of risk that are based on historical trends. The Company evaluates the past-due status of its customer receivables based on the
contractual terms of sale. If the financial condition of the Company's customers were to deteriorate, additional allowances may
be required. Accounts receivable are charged against the allowance for doubtful accounts when the Company determines that
the likelihood of recovery is remote, and the Company no longer intends to expend resources to attempt collection.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method.
The Company adjusts for inventory that it believes is impaired or obsolete. Obsolescence occurs as the result of several factors,
including the discontinuance of a product line, changes in product material specifications, replacement products in the marketplace
and other competitive influences.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated depreciation and impairments. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets. The useful lives are as follows:
Category Useful Life (in years)
Leasehold improvements (1) Various
Other fixtures and fittings, tools and equipment 3-5
(1) Useful lives for leasehold improvements are amortized over the shorter of the economic lives or the term of the lease.
The Company reviews the carrying values of its property and equipment for possible impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted estimated
cash flows expected to result from its use and eventual disposition. The factors considered by the Company in performing this
assessment include current operating results, business trends affecting the use of certain assets and other economic factors. In
assessing the recoverability of the carrying value of property and equipment, the Company must make assumptions regarding
future cash flows and other factors. If these estimates or the related assumptions change in the future, the Company may be
required to record an impairment loss for these assets.
Goodwill and Intangible Assets
The Company records the excess of purchase price over the fair value of the tangible and identifiable intangible assets
acquired as goodwill. Intangible assets with finite lives are amortized over their useful lives.
Finite-lived assets are amortized over their estimated useful lives. The Company reviews the carrying values of these
assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not
be recoverable based on undiscounted estimated cash flows expected to result from its use and eventual disposition. The Company
continually evaluates the reasonableness of the useful lives of these assets.
The Company assesses whether goodwill impairment exists using both the qualitative and quantitative assessments. The
qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that
the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment the
Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if the
Company elects not to perform a qualitative assessment, a quantitative assessment is performed to determine whether a goodwill
impairment exists at the reporting unit.
As at December 31, 2017, the company had completed its annual qualitative impairment assessment and had not identified
any indicators of impairment which would require it to perform a quantitative assessment.
There have been no additions or impairment of the goodwill amount stated in the Consolidated Balance Sheet since initial
recognition.
MUUTO HOLDINGS ApS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
10
Business Combinations
The purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities
assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as
goodwill. The results of operations of the acquired business are included in the Company's operating results from the date of
acquisition.
Shipping and Handling
Amounts billed to clients for shipping and handling of products are classified as sales. Costs incurred by the Company
for shipping and handling are classified as cost of sales.
Research and Development Costs
Research and development expenses are expensed as incurred, and are included as a component of selling, general and
administrative expenses. Research and development expenses, were 1,583,966 for 2017.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, which requires deferred tax assets and
liabilities be recognized using enacted tax rates to measure the effect of temporary differences between book and tax bases on
recorded assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets, if it is more likely than not some
portion or all of the deferred tax assets will not be recognized. The need to establish valuation allowances against deferred tax
assets is assessed quarterly.
The Company evaluates tax positions to determine whether the benefits of tax positions are more likely than not to be
sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not to be
sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized
upon ultimate settlement. For tax positions that are not more likely than not to be sustained upon audit, the Company does not
recognize any portion of the benefit. If the more likely than not threshold is not met in the period for which a tax position is
taken, the Company may subsequently recognize the benefit of that tax position if the tax matter is effectively settled, the statute
of limitations expires, or if the more likely than not threshold is met in a subsequent period.
The Company recognizes tax-related interest and penalties in income tax expense and accrues for interest and penalties
in other noncurrent liabilities.
Fair Value of Financial Instruments
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.
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 and its subsidiaries use, as appropriate, a market approach (generally,
data from market transactions), an income approach (generally, present value techniques and option-pricing models), and/or a
cost approach (generally, replacement cost) to measure the fair value of an asset or liability. These valuation approaches
incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated
on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable,
certain risks such as nonperformance risk, which includes credit risk.
Financial Instruments
The fair values of the Company’s cash and cash equivalents approximate carrying value due to their short maturities and
are classified as Level 1.
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, and are classified as Level 2.
MUUTO HOLDINGS ApS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
11
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The Company utilizes derivative instruments to hedge specific financial risks including foreign exchange risk. The
Company does not engage in speculative hedging activity. In order to account for a derivative instrument as a hedge, specific
criteria must be met, including: (i) ensuring at the inception of the hedge that formal documentation exists for both the hedging
relationship and the entity’s risk management objective and strategy for undertaking the hedge and (ii) at the inception of the
hedge and on an ongoing basis, the hedging relationship is expected to be highly effective in achieving offsetting changes in
fair value attributed to the hedged risk during the period that the hedge is designated. Further, an assessment of effectiveness is
required whenever financial statements or earnings are reported. Absent meeting these criteria, changes in fair value are
recognized in other income, net, in the consolidated statements of income. Once the underlying forecasted transaction is realized,
the gain or loss from the derivative designated as a hedge of the transaction is reclassified from accumulated other comprehensive
income (loss) to the statement of income, in cost of goods sold. Any ineffective portion of the derivatives designated as cash
flow hedges is recognized in current earnings.
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
There were no additional assets and/or liabilities remeasured to fair value on a nonrecurring basis as of December 31,
2017 and for the year then ended.
Guarantees
All shares in the subsidiary Muuto A/S have been charged as security for balances with banks.
Warranty
The Company generally offers an assurance-type warranty for its products. The specific terms and conditions of those
warranties vary depending upon the product sold. The Company estimates the costs that may be incurred under its warranties
and records a liability for the amount of such costs at the time the product revenue is recognized. Factors that affect the Company's
warranty liability include historical product-failure experience and estimated repair costs for identified matters. The Company
regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Concentration of Credit Risk
The Company's accounts receivables are comprised primarily of amounts due from customers. The Company monitors
and manages the credit risk associated with the customers.
Foreign Currency Translation
Results of foreign operations are translated into Danish kroner using average exchange rates during the year, while assets
and liabilities are translated into Danish kroner using the exchange rates as of the balance sheet dates. The resulting translation
adjustments are recorded in accumulated other comprehensive income (loss).
Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than
the functional currency of the applicable subsidiary are included in the consolidated statements of operations, within other
expense, net, in the year in which the change occurs.
Stock-Based Compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on
the grant-date fair value of the award. Forfeitures are recognized when they occur.
Stock options
The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model, which
requires management to make certain assumptions of future expectations based on historical and current data. The assumptions
include the expected term of the options, risk-free interest rate, expected volatility, and dividend yield. The expected term
represents the expected amount of time that options granted are expected to be outstanding, based on historical and forecasted
exercise behavior. The risk-free rate is based on the rate at grant date of Danish government bonds with a term equal to the
expected term of the option. Expected volatility is estimated based on volatility for comparable peers and industry practice. The
Company's dividend yield is based on historical data. The Company recognizes compensation expense using the straight-line
method over the vesting period.
As of December 31, 2017, there were 773,196 fully vested options outstanding and exercisable at an exercise price of
8.00. The remaining contractual life of these options is 4.5 years. In addition, the options have accelerated vesting provisions
upon a change of control of the Company.
MUUTO HOLDINGS ApS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
12
Retirement Benefits
The Company sponsors a defined contribution retirement savings plans for its employees. Under the defined contribution
retirement savings plan, participants may defer a portion of their earnings. The Company's total expense under the defined
contribution plans for its employees was 1,042,058 for 2017.
New Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which outlines a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This ASU supersedes
the revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance.
This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity is
required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration
it expects to receive in exchange for those goods or services. ASU 2014-09 is effective for interim and annual periods beginning
after December 15, 2017. The standard permits the use of either the full retrospective or modified retrospective (cumulative
effect) transition method. Transition practical expedients are available for both methods. The Company will adopt the standard
in the first quarter of 2018 under the modified retrospective transition method. The impact to the financial statements is still
being assessed.
In February 2016, the FASB issued guidance codified in ASC 842, Leases, which supersedes the guidance in ASC 840,
Leases. ASC 842 will be effective for the Company on January 1, 2019, and the Company will adopt the standard using the
modified retrospective approach. While the Company continues to evaluate the provisions of ASC 842 to determine how it will
be affected, the primary effect of adopting the new standard will be to record assets and obligations for current operating leases.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairment by removing the second step of the
goodwill impairment test that requires a hypothetical purchase price allocation. Under the new guidance, goodwill impairment
will be measured and recognized as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed
the carrying amount of goodwill allocated to the reporting unit. The revised guidance does not affect the reporting entity’s ability
to first assess qualitative factors by reporting unit to determine whether it is necessary to perform the quantitative goodwill
impairment test. The guidance is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. The
Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.
3. INVENTORIES
Information regarding the Company's inventories is as follows:
December 31, 2017
Finished goods 54,233,399
54,233,399
4. PROPERTY, PLANT, AND EQUIPMENT, NET
Information regarding the Company's property, plant and equipment is as follows:
December 31, 2017
Leasehold improvements 3,285,005
Other fixtures, fittings tools and equipment 15,188,695
Property, plant and equipment 18,473,700
Accumulated depreciation (10,694,214)
Property, plant, and equipment, net 7,779,486
MUUTO HOLDINGS ApS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
13
5. INTANGIBLE ASSETS, NET
Information regarding the Company's intangible assets are as follows:
December 31, 2017
Gross
Amount
Accumulated
Amortization
Net
Amount
Finite-lived intangible assets:
Software 7,464,801 (2,227,504) 5,237,297
Total 7,464,801 (2,227,504) 5,237,297
The Company's amortization expense related to finite-lived intangible assets was 1,241,352 for the year ended
December 31, 2017. The expected amortization expense based on the finite-lived intangible assets as of December 31, 2017 is
as follows:
Estimated Amortization
2018 1,871,000
2019 1,871,000
2020 1,871,000
2021 1,871,000
2022 —
6. OTHER CURRENT LIABILITIES
The components of other current liabilities are as follows:
December 31, 2017
Miscellaneous other current liabilities 2,338,291
Warranty 3,708,581
Accrued incentive compensation 30,599,393
Other current liabilities 36,646,265
Accrued incentive compensation relates to various employee compensation plans.
7. LEASES
The Company has commitments under operating leases for warehousing, showroom and other facilities used in its
operations. One of the leases contains rent abatement provisions as well as a provision for cash abatements related to certain
leasehold improvements. These abatements are recognized on a straight-line basis as a reduction to rent expense over the lease
term. The unamortized portions as of December 31, 2017 was 1,400,000. Total rent expense for 2017 was 5,569,192. Future
minimum rental payments required, excluding maintenance and other miscellaneous charges, under those operating leases are
as follows:
Future Minimum
Rental Payments
2018 3,831,621
2019 3,802,478
2020 13,658
2021 —
2022 —
Subsequent years —
Total minimum lease payments 7,647,757
MUUTO HOLDINGS ApS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
14
8. INDEBTEDNESS
The Company's long-term debt is summarized as follows:
December 31, 2017
Balance of overdraft facility —
Balance of term loan 90,000,000
Total long-term debt 90,000,000
Less: Current maturities of long-term debt 15,000,000
Long-term debt 75,000,000
Annual maturities of total long-term debt for the five fiscal years subsequent to December 31, 2017 are as follows:
Future Minimum
Debt Payments
2018 15,000,000
2019 30,000,000
2020 35,000,000
2021 10,000,000
2022 —
Subsequent years —
Total 90,000,000
The Company's overdraft facility can be utilized to support bank overdrafts. The Company's term loan was used to finance
the buyout of the equity investment of a previous stockholder of the Company in 2014.
9. COMMITMENTS AND CONTINGENCIES
Warranty
The Company provides for estimated product warranty expenses when related products are sold and are included within
other current liabilities. Because warranty estimates are forecasts that are based on the best available information, primarily
historical claims experience, future warranty claims may differ from the amounts provided.
Changes in the warranty reserve are as follows:
2017
Balance, beginning of the year 4,039,242
Adjustment of provision for warranty claims (330,661)
Balance, end of the year 3,708,581
10. STOCKHOLDERS' EQUITY
Common Stock
The Company's Articles of Association states the share capital of the Company is 25,000,000 shares. The Company's
share capital is divided into the following share classes:
Share Class (1) Number of Shares Par Value (DKK) Total Common Stock
A-Shares 11,250,000 1.00 11,250,000
B-Shares 13,375,000 1.00 13,375,000
C-Shares 375,000 1.00 375,000
Total 25,000,000 25,000,000
_______________________________________________________________________________
(1) Each Class A and Class B share carries one vote. The Class C shares carry no voting rights.
MUUTO HOLDINGS ApS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
15
The shares are non-negotiable instruments, but must be registered in the name of the shareholder in the Company's register
of shareholders. Any lost certificate may be cancelled without prior court order pursuant to relevant statutory provisions. Any
sale or transfer of shares shall only take place upon prior approval from the board of directors.
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are as follows (in thousands):
Beginning
Balance
Before-Tax
Amount
Tax Benefit
(Expense)
Net-of-Tax
Amount
Ending
Balance
December 31, 2017
Foreign currency translation adjustment 83 243,570 — 243,570 243,653
Accumulated other comprehensive income (loss) 83 243,570 — 243,570 243,653
11. INCOME TAXES
Income before income tax expense consists of the following:
2017
U.S. operations 4,402,837
Non-U.S. operations 82,539,757
Total 86,942,594
Income tax expense is comprised of the following:
2017
Current:
Federal 1,572,469
State 458,087
Foreign (non-U.S.) 26,201,811
Total current 28,232,367
Deferred:
Foreign (non-U.S.) (153,205)
Total deferred (153,205)
Income tax expense 28,079,162
The following table sets forth the tax effects of temporary differences that give rise to the deferred tax assets and liabilities:
December 31, 2017
Deferred tax assets
Inventories 243,000
Deferred rent 308,000
Plant and equipment 64,000
Gross deferred tax assets 615,000
Valuation allowance —
Net deferred tax assets 615,000
Deferred tax liabilities:
Intangibles 20,000
Gross deferred tax liabilities 20,000
Net deferred tax assets 595,000
MUUTO HOLDINGS ApS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
16
The following table sets forth a reconciliation of the statutory federal income tax rate to the effective income tax rate:
2017
Federal statutory tax rate 34.0 %
Increase (decrease) in the tax rate resulting from:
State taxes, net of federal effect 0.3 %
Foreign rate differential (11.4)%
Nondeductible expense 8.7 %
Other 0.7 %
Effective tax rate 32.3 %
As of December 31, 2017, the Company is subject to U.S. Federal Income Tax examination for the tax years 2014 through
2016, and to non-U.S. income tax examination for the tax years 2013 to 2016. In addition, the Company is subject to state and
local income tax examinations for the tax years 2014 through 2016.
12. OTHER EXPENSE, NET
The components of other expense, net are as follows:
Year Ended December 31, 2017
Unrealized foreign exchange losses 1,776,909
Realized foreign exchange losses 2,159,448
Other, net 941,033
Other expense, net 4,877,390
13. SUBSEQUENT EVENTS
On January 25, 2018, Knoll Denmark ApS (“Knoll Denmark”), a wholly owned subsidiary of Knoll, Inc., completed
the acquisition of one hundred percent (100%) of the shares of the Company, pursuant to a share purchase agreement,
dated as of December 10, 2017, among Knoll Denmark and the owners of the Company. The purchase price for the
acquisition was $311.3 million USD, subject to certain customary adjustments.