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ScS GroupUse these links to rapidly review the documentTABLE OF CONTENTSTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KCommission File No. 001-12907KNOLL, INC.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation ororganization) 13-3873847(I.R.S. EmployerIdentification Number)1235 Water StreetEast Greenville, PA 18041(215) 679-7991(Address, including zip code, and telephone numberincluding area code of principal executive offices) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:Title of each class Name of exchange on which registeredCommon Stock, par value $0.01 pershare New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark if the issuer is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act.) Yes No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No 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 Actof 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 tosuch filing requirements for the past 90 days. Yes No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to 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 suchshorter period that the registrant was required to submit and post such files). Yes o No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. 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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No As of June 30, 2010, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately$590,623,000 based on the closing sale price as reported on the New York Stock Exchange. As of February 25, 2011 there were 47,915,652 shares (including 1,612,219 shares of non-voting restricted shares) of the Registrant's commonstock, par value $0.01 per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for its 2011 Annual Meeting of Stockholders are incorporated by reference into Part III ofthis report on Form 10-K to the extent stated therein.Large accelerated filer o, Accelerated filer , Non-accelerated filer o,(Do not check if asmaller reporting company) Smaller reporting company o Table of ContentsTABLE OF CONTENTS Item Page PART I 1. Business 1 1A. Risk Factors 13 1B. Unresolved Staff Comments 21 2. Properties 21 3. Legal Proceedings 21 4. (Removed and Reserved) 21 PART II 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 22 6. Selected Financial Data 24 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 7A. Quantitative and Qualitative Disclosures about Market Risk 37 8. Financial Statements and Supplementary Data 40 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 74 9A. Controls and Procedures 74 9B. Other Information 76 PART III 10. Directors, Executive Officers and Corporate Governance 76 11. Executive Compensation 76 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 76 13. Certain Relationships and Related Transactions, and Director Independence 77 14. Principal Accounting Fees and Services 77 PART IV 15. Exhibits and Financial Statement Schedules 78 Signatures 83 Table of ContentsPART IITEM 1. BUSINESS General We are a leading designer and manufacturer of workplace furnishings, textiles and fine leathers. For over a decade now we have been building adiversified design-driven product portfolio and flexible business model that can perform in various business cycles. Our commitment to innovation andmodern design has yielded a comprehensive portfolio of products designed to provide enduring value and help clients shape their workplaces withimagination and vision. Our products are recognized for high quality and a sophisticated image and are targeted at the middle to upper end of the market.We sell our products primarily in North America through a direct sales force of approximately 243 professionals and a broad network of approximately208 independent dealers. Our distinctive operating approach has driven industry leading operating income margins among our primary publicly-heldcompetitors. Since our founding in 1938, we have been recognized worldwide as a design leader within our industry. Our products are exhibited in major artmuseums worldwide, including more than 40 pieces in the permanent Design Collection of The Museum of Modern Art in New York. This legacycontinues to flourish today and is embodied in an ambitious series of new products that reflect forward thinking ideas about design and workplaceperformance, among them: Generation by Knoll® , highly innovative task seating; MultiGeneration by Knoll™ , multipurpose seating for collaborativeenvironments; Reff Profiles™, furnishings for the contemporary private office; and Antenna™ Workspaces, a new approach for individual and groupwork spaces. Our design excellence is complemented by a management philosophy that fosters a strong collaborative culture, client-driven processesand a lean, agile operating structure. Our employees are performance-driven and motivated by a variable incentive compensation system and broad-based equity ownership in the company. Together, these core attributes have enabled us to achieve strong financial performance. Our management evaluates the company as one reporting segment in the office furniture industry. For further information on segment reporting,see note 16 in the accompanying financial statements. All trademarks used in this annual report on Form 10-K that are not owned by us or our affiliates are the property of their respective owners.Products We offer a comprehensive and expanding portfolio of high quality office furniture, textiles and leathers across five product categories: (i) officesystems, which are typically modular and moveable workspaces with functionally integrated panels or table desks, worksurfaces, pedestals and otherstorage units, power and data systems and lighting; (ii) specialty products, including high image side chairs, sofas, desks and tables for the office andhome, textiles, accessories, leathers and related products; (iii) seating; (iv) files and storage; and (v) desks, casegoods and tables. Historically, we havederived most of our revenues from office systems and from specialty products, including our KnollStudio® collection of signature design classicsfurnishings, KnollTextiles® fabrics, Spinneybeck® leathers, Edelman® leathers, and KnollExtra® accessories. However, in recent years, we havesignificantly expanded our product offerings in seating, files and storage, casegoods and tables and have reduced our dependence on office systems byfurther growing our specialty businesses. Our products and knowledgeable sales force have generated strong brand recognition and loyalty among architects, designers and corporate facilitymanagers, all of whom are key decision makers in the office furniture purchasing process. Our clients are typically Fortune 1000 companies,governmental agencies and other medium to large sized organizations in a variety of industries. We have an approximately $7.9 billion installed base ofoffice systems, which provides a strong platform for1 Table of Contentsrecurring and add-on sales of products across all our categories. Installed base refers to the amount of office systems product we have sold in NorthAmerica during the previous fifteen years.Major product categories and lines include:Systems Furniture We believe that office systems purchases are divided primarily between (i) architect and designer-oriented products and (ii) entry-level productswith technology, ergonomic and functional support. Our office systems furniture reflects the breadth of these sectors with a variety of planning modelsand a corresponding depth of product features. Our systems furniture can define or adapt to virtually any office environment, from collaborative spacesfor team interaction to private executive offices. Systems furniture consists principally of functionally integrated panels or table desks, worksurfaces, pedestal and other storage units, power anddata systems and lighting. These components are combined to create flexible, space-efficient work environments that can be moved, re-configured andre-used. Clients, often working with architects and designers, have the opportunity to select from a wide selection of laminates, paints, veneers andtextiles to design workspaces appropriate to their organization's personality. Our systems furniture product development strategy aims to insure thatproduct line enhancements can be added to clients' existing installations and integrate with other Knoll product lines, maximizing the value of the clients'investments in Knoll systems products over the long-term. Office systems furniture accounted for approximately 43.7% of our sales in 2010, 48.4% of our sales in 2009 and 48.6% of our sales in 2008. Our systems furniture product lines include the following panel and desk-based planning models:Antenna™ Workspaces Introduced in 2010, Antenna™ Workspaces by Masamichi Udagawa and Sigi Moeslinger, principals of Antenna Design, is a new approach toworkplace design that reflects the freedom and mobility people seek in today's office. Antenna Workspaces considers the growing variety of settingswhere work takes place and blends desks, tables, storage units and screens to create intuitive solutions for individuals and groups. In the process,Antenna Workspaces suggests connections and boundaries between diverse work areas and establishes a new way to shape space, simplifyingtransitions between individual and group work. Antenna Workspaces has received recognition for its novel approach to office planning, including a2010 Best of NeoCon® innovation award.Reff Profiles™ In 2010, Reff ProfilesTM debuted, building on the Reff® flagship wood systems platform. Through its history, Reff has combined the highperformance capabilities of panel-based systems furniture with the refined elegance of wood casegoods, showcasing sophisticated all-woodconstruction and precisely crafted detail. Reff Profiles extends those capabilities, with new aesthetic options, enhanced storage for materials andtechnology, and simple user access to power and data needs. Reff Profiles is available in an extensive range of veneers, laminates, glass, and metaloptions that can be used interchangeably in private offices and as freestanding or panel-based furnishings for the open office.AutoStrada® Introduced in 2004, AutoStrada® is one of the most comprehensive office concepts that we have developed. AutoStrada provides aesthetic andfunctional alternatives to traditional panel-based and desk-based systems furniture with four planning models that combine high-performance furniturewith2 Table of Contentsthe look of custom millwork. The AutoStrada spine-based, storage-based, wall-based and collaborative/open table planning models leverage a consistentdesign aesthetic to create a distinctively modern aesthetic in both open plan and private office environments. Whether an office requires a highperformance open plan system, architectural casegoods, progressive private office furniture or a collaborative "big table" concept, AutoStrada provides asolution. In 2004, at NeoCon®, our national industry tradeshow, AutoStrada received a silver Best of NeoCon® award.Dividends Horizon® Dividends Horizon®, introduced in 2007, extends the Dividends portfolio of workplace solutions introduced in 1998 with new planningopportunities for the individual workstation, focusing on new materials and furniture that evolve the office landscape with a layered approach tofurniture design. Focusing on exceptionally light and transparent materials and practical, personalized storage solutions, Dividends Horizon creates richspatial environments for the contemporary workspace. Dividends Horizon received a silver 2007 Best of NeoCon® award. The system's enduringsuccess is based on a straightforward, versatile frame-and-tile construction, featuring a universal panel frame. Removable panel inserts, which can beordered in fabric, steel, glass or as marker boards, meet a range of clients' design and budgetary needs. The Dividends Horizon panel frame enablesclients to utilize either monolithic, tiled or beltway panel type for applications throughout the workplace, and power and data access may be locatedvirtually anywhere on the panel.Morrison™ Our Morrison furniture system was introduced in 1986 and continues to be one of our most proven product offerings. Morrison meets essentialpower and data requirements for panel and desk-based planning and private offices, and offers one of the broadest ranges of systems performance in theindustry. Morrison has been upgraded continually with interchangeable enhancements from its Morrison Network, Morrison Access and MorrisonOptions lines. In addition, Morrison integrates with Currents (described below) to provide advanced wire management capabilities, as well as with ourCalibre and Series 2 desks, pedestals, lateral files, overhead storage cabinets and architectural towers to provide compatible, cost-effective panel anddesk-based solutions.Equity® The distinguishing feature of our Equity product is its unique centerline modularity, which maximizes the efficient use of space for high-densityworkplaces with a minimal inventory of parts. Equity incorporates power and data capabilities, including desktop features, and integrates with Currents(described below) to provide advanced wire management capabilities. Equity components also create modular freestanding desks, and Equity 120-degreeplanning enables clients to create sleek, hexagonal configurations that are well suited for call and data centers. For both 90- and 120-degree Equityplanning, a variety of components, including add-on screens, bi-fold doors and side-door components, accommodate clients' needs for privacy andstorage. Equity continues to be an industry leader in terms of sustainable design.Currents® Our award-winning and innovative Currents system provides advanced power and data capabilities to organizations that require maximum space-planning freedom, advanced technology support and the mobility of freestanding furniture. The groundbreaking Currents service wall divides space andmanages technology. A sister product, Fence, provides comparable performance for low horizon settings. Currents and Fence may be used in tandemwith existing Knoll systems furniture, removing the constraints imposed by conventional panel system, along with competitors' systems andfreestanding furniture.3 Table of ContentsSeating We continuously research and assess the general landscape of the office seating market, and tailor work chair product development initiatives toenhance our competitive position for ergonomics, aesthetics, comfort and value. We believe that the result of these efforts is an increasingly innovative,versatile seating collection consistent with the Knoll brand. Key client criteria in work chair selection include superior ergonomics, aesthetics, comfort, quality and affordability, all of which are consistentwith our strengths and reputation. We believe that we offer an excellent and fully competitive line-up of chairs at a range of price points andperformance levels and constructed from varying materials, including mesh, polymers, and upholstery. During 2010, we again expanded our range ofseating with MultiGeneration by Knoll™, companion side chairs to the award-winning Generation by Knoll® task chair. MultiGeneration offers twomultipurpose chair options: stacking and a novel "hybrid" version, both offering a level of comfort and unrestrained movement unusual in the sideseating category. Principal task seating lines include: Generation by Knoll®, our flagship task chair, reflects Knoll's commitment to materials innovation and forward thinking ergonomic research thathas found there is no one right way to sit. Generation offers a new standard of unrestrained movement, supporting the range of postures andworkstyles typical of today's workplace through elastic design, where the chair rearranges itself in response to the user. Generation has received a seriesof accolades from the national press, including The Wall Street Journal? Business Week, Time, Fast Company?and CBS Sunday Morning.Additionally, the chair has been honored with many awards, including Interior Design magazine's 2009 Best of Year Product Award in the contact/taskseating category, the Chicago Athenaeum GOOD DESIGN Award, and a Best of NeoCon Gold Award for office seating. LIFE®, introduced in 2002, has become an industry benchmark for ergonomic and sustainable design. Recognized for its overall lightness andagility, LIFE features intuitive adjustments that bring comfort and effortless control to a new performance level with an extensive range of supportivesitting options and responsive lumbar support. RPM®, recognized for outstanding comfort, extraordinary performance and exceptional value, is offered with distinctive fabrics that reflect itsstylish design. Engineered for durability, RPM delivers comfort and support, especially for 24-hour work environments. Chadwick™, introduced in 2005, is an innovative hybrid seating design that accommodates the changing needs of today's workplace and homeoffice. The family of Essentials Work Chairs, introduced in 2005-07, offers the ergonomic comfort and appeal of fully upholstered task chairs at asignificant value. Essentials Work Chairs' Pro™, Tech™ , and Sport™ models offer a comprehensive range of four task and two side chairs suitable toany office style from the traditional to the progressive. Seating accounted for approximately 13.9% of our sales in 2010, 11.1% of our sales in 2009 and 9.8% of our sales in 2008.Files and Storage Our files and storage products, featuring the Template®, Calibre® and Series 2™ product lines, are designed with unique features to maximizestorage capabilities throughout the workplace. Our core files and storage products consist of lateral files, mobile pedestals and other storage units,bookcases and overhead storage cabinets.4 Table of Contents The range of files and storage completes our product offering, allowing clients to address all of their furniture needs with us, especially incompetitive bid situations where Knoll office systems, seating, tables and desks have been specified. The breadth of the product line also enables ourdealers to offer the files and storage as stand alone products to businesses with smaller requirements. Files and storage are available in an extensive array of sizes, configurations and colors, which can be integrated with other manufacturers' stand-alone furniture, thereby increasing our penetration in competitor accounts. In addition, certain elements of the product line can be configured asfreestanding furniture in private offices or open-plan environments.Template® In 2009, we introduced the Template® Storage System, offering an economical approach to workplace planning, using vertical storage units todivide and define workspaces. In doing so, the product's compact 15 inch deep footprint consolidates storage while reducing the overall size of anindividual workspace, saving clients both money and space. Template can be combined with Dividends Horizon, Antenna Workspaces, and other Knollsystems to expand its planning capabilities. Files and storage accounted for approximately 9.0% of sales in 2010, 8.0% of sales in 2009, and 7.7% in 2008.Desks, Casegoods, and Tables We offer collections of adjustable tables as well as meeting, conference, training, dining, and café tables for large scale projects and stand-alonedesks and table desks. These items are also sold as stand-alone products through our Knoll dealers to businesses with smaller requirements. Our Interaction™ and Upstart™ product lines include adjustable, work, meeting, conference and training tables. These product lines range fromindependent tables to tables suitable for workstations that support individual preferences for computer and writing heights to plannable desks that can belinked together to build and reshape larger work areas. Additionally, Interaction tables are designed to be compatible with Dividend Horizons, Equity,Morrison and Reff Profiles office systems. Our principal desk product lines, detailed to meet the needs of the contemporary office, offer traditional wood casegoods construction synonymouswith the Knoll standard of quality. These desk product lines include Magnusson® and The Graham Collection® (introduced in 2007) and are designedespecially to serve the day-to-day wood casegoods requirements of Knoll dealers. Desks, Casegoods, and Tables accounted for approximately 0.6% of our sales in 2010, 0.9% of our sales in 2009 and 1.4% of our sales in 2008.Specialty Products Our KnollStudio®, KnollTextiles®, KnollExtra®, Spinneybeck®, and Edelman® businesses serve as a marketing and distribution umbrella for ourportfolio of specialty product lines. For the past decade we have focused on growing and developing our specialty product offerings in order to lessonor overall dependence on office systems. These businesses are our highest margin product lines and enhance our design and quality reputation. KnollStudio is a renowned source for classic modern furniture and spirited new designs of unparalleled quality for the workplace, home, hotels,restaurants and government and educational institutions. The KnollStudio portfolio includes a range of lounge seating; side, café and dining chairs;barstools; and conference, dining and occasional tables. KnollStudio has a long history of working with celebrated architects and designers from aroundthe world, including Ludwig Mies van der Rohe, Marcel Breuer, Eero Saarinen, Isamu Noguchi, Warren Platner, Frank Gehry, Maya Lin, Jens Risom,5 Table of ContentsKazuhide Takahama, and Ross Lovegrove. In addition, KnollStudio manufactures a collection of original furniture designs by Florence Knoll. In 2008,KnollStudio collaborated with Milanese architect Cini Boeri on an eponymous collection of lounge furnishings and with New York interior designerJoseph Paul D'Urso on a lounge collection. Both designers were renewing relationships with Knoll that had begun with signature collections decadesago. In 2009, KnollStudio introduced the Jehs & Laub Lounge Collection, sculpted seating reflecting contemporary lifestyles. In 2004, KnollStudio established Knoll Space as a formalized sales program for the retail market, making it easier for consumers to bring the bestof Knoll furnishings into their home and home office. The program consists of independent specialty retailers and e-tailers nationwide that sell ouriconic modern classics and selected contemporary designs as well as selected products with crossover home office appeal. Through this program we sellour KnollStudio and selected other products through approximately 55 retailers, with an aggregate of over 100 locations. KnollTextiles®, established in 1947 to create high-quality textiles for Knoll furniture, offers upholstery, panel fabrics, wallcoverings and draperythat harmonize color, pattern and texture. KnollTextiles® offers products for corporate, hospitality, healthcare and residential interiors. KnollTextiles®products are used in the manufacture of Knoll furniture and are sold to clients for use in other manufacturers' products. In 2008, KnollTextiles®introduced Knoll Luxe®, a new brand of fashion forward textiles created by KnollTextiles® creative director Dorothy Cosonas. In 2010, along with theongoing contributions of designer Suzanne Tick, the division launched a Knoll Luxe® collection by the celebrated fashion designers Rodarte. For eachof the past eight years, KnollTextiles® has received Best of Neocon® gold awards, including 2010 for the Rodarte Collection. In order to open newdistribution channels and reach new customers, KnollTextiles recently opened a residential showroom in the D&D building in New York City.KnollTextiles® also transformed their website into a true e-commerce platform where customers can request samples and purchase products on-line. KnollExtra offers accessories that complement Knoll office furniture products, including technology support accessories, desktop organizationaltools, lighting and storage. KnollExtra integrates technology comfortably into the workplace, meeting the increased demand for flat panel monitorsupports and central processing unit holders, which deliver adjustability and space savings. During 2009, KnollExtra introduced the Sapper™ MonitorArm Collection, designed by renowned industrial designer Richard Sapper. The collection provides a clean, modern solution to technology challenges inthe modern workplace and has been accepted into the permanent collection of New York's Museum of Modern Art. Spinneybeck Enterprises, Inc., or Spinneybeck, our wholly owned subsidiary, offers leathers and related products, including leather rugs and wallpanels. Spinneybeck supplies high-quality upholstery leather for use on Knoll furniture and for sale directly to clients, including other office furnituremanufacturers, upholsterers, aviation, custom coach and boating manufacturers. Edelman Leather LLC, our wholly owned subsidiary, supplies fine leathers to residential, hospitality, aviation and contract office furnituremarkets. Edelman Leather LLC,offers a broad residential showroom network where designers, and retail consumers can sample our products. Specialty products accounted for approximately 22.9% of our sales in 2010, 23.9% of our sales in 2009 and 22.7% of our sales in 2008.6 Table of ContentsEuropean Sales Knoll Europe has a product offering that allows clients to purchase a complete office environment from a single source. In addition, we offercertain products designed specifically for the European market. In 2006, we introduced the Wa™ desking system. Wa™ reinvents desks and storagethrough its design and construction in a linear and well proportioned modern vernacular. Our presence in the European market provides strategicpositioning with clients that have international offices where they would like to maintain their Knoll facility standard. In addition to working with NorthAmerican clients' international offices, we also have a local European client base. In Europe, the core product categories include: (i) desk systems, including the Wa™ desking system, the KnollScope®, and the PL1™ system;(ii) KnollStudio; (iii) seating, including a comprehensive range of chairs; and (iv) storage units, which are designed to complement Knoll desk products. Knoll Europe accounted for approximately 9.9% of our sales in 2010, 7.7% of our sales in 2009 and 9.9% in 2008.Product Design and Development Our design philosophy reflects our historical commitment to working with the preeminent industrial designers and architects to develop productsthat delight and inspire. By combining the designers' creative vision with our commitment to developing products that address changing business needs,we continue to generate strong demand for our product offerings while cultivating brand loyalty among target clients. Our enviable history of nurturingdesign partner relationships continues to attract the world's leading designers. In addition, these types of collaborations are consistent with ourcommitment to a lean organizational structure and incentive-based compensation, by utilizing a variable royalty-based fee as opposed to the fixed coststypically associated with a larger in-house design staff. Product initiatives rely upon a New Product Commercialization Process to ensure quality and repeatability of the development process. This helpsto reduce product development cycle time and improves the quality of output. We use Pro/ENGINEER® design tools and rapid prototyping technologyto reduce product design and development lead times and to improve responsiveness to special requests for customized solutions. Working very closelywith the designers during the early phase of development helps to ensure the most viable products that balance innovative, modern design with practical,functional style. Cross-functional teams are formed for all major development efforts with dedicated leaders to facilitate a seamless flow intomanufacture and accountability on cost and schedule. Increasingly, a major emphasis on total environmental impact is factored in to material selectionand manufacturing process decisions. Research and development expenses, which are expensed as incurred, were $14.6 million for 2010, $14.4 million for 2009, and $16.3 million for2008.Sales and Distribution We generate sales with our direct sales force and a network of independent dealers, who jointly market and sell our products. We generally rely onthese independent dealers to also provide a variety of important specification, installation and after-market services to our clients. Our dealers generallyoperate under one-year, non-exclusive agreements. Our clients are typically Fortune 1000 companies, governmental agencies and other medium to large sized organizations in a variety of industriesincluding financial, legal, accounting, education, healthcare and hospitality. Our direct sales force and independent dealers in North America work inclose partnership with clients and design professionals to specify distinctive work environments. Our direct sales representatives, in conjunction withthe independent dealers, sell to and call directly on key clients. Our independent dealers also call on many other medium and small sized clients toprovide7 Table of Contentsseamless sales support and client service. We have an over $7.9 billion installed base of office systems, which provides a strong platform for recurringand add-on sales. Our products and knowledgeable sales force have generated strong brand recognition and loyalty among architects, designers and corporate facilitymanagers, all of whom are key decision makers in the office furniture purchasing process. Our strong relationships with architects and designprofessionals help us stay abreast of key workplace trends and position us to better meet the changing needs of clients. For example, we have investedin training all of our architect and designer specialists as Leadership in Energy and Environmental Design ("LEED®") accredited professionals to helpclients better address environmental issues that arise in the design of the workplace. We have aligned our sales force to target strategic areas of opportunity. For example, our healthcare division was created to target healthcare relatedbusinesses. We have also placed sales representatives and technical specialists into certain dealerships to support programs such as Knoll Essentials,which is described below. In addition to coordinating sales efforts with the sales representatives, the dealers generally handle project management, installation andmaintenance for client accounts after the initial product selection and sale. Although many of these dealerships also carry products of othermanufacturers, they have agreed not to act as dealers for our principal direct competitors. We have not experienced significant dealer turnover. Ourdealers' substantial commitment to understanding our product lines, and their strong relationships with us, serve to discourage dealers from changingvendor affiliations. We are not significantly dependent on any one dealer, the largest of which accounted for approximately 6.2%, 11.0% and 6.4% ofour North American sales in 2010, 2009 and 2008, respectively. We provide product training for our sales force and dealer sales representatives, who make sales calls primarily to small to medium sizedbusinesses. As part of our commitment to building relationships with our dealer sales representatives, we introduced the Knoll Essentials program inJanuary 2004. Knoll Essentials is a catalog program developed in response to dealer requests for a consolidated, user-friendly selling tool for day-to-day systems, seating, storage and accessory products. The Knoll Essentials program includes dealer incentives to sell our products. We also employ adedicated team of dealer sales representatives to work with our dealerships. Excluding sales to governmental agencies, no single end user or customer represented more than 3.6% of our North American sales during 2010.Sales to U.S. government entities and related agencies aggregated approximately 18.5% of our consolidated sales in 2010, with no single U.S.government order accounting for more than 4.1% of consolidated sales. The U.S. government typically can terminate or modify any of its contracts withus either for its convenience or if we default by failing to perform under the terms of the applicable contract. Sales to state and local governmentalagencies aggregated approximately 4.9% of our consolidated sales in 2010. In Europe, we sell products in largely the same manner as in North America-through a direct sales force and a network of dealers-with the majorityof sales coming from the United Kingdom, France and Italy, as well as export markets in the Middle East. We also sell products designed andmanufactured in North America to the international operations of core clients.Manufacturing and Operations We operate manufacturing sites in North America, with plants located in East Greenville, Pennsylvania, Grand Rapids and Muskegon, Michigan,and Toronto, Canada. In addition, we have two plants in Italy: one in Foligno and one in Graffignana. We manufacture and assemble products tospecific customer order and operate all facilities under a philosophy of continuous improvement, lean manufacturing and efficient asset utilization. Allplants are registered under ISO 9000, an internationally developed set of quality criteria for manufacturing companies. Additionally, the North8 Table of ContentsAmerican plants are ISO 14001 certified, which reflects our commitment to environmentally responsible practices. In 2010, we initiated a plan to better utilize our manufacturing capacity, eliminate duplication of capabilities and reduce associated costs. We expectthis plan to be generally complete in 2011 and to make our operating processes more efficient and effective. In 2009, our East Greenville location recertified its "Star" rating under the Occupational Safety and Health Administration's (OSHA) VoluntaryProtection Program (VPP). A Star rating is the highest a company can obtain in OSHA's premier partnership program and to achieve this rating ourEast Greenville site had to demonstrate a comprehensive safety and health process with strong management leadership, include all employees as activeparticipants and ensure an injury rate substantially below the average for the industry. The Star rating allows us to join an elite and exclusive group ofless than 2,500 companies nationwide that have demonstrated the dedication and commitment to safety. The root of our continuous improvement efforts lies in the philosophy of lean manufacturing that drives operations. As part of this philosophy, wepartner with suppliers who can supply our facilities efficiently, often with just-in-time deliveries, thus allowing us to reduce our raw materials inventory.We also utilize "Kaizen" work groups in the plants to develop best practices to minimize scrap, time and material waste at all stages of the manufacturingprocess. The involvement of employees at all levels ensures an organizational commitment to lean and efficient manufacturing operations. In addition to the continued focus on enhancing the efficiency of the manufacturing operations, we also seek to reduce costs through our globalsourcing effort. We have capitalized on raw material and component cost savings available through lower cost global suppliers. This broader view ofpotential sources of supply has enhanced our leverage with domestic supply sources, and we have been able to reduce cycle times by extractingimprovements from all levels throughout the supply chain.Raw Materials and Suppliers The purchasing function in North America is centralized at the East Greenville facility. This centralization, and the close relationships with ourprimary suppliers, has enhanced our ability to realize purchasing economies of scale and implement "just-in-time" inventory practices. Steel, lumber,paper, paint, plastics, laminates, particleboard, veneers, glass, fabrics, leathers and upholstery filling material are used in our manufacturing process.Both domestic and overseas suppliers of these materials are selected based upon a variety of factors, with the price and quality of the materials and thesupplier's ability to meet delivery requirements being primary factors in such selection. We do not generally enter into long-term supply contracts and, asa result, we can be vulnerable to fluctuations in the prices for these materials. No supplier is the only available source for a particular component or rawmaterial. However, because of the specialization involved with some of our components, it can take a significant amount of time, money and effort tomove to an alternate source.Competition The office furniture market is highly competitive. Office furniture companies compete on the basis of (i) product design, including performance,ergonomic and aesthetic features, (ii) product quality and durability, (iii) relationships with clients, architects and designers, (iv) strength of dealer anddistributor network, (v) on-time delivery and service performance, (vi) commitment to environmental standards by offering products that help clientsachieve LEED® certified facilities and minimize environment impact, and (vii) price. We estimate that we had an approximate 8.7% market share in theU.S. office furniture market in 2010. Some of our competitors, especially those in North America, are larger and have significantly greater financial, marketing, manufacturing andtechnical resources than we have. Our most significant9 Table of Contentscompetitors in primary markets are Herman Miller, Inc., Steelcase, Inc., Haworth, Inc. and, to a lesser extent, Allsteel, Inc., an operating unit of HNICorporation, and Teknion Corporation. These competitors have a substantial volume of furniture installed at businesses throughout North America,providing a continual source of demand for further products and enhancements. Moreover, the products of these competitors have strong acceptance inthe marketplace. Although we believe that we have been able to compete successfully in the markets to date, there can be no assurance that we will beable to continue to do so in the future.Patents and Trademarks We consider securing and protecting our intellectual property rights to be important to the business. We own approximately 58 active U.S. utilitypatents on various components used in our products and systems and approximately 50 active U.S. design patents. We also own approximately170 patents in various foreign countries. The scope and duration of our patent protection varies throughout the world by jurisdiction and by individualproduct. In particular, patents for individual products extend for varying periods of time according to the date a patent application is filed, the date apatent is granted and the term of patent protection available in the jurisdiction granting the patent (generally twenty years from the date of filing in theU.S, for example). We believe that the duration of the applicable patents we are granted is adequate relative to the expected lives of our products. Weown approximately 56 trademark registrations in the U.S., including registrations to the following trademarks, as well as related stylized depictions ofthe Knoll word mark: Knoll®, KnollStudio®, KnollExtra®, Good Design Is Good Business®, A3®, Autostrada®, Bulldog®, Calibre®, Currents®,Dividends®, Equity®, Parachute®, Propeller®, Reff®, RPM®, Spinneybeck®, Upstart®, Generation by Knoll®, KnollTextiles®, and Knoll Luxe®.We also own approximately 167 trademarks registered in foreign countries including the LIFE® trademark which was purchased in December 2006.The scope and duration of our trademark protection varies throughout the world, with some countries protecting trademarks only as long as the mark isused, and others requiring registration of the mark and the payment of registration (generally ten years from the date of filing in the U.S., for example).In order to protect the indefinite duration, we make filings to continue registration of our trademarks. In October 2004, we received registered trademark protection in the United States for five of our world-famous furniture designs created byLudwig Mies van der Rohe—the Barcelona Chair, the Barcelona Stool, the Barcelona Couch, the Barcelona Table and the Flat Bar Brno Chair. Thisprotection recognizes the renown of these designs and reflects our commitment to ensuring that when architects, furniture retailers, businesses and thepublic purchase a Ludwig Mies van der Rohe design, they will be purchasing the authentic product, manufactured to the designer's historicspecifications. Barcelona® is a registered trademark in the U.S., Canada and European Community owned by Knoll, Inc.Backlog Sales backlog represents orders we have accepted but which have not yet shipped. Our sales backlog was $196.6 million at December 31, 2010,$153.0 million at December 31, 2009 and $201.7 million at December 31, 2008. We manufacture substantially all of our products to order and expect tofill substantially all outstanding unfilled orders within the next twelve months. As such, backlog is not a significant factor used to predict our long-termbusiness prospects.Foreign and Domestic Operations Our principal manufacturing operations and markets are in North America, and we also have manufacturing operations and markets in Europe. Oursales to clients and net property, plant and10 Table of Contentsequipment are summarized by geographic areas below. Sales to clients are attributed to the geographic areas based on the point of sale.Environmental Matters We believe that we are substantially in compliance with all applicable laws and regulations for the protection of the environment and the health andsafety of our employees based upon existing facts presently known to us. Compliance with federal, state, local and foreign environmental laws andregulations relating to the discharge of substances into the environment, the disposal of hazardous wastes and other related activities has had and willcontinue to have an impact on our operations, but has, since 1990, been accomplished without having a material adverse effect on our operations. Therecan be no assurance that such laws and regulations will not change in the future or that we will not incur significant costs as a result of such laws andregulations. We have trained staff responsible for monitoring compliance with environmental, health and safety requirements. Our goal is to reduce and,wherever possible, eliminate the creation of hazardous waste in our manufacturing processes. While it is difficult to estimate the timing and ultimatecosts to be incurred due to uncertainties about the status of laws, regulations and technology, based on information currently known to management, wedo not expect environmental costs or contingencies to have a material adverse effect on our consolidated financial position, results of operations,competitive position, or cash flows. The operation of manufacturing plants entails risks in these areas, however, and we cannot be certain that we willnot incur material costs or liabilities in the future which could adversely affect our operations. We have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response Compensation and LiabilityAct, or "CERCLA", for remediation costs associated with waste disposal sites previously used by us. CERCLA can impose liability for costs toinvestigate and remediate contamination without regard to fault or the legality of disposal and, under certain circumstances, liability may be joint andseveral resulting in one responsible party being held responsible for the entire obligation. Liability may also include damages for harm to naturalresources. The remediation costs and our allocated share at some of these CERCLA sites are unknown. We may also be subject to claims for personalinjury or contribution relating to CERCLA sites. We reserve amounts for such matters when expenditures are probable and reasonably estimable.11 UnitedStates Canada Europe Consolidated (in thousands) 2010 Sales to clients $688,914 $34,267 $86,286 $809,467 Property, plant and equipment, net 75,228 31,435 15,556 122,219 2009 Sales to clients $688,664 $26,831 $64,538 $780,033 Property, plant and equipment, net 83,291 33,112 18,642 135,045 2008 Sales to clients $964,875 $40,229 $115,043 $1,120,147 Property, plant and equipment, net 85,680 31,225 15,263 132,168 Table of ContentsEmployees As of December 31, 2010, we employed a total of 3,006 people, consisting of 1,988 hourly and 1,018 salaried employees. The Grand Rapids,Michigan plant is the only unionized plant within the U.S. and has an agreement with the Carpenters Union, Local 1615, of the United Brotherhood ofCarpenters and Joiners of America, Affiliate of the Carpenters Industrial Council (the Union), covering approximately 226 hourly employees. TheCollective Bargaining Agreement expires August 27, 2011. From time to time, there have been unsuccessful efforts to unionize at our other NorthAmerican locations. We believe that relations with our employees are good. Nonetheless, it is possible that our employees may continue attempts tounionize. Certain workers in the facilities in Italy are also represented by unions. We have experienced brief work stoppages from time to time at ourplants in Italy, none of which have exceeded eight hours. Work stoppages are relatively common occurrences at many Italian manufacturing plants andare usually related to national or local issues, not necessarily related specifically to Knoll. We had five such work stoppages in 2010, with duration of28 hours in total. None of these work stoppages were unique to us, and these work stoppages have not materially affected our performance.Available Information Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are madeavailable free of charge through the "Investors Relations" section of our website at www.knoll.com, as soon as practicable after such material iselectronically filed with or furnished to the U.S. Securities and Exchange Commission.12 Table of ContentsITEM 1A. RISK FACTORS RISK FACTORS Risks Related to our BusinessOur product sales are tied to corporate spending and service-sector employment, which are outside of our control. Our sales and/or growth insales would be adversely affected by a recessionary economy characterized by decreased corporate spending and service-sector employment. Our sales are significantly impacted by the level of corporate spending primarily in North America, which, in turn, is a function of the generaleconomic environment. In a recessionary economy like we have experienced in recent history, business confidence, service-sector employment,corporate cash flows and non-residential commercial construction decrease, which typically leads to a decrease in demand for office furniture. Inaddition, a recessionary economy may also result in saturation of the market by "just new" used office systems, leading to a decrease in demand. Salesof office systems, which have historically accounted for more than half of our revenues, represent longer term and higher cost investments for ourclients. As a result, sales of office systems are more severely impacted by decreases in corporate spending than sales of seating, files and storage andcasegoods, and demand for office systems typically takes longer to respond to an economic recovery. Geopolitical uncertainties, terrorist attacks, acts of war, natural disasters, increases in energy and other costs or combinations of such and otherfactors that are outside of our control could at any time have a significant effect on the North American economy, and, therefore, our business. Theoccurrence of any of these or similar events in the future could result in downward pressure on the economy, which we would expect to cause demandfor our products to decline and competitive pricing pressures to increase.Weakness in the economy or uncertainty in the financial markets may adversely affect our results of operations and financial condition, as well asthe financial soundness of our customers and suppliers. In recent history, the global capital and credit markets have experienced a period of unprecedented turmoil and upheaval, characterized by thebankruptcy, failure, collapse or sale of various financial institutions. Our ability to access capital may be restricted at a time when we would like, orneed, to access financial markets. In addition, interest rate fluctuations, financial market volatility or credit market disruptions may negatively affect ourcustomers' and our suppliers' ability to obtain credit to finance their businesses on acceptable terms. As a result, our customers' needs and ability topurchase our products or services may decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale. If ourcustomers' or suppliers' operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, ourcustomers may not be able to pay, or may delay payment of, accounts receivable owed to us, and our suppliers may restrict credit or impose differentpayment terms on us. Any inability of customers to pay us for our products and services, or any demands by suppliers for different payment terms, mayadversely affect our earnings and cash flow.We may have difficulty increasing or maintaining our prices as a result of price competition, which could lower our profit margins. Ourcompetitors may develop new product designs that give them an advantage over us in making future sales. Office furniture companies compete on the basis of, among other things, price and product design. Since our competitors offer products that aresimilar to ours, we face significant price competition from our competitors. This price competition impacts our ability to implement price increases or, insome cases, maintain prices, which could lower our profit margins. Additionally, our competitors may develop13 Table of Contentsnew product designs that achieve a high level of customer acceptance, which could give them a competitive advantage over us in making future sales.Our efforts to introduce new products that meet customer and workplace requirements may not be successful, which could limit our sales growthor cause our sales to decline. To keep pace with workplace trends, such as changes in workplace design and increases in the use of technology, and with evolving regulatoryand industry requirements, including environmental, health, safety and similar standards for the workplace and for product performance, we mustperiodically introduce new products. The introduction of new products requires the coordination of the design, manufacturing and marketing of suchproducts, which may be affected by factors beyond our control. The design and engineering of certain of our new products can take up to a year or moreand further time may be required to achieve client acceptance. In addition, we may face difficulties in introducing new products if we cannotsuccessfully align ourselves with independent architects and designers who are able to design, in a timely manner, high quality products consistent withour image. Accordingly, the launch of any particular product may be later or less successful than originally anticipated by us. Difficulties or delays inintroducing new products or lack of customer acceptance of new products could limit our sales growth or cause our sales to decline.We may not be able to manage our business effectively if we are unable to retain our experienced management team or recruit other keypersonnel. The success of our operations is highly dependent upon our ability to attract and retain qualified employees and upon the ability of our seniormanagement and other key employees to implement our business strategy. We believe there are only a limited number of qualified executives in theindustry in which we compete. We rely substantially upon the services of Andrew B. Cogan, our Chief Executive Officer. The loss of the services ofMr. Cogan or other key members of our management team could seriously harm our efforts to successfully implement our business strategy. While we currently maintain a key person life insurance policy with respect to Mr. Cogan this insurance may not be sufficient to compensate us forany harm to our business resulting from loss of his services. The inability to attract and retain other talented personnel could also affect our ability tosuccessfully implement our business strategy.We are dependent on the pricing and availability of raw materials and components, and price increases and unavailability of raw materials andcomponents could lower sales, increase our cost of goods sold and reduce our profits and margins. We require substantial amounts of raw materials, which we purchase from outside sources. Steel, plastics, wood related materials, and leather arethe main raw materials used in the manufacturing of our products. The prices and availability of raw materials are subject to change or curtailment dueto, among other things, the supply of, and demand for, such raw materials, changes in laws or regulations, including duties and tariffs, suppliers'allocations to other purchasers, interruptions in production by raw materials or component parts suppliers, changes in currency exchange rates andworldwide price levels. We can be significantly impacted by price increases in these raw materials. Although no supplier is the only available source for a particular component or raw material, some of our products and components are extremelyspecialized and, therefore, it can take a significant amount of time and money to move from one supply source to another. Any failure to obtain rawmaterials and components on a timely basis, or any significant delays or interruptions in the supply of raw materials or components, could prevent usfrom being able to manufacture products ordered by our clients in a timely fashion, which could have a negative impact on our reputation and ourdealership network, and could cause our sales to decline.14 Table of ContentsWe are affected by the cost of energy and increases in energy prices could reduce our margins and profits. The profitability of our operations is sensitive to the cost of energy through our transportation costs, the cost of petroleum-based materials, likeplastics, and the cost of operating our manufacturing facilities. Energy costs have been volatile in recent years due to changes in global supply anddemand. Although we have been successful in countering energy price increases, primarily through our global sourcing initiatives and continuousimprovement programs, we have not been able to offset these costs entirely. The recent increases in energy prices have negatively impacted our grossmargins and profitability for 2010 and may continue in the future.We rely upon independent furniture dealers, and a loss of a significant number of dealers could affect our business, financial condition andresults of operations. We rely on a network of independent dealers for the joint marketing of our products to small and mid-sized accounts, and to assist us in themarketing of our products to large accounts. We also rely upon these dealers to provide a variety of important specification, installation and after-marketservices to our clients. Our dealers operate, generally, under one-year, non-exclusive agreements. There is nothing to prevent our dealers fromterminating their relationships with us. In addition, individual dealers may not continue to be viable and profitable and may suffer from the lack ofavailable credit. While we are not significantly dependent on any single dealer, one dealer accounted for 6.2% of our North American sales in 2010. Ifdealers go out of business or are restructured, we may suffer losses because they may not be able to pay us for furniture previously delivered to them.The loss of a dealer relationship could also negatively affect our ability to maintain market share in the affected geographic market and to compete forand service clients in that market until a new dealer relationship is established. Establishing a viable dealer in a market can take a significant amount oftime and resources. The loss or termination of a significant dealer or a significant number of dealer relationships could cause significant difficulties forus in marketing and distributing our products, resulting in a decline in our sales.Currently one of our largest clients is the U.S. government, a relationship which is subject to uncertain future funding levels and federalprocurement laws and requires restrictive contract terms; any of these factors could curtail current or future business. For the year ended December 31, 2010, we derived approximately 18.5% of our revenue from sales to various agencies and departments within theU.S. government. Our ability to compete successfully for and retain business with the U.S. government is highly dependent on cost-effectiveperformance and compliance with complex procurement laws. Until recently, federal procurement laws required government agencies to purchasefurniture products from Federal Prison Industries, Incorporated. If these or similar laws would be re-instituted, it would make it more difficult for us tosell our furniture to agencies and departments of the U.S. government. Our government business is also sensitive to changes in national andinternational priorities and U.S. government budgets. The current budget deficits that exist for the United States and most state governments are likely toresult in decreased future furniture spending and may negatively impact our future governmental sales. In addition, the U.S. government typically can terminate or modify its contracts with us either for its convenience or if we default by failing toperform under the terms of the applicable contract. A termination arising out of our default could expose us to liability and impede our ability to competein the future for contracts and orders. Furthermore, if we were found to have committed fraud or certain criminal offenses, we could be suspended ordebarred from all further government contracting. Given the percentage of our revenues represented by sales to the U.S. government in 2010, anyfactors that would negatively impact our relationship with the U.S. government would adversely impact our sales and results of operations.15 Table of ContentsOur efforts to diversify our sources of revenue may not be effective and may expose us to new risks Historically, the majority of our revenues were derived from the sales of office systems in North America. We have pursued a strategy to diversifyour sources of revenue and reduce our dependence on North American office system sales. While we believe that this strategy enables us to bettermaintain and grow our sales and profitability during cyclical ups and downs in the industry, there can be no assurance that this diversification strategywill be effective in achieving these goals. Our diversification strategy involves the expansion of our specialty and complementary businesses, andbusiness growth internationally, which may expose us to business risks that we have not experienced. We also may incur significant costs in pursuingour diversification strategy, and those costs may not be fully offset by increased revenues associated with new business lines.We operate with leverage, and a significant amount of cash will be required to service our indebtedness. Restrictions imposed by the terms of ourindebtedness may limit our operating and financial flexibility. As of December 31, 2010, we had total consolidated outstanding debt of approximately $245.1 million, which consisted of $245.0 million underour revolving credit facility and $0.1 million under local credit facilities maintained by our foreign subsidiaries. We also had $3.0 million in outstandingcommitments under letters of credit. Our existing revolving credit facility permits us to borrow up to $500.0 million (subject to compliance with the financial covenants contained in thefacility). We are permitted to expand our revolving credit facility by an additional $200.0 million, subject to certain limitations and satisfaction of certainconditions, including compliance with certain financial covenants. As of December 31, 2010, the total remaining credit available to us under our credit facility and those of our foreign subsidiaries was$262.4 million, subject to compliance with the financial covenants contained in our facility as further described in "Liquidity and Capital Resources"below. If we were to borrow the maximum available to us under our credit facility and those of our foreign subsidiaries, we would have totalconsolidated outstanding debt of approximately $507.5 million. The high level of our indebtedness could have important consequences to holders of ourcommon stock, given that:•a substantial portion of our cash flow from operations must be dedicated to fund scheduled payments of principal and debt service andwill not be available for other purposes; •our ability to obtain additional debt financing in the future for working capital, capital expenditures, research and development oracquisitions may be limited by the terms of our credit facility; and •the terms of our credit facility also impose other operating and financial restrictions on us, which could limit our flexibility in reacting tochanges in our industry or in economic conditions generally. Our revolving credit facility prevents us and our subsidiaries from incurring any additional indebtedness other than (i) borrowings under ourexisting revolving credit facility; (ii) certain types of indebtedness that may be incurred subject to aggregate dollar limitations identified in the creditfacility, including, without limitation, purchase money indebtedness and capital lease obligations, indebtedness incurred in connection with a permittedacquisition, and loans obtained through an expansion of the facility, all of which cannot exceed $250.0 million at any time, and (iii) other types ofindebtedness that are not limited to specific dollar limitations, such as indebtedness incurred in the ordinary course of business and unsecured,subordinated indebtedness. The aggregate amount of indebtedness that we may incur pursuant to these exceptions is further limited by the financialcovenants in our revolving credit facility and, therefore, will depend on our future results of operations and cannot be determined at this time.Furthermore, although we may incur unlimited amounts of certain types of indebtedness, subject to compliance with these financial covenants, theamount of indebtedness that we may actually be able16 Table of Contentsto incur will depend on the terms on which such types of debt financing are available to us, if available at all. As a result of the foregoing, we may be prevented from engaging in transactions that might further our growth strategy or otherwise be consideredbeneficial to us. A breach of any of the covenants in our revolving credit facility could result in a default thereunder. If payments to the lenders underour revolving credit facility were to be accelerated, our assets could be insufficient to repay in full the indebtedness under our credit facility and ourother liabilities. Any such acceleration could also result in a foreclosure on all or substantially all of our subsidiaries' assets, which would have anegative impact on the value of our common stock and jeopardize our ability to continue as a going concern.We may require additional capital in the future, which may not be available or may be available only on unfavorable terms. Our capital requirements depend on many factors, including capital improvements, tooling and new product development. To the extent that ourexisting capital is insufficient to meet these requirements and cover any losses, we may need to raise additional funds through financings or curtail ourgrowth and reduce our assets. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. Equity financings couldresult in dilution to our stockholders, and the securities may have rights, preferences and privileges that are senior to those of our common stock. If ourneed for capital arises because of significant losses, the occurrence of these losses may make it more difficult for us to raise the necessary capital.An inability to protect our intellectual property could have a significant impact on our business. We attempt to protect our intellectual property rights, both in the United States and in foreign countries, through a combination of patent,trademark, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. Because of thedifferences in foreign trademark, patent and other laws concerning proprietary rights, our intellectual property rights do not generally receive the samedegree of protection in foreign countries as they do in the United States. In some parts of the world, we have limited protections, if any, for ourintellectual property. Our ability to compete effectively with our competitors depends, to a significant extent, on our ability to maintain the proprietarynature of our intellectual property. The degree of protection offered by the claims of the various patents, trademarks and service marks may not be broadenough to provide significant proprietary protection or competitive advantages to us, and patents, trademarks or service marks may not be issued on ourpending or contemplated applications. In addition, not all of our products are covered by patents. It is also possible that our patents, trademarks andservice marks may be challenged, invalidated, cancelled, narrowed or circumvented. In the past, certain of our products have been copied and sold by others. We try to enforce our intellectual property rights, but we have to makechoices about where and how we pursue enforcement and where we seek and maintain patent protection. In many cases, the cost of enforcing our rightsis substantial, and we may determine that the costs of enforcement outweigh the potential benefits. If we are unable to maintain the proprietary nature ofour intellectual property with respect to our significant current or proposed products, our competitors may be able to sell copies of our products, whichcould adversely affect our ability to sell our original products and could also result in competitive pricing pressures, which may negatively affect ourprofitability.If third parties claim that we infringe upon their intellectual property rights, we may incur liability and costs and may have to redesign ordiscontinue an infringing product. We face the risk of claims that we have infringed third parties' intellectual property rights. Companies operating in our industry routinely seekpatent protection for their product designs, and17 Table of Contentsmany of our principal competitors have large patent portfolios. Prior to launching major new products in our key markets, we normally evaluate existingintellectual property rights. However, our competitors may have filed for patent protection which is not, at the time of our evaluation, a matter of publicknowledge. Our efforts to identify and avoid infringing third parties' intellectual property rights may not be successful. Any claims of patent or otherintellectual property infringement, even those without merit, could (i) be expensive and time consuming to defend; (ii) cause us to cease making,licensing or using products that incorporate the challenged intellectual property; (iii) require us to redesign, reengineer, or rebrand our products orpackaging, if feasible; or (iv) require us to enter into royalty or licensing agreements in order to obtain the right to use a third party's intellectualproperty.We could be required to incur substantial costs to comply with environmental requirements. Violations of, and liabilities under, environmentallaws and regulations may increase our costs or require us to change our business practices. Our past and present ownership and operation of manufacturing plants are subject to extensive and changing federal, state, local and foreignenvironmental laws and regulations, including those relating to discharges to air, water and land, the handling and disposal of solid and hazardous wasteand the cleanup of properties affected by hazardous substances. As a result, we are involved from time to time in administrative and judicial proceedingsand inquiries relating to environmental matters and could become subject to fines or penalties related thereto. We cannot predict what environmentallegislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or whatenvironmental conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, mayrequire additional expenditures by us, some of which may be material. We have been identified as a potentially responsible party pursuant to theComprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, for remediation costs associated with waste disposalsites previously used by us. In general, CERCLA can impose liability for costs to investigate and remediate contamination without regard to fault or thelegality of disposal and, under certain circumstances, liability may be joint and several, resulting in one party being held responsible for the entireobligation. Liability may also include damages for harm to natural resources. The remediation costs and our allocated share at some of these CERCLAsites are unknown. We may also be subject to claims for personal injury or contribution relating to CERCLA sites. We reserve amounts for such matterswhen expenditures are probable and reasonably estimable.We are subject to potential labor disruptions, which could have a significant impact on our business. Certain of our employees located in Grand Rapids, Michigan and Italy are represented by unions. The collective bargaining agreement for ourGrand Rapids location expires August 27, 2011. We have also had sporadic, to date unsuccessful, attempts to unionize our other North Americanmanufacturing locations and have experienced a number of brief work stoppages at our facilities in Italy as a result of national and local issues. Whilewe believe that we have good relations with our workforce, we may experience work stoppages or other labor problems in the future, and furtherunionization efforts may be successful. Any prolonged work stoppage could have an adverse effect on our reputation, our vendor relations and ourdealership network. Moreover, because substantially all of our products are manufactured to order, we do not carry finished goods inventory that couldmitigate the effects of a prolonged work stoppage.18 Table of ContentsProduct defects could adversely affect our results of operations. Our customers may encounter product defects that could potentially arise in the course of our development of new products or due tomanufacturing problems. If product defects do arise, we could incur product warranty costs, product liability costs and costs associated with recallingand repairing defective products. While we maintain a reserve for our product warranty costs based on estimates of the costs that may be incurred underthe warranties on all of our products, our actual warranty costs may exceed this reserve, resulting in a need to increase the amounts accrued for warrantycosts. We also maintain product liability and other insurance coverage that we believe to be generally in accordance with industry practices, but ourinsurance coverage does not extend to field visits to repair, retrofit or replace defective products, or to product recalls. As a result, our insurancecoverage may not be adequate to protect us fully against substantial claims and costs that may arise from product defects, particularly if we have a largenumber of defective products that we must repair, retrofit, replace or recall. Sales of our products could be adversely affected by excessive warrantyclaims, product recalls and adverse perceptions of product quality. As a result of these factors, product defects could have a material adverse effect onour results of operations.We may be vulnerable to the effects of currency exchange rate fluctuations, which could increase our expenses. We primarily sell our products and report our financial results in U.S. dollars, but we generate some of our revenues and pay some of ourexpenses in other currencies. Paying our expenses in other currencies can result in a significant increase or decrease in the amount of those expenses inU.S. dollar terms, which affects our profits. In the future, any foreign currency appreciation relative to the U.S. dollar would increase our expenses that are denominated in that currency.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 haveoperations relative to the strength of the U.S. dollar. The principal foreign currencies in which we conduct business are the Canadian dollar and theEuro. Approximately 14.9% of our revenues in 2010 and 34.8% of our cost of goods sold in 2010 were denominated in currencies other than the U.S.dollar. From time to time we review our foreign currency exposure and evaluate whether we should hedge our exposure. We had no outstanding hedgetransactions at December 31, 2010.Pension costs or funding requirements could increase at a higher than anticipated rate. We administer two defined benefit pension plans, which hold significant amounts of equity securities. Changes in interest rates or in the marketvalue of plan assets could affect the funded status of our pension plans. This could cause volatility in our benefits costs which could increase futurefunding requirements of our pension plans and have a negative impact on our results of operations, financial condition and cash flows. Our futurefunding obligations also are affected by the Pension Protection Act of 2006 ("PPA"), which established certain required funding targets. Volatility inthe economic environment and/or a decline in the equity markets could cause the value of investment assets held by our pension plans to decline. As aresult, we may be required to increase the amount of our cash contributions to our pension plans in order to meet the funding level requirements of thePPA.Risks Related to Our Common StockOur corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company. Provisions in our amended and restated certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involvingus that our stockholders may consider favorable. For example, our amended and restated certificate of incorporation authorizes our board of directors to19 Table of Contentsissue up to 10,000,000 shares of "blank check" preferred stock. Without stockholder approval, the board of directors has the authority to attach specialrights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a thirdparty to acquire us. In addition, our amended and restated certificate of incorporation provides for a staggered board of directors, whereby directorsserve for three-year terms, with approximately one third of the directors coming up for reelection each year. Having a staggered board will make it moredifficult for a third party to obtain control of our board of directors through a proxy contest, which may be a necessary step in an acquisition of us that isnot favored by our board of directors. We are also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Under these provisions, if anyonebecomes an "interested stockholder," we may not enter into a "business combination" with that person for three years without special approval, whichcould discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203, "interestedstockholder" means, generally, someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of ouroutstanding voting stock during the past three years, subject to certain exceptions as described in Section 203. Upon any change in control, the lendersunder our revolving credit facility would have the right to require us to repay all of our outstanding obligations under the facility.Our stock price may be volatile, and your investment in our common stock could suffer a decline in value. There has been significant volatility in the market price and trading volume of equity securities, which may be unrelated to the financialperformance of the companies issuing the securities. These broad market fluctuations may negatively affect the market price of our common stock. Youmay not be able to resell your shares at or above the price at which you purchased them due to fluctuations in the market price of our common stockcaused by changes in our operating performance or prospects and other factors. Some specific factors that may have a significant effect on our commonstock market price include:•actual or anticipated fluctuations in our operating results or future prospects, including actual or perceived fluctuations in the demand forour products; •our announcements or our competitors' announcements of new products; •the public's reaction to our press releases, our other public announcements and our filings with the SEC; •strategic actions by us or our competitors, such as acquisitions, joint ventures, strategic investments, or restructurings; •new laws or regulations or new interpretations of existing laws or regulations applicable to our business; •changes in accounting standards, policies, guidance, interpretations or principles; •changes in our growth rates or our competitors' growth rates; •our inability to raise additional capital; •conditions of the office furniture industry as a result of changes in financial markets or general economic conditions, including thoseresulting from war, incidents of terrorism and responses to such events; •sales of common stock by us or members of our management team; and •changes in stock market analyst recommendations or earnings estimates regarding our common stock, other comparable companies orthe office furniture industry generally.20 Table of ContentsITEM 1B. UNRESOLVED STAFF COMMENTS •NoneITEM 2. PROPERTIES We operate over 3,194,000 square feet of facilities, including manufacturing plants, warehouses and sales offices. Of these facilities, we ownapproximately 2,424,000 square feet and lease approximately 770,000 square feet. Our manufacturing plants are located in East Greenville,Pennsylvania, Grand Rapids and Muskegon, Michigan, Toronto, Canada, and Foligno and Graffignana, Italy. The location, square footage, and use ofthe facilities as of December 31, 2010 are shown below. We believe that our plants and other facilities are sufficient for our needs for the foreseeable future.ITEM 3. LEGAL PROCEEDINGS From time to time we are subject to litigation or other legal proceedings arising in the ordinary course of business. Based upon informationcurrently known to us, we believe the outcome of such proceedings will not have, individually or in the aggregate, a material adverse effect on ourbusiness, financial condition or results of operations.ITEM 4. (REMOVED AND RESERVED) 21Owned Locations Square Footage UseEast Greenville, Pennsylvania 735,000(1)Corporate Headquarters, Manufacturing,Warehouses, and AdministrationGrand Rapids, Michigan 545,000(1)Manufacturing, Distribution, and AdministrationMuskegon, Michigan 368,000(1)Manufacturing and AdministrationToronto, Canada 408,000 Manufacturing, Distribution, Warehouses, andAdministrationFoligno, Italy 258,000 Manufacturing, Distribution, Warehouses, andAdministrationGraffignana, Italy 110,000 Manufacturing, Distribution, Warehouses, andAdministrationLeased Locations Square Footage UseEast Greenville, Pennsylvania 142,000(2)Warehouses, DistributionMuskegon, Michigan 105,000 ManufacturingToronto, Canada 170,000 Manufacturing, Warehouses, and AdministrationKnoll, Europe 44,000 Administration, WarehousesEdelman Leather, Connecticut 55,000 Manufacturing and AdministrationSpinneybeck, New York 31,000 Manufacturing and AdministrationMiscellaneous Showrooms 223,000 Sales Offices(1)Facilities are encumbered by mortgages securing indebtedness under our revolving credit facility. (2)These are three warehouses that have been subleased to a third party logistics provider and serve as our northeast distributioncenter. Table of ContentsPART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES Market Information and Dividend Policy Our common stock has been listed on the New York Stock Exchange ("NYSE") since December 14, 2004, the date of our initial public offering,under the symbol "KNL." As of February 25, 2011, there were approximately 93 stockholders of record of our common stock. The following table sets forth, for the periods indicated, high and low sales prices for the common stock as reported by the NYSE. We declared and paid cash dividends of $0.12 per share and $0.18 per share during the years ended December 31, 2010 and 2009, respectively.On February 3, 2011, our board of directors declared a cash dividend of $0.06 per share on our common stock payable on March 31, 2011 toshareholders of record on March 15, 2011. The declaration and payment of future dividends is subject to the discretion of our board of directors anddepends on various factors, including our net income, financial condition, cash requirements and future prospects and other factors deemed relevant byour board of directors. Our revolving credit facility imposes restrictions on our ability to pay dividends, and thus our ability to pay dividends on ourcommon stock will depend upon, among other things, our level of indebtedness at the time of the proposed dividend and whether we are in defaultunder any of our debt obligations. Our ability to pay dividends will also depend on the requirements of any future financing agreements to which wemay be a party. Our board of directors intends to evaluate our dividend policy quarterly in reference to these factors.22 High Low Fiscal year ended December 31, 2010 First quarter $13.09 $9.95 Second quarter $15.05 $11.12 Third quarter $15.95 $11.73 Fourth quarter $17.45 $14.32 High Low Fiscal year ended December 31, 2009 First quarter $9.42 $5.33 Second quarter $7.91 $5.87 Third quarter $11.00 $7.15 Fourth quarter $11.00 $9.09 Table of ContentsPerformance Graph The following line graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the Standard &Poors' 500 Stock Index and with the cumulative total return on a peer group of companies selected by us for the period commencing onDecember 31, 2005 and ending on December 31, 2010. Our share price at the beginning of the measurement period is $17.11 per share. The graph andtable assume that $100 was invested on December 31, 2005 in each of our common stock, the stock of our peer group, and the S&P 500 Index, and thatall dividends were reinvested. Cumulative total stockholder returns for our common stock, the S&P 500 Index, and the stock of our peer group arebased on our fiscal year. Our peer group is made up of two publicly-held manufacturers of office furniture, Herman Miller, Inc. and Steelcase, Inc. Thestock performance on the graph below does not necessarily indicate future price performance.COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Knoll, Inc., the S&P 500 Indexand a Peer Group 23 12/05 12/06 12/07 12/08 12/09 12/10 Knoll, Inc. 100.00 131.32 100.33 57.25 67.21 109.75 S&P 500 100.00 115.80 122.16 76.96 97.33 111.99 Peer Group 100.00 125.89 118.13 46.75 56.85 92.53 *The performance graph and the related chart should not be deemed filed for purposes of Section 18 of theSecurities Exchange Exchange Act of 1934 or incorporated by reference into any of our filings under theSecurities Act of 1933 or the Securities Exchange Act of 1934, unless we specifically incorporate the performancegraph by reference therein. Table of ContentsIssuer Purchases of Equity Securities The following is a summary of share repurchase activity during the three months ended December 31, 2010. On August 17, 2005, our board of directors approved a stock repurchase program (the "Options Proceeds Program"), whereby they authorized usto purchase shares of our common stock in the open market using the cash proceeds received by us upon exercise of outstanding options. On February 2, 2006, our board of directors approved an additional stock repurchase program, pursuant to which we are authorized to purchase upto $50.0 million of our common stock in the open market, through privately negotiated transactions, or otherwise. On February 4, 2008, our board ofdirectors expanded this previously authorized $50.0 million stock repurchase program by an additional $50.0 million.ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of FinancialCondition and Results of Operations" and our audited consolidated financial statements and the related notes included elsewhere in this Form 10-K. Theselected consolidated financial data for the years ended December 31, 2008, 2009 and 2010 and as24Period Total Numberof SharesPurchased Average PricePaid per Share Total Number ofSharesPurchased aspart of publiclyAnnouncedPlans orPrograms MaximumDollar Value ofShares that mayyet bePurchasedUnder the Plansor Programs(1) October 1, 2010 - October 31, 2010 77,329(2) 14.74 — 32,352,413 November 1, 2010 - November 30,2010 10,004 15.87 10,004(3) 32,352,413 December 1, 2010 - December 31,2010 317,210(4) 16.41 193,059(4) 32,352,413 Total 404,543 203,063 (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 onlyauthorized to spend an aggregate of $100.0 million on stock repurchases. Amounts in this column represent the amounts thatremain available under the $100.0 million stock repurchase program as of the end of the period indicated. There is no scheduledexpiration date for the Option Proceeds Program or the $100.0 million stock repurchase program, but our board of directors mayterminate either program in the future. (2)On October 21, 2010, 160,000 shares of outstanding restricted stock vested. Concurrently with the vesting, 60,092 shares wereforfeited by the holders of the vested restricted shares to cover applicable taxes paid on the holders' behalf by the Company. OnOctober 22, 2010, 46,104 shares of outstanding restricted stock vested. Concurrently with the vesting, 17,237 shares wereforfeited by the holders of the vested restricted shares to cover applicable taxes paid on the holders' behalf by the Company. (3)These shares were purchased under the Options Proceeds Program. (4)193,059 shares were purchased under the Options Proceeds Program. On December 14, 2010, 304,000 shares of outstandingrestricted stock vested. Concurrently with the vesting, 124,151 shares were forfeited by the holders of the vested restricted sharesto cover applicable taxes paid on the holders' behalf by the Company. Table of Contentsof December 31, 2009 and 2010 are derived from our audited financial statements included elsewhere in this Form 10-K. The selected consolidatedfinancial data for the years ended December 31, 2006 and 2007 and as of December 31, 2006, 2007 and 2008 are derived from our audited financialstatements not included in this Form 10-K. Years Ended December 31, (dollars in thousands, except shares and per share data) 2006 2007 2008 2009 2010 ConsolidatedStatement ofOperationsData: Sales $982,152 $1,055,814 $1,120,147 $780,033 $809,467 Cost of sales 663,115 690,689 725,078 510,590 545,118 Gross profit 319,037 365,125 395,069 269,443 264,349 Selling, generalandadministrativeexpenses 202,097 222,937 245,032 193,995 192,122 Restructuringand otherchanges — — 4,625 11,959 7,565 Operatingincome 116,940 142,188 145,412 63,489 64,662 Interest expense 23,717 24,598 16,289 13,862 17,436 Other (expense)income, net 741 (4,651) 3,679 (5,832) (6,379) Income beforeincome taxexpense 93,964 112,939 132,802 43,795 40,847 Income taxexpense 35,331 41,496 47,890 16,442 12,823 Net income $58,633 $71,443 $84,912 $27,353 $28,024 Per ShareData: Earnings pershare: Basic $1.18 $1.48 $1.82 $0.60 $0.61 Diluted $1.14 $1.45 $1.82 $0.60 $0.61 Cash dividendsdeclared pershare: $0.41 $0.45 $0.48 $0.18 $0.12 Weightedaveragesharesoutstanding Basic 49,606,677 48,239,189 46,570,272 45,403,401 45,600,043 Diluted 51,238,088 49,248,902 46,694,340 45,413,770 45,970,680 25 As of December 31, 2006 2007 2008 2009 2010 (in thousands) Consolidated Balance Sheet Data: Working capital $77,170 $86,453 $65,228 $60,613 $69,242 Total assets 632,137 717,442 697,660 655,620 687,432 Total long-term debt, including current portion 350,316 368,576 337,379 295,305 245,135 Total liabilities 627,753 642,721 653,041 566,058 561,046 Total Stockholders' equity 4,384 74,721 44,619 89,562 126,386 Table of ContentsITEM 7. 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 andfinancial condition that should be read in conjunction with the accompanying audited consolidated financial statements.Forward-looking Statements This annual report on Form 10-K contains forward-looking statements, principally in the sections entitled "Business," "Risk Factors,""Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosures AboutMarket Risk." Statements and financial discussion and analysis contained in this Form 10-K 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 otherinformation relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Forward-lookingstatements 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 andexpectations regarding any current or future recovery in our industry and our projections and estimates with respect to our restructuring activities.Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, anyor all of which may ultimately prove to be inaccurate. Important factors that could cause actual results to differ materially from the forward-lookingstatements include, without limitation: the risks described in Item 1A and in Item 7A of this annual report on Form 10-K; changes in the financialstability of our clients or the overall economic environment, resulting in decreased corporate spending and service sector employment; changes inrelationships with clients; the mix of products sold and of clients purchasing our products; the success of new technology initiatives; changes inbusiness strategies and decisions; competition from our competitors; our ability to recruit and retain an experienced management team; changes in rawmaterial prices and availability; restrictions on government spending resulting in fewer sales to the U.S. government, one of our largest customers; ourdebt restrictions on spending; our ability to protect our patents, copyrights and trademarks; our reliance on furniture dealers to produce sales; lawsuitsarising from patents, copyrights and trademark infringements; violations of environment laws and regulations; potential labor disruptions; adequacy ofour insurance policies; the availability of future capital and the cost of borrowing; the overall strength and stability of our dealers, suppliers, andcustomers; access to necessary capital; and currency rate fluctuations. The factors identified above are believed to be important factors (but notnecessarily 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-K areexpressly qualified in their entirety by the foregoing cautionary statements. Except as required under the Federal securities laws and the rules andregulations 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.Overview We are a designer and manufacturer of furnishings and accessories, textiles and fine leathers for the workplace and home. Our commitment toinnovation and modern design has yielded a comprehensive portfolio of products and a brand recognized for high quality and a sophisticated image.Our products are targeted at the middle to upper end of the market and are sold primarily in North America through a direct sales force and a broadnetwork of independent dealers.26 Table of Contents Our business structure and operating approach continue to deliver industry leading operating income margins among our primary publicly-heldcompetitors. We operate under a management philosophy that incorporates a collaborative culture, client-driven processes and a lean, agile operatingstructure. Our employees are performance-driven and motivated by a variable incentive compensation system and broad-based equity ownership in thecompany. During 2010, we faced many challenges as we focused on emerging from one of the worst downturns in the history of our industry. During 2009,our industry trade organization, the Business and Institutional Furniture Manufacturers Association, or BIFMA, reported that industry sales declined29.7% when compared to 2008. This is one of the steepest declines our industry has ever experienced. Coming into 2010 we were uncertain as to whenor if a recovery would begin. However, we maintained our focus on our core commitment to design and quality, managed our balance sheet, protectedour profitability and invested through the cycle in exciting innovative new designs so we would be well positioned to emerge from the downturnstronger than ever. As we began to see signs of recovery during the second half of 2010 this is exactly what happened. BIFMA reported an industry sales increase of 5.8% for 2010 . Our sales for the year increased a modest 3.8% when compared with 2009.However, our fourth quarter sales increased 30.4% when compared with the fourth quarter of 2009. Our seating sales experienced double digit growthduring the year as sales of our award winning Generation by Knoll® work chair continued to increase. Systems, which historically has represented alarge percentage of our overall sales, experienced significant growth during the third and fourth quarters of this year when compared with the prior year.Our high margin specialty businesses also began generating growth during the second half of the year. Growth in Europe outpaced North Americanduring 2010. Some of the biggest challenges we faced during 2010 were price competition, rising material prices and the strengthening of the Canadian dollar.Price competition continued to pressure our margins as did the rising cost of steel. Price deterioration cost us $22.0 million during 2010. During thesecond half of 2010, expedited freight costs to meet the rising customer demand also negatively impacted our gross margin. During the full year 2010,gross margin decreased from 34.5% in 2009 to 32.7% in 2010. Operating profit was $64.7 million, or 8.0% of sales, for 2010 and includesrestructuring charges of $7.6 million. These restructuring charges relate to the announced March 2010 plan to better utilize our manufacturing capacity,eliminate duplication of capabilities and reduce associated costs. Our operating profit increased 1.9% in 2010 when compared with the prior year.During 2010, we generated net income of $28.0 million, or $0.61 diluted earnings per share, compared to $27.4 million, or $0.60 diluted earnings pershare, in 2009. We continued to aggressively manage our balance sheet during 2010. Over the past twelve months we have reduced our outstanding debt by$50.0 million and since the end of 2007 by $123.4 million. At the end of this year our long term debt was $245.0 million. We remain in compliancewith all of our bank covenants and our revolving credit facility extends until June 2013. In addition, during the year ended December 31, 2010, we usedfree cash to pay dividends to our shareholders totaling $5.5 million. During the fourth quarter of 2010, we increased our quarterly dividend from $0.02per share to $0.06 per share. In 2011, we will continue to work to diversify our portfolio of products away from such a substantial reliance on office systems. We will continueto focus on increasing our market share in seating and our high margin specialty businesses and are excited about the introduction of ReGeneration byKnoll™ in 2011. In addition, with new selling relationships in the Middle East, Brazil and India, we look forward to continued international growth in2011 and beyond.27 Table of ContentsResults of OperationsYears ended December 31, 2009 and 2010Sales Sales for 2010 were $809.5 million, an increase of $29.5 million, or 3.8%, from sales of $780.0 million for 2009. Seating experienced double digitgrowth during the year as our Generation by Knoll® chair continues to gain market share. For the year ended December 31, 2010, systems salesdeclined on a year over basis but showed significant improvement during the third and fourth quarters of 2010. In 2010, systems continued to representa large percentage of our overall sales. Geographically our European sales increased at a greater pace than North America. At December 31, 2010, salesbacklog was $196.6 million, an increase of $43.6 million, or 28.5%, from sales backlog of $153.0 million as of December 31, 2009. As we went through 2010, it began to appear that signs were in place for a recovery to begin in the industry. Business confidence began toimprove as did service sector employment. The fourth quarter of 2010 was the first quarter since 2007 of positive office space absorption and, at the endof 2010, The Architectural Billings Index was at its highest point since November 2007. The Architectural Billings Index is provided by the AmericanInstitute of Architects and shows the nine to twelve month lag between architecture billings and construction spending. All these signs led to our salesincreasing on a year over year basis during the third and fourth quarters of 2010. Sales to governmental entities and agencies remained strong in 2010. Approximately 23.4% of our 2010 sales were to federal, state and localgovernmental entities and related agencies. Pricing pressure continued to have a significant impact on 2010 sales. The recent industry decline has led to a very competitive pricing environmentas the industry competes for a smaller pool of business. We believe we have been able to offset some of this pressure through our cost reductionactivities. However, pricing pressures had a negative impact on our gross margin performance n 2010. We recently implemented a price increase thatshould alleviate some of this pressure next year as we anticipate further recovery in the industry. BIFMA is forecasting an 14.0% increase in industrysales for 2011.28 Three Months Ended Three Months Ended TwelveMonthsEndedDecember 31,2009 TwelveMonthsEndedDecember 31,2010 March 31,2009 June 30,2009 September 30,2009 December 31,2009 March 31,2010 June 30,2010 September 30,2010 December 31,2010 (in thousands, except statistical data)(unaudited) ConsolidatedStatement ofOperationsData: Sales $212,609 $202,197 $181,282 $183,945 $780,033 $175,259 $192,275 $202,149 $239,784 $809,467 Gross profit 74,767 70,729 61,273 62,674 269,443 56,661 63,040 67,452 77,196 264,349 Operating income 16,765 18,514 16,797 11,413 63,489 9,408 11,940 19,109 24,205 64,662 Interest expense 2,771 2,856 4,054 4,181 13,862 4,153 4,410 4,877 3,996 17,436 Other income(expense), net 1,324 (2,747) (3,112) (1,297) (5,832) (1,413) 2,318 (4,274) (3,010) (6,379)Income tax expense 5,793 4,837 3,905 1,907 16,442 1,627 1,172 3,618 6,406 12,823 Net income $9,525 $8,074 $5,726 $4,028 $27,353 $2,215 $8,676 $6,340 $10,793 $28,024 Statistical andOther Data: Sales growth fromcomparable prioryear -20.6% -30.9% -36.1% -33.4% -30.4% -17.6% -4.9% 11.5% 30.4% 3.8%Gross profit margin 35.2% 35.0% 33.8% 34.1% 34.5% 32.3% 32.8% 33.4% 32.2% 32.7%Backlog $163,768 $134,136 $121,741 $153,037 $153,037 $138,946 $132,539 $160,492 $196,567 $196,567 Table of ContentsGross Profit and Operating Income Gross profit for 2010 was $264.3 million, a decrease of $5.1 million, or 1.9%, from gross profit of $269.4 million for 2009. Operating income for2010 was $64.7 million, an increase of $1.2 million, or 1.8%, from operating income of $63.5 million for 2009. As a percentage of sales, gross profit decreased from 34.5% for 2009 to 32.7% for 2010. The largest contributors to this decline were pricedeterioration and material inflation, particularly steel. The strengthening of the Canadian dollar during 2010 also negatively affected our gross margin.Operating income as a percentage of sales decreased from 8.1% in 2009 to 8.0% in 2010. Operating profit for 2010 includes restructuring charges of$7.6 million compared to $12.0 million in 2009. Operating expenses for 2010, excluding restructuring charges, were $192.1 million, or 23.7% of sales, compared to $194.0 million, or 24.9% ofsales, for 2009. The modest decrease in operating expenses during 2010 was in large part due to cost control measures that were put in place during thedownturn in the industry and which more than offset by increased incentive compensation this year. During 2010, we incurred restructuring charges of approximately $7.6 million. These charges included $3.7 million of employee termination costs,$3.0 million of costs associated with the write-off of fixed assets that we determined had no future benefit, and $0.9 million of costs related to facilityrealignment. During 2009, we incurred restructuring charges of approximately $12.0 million. These charges included $10.6 million of employeetermination costs, $0.6 million of costs associated with the exiting of three leased showrooms, and $0.8 million of costs associated with thediscontinuation of certain product lines.Interest Expense Interest expense for 2010 was $17.4 million, an increase of $3.6 million from interest expense of $13.9 million for 2009. The increase in interestexpense is primarily due to the interest rate swap agreements that we entered into during 2008 that went into effect during the second quarter of 2009.These agreements expire June 9, 2011. See Note 10 of our consolidated financial statements contained in this annual report on Form 10-K for furtherinformation regarding the interest rate swaps. Taking into account the effect of the interest rate swap payments, the weighted average interest rate for2010 was 5.8%. The weighted average interest rate for the same period in 2009 was 3.9%.Other (Expense) Income, net Other expense for 2010 was $6.4 million, comprised primarily of a $5.5 million loss due to foreign currency translation, a $1.2 million non-cashexpense related to the ineffective portion of our interest rate swaps, offset by $0.3 million of miscellaneous income. Other expense for 2009 was$5.8 million, comprised primarily of a $6.6 million loss due to foreign currency translation and $0.8 million of miscellaneous income.Income Tax Expense The mix of pretax income and the varying effective tax rates in the countries in which we operate directly affects our consolidated effective tax rate.The effective tax rate was 31.4% for 2010 compared to 37.5% for 2009. The decrease in our effective tax rate was due to a $2.5 million tax benefitrelated to foreign tax credits that was recognized as a discrete item due to amended tax returns being filed during the second quarter of 2010. Withoutthis benefit, our tax rate for the year would have been 37.5%.29 Table of ContentsYears ended December 31, 2008 and 2009Sales Sales for 2009 were $780.0 million, a decrease of $340.1 million, or 30.4%, from sales of $1.12 billion for 2008. For the year endedDecember 31, 2009, we experienced double digit declines across all product categories and geographies when compared to the prior year. AtDecember 31, 2009, sales backlog was $153.0 million, a decrease of $48.7 million, or 24.1%, from sales backlog of $201.7 million as of December 31,2008. In 2009, the global recession greatly impacted the office furniture industry. A widespread lack of business confidence and growing unemploymentlevels increased office vacancy rates and lowered the demand for our products, especially office systems. Office systems as a product category wereimpacted the most by the decline in demand with sales declining 30.6% when compared to 2008. Although we have diversified our sales over recentyears by growing our seating and specialty businesses to make us less dependent on the office systems category, office systems still represent asignificant portion of our sales. Sales to the U.S. government remained strong in 2009 and became a larger portion of our overall revenue in 2009. Approximately 16.0% of our2009 sales were to the U.S. government and related agencies. Although the recent recession has been worldwide, geographically our European sales declined at a greater pace than North America in 2009. The substantial reduction in industry demand has resulted in a very competitive pricing environment as our industry competes for a smaller pool ofbusiness. This pricing pressure had a significant impact on 2009 sales, but we believe we managed to stay competitive and offset some of this pricingpressure through our cost reduction activities.Gross Profit and Operating Income Gross profit for 2009 was $269.4 million, a decrease of $125.7 million, or 31.8%, from gross profit of $395.1 million for 2008. Operating incomefor 2009 was $63.5 million, a decrease of $81.9 million, or 56.3%, from operating income of $145.4 million for 2008. We are relatively pleased withthe profit levels we reported in 2009 given the significant deterioration in industry demand and a reduction of $340.1 million in our sales from 2008. As a percentage of sales, gross profit decreased from 35.3% for 2008 to 34.5% for 2009. The decrease in gross margin during 2009 was primarilydue to price deterioration and lower absorption of our fixed costs as a result of our lower sales volumes. Operating income as a percentage of salesdecreased from 13.0% in 2008 to 8.1% in 2009. Operating profit for 2009 includes restructuring charges of $12.0 million compared to $4.6 million in2008. Operating expenses for 2009, excluding restructuring charges, were $194.0 million, or 24.9% of sales, compared to $245.0 million, or 21.9% ofsales, for 2008. The decrease in operating expenses during 2009 was in large part due to decreased spending in conjunction with our lower salesvolumes. Decreased sales and incentive compensation accounted for $23.5 million of the reduction. In addition, decreased bad debt expense andpreviously implemented cost reduction measures added to the decrease. During 2009, we incurred restructuring charges of approximately $12.0 million. These charges included $10.6 million of employee terminationcosts, $0.6 million of costs associated with the exiting of three leased showrooms, and $0.8 million of costs associated with the discontinuation ofcertain product lines. During 2008, we incurred restructuring charges of approximately $4.6 million. These charges30 Table of Contentsincluded $3.3 million of employee termination costs and $1.3 million of costs associated with the discontinuation of certain product lines.Interest Expense Interest expense for 2009 was $13.9 million, a decrease of $2.4 million from interest expense of $16.3 million for 2008. The decrease in interestexpense was largely due to lower borrowing rates. Two interest rate swap agreements that we entered into during 2008 went into effect during thesecond quarter of 2009 and resulted in an increased rate for the second half of 2009. For the year ended December 31, 2009, additional interest expenseof $5.2 million was incurred as a result of these swap agreements. See Note 10 of our consolidated financial statements contained in this annual reporton Form 10-K for further information regarding the interest rate swaps. Taking into account the effect of the interest rate swap payments, the weightedaverage interest rate for 2009 was 3.9%. The weighted average interest rate for the same period in 2008 was 4.3%.Other (Expense) Income, net Other expense for 2009 was $5.8 million, comprised primarily of a $6.6 million loss due to foreign currency translation and $0.8 million ofmiscellaneous income. Other income for 2008 was $3.7 million, comprised primarily of a $3.0 million gain due to foreign currency translation and a$0.7 million of miscellaneous income.Income Tax Expense The mix of pretax income and the varying effective tax rates in the countries in which we operate directly affects our consolidated effective tax rate.The effective tax rate was 37.5% for 2009 compared to 36.1% for 2008.Liquidity and Capital Resources The following table highlights certain key cash flows and capital information pertinent to the discussion that follows: Historically, we have carried significant amounts of debt, and cash generated by operating activities has been used to fund working capital, capitalexpenditures, repurchase shares and scheduled payments of principal and interest under our debt. Our capital expenditures are typically for new producttooling and manufacturing equipment. These capital expenditures support new products and continuous improvements in our manufacturing processes.In addition, we are currently evaluating a new enterprise resource planning system with implementation to begin in 2011. Expenses associated with thissystem implementation will increase spending over the next few years. Cash provided by operating activities was $89.6 million in 2010, $52.9 million in 2009 and $112.2 million in 2008. For the year endedDecember 31, 2010, cash provided by operating activities31 2010 2009 2008 (in thousands) Cash provided by operating activities $89,632 $52,853 $112,224 Capital expenditures 8,312 13,706 18,530 Cash used in investing activities 9,037 14,519 18,530 Purchase of common stock for treasury 12,073 1,587 40,871 Repayment of debt, net 50,134 42,131 31,129 Payment of dividends 5,496 8,171 22,380 Proceeds from issuance of common stock 9,737 111 1,796 Cash used in financing activities 57,487 51,778 92,381 Table of Contentsconsisted of $70.0 million from net income plus various non-cash charges which included $1.2 million of non-cash expense related to the ineffectiveportion of the interest rate swaps and a $3.0 million write-off of assets due to restructuring, and $19.6 million of favorable changes in assets andliabilities. For the year ended December 31, 2009, cash provided by operating activities consisted of $67.6 million from net income, plus non-cashcharges, offset by $14.7 million of unfavorable changes in working capital. For the year ended December 31, 2010, we used available cash, including the $89.6 million of cash from operating activities to repay $50.1 millionof debt, fund $8.3 million in capital expenditures, fund dividend payments to shareholders totaling $5.5 million, and to fund working capital. In 2009,we used available cash, including the $52.9 million of cash from operating activities to repay $42.1 million of debt, fund $13.7 million in capitalexpenditures, fund dividend payments to shareholders totaling $8.2 million, and to fund working capital. We use our existing secured $500 million revolving credit facility in the ordinary course of business to fund our working capital needs, and attimes make significant borrowings and repayments under the facility depending on our cash needs and availability at such time. This facility matures inJune 2013 and provides us with the option to increase the size of the facility by up to an additional $200 million, subject to the satisfaction of certainterms and conditions. As of December 31, 2010, there was approximately $245 million outstanding under the facility, compared to $295 millionoutstanding under the facility as of December 31, 2009. Borrowings under the revolving credit facility may be repaid at any time, but no later than June2013. Our revolving credit facility requires that we comply with two financial covenants: (i) our consolidated leverage ratio, defined as the ratio of totalindebtedness to consolidated EBITDA (as defined in our credit agreement) for a period of four fiscal quarters, cannot exceed 4 to 1, and (ii) ourconsolidated interest coverage ratio, defined as the ratio of our consolidated EBITDA (as defined in our credit agreement) for a period of four fiscalquarters to our consolidated interest expense, must be a minimum of 3 to 1. We are also required to comply with various other affirmative and negativecovenants, including without limitation, covenants that prevent or restrict our ability to pay dividends, engage in certain mergers or acquisitions, makecertain investments or loans, incur future indebtedness, make significant capital expenditures, engage in sale-leaseback transactions, alter our capitalstructure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates and sell stock or assets. We are currently in compliance with all of the covenants and conditions under our credit facility. We believe that existing cash balances andinternally generated cash flows, together with borrowings available under our revolving credit facility, will be sufficient to fund normal working capitalneeds, capital spending requirements, debt service requirements and dividend payments for at least the next twelve months. However, because of thefinancial covenants mentioned above, our capacity under our revolving credit facility could be reduced if our trailing consolidated EBITDA (as definedby our credit agreement) would decline due to deteriorating market conditions. Future principal debt payments may be paid out of cash flows fromoperations, from future refinancing of our debt or from equity issuances. However, our ability to make scheduled payments of principal, to pay intereston or to refinance our indebtedness, to satisfy our other debt obligations and to pay dividends to stockholders will depend upon our future operatingperformance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.32 Table of ContentsContractual Obligations The following table summarizes our contractual cash obligations as of December 31, 2010 (in thousands): Contractual obligations for long-term debt include principal and interest payments. Interest has been included at either the fixed rate or the variablerate in effect as of December 31, 2010, as applicable.Environmental Matters Our past and present business operations and the past and present ownership and operation of manufacturing plants on real property are subject toextensive 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 involvedfrom time-to-time in administrative and judicial proceedings and inquiries relating to environmental matters and could become subject to fines orpenalties related thereto. We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws orregulations will be administered or interpreted or what environmental conditions may be found to exist. Compliance with more stringent laws orregulations, or stricter interpretation of existing laws, may require additional expenditures by us, some of which may be material. We have beenidentified 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 someof these CERCLA sites are unknown. We may also be subject to claims for personal injury or contribution relating to CERCLA sites. We reserveamounts 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 structuredfinance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As a result, we arenot materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.33 Payments due by period Less than1 year 1 to 3years 3 to 5years More than5 years Total Long-term debt $3,937 $250,691 $— $— $254,628 Operating leases 13,001 17,722 11,729 20,426 62,878 Purchase commitments 1,743 — — — 1,743 Pension plan contributions(a) 10,675 — — — 10,675 Postretirement benefit plan obligations(a) 1,494 — — — 1,494 Total $30,850 $268,413 $11,729 $20,426 $331,418 (a)Due to the uncertainty of future cash outflows, contributions to the pension and other post-retirement benefit plans subsequent to2011 have been excluded from the table above. (b)Due to the uncertainty of future cash outflows, uncertain tax positions have been excluded from the table above. Table of ContentsCritical Accounting Policies The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP")requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses and the disclosure ofcertain contingent assets and liabilities. Actual results may differ from such estimates. We believe that the critical accounting policies that follow arethose policies that require the most judgment, estimation and assumption in preparing our consolidated financial statements.Allowance for Doubtful Accounts We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our clients and dealers to make requiredpayments. The allowance is determined through an analysis of the aging of accounts receivable and assessments of risk that are based on historicaltrends and an evaluation of the impact of current and projected economic conditions. We evaluate the past-due status of our trade receivables based oncontractual terms of sale. If the financial condition of our clients and dealers were to deteriorate, additional allowances may be required. Accountsreceivable are charged off against the allowance for doubtful accounts when we determine that recovery is unlikely.Inventory Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. We write down inventory that, in ourjudgment, is impaired or obsolete. Obsolescence may be caused by the discontinuance of a product line, changes in product material specifications,replacement products in the marketplace and other competitive influences.Goodwill and Other Intangible Assets Intangible assets consist of goodwill, trademarks and deferred financing fees. Goodwill is recorded at the amount by which cost exceeds the netassets of acquired businesses, and all other intangible assets are recorded at cost. Goodwill and other indefinite lived intangible assets are tested forimpairment annually unless indicators of impairment exist. Financing costs that are incurred by us in connection with the issuance of debt are deferred and amortized to interest expense over the life of theunderlying indebtedness. The period of these costs may be shortened if the underlying indebtedness is modified or retired.Product Warranty We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in product quality programs andprocesses, our warranty obligation is affected by product failure rates and by material usage and service costs incurred in correcting a product failure.Cost estimates are based on historical product failure rates and identified one-time fixes for each specific product category. Warranty cost generallyvaries in direct relation to sales volume, as such costs tend to be a consistent percentage of revenue. Should actual costs differ from original estimates,the estimated warranty liability would be revised.Employee Benefits We are partially self-insured for our employee health benefits. We accrue for employee health benefit obligations based on an actuarial valuation.The actuarial valuation is based upon historical claims as well as a number of assumptions, including rates of inflation for medical costs, and benefitplan changes. Actual results could be materially different from the estimates used.34 Table of ContentsPension and Other Postretirement Benefits We sponsor two defined benefit pension plans and two other postretirement benefit plans that cover substantially all of our U.S. employees.Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans. Keyfactors include assumptions about the expected rates of return on plan assets, discount rates, and health care cost trend rates, as determined by us, withincertain guidelines. We consider market conditions, including changes in investment returns and interest rates, in making these assumptions. We determine the expected long-term rate of return on plan assets based on aggregating the expected rates of return for each component of theplan's asset mix. We use historic plan asset returns combined with current market conditions to estimate the rate of return. The expected rate of return onplan assets is a long-term assumption and generally does not change annually. The discount rate reflects the market rate for high-quality fixed incomedebt instruments as of our annual measurement date and is subject to change each year. Holding all other assumptions constant, a one percentage pointincrease or decrease in the assumed rate of return on plan assets would decrease or increase 2010 net periodic pension expense by approximately$1.4 million. Likewise, a one percentage point increase or decrease in the discount rate would decrease or increase 2010 net periodic pension expense byapproximately $2.7 million or $4.7 million, respectively. Unrecognized actuarial gains and losses are recognized over the expected remaining service life of the employee group. Unrecognized actuarialgains and losses arise from several factors, including experience and assumption changes with respect to the obligations and from the differencebetween expected returns and actual returns on plan assets. These unrecognized gains and losses are systematically recognized as a change in future netperiodic pension expense in accordance with the appropriate accounting guidance relating to defined benefit pension and other postretirement plans. Key assumptions we use in determining the amount of the obligation and expense recorded for postretirement benefits other than pensions("OPEB"), under the appropriate accounting guidance, include the assumed discount rate and the assumed rate of increases in future health care costs.The discount rate we use to determine the obligation for these benefits matches the discount rate used in determining our pension obligations in eachyear presented. In estimating the health care cost trend rate, we consider actual health care cost experience, future benefit structures, industry trends andadvice from our actuaries. We assume that the relative increase in health care costs will generally trend downward over the next several years, reflectingassumed increases in efficiency and cost containment initiatives in the health care system. At December 31, 2010, the expected rate of increase in futurehealth care costs was 8.00% in determining the benefit obligation for 2010 and 8.00% in determining the net periodic benefit cost for 2010. The rate wasthen assumed to decrease to an ultimate rate of 5% for 2017 and thereafter for the benefit obligation. Increasing the assumed health care cost trend byone percentage point in each year would increase the benefit obligation as of December 31, 2010 by $0.6 million and increase the aggregate of theservice and interest cost components of net periodic benefit cost for 2010 by approximately $0.1 million. Decreasing the assumed health care cost trendrate by one percentage point in each year would decrease the benefit obligation as of December 31, 2010 by approximately $0.6 million and decrease theaggregate of the service and interest cost components of net periodic benefit cost for 2010 by approximately $0.1 million. In accordance with the appropriate accounting guidance, we recognize in our consolidated balance sheet the funded status (i.e. the differencebetween the fair value of plan assets and the projected benefit obligation) of our defined benefit pension and postretirement benefit plans. To record theunfunded status of our plans we recorded an additional liability and an adjustment to accumulated other comprehensive income, net of tax. The actuarial assumptions we use in determining our pension and OPEB retirement benefits may differ materially from actual results due tochanging market and economic conditions, higher or lower35 Table of Contentswithdrawal rates, or longer or shorter life spans of participants. While we believe that the assumptions used are appropriate, differences in actualexperience or changes in assumptions may materially affect our financial position or results of operations.Commitments and Contingencies We establish reserves for the estimated cost of environmental and legal contingencies when such expenditures are probable and reasonablyestimable. A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. We engage outsideexperts as deemed necessary or appropriate to assist in the evaluation of exposure. From time to time, as information becomes available regardingchanges in circumstances for ongoing issues as well as information regarding emerging issues, our potential liability is reassessed and reserve balancesare adjusted as necessary. Revisions to our estimates of potential liability, and actual expenditures related to environmental and legal contingencies,could have a material impact on our results of operations or financial position.Taxes We account for income taxes in accordance with the appropriate accounting guidance relating to income taxes, which requires that deferred taxassets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax bases of recorded assets andliabilities. The appropriate accounting guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not thatsome portion or all of the deferred tax assets will not be recognized. At December 31, 2010, deferred tax liabilities of $93.9 million exceeded deferred tax assets of $51.0 million by $42.9 million. At December 31,2009, our deferred tax liabilities of $87.0 million exceeded deferred tax assets of $55.0 million by $32.0 million. Our deferred tax assets atDecember 31, 2010 and 2009 of $51.0 million and $55.0 million, respectively, are net of valuation allowances of $9.4 million and $8.9 million,respectively. We have recorded the above valuation allowance primarily for net operating loss carryforwards in foreign tax jurisdictions where we haveincurred historical tax losses from operations or acquired tax losses through acquisition, and have determined that it is more likely than not that thesedeferred tax assets will not be realized. We evaluate on an ongoing basis the realizability of our deferred tax assets and adjust the amount of the allowance, if necessary. The factors usedto assess the likelihood of realization include our forecast of future taxable income and our assessment of available tax planning strategies that could beimplemented to realize the net deferred tax assets. We account for uncertain tax positions in accordance with the applicable accounting guidance relating to uncertainty in income taxes. Accordingly,we report a liability for unrecognized tax benefits resulting from uncertain tax positions taken, or expected to be taken, in an income tax return. Werecognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.Interest Rate Swap Agreements On May 21, 2008, we entered into four interest rate swap agreements for purposes of managing our risk in interest rate fluctuations. Theseagreements each hedge a notional amount of $150.0 million of our borrowings under the revolving credit facility. Two of the agreements were effectiveJune 9, 2009 and expired on June 9, 2010. On these two agreements, we paid a fixed rate of 3.51% and received a variable rate of interest equal tothree-month London Interbank Offered Rate (LIBOR), as determined on the last day of each quarterly settlement period. The other two agreements wereeffective on June 9, 2010 and expire on June 9, 2011. We pay a fixed rate of 4.10% on these two agreements and receive a variable rate of interest equalto three-month LIBOR.36 Table of Contents The Company has elected to apply hedge accounting to these swap agreements. Changes in the fair value of the effective portion of the interest rateswap agreements are recorded as a component of accumulated other comprehensive income (loss) in the equity section of the balance sheet. The netamount paid or received upon quarterly settlements is recorded as an adjustment to interest expense, with a corresponding reduction in othercomprehensive income (loss).Stock-Based Compensation The Company accounts for stock-based compensation according to applicable accounting guidance, which requires the Company to expense thecost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense isrecognized ratably over the requisite service period following the date of grant. The fair value for stock options is estimated at the date of grant using a lattice option-pricing model, which requires management to make certainassumptions. The risk-free interest rate is based on the U.S. Treasury spot rate with a remaining term equal to the expected life assumed at the date ofgrant. Expected volatility is estimated based on the historical volatility of the Company's stock price. The model takes into consideration the historicaldividends paid on common stock. The weighted-average expected life is based on the contractual term of the stock option and expected employeeexercise dates, which is based on the historical exercise behavior of the Company's employees. Forfeitures are estimated at the date of grant based onhistorical experience. There were no stock options granted during 2010.Recent Accounting Pronouncements In December 2010, the FASB issued an amendment related to the accounting for business combinations to address diversity in practice about theinterpretation of the pro forma revenue and earnings disclosure requirements for business combinations. This standard will become effective for theCompany on January 1, 2011 and may have a material impact on the Company's consolidated financial statements if there are future acquisitions.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the normal course of business, we are routinely subjected to market risk associated with interest rate movements and foreign currencyexchange rate movements. Interest rate risk arises from our debt obligations and related interest rate swap agreements. Foreign currency exchange raterisk arises from our non-U.S. operations and purchases of inventory from foreign suppliers. We also have risk in our exposure to certain material and transportation costs. Steel, leather, wood products and plastics are all used in themanufacture of our products. For the year ended December 31, 2010, material inflation was approximately $6.8 million and transportation deflation wasapproximately $0.2 million. During 2009, material inflation was approximately $0.9 million and transportation inflation was approximately $4.1 million.We continue to work to offset price increases in raw materials and transportation through our global sourcing initiatives, cost improvements and priceincreases 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 onthe variable-rate debt. We use interest rate swap agreements for other than trading purposes in order to manage our exposure to fluctuations in interest rates on ourvariable-rate debt. In May of 2008, we entered into four interest rate swap agreements in order to manage our interest rate risk. Each agreement hedges a37 Table of Contentsnotional amount of $150.0 million. Two of the agreements were effective from June 9, 2009 through June 9, 2010 and the other two were effectiveJune 9, 2010 and expire June 9, 2011. Fluctuations in LIBOR affect both our net financial instrument position and the amount of cash to be paid orreceived by us, if any, under these agreements. See Note 10 of the consolidated financial statements included in this annual report for furtherinformation regarding the interest rate swap agreements. Taking into account payments on the above noted interest rate swap agreements, our weighted average rate for 2010 was 5.8%. The weightedaverage rate for the same period of 2009 was 3.9%. The following table summarizes our market risks associated with our debt obligations and interest rate hedge agreements as of December 31, 2010.For debt obligations, the table presents principal cash flows and related weighted average interest rates by year of maturity. Variable interest ratespresented for variable-rate debt represent the weighted average interest rates on our credit facility borrowings as of December 31, 2010. For interest rateswaps, the table presents the notional amounts and related weighted average interest rates. An increase in our effective interest rate of 1% would increase annual interest expense by approximately $2.5 million. We will continue to reviewour exposure to interest rate fluctuations and evaluate whether we should manage such exposures through derivative transactions.Foreign Currency Exchange Rate Risk We manufacture our products in the United States, Canada and Italy, and sell our products primarily in those markets as well as in other Europeancountries. Our foreign sales and certain expenses are transacted in foreign currencies. Our production costs, profit margins and competitive position areaffected by the strength of the currencies in countries where we manufacture or purchase goods relative to the strength of the currencies in countrieswhere our products are sold. Additionally, as our reporting currency is the U.S. dollar, our financial position is affected by the strength of the currenciesin countries where we have operations relative to the strength of the U.S. dollar. The principal foreign currencies in which we conduct business are theCanadian dollar and the Euro. Approximately 14.9% and 11.7% of our revenues in 2010 and 2009, respectively, and 34.8% and 33.0% of our cost ofgoods sold in 2010 and 2009, respectively, were denominated in currencies other than the U.S. dollar. Foreign currency exchange rate fluctuationsresulted in a $5.5 million translation loss in 2010 and a $6.6 million translation loss in 2009. The translation gains/losses do not reflect the impact of thetranslation of our operating results which are transacted in foreign countries. 2011 2012 2013 2014 2015 Thereafter Total Fair Value (dollars in thousands) Rate SensitiveLiabilities Long-termDebt: Fixed Rate $135 $— $— $— $— $— $135 $135 Fixed InterestRate 4.11% — — — — — — — Variable Rate $— $— $245,000 — $— $— $245,000 $245,000 VariableInterest Rate — — 1.55% — — — — — Rate SensitiveDerivativeFinancialInstruments Interest Rateswaps: NotionalAmount $300,000 $— $— $— $— $— $300,000 $(5,138)Pay FixedInterest Rate 4.10%. — — — — — ReceiveVariableInterest Rate 0.30% — — — — — From time to time, we enter into foreign currency forward exchange contracts and foreign currency option contracts for other than trading purposesin order to manage our exposure to foreign exchange38 Table of Contentsrates associated with short-term operating receivables of a Canadian subsidiary that are payable by our U.S. operations. The terms of these contracts aregenerally 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 netgain or loss upon settlement and the change in fair value of outstanding contracts is recorded as a component of other income (expense). During 2010and 2009, the Company did not enter into any outstanding foreign currency contracts. During 2008, we recognized a net loss of $7.8 million related tovarious foreign currency option contracts initiated and settled during 2008.39 Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm The Board of Directors and StockholdersKnoll, Inc. We have audited the accompanying consolidated balance sheets of Knoll, Inc. as of December 31, 2010 and 2009, and the related consolidatedstatements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits alsoincluded the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of theCompany's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Knoll, Inc. atDecember 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule,when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Knoll, Inc.'s internalcontrol over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2011 expressed an unqualified opinion thereon./s/ Ernst & Young LLPPhiladelphia, PennsylvaniaMarch 1, 201140 Table of ContentsKNOLL, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2010 AND 2009 (in thousands, except share and per share data) December 31,2010 December 31,2009 ASSETS Current assets: Cash and cash equivalents $26,935 $5,961 Customer receivables, net 126,780 113,652 Inventories 85,216 79,964 Deferred income taxes 10,507 4,994 Prepaid and other current assets 11,722 9,306 Total current assets 261,160 213,877 Property, plant, and equipment, net 122,219 135,045 Goodwill, net 76,101 75,612 Intangible assets, net 222,246 223,550 Other non-trade receivables 4,507 5,605 Other noncurrent assets 1,199 1,931 Total Assets $687,432 $655,620 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $135 $149 Accounts payable 101,206 74,687 Income taxes payable 5,523 — Other current liabilities 85,054 78,428 Total current liabilities 191,918 153,264 Long-term debt 245,000 295,156 Deferred income taxes 53,420 36,997 Postretirement benefits other than pensions 25,289 23,435 Pension liability 34,719 41,046 International retirement obligation 3,482 4,444 Other noncurrent liabilities 7,218 11,716 Total liabilities 561,046 566,058 Stockholders' equity: Common stock, $0.01 par value; 200,000,000 shares authorized; 46,901,511 issued andoutstanding (net of 13,306,995 treasury shares) at December 31, 2010 and 46,934,683shares issued and outstanding (net of 12,425,927 treasury shares) at December 31,2009 470 470 Additional paid-in-capital 14,087 6,736 Retained earnings 114,990 92,583 Accumulated other comprehensive loss (3,161) (10,227) Total stockholders' equity 126,386 89,562 Total Liabilities and Stockholders' Equity $687,432 $655,620 See accompanying notes to the consolidated financial statements41 Table of ContentsKNOLL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2010, 2009, AND 2008 (dollars in thousands, except share and per share data) See accompanying notes to the consolidated financial statements42 2010 2009 2008 Sales $809,467 $780,033 $1,120,147 Cost of sales 545,118 510,590 725,078 Gross profit 264,349 269,443 395,069 Selling, general, and admistrative expenses 192,122 193,995 245,032 Restructuring and other charges 7,565 11,959 4,625 Operating income 64,662 63,489 145,412 Interest expense 17,436 13,862 16,289 Other (expense) income, net (6,379) (5,832) 3,679 Income before income tax expense 40,847 43,795 132,802 Income tax expense 12,823 16,442 47,890 Net Income $28,024 $27,353 $84,912 Net earnings per share Basic $0.61 $0.60 $1.82 Diluted $0.61 $0.60 $1.82 Weighted-average shares outstanding: Basic 45,600,043 45,403,401 46,570,272 Diluted 45,970,680 45,413,770 46,694,340 Table of ContentsKNOLL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2010, 2009, AND 2008 (dollars in thousands, except share and per share data) CommonStock AdditionalPaid-InCapital RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) TotalStockholders'Equity Balance at January 1, 2008 $493 $— $45,255 $28,973 $74,721 Net income — — 84,912 — 84,912 Foreign currency translation adjustment — — — (27,030) (27,030)Unrealized loss on derivatives (net of income tax effect of $5,065) (7,774) (7,774)Pension and other post-retirement liabilities (net of income tax effectof $15,386) — — — (23,616) (23,616) Total comprehensive income 26,492 Shares issued for consideration: Exercise of stock options, including tax benefit of $203 (107,290shares) 1 1,399 — — 1,400 Shares issued under stock incentive plan (992,117 shares) 10 (10) — — — Shares issued under employee stock purchase plan (5,841 shares) — 65 — — 65 Shares issued to Board of Directors in lieu of cash (5,465 shares) 79 79 Stock-based compensation, net of forfeitures (183,462 shares) (2) 7,211 — — 7,209 Cash dividend ($.48 per share) — — (22,845) — (22,845)Purchase of common stock (3,089,191 shares) (31) (8,744) (32,096) — (40,871)Adjustment to apply FASB Statement No. 158 measurement daterequirement (net of tax of $998) — — (1,631) — (1,631) Balance at December 31, 2008 $471 $— $73,595 $(29,447)$44,619 Net income — — 27,353 — 27,353 Foreign currency translation adjustment — — — 18,709 18,709 Change in the fair value of interest rate swap contracts (net of incometax effect of $20) 30 30 Pension and other post-retirement liabilities (net of income tax effectof $305) — — — 481 481 Total comprehensive income 46,573 Shares issued for consideration: Shares issued under stock incentive plan (40,818 shares) — — — — — Shares issued under employee stock purchase plan (6,716 shares) — 52 — — 52 Shares issued to Board of Directors in lieu of cash (7,314 shares) — 60 — — 60 Stock-based compensation, net of forfeitures (65,735 shares) — 8,210 — — 8,210 Cash dividend ($.18 per share) — — (8,365) — (8,365)Purchase of common stock (180,833 shares) (1) (1,586) — — (1,587) Balance at December 31, 2009 $470 $6,736 $92,583 $(10,227)$89,562 Net income — — 28,024 — 28,024 Foreign currency translation adjustment — — — (315) (315)Change in the fair value of interest rate swap contracts (net of incometax effect of $3,471) 5,122 5,122 Pension and other post-retirement liabilities (net of income tax effectof $2,056) — — — 2,259 2,259 Total comprehensive income 35,090 Shares issued for consideration: Exercise of stock options, including tax benefit of $479 (790,596shares) 8 10,114 — — 10,122 Shares issued under stock incentive plan (50,446 shares) — — — — — Shares issued under employee stock purchase plan (3,251 shares) — 44 — — 44 Shares issued to Board of Directors in lieu of cash (3,603 shares) — 50 — — 50 Stock-based compensation, net of forfeitures (12,000 shares) — 9,208 — — 9,208 Cash dividend ($.12 per share) — — (5,617) — (5,617)Purchase of common stock (869,065 shares) (8) (12,065) — — (12,073) Balance at December 31, 2010 $470 $14,087 $114,990 $(3,161)$126,386 See accompanying notes to the consolidated financial statements43 Table of ContentsKNOLL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2010, 2009, AND 2008 (in thousands) See accompanying notes to the consolidated financial statements44 2010 2009 2008 CASH FLOWS FROM OPERATING ACTIVITES Net income $28,024 $27,353 $84,912 Adustments to reconcile net income to cash provided by operating activities: Depreciation 17,433 18,497 19,220 Amortization of intangible assets 2,028 2,082 2,246 Provision for deferred taxes 7,075 5,225 3,435 Write-off of fixed assets due to restructuring 2,962 — — Unrealized foreign currency loss (gain) 2,050 5,517 (11,013)Ineffective portion of interest rate swaps 1,177 — — Stock based compensation 9,208 8,209 7,208 Other non-cash items 108 636 1,262 Changes in assets and liabilites: Customer receivables (14,676) 14,807 5,971 Inventories (6,032) 23,112 (11,520) Accounts payable 28,051 (6,327) (582) Current income taxes 9,340 (14,808) (10,115) Other current assets (2,768) 2,470 (9,596) Other current liabilities 8,735 (28,707) 16,588 Other noncurrent assets and liabilities (3,083) (5,213) 14,208 Cash provided by operating activities 89,632 52,853 112,224 CASH FLOWS FOR INVESTING ACTIVITIES Capital expenditures (8,312) (13,706) (18,530)Purchase of intangibles (725) (813) — Cash used in investing activites (9,037) (14,519) (18,530) CASH FLOWS FOR FINANCING ACTIVITIES Repayment of revolving credit facilites, net (50,000) (42,000) (31,000)Repayment of long-term debt (134) (131) (129)Payment of dividends (5,496) (8,171) (22,380)Proceeds from the issuance of common stock 9,737 111 1,796 Purchase of common stock for treasury (12,073) (1,587) (40,871)Tax benefit from the exercise of stock options 479 — 203 Cash used in financing activites (57,487) (51,778) (92,381) Effect of exchange rate changes on cash and cash equivalents (2,134) 4,502 (4,385) Increase (Decrease) in cash and cash equivalents 20,974 (8,942) (3,072)Cash and cash equivalents at beginning of period 5,961 14,903 17,975 Cash and cash equivalents at end of period $26,935 $5,961 $14,903 Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010 1. NATURE OF OPERATIONS Knoll, Inc. and its subsidiaries (the "Company" or "Knoll") are engaged in the design, manufacture and sale of office furniture products andaccessories, focusing on the middle to high-end segments of the contract furniture market. The Company has operations in the United States ("U.S."),Canada and Europe and sells its products primarily through its direct sales representatives and independent dealers.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of Consolidation The consolidated financial statements of the Company include the accounts of Knoll, Inc. and its wholly owned subsidiaries. Intercompanytransactions and balances have been eliminated in consolidation. The results of the European subsidiaries are reported and included in the consolidated financial statements on a one-month lag to allow for thetimely preparation of consolidated information. The effect of this presentation is not material to the financial statements.Cash and Cash Equivalents Cash and cash equivalents include cash on hand and highly liquid investments with maturities of three months or less at the date of purchase.Revenue Recognition and Accounts Receivable Revenue from the sale of products is recognized upon transfer of title to the client, which primarily occurs at the time of shipment. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its clients and dealers to makerequired payments. The allowance is determined through an analysis of the aging of accounts receivable and assessments of risk that are based onhistorical trends and an evaluation of the impact of current and projected economic conditions. The Company evaluates the past-due status of its tradereceivables based on the contractual terms of sale. If the financial condition of the Company's clients and dealers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may be required. Accounts receivable are charged off against the allowance fordoubtful accounts when the Company determines that recovery is unlikely. Losses have been consistent with the Company's expectations.Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method.Property, Plant, Equipment and Depreciation Property, plant, and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over theestimated useful lives of the assets. The useful lives are as follows: 45 years for buildings and 2 to 12 years for machinery and equipment.45 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Intangible Assets The Company accounts for its intangible assets in accordance with the applicable accounting guidance for intangible assets. Intangible assetsmainly consist of goodwill, trademarks and deferred financing fees. Goodwill is recorded at the amount by which cost exceeds the net assets of acquiredbusinesses, and all other intangible assets are recorded at fair value at the date of acquisition. Goodwill and trademarks are tested for impairment annually or more frequently if indicators of impairment exist. The Company has determinedthat there has been no impairment in these assets. Deferred financing costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expenseover the life of the underlying indebtedness.Shipping and Handling Amounts billed to clients for shipping and handling of products are classified as sales in the consolidated statements of operations. Costs incurredby the Company for shipping and handling are classified as cost of sales.Research and Development Costs Research and development expenses, which are expensed as incurred and included as a component of selling, general, and administrative expenseson the statement of operations, were $14.6 million for 2010, $14.4 million for 2009, and $16.3 million for 2008.Income Taxes Deferred tax assets and liabilities are recognized for the future income tax consequences attributable to temporary differences between the financialstatement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates expected to apply totaxable income in the years in which the temporary differences are expected to reverse. The Company accounts for uncertain tax positions in accordance with the applicable accounting guidance for income taxes. Accordingly, theCompany reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken, or expected to be taken, in an income tax return.The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.Fair Value of Financial Instruments The fair values of cash and cash equivalents, accounts receivable, and accounts payable, approximate their carrying amounts due to their immediateor short-term periods to maturity. The stated interest rates on the Company's long-term debt approximate market rates for debt instruments with similarterms and maturities, and accordingly, the fair value of the Company's long-term debt, described in Note 8, approximates its carrying amount, as it isvariable-rate debt.46 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Derivative Financial Instruments On May 21, 2008, the Company entered into four interest rate swap agreements for purposes of managing its risk in interest rate fluctuations.These agreements each hedge a notional amount of $150.0 million of the Company's borrowings under the revolving credit facility. Two of theagreements were effective June 9, 2009 and expired on June 9, 2010. On these two agreements, the Company paid a fixed rate of 3.51% and received avariable rate of interest equal to three-month London Interbank Offered Rate (LIBOR), as determined on the last day of each quarterly settlement period.The other two agreements were effective on June 9, 2010 and expire on June 9, 2011. The Company pays a fixed rate of 4.10% on these twoagreements and receives a variable rate of interest equal to three-month LIBOR as determined on the last day of each quarterly settlement period. The Company has elected to apply hedge accounting to these swap agreements. Changes in the fair value of the effective portion of the interest rateswap agreements are recorded as a component of accumulated other comprehensive income (loss) in the equity section of the balance sheet. The netamount paid or received upon quarterly settlements is recorded as an adjustment to interest expense, with a corresponding reduction in othercomprehensive income (loss). See Note 10 of the consolidated financial statements included in this annual report for further information regarding theinterest rate swap agreements.Foreign Currency Translation Results of foreign operations are translated into U.S. dollars using average exchange rates during the period, while assets and liabilities aretranslated into U.S. dollars using exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded in accumulatedother comprehensive income. As of December 31, 2010 and 2009, the accumulated foreign currency translation adjustments included in othercomprehensive income amounted to $21.6 million and $21.9 million, respectively. Transaction gains and losses resulting from exchange rate changes ontransactions denominated in currencies other than the functional currency are included in income in the period in which the change occurs.Stock-Based Compensation The Company accounts for stock-based compensation according to applicable accounting guidance, which requires the Company to expense thecost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense isrecognized ratably over the requisite service period following the date of grant. The fair value for stock options is estimated at the date of grant using a lattice option-pricing model, which requires management to make certainassumptions. The risk-free interest rate is based on the U.S. Treasury spot rate with a remaining term equal to the expected life assumed at the date ofgrant. Expected volatility is estimated based on the historical volatility of the Company's stock price. The model takes into consideration the historicaldividends paid on common stock. The weighted-average expected life is based on the contractual term of the stock option and expected employeeexercise dates, which is based on the historical exercise behavior of the Company's employees. Forfeitures are estimated at the date of grant based onhistorical experience.47 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) There were no stock options granted during 2010. The following are the weighted-average assumptions that were used in the lattice option-pricingmodel for grants made during the years ended December 31, 2009 and 2008:Accumulated Other Comprehensive (Loss) Income The components of accumulated other comprehensive (loss) income, net of tax, if applicable, are as follows (in thousands):Earnings per Share Basic earnings per share excludes the dilutive effect of (i) common shares that could potentially be issued due to the exercise of stock options, and(ii) unvested restricted shares and is computed by48 2009 2008 Expected volatility 44% 31%Expected dividend yield 0.78% 3.61%Expected Term (in years) 6 8 Risk-free rate 3.34% 3.66%Forfeiture Rate 5% 4% BeginningBalance Before-TaxAmount Tax Benefit(Expense) Net-of-TaxAmount EndingBalance Twelve months ended: December 31, 2008 Pension Adjustment $(1,285)$(39,002)$15,386 $(23,616)$(24,901)Foreign currency translation adjustment 30,258 (27,030) — (27,030) 3,228 Unrealized loss on derivatives — (12,839) 5,065 (7,774) (7,774) Accumulated other comprehensive loss, net of tax $28,973 $(78,871)$20,451 $(58,420)$(29,447) December 31, 2009 Pension Adjustment $(24,901)$786 $(305) 481 $(24,420)Foreign currency translation adjustment 3,228 18,709 — 18,709 21,937 Unrealized loss on derivatives (7,774) 50 (20) 30 (7,744) Accumulated other comprehensive loss, net of tax $(29,447)$19,545 $(325)$19,220 $(10,227) December 31, 2010 Pension Adjustment $(24,420)$4,315 $(2,056)$2,259 $(22,161)Foreign currency translation adjustment 21,937 (315) — (315) 21,622 Unrealized loss on derivatives (7,744) 8,593 (3,471) 5,122 (2,622) Accumulated other comprehensive loss, net of tax $(10,227)$12,593 $(5,527)$7,066 $(3,161) Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share includes the effect ofshares and potential shares issued under the stock incentive plans.Use of Estimates The preparation of the consolidated financial statements in conformity with United States generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses and the disclosureof certain contingent assets and liabilities. Actual results may differ from such estimates.New Accounting Pronouncements In December 2010, the FASB issued an amendment related to the accounting for business combinations to address diversity in practice about theinterpretation of the pro forma revenue and earnings disclosure requirements for business combinations. This standard will become effective for theCompany on January 1, 2011 and may have a material impact on the Company's consolidated financial statements if there are future acquisitions.3. CUSTOMER RECEIVABLES Customer receivables are presented net of an allowance for doubtful accounts of $3.6 million and $5.1 million at December 31, 2010 and 2009,respectively. Management performs ongoing credit evaluations of its clients and generally does not require collateral. As of December 31, 2010 and2009, the U.S. government and agencies thereof, represented approximately 16.3% and 28.8%, respectively, of gross customer receivables.49 Twelve Months EndedDecember 31, 2010 2009 2008 (in thousands) Weighted average shares of common stock outstanding—basic 45,600 45,403 46,570 Potentially dilutive shares resulting from stock plans 371 10 124 Weighted average common shares—diluted 45,971 45,413 46,694 Antidilutive options not included in the weighted average common shares-dilutedcalculation 1,701 3,408 2,225 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20104. INVENTORIES Inventory reserves for obsolescence and other estimated losses were $8.3 million and $8.4 million at December 31, 2010 and 2009, respectively.5. PROPERTY, PLANT, AND EQUIPMENT6. INTANGIBLE ASSETS Information regarding the Company's goodwill and other intangible assets follows (in thousands):50 December 31,2010 December 31,2009 (in thousands) Raw materials $41,808 $39,112 Work in process 7,218 6,447 Finished goods 36,190 34,405 Inventories $85,216 $79,964 December 31,2010 December 31,2009 (in thousands) Land and buildings $105,272 $105,937 Machinery and equipment 253,283 265,397 Construction in progress 4,420 1,566 Property, plant and equipment 362,975 372,900 Accumulated depreciation (240,756) (237,855) Property, plant and equipment, net $122,219 $135,045 December 31, 2010 December 31, 2009 GrossAmount AccumulatedAmortization NetAmount GrossAmount AccumulatedAmortization NetAmount Unamortizableintangibleassets: Goodwill $84,513 $(8,412)$76,101 $84,024 $(8,412)$75,612 Trademarks 219,900 (32,069) 187,831 219,900 (32,069) 187,831 Edelman TradeName 26,050 — 26,050 26,050 — 26,050 Amortizableintangibleassets: Deferredfinancing fees 4,241 (2,712) 1,529 4,241 (2,100) 2,141 Trademarks 3,000 (2,257) 743 3,000 (1,772) 1,228 Other 9,293 (3,200) 6,093 8,569 (2,269) 6,300 $346,997 $(48,650)$298,347 $345,784 $(46,622)$299,162 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20106. INTANGIBLE ASSETS (Continued) The changes in the carrying amount of goodwill are as follows: The Company recorded amortization of deferred financing fees of approximately $612 thousand $612 thousand, and $611 thousand for the yearsended December 31, 2010, 2009 and 2008, respectively. This amortization was recorded as a component of interest expense. Estimated amortization expense for the deferred financing fees and other intangibles for each of the five succeeding years is as follows (inthousands):7. OTHER CURRENT LIABILITIES51 December 31,2010 December 31,2009 (in thousands) Balance at beginning of year $75,612 $74,301 Foreign currency transaction gain 489 1,311 Balance at end of year $76,101 $75,612 2011 $2,471 2012 1,851 2013 967 2014 605 2015 557 December 31,2010 December 31,2009 (in thousands) Accrued employee compensation $34,676 $25,202 Accrued pension costs 10,675 10,000 Customer deposits 6,146 5,925 Derivatives 5,138 9,025 Accrued warranty 8,090 9,773 Other 20,329 18,503 Other current liabilities $85,054 $78,428 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20108. INDEBTEDNESS The Company's long-term debt is summarized as follows:Term and Revolving Loans On June 29, 2007, the Company completed the refinancing of its existing credit facility with a $500.0 million revolving credit facility maturing onJune 29, 2013. The Company may use its revolving line of credit for general corporate purposes, including strategic acquisitions, stock buy backs andcash dividends. Under the Company's credit agreement, the Company can increase its revolving credit facility by up to $200.0 million subject to certainlimitations and satisfaction of certain conditions, including compliance with certain financial covenants. Loans made pursuant to the revolving credit facility may be borrowed, repaid and reborrowed from time to time until June 2013, subject tosatisfaction of certain conditions on the date of any such borrowing. Obligations under the credit facility are secured by a first priority security interest in(i) the capital stock of each present and future subsidiary (with limitations on foreign subsidiaries) and (ii) all present and future property and assets ofthe Company (with various limitations and exceptions). Borrowings under the credit agreement bear interest at a floating rate based, at the Company'soption, upon (i) the LIBOR rate plus an applicable percentage or (ii) the greater of the federal funds rate plus 0.50% or the prime rate as announced bythe revolving credit facility's administrative agent, plus an applicable percentage. The credit agreement contains a letter of credit subfacility that allows for the issuance of letters of credit and swing-line loans. The sum of theoutstanding revolver balance plus any outstanding letters of credit and swing-line loans cannot exceed $500.0 million subject to the ability to increasethe credit facility by up to $200.0 million as mentioned above. The amount available for borrowing under the revolving credit facility is reduced by thetotal outstanding letters of credit and swing-line loans. As of December 31, 2010 and 2009, the Company had letters of credit outstanding totaling$3.0 million and $3.7 million, respectively. The Company is required to pay a commitment fee equal to a rate per annum calculated as the product of the applicable rate based upon theCompany's leverage ratio as set forth in the credit agreement times the unused portion of the revolving credit facility. In addition, the Company isrequired to pay a letter of credit fee equal to the applicable rate as set forth in the credit agreement times the daily maximum amount available to be drawnunder such letter of credit.52 December 31,2010 December 31,2009 (in thousands) Revolving loans, variable rate (1.55% at December 31,2010 and 1.51% at December 31, 2009) $245,000 $295,000 Other 135 305 Total 245,135 295,305 Less current maturities (135) (149) Long-term debt $245,000 $295,156 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20108. INDEBTEDNESS (Continued) In addition, the credit agreement also contains various affirmative and negative covenants that among other things, limit, subject to certainexceptions, the incurrence of additional indebtedness and capital expenditures in excess of a specified amount in any fiscal year. The Company was incompliance with the credit agreement covenants at December 31, 2010. The Company also has several revolving credit agreements with various European financial institutions. These credit agreements provide creditprimarily for overdraft and working capital purposes. As of December 31, 2010, total credit available under such agreements was approximately$10,347,000. There is currently no expiration date on these agreements. The interest rates on borrowings are variable and are based on the monetarymarket rate that is linked to each country's prime rate. As of December 31, 2010, the Company had no outstanding borrowings under the Europeancredit facilities.Interest Paid During 2010, 2009 and 2008, the Company made interest payments including amounts related to the Company's interest rate swap agreementstotaling $17.0 million, $12.8 million and $16.6 million respectively.Maturities Aggregate maturities of the Company's indebtedness as of December 31, 2010 are as follows (in thousands):9. PREFERRED STOCK The Company's Certificate of Incorporation authorizes the issuance of 10,000,000 shares of preferred stock with a par value of $1.00 per share.Subject to applicable laws, the Board of Directors is authorized to provide for the issuance of preferred shares in one or more series, for suchconsideration and with designations, powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations orrestrictions thereof, as shall be determined by the Board of Directors. There was no Preferred Stock outstanding as of December 31, 2010 and 2009.10. DERIVATIVE FINANCIAL INSTRUMENTSInterest Rate Swap The Company uses derivative financial instruments to reduce its exposure to adverse fluctuations in interest rates.532011 $135 2012 — 2013 245,000 2014 — 2015 — $245,135 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201010. DERIVATIVE FINANCIAL INSTRUMENTS (Continued) On May 21, 2008, the Company entered into four interest rate swap agreements for purposes of managing its risk in interest rate fluctuations.These agreements each hedge a notional amount of $150.0 million of the Company's borrowings under the revolving credit facility. Two of theagreements were effective June 9, 2009 and expired on June 9, 2010. On these two agreements, the Company paid a fixed rate of 3.51% and received avariable rate of interest equal to three-month London Interbank Offered Rate (LIBOR), as determined on the last day of each quarterly settlement period.The other two agreements were effective on June 9, 2010 and expire on June 9, 2011. The Company pays a fixed rate of 4.10% on these twoagreements and receives a variable rate of interest equal to three-month LIBOR as determined on the last day of each quarterly settlement period. The Company has elected to apply hedge accounting to these swap agreements. During 2010, the Company recorded an expense of $1.2 millionrelated to the ineffective portion of the above noted swap agreements. Changes in the fair values of the effective portion of the interest rate swapagreements are recorded as a component of accumulated other comprehensive income (loss) in the equity section of the balance sheet. The net amountpaid or received upon quarterly settlements is recorded as an adjustment to interest expense, with a corresponding reduction in accumulated othercomprehensive income (loss). The effect of derivative instruments on the consolidated statement of income for the twelve months ended December 31, 2010, 2009 and 2008 wasas follows (in thousands): Assuming interest rates stay at current levels, in the remaining six months of the swap agreements, the Company anticipates that approximately$4.2 million will be reclassified from other comprehensive income (loss), to interest expense in connection with quarterly settlements of the above-referenced swap agreements. The fair value of the Company's derivative instruments included in current liabilities is $5.1 million (of which $0.9 million is not designated as ahedging instrument) and $9.0 million at December 31,54Derivatives inCash Flow Hedge Relationship Before—Tax LossRecognizedinOCI onDerivative(EffectivePortion) Locations ofLossReclassifiedfromAOCI intoIncome(EffectivePortion) Before—TaxLossReclassifiedfromAOCI intoIncome(EffectivePortion) Locations ofLossRecognizedinIncome onDerivative(IneffectivePortion) Before—Tax LossRecognizedinIncome onDerivative(IneffectivePortion) December 31, 2010 Interest rate swapcontracts $(2,868)InterestExpense $(10,284)OtherExpense,net $(1,177) Total $(2,868) $(10,284) $(1,177) December 31, 2009 Interest rate swapcontracts $(5,176)InterestExpense $(5,226)OtherExpense,net $— Total $(5,176) $(5,226) $— December 31, 2008 Interest rate swapcontracts $(12,839)InterestExpense $— OtherExpense,net $— Total $(12,839) $— $— Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201010. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)2010 and December 31, 2009, respectively. The fair value of the Company's derivative instruments included in non-current liabilities was $3.8 million atDecember 31, 2009. The Company will continue to review its exposure to interest rate fluctuations and evaluate whether it should manage such exposure throughderivative transactions. See note 19 of the consolidated financial statements for additional information regarding the fair value of the interest rate swaps.Foreign Currency Contracts From time to time, the Company enters into foreign currency forward exchange contracts and foreign currency option contracts to manage itsexposure 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 in the period the value ofthe contract changes. The net gain or loss upon settlement and the remaining change in fair value is recorded as a component of other (expense) income. During 2010 and 2009, the Company did not enter into any foreign currency contracts. During 2008, the Company recognized a net loss of$7.8 million related to various foreign currency option contracts initiated and settled during 2008, which was recorded in other (expense) income.11. CONTINGENT LIABILITIES AND COMMITMENTS The Company is currently involved in claims and matters of litigation, including environmental contingencies, arising in the ordinary course ofbusiness. 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'sconsolidated financial position, results of operations, or cash flows. The Company offers a warranty for all of its products. The specific terms and conditions of those warranties vary depending upon the productsold. 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 productrevenue is recognized. Factors that affect the Company's liability include historical product-failure experience and estimated repair costs for identifiedmatters for each specific product category. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amountsas necessary. Adjustments to recorded reserves for pre-existing warranties are not material for each period presented.55 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201011. CONTINGENT LIABILITIES AND COMMITMENTS (Continued) Changes in the Company's warranty reserve during the years ended December 31, 2010, 2009, and 2008 were as follows: At December 31, 2010, the Company employed a total of 3,006 people. Approximately 13.8% of the employees were represented by unions atDecember 31, 2010. The Grand Rapids, Michigan plant is the only unionized plant within the U.S. and has an agreement with the Carpenters Union,Local 1615, of the United Brotherhood of Carpenters and Joiners of America, Affiliate of the Carpenters Industrial Council (the Union), coveringapproximately 226 hourly employees. The Collective Bargaining Agreement expires August 27, 2011. Certain workers in the facilities in Italy are alsorepresented by unions.12. INCOME TAXES Income before income tax expense consists of the following:56 2010 2009 2008 (in thousands) Balance, beginning of the year $9,773 $11,528 $10,078 Provision for warranty claims 4,808 5,295 11,007 Warranty claims paid (6,478) (7,260) (9,327) Exchange rate impact (13) 210 (230) Balance, end of the year $8,090 $9,773 $11,528 2010 2009 2008 (in thousands) U.S. operations $32,123 $44,199 $101,566 Foreign operations 8,724 (404) 31,236 $40,847 $43,795 $132,802 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201012. INCOME TAXES (Continued) Income tax expense is comprised of the following: The following table sets forth the tax effects of temporary differences that give rise to the deferred tax assets and liabilities: 2010 2009 2008 (in thousands) Current: Federal $1,488 $9,151 $30,140 State 1,426 1,822 6,110 Foreign 2,834 244 8,205 Total current 5,748 11,217 44,455 Deferred: Federal $7,044 $5,593 $2,385 State 420 775 465 Foreign (389) (1,143) 585 Total deferred 7,075 5,225 3,435 Income tax expense $12,823 $16,442 $47,890 December 31,2010 December 31,2009 (in thousands) Deferred tax assets: Accounts receivable, principally due to allowance fordoubtful accounts $1,365 $1,295 Inventories 3,344 3,189 Net operating loss carryforwards 10,784 10,190 Accrued pension 17,242 17,956 Stock-based compensation 4,883 4,556 Compensation-related accruals 3,429 3,052 Warranty 2,884 3,469 Obligation for postretirement benefits other thanpension 10,270 9,682 Interest Rate Swap Agreement 1,928 4,974 Accrued liabilities and other items 4,218 5,512 Gross deferred tax assets 60,347 63,875 Valuation allowance (9,378) (8,890) Net deferred tax assets 50,969 54,985 Deferred tax liabilities: Intangibles 80,439 73,703 Plant and equipment 13,443 13,285 Gross deferred tax liabilities 93,882 86,988 Net deferred tax liabilities $(42,913)$(32,003) 57 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201012. INCOME TAXES (Continued) Income taxes paid, net of refunds received, by the Company during 2010, 2009, and 2008 totaled $539,000, $27,121,000, and $30,547,000respectively. As of December 31, 2010, the Company had net operating loss carryforwards totaling approximately $39,436,000 in various foreign taxjurisdictions which may be carried forward between five years and an unlimited time. The Company provides a valuation allowance against certain netforeign deferred tax assets (principally the net operating loss carryforwards) due to the uncertainty that they can be realized. Changes to this valuationallowance in any future period will be recorded as an income tax benefit in our statement of operations. During 2010, the Company reduced the valuation allowance by $106,000 to recognize the benefits associated with net operating loss carryforwards that the Company concluded would be realized. This entire amount was reflected as a foreign deferred income tax benefit in our statement ofoperations for the current year. The following table sets forth a reconciliation of the statutory federal income tax rate to the effective income tax rate: During the second quarter of 2010, the Company filed amended Federal Income Tax Returns in order to claim Foreign Tax Credits for the years2004 through 2007. The Company realized a $2.8 million benefit, including interest due and net of taxes, as a result of the filing. The Company has not made provisions for U.S. federal and state income taxes as of December 31, 2010 on approximately $91.0 million of foreignearnings that are expected to be reinvested indefinitely. Upon distribution of those earnings in the form of dividends or otherwise, the Company wouldbe subject to U.S. federal and state income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreigncountries. The Company is currently unable to determine the amount of unrecognized deferred tax liability. As of December 31, 2010, the Company had unrecognized tax benefits of approximately $2.0 million. The entire amount of the unrecognized taxbenefits would reduce the effective tax rate if recognized.58 2010 2009 2008 Federal statutory tax rate 35.0% 35.0% 35.0%Increase (decrease) in the tax rate resulting from: State taxes, net of federal effect 2.1 3.8 3.2 Effect of tax rates of other countries (.7) (1.6) (1.5)Foreign Tax Credit-Amended Returns (6.9) — — Section 199 deduction (.4) (0.7) (1.0)Other 2.3 1.2 0.4 Effective tax rate 31.4% 37.7% 36.1% Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201012. INCOME TAXES (Continued) The following table summarizes the activity related to our unrecognized tax benefits during 2010 and 2009: During the years ended December 31, 2010 and 2009, the Company recognized approximately $0.1 million of interest and penalties, net ofdeferred taxes. The Company has accrued approximately $0.6 million for the payment of interest and penalties at December 31, 2010. These accrualswere included in noncurrent tax liabilities within the consolidated balance sheet at December 31, 2010. As of December 31, 2010, the Company is subject to U.S. Federal Income Tax examination for the tax years 2007 through 2010, and to non-U.S.income tax examination for the tax years 2002 to 2010. In addition, the Company is subject to state and local income tax examinations for the tax years2005 through 2010. There are no tax positions included in unrecognized tax benefits at December 31, 2010 for which it is reasonably possible that the total amountscould significantly change during the next twelve months.13. LEASES The Company has commitments under operating leases for certain machinery and equipment as well as manufacturing, warehousing, showroomand other facilities used in its operations. Some of the leases contain renewal provisions and generally require the Company to pay certain operatingexpenses, including utilities, insurance and taxes, which are subject to escalation. At times the Company enters into lease agreements which contain aprovision for cash abatements related to certain leasehold improvements. These abatements are recognized on a straight-line basis as a reduction to rentexpense over the lease term. The unamortized portions as of December 31, 2010 and 2009 were $4,743,000 and $5,555,000, respectively. Total rentalexpense for 2010, 2009, and 2008 was $15,779,000, $15,146,000 and59 2010 2009 (in thousands) (in thousands) Balance, beginning of the year $1,821 $1,673 Additions for tax positions related to the current year 112 106 Additions for tax positions related to the prior year 69 79 Decreases for tax positions related to the prior year (46) Prior year reductions Settlements with taxing authorities (47) (17) Lapse of statute of limitations (119) (120) Change in exchange rate 163 100 Balance, end of the year $1,953 $1,821 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201013. LEASES (Continued)$15,303,000, respectively. Future minimum rental payments required under those operating leases are as follows (in thousands):14. PENSION AND OTHER POSTRETIREMENT BENEFITS The Company has two domestic defined benefit pension plans and two plans providing for other postretirement benefits, including medical and lifeinsurance coverage. One of the pension plans and one of the other postretirement benefits plans cover eligible U.S. nonunion employees while the otherpension plan and other postretirement benefits plan cover eligible U.S. union employees. According to applicable accounting guidance, the Companyuses a December 31 measurement date for both of these plans. The year-end status of these plans was as follows (in thousands):602011 $13,001 2012 10,079 2013 7,643 2014 6,168 2015 5,561 Subsequent years 20,426 Total minimum rental payments $62,878 Pension Benefits Other Benefits 2010 2009 2010 2009 Change in projected benefit obligation: Projected benefit obligation at January 1 $178,857 $151,144 $25,087 $25,275 Service cost 10,401 10,053 452 429 Interest cost 10,811 9,981 1,481 1,477 Participant contributions 280 170 565 — Actuarial loss (gain) 130 10,759 1,450 (162)Benefits paid (3,272) (2,451) (1,879) (954)Liability gain due to Curtailment (387) (799) (373) (978) Projected benefit obligation at December 31 $196,820 $178,857 $26,783 $25,087 Accumulated benefit obligation, December 31 $184,933 $161,940 $— $— Change in plan assets: Fair value of plan assets at January 1 $128,331 $95,601 $— $— Actual return on plan assets 16,676 21,641 — — Employer contributions 10,000 13,371 1,314 956 Participant contributions 280 170 565 — Benefits paid (3,272) (2,451) (1,879) (954) Fair value of plan assets at December 31 $152,015 $128,332 $— $— Funded status $(44,805)$(50,525)$(26,783)$(25,087) Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201014. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued) Weighted-average assumptions used (as of the end of the fiscal year) in computing the benefit obligation as of December 31, 2010 and 2009 wereas follows: The following table presents Knoll Inc's pension plan investments measured at fair value as of December 31, 2010 and 2009 (in thousands). See Note 20 of the consolidated financial statements for the description of the levels of the fair value hierarchy.61 PensionBenefits OtherBenefits 2010 2009 2010 2009 Discount rate 5.75% 6.10% 4.65% 6.10%Expected return on plan assets 8.20 8.15 N/A N/A Rate of compensation increase 2.50 4.00 2.50 4.00 Level 1 Level 2 Level 3 Total Equity Securities U.S. equity securities $83,050 — — $83,050 Non-U.S. equity securities 14,561 — — 14,561 Debt Securities Fixed income funds and cash investment funds 54,404 — — 54,404 December 31, 2010 $152,015 — — $152,015 Level 1 Level 2 Level 3 Total Equity Securities U.S. equity securities $65,886 — — $65,886 Non-U.S. equity securities 12,862 — — 12,862 Debt Securities Fixed income funds and cash investment funds 49,584 — — 49,584 December 31, 2009 $128,332 — — $128,332 Pension Benefits Other Benefits 2010 2009 2010 2009 (in thousands) (in thousands) Amounts recognized in the consolidated balance sheet consist of: Current Liabilities $(10,675)$(10,000)$(1,494)$(1,652)Noncurrent liabilities (34,130) (40,525) (25,289) (23,435) Net amount recognized $(44,805)$(50,525)$(26,783)$(25,087) Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201014. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued) The estimated net actuarial loss, and prior service cost, for the defined benefit pension plans included in accumulated other comprehensive incomeand expected to be recognized in net periodic pension cost during the fiscal year ended December 31, 2011 is $1,128,000 and $37,000 respectively. The following table sets forth the components of the net periodic benefit cost for the Company's pension and other postretirement benefits plans (inthousands): Weighted-average assumptions used (as of the beginning of the fiscal year) to determine net periodic benefit cost for the years ended December 31,2010, 2009 and 2008 were as follows: The expected long-term rate of return on assets is based on management's expectations of long-term average rates of return to be earned on theinvestment portfolio. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plan assetsare invested. For purposes of measuring the benefit obligation as of and for the year ended December 31, 2010, associated with the Company's otherpostretirement benefit plans, an 8.00% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2011. The rate wasthen assumed to62 Pension Benefits Other Benefits 2010 2009 2010 2009 (in thousands) (in thousands) Amounts recognized in accumulated other comprehensive income: before taxes: Net actuarial loss $34,363 $40,684 $8,360 $7,463 Prior service cost (benefit) 140 201 (6,843) (8,013) Net amount recognized $34,503 $40,885 $1,517 $(550) Pension Benefits Other Benefits 2010 2009 2008 2010 2009 2008 Service cost $10,401 $10,053 $9,633 $452 $429 $410 Interest cost 10,811 9,981 8,429 1,481 1,477 1,468 Expected return on planassets (11,671) (10,644) (8,835) — — — Amortization of priorservice cost 61 74 77 (1,205) (1,295) (1,343)Recognized actuarial loss 1,058 351 12 553 542 681 Curtailment Expense — 27 — $(338) (1,090) — Net periodic benefit cost $10,660 $9,842 $9,316 $943 $63 $1,216 Pension Benefits Other Benefits 2010 2009 2008 2010 2009 2008 Discount Rate 6.10% 6.50% 6.00% 6.10% 6.50% 6.00%Expected return on plan assets 8.15 8.25 8.25 N/A N/A N/A Rate of compensation increase 4.00 4.00 4.00 4.00 4.00 4.00 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201014. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued)decrease to an ultimate rate of 5% for 2017 and thereafter. For purposes of measuring the net periodic benefit cost as of and for the year endedDecember 31, 2010 associated with the Company's other postretirement benefits plans, a 8.00% annual rate of increase in the per capita cost of coveredhealth care benefits was assumed for 2011. Increasing the assumed health care cost trend rate by 1.0% would increase the benefit obligation as ofDecember 31, 2010 by $593,000 and increase the aggregate of the service and interest cost components of net periodic benefit cost for 2010 by$50,000. Decreasing the assumed health care cost trend rate by 1.0% would decrease the benefit obligation as of December 31, 2010 by $632,000 anddecrease the aggregate of the service and interest cost components of net periodic benefit cost for 2010 by $53,000. The Company's pension plans' weighted-average asset allocations as of December 31, 2010 and 2009, by asset category were as follows: The Company's pension plans' investment policy includes an asset mix based on the Company's risk posture. The investment policy states a targetallocation of 60% equity funds and 40% fixed income funds. Inclusion of the fixed income funds is to provide growth through income and these fundsshould primarily invest in fixed income instruments of the U.S. Treasury and government agencies and investment-grade corporate bonds. The equityfund investments can consist of a broadly diversified domestic equity fund, an actively managed domestic equity fund and an actively managedinternational equity fund. The purpose of these funds is to provide the opportunity for capital appreciation, income, and the ability to diversifyinvestments outside the U.S. equity market. Mutual funds are used as the plans' investment vehicle since they have clearly stated investment objectivesand guidelines, offer a high degree of investment flexibility, offer competitive long-term results, and are cost effective for small asset balances.63 Plan AssetsatDecember 31 Asset Category 2010 2009 Temporary Investment Funds 2% 5%Equity Investment Funds 64 61 Fixed Income Funds 34 34 Total 100% 100% Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201014. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued) The Company expects to contribute $10,675,000 to its pension plans and $1,494,000 to its other postretirement benefit plans in 2011. Estimatedfuture benefit payments under our pension and other postretirement plans are as follows: Employees of the Canadian, Belgium and United Kingdom operations participate in defined contribution pension plans sponsored by theCompany. The Company's expense related to these plans for 2010, 2009, and 2008 was $1,142,000, $1,041,000, and $1,501,000 respectively. The Company also sponsors a 401(k) retirement savings plan for all U.S. employees. Under this plan, participants may defer a portion of theirearnings up to the annual contribution limits established by the Internal Revenue Service. The plan allows for the Company to make a discretionarypayment up to 40.0% of participant contributions up to the first 6.0% of compensation for nonunion employees and matches 50.0% of participantcontributions up to the first 6.0% of compensation for union employees. Effective January 1, 2010 the Company suspended the fixed matchedcontribution noted above for both union and nonunion employees. For participants who are nonunion employees, the plan provides for discretionaryemployer matching based on the Company's profits, as determined by our board of directors. The plan also provides that the Company may makediscretionary contributions of common stock to participant accounts on behalf of all actively employed U.S. participants. Company contributionsgenerally vest ratably over a five-year period. A Knoll common stock fund consisting of 1,000,000 shares of common stock into which participants mayinvest the compensation they elect to defer was established on December 14, 2004. Participant contributions into the Knoll common stock fund aregenerally limited to no more than 10% of their total account balance in the plan. Participant contributions in the Knoll common stock fund may betransferred into other investment alternatives or distributed in the form of shares of Knoll common stock if so invested at the time of distribution. In 2010, the Company did not match any 401(k) contributions. The Company's total expense under the 401(k) plan was $3,257,000, and$3,374,000 for 2009 and 2008, respectively.64 Pension Benefits Other Benefits (in thousands) 2011 $4,262 $1,494 2012 5,062 1,580 2013 5,986 1,722 2014 6,968 2,007 2015 8,091 2,257 2016 - 2020 61,607 11,931 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201015. STOCK PLANSStock Incentive Plans As of December 31, 2010, the Company sponsored two stock incentive plans under which awards denominated or payable in shares or options topurchase shares of Knoll common stock may be granted to officers, certain other employees, directors and consultants of the Company. In May 2007,the Company approved the 2007 Stock Incentive Plan which authorized the issuance of 2,000,000 shares of common stock. As of December 31, 2010,746,499 shares remained available for issuance under this plan. In May of 2010, the Company approved the 2010 Stock Incentive Plan whichauthorized the issuance 2,000,000 shares of common stock. As of December 31, 2010, 2,000,000 shares remained available for issuance under thisplan. A Stock Option Committee currently consisting of the Compensation Committee of the Company's Board of Directors ("Stock OptionCommittee") has sole discretion concerning administration of the plans, including selection of individuals to receive awards, types of awards, the termsand conditions of the awards and the time at which awards will be granted. Options that are granted have a maximum contractual life of seven to tenyears. Grants of stock options to employees generally become partially vested one year from the date of the award agreement. The options granted vest25% each year over a four year period. In addition, the options have accelerated vesting provisions upon a change of control of the Company. TheCompany is recognizing compensation expense using the graded vesting attribution method which treats each option grant as multiple grants each withits own requisite service period. In 2004 and 2005, under the Amended and Restated 1999 Stock Incentive Plan, the Company granted performance-based restricted stock awardsto certain key employees aggregating 1,650,000 shares of common stock. These awards provide for the delivery of shares of common stock to awardrecipients upon the satisfaction of certain vesting requirements. The restricted stock awards will vest as to one-sixth of the shares underlying each awardto the extent that the average Knoll operating profit for any two-year period is equal to $100.0 million. An additional one-sixth will vest based onadditional increments to operating profit of $15.0 million over such a period, with full vesting upon the achievement of $175.0 million in averageoperating profit over such a period. The 2004 awards cliff vested on December 14, 2010. The Company determined the fair value of the shares on thedate of grant and is recognizing compensation expense ratably over the vesting period. In 2007, under the 2007 Stock Incentive Plan and the Amended and Restated 1999 Stock Incentive Plan, the Company granted restricted stockawards to certain key employees aggregating 514,654 shares of common stock. These awards provide for the delivery of shares of common stock toaward recipients upon the satisfaction of certain vesting requirements. 154,654 of these shares granted in 2007 vest one-third over three years, withoutregard to operating profit targets. 360,000 of these shares will vest as to one-fifth of the shares underlying each award to the extent that Knoll operatingprofit for a calendar year is equal to $141.0 million. An additional one-fifth will vest based on additional increments to operating profit of $15.0 millionwith full vesting upon the achievement of $201.0 million in operating profit. In any event, the awards will fully vest on the fifth anniversary of the dateof the grant. The Company determined the fair value of the shares on the date of grant and is recognizing compensation expense ratably over the vestingperiod. In certain conditions vesting may be accelerated as defined in the restricted share agreements.65 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201015. STOCK PLANS (Continued) In 2008, under the 2007 Stock Incentive Plan and the Amended and Restated 1999 Stock Incentive Plan, the Company granted restricted stockawards to certain key employees aggregating 992,117 shares of common stock. These awards provide for the delivery of shares of common stock toaward recipients upon the satisfaction of certain vesting requirements. 900,000 of these shares will vest as to one-fifth of the shares underlying eachaward on each grant date anniversary, without regard to operating profit targets. 26,117 of these shares granted in 2008 vest one-third over each of thenext three years, without regard to operating profit targets. 66,000 of these shares will vest as to one-fifth of the restricted shares underlying each awardto the extent that Knoll operating profit for the period is equal to $156.0 million. An additional one-fifth will vest based on additional increments tooperating profit of $15.0 million with full vesting upon the achievement of $216.0 million in operating profit. In any event, the awards will fully vest onthe fifth anniversary of the date of the grant. The Company determined the fair value of the shares on the date of grant and is recognizing compensationexpense ratably over the vesting period. In certain conditions vesting may be accelerated as defined in the restricted share agreements. In 2009, under the 2007 Stock Incentive Plan, the Company granted restricted stock awards to the Company's Board of Directors aggregating40,818 shares of common stock. These shares vest one-third over each of the next three years, without regard to operating profit targets. The Companydetermined the fair value of the shares on the date of grant and is recognizing compensation expense ratably over the vesting period. In 2010, under the 2007 Stock Incentive Plan, the Company granted restricted stock awards to the Company's Board of Directors aggregating25,446 shares of common stock. These shares vest one-third over each of the next three years, without regard to operating profit targets. The Companydetermined the fair value of the shares on the date of grant and is recognizing compensation expense ratably over the vesting period. In addition, theCompany granted 25,000 restricted stock awards to a certain key employee. These shares vest on the third anniversary of the grant date. In certaincondition vesting may be accelerated as defined in the restricted share agreement. The Company determined the fair value of the shares on the date ofgrant and is recognizing compensation expense ratably over the vesting period. The following table summarizes the Company's restricted stock activity during the year:66 2010 Number ofRestrictedShares Granted WeightedAverageFair Value Outstanding at December 31, 2009 1,389,998 $14.87 Granted 50,446 12.44 Forfeited (12,000) 23.47 Vested (549,924) 14.34 Outstanding at December 31, 2010 878,520 $14.94 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201015. STOCK PLANS (Continued) The following table summarizes the Company's stock option activity during the year: The following table summarizes information regarding stock options outstanding and exercisable at December 31, 2010: There were no options granted during 2010. The weighted-average grant-date fair value of options granted during the years 2009 and 2008 was$4.32 and $3.74 respectively. 790,596 options were exercised during 2010. The total intrinsic value of options exercised during 2010 was $0.9 million.There were no options exercised during 2009. During 2008 the total intrinsic value of options exercised was $0.5 million. The total fair value of optionsvested during the years 2010, 2009, and 2008 was $1.5 million, $1.1 million, and $0.9 million, respectively.67 Number ofOptions WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm AggregateIntrinsicValue (in thousands) Outstanding at December 31,2009 3,407,761 $13.75 $— Exercised (790,596) 12.20 905,051 Forfeited (112,064) 14.20 35,192 Outstanding at December 31,2010 2,505,101 $14.22 4.47 $7,742,565 Exercisable at December 31,2010 1,683,101 $15.67 3.72 $2,961,443 Options Outstanding Options Exercisable Range of Exercise Prices Numberof Options WeightedAverageRemainingContractualLife WeightedAverageExercisePrice Numberof Options WeightedAverageExercisePrice $10.24 - $15.00 1,643,885 5.13 years $12.13 865,635 $13.52 $15.01 - $18.77 661,216 2.31 16.86 661,216 16.86 $18.78 - $23.47 200,000 6.18 22.62 156,250 22.52 $10.24 - $23.47 2,505,101 4.47 $14.22 1,683,101 $15.67 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201015. STOCK PLANS (Continued) A summary of the status of the Company's non-vested options as of December 31, 2010, and changes during the year ended December 31, 2010,is presented below. Compensation costs related to stock-based compensation for the years ended December 31, 2010, 2009, and 2008 totaled $9.2 million pre-tax($5.6 million after-tax), or $0.12 per diluted share, $8.2 million pre-tax ($5.0 million after-tax), or $0.11 per diluted share, and $7.2 million pretax($4.4 million after-tax), or $0.09 per diluted share, respectively, and are included in the consolidated statements of income under selling, general, andadministrative expenses. At December 31, 2010 and December 31, 2009, the total compensation cost related to nonvested awards not yet recognized equaled $10.9 millionand $19.8 million, respectively, including $1.6 million and $3.7 million for stock options, respectively, and $9.3 million and $16.1 million for restrictedstock respectively. The weighted average remaining period over which the cost is to be recognized is 1.7 years.Other Stock-Based Compensation Plans The Company maintains an Employee Stock Purchase Plan (ESPP) whereby employees of the Company may purchase shares of Knoll commonstock at a discounted rate. The discount rate is 5% off the average of the high and low sale price per share on the last trading day of the purchase period.Employees may contribute 1-10% of their eligible gross pay up to a $25,000 annual stock value limit. In 2010, 2009, and 2008 employees purchased3,251, 6,716, and 5,841 shares, respectively in accordance with the terms of the ESPP.16. SEGMENT AND GEOGRAPHIC REGION INFORMATION In accordance with the appropriate accounting guidance for disclosures about segments of an enterprise and related information, managementevaluates the Company as one reporting segment in the office furniture industry. The Company is engaged worldwide in the design, manufacture andsale of office furniture products and accessories through its wholly owned subsidiaries. Throughout the world, the product offerings, the productionprocesses, the methods of distribution, and the customers serviced are similar. The Company's product offerings consist primarily of office furnituresystems, seating, files and storage, and other specialty products. These product offerings are marketed, distributed, and managed primarily as a group ofsimilar products on an overall portfolio basis.68 Number ofOptions WeightedAverageGrant-DateFair Value Nonvested at January 1, 2010 1,162,250 $4.51 Granted — — Vested (315,250) 4.70 Forfeited (25,000) 4.18 Nonvested at December 31, 2010 822,000 $4.43 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201016. SEGMENT AND GEOGRAPHIC REGION INFORMATION (Continued) The Company's net sales by product category were as follows: The Company markets its products in the United States and internationally, with its principal international markets being Canada and Europe. Thetable below contains information about the geographical areas in which the Company operates. Sales to clients are attributed to the geographic areasbased on the origin of sale. A number of U.S., state and local governmental agencies purchase the Company's products. Sales to these entities and agencies amounted toapproximately $189.5 million in 2010, $191.8 million in 2009, and $131.0 million in 2008.69 Year Ended December 31, 2010 2009 2008 (in thousands) Office Systems $353,536 $377,601 $543,853 Specialty Products 185,722 186,060 254,525 Seating 112,305 86,966 109,222 Files and Storage 72,475 62,153 86,138 European Sales 80,425 60,345 110,576 Other 5,004 6,908 15,833 $809,467 $780,033 $1,120,147 UnitedStates Canada Europe Consolidated (in thousands) 2010 Sales to clients $688,914 $34,267 $86,286 $809,467 Property, plant and equipment, net 75,228 31,435 15,556 122,219 2009 Sales to clients $688,664 $26,831 $64,538 $780,033 Property, plant and equipment, net 83,291 33,112 18,642 135,045 2008 Sales to clients $964,875 $40,229 $115,043 $1,120,147 Property, plant and equipment, net 85,680 31,225 15,263 132,168 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201017. OTHER (EXPENSE) INCOME, NET The components of other (expense) income, net are as follows:18. RESTRUCTURING CHARGES On April 3, 2008 the Company initiated a restructuring plan in order to reduce costs. Similar plans were announced December 4, 2008, andFebruary 3, 2009. The restructuring plans consisted primarily of employee termination costs, costs associated with exiting leased showrooms, and costsassociated with the discontinuation of certain product lines. On March 18, 2010, the Company announced an additional restructuring plan to better alignits manufacturing footprint with demand while further focusing the particular manufacturing activities of each of its North American productionfacilities. The Company has elected to undergo this restructuring in order to better utilize its manufacturing capacity, eliminate duplication of capabilitiesand reduce associated costs. The Company based its accounting and disclosures on the applicable accounting guidance. As a result, charges tooperations were made in the periods in which restructuring plan liabilities were incurred. In connection with the above plans, the Company incurred approximately $7.6 million of restructuring charges during 2010. These restructuringcharges included $3.7 million of employee termination costs, $3.0 million of costs associated with the write-off of fixed assets that had no futurebenefit, and $0.9 million of costs associated with facility realignment. The Company incurred approximately $12.0 million of restructuring chargesduring 2009. These restructuring charges included $10.6 million of employee termination costs, $0.6 million of costs associated with exiting threeleased showrooms, and $0.8 million of costs associated with the discontinuation of certain product lines. The Company incurred approximately$4.6 million of restructuring charges during 2008. These restructuring charges included $3.3 million of employee termination costs and $1.3 million ofcosts associated with the discontinuation of certain product lines. The Company estimates that the remaining charges related to the plans mentionedabove will not be significant. Below is the summary of the changes in the restructuring liability during 2010, 2009, and 2008:70 December 31 2010 2009 2008 (in thousands) Foreign exchange transaction (loss) gain $(5,525)$(6,598)$2,944 Unrealized loss on derivatives (1,177) — — Other 323 766 735 Other (expense) income, net $(6,379)$(5,832)$3,679 2010 2009 2008 Reserve balance as of January 1 $1,774 $1,445 $— Additions 4,603 11,186 3,284 Payments (4,674) (10,857) (1,630) Adjustments (74) — (209) Ending Reserve balance as of December 31 $1,629 $1,774 $1,445 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201018. RESTRUCTURING CHARGES (Continued) Costs associated with the write-off of fixed assets and the discontinuation of certain product lines were recorded as a direct reduction of the assetwhich had no further net realizable value.19. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable toestimate:Cash and Cash Equivalents The fair value of the Company's cash and cash equivalents approximates the carrying value of the Company's cash and cash equivalents, due to theshort maturity of the cash equivalents.Long-term Debt The fair value of the Company's $245.0 million revolving credit facility approximates its carrying value, as it is variable-rate debt.Interest Rate Swap Contracts The fair value of the Company's interest rate swap contracts is measured as the present value of all expected future cash flows based on theLIBOR-based swap yield curve as of the date of the valuation, subject to a credit adjustment to the LIBOR-based yield curve's implied discount rates.The fair value of the Company's interest rate swap agreements approximates its carrying values.20. FAIR VALUE MEASUREMENTS Accounting Standards Codification 820, "Fair Value Measurements and Disclosures," establishes a hierarchy that prioritizes fair valuemeasurements based on types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels ofthe hierarchy are described below:•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities •Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quotedprices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are notactive •Level 3: Unobservable inputs that reflect the reporting entity's own assumptions The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuationof assets and liabilities and their placement within the71 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201020. FAIR VALUE MEASUREMENTS (Continued)fair value hierarchy. The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the consolidatedbalance sheet at December 31, 2010 (in thousands): The interest rate swaps are included in current liabilities within the consolidated balance sheet at December 31, 2010. The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the consolidated balance sheetat December 31, 2009 (in thousands): The interest rate swaps are included in current and non-current liabilities within the consolidated balance sheet at December 31, 2009.72 Quoted Prices inActive Markets forIdentical Assets orLiabilities (Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservable Inputs(Level 3) Total Liabilities: Interest rate swaps $— $5,138 $— $5,138 Total $— $5,138 $— $5,138 Quoted Prices inActive Markets forIdentical Assets orLiabilities (Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservable Inputs(Level 3) Total Liabilities: Interest rate swaps $— $12,789 $— $12,789 Total $— $12,789 $— $12,789 Table of ContentsKNOLL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201021. QUARTERLY RESULTS (UNAUDITED) The following tables contain selected unaudited Consolidated Statements of Operations data for each quarter for the years ended December 31,2010 and 2009. The operating results for any quarter are not necessarily indicative of results for any future period.22. SUBSEQUENT EVENT On February 3, 2011, our board of directors declared a cash dividend of $0.06 per share on our common stock payable on March 31, 2011 toshareholders of record on March 15, 2011. On February 9, 2011, under the Company's 2007 Stock Incentive Plan and the Company's 2010 Stock Incentive Plan, the Company granted748,000 restricted stock awards. These awards cliff vest on the third anniversary of the grant date and have accelerated vesting provisions based uponattaining certain operating profit targets.73 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter FiscalYear (in thousands, except per share data) 2010 Sales $175,259 $192,275 $202,149 $239,784 $809,467 Gross profit 56,661 63,040 67,452 77,196 264,349 Net income 2,215 8,676 6,340 10,793 28,024 Earnings per share—basic $.05 $.19 $.14 $.24 $.61 Earnings per share—diluted $.05 $.19 $.14 $.23 $.61 2009 Sales $212,609 $202,197 $181,282 $183,945 $780,033 Gross profit 74,767 70,729 61,273 62,674 269,443 Net income 9,525 8,074 5,726 4,028 27,353 Earnings per share—basic $.21 $.18 $.13 $.09 $.60 Earnings per share—diluted $.21 $.18 $.13 $.09 $.60 Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES NoneITEM 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. We, under the supervision and with the participation of our management, including ourprincipal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls andprocedures, 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 (December 31, 2010)("Disclosure Controls"). Based upon the Disclosure Controls evaluation, our principal executive officer and principal financial officer have concludedthat the Disclosure Controls are effective in reaching a reasonable level of assurance that (i) information required to be disclosed by us in the reports thatwe file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in theSecurities 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 theSecurities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financialofficers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.INTERNAL CONTROL OVER FINANCIAL REPORTING Management's annual report on internal control over financial reporting. Our management is responsible for establishing and maintainingadequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, for theCompany. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting andthe preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States ofAmerica. Internal control over financial reporting includes without limitation, maintaining records that in reasonable detail accurately and fairly reflectour transactions, providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements, providingreasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization, and providingreasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statementswould be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provideabsolute assurance that a misstatement of our financial statements would be prevented or detected. Our management assessed the effectiveness of our internal control over financial reporting based on the framework in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludedthat the Company's internal control over financial reporting was effective as of December 31, 2010. Our independent registered public accounting firm,Ernst & Young LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, 2010; their report is includedelsewhere in this Form 10-K filing. Changes in internal control over financial reporting. There has been no change in our internal control over financial reporting during the periodcovered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.74 Table of ContentsReport of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Knoll, Inc. We have audited Knoll Inc.'s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Knoll Inc.'smanagement is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management's annual report on internal control over financial reporting. Ourresponsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that amaterial weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have amaterial effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate. In our opinion, Knoll, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based onthe COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedbalance sheets of Knoll, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cashflows for each of the three years in the period ended December 31, 2010 of Knoll, Inc. and our report dated March 1, 2011 expressed an unqualifiedopinion thereon./s/ Ernst & Young LLPPhiladelphia, PennsylvaniaMarch 1, 201175 Table of ContentsITEM 9B. OTHER INFORMATION None.PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 relating to directors, director nominees and executive officers of the registrant is incorporated by referencefrom the information under the captions "Board of Directors," "Election of Directors," "Executive Officers," "Board Meetings and Committees," "Codeof Ethics," and "Section 16(a) Beneficial Ownership Reporting Compliance" contained in our Proxy Statement for our 2011 Annual Meeting ofStockholders (the "Proxy Statement"). The information relating to the identification of the audit committee, audit committee financial expert and director nomination procedures of theregistrant is incorporated by reference from the information under the caption "Board Meetings and Committees" contained in our Proxy Statement. Our Board of Directors has adopted a code of ethics for all employees. This code is made available free of charge on our website atwww.knoll.com. For further information see subsection "Code of Ethics" in our Proxy Statement.ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is hereby incorporated by reference from the information under the caption "Executive Compensation"contained in our Proxy Statement.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS Securities Authorized for Issuance Under Equity Compensation Plans If there is an expiration, termination, or cancellation of any benefit granted under the plans without the issuance of shares, the shares subject to orreserved for that benefit may again be used for new stock options, rights, or awards of any type authorized under the plans. All other information required by Item 12 is hereby incorporated by reference from the information under the caption "Security Ownership ofCertain Beneficial Owners and Management" contained in our Proxy Statement.76 Equity Compensation Plan InformationAs of December 31, 2010 Plan Category Number of Securitiesto be Issued uponExercise ofOutstanding Options(a) Weighted-AverageExercise Price ofOutstanding Options(b) Number of Shares Remaining forFuture Issuance Under EquityCompensation Plans (ExcludingSecurities Reflected in Column (a))(c) Equitycompensationplansapproved bysecurityholders 2,505,101 $14.22 2,746,499 Equitycompensationplans notapproved bysecurityholders — — — Total 2,505,101 2,746,499 Table of ContentsITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 is hereby incorporated by reference from the information under the captions "Transactions with RelatedPersons" and "Director Independence" contained in our Proxy Statement.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 is hereby incorporated by reference from the information under the caption "Independent Registered PublicAccounting Firm" contained in our Proxy Statement.77 Table of ContentsPART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)Documents filed as part of this Form 10-K: (1)CONSOLIDATED FINANCIAL STATEMENTS (ITEM 8) •Consolidated Balance Sheets as of December 31, 2010 and 2009 •Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009, and 2008. •Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2010, 2009, and 2008. •Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009, and 2008. •Notes to the Consolidated Financial Statements. •Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements and Schedule. (2)FINANCIAL STATEMENT SCHEDULES •Financial Statement Schedule II—Valuation and Qualifying Accounts is filed with this Form 10-K on page S-1 of this Form 10-K. Allother schedules for which provision is made in the applicable regulation of the Commission have either been presented in the Company'sfinancial statements or are not required under the related instructions or are inapplicable and therefore have been omitted. (3)EXHIBITSExhibitNumber Description 3.1(a)Amended and Restated Certificate of Incorporation of Knoll, Inc. 3.2(r)Amended and Restated By-Laws of Knoll, Inc. 4.1(a)Form of Stock Certificate. 10.1(b)Amended and Restated Credit Agreement, dated as of June 29, 2007, by and among Knoll, Inc., thedomestic subsidiaries of Knoll, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender,and L/C Issuer, Banc of America Securities LLC, as sole Lead Arranger and sole Book Manager, HSBCBank USA, National Association, as Syndication Agent, Citizens Bank, as Documentation Agent, and theother lenders party thereto. 10.2(g)*Amended and Restated Employment Agreement, executed March 14, 2006, effective as of January 1, 2006,between Knoll, Inc. and Burton B. Staniar. 10.3(t)Amendment to Amended and Restated Employment Agreement, dated as of May 4, 2009, betweenKnoll, Inc. and Burton B. Staniar. 10.4(d)*Employment Agreement, dated as of March 23, 2001, between Knoll, Inc. and Andrew B. Cogan. (a)* 78 10.5(a)*Amendment No. 1 to Employment Agreement, dated as of August 25, 2004, between Knoll, Inc. andAndrew B. Cogan. Table of ContentsExhibitNumber Description 10.6(g)*Amendment No. 2 to Employment Agreement, dated as of March 14, 2006, between Knoll, Inc. andAndrew B. Cogan. 10.7(i)*Amendment No. 3 to Employment Agreement, dated as of December 11, 2006, between Knoll, Inc. andAndrew B. Cogan. 10.8(l)*Amendment No. 4 to Employment Agreement, dated as of December 10, 2007, between Knoll, Inc. andAndrew B. Cogan. 10.9(q)*Employment Agreement, dated as of March 3, 2008, between Knoll, Inc. and Lynn M. Utter. 10.10*Summary of Barry L. McCabe 2011 Compensation. 10.11(a)*Offer Letter, dated July 30, 1999, from Knoll, Inc. to Arthur C. Graves. 10.12*Summary of Arthur C. Graves 2011 Compensation. 10.13*Summary of Benjamin A. Pardo 2011 Compensation. 10.14(c)*Amended and Restated Knoll, Inc. 1996 Stock Incentive Plan. 10.15(c)*Amended and Restated Knoll, Inc. 1997 Stock Incentive Plan. 10.16(a)*Amended and Restated Knoll, Inc. 1999 Stock Incentive Plan. 10.17(m)*Amended and Restated Knoll, Inc. 2007 Stock Incentive Plan. 10.18(v)*Amended and Restated Knoll, Inc. 2010 Stock Incentive Plan. 10.19(n)*Knoll, Inc. Non-Employee Director Compensation Plan. 10.20(e)*Form of Non-Qualified Stock Option Agreement under the Amended and Restated Knoll, Inc. 1996 StockIncentive Plan, entered into by Knoll, Inc. and certain executive officers. 10.21(e)*Form of Non-Qualified Stock Option Agreement under the Amended and Restated Knoll, Inc. 1997 StockIncentive Plan, entered into by Knoll, Inc. and certain executive officers. 10.22(c)*Form of Non-Qualified Stock Option Agreement under the Amended and Restated Knoll, Inc. 1999 StockIncentive Plan, entered into by Knoll, Inc. and certain executive officers. 10.23(p)*Form of Non-Qualified Stock Option Agreement under the 2007 Stock Incentive Plan, entered into byKnoll, Inc. and certain executive officers. 10.24(a)*Form of Restricted Share Agreement under the Amended and Restated Knoll, Inc. 1999 Stock IncentivePlan (time vesting with accelerated performance vesting). 10.25(g)*Form of Amendment to Restricted Share Agreement under the Amended and Restated Knoll, Inc. 1999Stock Incentive Plan (time vesting with accelerated performance vesting). 10.26(p)*Form of Restricted Share Agreement under the 1999 Stock Incentive Plan (time vesting). 79 10.27(p)*Form of Restricted Share Agreement under the 2007 Stock Incentive Plan (time vesting with acceleratedperformance vesting). 10.28(p)*Form of Restricted Share Agreement under the 2007 Stock Incentive Plan (time vesting). Table of ContentsExhibitNumber Description 10.29(p)*Form of Restricted Share Agreement under the Non-Employee Director Compensation Plan (time vesting). 10.30*Form of Restricted Share Agreement under the 2010 Stock Incentive Plan (time vesting). 10.31*Form of Restricted Share Agreement under the 2010 Stock Incentive Plan (time vesting with acceleratedperformance vesting). 10.32*Form of Non-Qualified Stock Option Agreement under the 2010 Stock Incentive Plan. 10.33(o)Asset Purchase Agreement, dated September 13, 2007, among El Leather Acquisition LLC, Teddy &Arthur Edelman, Limited, John Edelman, The Edelman Family Grantor Retained Annuity Trust and JohnMcPhee. 10.34(k)Agreement between Knoll, Inc. Grand Rapids and United Brotherhood of Carpenters and Joiners ofAmerica Carpenters Industrial Council Local 1615, dated August 27, 2006. 10.35(u)Letter of Agreement, dated October 8, 2009, between Knoll, Inc. Grand Rapids and United Brotherhood ofCarpenters and Joiners of America Carpenters Industrial Council Local 1615. 10.36(a)*Form of Director and Officer Indemnification Agreement. 10.37(a)*Offer Letter, dated October 6, 2004, from Knoll, Inc. to John F. Maypole. 10.38(a)*Form of Knoll Employee Stock Purchase Plan. 10.39(f)*Offer Letter, dated November 23, 2005, from Knoll, Inc. to Stephen F. Fisher. 10.40(g)*Summary of Informal Healthcare Severance Policy. 10.41(h)Stock Purchase Agreement, dated August 1, 2006, between Knoll, Inc. and Warburg Pincus Ventures, L.P. 10.42(j)*Offer Letter, dated September 25, 2006, from Knoll, Inc. to Sarah E. Nash. 10.43(s)*Andrew B. Cogan 2011 Incentive Compensation Letter, dated December 1, 2010. 10.44(s)*Lynn M. Utter 2011 Incentive Compensation Letter, dated December 1, 2010. 10.45(s)*Barry L. McCabe 2011 Incentive Compensation Letter, dated December 1, 2010. 10.46(s)*Arthur C. Graves 2011 Incentive Compensation Letter, dated December 1, 2010. 10.47(s)*Benjamin A. Pardo 2011 Incentive Compensation Letter, dated December 1, 2010. 21 Subsidiaries of Knoll, Inc. 23.1 Consent of Independent Registered Public Accounting Firm. 24.1 Power of Attorney [(included on signature page)]. 31.1 Certification for Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 801934, as amended. 31.2 Certification for Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,as amended. 32.1 Certification for Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002. Table of Contents81ExhibitNumber Description 32.2 Certification for 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 of2002.(a)Incorporated by reference to Knoll, Inc.'s Registration Statement on Form S-1 (File No. 333-118901), which was declaredeffective by the Commission on December 13, 2004. (b)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2010. (c)Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999. (d)Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2000. (e)See Exhibit 10.22. Exhibit is substantially identical to Exhibit 10.22. (f)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on December 7, 2005. (g)Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2005. (h)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on August 3, 2006. (i)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on December 11, 2006. (j)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on September 27, 2006. (k)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on August 28, 2006. (l)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on December 10, 2007. (m)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2007. (n)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on November 9, 2007. (o)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on September 14, 2007. (p)Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2007. (q)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2008. (r)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on September 25, 2008. Table of Contents82(s)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on December 3, 2010. (t)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on May 11, 2009. (u)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on November 9, 2009. (v)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on May 11, 2010. *Management Contract or Compensatory Plan or Arrangement required to be identified by Item 15(a) (3) of Form 10-K. Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report onForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 1st day of March 2011. KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Andrew B.Cogan and Barry L. McCabe, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in hisname, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto and alldocuments in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them,full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to allintents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or hisor their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed by the following persons onbehalf of the Registrant and in the capacities and on the date indicated.83 KNOLL, INC. By: /s/ ANDREW B. COGANAndrew B. CoganChief Executive Officer/s/ BURTON B. STANIARBurton B. Staniar Chairman of the Board March 1, 2011/s/ ANDREW B. COGANAndrew B. Cogan Chief Executive Officer, Knoll, Inc. andDirector March 1, 2011/s/ BARRY L. MCCABEBarry L. McCabe Chief Financial Officer (Chief AccountingOfficer and Controller) March 1, 2011/s/ JEFFREY A. HARRISJeffrey A. Harris Director March 1, 2011/s/ SIDNEY LAPIDUSSidney Lapidus Director March 1, 2011/s/ KATHLEEN G. BRADLEYKathleen G. Bradley Director March 1, 2011 Table of Contents84/s/ JOHN F. MAYPOLEJohn F. Maypole Director March 1, 2011/s/ SARAH E. NASHSarah E. Nash Director March 1, 2011/s/ STEPHEN F. FISHERStephen F. Fisher Director March 1, 2011 Table of ContentsSCHEDULE II KNOLL, INC. VALUATION AND QUALIFYING ACCOUNTS (In Thousands) S-1Description Balance atBeginningof Year AdditionsCharged toExpenses Charge-Offs Other(1) Balance atEnd of Year Allowance for doubtful accounts: Year ended December 31, 2008 4,185 6,011 983 4 9,217 Year ended December 31, 2009 9,217 1,737 5,849 (11) 5,094 Year ended December 31, 2010 5,094 1,476 2,917 (8) 3,645 Allowance for other non-trade receivables: Year ended December 31, 2008 1,042 — 425 — 617 Year ended December 31, 2009 617 — 499 — 118 Year ended December 31, 2010 118 — 118 — — Reserve for inventory valuation: Year ended December 31, 2008 6,909 1,620 1,273 (422) 6,834 Year ended December 31, 2009 6,834 3,030 1,981 554 8,437 Year ended December 31, 2010 8,437 2,210 1,911 (439) 8,297 Valuation allowance for deferred incometax assets: Year ended December 31, 2008 17,047 (1,679) 846 (5,281) 9,241 Year ended December 31, 2009 9,241 (467) — 116 8,890 Year ended December 31, 2010 8,890 (106) — 594 9,378 (1)Primarily the impact of currency changes EXHIBIT 10.10 Summary of Barry L. McCabe 2011 Compensation The Knoll, Inc. compensation committee approved an annual base salary of $295,000 for Barry L. McCabe, with a bonus target of $295,000. Mr. McCabeis also entitled to participate in the benefit plans provided by Knoll that are available to Knoll employees generally, including, without limitation, healthcarebenefits, the Knoll Retirement Savings Plan, the Knoll Pension Plan and the Knoll Employee Stock Purchase Plan. EXHIBIT 10.12 Summary of Arthur C. Graves 2011 Compensation The Knoll, Inc. compensation committee approved an annual base salary of $295,000 for Arthur C. Graves, with a bonus target of $295,000. Mr. Graves isalso entitled to participate in the benefit plans provided by Knoll that are available to Knoll employees generally, including, without limitation, healthcarebenefits, the Knoll Retirement Savings Plan, the Knoll Pension Plan and the Knoll Employee Stock Purchase Plan. EXHIBIT 10.13 Summary of Benjamin A. Pardo 2011 Compensation The Knoll, Inc. compensation committee approved an annual base salary of $265,000 for Benjamin A. Pardo, with a bonus target of $250,000. Mr. Pardo isalso entitled to participate in the benefit plans provided by Knoll that are available to Knoll employees generally, including, without limitation, healthcarebenefits, the Knoll Retirement Savings Plan, the Knoll Pension Plan and the Knoll Employee Stock Purchase Plan. EXHIBIT 10.30 Time Vesting RESTRICTED SHARE AGREEMENTUNDER THEKNOLL INC.2010 STOCK INCENTIVE PLAN THIS AGREEMENT is made effective as of the th day of , 20 (the “Grant Date”), between Knoll, Inc., a Delawarecorporation (the “Company”), and (the “Grantee”). Except as otherwise specifically provided herein, capitalized terms usedherein shall have the meanings attributed thereto in the Knoll, Inc. 2010 Stock Incentive Plan (the “Plan”). All references to employment and termination ofemployment herein shall relate to any consulting relationship, directorship or similar relationship between the Company or a Subsidiary and the Grantee, andthe termination thereof. WHEREAS, pursuant to the Plan, the Company desires to grant the Grantee Restricted Shares on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt andadequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Grant of Restricted Shares. The Company hereby grants to the Grantee Restricted Shares (the “Restricted Shares”)on the terms and conditions set forth herein. The Restricted Shares granted hereunder shall be registered in the Grantee’s name, but the certificates evidencingsuch Restricted Shares shall be appropriately legended and retained by the Company during the period prior to the vesting of such shares as set forth inSection 3 hereof (the “Restriction Period”). Upon request, the Grantee shall execute a stock power, in blank, with respect to such Restricted Shares and deliverthe same to the Company. The Grantee expressly acknowledges receipt of a copy of the Plan and agrees to be bound by all of the provisions of this Agreementand the Plan. 2. Non-Transferability. During the Restriction Period, the Grantee may not sell, transfer, pledge, or otherwise encumber or dispose of theRestricted Shares. 3. Vesting and Lapse of Restrictions; Forfeiture. (a) Definitions. For purposes of this Agreement, the following capitalized terms shall have the following meanings: (i) “Cause” means Cause as defined in any employment agreement between the Grantee and the Company or anySubsidiary or, in the absence of any such definition, means (A) the substantial and continued failure of the Grantee to perform material duties reasonablyrequired of the Grantee by the Company or any Subsidiary or the Company’s Board of Directors, as applicable (it being understood that a failure to attainperformance objectives shall not in and of itself be treated as a failure to perform material duties for purpose of this clause (A)) for a period of not less thanthirty (30) consecutive days, provided notice in writing from the Company or its Board of Directors, as applicable, is given to the Grantee specifying in reasonable detail the circumstances constituting suchsubstantial and continued failure, (B) conduct by the Grantee substantially disloyal to the Company which conduct is identified in reasonable detail by noticein writing from the Company or the Board of Directors, as applicable, and which conduct, if susceptible of cure, is not cured by the Grantee within 30 daysof the Grantee’s receipt of such notice, (C) any act of fraud, embezzlement or misappropriation by the Grantee against the Company or any Subsidiary, (D)the conviction of the Grantee of a felony or plea by the Grantee of guilty or “nolo contendre” to the charge of a felony, or (E) in the case of a Grantee who is adirector of the Company, removal of the Grantee from the Board of Directors for cause under applicable law. The definition of “Cause” herein shall notmodify, amend or otherwise affect the definition of “Cause” in any employment or other agreement with the Company or any Subsidiary. (ii) “Disability” means Disability as defined in any employment agreement between the Grantee and the Company or anySubsidiary or, in the absence of any such definition, means any physical or mental disability or infirmity that prevents the performance of the Grantee’sduties with the Company or Subsidiary for a period of (i) ninety (90) consecutive days or (ii) one hundred eighty (180) non-consecutive days during anytwelve (12) month period. The definition of “Disability” herein shall not modify, amend or otherwise affect the definition of “Disability” in any employmentor other agreement with the Company or any Subsidiary. (iii) “Qualified Termination” shall mean a termination of employment with the Company and all Subsidiaries on account ofDisability, death, or upon a Without Cause Termination; provided that the voluntary resignation of a director or the decision by a director not to stand for re-election shall not be a Qualified Termination. (iv) “Subsidiary” shall mean an entity that the Company owns, whether directly or indirectly, greater than fifty percent(50%) of such entity’s capital stock. (v) “Without Cause Termination” shall mean a termination of employment by the Company or a Subsidiary withoutCause; provided that a failure of a director to become re-elected that is not the result of a voluntary decision not to stand for re-election shall be deemed to be aWithout Cause Termination. (b) Vesting. Except as otherwise specifically provided in this Section 3, the vesting of any Restricted Share is contingent onthe Grantee’s continuous employment by the Company or a Subsidiary (or service on the board of the Company or any subsidiary), from the Grant Datethrough the vesting date. The Restriction Period with respect to any Restricted Share shall commence on the Grant Date and shall lapse as to such RestrictedShare on the date that such share becomes vested pursuant to this Section 3. Except as otherwise provided in this Section 3 and to the extent such vesting hasnot been accelerated upon a termination of 2 employment or a Change in Control, as defined in the Plan, the Restricted Shares shall vest, and the restrictions imposed thereon shall lapse, as follows: (i) one-third of the Restricted Shares shall vest and the restrictions imposed thereon shall lapse on the first anniversary ofthe Grant Date; provided, however, that if such date is in a Blackout Period under, and as defined in, the Knoll, Inc. Insider Trading Policy applicable to theGrantee, then the shares shall not vest until the first date upon which the Grantee next may trade under the Knoll, Inc. Insider Trading Policy, and, providedfurther, that notwithstanding the foregoing, such shares shall be deemed vested during such Blackout Period solely for purposes of Section 3(e) hereunder; (ii) one-third of the Restricted Shares shall vest and the restrictions imposed thereon shall lapse on the second anniversaryof the Grant Date; provided, however, that if such date is in a Blackout Period under, and as defined in, the Knoll, Inc. Insider Trading Policy applicable tothe Grantee, then the shares shall not vest until the first date upon which the Grantee next may trade under the Knoll, Inc. Insider Trading Policy, and,provided further, that notwithstanding the foregoing, such shares shall be deemed vested during such Blackout Period solely for purposes of Section 3(e)hereunder; and (iii) one-third of the Restricted Shares shall vest and the restrictions imposed thereon shall lapse on the third anniversary ofthe Grant Date; provided, however, that if such date is in a Blackout Period under, and as defined in, the Knoll, Inc. Insider Trading Policy applicable to theGrantee, then the shares shall not vest until the first date upon which the Grantee next may trade under the Knoll, Inc. Insider Trading Policy, and, providedfurther, that notwithstanding the foregoing, such shares shall be deemed vested during such Blackout Period solely for purposes of Section 3(e) hereunder. (c) Accelerated Vesting on a Change in Control. Notwithstanding anything herein to the contrary, in the event that aChange in Control (as defined in the Plan) occurs while the Grantee is employed with the Company or a Subsidiary, a pro rata portion of the Restricted Sharesshall immediately become fully vested and the restrictions imposed thereon shall lapse on a pro rata basis upon such Change in Control. The number ofRestricted Shares that shall vest on account of a Change in Control shall be determined by multiplying all of the Restricted Shares (including vested andunvested) by a fraction, the numerator of which shall be the number of full months of employment from the Grant Date through the date of the Change inControl and the denominator of which shall be 36, and then subtracting the number of Restricted Shares that had vested prior to the date of the Change inControl; provided, however, that in no event shall a Change in Control result in forfeiture of any Restricted Shares vested prior to such Change in Control. The date of such pro rata vesting in the event of a Change in Control shall be the date of such Change in Control. 3 (d) Accelerated Vesting on Termination of Employment. If the Grantee shall cease to be employed by the Company and allSubsidiaries by reason of a Qualified Termination, a pro rata portion of the Restricted Shares shall immediately vest and the Restriction Period thereon shalllapse on a pro rata basis as follows: (i) The number of Restricted Shares that shall vest in the event of a Qualified Termination shall be determined bymultiplying all of the Restricted Shares (including vested and unvested) by a fraction, the numerator of which shall be the number of full months ofemployment from the Grant Date through the date of termination and the denominator of which shall be 36, and then subtracting the number of RestrictedShares that had vested prior to the date of the Qualified Termination; provided, however that in no event shall a Qualified Termination result in forfeiture ofany Restricted Shares vested prior to such Qualified Termination. (ii) The date of such pro rata vesting in the event of a Qualified Termination shall be the date of such QualifiedTermination. (e) Forfeiture on Termination of Employment. If the Grantee’s employment with the Company and all Subsidiaries isterminated for any reason, except for those Restricted Shares that are subject to pro rata vesting upon a Qualified Termination, the Restricted Shares, to theextent not vested prior to such termination, shall be immediately forfeited to the Company and the Grantee shall have no further rights with respect to suchshares, but all vested shares shall continue to be owned by the Grantee. (f) Committee Determination. Except as otherwise provided in Section 3, whether employment has been terminated for thepurposes of this Agreement, and the reasons therefore, shall be determined by the Committee, whose determination shall be final, binding and conclusive. 4. Delivery of Share Certificates. Upon the vesting of any Restricted Shares granted hereunder but subject to satisfaction of the federal,state and local tax withholding requirements set forth below, the stock certificates evidencing such Restricted Shares shall be delivered promptly to theGrantee. In the case of the Grantee’s death, such certificates will be delivered to the beneficiary designated in writing by the Grantee pursuant to a form ofdesignation provided by the Company, to the Grantee’s legatee or legatees, or to his personal representatives or distributees, as the case may be. 5. Binding Effect. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. 4 6. Governing Law. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of Delaware,without reference to the principles of conflicts of law thereof. Each party hereby irrevocably consents and submits to the personal jurisdiction of and venue inthe United States District Court - District of Delaware and the Delaware State courts, in any legal action, equitable suit or other proceeding arising out of orrelated to this Agreement. 7. Withholding. The delivery to the Grantee of stock certificates representing Restricted Shares that have vested shall be subject to thepayment by the Participant to the Company of all federal, state or local taxes required by law to be withheld by the Company. The Grantee may be required topay to the Company in cash or cash equivalents, either prior to or concurrent with the delivery of certificates representing Restricted Shares that have vested,the amount required by law to be withheld by the Company. The Company, in its sole discretion, may withhold from the number of shares of CommonStock to be delivered upon vesting of the Restricted Shares, such number of shares having an aggregate fair market value equal to minimum amount of thefederal, state and local taxes required by law to be withheld by the Company. The Committee may establish other rules and procedures to allow the Grantee tosatisfy and to facilitate the required tax withholding from time to time. 8. No Employment Rights. The establishment of the Plan and the grant of Restricted Shares hereunder shall not be construed as granting tothe Grantee the right to remain in the employ of the Company or any Subsidiary, nor shall the Plan or this Agreement be construed as limiting the right of theCompany or any Subsidiary to discharge the Grantee from employment at any time for any reason whatsoever, with or without Cause. 9. No Liability. No member of the Committee or the Board of Directors of the Company shall be personally liable by reason of any contractor other instrument executed by such member or on his or her behalf in his or her capacity as a member of the Committee or Board nor for any mistake ofjudgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee, each member of the Board and each otheremployee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan or this Agreement may beallocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any actor omission to act in connection with the Plan or this Agreement unless arising out of such person’s own fraud or bad faith; provided, however, that approvalof the Board shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shallnot be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s certificate of incorporation or by-laws, as amatter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 5 10. Headings. Headings are for the convenience of the parties and are not deemed to be a part of this Agreement. 11. Plan. The terms of the Plan, a copy of which is attached hereto, are made part of this Agreement and are incorporated herein by reference. In the event of any conflict between the terms of the Plan and the terms of this Agreement, the terms of the Plan shall govern. EXECUTED effective as of the day and year first written above. KNOLL, INC. By:Name:Title: GRANTEE: Name: 6 EXHIBIT 10.31 Performance Vesting RESTRICTED SHARE AGREEMENTUNDER THEKNOLL INC.2010 STOCK INCENTIVE PLAN THIS AGREEMENT is made effective as of the day of , 20 (the “Grant Date”), between Knoll, Inc., a Delaware corporation(the “Company”), and (the “Grantee”). Except as otherwise specifically provided herein, capitalized terms used herein shall have themeanings attributed thereto in the Knoll, Inc. 2010 Stock Incentive Plan (the “Plan”). All references to employment and termination of employment herein shallalso relate to any consulting relationship, directorship or similar relationship between the Company or a Subsidiary and the Grantee, and the terminationthereof. WHEREAS, pursuant to the Plan, the Company desires to grant the Grantee Restricted Shares on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt andadequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Grant of Restricted Shares. The Company hereby grants to the Grantee Restricted Shares (the “Restricted Shares”)on the terms and conditions set forth herein. The Restricted Shares granted hereunder shall be registered in the Grantee’s name, but the certificates evidencingsuch Restricted Shares shall be appropriately legended and retained by the Company during the period prior to the vesting of such shares as set forth inSection 3 hereof (the “Restriction Period”). Upon request, the Grantee shall execute a stock power, in blank, with respect to such Restricted Shares and deliverthe same to the Company. The Grantee expressly acknowledges receipt of a copy of the Plan and agrees to be bound by all of the provisions of this Agreementand the Plan. 2. Non-Transferability. During the Restriction Period, the Grantee may not sell, transfer, pledge, or otherwise encumber or dispose of theRestricted Shares. 3. Vesting and Lapse of Restrictions; Forfeiture. (a) Definitions. For purposes of this Agreement, the following capitalized terms shall have the following meanings: (i) “Cause” means Cause as defined in any employment agreement between the Grantee and the Company or anySubsidiary or, in the absence of any such definition, means (A) the substantial and continued failure of the Grantee to perform material duties reasonablyrequired of the Grantee by the Company or any Subsidiary or the Company’s Board of Directors, as applicable (it being understood that a failure to attainperformance objectives shall not in and of itself be treated as a failure to perform material duties for purpose of this clause (A)) for a period of not less thanthirty (30) consecutive days, provided notice in writing from the Company or its Board of Directors, as applicable, is given to the Grantee specifying in reasonable detail the circumstances constituting suchsubstantial and continued failure, (B) conduct by the Grantee substantially disloyal to the Company which conduct is identified in reasonable detail by noticein writing from the Company or the Board of Directors, as applicable, and which conduct, if susceptible of cure, is not cured by the Grantee within 30 daysof the Grantee’s receipt of such notice, (C) any act of fraud, embezzlement or misappropriation by the Grantee against the Company or any Subsidiary,(D) the conviction of the Grantee of a felony or plea by the Grantee of guilty or “nolo contendre” to the charge of a felony, or (E) in the case of a Grantee who isa director of the Company, removal of the Grantee from the Board of Directors for cause under applicable law. The definition of “Cause” herein shall notmodify, amend or otherwise affect the definition of “Cause” in any employment or other agreement with the Company or any Subsidiary. (ii) “Disability” means Disability as defined in any employment agreement between the Grantee and the Company or anySubsidiary or, in the absence of any such definition, means any physical or mental disability or infirmity that prevents the performance of the Grantee’sduties with the Company or Subsidiary for a period of (i) ninety (90) consecutive days or (ii) one hundred eighty (180) non-consecutive days during anytwelve (12) month period. The definition of “Disability” herein shall not modify, amend or otherwise affect the definition of “Disability” in any employmentor other agreement with the Company or any Subsidiary. (iii) [Deleted] (iv) “Material Acquisition or Divestiture” shall mean any acquisition or divestiture or other business combination notinvolving a Change in Control, that has or will result in an increase or decrease in Operating Profits exceeding $ USD (the “MaterialityThreshold”). An acquisition (or business combination) will be deemed to result in an increase in Operating Profits exceeding the Materiality Threshold if theacquired business’s operating profits measured over the most recently completed fiscal year immediately preceding the date of acquisition (or businesscombination) exceeded $ USD. A divestiture will be deemed to result in a decrease in Operating Profits exceeding the Materiality Threshold ifthe divested business’ operating profits measured over the most recently completed fiscal year immediately preceding the divestiture exceeded$ USD. (v) “OP Determination Date” shall mean the date on which the Committee under the Plan makes a final determination ofOperating Profits for any fiscal year. (vi) “Operating Profits” for any fiscal year means the Company’s net operating income for such fiscal year. Thedetermination of “Operating Profits” shall be made from the Company’s books and records. Such books and records shall be maintained in accordance withU.S. generally accepted accounting principles and the Company’s internal accounting policies and procedures consistently applied over each of the fiscal yearsduring the Restriction Period. Notwithstanding the foregoing, extraordinary and one-time items of income and expense, such as gains on sales of fixed assets,transactions outside of the ordinary course of 2 business (bank refinancings, IPO/Secondary stock offerings, etc.), and restructuring costs, in each case, shall be excluded from the determination ofOperating Profits for the fiscal year in which the extraordinary or one-time item of income or expense occurs. In the event that a Material Acquisition orDivestiture occurs, other than the divestiture of a business that generated an operating loss in the twelve (12) months preceding such divestiture, the OperatingProfits target for the fiscal year of the transaction (on a pro rata basis) and all subsequent fiscal years (on a full basis) shall be adjusted to eliminate the impactof the addition of Operating Profits, or the decrease of Operating Profits resulting from the transaction, but only to the extent that additional Operating Profits orthe decreased Operating Profits exceed the Materiality Threshold. For example, the acquisition of an entity that generated Operating Profits of $ USD in the 12 months preceding the acquisition shall cause an upward adjustment in the Operating Profit Targets by $ USD for the yearof acquisition (on a pro rata basis) and for all future years (on a full basis). The Company’s Finance Department shall make an initial determination ofOperating Profits for each fiscal year during the Restriction Period. The Company’s auditors shall review the Finance Department’s determination. TheCommittee shall take into account the Finance Department’s determination and the Company’s auditors’ review and make the final determination of OperatingProfits as soon as practicable after the end of each fiscal year. (vii) “Potential Vesting Date” shall mean the Trading Day that is the fourth Trading Day immediately following the date thatthe Company publicly announces earnings for any fiscal quarter or any fiscal year. (viii) “Pro Rata Vested Amount” shall have the meaning set forth in Section 3(e)(i) below. (ix) “Qualified Termination” shall mean a termination of employment with the Company and all Subsidiaries on account ofDisability, death or upon a Without Cause Termination. (x) “Subsidiary” shall mean an entity that the Company owns, whether directly or indirectly, greater than fifty percent(50%) of such entity’s capital stock. (xi) [Deleted] (xii) “Trading Day” shall mean any day that the New York Stock Exchange is open for trading. (xiii) “Without Cause Termination” shall mean a termination of employment by the Company or a Subsidiary withoutCause. (b) Cliff Vesting on Third Anniversary. Except as otherwise specifically provided in this Section 3, the vesting of anyRestricted Share is contingent on the Grantee’s continuous employment by the Company or a Subsidiary (or service on the board of the Company or anysubsidiary), from the Grant Date through the vesting date. The Restriction 3 Period with respect to any Restricted Share shall commence on the Grant Date and shall lapse as to such Restricted Share on the date that such share becomesvested pursuant to this Section 3. Except as otherwise provided in this Section 3 and to the extent such vesting has not been accelerated pursuant to theachievement of Operating Profit targets or upon a termination of employment or a Change in Control, as set forth below, the Restricted Shares shall vest, andthe restrictions imposed thereon shall lapse, on the third anniversary of the Grant Date. (c) Accelerated Vesting on Achievement of Operating Profit Targets. The Restricted Shares may vest, and the restrictionsimposed thereon may lapse, earlier upon the Company’s achievement of Operating Profits as follows: (i) one-third (1/3) of the Restricted Shares shall vest onthe next Potential Vesting Date following the OP Determination Date for the first fiscal year (commencing with fiscal 2011) that the Company achieves$ USD in Operating Profits; and (ii) an additional one-third (1/3) of the Restricted Shares shall vest on the next Potential Vesting Datefollowing the OP Determination Date for the first fiscal year (commencing with fiscal 2012) that the Company achieves $ USD inOperating Profits. Notwithstanding the foregoing, no more than one-third (1/3) of the Restricted Shares shall vest on the first or second Potential Vesting Date;provided, however, that if an annual Operating Profits target is missed on the first Potential Vesting Date, two-thirds (2/3) of the Restricted Shares will vest onthe second Potential Vesting Date if the Company achieves $ USD in Operating Profits on the next potential Vesting Date following thesecond OP Determination Date. (d) Accelerated Vesting on a Change in Control. Notwithstanding anything herein to the contrary, in the event that aChange in Control (as defined in Exhibit A hereto) occurs while the Grantee is employed with the Company or a Subsidiary, a pro rata portion of the Restricted Shares shall immediately become fully vested and the restrictions imposed thereon shall lapse on a pro rata basis upon such Change of Control. The numberof Restricted Shares that shall vest on account of a Change in Control shall be determined by multiplying all of the Restricted Shares (including vested andunvested) by a fraction, the numerator of which shall be the number of full months of employment from the Grant Date through the date of the Change inControl and the denominator of which shall be 36, and then subtracting the number of Restricted Shares that had vested prior to the date of the Change inControl; provided, however, that in no event shall a Change in Control result in forfeiture of any Restricted Shares vested prior to such Change in Control. Notwithstanding anything herein to the contrary, to the extent that a Change in Control occurs following December 31 of a fiscal year in which the Companyachieves an Operating Profit Target for the first time but prior to the next Potential Vesting Date following the OP Determination Date for such fiscal year, thenumber of Restricted Shares subject to vesting on that next Potential Vesting Date following such OP Determination Date shall immediately vest upon suchChange in Control. (e) Accelerated Vesting on Termination of Employment. If the Grantee shall cease to be employed by the Company and allSubsidiaries by reason of a Qualified Termination, a pro rata portion of the Restricted Shares shall immediately vest and the Restriction Period thereon shalllapse on a pro rata basis as follows: 4 (i) The number of Restricted Shares that shall vest in the event of a Qualified Termination shall be determined bymultiplying all of the Restricted Shares (including vested and unvested) by a fraction, the numerator of which shall be the number of full months ofemployment from the Grant Date through the date of termination and the denominator of which shall be 36, and then subtracting the number ofRestricted Shares that had vested prior to the date of the Qualified Termination (the “Pro Rata Vested Amount”); provided, however that in no eventshall a Qualified Termination result in forfeiture of any Restricted Shares vested prior to such Qualified Termination. (ii) The date of such pro rata vesting in the event of a Qualified Termination shall be the date on which suchQualified Termination occurs. (f) Forfeiture on Termination of Employment. If the Grantee’s employment with the Company and all Subsidiaries isterminated for any reason, except as specifically provided in this Section 3(f) and except for those Restricted Shares that are subject to pro rata vesting upon aQualified Termination, the Restricted Shares, to the extent not vested prior to such termination, shall be immediately forfeited to the Company and the Granteeshall have no further rights with respect to such shares, but all vested shares shall continue to be owned by the Grantee. Notwithstanding anything herein tothe contrary, to the extent that Grantee’s employment with the Company and all Subsidiaries is terminated for any reason following December 31 of a fiscalyear in which the Company achieves an Operating Profit target for the first time but prior to the next Potential Vesting Date following the OP Determination Datefor such fiscal year, the number of Restricted Shares subject to vesting on that next Potential Vesting Date shall not be forfeited upon such termination ofemployment but rather such Restricted Shares shall immediately vest on the date of such termination. (g) Committee Determination. Except as otherwise provided in Section 3, whether employment has been terminated for thepurposes of this Agreement, and the reasons therefore, shall be determined by the Committee, whose determination shall be final, binding and conclusive. 4. Delivery of Share Certificates. Upon the vesting of any Restricted Shares granted hereunder but subject to satisfaction of the federal,state and local tax withholding requirements set forth below, the stock certificates evidencing such Restricted Shares shall be delivered promptly to theGrantee. In the case of the Grantee’s death, such certificates will be delivered to the beneficiary designated in writing by the Grantee pursuant to a form ofdesignation provided by the Company, to the Grantee’s legatee or legatees, or to his personal representatives or distributees, as the case may be. 5. Binding Effect. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. 5 6. Governing Law. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of Delaware,without reference to the principles of conflicts of law thereof. Each party hereby irrevocably consents and submits to the personal jurisdiction of and venue inthe United States District Court - District of Delaware and the Delaware State courts, in any legal action, equitable suit or other proceeding arising out of orrelated to this Agreement. 7. Withholding. The delivery to the Grantee of stock certificates representing Restricted Shares that have vested shall be subject to thepayment by the Participant to the Company of all federal, state or local taxes required by law to be withheld by the Company. The Grantee may be required topay to the Company in cash or cash equivalents, either prior to or concurrent with the delivery of certificates representing Restricted Shares that have vested,the amount required by law to be withheld by the company. The Company, in its sole discretion, may withhold from the number of shares of Common Stockto be delivered upon vesting of the Restricted Shares such number of shares having an aggregate fair market value equal to minimum amount of the federal,state and local taxes required by law to be withheld by the Company. The Committee may establish other rules and procedures to allow the Grantee to satisfyand to facilitate the required tax withholding from time to time. 8. No Employment Rights. The establishment of the Plan and the grant of Restricted Shares hereunder shall not be construed as granting tothe Grantee the right to remain in the employ of the Company or any Subsidiary, nor shall the Plan or this Agreement be construed as limiting the right of theCompany or any Subsidiary to discharge the Grantee from employment at any time for any reason whatsoever, with or without Cause. 9. No Liability. No member of the Committee or the Board of Directors of the Company shall be personally liable by reason of any contract or other instrument executed by such member or on his or her behalf in his or her capacity as a member of the Committee or Board nor for any mistake ofjudgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee, each member of the Board and each otheremployee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan or this Agreement may beallocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any actor omission to act in connection with the Plan or this Agreement unless arising out of such person’s own fraud or bad faith; provided, however, that approvalof the Board shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shallnot be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s certificate of incorporation or by-laws, as amatter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 10. Headings. Headings are for the convenience of the parties and are not deemed to be a part of this Agreement. 6 11. Plan. The terms of the Plan, a copy of which is attached hereto, are made part of this Agreement and are incorporated herein by reference. In the event of any conflict between the terms of the Plan and the terms of this Agreement, the terms of the Plan shall govern. EXECUTED effective as of the day and year first written above. KNOLL, INC. By:Name:Title: GRANTEE: Name: 7 EXHIBIT A Change In Control For purposes of this Agreement, a “Change in Control” of the Company shall be deemed to have occurred upon any of the following events: (i) any person or other entity (other than any of the Company’s Subsidiaries or any employee benefit plan sponsored by the Company or anyof its Subsidiaries) including any person as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), becomes the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of more than 50% of the totalcombined voting power of all classes of capital stock of the Company normally entitled to vote for the election of directors of the Company(the “Voting Stock”); (ii) the Company consummates the sale of all or substantially all of the property or assets of the Company; (iii) the Company consummates a consolidation or merger of the Company with another corporation (other than with any of the Company’sSubsidiaries), and as a result, the stockholders of the Company immediately before the occurrence of the consolidation or merger own, inthe aggregate, not more than 50% of the Voting Stock of the surviving entity; or (iv) a change in the Company’s Board occurs with the result that, within any 12-month period, the members of the Board as of the beginningof such period (the “Incumbent Directors”) no longer constitute a majority of such Board, provided that any person becoming a director(other than a director whose initial assumption of office is in connection with an actual or threatened election contest or the settlementthereof, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose election or nominationfor election was supported by at least a majority of the then Incumbent Directors shall be considered an Incumbent Director for purposeshereof. EXHIBIT 10.32 NON-QUALIFIEDSTOCK OPTION AGREEMENTUNDER THEKNOLL, INC.2010 STOCK INCENTIVE PLAN THIS AGREEMENT, made as of this day of , 20 by and between Knoll, Inc., a Delaware corporation (the “Company”), and (the “Optionee”). W I T N E S S E T H: WHEREAS, the Optionee is now employed or engaged as a consultant by the Company or one of its subsidiaries in a key capacity, or is adirector of the Company, and the Company desires to have Optionee remain in such employment and to afford Optionee the opportunity to acquire, or enlarge,Optionee’s ownership of the Company’s Common Stock, par value $.01 per share (“Stock”), so that Optionee may have a direct proprietary interest in theCompany’s success (all references to employment hereinafter shall relate to any consulting, directorship or similar relationship, as applicable, and allreferences to employment or termination of employment with or by the Company shall include employment with or by any of the Company’s direct or indirectsubsidiaries, as applicable); NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows: 1. Grant of Option. Subject to the terms and conditions set forth herein and in the Company’s 2010 Stock Incentive Plan asamended and/or restated (the “Plan”), the Company hereby grants to the Optionee, during the period commencing on the date of this Agreement and endingyears from the date hereof (the “Termination Date”), the right and option (the right to purchase any one share of Stock hereunder being an “Option”) topurchase from the Company, at a price of $[xx.xx] per share, an aggregate of shares of Stock. The Optionee expressly acknowledges receipt of acopy of the Plan and agrees to be bound by all of the provisions of the Plan. 2. Limitations on Exercise of Option. Subject to compliance with the terms and conditions set forth herein, the Optionee mayexercise % of the Options on and after , 20 , an additional % of the Options on and after , 20 , an additional % of the Options on and after , 20 , and an additional % of the Options on and after , 20 . Notwithstanding the vestingprovisions in this Section 2, upon a Change in Control (following the date hereof), as defined in the Plan, 100% of the Options, to the extent not previouslyexercised, shall become fully vested and exercisable. 3. Termination of Employment. A. If prior to the Termination Date, the Optionee shall cease to be employed by the Company by reason of a disability, as defined inSection 22(e)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), or by reason of retirement on or after age 65, the Options shall remainexercisable until the earlier of the Termination Date or one year after the date of cessation of employment to the extent the Options were exercisable at the time of cessation of employment. B. If the Optionee shall cease to be employed by the Company prior to the Termination Date by reason of death, or the Optionee shalldie while entitled to exercise any of the Options pursuant to paragraph 3(A) or the second sentence of paragraph 3(C), the executor or administrator of the estateof the Optionee or the person or persons to whom the Options shall have been validly transferred by the executor or administrator pursuant to will or the lawsof descent and distribution shall have the right, until the earlier of the Termination Date or one year after the date of death, to exercise the Options to the extentthat the Optionee was entitled to exercise them on the date of death, subject to any other limitation contained herein on the exercise of the Options in effect on thedate of exercise. C. If the Optionee voluntarily terminates employment with the Company for reasons other than death, disability, or retirement on orafter age 65, or if the Optionee’s employment with the Company is terminated for Cause, as hereinafter defined, unless otherwise provided by the Committee,the Options, to the extent not exercised prior to such termination, shall lapse and be canceled. If the Company terminates the Optionee’s employment withoutCause as hereinafter defined, the Options, to the extent exercisable immediately prior to such termination, shall continue to be exercisable until the earlier of theTermination Date or ninety (90) days after the date of such termination. For purposes of the immediately preceding sentence, any days during the above-mentioned 90-day period that the Optionee is prohibited from selling Stock into the public market on account of any underwriters’ lock-up period or anyblackout period imposed by the Company, shall (without duplication) not be counted. D. For purposes of this Agreement, unless otherwise provided in an employment agreement between the Company and the Optionee,“Cause” shall mean: (i) the substantial and continued failure of the Optionee to perform material duties reasonably required of the Optionee by the Companyor any Subsidiary or the Company’s Board of Directors, as applicable (it being understood that a failure to attain performance objectives shall not in and ofitself be treated as a failure to perform material duties for purpose of this clause (i)) for a period of not less than thirty (30) consecutive days, provided notice inwriting from the Company or its Board of Directors, as applicable, is given to the Optionee specifying in reasonable detail the circumstances constituting suchsubstantial and continued failure, (ii) conduct by the Optionee substantially disloyal to the Company which conduct is identified in reasonable detail by noticein writing from the Company or the Board of Directors, as applicable, and which conduct, if susceptible of cure, is not cured by the Optionee within 30 days of the Optionee’s receipt of such notice, (ii) any act of fraud, embezzlement or misappropriation by the Optionee against the Company or any Subsidiary,(iv) the conviction of the Optionee of a felony or plea by the Optionee of guilty or “nolo contendre” to the charge of a felony, or (v) in the case of an Optioneewho is a director of the Company, removal of the Optionee from the Board of Directors for cause under applicable law. The definition of “Cause” herein shallnot modify, amend or otherwise affect the definition of “Cause” in any employment or other agreement with the Company or any Subsidiary. For purposes ofthis paragraph, the term “Subsidiary” means an entity that the Company owns, whether directly or indirectly, greater than fifty percent (50%) of such entity’scapital stock. 2 E. Except as otherwise provided in paragraph 3(D) hereof, whether employment has been or could have been terminated for thepurposes of this Agreement, and the reasons therefor, shall be determined by the Committee, whose determination shall be final, binding and conclusive. F. After the expiration of any exercise period described in either of paragraphs 3(A), 3(B) or 3(C) hereof, the Options shall terminatetogether with all of the Optionee’s rights hereunder, to the extent not previously exercised. All vesting with respect to the Options shall cease upon theOptionee’s termination of employment with the Company and all Options to the extent unvested at the time of termination shall expire. 4. Method of Exercising Option. A. The Optionee may exercise any or all of the Options by delivering to the Company a written notice signed by the Optionee statingthe number of Options that the Optionee has elected to exercise at that time, together with full payment of the purchase price of the shares to be therebypurchased from the Company. Payment of the purchase price of the shares may be made by certified or bank cashier’s check payable to the order of theCompany, or, in the sole discretion of the Committee, (i) by surrender or delivery to the Company of shares of Stock or other property acceptable to theCommittee in its sole discretion, which Stock or other property shall have a value equal to the purchase price, (ii) after the date of an initial public offering, bydelivery to the Committee of a copy of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceedssufficient to pay the purchase price, or (iii) by such other means as the Committee shall allow in it discretion. Notwithstanding anything herein to thecontrary, the Company shall not directly or indirectly extend or maintain credit, or arrange for the extension of credit, in the form of a personal loan to or forany director or executive officer of the Company hereunder in violation of Section 402 of the Sarbanes-Oxley Act of 2002. B. At the time of exercise, the Optionee shall pay to the Company such amount as the Company deems necessary to satisfy itsobligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise or the transfer of shares thereupon. The Committee may,in its sole discretion, allow for the withholding of shares of Stock by the Company having a value equal to the amount necessary to satisfy all or part of thetax withholding requirements. 5. Issuance of Shares. Subject to any limitations set forth in the Plan, as promptly as practical after receipt of such writtennotification and full payment of such purchase price and any required income tax withholding amount, the Company shall issue or transfer to the Optionee thenumber of shares with respect to which Options have been so exercised, and shall deliver to the Optionee a certificate or certificates therefor, registered in theOptionee’s name. 6. Successors. Whenever the word “Optionee” is used in any provision of this Agreement under circumstances where the provisionshould logically be construed to apply to the executors, the administrators, or the person or persons to whom the Options may be 3 transferred by will or by the laws of descent and distribution, the word “Optionee” shall be deemed to include such person or persons. 7. Non-Transferability. The Options are not transferable by the Optionee other than by will or the laws of descent anddistribution and are exercisable during the Optionee’s lifetime only by Optionee. No assignment or transfer of the Options, or of the rights represented thereby,whether voluntary or involuntary, by operation of law or otherwise (except by will or the laws of descent and distribution), shall vest in the assignee ortransferee any interest or right herein whatsoever, but immediately upon such assignment or transfer the Options shall terminate and become of no furthereffect. 8. Rights as Stockholder. The Optionee or a transferee of the Options shall have no rights as a stockholder with respect to anyshare covered by the Options until Optionee shall have become the holder of record of such share, and no adjustment shall be made for dividends ordistributions or other rights in respect of such share for which the record date is prior to the date upon which Optionee shall become the holder of recordthereof. 9. Recapitalizations, Reorganizations, etc. A. The existence of the Options shall not affect in any way the right or power of the Company or its stockholders to make orauthorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger orconsolidation of the Company, or any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preferencestocks ahead of or affecting the Stock or the rights thereof or convertible into or exchangeable for Stock, or the dissolution or liquidation of the Company, orany sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. B. The shares with respect to which the Options are granted are shares of Stock of the Company as presently constituted, but if,and whenever, prior to the delivery by the Company of all of the shares of the Stock with respect to which the Options are granted, the Company shall effect asubdivision or consolidation of shares of the Stock outstanding, without receiving compensation therefor in money, services or property, the number and priceof shares remaining under the Options shall be appropriately adjusted. Such adjustment shall be made by the Committee, whose determination as to whatadjustment shall be made, and the extent thereof, shall be final, binding and conclusive. Any such adjustment may provide for the elimination of anyfractional share which might otherwise become subject to the Options. C. In the event of any change in the outstanding shares of Stock by reason of any recapitalization, merger, consolidation, spin-off,combination or exchange of shares or other corporate change, or any distributions to common shareholders other than cash dividends, the Committee shallmake such substitution or adjustment, if any, as it deems to be equitable, as to the number or kind or shares of Stock or other securities covered by theOptions and the Option price thereof. The Committee shall notify the Optionee of any intended sale of all or substantially all of the Company’s assets within areasonable time prior to such sale. 4 D. Except as hereinbefore expressly provided, the issue by the Company of shares of stock of any class, or securities convertibleinto or exchangeable for shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of options,rights or warrants to subscribe therefor, or to purchase the same, or upon conversion of shares or obligation of the Company convertible into such shares orother securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Stock subject to theOptions. 10. Compliance with Law. Notwithstanding any of the provisions hereof, the Optionee hereby agrees that Optionee will notexercise the Options, and that the Company will not be obligated to issue or transfer any shares to the Optionee hereunder, if the exercise hereof or the issuanceor transfer of such shares shall constitute a violation by the Optionee or the Company of any provisions of any law or regulation of any governmentalauthority. Any determination in this connection by the Committee shall be final, binding and conclusive. The Company shall in no event be obliged toregister any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other affirmative action in order to causethe exercise of the Options or the issuance or transfer of shares pursuant thereto to comply with any law or regulation of any governmental authority. 11. Notice. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered tothe party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as hereinprovided, provided that, unless and until some other address be so designated, all notices or communications by the Optionee to the Company shall be mailedor delivered to the Company at its principal executive office, and all notices or communications by the Company to the Optionee may be given to the Optioneepersonally or may be mailed to Optionee at the Optionee’s last known address, as reflected in the Company’s records. 12. Non-Qualified Options. The Options granted hereunder are not intended to be incentive stock options within the meaning ofSection 422 of the Code. 13. Binding Effect. Subject to Section 7 hereof, this Agreement shall be binding upon the heirs, executors, administrators andsuccessors of the parties hereto. 14. Governing Law. This Agreement shall be construed and interpreted in accordance with the internal laws of the State ofDelaware, United States of America, without reference to the principles of conflicts of law thereof. The parties hereto agree that any action arising out of orrelating to this Agreement must be brought in the United States District Court of Delaware. Alternatively, provided only that the United States District Courtfor Delaware is deemed to lack subject-matter jurisdiction, the parties consent and agree that any such matter provided for in this sub-paragraph shall bebrought in Delaware State court. All parties hereto expressly agree and consent to the exclusive jurisdiction of the Delaware courts (i.e., Delaware Federal andDelaware State Courts, respectively). 15. Plan. The terms and provisions of, and the defined terms used in, the Plan are incorporated herein by reference. Unless adifferent meaning is expressly set forth herein, the defined terms used in this Agreement shall have the same meaning given to such terms in the 5 Plan. In the event of a conflict or inconsistency between discretionary terms and provisions of the Plan and the express provisions of this Agreement, thisAgreement shall govern and control. In all other instances of conflicts or inconsistencies or omissions, the terms and provisions of the Plan shall govern andcontrol. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. KNOLL, INC. By: OPTIONEE: 7 EXHIBIT 21 LIST OF SUBSIDIARIES WHOLLY OWNED SUBSIDIARIES OF KNOLL, INC.JURISDICTIONOFINCORPORATION Knoll North America CorpOntario, Canada Spinneybeck Enterprises, Inc.New York Spinneybeck, LTD. (wholly owned subsidiary of Spinneybeck Enterprises, Inc.)Ontario, Canada Spinneybeck Ireland (wholly owned subsidiary of Spinneybeck Enterprises, Inc.)Ireland Edelman Leather, LLCDelaware Edelman Leather Limited (wholly owned subsidiary of Edelman Leather, LLC)Ireland Knoll Overseas, Inc.Delaware Knoll Middle East, LLC (wholly owned subsidiary of Knoll Overseas, Inc.)Delaware Knoll Muebles y Sistemas S.A. (wholly owned subsidiary of Knoll Overseas, Inc.)Columbia Knoll Europe B.V. (wholly owned subsidiary of Knoll Overseas, Inc.)Netherlands Knoll Italy, Ltd. (wholly owned subsidiary of Knoll Europe B.V.)England & Wales Knoll International S.p.A. (75% owned subsidiary of Knoll Europe B.V. and 25% owned subsidiary of KnollItaly, Ltd.)Italy Knoll International, Ltd. (wholly owned subsidiary of Knoll Europe B.V.)England & Wales Knoll International S.A. (wholly owned subsidiary of Knoll Europe B.V.)France Knoll International GmBH (wholly owned subsidiary of Knoll Europe B.V.)Germany Knoll International S.A. (wholly owned subsidiary of Knoll Europe B.V.)Belgium QuickLinks -- Click here to rapidly navigate through this documentExhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-3 No. 333-161483) of Knoll, Inc., (2)Registration Statement (Form S-8 No. 333-121232) pertaining to the Knoll, Inc. 1996 Stock Incentive Plan, Knoll, Inc. 1997 Stock IncentivePlan, Knoll, Inc. 1999 Stock Incentive Plan, Knoll, Inc. Employee Stock Purchase Plan and The Knoll Retirement Savings Plan, (3)Registration Statement (Form S-8 No. 333-144020) pertaining to the Knoll, Inc. 2007 Stock Incentive Plan, and (4)Registration Statement (Form S-8 No. 333-167788) pertaining to the Amended and Restated Knoll, Inc. 2010 Stock Incentive Plan;of our reports dated March 1, 2011, with respect to the consolidated financial statements and schedule of Knoll, Inc. and the effectiveness of internalcontrol over financial reporting of Knoll, Inc. included in this Annual Report (Form 10-K) of Knoll, Inc. for the year ended December 31, 2010./s/ ERNST & YOUNG LLPPhiladelphia, PennsylvaniaMarch 1, 2011 QuickLinksExhibit 23.1Consent of Independent Registered Public Accounting Firm QuickLinks -- Click here to rapidly navigate through this documentExhibit 31.1 Certification of Chief Executive Officer I, Andrew B. Cogan, certify that:(1)I have reviewed this annual report on Form 10-K of Knoll, Inc.; (2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; (3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4)The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to material affect, the registrant's internal control over financial reporting; and (5)The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: March 1, 2011/s/ ANDREW B. COGANAndrew B. CoganChief Executive Officer QuickLinksExhibit 31.1Certification of Chief Executive Officer QuickLinks -- Click here to rapidly navigate through this documentExhibit 31.2 Certification of Chief Financial Officer I, Barry L. McCabe, certify that:(1)I have reviewed this annual report on Form 10-K of Knoll, Inc.; (2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; (3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4)The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to material affect, the registrant's internal control over financial reporting; and (5)The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: March 1, 2011/s/ BARRY L. MCCABEBarry L. McCabeChief Financial Officer QuickLinksExhibit 31.2Certification of Chief Financial Officer QuickLinks -- Click here to rapidly navigate through this documentExhibit 32.1 Certification of Chief Executive Officer In connection with the Annual Report on Form 10-K of Knoll, Inc. (the "Company") for the year ended December 31, 2010, as filed with theSecurities and Exchange Commission on the date hereof (the "Report"), Andrew B. Cogan, Chief Executive Officer of the Company, certifies, pursuantto 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:1.The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.March 1, 2011/s/ ANDREW B. COGANAndrew B. CoganChief Executive Officer QuickLinksExhibit 32.1Certification of Chief Executive Officer QuickLinks -- Click here to rapidly navigate through this documentExhibit 32.2 Certification of Chief Financial Officer In connection with the Annual Report on Form 10-K of Knoll, Inc. (the "Company") for the year ended December 31, 2010, as filed with theSecurities and Exchange Commission on the date hereof (the "Report"), Barry L. McCabe, Chief Financial Officer of the Company, certifies, pursuantto 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:1.The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.March 1, 2011/s/ BARRY L. MCCABEBarry L. McCabeChief Financial Officer QuickLinksExhibit 32.2Certification of Chief Financial Officer
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