Knoll Inc Annual Report 2014

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Ký ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the fiscal year ended December 31, 2014ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period from to Commission File No. 001-12907KNOLL, INC.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization) 13-3873847(I.R.S. EmployerIdentification Number)1235 Water StreetEast Greenville, PA 18041(215) 679-7991(Address, including zip code, and telephone number including 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 per share New York Stock ExchangeSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONEIndicate by check mark if the issuer is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act.) Yes ý No oIndicate 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 ýIndicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ý No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files). Yes ý No oIndicate 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'sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ýIndicate 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.Large accelerated filer ý Accelerated filer o Non-accelerated filer o (Do not check if asmaller reporting company) Smaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No ýAs of June 30, 2014, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $802,977,000 based on theclosing sale price as reported on the New York Stock Exchange.As of February 27, 2015, there were 48,953,279 shares (including 1,092,074 shares of non-voting restricted shares) of the Registrant's common stock, par value $0.01 pershare, outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant's definitive Proxy Statement for its 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this report on Form 10-Kto the extent stated therein. Table of ContentsTABLE OF CONTENTS ItemPage PART I 1.Business31A.Risk Factors141B.Unresolved Staff Comments222.Properties223.Legal Proceedings224.Mine Safety Disclosures23 PART II 5.Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 246.Selected Financial Data 277.Management's Discussion and Analysis of Financial Condition and Results of Operations 297A.Quantitative and Qualitative Disclosures about Market Risk 438.Financial Statements and Supplementary Data 459.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 929A.Controls and Procedures 929B.Other Information 97 PART III 10.Directors, Executive Officers and Corporate Governance 9711.Executive Compensation 9712.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 9713.Certain Relationships and Related Transactions, and Director Independence 9814.Principal Accounting Fees and Services 98 PART IV 15.Exhibits and Financial Statement Schedules 99 Signatures 1042Table of ContentsPART IITEM 1. BUSINESSGeneralWe are a leading designer and manufacturer of furnishings, textiles and fine leathers for the workplace and home. For over a decade, we have beenbuilding a diversified design-driven product portfolio and flexible business model that can perform in various business cycles. Our commitment toinnovation and modern design has yielded a comprehensive portfolio of products designed to provide enduring value and help clients shape theirworkplaces and homes with imagination and vision. Our products are recognized for high quality and a sophisticated image and are targeted at the middle toupper end of the market. We sell our products primarily through a direct sales force, showrooms, and a broad network of independent dealers.For 77 years, our clients have come to us for help, knowledge and products to create inspired interiors. We have a history and reputation for designleadership, quality and innovation in both the contract and residential markets. Our relentless focus towards designing Knoll to solve for these two clearsegments with global potential continues. This strategy has and will continue to substantively diversify our sources of revenues and profits.In February 2014, we furthered our strategic ambition to expand our position in the high-design, high-margin residential space with the acquisition ofHolly Hunt Enterprises. This acquisition while immediately financially accretive also provides us considerable scale to build upon in the residential marketand will be a platform for future growth. While the Holly Hunt acquisition was certainly a highlight in 2014, it did not distract us from our continued effortsto grow and improve the profitability of our Office segment. Our Office sales and marketing teams dedicated 2014 to presenting our perspective on movingthe workplace forward. r/evolution workplace™ is our platform that acknowledges that there is no one office of the future and that the twenty-first centuryworkplace poses only one constant: change. r/evolution workplace™ illustrates the freedom and opportunity commercial, healthcare, education andgovernment organizations have to reimagine the workplace by exploring distinct planning approaches that address real estate, technology and people’sneeds. We supported this planning approach to high performance workplaces with the introduction of 2014 Best of NeoCon award-winning designs,including the technologically advanced Remix™ chair collection by Formway Design and the Antenna® Telescope™ height-adjustable desks. r/evolutionworkplace™ along with our supply chain transformation investments and warehouse consolidation efforts fueled the Office segment sales to grow by almost10% in 2014 with 110 basis point improvement in operating margin.Since our founding, we have been recognized worldwide as a design leader within our industry. Our products are exhibited in major art museumsworldwide, including more than 50 pieces in the permanent Design Collection of The Museum of Modern Art in New York. This legacy continues to flourishtoday and is embodied in an ambitious series of new products that reflect forward-thinking ideas about design and workplace performance, among them: theGeneration by Knoll® family of innovative task and multipurpose seating; Reff® Profiles, furnishings for the contemporary private office; and Antenna®Workspaces, a new approach for individual and group work spaces. In 2011, we were honored to receive the Smithsonian Museum's Cooper-Hewitt NationalDesign Award for Corporate and Institutional Achievement, celebrating our design legacy.Our design excellence is complemented by a management philosophy that fosters a strong collaborative culture, client-driven processes and a lean, agileoperating structure. Our employees are performance-driven and motivated by a variable incentive compensation system and broad-based equity ownership inthe company.Our management evaluates the company as three reporting segments: (i) Office; (ii) Studio; (iii) and Coverings. The Office segment includes systems,seating, storage, tables, desks and KnollExtra® ergonomic accessories as well as the international sales of our North American Office products. The Studiosegment includes our KnollStudio® division, the Company's European subsidiaries which primarily sell KnollStudio products, Richard Schultz® Design and,as of February 3, 2014, Holly Hunt Enterprises, Inc. The KnollStudio portfolio includes a range of lounge seating, side, café and dining chairs, barstools aswell as conference, dining and occasional tables. Richard Schultz® Design provides high-quality outdoor furniture. Known for style and quality, HOLLYHUNT® produces and showcases custom made product including indoor and outdoor furniture, lighting, rugs, textiles and leathers. The Coverings segmentincludes KnollTextiles®, Spinneybeck® (including Filzfelt®), and Edelman® Leather. These businesses serve a wide range of customers offering high-qualitytextiles, felt, and leather. When we refer to our "specialty" products or businesses in this report, we are referring to our Studio and Coverings segments. Seebelow for a further discussion of the individual businesses within each segment.For further information regarding our segments, see Note 19 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.3Table of ContentsProductsWe offer a comprehensive and expanding portfolio of high-quality furniture, textiles and leathers across five product categories: (i) office systems, whichare typically modular and movable workspaces with functionally integrated panels or table desks, worksurfaces, pedestals and other storage units, power anddata systems and lighting; (ii) office seating; (iii) files and storage; (iv) desks, casegoods and tables; and (v) specialty products, including high-image sidechairs, sofas, desks and tables for the office and home, textiles, accessories, leathers and related products. Historically, we have derived most of our revenuesfrom office systems and from specialty products including our KnollStudio collection of signature design classics furnishings, KnollTextiles fabrics,Spinneybeck leathers, and Edelman leathers. However, in recent years, we have significantly expanded our product offerings in seating, files and storage,casegoods and tables and have reduced our dependence on office systems by further growing our specialty businesses, which includes the addition ofHOLLY HUNT product offerings.Office Segment:Systems FurnitureWe believe that office systems purchases are divided primarily between (i) architect and designer-oriented products and (ii) entry-level products withtechnology, ergonomic and functional support. Our office systems furniture reflects the breadth of these sectors with a variety of planning models and acorresponding depth of product features. Our systems furniture can define or adapt to virtually any office environment, from collaborative spaces for teaminteraction to private executive offices.Systems furniture consists principally of functionally integrated panels or table desks, worksurfaces, pedestal and other storage units, power and datasystems and lighting. These components are combined to create flexible, space-efficient work environments that can be moved, re-configured and re-used.Clients, often working with architects and designers, have the opportunity to select from a wide selection of laminates, paints, veneers and textiles to designworkspaces appropriate to their organization's personality. Our systems furniture product development strategy aims to insure that product line enhancementscan be added to clients' existing installations and integrate with other Knoll product lines, maximizing the value of the clients' investments in Knoll systemsproducts over the long-term.Our principal systems furniture product lines include the following panel, technology wall and desk-based planning models:Antenna® WorkspacesIntroduced in 2010, Antenna Workspaces by Masamichi Udagawa and Sigi Moeslinger, principals of Antenna Design, is a new approach to workplacedesign that reflects the freedom and mobility people seek in today's office. Antenna Workspaces consider the growing variety of settings where work takesplace and blends desks, tables, storage units and screens to create intuitive solutions for individuals and groups. In the process, Antenna Workspaces suggestsconnections and boundaries between diverse work areas and establishes a new way to shape space, simplifying transitions between individual and groupwork. Antenna Workspaces has received recognition for its novel approach to office planning, including in 2010, at NeoCon®, our national industrytradeshow, a Best of NeoCon® innovation award. Recent product additions expanded the reach of the system to accommodate activity spaces — workplacesthat provide multiple opportunities for engagement among individuals and groups over a broad spectrum of formality, flexibility, privacy and scale. In 2014,we introduced Antenna® TelescopeTM, a height-adjustable desk system that combines the healthful ergonomics of sit-to-stand adjustment with the planningefficiency of benching.Reff® ProfilesIn 2010, Reff Profiles debuted, building on the Reff flagship wood systems platform. Throughout its history, Reff has combined the high performancecapabilities of panel-based systems furniture with the refined elegance of wood casegoods, showcasing sophisticated all-wood construction and preciselycrafted detail. Reff Profiles extends those capabilities, with new aesthetic options, enhanced storage for materials and technology, and simple user access topower and data needs. Reff Profiles is available in an extensive range of veneers, laminates, glass, and metal options that can be used interchangeably inprivate offices and as freestanding or panel-based furnishings for the open office. Reff Profiles lines has expanded with a series of tables, credenzas andbookcases for meeting spaces and in 2013 and 2014 the line expanded again with new components designed to facilitate collaboration as well as support theopen-office environment including a media enclave capable of supporting multiple technology platforms/needs; locker, bookcase and credenza storage; andseveral new table and desk options.4Table of ContentsAutoStrada®Introduced in 2004, AutoStrada is one of the most comprehensive office concepts that we have developed. AutoStrada provides aesthetic and functionalalternatives to traditional panel-based and desk-based systems furniture with four planning models that combine high-performance furniture with the look ofcustom millwork. The AutoStrada spine-based, storage-based, wall-based and collaborative/open table planning models leverage a consistent designaesthetic to create a distinctively modern aesthetic in both open plan and private office environments. Whether an office requires a high-performance open-plan system, architectural casegoods, progressive private office furniture or a collaborative "big table" concept, AutoStrada provides a solution. In 2004,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 planning opportunities forthe individual workstation, focusing on new materials and furniture that evolve the office landscape with a layered approach to furniture design. Focusing onexceptionally light and transparent materials and practical, personalized storage solutions, Dividends Horizon creates rich spatial environments for thecontemporary workspace. Dividends Horizon received a silver 2007 Best of NeoCon® award. The system's enduring success is based on a straightforward,versatile frame-and-tile construction, featuring a universal panel frame. Removable panel inserts, which can be ordered in fabric, steel, glass or as markerboards, meet a range of clients' design and budgetary needs. The Dividends Horizon panel frame enables clients to utilize either monolithic, tiled or beltwaypanel type for applications throughout the workplace, and power and data access may be located virtually 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 essential power anddata requirements for panel and desk-based planning and private offices, and offers one of the broadest ranges of systems performance in the industry.Morrison has been upgraded periodically with interchangeable enhancements from its Morrison Network, Morrison Access and Morrison Options lines. Inaddition, Morrison integrates with Currents® (described below) to provide advanced wire management capabilities, as well as with our Calibre® and Series 2desks, pedestals, lateral files, overhead storage cabinets and architectural towers to provide compatible, cost-effective panel and desk-based solutions.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 related product, Fence, provides comparable performance for low horizon settings. Currents and Fence may be used in tandem withexisting Knoll systems furniture, removing the constraints imposed by conventional panel system. Currents and Fence may also be used with competitors'systems and freestanding furniture.SeatingWe continuously research and assess the general landscape of the office seating market, and tailor work chair product development initiatives to enhanceour competitive position for ergonomics, aesthetics, comfort and value. We believe that the result of these efforts is an increasingly innovative, versatileseating 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 consistent with ourstrengths and reputation. We believe that we offer an excellent and fully competitive line-up of chairs at a range of price points and performance levels thatare constructed from varying materials, including mesh, polymers, and upholstery. In 2013, we introduced Toboggan®, a playful, yet practical solution forfocused, shared or team work in an increasingly social and mobile workplace. A sled-based chair desk for collaborative and learning environments, Tobogganmakes clever use of shape and scale to allow users to shift 360 degrees in the seat, with the back serving as backrest, armrest or impromptu tablet worksurface.In 2014, we introduced RemixTM, a new collection of chairs by Formway Design, the New-Zealand-based designers of the Generation by Knoll® familyof chairs. Inspired by the idea of bringing pre-existing elements together to make something entirely new, Remix pairs upholstered comfort with innovativeFlex Net Matrix™ technology for active, all day support. By combining traditional and innovative elements, Remix infuses movement and unexpectedperformance into a familiar upholstered form.5Table of ContentsOur principal seating product lines include:Generation by Knoll®, our flagship task chair, reflects Knoll's commitment to materials innovation and forward-thinking ergonomic research that hasfound there is no one right way to sit. Generation offers a new standard of unrestrained movement, supporting the range of postures and work styles typical oftoday's workplace through elastic design, where the chair rearranges itself in response to the user. Generation has received a series of accolades from thenational press, including The Wall Street Journal, Business Week, Time, Fast Company and CBS Sunday Morning. Additionally, the chair has been honoredwith many awards, including Interior Design magazine's 2009 Best of Year Product Award in the contact/task seating category, the Chicago AthenaeumGOOD DESIGN Award, and a Best of NeoCon Gold Award for office seating.ReGeneration by Knoll®, a general purpose task chair, extends the themes of Generation by Knoll®, to support the user simply and efficiently. Doingmore with less, ReGeneration provides continuous support and comfort throughout the day. The chair's efficient structure required re-examining every detailand innovating in the use of sustainable material. As a result, the chair is lightweight, both visually and physically. The chair has been lauded in CoolHunting, Wired.com, TreeHugger, and other design, technology, and environmental blogs.LIFE®, introduced in 2002, has become an industry benchmark for ergonomic and sustainable design. Recognized for its overall lightness and agility,LIFE features intuitive adjustments that bring comfort and effortless control to a new performance level with an extensive range of supportive sitting optionsand responsive lumbar support.RPM®, recognized for outstanding comfort, extraordinary performance and exceptional value, is offered with distinctive fabrics that reflect its stylishdesign. 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 home office.The family of Essentials™ work chairs, introduced in 2005-07, offers the ergonomic comfort and appeal of fully upholstered task chairs at a significantvalue. Essentials work chairs' Pro™, Tech™, and Sport™ models offer a comprehensive range of four task and two side chairs suitable to any office style fromthe traditional to the progressive.Toboggan® is a playful, yet practical solution for focused, shared or team work in an increasingly social and mobile workplace. A sled based chair deskfor collaborative and learning environments, Toboggan makes clever use of shape and scale to allow users to shift 360 degrees in the seat, with the backserving as backrest, armrest or impromptu tablet worksurface. A bench, perch and pull-up table complete the Toboggan® line.Files and StorageOur files and storage products, featuring the Template®, Calibre® and Series 2™ product lines, are designed with unique features to maximize storagecapabilities throughout the workplace. Our core files and storage products consist of lateral files, mobile pedestals and other storage units, bookcases andoverhead storage cabinets. Additionally, Knoll launched AnchorTM in 2013, a streamlined collection of user-friendly storage that addresses the user’sorganizational needs in the changing workplace.The range of files and storage completes our product offering, allowing clients to address all of their furniture needs with us, especially in competitivebid situations where Knoll office systems, seating, tables and desks have been specified. The breadth of the product line also enables our dealers to offerstand-alone products to businesses with smaller storage requirements.Files and storage are available in an extensive array of sizes, configurations and colors, which can be integrated with other manufacturers' stand-alonefurniture, thereby increasing our penetration in competitor accounts. In addition, certain elements of the product line can be configured as freestandingfurniture in private offices or open-plan environments.Our principal storage product lines include:AnchorTM Offered in a variety of configurations including all-open, all-closed with drawers/doors, or a blended solution of open and drawer configurations, Anchorprovides a balance of accessible and secure storage. The collection is an ideal individual storage solution for focused, shared and team settings, or for storageneeds in group settings outside of primary workspaces.6Table of ContentsTemplate®In 2009, we introduced the Template Storage System, offering an economical approach to workplace planning, using vertical storage units to divide anddefine workspaces. In doing so, the product's compact 15 inch deep footprint consolidates storage while reducing the overall size of an individual workspace,saving clients both money and space. Template can be combined with Dividends Horizon, Antenna Workspaces, and other Knoll systems to expand itsplanning capabilities.Calibre®Calibre storage, comprised of lateral files, pedestals, hybrid cabinets, wardrobes and personal storage towers, offers clients a broad array of metal storagesolutions to support virtually any office environment. Personalization is encouraged and valuable space is maximized with 1.5' planning advantage andBuild-Your-Own design possibilities, offering more drawer heights and configurations than industry standards. Calibre storage can stand alone or blend withDividends Horizon, Morrison, and other Knoll systems to complement focused, shared and team workspaces.Series 2™With a focused storage offering in a range of aesthetics, Series 2 storage provides ideal solutions for value-conscious customers. Overhead storage,pedestals and personal storage towers are offered in numerous front designs, both metal and veneer, which perfectly coordinate with Knoll DividendsHorizon, Reff, Morrison and Template systems.Desks and TablesWe offer collections of adjustable tables as well as meeting, conference, training, dining, and café tables for large-scale projects and stand-alone desksand table desks. These items are also sold as stand-alone products through our Knoll dealers to businesses with smaller requirements.Our Tone™, Upstart® and Antenna® Simple Tables product lines include adjustable, work, meeting, conference and training tables. These product linesrange from independent tables to tables suitable for workstations that support individual preferences to plannable desks that can be linked together toreshape larger work areas. In 2014, we introduced ToneTM, a comprehensive collection of height-adjustable tables designed to be compatible with theDividends Horizons, Antenna Workspaces, and Reff Profiles office systems. ToneTM features a wide range of support and adjustment options that integrateseamlessly with Knoll open plan, private office and Activity Spaces furniture or plan independently to create flexible work areas. We also expanded the ReffProfiles product line with a series of meeting tables as well as enhanced the signature LSM Conference Table Collection for KnollStudio.KnollExtra®KnollExtra offers accessories that complement Knoll office furniture products, including technology support accessories, desktop organizational tools,lighting and storage. KnollExtra integrates technology comfortably into the workplace, meeting the increased demand for flat panel monitor supports andcentral processing unit holders, which deliver adjustability and space savings. During 2009, KnollExtra introduced the Sapper Monitor Arm Collection,designed by renowned industrial designer Richard Sapper. The collection provides a clean, modern solution to technology challenges in the modernworkplace and has been accepted into the permanent collection of New York's Museum of Modern Art. During 2012, KnollExtra expanded its portfolio toinclude a line of markerboards, free-standing and mounted LED lighting (awarded 2013 Best of NeoCon Silver) and several products that provide technologysupport for the changing workplace.The Office segment accounted for approximately 62.5% of our sales in 2014, 69.5% of our sales in 2013, and 71.7% of our sales in 2012.Studio Segment:KnollStudio, well-known for the Barcelona®, Saarinen, and Bertoia collections, is a renowned source for classic modern furniture and spirited newdesigns of unparalleled quality for the workplace, home, hotels, restaurants as well as government and educational institutions. The KnollStudio portfolioincludes 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 around the world, including Ludwig Mies van der Rohe, MarcelBreuer, Eero Saarinen, Isamu Noguchi, Warren Platner, Frank Gehry, Maya Lin, Jens Risom, Kazuhide Takahama, and Ross Lovegrove. In addition,KnollStudio manufactures a collection of original furniture designs by Florence Knoll.In 2014, KnollStudio introduced k.lounge, a soft seating series with 11 configurable lounge elements that bridge the gap between object-based furnitureand plannable lounge system. k.lounge pieces can stand on their own for free placement or be configured in a myriad of ways to define work/lounge areaswithin open plan workspaces.7Table of ContentsThe Washington Collection for Knoll transforms David Adjaye’s architectural and sculptural vision into accessible objects for the home and office. Thecollection consists of two cantilevered side chairs, a club chair, an ottoman, a side table and a monumental bronze coffee table.In 2004, KnollStudio established Knoll Space as a formalized sales program for the retail market, making it easier for consumers to bring the best ofKnoll furnishings into their home and home office. The program consists of independent specialty retailers and e-tailers nationwide that sell our iconicmodern classics and selected contemporary designs as well as selected products with crossover home office appeal. Through this program, we sell ourKnollStudio and other selected Knoll products through approximately 65 retailers, with an aggregate of over 100 locations in the United States and Canada.Our Studio segment includes the Knoll Europe businesses. Knoll Europe provides products and services primarily to our European clients, whoseaesthetics and styles can be different from our North America clients. A majority of Knoll Europe's business is Knoll Studio products, but Knoll Europe alsooffers a product profile that enables our customers to purchase a complete office environment. In addition, we offer certain products designed specifically forthe European market. In 2006, we introduced the Wa™ desking system. Wa™ reinvents desks and storage through its design and construction in a linear andwell proportioned modern vernacular. Our presence in the European market provides strategic positioning with clients that have international offices wherethey would like to maintain their Knoll facility standard. In addition to working with North American clients' international offices, we also have a localEuropean client base.In Europe, the core product categories include: (i) KnollStudio; (ii) desk systems, including the Wa™ desking system, the KnollScope®, and the PL1™system; (iii) seating, including a comprehensive range of chairs; and (iv) storage units, which are designed to complement Knoll desk products.In 2014, we acquired the Chicago-based luxury design brand HOLLY HUNT. The acquisition advances the Knoll strategy of building our globalcapability as a go-to resource for high-design workplaces and homes, including the commercial contract, decorator to-the-trade and consumer markets and isincluded in the Studio segment. Like our co-founder Florence Knoll, Holly Hunt is one of the icons of our industry who consistently elevates the level ofdesign in her chosen markets. Founded in 1983, HOLLY HUNT has grown into the premier high-design residential showroom resource and provider offurnishings, lighting, textiles and leathers for architects and interior designers.The Studio segment also includes our Richard Schultz product line of outdoor furniture for the residential, hospitality, and contract office furnituremarkets.The Studio segment accounted for approximately 26.6% of our sales in 2014, 17.9% of our sales in 2013, and 16.4% of our sales in 2012.Coverings Segment:Our Coverings segment consists of (i) KnollTextiles, (ii) Spinneybeck Leather (including Filzfelt products), and (iii) Edelman Leather.KnollTextiles was established in 1947 to create high-quality textiles for Knoll furniture. KnollTextiles offers upholstery, panel fabrics, wallcoverings anddrapery that harmonize color, pattern and texture and offers products for corporate, hospitality, healthcare and residential interiors. KnollTextiles products areused in the manufacture of Knoll furniture and are sold to clients for use in other manufacturers' products. In 2014, KnollTextiles introduced six collectionsacross various categories and price points. The Empire Collection encompassed a total of nine patterns including high-performance upholstery and a trio ofvinyl wallcoverings by guest designer Kari Pei. The Spirit Collection included six upholsteries, two privacy curtains for healthcare, a panel fabric and awallcovering. The Zest Collection encompassed five patterns including upholstery, panel fabric and wallcovering. The division also introduced twocollections for Knoll Luxe targeting high-end hospitality and residential clients. The first introduction by Dorothy Cosonas included two foundationdraperies and four classic upholsteries. The second was the Maria Cornejo for Knoll Luxe Collection, the latest textile fashion collaboration for Knoll with atotal of six patterns (4 upholstery and two drapery).8Table of ContentsKnollTextiles continues to extend its distribution to reach new customers, notably through a KnollTextiles showroom in New York City's D&D buildingand e-commerce through the knolltextiles.com website. Additionally, KnollTextiles has collaborated with HOLLY HUNT to distribute its textiles toresidential clients, starting with its Dallas showroom. The company also continues to win awards for its design excellence including Best of NeoCon® awardsfor eleven years running.Spinneybeck Enterprises, Inc., or Spinneybeck, our wholly owned subsidiary, offers leathers and related products, including leather rugs and wall panels.Spinneybeck supplies high-quality upholstery leather for use on Knoll furniture and for sale directly to clients, including other office furniture manufacturers,hospitality, upholsterers, aviation, custom coach and boating manufacturers.In 2013, Spinneybeck introduced a decorative micro-perforated foil inlay to its popular Lucente leather; Wave — the first pattern in a collection ofshaped wall panels; architectural screen options; and a leather wrapped top option for a range of sizes in the classic Saarinen table.Filzfelt, a division of Spinneybeck, distributes German-milled 100% wool design felt in 63 colors and five thicknesses and offers a wide range of feltproducts and full custom capabilities. A biodegradable and renewable material, wool felt is naturally moisture resistant, self-extinguishing, non-directional,available in lightfast and water resistant colors, and provides thermal and acoustic insulation. We acquired the Filzfelt business on December 30, 2011.Edelman Leather LLC, or Edelman, our wholly owned subsidiary, supplies fine leathers to residential, hospitality, aviation and contract office furnituremarkets. Edelman, offers a broad residential showroom network where designers and retail consumers can sample our products.The Coverings segment accounted for approximately 10.9% of our sales in 2014, 12.6% of our sales in 2013, and 11.9% of our sales in 2012.Product Design and DevelopmentOur design philosophy reflects a historical commitment to partnering with preeminent industrial designers and architects to commercialize productsthat meet evolving workplace and residential needs. By combining designers' creative vision with our commitment to innovative materials andtechnologically advanced processes, we continue to generate strong demand while cultivating brand loyalty among target clients. Our enviable history ofnurturing design provides for relationships that attract the world's leading designers. In addition, these collaborations are consistent with our commitment toa lean organization and incentive-based compensation, by utilizing a variable royalty-based fee as opposed to the fixed costs typically associated with alarger in-house design staff.Our Office and Studio segments product development relies upon a New Product Commercialization Process to ensure quality and consistency of ourmethodology, reducing product development cycle time without sacrificing quality objectives. We use Pro/ENGINEER® solids modeling tools and rapidprototyping technology to compress development cycles and to improve responsiveness to special requests for customized solutions. Working closely withthe designers during the early phases of development provides critical focus to yield the most viable products, balancing innovative modern design withpractical function. Cross-functional teams are employed for all major development efforts with dedicated leaders who facilitate a seamless flow intomanufacturing while aggressively managing cost and schedule opportunities. Increasingly, total environmental impact is factored into product material andmanufacturing process decisions.Research and development expenses, which are expensed as incurred, were $19.2 million for 2014, $17.8 million for 2013, and $15.3 million for 2012.Sales and DistributionWe generate sales with our direct sales force and a network of independent dealers (primarily in the Office segment), who jointly market and sell ourproducts. We generally rely on these independent dealers to also provide a variety of important specification, installation and after-market services to ourclients. Our dealers generally operate under short-term (one to three year), non-exclusive agreements. Our Studio and Coverings segments market and sellproducts with their own internal sales force that often work closely with our Office sales force. We also sell our Studio products through a network ofindependent retailers. HOLLY HUNT and Edelman both operate a network of showrooms to market and sell their products.9Table of ContentsOur 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 Coverings segment also markets and sells products to private aviation,marine and luxury coach industries. Our direct sales force and independent dealers in North America work in close partnership with clients and designprofessionals to specify distinctive work environments. Our direct sales representatives, in conjunction with the independent dealers, sell to and call directlyon key clients. Our independent dealers also call on many other medium and small sized clients to provide seamless sales support and client service. We havean over $11.1 billion installed base of office systems, which provides a strong platform for recurring and add-on sales. "Installed base" refers to the amount ofoffice systems product we have sold in North America during the previous fifteen years.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 furniture purchasing process. Our strong relationships with architects and design professionals help usstay abreast of key workplace trends and position us to better meet the changing needs of clients. For example, we have invested in training all of ourarchitect and designer specialists as Leadership in Energy and Environmental Design ("LEED®") accredited professionals to help clients better addressenvironmental issues that arise in the design of the workplace.We have aligned our sales force to target strategic areas of opportunity to include global accounts, health care, higher education and others. We havealso 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, our dealers generally handle project management, installation and maintenancefor client accounts after the initial product selection and sale. Although many of these dealerships also carry products of other manufacturers, they haveagreed not to act as dealers for our principal direct competitors. We have not experienced significant dealer turnover. Our dealers' substantial commitment tounderstanding our product lines, and their strong relationships with us, serve to discourage dealers from changing vendor affiliations. We are notsignificantly dependent on any one dealer, the largest of which accounted for approximately 4.3%, 6.6%, and 6.7%, of our North American sales in 2014,2013, and 2012, respectively.We provide product and selling skills training for our sales force and dealer sales representatives. In addition, part of our commitment to buildingrelationships with our dealer sales representatives, we introduced the Knoll Essentials program in January 2004. Knoll Essentials is a catalog programdeveloped in response to dealer requests for a consolidated, user-friendly selling tool for day-to-day systems, seating, storage, and accessory products. TheKnoll Essentials program includes dealer incentives to sell our products. We also employ a dedicated team of dealer sales representatives to work with ourdealerships.Sales to U.S., state and local government agencies aggregated approximately 11.3% of our consolidated sales in 2014. The U.S. government typicallycan terminate or modify any of its contracts with us either for its convenience or if we default by failing to perform under the terms of the applicable contract.Manufacturing and OperationsOur East Greenville, Pennsylvania site manufactures Office and Studio products. Textiles are also warehoused at our East Greenville, Pennsylvania site.Chicago, Illinois, Dallas, Texas, and Foligno and Graffignana, Italy locations supply our Studio products. Our locations at Grand Rapids, Michigan,Muskegon, Michigan, and Toronto, Canada also manufacture Office products. We manufacture and assemble products to specific customer order and operateall facilities under a philosophy of continuous improvement, lean manufacturing and efficient asset utilization.In 2010, we initiated a plan to better utilize our North American manufacturing capacity, eliminate duplication of capabilities, and reduce associatedcosts. We continue to look for ways to ensure that our manufacturing capabilities match our supply chain strategy providing the most value for Knoll. In2013, our supply chain team continued its lean journey by launching a comprehensive three-year transformation strategy designed to make our supply chainoperations more efficient, flexible and competitive. In 2014, Supply Chain Operations completed year two of a three year transformation strategy. State of theart veneering and laminate worksurface manufacturing equipment were installed at East Greenville and Toronto manufacturing sites. The result of theseprojects will improve customer responsiveness, quality, and significantly improve productivity.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. Wealso utilize "Kaizen" work groups in the plants to develop best practices to minimize scrap, time and material waste at all stages of the manufacturing process.The involvement of employees at all levels ensures an organizational commitment to lean and efficient manufacturing operations.10Table of ContentsIn 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 rating a company can obtain in OSHA's premier partnership program. To achieve this rating, our EastGreenville 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 of lessthan 2,500 companies nationwide that have demonstrated the dedication and commitment to safety. Our Knoll manufacturing facilities, as a whole, have anaccident rate below the industry average.In 2012, we completed certification of certain products to the level™ Sustainable Certification. All of the products certified received level 3certification, the highest certification available. The "level™ standard" is a voluntary product standard developed by our industry trade association, BIFMA,the Business and Institutional Furniture Manufacturers Association, to support safe, healthy, and sustainable workplace environments.The operations for our two leather businesses, Spinneybeck and Edelman, are located in Getzville, New York and New Milford, Connecticut,respectively. Principal operations for KnollTextiles are in East Greenville, Pennsylvania. HOLLY HUNT's operations are primarily located in Chicago,Illinois.Raw Materials and SuppliersIn 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.The purchasing function in North America is centralized at the East Greenville facility for Office, Studio, and Textiles. This centralization, and the closerelationships with our primary 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, upholstery filling material, aluminum extrusions and castingsare used in our manufacturing process. Both domestic and overseas suppliers of these materials are selected based upon a variety of factors, with the price andquality of the materials and the supplier's ability to meet delivery requirements being primary factors in such selection. We do not generally enter into long-term supply contracts and, as a result, we can be vulnerable to fluctuations in the prices for these materials. No supplier is the only available source for aparticular component or raw material. However, because of the specialization involved with some of our components, it can take a significant amount of time,money and effort to move to an alternate source.CompetitionThe markets in which we compete are highly competitive. We compete on the basis of (i) product design, including performance, ergonomic andaesthetic features; (ii) product quality and durability; (iii) relationships with clients, architects and designers; (iv) strength of dealer and distributor network;(v) on-time delivery and service performance; (vi) commitment to environmental standards by offering products that help clients achieve LEED® certifiedfacilities and minimize environmental impact; and (vii) price. We estimate that we had an approximate 10.7% market share in the U.S. office furniture marketin 2014.Some of our competitors, especially those in North America, are larger and have significantly greater financial, marketing, manufacturing and technicalresources than us. Our most significant competitors in primary markets are Herman Miller, Inc., Steelcase, Inc., Haworth, Inc. and, to a lesser extent, Allsteel,Inc., an operating unit of HNI Corporation, and Teknion Corporation. These competitors have a substantial volume of furniture installed at businessesthroughout North America, providing a continual source of demand for further products and enhancements. Moreover, the products of these competitors havestrong acceptance in the marketplace. Although we believe that we have been able to compete successfully in the markets to date, there can be no assurancethat we will be able to continue to do so in the future.Competition in the Coverings segment is much more fragmented than in the Office segment. Both Spinneybeck and Edelman serve the mid to high endof the market, but compete against many companies, none of which has a dominant market share.11Table of ContentsPatents and TrademarksWe consider securing and protecting our intellectual property rights to be important to the business. We own approximately 54 active U.S. utilitypatents on various components used in our products and systems and approximately 89 active U.S. design patents. We also own approximately 357 patents invarious foreign countries. The scope and duration of our patent protection varies throughout the world by jurisdiction and by individual product. Inparticular, patents for individual products extend for varying periods of time according to the date a patent application is filed, the date a patent is grantedand the term of patent protection available in the jurisdiction granting the patent (generally 20 years from the date of filing in the U.S., for example). Webelieve that the duration of the applicable patents we are granted is adequate relative to the expected lives of our products. We own approximately 91trademark registrations in the U.S., including registrations to the following trademarks, as well as related stylized depictions of the Knoll word mark: Knoll®,KnollExtra®, Knoll Luxe®, KnollStudio®, KnollTextiles®, Good Design Is Good Business®, Antenna®, Autostrada®, Calibre®, Currents®, Dividends®,Edelman® Leather, Modern Always®, Propeller®, Reff®, RPM®, Sapper XYZ®, Spinneybeck® Leather, Toboggan®, Generation by Knoll®, Regeneration byKnoll®, MultiGeneration by Knoll®, and HOLLY HUNT®. We also own approximately 264 trademarks registered in foreign countries. The scope andduration of our trademark protection varies throughout the world, with some countries protecting trademarks only as long as the mark is used, and othersrequiring 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 theindefinite duration, we make filings to continue registration of our trademarks.In October 2004, we received registered trademark protection in the United States for five iconic furniture designs by Ludwig Mies van der Rohe-theBarcelona Chair, the Barcelona Stool, the Barcelona Couch, the Barcelona Table and the Flat Bar Brno Chair. This protection recognizes the renown of thesedesigns and reflects our commitment to ensuring that when architects, furniture retailers, businesses and individuals purchase a Ludwig Mies van der Rohedesign, they are acquiring the authentic product, manufactured in accordance with the designer's historic specifications. Barcelona® is a registered trademarkin the U.S., Canada and European Community owned by Knoll, Inc.Foreign and Domestic OperationsOur principal manufacturing operations and markets are in North America, and we also have manufacturing operations and markets in Europe. Our salesto clients and net property, plant and equipment are summarized by geographic areas below. Sales are attributed to the geographic areas based on the originof sale. United States Canada Europe Consolidated (in thousands)2014 Sales$928,733 $32,811 $88,750 $1,050,294Property, plant, and equipment, net123,821 25,669 15,529 165,0192013 Sales$752,347 $36,240 $73,665 $862,252Property, plant, and equipment, net94,896 27,938 15,059 137,8932012 Sales$785,651 $40,669 $72,176 $898,496Property, plant, and equipment, net80,953 29,064 14,821 124,83812Table of ContentsEnvironmental MattersWe 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. There canbe 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 and regulations.We have trained staff responsible for monitoring compliance with environmental, health and safety requirements. Our goal is to reduce and, whereverpossible, eliminate the creation of hazardous waste in our manufacturing processes. While it is difficult to estimate the timing and ultimate costs to beincurred due to uncertainties about the status of laws, regulations and technology, based on information currently known to management, we do not expectenvironmental costs or contingencies to have a material adverse effect on our consolidated financial position, results of operations, competitive position, orcash flows. The operation of manufacturing plants entails risks in these areas, however, and we cannot be certain that we will not incur material costs orliabilities 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 Liability Act, or"CERCLA," for remediation costs associated with waste disposal sites previously used by us. CERCLA can impose liability for costs to investigate andremediate contamination without regard to fault or the legality of disposal and, under certain circumstances, liability may be joint and several resulting inone responsible party being held responsible for the entire obligation. Liability may also include damages for harm to natural resources. The remediationcosts and our allocated share at some of these CERCLA sites are unknown. We may also be subject to claims for personal injury or contribution relating toCERCLA sites. We reserve amounts for such matters when expenditures are probable and reasonably estimable.EmployeesAs of December 31, 2014, we employed a total of 3,343 people, consisting of 1,837 hourly and 1,506 salaried employees. The Grand Rapids, Michiganplant is the only unionized plant within North America 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 190 hourly employees. TheCollective Bargaining Agreement was entered into on August 27, 2011 and expires April 30, 2015. From time to time, there have been unsuccessful efforts tounionize at our other North American locations. We believe that relations with our employees are good. Nonetheless, it is possible that our employees maycontinue attempts to unionize. Certain workers in the facilities in Italy are also represented by unions. We have experienced brief work stoppages from timeto time at our plants in Italy. Work stoppages are relatively common occurrences at many Italian manufacturing plants and are usually related to national orlocal issues, not necessarily related specifically to Knoll. We had one such work stoppage in 2014, with a duration of 8 hours in total. This work stoppage wasnot unique to us, and the work stoppage did not materially affect our performance.Available InformationOur 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 made availablefree of charge through the "Investor Relations" section of our website at www.knoll.com, as soon as practicable after such material is electronically filed withor furnished to the U.S. Securities and Exchange Commission.13Table of ContentsITEM 1A. RISK FACTORSRISK FACTORSRisks 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 in sales wouldbe 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 general economicenvironment. In a recessionary economy like we have experienced in recent history, business confidence, service-sector employment, corporate cash flowsand non-residential commercial construction decrease, which typically leads to a decrease in demand for office furniture. In addition, a recessionary economymay also result in saturation of the market by "just new" used office systems, leading to a decrease in demand. Sales of office systems, which have historicallyaccounted for almost half of our revenues, represent longer term and higher cost investments for our clients. As a result, sales of office systems are moreseverely impacted by decreases in corporate spending than sales of coverings, studio products, seating, files and storage and casegoods, and demand foroffice 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 other factorsthat are outside of our control could at any time have a significant effect on the economy, and, therefore, our business. The occurrence of any of these orsimilar events in the future could result in downward pressure on the economy, which we would expect to cause demand for our products to decline andcompetitive 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 as thefinancial 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, or need, toaccess financial markets. In addition, interest rate fluctuations, financial market volatility or credit market disruptions may negatively affect our customers'and our suppliers' abilities to obtain credit to finance their businesses on acceptable terms. As a result, our customers' needs and abilities to purchase ourproducts or services may decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale. If our customers' or suppliers'operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, our customers may not be able to pay, ormay delay payment of, accounts receivable owed to us, and our suppliers may restrict credit or impose different payment terms on us. Any inability ofcustomers to pay us for our products and services, or any demands by suppliers for different payment terms, may adversely 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. Our competitors maydevelop new product designs that give them an advantage over us in making future sales.We compete with our competitors on the basis of, among other things, price and product design. Since our competitors offer products that are similar toours, we face significant price competition from our competitors, particularly in the Office segment. This price competition impacts our ability to implementprice increases or, in some cases, maintain prices, which could lower our profit margins.Additionally, our competitors may develop new product designs that achieve a high level of customer acceptance, which could give them a competitiveadvantage over us in making future sales.14Table of ContentsOur efforts to introduce new products that meet customer and workplace requirements may not be successful, which could limit our sales growth or causeour 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 regulatory andindustry requirements, including environmental, health, safety and similar standards for the workplace and for product performance, we must periodicallyintroduce new products. The introduction of new products requires the coordination of the design, manufacturing and marketing of such products, which maybe affected by factors beyond our control. The design and engineering of certain of our new products can take up to a year or more and further time may berequired to achieve client acceptance. In addition, we may face difficulties in introducing new products if we cannot successfully align ourselves withindependent architects and designers who are able to design, in a timely manner, high-quality products consistent with our image. Accordingly, the launch ofany particular product may be later or less successful than originally anticipated by us. Difficulties or delays in introducing new products or lack of customeracceptance 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 key personnel.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 the industryin which we compete. We rely substantially upon the services of Andrew B. Cogan, our Chief Executive Officer. The loss of the services of Mr. Cogan orother 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 for anyharm to our business resulting from loss of his services. The inability to attract and retain other talented personnel could also affect our ability to successfullyimplement 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 are themain raw materials used in our products. The prices and availability of raw materials are subject to change or curtailment due to, among other things, thesupply 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 and worldwide price levels. We can besignificantly 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 raw materialsand components on a timely basis, or any significant delays or interruptions in the supply of raw materials or components, could prevent us from being ableto produce products ordered by our clients in a timely fashion, which could have a negative impact on our reputation and our dealership network, and couldcause our sales to decline.We 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, like plastics,and the cost of operating our manufacturing facilities. Energy costs have been volatile in recent years due to changes in global supply and demand. Althoughwe have been successful in countering energy price increases, primarily through our global sourcing initiatives and continuous improvement programs, wehave not been able to offset these costs entirely.15Table of ContentsWe rely upon independent furniture dealers, and a loss of a significant number of dealers could affect our business, financial condition and results ofoperations.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 the marketingof our products to large accounts, particularly in the Office segment. We also rely upon these dealers to provide a variety of important specification,installation and after-market services to our clients. Our dealers operate, generally, under short-term, non-exclusive agreements. There is nothing to preventour dealers from terminating their relationships with us. In addition, individual dealers may not continue to be viable and profitable and may suffer from thelack of available credit. While we are not significantly dependent on any single dealer, our largest dealer accounted for 4.3% of our North American sales in2014, and if dealers go out of business or are restructured, we may suffer losses because they may not be able to pay us for products previously delivered tothem. 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 of timeand resources. The loss or termination of a significant dealer or a significant number of dealer relationships could cause significant difficulties for us inmarketing and distributing our products, resulting in a decline in our sales.Currently, one of our largest clients is the U.S. government, a relationship that is subject to uncertain future funding levels and federal procurement lawsand requires restrictive contract terms; any of these factors could curtail current or future business.For the year ended December 31, 2014, we derived approximately 11.3% of our revenue from sales to U.S., state and local government agencies. Ourability to compete successfully for and retain business with the U.S. government is highly dependent on cost-effective performance and compliance withcomplex procurement laws. Historically, federal procurement laws required government agencies to purchase furniture products from Federal PrisonIndustries, Incorporated. If these or similar laws would be re-instituted, it would make it more difficult for us to sell our furniture to agencies and departmentsof the U.S. government.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 to performunder the terms of the applicable contract. A termination arising out of our default could expose us to liability and impede our ability to compete in thefuture for contracts and orders. Furthermore, if we were found to have committed fraud or certain criminal offenses, we could be suspended or debarred fromall further government contracting.Given the significance of our governmental business, we are sensitive to decreases in governmental spending. Federal, state and local governmentbudgets have experienced deficits recently and are under significant pressure to reduce spending. These spending pressures have resulted in, and maycontinue to result in, decreased furniture spending, which has negatively impacted (and may continue to negatively impact) our governmental sales.Our 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 diversify oursources of revenue and reduce our dependence on North American office system sales by, for example, growing our seating, international, and specialtybusinesses. While we believe that this strategy enables us to better maintain and grow our sales and profitability during cyclical ups and downs in theindustry, there can be no assurance that this diversification strategy will be effective in achieving these goals. Our diversification strategy involves thecontinued expansion of our specialty businesses, and business growth internationally, which may expose us to business risks that we have not experienced.We also may incur significant costs in pursuing our diversification strategy, and those costs may not be fully offset by increased revenues associated withnew 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, 2014, we had total consolidated outstanding debt of approximately $258.0 million under our credit facility.16Table of ContentsOn May 20, 2014, we amended and restated our existing credit facility, dated February 3, 2012, with a new $500.0 million credit facility maturing onMay 20, 2019, consisting of a revolving commitment in the amount of $300.0 million and a term loan commitment in the amount of $200.0 million. TheAmended Credit Agreement also includes an option to increase the size of the credit facility or incur incremental term loans by up to an additional $200.0million, subject to the satisfaction of certain terms and conditions.At December 31, 2014, if we were to borrow the maximum available to us under our credit facility and those of our foreign subsidiaries, we would havetotal consolidated outstanding debt of approximately $506.4 million. In February 2014, we increased our outstanding debt by approximately $95.0 millionin order to complete the acquisition of Holly Hunt Enterprises, Inc. and its related businesses. The high level of our indebtedness could have importantconsequences to holders of our common stock, given that:•a substantial portion of our cash flow from operations must be dedicated to fund scheduled payments of principal and debt service and will not beavailable for other purposes;•our ability to obtain additional debt financing in the future for working capital, capital expenditures, research and development or acquisitions maybe 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 to changes inour industry or in economic conditions generally.Our credit facility prevents us and our subsidiaries from incurring any additional indebtedness other than (i) borrowings under our existing creditfacility; (ii) certain types of indebtedness that may be incurred subject to aggregate dollar limitations identified in the credit facility, including, withoutlimitation, purchase money indebtedness and capital lease obligations, indebtedness incurred in connection with a permitted acquisition, and loans obtainedthrough an expansion of the facility, all of which cannot exceed $250.0 million at any time, and (iii) other types of indebtedness that are not limited tospecific dollar limitations, such as indebtedness incurred in the ordinary course of business and unsecured, subordinated indebtedness. The aggregate amountof indebtedness that we may incur pursuant to these exceptions is further limited by the financial covenants in our credit facility and, therefore, will dependon our future results of operations and cannot be determined at this time. Furthermore, although we may incur unlimited amounts of certain types ofindebtedness, subject to compliance with these financial covenants, the amount of indebtedness that we may actually be able to incur will depend on theterms 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 credit facility could result in a default thereunder. If payments to the lenders under our credit facilitywere to be accelerated, our assets could be insufficient to repay in full the indebtedness under our credit facility and our other liabilities. Any suchacceleration could also result in a foreclosure on all or substantially all of our subsidiaries' assets, which would have a negative impact on the value of ourcommon 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, information technology upgrades and new productdevelopment. To the extent that our existing capital is insufficient to meet these requirements and cover any losses, we may need to raise additional fundsthrough financings or curtail our growth 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 could result in dilution to our stockholders, and the securities may have rights, preferences and privileges that are senior to those of ourcommon stock. If our need for capital arises because of significant losses, the occurrence of these losses may make it more difficult for us to raise thenecessary capital.17Table of ContentsAn 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 the differences inforeign trademark, patent and other laws concerning proprietary rights, our intellectual property rights do not generally receive the same degree of protectionin foreign countries as they do in the United States. In some parts of the world, we have limited protections, if any, for our intellectual property. Our ability tocompete effectively with our competitors depends, to a significant extent, on our ability to maintain the proprietary nature of our intellectual property. Thedegree of protection offered by the claims of the various patents, trademarks and service marks may not be broad enough to provide significant proprietaryprotection or competitive advantages to us, and patents, trademarks or service marks may not be issued on our pending or contemplated applications. Inaddition, not all of our products are covered by patents. It is also possible that our patents, trademarks and service marks may be challenged, invalidated,canceled, 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 make choicesabout where and how we pursue enforcement and where we seek and maintain patent protection. In many cases, the cost of enforcing our rights is substantial,and we may determine that the costs of enforcement outweigh the potential benefits. If we are unable to maintain the proprietary nature of our intellectualproperty with respect to our significant current or proposed products, our competitors may be able to sell copies of our products, which could adversely affectour ability to sell our original products and could also result in competitive pricing pressures, which may negatively affect our profitability.If third parties claim that we infringe upon their intellectual property rights, we may incur liabilities and costs and may have to redesign or discontinue aninfringing product.We face the risk of claims that we have infringed upon third parties' intellectual property rights. Companies operating in our industry routinely seekpatent protection for their product designs, and many of our principal competitors have large patent portfolios. Prior to launching major new products in ourkey markets, we normally evaluate existing intellectual property rights. However, our competitors may have filed for patent protection which is not, at thetime of our evaluation, a matter of public knowledge. Our efforts to identify and avoid infringing upon third parties' intellectual property rights may not besuccessful. Any claims of patent or other intellectual 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, orrebrand our products or packaging, if feasible; or (iv) require us to enter into royalty or licensing agreements in order to obtain the right to use a third party'sintellectual property.We could be required to incur substantial costs to comply with environmental requirements. Violations of, and liabilities under, environmental laws andregulations 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 waste andthe cleanup of properties affected by hazardous substances. As a result, we are involved from time to time in administrative and judicial proceedings andinquiries relating to environmental matters and could become subject to fines or penalties related thereto. We cannot predict what environmental legislationor regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditionsmay be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures byus, some of which may be material. We have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response,Compensation and Liability Act of 1980, or CERCLA, for remediation costs associated with waste disposal sites previously used by us. In general, CERCLAcan impose liability for costs to investigate and remediate contamination without regard to fault or the legality of disposal and, under certain circumstances,liability may be joint and several, resulting in one party being held responsible for the entire obligation. Liability may also include damages for harm tonatural resources. 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.18Table of ContentsWe 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 our GrandRapids location expires April 30, 2015. We have also had attempts to unionize our other North American manufacturing locations, which to date have beenunsuccessful. We have experienced a number of brief work stoppages at our facilities in Italy as a result of national and local issues. While we believe that wehave good relations with our workforce, we may experience work stoppages or other labor problems in the future, and further unionization efforts may besuccessful. Any prolonged work stoppage could have an adverse effect on our reputation, our vendor relations and our dealership network. Moreover,because substantially all of our products are manufactured to order, we do not carry finished goods inventory that could mitigate the effects of a prolongedwork stoppage.Product 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 to manufacturingproblems. If product defects do arise, we could incur product warranty costs, product liability costs and costs associated with recalling and repairing defectiveproducts. While we maintain a reserve for our product warranty costs based on estimates of the costs that may be incurred under the warranties on all of ourproducts, our actual warranty costs may exceed this reserve, resulting in a need to increase the amounts accrued for warranty costs. We also maintain productliability and other insurance coverage that we believe to be generally in accordance with industry practices, but our insurance coverage does not extend tofield visits to repair, retrofit or replace defective products, or to product recalls. As a result, our insurance coverage may not be adequate to protect us fullyagainst substantial claims and costs that may arise from product defects, particularly if we have a large number of defective products that we must repair,retrofit, replace or recall. Sales of our products could be adversely affected by excessive warranty claims, product recalls and adverse perceptions of productquality. As a result of these factors, product defects could have a material adverse effect on our 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 our expenses inother currencies. Paying our expenses in other currencies can result in a significant increase or decrease in the amount of those expenses in U.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 have operationsrelative to the strength of the U.S. dollar. The principal foreign currencies in which we conduct business are the Canadian dollar and the Euro. Approximately11.8% of our revenues in 2014 and 30.2% of our cost of goods sold in 2014 were denominated in currencies other than the U.S. dollar. From time to time, wereview our foreign currency exposure and evaluate whether we should hedge our exposure.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 other planassumptions or in the market value of plan assets could affect the funded status of our pension plans. This could cause volatility in our benefits costs whichcould increase future funding requirements of our pension plans and have a negative impact on our results of operations, financial condition and cash flows.Our future funding obligations also are affected by the Pension Protection Act of 2006 ("PPA"), which established certain required funding targets. Volatilityin the 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 the PPA.We are in the process of implementing a new enterprise resource planning system, and problems with the design or implementation of this system couldinterfere with our business and operations.We are engaged in a multi-year implementation of a new global enterprise resource planning system (ERP). The ERP is designed to accurately maintainthe company's books and records and provide information to the company's management team important to the operation of the business. The company's ERPhas required, and will continue to require, the investment of significant human and financial resources. We may not be able to successfully implement theERP without experiencing delays, increased costs and other difficulties. If we are unable to successfully design and implement the new ERP system asplanned, our financial positions, results of operations and cash flows could be negatively impacted.19Table of ContentsWe may not be able to successfully integrate acquired businesses, which may result in an inability to realize the anticipated benefits of our acquisitions.One of our key operating strategies is to selectively pursue acquisitions. We have made a number of acquisitions in the past and we expect that aportion of our future growth may come from such transactions. We evaluate potential acquisitions on an ongoing basis. However, we may not be able toidentify suitable acquisition candidates at prices we consider attractive. Further, our ability to successfully integrate acquired businesses could be negativelyimpaired because of difficulties, costs and delays that may include:•Negative impacts on employee morale and performance as a result of job changes and reassignments;•Unforeseen difficulties, costs or complications in integrating the companies' operations, which could lead to us not achieving the synergies weanticipate;•Unanticipated incompatibility of systems and operating methods;•Resolving possible inconsistencies in standards, controls, procedures and policies, business cultures and compensation structures;•The diversion of management's attention from ongoing business concerns and other strategic opportunities;•Unforeseen difficulties in operating acquired business in parallel with similar businesses that we operated previously;•Unforeseen difficulties in operating businesses we have not operated before;•Unanticipated difficulty of integrating multiple acquired businesses simultaneously;•The retention of key employees and management of acquired businesses;•The coordination of geographically separate organizations;•The coordination and consolidation of ongoing and future research and development efforts; and•Possible tax costs or inefficiencies associated with integrating the operations of a combined company.In connection with any acquisition that we make, there may be liabilities that we fail to discover or that we inadequately assess. Acquired entities maynot operate profitably or result in improved operating performance. Additionally, we may not realize anticipated synergies. If our acquisitions performpoorly, our business and financial results could be adversely affected.In the beginning of 2013, we announced a program of strategic investments and multi-year initiatives. If we experience delays or complications inimplementing these programs, or if these programs are not as successful as we expect, it could negatively impact our financial position and results ofoperations.In the beginning of 2013, we announced the implementation of an aggressive program of strategic investments and multi-year initiatives intended toenable us to achieve our operating goals of over $1.0 billion in annual revenues and over 12% operating profit margins. These initiatives required thecompany to make significant investments in 2013 and 2014, in an effort to drive our longer-term revenue and profitability goals. We may not be successful inthe implementation of these initiatives and we may experience delays, increased costs and other difficulties and never achieve our revenue growth or profitgoals, or achieve them later than currently planned. Any delays or failures in the implementation or success of these initiatives could have a negative impacton our financial position and results of operations.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 involving usthat our stockholders may consider favorable. For example, our amended and restated certificate of incorporation authorizes our board of directors to issue upto 10,000,000 shares of "blank check" preferred stock. Without stockholder approval, the board of directors has the authority to attach special rights,including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquireus. In addition, our amended and restated certificate of incorporation provides for a staggered board of directors, whereby directors serve for three-year terms,with approximately one-third of the directors coming up for reelection each year. Having a staggered board will make it more difficult for a third party toobtain control of our board of directors through a proxy contest, which may be a necessary step in an acquisition of us that is not favored by our board ofdirectors.20Table of ContentsWe 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, which coulddiscourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203, "interested stockholder"means, generally, someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding votingstock during the past three years, subject to certain exceptions as described in Section 203. Upon any change in control, the lenders under our credit facilitywould 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 financial performanceof the companies issuing the securities. These broad market fluctuations may negatively affect the market price of our common stock. You may not be able toresell your shares at or above the price at which you purchased them due to fluctuations in the market price of our common stock caused by changes in ouroperating performance or prospects and other factors. Some specific factors that may have a significant effect on our common stock market price include:•actual or anticipated fluctuations in our operating results or future prospects, including actual or perceived fluctuations in the demand for ourproducts;•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 those resulting fromwar, 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 or the officefurniture industry generally.21Table of ContentsITEM 1B. UNRESOLVED STAFF COMMENTSNoneITEM 2. PROPERTIESWe operate over 3,866,000 square feet of facilities, including manufacturing plants, warehouses and sales offices. Of these facilities, we ownapproximately 2,424,000 square feet and lease approximately 1,442,000 square feet. Our manufacturing plants are located in East Greenville, Pennsylvania,Grand Rapids and Muskegon, Michigan, Chicago, Illinois, Dallas, Texas, Toronto, Canada, and Foligno and Graffignana, Italy. The location, square footage,and use of the facilities as of December 31, 2014 are shown below.Owned LocationsSquareFootage UseOperating SegmentEast Greenville, Pennsylvania735,000 (1) Corporate Headquarters, Manufacturing, Warehouses, andAdministrationOffice, Studio andCoveringsGrand Rapids, Michigan545,000 (1) Manufacturing, Distribution, and AdministrationOfficeMuskegon, Michigan368,000 (1) Manufacturing and AdministrationOfficeToronto, Canada408,000 Manufacturing, Distribution, Warehouses, and AdministrationOfficeFoligno, Italy258,000 Manufacturing, Distribution, Warehouses, and AdministrationStudioGraffignana, Italy110,000 Manufacturing, Distribution, Warehouses, and AdministrationStudioLeased LocationsSquareFootage UseOperating SegmentEast Greenville, Pennsylvania50,000 Warehouses, DistributionOffice and StudioAllentown, Pennsylvania290,000 Warehouse, DistributionOffice and StudioBedford Park, Illinois135,000 Warehouse, Distribution (Holly Hunt Enterprises)StudioMuskegon, Michigan105,000 ManufacturingOfficeToronto, Canada170,000 Manufacturing, Warehouses, Distribution and AdministrationOfficeKnoll, Europe—various locations39,000 Sales Offices, Administration, and WarehousesStudioNew Milford, Connecticut55,000 Manufacturing and Administration (Edelman Leather)CoveringsChicago, Illinois34,000 Warehouse, Distribution (Holly Hunt Enterprises)StudioGetzville, New York31,000 Manufacturing and Administration (Spinneybeck)CoveringsDallas, Texas30,000 Warehouse, Distribution (Holly Hunt Enterprises)StudioChicago, Illinois23,000 Administration (Holly Hunt Enterprises)StudioMiscellaneous Showrooms480,000 Sales OfficesOffice, Studio, andCoverings_______________________________________________________________________________(1)Facilities are encumbered by mortgages securing indebtedness under our credit facility.We believe that our plants and other facilities are sufficient for our needs for the foreseeable future.ITEM 3. LEGAL PROCEEDINGSFrom time to time, we are subject to litigation or other legal proceedings arising in the ordinary course of business. Based upon information currentlyknown to us, we believe the outcome of such proceedings will not have, individually or in the aggregate, a material adverse effect on our business, financialcondition or results of operations.22Table of ContentsITEM 4. MINE SAFETY DISCLOSURESNot applicable.23Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESMarket Information and Dividend PolicyOur common stock has been listed on the New York Stock Exchange ("NYSE") since December 14, 2004, the date of our initial public offering, underthe symbol "KNL." As of December 31, 2014, there were approximately 171 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. High LowFiscal year ended December 31, 2014 First quarter$18.28 $14.54Second quarter$20.10 $16.21Third quarter$19.22 $16.45Fourth quarter$21.88 $16.52 High LowFiscal year ended December 31, 2013 First quarter$18.69 $14.73Second quarter$18.26 $13.46Third quarter$17.37 $14.12Fourth quarter$18.36 $15.62We declared and paid cash dividends of $0.48 per share for both the years ended December 31, 2014 and 2013, respectively. On February 3, 2015, ourboard of directors declared a cash dividend of $0.12 per share on our common stock payable on March 31, 2015 to shareholders of record on March 13, 2015.The declaration and payment of future dividends is subject to the discretion of our board of directors and depends on various factors, including our netincome, financial condition, cash requirements and future prospects and other factors deemed relevant by our board of directors. Our credit facility imposesrestrictions on our ability to pay dividends, and thus our ability to pay dividends on our common stock will depend upon, among other things, our level ofindebtedness at the time of the proposed dividend and whether we are in default under any of our debt obligations. Our ability to pay dividends will alsodepend on the requirements of any future financing agreements to which we may be a party. Our board of directors intends to evaluate our dividend policyquarterly in reference to these factors.24Table of ContentsPerformance GraphThe following line graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the Standard &Poor's 500 Stock Index and with the cumulative total return on a peer group of companies selected by us for the period commencing on December 31, 2009and ending on December 31, 2014. Our share price at the beginning of the measurement period is $10.33 per share. The graph and table assume that $100 wasinvested on December 31, 2009 in each of our common stock, the stock of our peer group, and the S&P 500 Index, and that all dividends were reinvested.Cumulative total stockholder returns for our common stock, the S&P 500 Index, and the stock of our peer group are based on our fiscal year. Our peer group ismade up of two publicly-held manufacturers of office furniture, Herman Miller, Inc. and Steelcase, Inc. The stock performance on the graph below does notnecessarily indicate future price performance.COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*Among Knoll, Inc., the S&P 500 Index, and a Peer Group$100 invested on 12/31/09 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. 12/09 12/10 12/11 12/12 12/13 12/14Knoll, Inc. 100.00 163.30 148.36 158.21 194.31 230.76S&P 500100.00 115.06 117.49 136.30 180.44 205.14Peer Group100.00 162.75 118.74 166.41 223.72 244.46_______________________________________________________________________________* The performance graph and the related chart should not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporatedby reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, unless we specifically incorporate theperformance graph by reference therein.25Table of ContentsIssuer Purchases of Equity SecuritiesThe following is a summary of share repurchase activity during the three months ended December 31, 2014.On August 17, 2005, our board of directors approved a stock repurchase program (the "Options Proceeds Program"), whereby they authorized us topurchase 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 up to$50.0 million of our common stock in the open market, through privately negotiated transactions, or otherwise. On February 4, 2008, our board of directorsexpanded this previously authorized $50.0 million stock repurchase program by an additional $50.0 million.PeriodTotalNumber ofSharesPurchased AveragePrice PaidPer Share Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs Maximum Dollar Valueof Shares that May Yetbe Purchased Under thePlans or Programs(1)October 1, 2014 -October 31, 201458,828 (2) $17.38 40,092 $32,352,413November 1, 2014 -November 30, 201415,055 (3) $19.40 9,553 $32,352,413December 1, 2014 -December 31, 201451,355 $21.79 51,355 $32,352,413Total125,238 101,000 _______________________________________________________________________________(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 stockrepurchase program, which was expanded by an additional $50.0 million in February 2008, we are only authorized to spend an aggregate of$100.0 million on stock repurchases. Amounts in this column represent the amounts that remain available under the $100.0 million stock repurchaseprogram as of the end of the period indicated. There is no scheduled expiration date for the Option Proceeds Program or the $100.0 million stockrepurchase program, but our Board of Directors may terminate either program in the future.(2)On October 21, 2014, 36,666 shares of outstanding restricted stock vested. Concurrently with the vesting, 11,836 shares were forfeited by the holderof the vested restricted shares to cover applicable taxes paid to the holder's behalf by the Company. On October 22, 2014, 15,000 restricted stockunits vested. Concurrently with the vesting, 6,900 shares underlying restricted stock units were forfeited by the holder of the vested restricted stockunits to cover applicable taxes paid on the holder's behalf by the Company. The remaining 40,092 shares were purchased under the Option ProceedsProgram.(3)On November 20, 2014, 15,625 shares of outstanding restricted stock vested. Concurrently with the vesting, 5,502 shares were forfeited by theholder of the vested restricted stock units to cover applicable taxes paid on the holder's behalf by the Company. The remaining 9,553 shares werepurchased under the Option Proceeds Program.26Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Conditionand Results of Operations" and our audited consolidated financial statements and the related notes included elsewhere in this Form 10-K. The selectedconsolidated financial data for the years ended December 31, 2012, 2013 and 2014 and as of December 31, 2013 and 2014 are derived from our auditedfinancial statements included elsewhere in this Form 10-K. The selected consolidated financial data for the years ended December 31, 2010 and 2011 and asof December 31, 2010, 2011 and 2012 are derived from our audited financial statements not included in this Form 10-K. Consolidated Statements of Operations and Comprehensive Income Data Years Ended December 31, (dollars in thousands, except per share data) 2010 (1) 2011 (1) 2012 (1) 2013 (1) 2014 (1)Sales$803,291 $918,822 $898,496 $862,252 $1,050,294Cost of sales540,626 626,352 600,602 581,920 678,609Gross profit262,665 292,470 297,894 280,332 371,685Selling, general and administrativeexpenses192,122 203,009 206,422 224,915 286,801Restructuring and other charges7,565 696 — 5,104 1,532Intangible asset impairment charge— — — 8,900 —Pension settlement and OPEBcurtailment— (5,445) — — 6,509Operating profit62,978 94,210 91,472 41,413 76,843Interest expense17,436 9,753 6,350 5,941 7,378Other (income) expense, net6,347 (3,108) 3,215 (3,430) (6,285)Income before income tax expense39,195 87,565 81,907 38,902 75,750Income tax expense11,830 31,245 30,384 15,718 29,165Net earnings$27,365 $56,320 $51,523 $23,184 $46,585Net earnings attributable to Knoll, Inc.stockholders$27,365 $56,320 $51,523 $23,184 $46,596Per Share Data: Earnings per share: Basic$0.60 $1.22 $1.10 $0.49 $0.98Diluted$0.60 $1.20 $1.09 $0.49 $0.97Cash dividends declared per share:$0.12 $0.36 $0.44 $0.48 $0.48Weighted-average shares of commonstock outstanding: Basic45,600,043 46,249,571 46,634,834 46,916,845 47,346,532Diluted45,970,680 46,835,712 47,059,186 47,659,418 48,068,24927Table of Contents Consolidated Balance Sheet Data: As of December 31, 2010 (1) 2011 (1) 2012 (1) 2013 (1) 2014 (1) (in thousands)Working capital$68,828 $79,641 $83,129 $66,827 $80,045Total assets686,196 686,187 695,873 675,762 868,943Total long-term debt, includingcurrent portion245,135 212,000 193,000 173,000 258,000Total liabilities565,335 527,558 513,559 451,935 655,725Total equity120,861 158,629 182,314 223,827 213,218(1) Restatement of Previously Reported Financial Information— In conjunction with the year-end financial statement close process, an error was identifiedin the historical accounting for income taxes during the annual and quarterly periods from 2007 through 2014. The error resulted from the failure to identifythe income tax ramifications associated with the non-timely settlement of sales transactions between our Canadian subsidiary, Knoll North America Corp.,and Knoll, Inc. The errors resulted in improperly stated deferred tax assets and liabilities, uncertain tax positions, other comprehensive income, and incometax expense. Consequently, we have restated certain prior period amounts for these errors. We have also corrected certain other identified immaterial errors,including the recognition of certain sales and cost of sales in the incorrect fiscal periods.The impact of these prior period errors were not material in any of those prior periods. However, the aggregate amount of the prior period errors of $3.9million, if corrected in 2014, would have been material to our current year consolidated statement of operations and comprehensive income. We havecorrected the prior period errors for all periods presented, including each of the quarters ended in 2014 and 2013, by restating the consolidated financialstatements and other financial information included herein. See Notes 23 and 24 for the impact of these corrections on previously reported amounts.28Table 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 and financialcondition that should be read in conjunction with the accompanying audited consolidated financial statements.Forward-looking StatementsThis annual report on Form 10-K contains forward-looking statements, principally in the sections entitled "Business," "Risk Factors," "Management'sDiscussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosures About Market Risk." Statementsand 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 other information relating to us, based onour current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally will be accompaniedby words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "possible," "potential," "predict," "project," or other similarwords, phrases or expressions. This includes, without limitation, our statements and expectations regarding any current or future recovery in our industry andpublicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals, and ourexpectations with respect to leverage. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptionsconcerning future conditions, any or all of which may ultimately prove to be inaccurate. Important factors that could cause actual results to differ materiallyfrom the forward-looking statements include, without limitation: the risks described in Item 1A and in Item 7A of this annual report on Form 10-K; changes inthe financial stability of our clients or the overall economic environment, resulting in decreased corporate spending and service sector employment; changesin relationships with clients; the mix of products sold and of clients purchasing our products; the success of new technology initiatives; changes in businessstrategies and decisions; competition from our competitors; our ability to recruit and retain an experienced management team; changes in raw material pricesand availability; restrictions on government spending resulting in fewer sales to the U.S. government, one of our largest customers; our debt restrictions onspending; our ability to protect our patents, copyrights and trademarks; our reliance on furniture dealers to produce sales; lawsuits arising from patents,copyrights and trademark infringements; violations of environmental laws and regulations; potential labor disruptions; adequacy of our insurance policies;the availability of future capital and the cost of borrowing; the overall strength and stability of our dealers, suppliers, and customers; access to necessarycapital; our ability to successfully integrate acquired businesses; the success of our design and implementation of a new enterprise resource planning system;and currency rate fluctuations. The factors identified above are believed to be important factors (but not necessarily all of the important factors) that couldcause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have materialadverse effects on us. All forward-looking statements included in this Form 10-K are expressly qualified in their entirety by the foregoing cautionarystatements. Except as required under the Federal securities laws and the rules and regulations of the SEC, we undertake no obligation to update, amend, orclarify forward-looking statements, whether as a result of new information, future events, or otherwise.OverviewWe design, manufacture, market and sell furnishings and accessories, textiles, fine leathers, and felt, 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. Ourproducts are targeted at the middle to upper end of the market and are sold primarily in North America and Europe through a direct sales force and a broadnetwork of independent dealers, showrooms, and retailers.During the past decade, we have diversified our sources of revenue among our various operating segments. In February, 2014, we furthered our strategicambition to expand our position in the high design, high margin residential space with the acquisition of Holly Hunt Enterprises. This acquisition whileimmediately financially accretive also provides us considerable scale to build upon in the residential market and will be a platform for future growth.Our efforts to diversify our sources of revenue among our operating segments have not distracted us from our continued efforts to grow and improve theoperating performance of our Office segment. Our Office sales and marketing teams introduced our perspective on moving the workplace forward. r/evolutionworkplaceTM is our platform that acknowledges that there is no one office of the future and that the twenty-first century workplace poses only one constant:change. r/evolution workplaceTM illustrates the freedom and opportunity commercial, healthcare, education and government organizations have to reimaginethe workplace by exploring distinct planning approaches that address real estate, technology and people’s needs. We supported this sales and marketinginitiative with the introduction of 2014 Best of NeoCon award-winning designs, including the technologically advanced Remix™ chair collection byFormway Design and the Antenna® Telescope™ height-adjustable desks. These initiatives coupled with investments in our supply chain resulted in Officesegment sales growth of almost 10% in 2014 with 110 basis point improvement in operating margin.29Table of ContentsOn a consolidated basis, during 2014, we generated operating profit of $76.8 million, or 7.3% of net sales, compared to operating profit of$41.4 million, or 4.8% of net sales, during 2013. Operating profit for 2014 includes a pension settlement and OPEB curtailment charge of $6.5 million andrestructuring charges of $1.5 million. Operating profit for 2013 includes restructuring charges of $5.1 million and an $8.9 million intangible asset impairmentcharge. For further information regarding the pension settlement and OPEB curtailment, see Note 17. Restructuring charges and the intangible assetimpairment are further described in Notes 21 and 22, respectively. During 2014, we generated net income of $46.6 million, or diluted earnings per share of$0.97, compared to $23.2 million, or diluted earnings per share of $0.49 in 2013.We continued to aggressively manage our balance sheet during 2014. As of December 31, 2014, our bank leverage ratio was 2.41:1, down from 3.21:1as of the first quarter of 2014. The acquisition of HOLLY HUNT in the first quarter of 2014 added approximately $95.0 million of debt, however, our EBITDAgeneration and debt pay down during 2014 enabled the de-leveraging of our business. At December 31, 2013, our leverage ratio was 2.23:1. The calculationof our leverage ratio under our credit facility includes the use of adjusted EBITDA, a non-GAAP financial measure. For details on the leverage ratiocalculations, see "Reconciliation of Non-GAAP Financial Measures" below.During 2014 and 2013, we used free cash to pay dividends to our shareholders totaling $22.7 million and $22.5 million, respectively, or $0.48 pershare. During 2014, we also spent $41.6 million on capital expenditures. This represents an increase of $12.5 million when compared with $29.1 million in2013. The increases in capital spending can be mainly attributed to our technology infrastructure upgrades with the implementation of a new enterpriseresource planning system, site capacity and supply chain improvements, the opening of new showrooms, and new product development.According to our industry trade association, The Business and Institutional Furniture Manufacturer's Association, or BIFMA, industry sales and ordersgrew 4.5% and 3.8%, respectively, in 2014 when compared with 2013. BIFMA is currently forecasting 4.1% and 4.2% growth, respectively, in sales andorders for 2015. We expect sales to increase modestly in 2015 across all operating segments. We are committed to continuing our focus on improvingoperating efficiencies and increasing our profitability, particularly in the Office segment in 2015.Segment ReportingOur three reporting segments consist of: (1) Office, which includes our systems, seating, storage, tables, desks and KnollExtra® ergonomic accessoriesas well as the international sales of our North American Office products; (2) Studio, which includes KnollStudio®, Knoll Europe (where over half our salesconsist of KnollStudio® products), Richard Schultz® Design, and HOLLY HUNT®; and (3) Coverings, which includes KnollTextiles®, Edelman® Leather, andSpinneybeck® Leather (including Filzfelt®). We sometimes refer to our Studio and Coverings segments collectively as our specialty businesses. Thesebusinesses generally provide our most profitable sales. We will continue our efforts to increase Office profitabilty and grow our specialty segments. SeeNote 19 of our consolidated financial statements contained in this annual report on Form 10-K for further information regarding the business segments.30Table of ContentsReconciliation of Non-GAAP Financial MeasuresThis report contains information on our leverage ratio (calculated in accordance with our credit facility), which is derived from dividing ouroutstanding debt by our adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure. We present our leverage ratio because we consider it to bean important measure of our performance and believe it to be useful in showing ongoing results from operations and is an important measure of liquidity. Adjusted EBITDA is not an indicator of our financial performance under GAAP and should not be considered as an alternative to the applicable GAAPmeasure. This non-GAAP measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our resultsas reported under GAAP. In addition, in evaluating this non-GAAP measure, you should be aware that in the future we may incur expenses similar to theadjustments in this presentation. Our presentation of this non-GAAP measure should not be construed as an inference that our future results will be unaffectedby unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results and using adjusted EBITDA onlysupplementally. 12/31/2013 (1) 3/31/2014 (1) 6/30/2014 (1) 9/30/2014 (1) 12/31/2014 (1) Debt Levels (2)178.8 289.8 287.8 283.7 275.5 LTM Net Income ($mm)23.2 25.0 27.7 34.8 46.6 LTM Adjustments Interest5.3 5.5 5.9 6.3 6.7 Taxes15.7 16.0 17.5 21.8 29.2 Depreciation and Amortization16.3 16.9 17.8 18.6 20.0 Non-cash items and Other (3)19.7 27.0 29.1 22.1 11.9 LTM Adjusted EBITDA80.2 90.4(4)98.0(4)103.6(4)114.4(4)Bank Leverage Calculation (5)2.23 3.21 2.94 2.74 2.41 ______________________________________________________________________________(1) - As explained previously in this annual report, and described in more detail in Note 2 to the audited consolidated financial statements included herein,the amounts reported above have been restated to correct certain immaterial errors reported in prior periods related to income tax liabilities and recognition ofcertain sales and cost of sales in the incorrect fiscal period.(2) - Outstanding debt levels include outstanding letters of credit and guarantee obligations. Excess cash over $15.0 million reduces outstanding debt per theterms of our credit facility, a copy of which was filed with the Securities and Exchange Commission on May 21, 2014.(3) - Non-cash items and Other includes, but is not limited to, stock-based compensation expenses, unrealized gains and losses on foreign exchange, anintangible asset impairment charge, restructuring charges, and a pension settlement and other postretirement benefit curtailment.(4) - Includes an annualized proforma EBITDA for HOLLY HUNT, which was acquired on February 3, 2014.(5) - Debt divided by LTM Adjusted EBITDA, as calculated in accordance with our credit facility.31Table of ContentsResults of OperationsYears ended December 31, 2013 and 2014 Three Months EndedTwelveMonths Ended Three Months EndedTwelveMonths Ended March 31,2013 (2)June 30,2013 (2)September 30,2013 (2)December 31,2013 (2)December 31,2013 (2) March 31,2014 (2)June 30,2014 (2)September 30,2014 (2)December 31,2014 (2)December 31,2014 (2) (in thousands, except statistical data)(unaudited) Consolidated Statements of Operations and Comprehensive Income Data: Sales$200,586$214,312$216,898$230,456$862,252$229,601$265,943$268,297$286,453$1,050,294Gross profit63,87769,88172,33974,235280,33276,59897,27494,962102,850371,685(1)Operating profit10,14812,60516,8541,80641,41311,28422,23823,31520,00576,843(1)Interest expense1,4951,5171,4841,4455,941 1,6711,9441,8991,8647,378 Other (income)expense, net(1,291)(2,206)2,224(2,157)(3,430)(2,504)2,700(3,294)(3,187)(6,285) Income taxexpense3,5495,4814,9161,77215,718 4,2856,7539,1139,01229,165(1)Net earnings6,3957,8138,23074623,184(1 ) 7,83210,84115,59712,31646,585(1)Net earningsattributable toKnoll, Inc.stockholders$6,395$7,813$8,230$746$23,184(1 ) $7,826$10,855$15,628$12,288$46,596(1)Statistical andOther Data: Sales growth fromcomparable prioryear(3.4)%(3.0)%(1.3)%(7.8)%(4.0)% 14.5%24.1%23.7%24.3%21.8% Gross profit %31.8 %32.6 %33.4 %32.2 %32.5 % 33.4%36.6%35.4%35.9%35.4% ______________________________________________________________________________(1)Results do not add due to rounding.(2)As explained previously in this annual report, and described in more detail in Note 2 to the audited consolidated financial statements included herein, the amounts reportedabove have been restated to correct certain immaterial errors reported in prior periods related to income tax liabilities and recognition of certain sales and cost of sales in theincorrect fiscal period.SalesSales for 2014 were $1,050.3 million, an increase of $188.0 million, or 21.8%, from sales of $862.3 million for 2013. In 2014, office systems and storageprovided significant growth. Geographically, sales in Europe and sales for North America Studio also contributed to sales improvement year-over-year. Also,within the Studio segment, HOLLY HUNT, acquired in February 2014, bolstered our sales growth. Spinneybeck and FilzFelt provided for sales improvementin the Coverings segment.Sales to governmental entities and agencies continued to represent a large portion of our overall sales in 2014. However, these sales declined on a year-over-year basis during 2014. Approximately 11.3% of our 2014 sales were to federal, state and local governmental entities and related agencies as comparedto 13.0% in 2013.Gross Profit and Operating ProfitGross profit for 2014 was $371.7 million, an increase of $91.4 million, or 32.6%, from gross profit of $280.3 million in 2013. Operating profit for 2014was $76.8 million, a increase of $35.4 million, or 85.6%, from operating profit of $41.4 million for 2013.As a percentage of sales, gross profit increased from 32.5% for 2013 to 35.4% for 2014. The increase in gross profit as a percent of sales during the yearwas driven by the richer mix of business due to the addition of HOLLY HUNT, foreign exchange benefits on the weakening Canadian dollar, and improvedfixed cost absorption on the higher volume. Operating profit as a percentage of sales increased from 4.8% in 2013 to 7.3% in 2014. Operating profit for 2014includes a pension settlement and OPEB curtailment of $6.5 million and restructuring charges of $1.5 million. Operating profit for 2013 includes $5.1million of restructuring charges and an $8.9 million intangible asset impairment charge related to the write-down of the Edelman tradename.32Table of ContentsSelling, general, and administrative expenses for 2014 were $286.8 million, or 27.3% of sales, compared to $224.9 million, or 26.1% of sales, for 2013.The increase in operating expenses during 2014 was due to the acquisition of HOLLY HUNT, costs associated with a multi-day training event that occurredduring the first quarter of 2014 in conjunction with our 75th anniversary, higher product development costs as well as commission and incentivecompensation accruals incurred as a result of higher sales and profits.Interest ExpenseInterest expense for 2014 was $7.4 million, an increase of $1.5 million from interest expense of $5.9 million for 2013. The increase in interest expensefor the periods noted above is mainly due to debt incurred to fund the acquisition of HOLLY HUNT in the first quarter of 2014. Our interest rates wereapproximately 2.3% and 2.4% for 2014 and 2013, respectively.Other (Income) Expense, netOther (income) expense in 2014 primarily consisted of income related to $5.8 million of foreign exchange gains and $0.6 million associated with thesale of our Equity product line. Other (income) expense in 2013 consisted of income related to $3.5 million of foreign exchange gains.Income Tax ExpenseThe effective tax rate was 38.5% for the year, as compared to 40.4% for 2013. Our effective tax rate is dependent upon the mix of pretax income in thecountries in which we operate.Business Segment Analysis 2014 (4) 2013 (4) (in thousands)SALES Office$656,228 $599,131Studio279,167 154,083Coverings114,899 109,038Knoll, Inc. $1,050,294 $862,252OPERATING PROFIT Office$29,412 $16,111Studio33,451 18,310Coverings22,021 20,996Subtotal84,884 55,417Pension settlement and OPEB curtailment (1)6,509 —Restructuring charges (2)1,532 5,104Intangible asset impairment charge— Coverings— 8,900Knoll, Inc. (3)$76,843 $41,413_______________________________________________________________________________(1)During 2014, pension settlement and OPEB curtailment charges were incurred by all segments in the following amounts: Office ($5.3 million),Studio ($0.8 million), and Coverings ($0.4 million).(2)During 2014, restructuring charges of $2.1 million and $0.3 million were incurred by the Office and Coverings segments, respectively. Thesecharges were offset by an adjustment of $0.9 million to the Studio segment's restructuring accrual. During 2013, restructuring charges of $2.1 millionand $3.0 million were incurred by Office and Studio segments, respectively.(3)The Company does not allocate interest expense or other (income) expense, net to the reportable segments.(4)As explained previously in this annual report, and described in more detail in Note 2 to the audited consolidated financial statements includedherein, the amounts reported above have been restated to correct certain immaterial errors reported in prior periods related to income tax liabilitiesand recognition of certain sales and cost of sales in the incorrect fiscal period.Net sales for the Office segment in 2014 were $656.2 million, an increase of $57.1 million, or 9.5%, when compared with 2013. This increase in theOffice segment for the year was mainly the result of growth of office systems and storage sales. Office segment sales in 2014 were negatively impacted by$2.2 million due to changes in foreign exchange rates when compared to 2013. Excluding the impact of $5.3 million of pension settlement and OPEBcurtailment and restructuring charges of $2.1 million, adjusted operating profit for the Office segment was $29.4 million in 2014, an increase of $13.3million, or 82.6%, when compared with 2013. Operating33Table of Contentsprofit in 2013 excludes the $2.1 million restructuring charge for the Office segment. As a percent of net sales, excluding the pension settlement and OPEBcurtailment as well as restructuring charges, Office segment adjusted operating profit was 4.5% for the year ended December 31, 2014 and 2.7% for the yearended December 31, 2013.Net sales for the Studio segment in 2014 were $279.2 million, an increase of $125.1 million, or 81.2%, when compared with 2013. Sales growth inNorth America and Europe, as well as the addition of HOLLY HUNT, contributed to Studio sales growth year-over-year. Studio segment sales in 2014 alsowere positively impacted by $1.5 million due to changes in foreign exchange rates when compared to 2013. Excluding the impact of the $0.8 millionpension settlement and OPEB curtailment and $0.9 million of restructuring benefit, adjusted operating profit for the Studio segment was $33.5 million, aincrease of $15.1 million, or 82.7%, when compared with 2013. Adjusted operating profit for 2013 excludes the restructuring charge of $3.0 million for theStudio segment. As a percentage of net sales, excluding the pension settlement and OPEB curtailment as well as restructuring charges, Studio segmentadjusted operating profit was 12.0% for the year ended December 31, 2014 and 11.9% for the year ended December 31, 2013.Net sales for the Coverings segment in 2014 were $114.9 million, an increase of $5.9 million, or 5.4%, when compared with 2013. Increased sales of ourSpinneybeck and FilzFelt products was the primary driver for sales growth. Coverings segment sales in 2014 were not materially impacted by changes inforeign exchange rates when compared to 2013. Excluding the $0.4 million pension settlement and OPEB curtailment and $0.3 million of restructuringcharges, adjusted operating profit for the Coverings segment was $22.0 million, an increase of $1.0 million, or 4.9%, when compared to 2013. Adjustedoperating profit for 2013 excludes the $8.9 million intangible asset impairment related to the write-down of the Edelman tradename. As a percentage of netsales, excluding the pension settlement and OPEB curtailment, restructuring charges, and Edelman tradename impairment, the Coverings segment adjustedoperating profit was 19.2% for the year ended December 31, 2014 and 19.3% for the year ended December 31, 2013.Years ended December 31, 2012 and 2013 Three Months EndedTwelveMonths Ended Three Months EndedTwelveMonths Ended March 31,2012 (2)June 30,2012 (2)September 30,2012 (2)December 31,2012 (2)December 31,2012 (2) March 31,2013 (2)June 30,2013 (2)September 30,2013 (2)December 31,2013 (2)December 31,2013 (2) (in thousands, except statistical data)(unaudited) Consolidated Statement of Operations Data: Sales$207,659$221,018$219,794$250,025$898,496(1)$200,586$214,312$216,898$230,456$862,252(1)Gross profit65,32973,41974,25984,887297,894(1)63,87769,88172,33974,235280,332(1)Operatingincome17,35919,81523,56530,73391,472(1)10,14812,60516,8541,80641,413(1)Interest expense1,5061,6371,6351,5726,350 1,4951,5171,4841,4455,941 Other (income)expense, net2,200(1,262)2,786(509)3,215(1)(1,291)(2,206)2,224(2,157)(3,430)Income taxexpense5,1387,4207,09310,73330,384 3,5495,4814,9161,77215,718(1)Net earnings$8,515$12,020$12,051$18,937$51,523(1)$6,395$7,813$8,230$746$23,184(1)Statistical andOther Data: Sales growthfrom comparableprior year(6.0)%(7.4)%(8.2)%13.8%(2.2)% (3.4)%(3.0)%(1.3)%(7.8)%(4.0)% Gross profitmargin31.5 %33.2 %33.8 %34.0%33.2 % 31.8 %32.6 %33.4 %32.2 %32.5 % _______________________________________________________________________________(1)Results do not add due to rounding.(2)As explained previously in this annual report, and described in more detail in Note 2 to the audited consolidated financial statements included herein, the amounts reportedabove have been restated to correct certain immaterial errors reported in prior periods related to income tax liabilities and recognition of certain sales and cost of sales in theincorrect fiscal period.34Table of ContentsSalesSales for 2013 were $862.3 million, a decrease of $36.2 million, or (4.2%), from sales of $898.5 million for 2012. In 2013, systems continued torepresent the largest percentage of our overall sales. However, this percentage continued to decline year-over-year as our high-margin specialty businessesrepresented a larger portion of overall sales. Geographically, sales in Europe increased modestly during 2013 while sales in North America decreasedmodestly.Sales to governmental entities and agencies continued to represent a large portion of our overall sales in 2013. However, these sales declined on a year-over-year basis during 2013. This decline was a significant factor in our overall lower sales for 2013. Approximately 13.0% of our 2013 sales were to federal,state and local governmental entities and related agencies as compared to 16.2% in 2012.Gross Profit and Operating ProfitGross profit for 2013 was $280.3 million, a decrease of $17.6 million or (6.3%), from gross profit of $297.9 million for 2012. Operating profit for 2013was $41.4 million, a decrease of $50.1 million, or 54.8%, from operating profit of $91.5 million for 2012. Operating profit for 2013 included $5.1 million ofrestructuring charges and an $8.9 million intangible asset impairment charge related to the write-down of the Edelman tradename.As a percentage of sales, gross profit decreased from 33.2% for 2012 to 32.5% for 2013. The decrease in gross profit as a percentage of sales during theyear was mainly the result of price erosion in the Office segment as well as lower absorption of our fixed costs as a result of lower sales. Operating profit as apercentage of sales decreased from 10.2% for 2012 to 4.8% in 2013. Operating profit for 2013 included $5.1 million of restructuring charges and an $8.9million intangible asset impairment charge related to the write-down of the Edelman tradename.Selling, general, and administrative expenses for 2013 were $224.9 million, or 26.1% of sales, compared to $206.4 million, or 23.0% of sales, for 2012.The increase in operating expenses during 2013 was in large part due to increased spending associated with our announced programs of strategic investmentsand initiatives to achieve our longer-term revenue and margin objectives, which were partially offset by lower incentive compensation.Interest ExpenseInterest expense for 2013 was $5.9 million, a decrease of $0.5 million from interest expense of $6.4 million for 2012. The decrease in interest expensefor the periods noted above is mainly due to our lower outstanding debt.Other (Income) Expense, netOther (income) expense in 2013 primarily consisted of income related to $3.5 million of foreign exchange gains. Other (income) expense in 2012primarily consisted of expense related to $2.8 million of foreign exchange losses and the write-off of deferred financing fees of $0.5 million associated withour former senior credit facility.Income Tax ExpenseOur effective tax rate is dependent upon the mix of pretax income in the countries in which we operate. The effective tax rate was 40.4% for 2013compared to 37.1% for 2012.35Table of ContentsResults of OperationsBusiness Segment Analysis 2013 (3) 2012 (3) (in thousands)SALES Office $599,131 $644,318Studio 154,083 147,550Coverings 109,038 106,628Knoll, Inc. $862,252 $898,496OPERATING PROFIT Office $16,111 $52,210Studio 18,310 21,786Coverings 20,996 17,476Subtotal 55,417 91,472Restructuring charges (1) 5,104 —Intangible asset impairment charge— Coverings 8,900 —Knoll, Inc. (2) $41,413 $91,472_______________________________________________________________________________(1)During 2013, restructuring charges of $2.1 million and $3.0 million were incurred by Office and Studio segments, respectively.(2)The Company does not allocate interest expense or other (income) expense, net to the reportable segments.(3)As explained previously in this annual report, and described in more detail in Note 2 to the audited consolidated financial statements includedherein, the amounts reported above have been restated to correct certain immaterial errors reported in prior periods related to income tax liabilitiesand recognition of certain sales and cost of sales in the incorrect fiscal period.Net sales for the Office segment in 2013 were $599.1 million, a decrease of $45.2 million, or 7.0%, when compared with 2012. This decrease in theOffice segment for the year was the result of lower sales to government agencies. Sales to commercial clients grew during 2013; however, this growth was notenough to offset the decline in sales to government agencies. Office segment sales in 2013 were also negatively impacted by $1.1 million due to changes inforeign exchange rates when compared to 2012. Excluding the impact of $2.7 million of restructuring charges, adjusted operating profit for the Officesegment was $16.1 million in 2013, an decrease of $36.1 million, or (69.1)%, when compared with 2012. As a percent of net sales, excluding restructuringcharges, Office segment adjusted operating profit was 2.7% for the year ended December 31, 2013 and 8.1% for the year ended December 31, 2012.Net sales for the Studio segment in 2013 were $154.1 million, an increase of $6.5 million, or 4.4%, when compared with 2012. Sales growth in NorthAmerica outpaced Europe within the Studio segment during 2013. Studio segment sales in 2013 were negatively impacted by $0.8 million due to changes inforeign exchange rates when compared to 2012. Adjusted operating profit for the Studio segment was $18.3 million, a decrease of $3.5 million, or 16.0%when compared with 2012. As a percentage of net sales, excluding restructuring charges, Studio segment adjusted operating profit was 11.9% for the yearended December 31, 2013 and 14.8% for the year ended December 31, 2012.Net sales for the Coverings segment in 2013 were $109.0 million, an increase of $2.4 million, or 2.3%, when compared with 2012. Increased sales of ourTextiles products was the main cause of this increase. Coverings segment sales in 2013 were positively impacted by $0.1 million due to changes in foreignexchange rates when compared to 2012. Excluding the $8.9 million intangible asset impairment charge, adjusted operating profit for the Coverings segmentwas $21.0 million, an increase of $3.5 million, or 20.1%, when compared to 2012. As a percentage of net sales, excluding the impairment charge, theCoverings segment adjusted operating profit was 19.3% for the year ended December 31, 2013 and 16.4% for the year ended December 31, 2012.36Table of ContentsLiquidity and Capital ResourcesThe following table highlights certain key cash flows and capital information pertinent to the discussion that follows: 2014 2013 2012 (in thousands)Cash provided by operating activities $88,227 $54,614 $70,568Capital expenditures, net 41,586 29,064 16,545Purchase of business, net of cash acquired (93,349) — (5,968)Cash used in investing activities 135,250 29,379 23,001Purchase of common stock for treasury 8,974 5,638 4,676Proceeds from credit facilities 789,000 281,000 562,000Repayment of credit facilities 704,000 301,000 581,000Payment of dividends 22,742 22,529 20,537Proceeds from issuance of common stock 4,914 4,029 1,091Cash used in financing activities 57,265 43,508 45,791Historically, we have carried significant amounts of debt, and cash generated by operating activities has been used to fund working capital, capitalexpenditures, repurchase shares, pay quarterly dividends, and make payments of principal and interest on our indebtedness. Our capital expenditures includenew product tooling and manufacturing equipment. These capital expenditures support new products and continuous improvements in our manufacturingprocesses. In addition, our previously announced plan of strategic investments and initiatives, continued expenditures related to our technologyinfrastructure upgrades with the implementation of a new enterprise resource planning system, and costs associated with opening new showrooms increasedcapital spending in 2014. At December 31, 2014, cash held outside of the United States was $13.2 million.In February 2013, we announced a three-year plan of strategic investments and initiatives intended to enable us to achieve our longer-term revenue andprofitability goals. This plan increased capital expenditures in 2013 and 2014.Cash provided by operating activities was $88.2 million in 2014, $54.6 million in 2013, and $70.6 million in 2012. For the year ended December 31,2014, cash provided by operating activities consisted of $68.6 million from net income and various non-cash charges, which included $8.1 million of stockcompensation expense, and $(19.6) million of unfavorable changes in assets and liabilities. For the year ended December 31, 2013, cash provided byoperating activities consisted of $58.0 million from net income and various non-cash charges, which included $10.5 million of stock compensation expense,and $(3.4) million of unfavorable changes in assets and liabilities.For the year ended December 31, 2014, we used available cash, including $88.2 million of cash from operating activities, to fund $41.6 million incapital expenditures, fund dividend payments to shareholders totaling $22.7 million, and to fund working capital. For the year ended December 31, 2013, weused available cash, including the $54.6 million of cash from operating activities, to repay $20.0 million of debt, fund $29.1 million in capital expenditures,and fund dividend payments to shareholders totaling $22.5 million, and to fund working capital.We use our credit facility in the ordinary course of business to fund our working capital needs and, at times, make significant borrowings andrepayments under the facility depending on our cash needs and availability at such time. As of December 31, 2014, there was approximately $258.0 millionoutstanding under our credit facility, compared to $173.0 million outstanding under the facility as of December 31, 2013. During February 2014, weborrowed approximately $95.0 million under the credit facility in order to fund the acquisition of Holly Hunt Enterprises, Inc. See Note 3 of the consolidatedfinancial statements included in this Form 10-K for further information regarding this acquisition. Borrowings under the credit facility may be repaid at anytime, but no later than May 2019. See Note 10 of the consolidated financial statements included in this Form 10-K for further information regarding thisfacility.Our credit facility requires that we comply with two financial covenants: our consolidated leverage ratio, defined as the ratio of total indebtedness toconsolidated EBITDA (as defined in our credit agreement) and our consolidated interest coverage ratio, defined as the ratio of our consolidated EBITDA (asdefined in our credit agreement) to our consolidated interest expense. Our consolidated leverage ratio cannot exceed 4.5 to 1 for the first three quartersending after the effective date of the new credit facility, or May 20, 2014, and 4.0 to 1 thereafter. Our consolidated interest coverage ratio must be a minimumof 3.0 to 1. We are also required to comply with various other affirmative and negative covenants, including without limitation, covenants that prevent orrestrict our ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, engage in sale-leaseback transactions, alter our capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates and sellstock or assets.37Table of ContentsWe are currently in compliance with all of the covenants and conditions under our credit facility. We believe that existing cash balances and internallygenerated cash flows, together with borrowings available under our credit facility, will be sufficient to fund normal working capital needs, capital spendingrequirements, debt service requirements and dividend payments for at least the next twelve months. However, because of the financial covenants mentionedabove, our capacity under our credit facility could be reduced if our trailing consolidated EBITDA (as defined by our credit agreement) would decline due todeteriorating market conditions or poor performance. Future debt payments may be paid out of cash flows from operations, from future refinancing of our debtor from equity issuances. However, our ability to make scheduled payments of principal, to pay interest on or to refinance our indebtedness, to satisfy ourother debt obligations and to pay dividends to stockholders will depend upon our future operating performance, which will be affected by general economic,financial, competitive, legislative, regulatory, business and other factors beyond our control.Contractual ObligationsThe following table summarizes our contractual cash obligations as of December 31, 2014 (in thousands): Payments Due by Period Less than1 year 1 to 3years 3 to 5years More than5 years TotalLong-term debt (a) $11,226 $33,211 $244,094 $— $288,531Operating leases 24,122 41,097 30,161 39,571 134,951Purchase commitments 6,645 318 — — 6,963Postretirement benefit plan obligations (b) 1,039 — — — 1,039Other long-term liabilities (c) 5,000 11,000 — — 16,000Total $48,273 $86,160 $274,255 $39,571 $448,259_______________________________________________________________________________(a)Contractual obligations for long-term debt and short-term borrowings include principal and interest payments. Interest payments have beencomputed based on an estimated variable interest as of December 31, 2014. The estimated variable interest rate is based on the company's expectedconsolidated leverage ratio and the forecasted LIBOR rate for each period presented. The computation of interest, as included in the above table, isbased on our Amended and Restated Credit Agreement, dated May 20, 2014.(b)Due to the uncertainty of future cash outflows, contributions to the other post-retirement benefit plans subsequent to 2015 have been excluded fromthe table above.(c)Other long-term liabilities consists of a contingent payout due to HOLLY HUNT, which is based on the future performance of the business throughfiscal year 2016.* Due to the uncertainty of future cash outflows, uncertain tax positions have been excluded from the table above.Environmental MattersOur 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, thehandling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. As a result, we are involved from time-to-time in administrative and judicial proceedings and inquiries relating to environmental matters and could become subject to fines or penalties related thereto.We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administeredor interpreted or what environmental conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation ofexisting laws, may require additional expenditures by us, some of which may be material. We have been identified as a potentially responsible party pursuantto the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") for remediation costs associated with waste disposalsites that we previously used. The remediation costs and our allocated share at some of these CERCLA sites are unknown. We may also be subject to claimsfor personal injury or contribution relating to CERCLA sites. We reserve amounts for such matters when expenditures are probable and reasonably estimable.Off-Balance Sheet ArrangementsWe do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured financeor special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow orlimited purposes. In addition, we do not engage in trading activities involving non-exchange-traded contracts. As a result, we are not materially exposed toany financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.38Table of ContentsCritical Accounting PoliciesThe preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires usto make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results maydiffer from such estimates. We believe that the critical accounting policies that follow are those policies that require the most judgment, estimation andassumption in preparing our consolidated financial statements.Allowance for Doubtful AccountsWe maintain allowances for doubtful accounts for estimated losses resulting from the inability of our clients and dealers to make required payments.The allowance is determined through an analysis of the aging of accounts receivable and assessments of risk that are based on historical trends and anevaluation of the impact of current and projected economic conditions. We evaluate the past-due status of our trade receivables based on contractual terms ofsale. If the financial condition of our clients and dealers were to deteriorate, additional allowances may be required. Accounts receivable are charged offagainst the allowance for doubtful accounts when we determine that recovery is unlikely. Losses have been consistent with our expectations.InventoryInventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. We reserve inventory that, in our judgment,is impaired or obsolete. Obsolescence may be caused by the discontinuance of a product line, changes in product material specifications, replacementproducts in the marketplace and other competitive influences.Goodwill and Intangible AssetsWe record the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. Goodwill andintangible assets with indefinite lives are tested for impairment at least annually and whenever events or circumstances occur indicating that a possibleimpairment may have been incurred. Intangible assets with finite lives are amortized over their useful lives.We assess whether goodwill impairment exists using both the qualitative and quantitative assessments. The qualitative assessment involvesdetermining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carryingamount, including goodwill. If based on this qualitative assessment we determine it is not more likely than not that the fair value of a reporting unit is lessthan its carrying amount or if we elect not to perform a qualitative assessment, a quantitative assessment is performed using a two-step approach to determinewhether a goodwill impairment exists at the reporting unit.The first step of the quantitative test is to compare the carrying amount of the reporting unit's assets to the fair value of the reporting unit. If the fair valueexceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying amount exceeds the fair value, then the secondstep is required to be completed, which involves allocating the fair value of the reporting unit to each asset and liability, with the excess being applied togoodwill. An impairment loss occurs if the amount of the recorded goodwill exceeds the implied goodwill. The determination of the fair value of thereporting units is based, among other things, on estimates of future operating performance of the reporting unit being valued.When performing the two-step quantitative impairment test, our methodology includes the use of an income approach, which discounts future net cashflows to their present value at a rate that reflects the Company's cost of capital, otherwise known as the discounted cash flow method ("DCF"). Theseestimated fair values are based on estimates of future cash flows of the reporting units. We also incorporate market multiples for comparable companies indetermining the fair value of the reporting units. Any such impairment would be recognized in full in the reporting period in which it has been identified.We assess whether indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments. The qualitativeassessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of an indefinite-livedintangible asset is less than its carrying amount. If based on this qualitative assessment, we determine it is not more likely than not that the fair value of anindefinite-lived intangible asset is less than its carrying amount or if we elect not to perform a qualitative assessment, a quantitative assessment is performedto determine whether an indefinite-lived intangible asset impairment exists. We test the indefinite-lived intangible assets for impairment by comparing thecarrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess of thecarrying value over the amount of fair value is recognized as an impairment.Deferred Financing FeesDeferred financing fees that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense overthe life of the underlying indebtedness.39Table of ContentsBusiness CombinationsThe purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities assumed from the acquiredbusiness based on their estimated fair values with the residual of the purchase price recorded as goodwill. The results of operations of the acquired businessesare included in our operating results from the dates of acquisition.WarrantyWe generally offer a warranty for our products. The specific terms and conditions of those warranties vary depending upon the product sold. Weestimate the costs that may be incurred under our warranties and record a liability in the amount of such costs at the time product revenue is recognized.Factors that affect our warranty liability include historical product-failure experience and estimated repair costs for identified matters for each specificproduct category. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary.Employee BenefitsWe are partially self-insured for our employee health benefits. We accrue for employee health benefit obligations based on an actuarial valuation. Theactuarial valuation is based upon historical claims as well as a number of assumptions, including rates of inflation for medical costs, and benefit planchanges. Actual results could be materially different from the estimates used.Pension and Other Postretirement BenefitsWe sponsor two defined benefit pension plans and two other postretirement benefit plans. Several statistical and other factors, which attempt toanticipate future events, are used in calculating the expense and liability related to the plans. Key factors include assumptions about the expected rates ofreturn on plan assets, discount rates, and health care cost trend rates, as determined by us, within certain guidelines. We consider market conditions, includingchanges in investment returns and interest rates, in making these assumptions.Both the pension plans and the other postretirement benefit plans were modified during the year ended December 31, 2011. Participants who had 70 ormore points (age plus completed years of service) could elect to stay in the pension and accrue additional benefits or receive the Company's 401K match,which was reinstated as of January 1, 2012. Those with less than 70 points were removed from the pension plan and will not accrue any additional benefits.The Company's other postretirement benefit plans are in the process of being phased-out.We determine the expected long-term rate of return on plan assets based on aggregating the expected rates of return for each component of the plan'sasset mix. We use historic plan asset returns combined with current market conditions to estimate the rate of return. The expected rate of return on plan assetsis a long-term assumption and generally does not change annually. The discount rate reflects the market rate for high-quality fixed income debt instrumentsas of our annual measurement date and is subject to change each year. Holding all other assumptions constant, a one-percentage-point increase or decrease inthe assumed rate of return on plan assets would decrease or increase 2014 net periodic pension expense by approximately $2.0 million. Likewise, a one-percentage-point increase or decrease in the discount rate would decrease or increase 2014 net periodic pension expense by approximately $5.3 million or$5.7 million, respectively.Unrecognized actuarial gains and losses are recognized over the expected remaining service life of the employee group. Unrecognized actuarial gainsand losses arise from several factors, including experience and assumption changes with respect to the obligations and from the difference between expectedreturns and actual returns on plan assets. These unrecognized gains and losses are systematically recognized as a change in future net periodic pensionexpense in accordance with the appropriate accounting guidance relating to defined benefit pension and other postretirement plans.Key assumptions that 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. Inestimating the health care cost trend rate, we consider actual health care cost experience, future benefit structures, industry trends and advice from ouractuaries. We assume that the relative increase in health care costs will generally trend downward over the next several years, reflecting assumed increases inefficiency and cost-containment initiatives in the health care system. For purposes of measuring the benefit obligation associated with the Company's otherpostretirement benefit plans as of December 31, 2014, as well as the assumed rate for 2015, a between 7.75% to 8.25% annual rate of increase in the per capitacost of covered health care benefits was assumed and a 7.00% annual rate of increase in the per capita cost of covered prescription drug benefits was assumed.The rate was then assumed to decrease to an ultimate rate of 5% for 2022 for the medical plan and prescription drug plan and thereafter for the benefitobligation. Increasing the assumed health care cost trend by one-percentage-point in each year would increase the benefit obligation as of December 31,2014 by $0.3 million and increase the aggregate of the service and interest cost components of net periodic benefit cost for 2014 by a minimal amount.Decreasing the assumed health care cost trend rate by one40Table of Contentspercentage point in each year would decrease the benefit obligation as of December 31, 2014 by approximately $0.3 million and decrease the aggregate ofthe service and interest cost components of net periodic benefit cost for 2014 by a minimal amount.In accordance with the appropriate accounting guidance, we recognize in our consolidated balance sheet the funded status (i.e., the difference betweenthe fair value of plan assets and the projected benefit obligation) of our defined benefit pension and postretirement benefit plans. To record the unfundedstatus 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 to changingmarket and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. While we believe that the assumptions usedare appropriate, differences in actual experience or changes in assumptions may materially affect our financial position or results of operations.Commitments and ContingenciesWe establish reserves for the estimated cost of environmental and legal contingencies when such expenditures are probable and reasonably estimable.A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. We engage outside experts as deemednecessary or appropriate to assist in the evaluation of exposure. From time to time, as information becomes available regarding changes in circumstances forongoing issues as well as information regarding emerging issues, our potential liability is reassessed and reserve balances are adjusted as necessary. Revisionsto our estimates of potential liability, and actual expenditures related to environmental and legal contingencies, could have a material impact on our resultsof operations or financial position.TaxesWe account for income taxes in accordance with the appropriate accounting guidance relating to income taxes, which requires that deferred tax assetsand liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax bases of recorded assets and liabilities. Theappropriate accounting guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion orall of the deferred tax assets will not be recognized.At December 31, 2014, our deferred tax liabilities of $109.1 million exceeded deferred tax assets of $60.8 million by $48.3 million. At December 31,2013, deferred tax liabilities of $99.1 million exceeded deferred tax assets of $34.1 million by $65.0 million. Our deferred tax assets at December 31, 2014and 2013 of $60.8 million and $34.1 million, respectively, are net of valuation allowances of $7.9 million and $9.0 million, respectively. We have recordedthe valuation allowance primarily for net operating loss carryforwards in foreign tax jurisdictions where we have incurred historical tax losses from operationsor acquired tax losses through acquisition, and have determined that it is more likely than not that these deferred 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 used toassess 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, wereport a liability for unrecognized tax benefits resulting from uncertain tax positions taken, or expected to be taken, in an income tax return. We recognizeinterest and penalties, if any, related to unrecognized tax benefits in income tax expense.Derivative Financial InstrumentsWe occasionally use derivative financial instruments to reduce our exposure to adverse fluctuations in interest rates. We will continue to review itsexposure to interest rate fluctuations and evaluate whether it should manage such exposure through derivative transactions.From time to time, we enter into foreign currency forward exchange contracts and foreign currency option contracts to manage our exposure to foreignexchange rates associated with short-term operating receivables of a Canadian subsidiary that are payable by the U.S. operations. The terms of these contractsare less than a year.We do not hold or issue derivative financial instruments for trading or speculative purposes. We recognize derivatives as either assets or liabilities inthe accompanying consolidated balance sheet and measures those instruments at fair value. Changes in the fair value of such contracts are reported inearnings as a component of “Other (income) expense, net.”Stock-Based CompensationThe Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of theaward. This expense is recognized over the applicable vesting period. Forfeitures are estimated based on historical experience.41Table of ContentsStock OptionsThe fair value for stock options is estimated at the date of grant using an 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 of grant.Expected volatility is estimated based on the historical volatility of the Company's stock price. The model takes into consideration the historical dividendspaid on common stock. The weighted-average expected life is based on the contractual term of the stock option and expected employee exercise dates, whichis based on the historical exercise behavior of the Company's employees.Restricted Stock and Restricted Stock UnitsThe fair value of restricted stock and restricted stock units is based on the closing market price of the Company's common stock on the date of grant.The Company recognizes compensation expense relating to restricted stock and restricted stock units ratably over the vesting period.42Table of ContentsITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKDuring the normal course of business, we are routinely subjected to market risk associated with interest rate movements and foreign currency exchangerate movements. Interest rate risk arises from our debt obligations. Foreign currency exchange rate risk arises from our non-U.S. operations and purchases ofinventory from foreign suppliers.We also have risk in our exposure to certain materials and transportation costs. Steel, leather, wood products and plastics are all used in our products.For the year ended December 31, 2014, we estimated that materials and transportation inflation were approximately $4.5 million and $1.4 million,respectively. During 2013, we estimated materials inflation was approximately $1.3 million and transportation inflation was minimal. We continue to work tooffset price increases in raw materials and transportation through our global sourcing initiatives, cost improvements and price increases to our products.Interest Rate RiskWe have variable rate debt obligations that are denominated in U.S. dollars. A change in interest rates impacts the interest incurred and cash paid on thevariable rate debt.In the past, we have used interest rate swap agreements for other-than-trading purposes in order to manage our exposure to fluctuations in interest rateson our variable rate debt. Fluctuations in LIBOR affect both our net financial instrument position and the amount of cash to be paid or received by us, if any,under these agreements. There were no interest rate hedge agreements outstanding as of December 31, 2014 or December 31, 2013. During 2014 and 2013,our interest rates were approximately 2.3% and 2.4%, respectively.The following table summarizes our market risks associated with our debt obligations as of December 31, 2014. For debt obligations, the table presentsprincipal cash flows and related average interest rates by year of maturity. Variable interest rates presented for variable-rate debt represent the average interestrates on our credit facility borrowings as of December 31, 2014. 2015 2016 2017 2018 2019 Thereafter Total (in thousands)Rate-Sensitive Liabilities Long-term Debt: Variable Rate Debt $10,000 $10,000 $10,000 $10,000 $218,000 $— $258,000Variable Interest Rate 2.50% 3.15% 3.88% 4.28% 4.47% —% 3.66%The fair value of the Company's long-term debt approximates its carrying value, as the variable rate debt and the associated terms are comparable tomarket terms as of the balance sheet date.For each period presented, the average interest rate is based on an estimated variable interest rate as of December 31, 2014. The estimated variableinterest rate is based on the Company's expected consolidated leverage ratio, and the forecasted LIBOR rate and commitment fees for each period presented.The computation of interest, as included in the above table, is based on our Amended and Restated Credit Agreement, dated May 20, 2014.An increase in our effective interest rate of 1% would increase annual interest expense by approximately $2.4 million. We will continue to review ourexposure to interest rate fluctuations and evaluate whether we should manage such exposure through derivative transactions.43Table of ContentsForeign Currency Exchange Rate RiskWe 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 countries where ourproducts are sold. Additionally, as our reporting currency is the U.S. dollar, our financial position is affected by the strength of the currencies in countrieswhere we have operations relative to the strength of the U.S. dollar. The principal foreign currencies in which we conduct business are the Canadian dollarand the Euro. Approximately 11.8% and 12.8% of our revenues in 2014 and 2013, respectively, and 30.2% and 33.2% of our cost of goods sold in 2014 and2013, respectively, were denominated in currencies other than the U.S. dollar. Foreign currency exchange rate fluctuations resulted in $5.8 million and$3.5 million translation gains for 2014 and 2013, respectively.From time to time, we enter into foreign currency hedges to manage our exposure to foreign exchange rates associated with short-term operatingreceivables of a Canadian subsidiary that are payable by our U.S. operations. The terms of these contracts are typically less than a year. Changes in the fairvalue of such contracts are reported in earnings in the period the value of the contract changes. The net gain or loss upon settlement and the change in fairvalue of outstanding contracts is recorded as a component of other (income) expense. During 2014, the Company entered into one foreign currency contract.During 2013, the Company entered into two foreign currency contracts. No amount was paid or received as a result of these contracts in 2014 or 2013. As ofDecember 31, 2014, the Company had no outstanding foreign currency contracts.44Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAReport of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of Knoll, Inc.We have audited the accompanying consolidated balance sheets of Knoll, Inc. as of December 31, 2014 and 2013, and the related consolidatedstatements of operations and comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits alsoincluded the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company'smanagement. 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. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour 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, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered inrelation 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, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 2, 2015 expressed an adverse opinion thereon./s/ Ernst & Young LLPPhiladelphia, PennsylvaniaMarch 2, 201545Table of ContentsKNOLL, INC. CONSOLIDATED BALANCE SHEETS(dollars in thousands, except per share data) December 31, 2014 December 31, 2013ASSETS Current assets: Cash and cash equivalents$19,021 $12,026Customer receivables, net114,551 103,755Inventories140,835 96,671Deferred income taxes15,868 10,030Prepaid and other current assets21,544 12,145Total current assets311,819 234,627Property, plant, and equipment, net165,019 137,893Goodwill128,918 79,951Intangible assets, net253,739 214,695Other non-trade receivables3,278 4,250Other noncurrent assets6,170 4,346Total Assets$868,943 $675,762LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt$10,000 $—Accounts payable114,914 91,378Income taxes payable12,895 438Other current liabilities93,965 75,984Total current liabilities231,774 167,800Long-term debt248,000 173,000Deferred income taxes64,203 75,057Postretirement benefits other than pensions8,765 8,908Pension liability70,770 5,615Other noncurrent liabilities32,213 21,555Total liabilities655,725 451,935Commitments and contingent liabilities Equity: Common stock, $0.01 par value; 200,000,000 shares authorized; 64,113,785 shares issued and 48,723,414shares outstanding (including 1,235,904 non-voting restricted shares and net of 15,390,371 treasury shares) atDecember 31, 2014 and 63,057,266 shares issued and 48,289,946 shares outstanding (including 1,230,488 non-voting restricted shares and net of 14,767,320 treasury shares) at December 31, 2013487 483Additional paid-in capital41,143 37,258Retained earnings204,063 180,949Accumulated other comprehensive income (loss)(32,682) 5,137Total Knoll, Inc. stockholders' equity213,011 223,827Noncontrolling interests207 —Total equity213,218 223,827Total Liabilities and Equity$868,943 $675,762 See accompanying notes to the consolidated financial statements.46Table of ContentsKNOLL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(dollars in thousands, except per share data) Years ended December 31,2014 2013 2012Sales$1,050,294 $862,252 $898,496Cost of sales678,609 581,920 600,602Gross profit371,685 280,332 297,894Selling, general, and administrative expenses286,801 224,915 206,422Restructuring and other charges1,532 5,104 —Intangible asset impairment charge— 8,900 —Pension settlement and OPEB curtailment6,509 — —Operating profit76,843 41,413 91,472Interest expense7,378 5,941 6,350Other (income) expense, net(6,285) (3,430) 3,215Income before income tax expense75,750 38,902 81,907Income tax expense29,165 15,718 30,384Net earnings46,585 23,184 51,523Net loss attributable to noncontrolling interests(11) — —Net earnings attributable to Knoll, Inc. stockholders$46,596 $23,184 $51,523 Net earnings per common share attributable to Knoll, Inc. stockholders: Basic$0.98 $0.49 $1.10Diluted$0.97 $0.49 $1.09Weighted-average number of common shares outstanding: Basic47,346,532 46,916,845 46,634,834Diluted48,068,249 47,659,418 47,059,186 Net earnings$46,585 $23,184 $51,523Other comprehensive income (loss): Pension and other postretirement liability adjustment, net of tax(25,548) 36,729 (12,358)Foreign currency translation adjustment(12,271) (4,814) 1,466Total other comprehensive income (loss), net of tax(37,819) 31,915 (10,892)Total comprehensive income8,766 55,099 40,631Comprehensive income (loss) attributable to noncontrolling interests(11) — —Comprehensive income attributable to Knoll, Inc. stockholders$8,777 $55,099 $40,631 See accompanying notes to the consolidated financial statements.47Table of ContentsKNOLL, INC.CONSOLIDATED STATEMENTS OF EQUITY(dollars in thousands, except per share data) CommonStock AdditionalPaid-InCapital RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) TotalKnoll, Inc.Stockholders'Equity NoncontrollingInterests Total EquityBalance at December 31, 2011 $477 $23,631 $150,408 $(15,886) $158,630 $— $158,630Net earnings — — 51,523 — 51,523 — 51,523Other comprehensive loss — — — (10,892) (10,892) — (10,892)Shares issued for consideration: Exercise of stock options 2 1,039 — — 1,041 — 1,041Income tax effect from the exercise ofstock options and vesting of equityawards — (2,652) — — (2,652) — (2,652)Shares issued under stock incentiveplan 3 — — — 3 — 3Shares issued to Board of Directors inlieu of cash — 50 — — 50 — 50Stock-based compensation — 10,356 — — 10,356 — 10,356Cash dividend ($0.44 per share) — — (21,069) — (21,069) — (21,069)Purchase of common stock (3) (4,673) — — (4,676) — (4,676)Balance at December 31, 2012 $479 $27,751 $180,862 $(26,778) $182,314 $— $182,314Net earnings — — 23,184 — 23,184 — 23,184Other comprehensive income — — — 31,915 31,915 — 31,915Shares issued for consideration: Exercise of stock options 3 3,976 — — 3,979 — 3,979Income tax effect from the exercise ofstock options and vesting of equityawards — 643 — — 643 — 643Shares issued under stock incentiveplan 4 — — — 4 — 4Shares issued to Board of Directors inlieu of cash — 50 — — 50 — 50Stock-based compensation — 10,473 — — 10,473 — 10,473Cash dividend ($0.48 per share) — — (23,097) — (23,097) — (23,097)Purchase of common stock (3) (5,635) — — (5,638) — (5,638)Balance at December 31, 2013 $483 $37,258$180,949 $5,137 $223,827 $— $223,827Noncontrolling interests acquired inacquisition — — — — — 218 218Net earnings — — 46,596 — 46,596 (11) 46,585Other comprehensive loss — — — (37,819) (37,819) — (37,819)Shares issued for consideration: —Exercise of stock options 4 4,854 — — 4,858 — 4,858Income tax effect from the exercise ofstock options and vesting of equityawards — (119) — — (119) — (119)Shares issued under stock incentiveplan 6 — — — 6 — 6Shares issued to Board of Directors inlieu of cash — 56 — — 56 — 56Stock-based compensation — 8,062 — — 8,062 — 8,062Cash dividend ($0.48 per share) — — (23,482) — (23,482) — (23,482)Purchase of common stock (6) (8,968) — — (8,974) — (8,974)Balance at December 31, 2014 $487 $41,143 $204,063 $(32,682) $213,011 $207 $213,218See accompanying notes to the consolidated financial statements.48Table of ContentsKNOLL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS(dollars in thousands) Years Ended December 31,2014 2013 2012CASH FLOWS FROM OPERATING ACTIVITES Net earnings$46,585 $23,184 $51,523Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation16,327 14,727 14,632Amortization expense (including deferred financing fees)3,715 1,634 1,915Provision for deferred taxes(269) 3,529 4,393Write-off of deferred financing fees347 — 477Unrealized foreign currency (gains) losses(6,640) (4,578) 1,338Stock-based compensation8,062 10,473 10,356Intangible asset impairment charge— 8,900 —Other non-cash items466 153 (412)Changes in assets and liabilities, net of effects of acquisitions: Customer receivables(11,224) 2,455 9,134Inventories(21,302) 958 1,019Accounts payable23,002 6,204 (1,641)Current income taxes(5,528) 15,663 (13,782)Other current assets(3,601) 414 (3,920)Other current liabilities(6,971) (8,123) 788Other noncurrent assets and liabilities45,258 (20,979) (5,252)Cash provided by operating activities88,227 54,614 70,568CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures, net(41,586) (29,064) (16,545)Purchase of business, net of cash acquired(93,349) — (5,968)Purchase of licenses(315) (315) (488)Cash used in investing activities(135,250) (29,379) (23,001)CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from credit facility789,000 281,000 562,000Repayment of credit facility(704,000) (301,000) (581,000)Payment of financing fees(1,938) (13) (2,848)Payment of dividends(22,742) (22,529) (20,537)Proceeds from the issuance of common stock4,914 4,029 1,091Purchase of common stock for treasury(8,974) (5,638) (4,676)Tax benefit from the exercise of stock options and vesting of equity awards1,005 643 179Cash provided by (used in) financing activities57,265 (43,508) (45,791)Effect of exchange rate changes on cash and cash equivalents(3,247) 343 (83)Net increase (decrease) in cash and cash equivalents6,995 (17,930) 1,693Cash and cash equivalents at beginning of year12,026 29,956 28,263Cash and cash equivalents at end of year$19,021 $12,026 $29,956 See accompanying notes to the consolidated financial statements.49Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 20141. DESCRIPTION OF THE BUSINESSKnoll, Inc. and its subsidiaries (the "Company" or "Knoll") are engaged in the design, manufacture and sale of furniture products and accessories,modern outdoor furniture, as well as the sale of fine leather, textiles, and felt, focusing on the middle to high-end segments of the market. The Company hasprimary operations in the United States ("U.S."), Canada, and Europe and sells its products primarily through its direct sales representatives and independentdealers.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of ConsolidationThe consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries and any partiallyowned subsidiaries that the Company has the ability to control. Control generally equates to ownership percentage, whereby investments that are more than50% owned are generally consolidated investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method, andinvestments in affiliates of 20% or less are accounted for using the cost method. Intercompany transactions and balances have been eliminated inconsolidation.The results of the European subsidiaries are reported and included in the consolidated financial statements on a one-month lag to allow for the timelypreparation of consolidated information. The effect of this presentation is not material to the financial statements.Use of EstimatesThe 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 in the consolidated financial statements and accompanying notes. Actualresults may differ from such estimates.Restatement of Previously Reported Financial InformationIn conjunction with the year-end financial statement close process, an error was identified in the historical accounting for income taxes during theannual and quarterly periods from 2007 through 2014. The error resulted from the failure to identify the income tax ramifications associated with the non-timely settlement of sales transactions between the Company's Canadian subsidiary, Knoll North America Corp., and Knoll, Inc. The errors resulted inimproperly stated deferred tax assets and liabilities, uncertain tax positions, other comprehensive income, and income tax expense. Consequently, theCompany has restated certain prior period amounts for these errors. The Company has also corrected certain other identified immaterial errors, including therecognition of certain sales and cost of sales in the incorrect fiscal periods.The impact of these prior period errors were not material to the Company in any of those prior periods. However, the aggregate amount of the priorperiod errors of $3.9 million, if corrected in 2014, would have been material to the Company's current year consolidated statement of operations andcomprehensive income. The Company has corrected the prior period errors for all periods presented, including each of the quarters ended in 2014 and 2013,by restating the consolidated financial statements and other financial information included herein. See Notes 23 and 24 for the impact of these corrections onpreviously reported amounts.Cash and Cash EquivalentsCash and cash equivalents include cash on hand and highly liquid investments with maturities of three months or less at the date of purchase.50Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20142. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Revenue RecognitionThe Company recognizes revenue when the earnings process is complete. This occurs when risk and title transfers, collectibility is reasonably assuredand pricing is fixed and determinable. Accordingly, revenue is recognized when risk and title are transferred to the client, which primarily occurs at the timeof shipment. Taxes on revenue producing transactions are not included in sales. Based on historical experience, accruals are made at the time of sale toestimate for sales returns.Customer ReceivablesThe Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.The allowance is determined through an analysis of the aging of accounts receivable and assessments of risk that are based on historical trends and anevaluation of the impact of current and projected economic conditions. The Company evaluates the past-due status of its customer receivables based on thecontractual terms of sale. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to makepayments, additional allowances may be required. Accounts receivable are charged off against the allowance for doubtful accounts when the Companydetermines that recovery is unlikely.InventoriesInventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. The Company reserves for inventory that, inits judgment, 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.Property, Plant, and EquipmentProperty, 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.The Company reviews the carrying values of its property and equipment for possible impairment whenever events or changes in circumstances indicatethat the carrying value of an asset may not be recoverable based on undiscounted estimated cash flows expected to result from its use and eventualdisposition. The factors considered by the Company in performing this assessment include current operating results, trends and other economic factors. Inassessing the recoverability of the carrying value of the property and equipment, the Company must make assumptions regarding future cash flows and otherfactors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss for these assets.Goodwill and Intangible AssetsThe Company records the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. Goodwilland intangible assets with indefinite lives are tested for impairment at least annually and whenever events or circumstances occur indicating that a possibleimpairment may have been incurred. Intangible assets with finite lives are amortized over their useful lives.The Company assesses whether goodwill impairment exists using both the qualitative and quantitative assessments. The qualitative assessmentinvolves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than itscarrying amount, including goodwill. If based on this qualitative assessment the Company determines it is not more likely than not that the fair value of areporting unit is less than its carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed using atwo-step approach to determine whether a goodwill impairment exists at the reporting unit.51Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20142. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)The first step of the quantitative test is to compare the carrying amount of the reporting unit's assets to the fair value of the reporting unit. If the fair valueexceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying amount exceeds the fair value, then the secondstep is required to be completed, which involves allocating the fair value of the reporting unit to each asset and liability, with the excess being applied togoodwill. An impairment loss occurs if the amount of the recorded goodwill exceeds the implied goodwill. The determination of the fair value of thereporting units is based, among other things, on estimates of future operating performance of the reporting unit being valued.When performing the two-step quantitative impairment test, the Company's methodology includes the use of an income approach, which discountsfuture net cash flows to their present value at a rate that reflects the Company's cost of capital, otherwise known as the discounted cash flow method ("DCF").These estimated fair values are based on estimates of future cash flows of the reporting units. The Company also incorporates market multiples for comparablecompanies in determining the fair value of the reporting units. Any such impairment would be recognized in full in the reporting period in which it has beenidentified.The Company assesses whether indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments. Thequalitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If based on this qualitative assessment, the Company determines it is not more likely than not that thefair value of an indefinite-lived intangible asset is less than its carrying amount or if the Company elects not to perform a qualitative assessment, aquantitative assessment is performed to determine whether an indefinite-lived intangible asset impairment exists. The Company tests the indefinite-livedintangible assets for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under therelief from royalty method. Any excess of the carrying value over the amount of fair value is recognized as an impairment.Finite-lived assets such as customer relationships, non-compete agreements, and licenses are amortized over their estimated useful lives. The Companyreviews the carrying values of these assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of an assetmay not be recoverable based on undiscounted estimated cash flows expected to result from its use and eventual disposition. The Company continuallyevaluates the reasonableness of the useful lives of these assets.Business CombinationsThe purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities assumed from the acquiredbusiness based on their estimated fair values, with the residual of the purchase price recorded as goodwill. The results of operations of the acquired businessare included in the Company's operating results from the date of acquisition.Deferred Financing FeesFinancing fees that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense over the life ofthe underlying indebtedness.Shipping and HandlingAmounts billed to clients for shipping and handling of products are classified as sales. Costs incurred by the Company for shipping and handling areclassified as cost of sales.Research and Development CostsResearch and development expenses, which are expensed as incurred and included as a component of selling, general, and administrative expenses,were $19.2 million for 2014, $17.8 million for 2013, and $15.3 million for 2012.52Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20142. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Income TaxesThe Company accounts for income taxes using the asset and liability approach, which requires deferred tax assets and liabilities be recognized usingenacted tax rates to measure the effect of temporary differences between book and tax bases on recorded assets and liabilities. Valuation allowances arerecorded to reduce deferred tax assets, if it is more likely than not some portion or all of the deferred tax assets will not be recognized. The need to establishvaluation allowances against deferred tax assets is assessed quarterly. The primary factors used to assess the likelihood of realization are forecasts of futuretaxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.With respect to accounting for uncertainty in income taxes, the Company evaluates tax positions to determine whether the benefits of tax positions aremore likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of beingsustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement.For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit. If the morelikely than not threshold is not met in the period for which a tax position is taken, the Company may subsequently recognize the benefit of that tax positionif the tax matter is effectively settled, the statute of limitations expires, or if the more likely than not threshold is met in a subsequent period.The Company recognizes tax related interest and penalties in income tax expense and accrues for interest and penalties in other noncurrent liabilities.Fair Value of Financial InstrumentsThe Company uses the following valuation techniques to measure fair value for its financial assets and financial liabilities:Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets orliabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputswhich are derived principally from or corroborated by observable market data. Level 3 Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at themeasurement date (an exit price). The Company and its subsidiaries use, as appropriate, a market approach (generally, data from market transactions), anincome approach (generally, present value techniques and option-pricing models), and/or a cost approach (generally, replacement cost) to measure the fairvalue of an asset or liability. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data thatmanagement believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, asapplicable, certain risks such as nonperformance risk, which includes credit risk.Derivative Financial InstrumentsFrom time to time, the Company enters into foreign currency hedges to manage its exposure to foreign exchange rates associated with short-termoperating receivables of a Canadian subsidiary that are payable by the U.S. operations. The terms of these contracts are typically less than a year.53Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20142. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company recognizes derivatives as eitherassets or liabilities in the accompanying consolidated balance sheet and measures those instruments at fair value. Changes in the fair value of such contractsare reported in earnings as a component of “Other (income) expense, net.”Commitments and ContingenciesThe Company establishes reserves for the estimated cost of environmental and legal contingencies when such expenditures are probable andreasonably estimable. A significant amount of judgment and use of estimates is required to quantify the ultimate exposure in these matters. The Companyengages outside experts as deemed necessary or appropriate to assist in the evaluation of exposure. From time to time, as information becomes availableregarding changes in circumstances for ongoing issues as well as information regarding emerging issues, the potential liability is reassessed and reservebalances are adjusted as necessary. Revisions to the estimates of potential liability, and actual expenditures related to environmental and legal contingencies,could have a material impact on the results of operations or financial position.WarrantyThe Company generally offers a warranty for its products. The specific terms and conditions of those warranties vary depending upon the product sold.The Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time product revenue isrecognized. Factors that affect the Company's liability include historical product-failure experience and estimated repair costs for identified matters for eachspecific product category. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.Concentration of Credit RiskThe Company's accounts receivables are primarily due from a network of independent dealers and direct customers. The Company monitors andmanages the credit risk associated with the individual dealers and direct customers. The independent dealers are responsible for assessing and assuming creditrisk of their customers and may require their customers to provide deposits or other credit enhancement measures. Historically, the Company has had aconcentration of federal and local government receivables, however, they carry minimal credit risk.Foreign Currency TranslationResults of foreign operations are translated into U.S. dollars using average exchange rates during the year, while assets and liabilities are translated intoU.S. dollars using the exchange rates as of the balance sheet dates. The resulting translation adjustments are recorded in accumulated other comprehensiveincome (loss).Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency of theapplicable subsidiary are included in the Consolidated Statements of Operations, within other (income) expense, net, in the year in which the change occurs.Stock-Based CompensationThe Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of theaward. Forfeitures are estimated based on historical experience.54Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20142. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Stock OptionsThe fair value for stock options is estimated at the date of grant using an option pricing model, which requires management to make certainassumptions based on both historical and current data. The assumptions include expected term of the options, risk-free interest rate, expected volatility, anddividend yield. The expected term represents the expected amount of time that options granted are expected to be outstanding, based on historical andforecasted exercise behavior. The risk-free rate is based on the rate at grant date of zero-coupon U.S. Treasury Notes with a term equal to the expected term ofthe option. Expected volatility is estimated based on the historical volatility of the Company's stock price. The Company's dividend yield is based onhistorical data. The Company recognizes compensation expense over the applicable vesting period using the graded vesting attribution method, which treatseach option grant as multiple grants each with its own requisite service period.Restricted Stock and Restricted Stock UnitsThe fair value of restricted stock and restricted stock units, excluding the market-based restricted stock units discussed below, is based upon the closingmarket price of the Company's common stock on the date of grant. The Company recognizes compensation expense using the straight-line method over thevesting period.The fair value of the market-based restricted stock units is estimated at the date of grant using a lattice pricing model, which requires management tomake certain assumptions based on both historical and current data. These awards vest based upon the performance of the Company's stock price relative to apeer group. The assumptions included in the model include, but are not limited to, risk-free interest rate, expected volatility of the Company's and the peergroup's stock prices, and dividend yield. The risk-free rate is based upon the applicable U.S. Treasury Note rate. Expected volatility is estimated based on thehistorical volatility of the Company's and peer group's stock prices. The Company's dividend yield is based on historical data.Earnings per ShareBasic 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 stock and restricted stock units, and is computed by dividing net earnings attributable to Knoll, Inc. stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share includes the effect of shares and potential shares issued under thestock incentive plans.Pension and Other Postretirement BenefitsThe Company sponsors two defined benefit pension plans and two other postretirement benefit plans. Several statistical and other factors, whichattempt to anticipate future events, are used in calculating the expense and liability related to the plans. Key factors include assumptions about the expectedrates of return on plan assets, discount rates, and health care cost trend rates, as determined by us, within certain guidelines. The Company considers marketconditions, including changes in investment returns and interest rates, in making these assumptions.The Company determines the expected long-term rate of return on plan assets based on aggregating the expected rates of return for each component ofthe plan's asset mix. The Company uses historic plan asset returns combined with current market conditions to estimate the rate of return. The expected rate ofreturn on plan assets is a long-term assumption and generally does not change annually. The discount rate reflects the market rate for high-quality fixedincome debt instruments as of our annual measurement date and is subject to change each year.Unrecognized actuarial gains and losses are recognized over the expected remaining service life of the employee group. Unrecognized actuarial gainsand losses arise from several factors, including experience and assumption changes with respect to the obligations and from the difference between expectedreturns and actual returns on plan assets. These unrecognized gains and losses are systematically recognized as a change in future net periodic pensionexpense in accordance with the appropriate accounting guidance relating to defined benefit pension and other postretirement plans.55Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20142. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Key assumptions used in determining the amount of the obligation and expense recorded for postretirement benefits other than pensions ("OPEB"),include the assumed discount rate and the assumed rate of increases in future health care costs. In estimating the health care cost trend rate, the Companyconsiders actual health care cost experience, future benefit structures, industry trends and advice from our actuaries. The Company assumes that the relativeincrease in health care costs will generally trend downward over the next several years, reflecting assumed increases in efficiency and cost-containmentinitiatives in the health care system.In accordance with the appropriate accounting guidance, the Company recognized in the consolidated balance sheet the funded status (i.e., thedifference between the fair value of plan assets and the projected benefit obligation) of the defined benefit pension and postretirement benefit plans. Torecord the unfunded status of the plans, the Company recorded an additional liability and an adjustment to accumulated other comprehensive income, net oftax.The actuarial assumptions the Company used in determining the pension and OPEB retirement benefits may differ materially from actual results due tochanging market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. While the Company believes thatthe assumptions used are appropriate, differences in actual experience or changes in assumptions may materially affect the financial position or results ofoperations.Segment InformationAccounting Standards Codification 280, Segment Reporting, defines that a segment for reporting purposes is based on the financial performancemeasures that are regularly reviewed by the "Chief Operating Decision Maker" to assess segment performance and to make decisions about a public entity'sallocation of resources. Based on this guidance, the Company reports its segment results based on the following reportable segments: (i) Office; (ii) Studio;and (iii) Coverings. The Office segment serves corporate, government, healthcare, retail and other customers in the United States and Canada providing aportfolio of office furnishing solutions including systems, seating, storage, and KnollExtra ergonomic accessories, and other products. The Studio segmentincludes KnollStudio®, Knoll Europe which sells primarily KnollStudio® products, and Holly Hunt Enterprises, Inc. The KnollStudio® portfolio includes arange of lounge seating; side, café and dining chairs; barstools; and conference, dining and occasional tables. HOLLY HUNT® produces and showcasescustom made product including indoor and outdoor furniture, lighting, rugs, textiles and leathers. The Coverings segment includes, KnollTextiles®,Spinneybeck®, and Edelman®Leather. These businesses serve a wide range of customers offering high-quality textiles, felt, and leather.New Accounting PronouncementsIn May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirementsin Accounting Standards Codification 605, Revenue Recognition, and most industry-specific guidance throughout the Accounting Standards Codification.The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for fiscal years beginning afterDecember 15, 2016, and for interim periods therein. The guidance permits the use of either a full retrospective or modified retrospective transition method.The Company has not yet selected a transition method and is currently evaluating the impact of the amended guidance on the consolidated financialposition, results of operations and related disclosures.56Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20143. ACQUISITIONSOn February 3, 2014, the Company acquired Holly Hunt Enterprises, Inc (HOLLY HUNT®). The acquisition advances the Company's strategy of buildingits global capability as a resource for high-design workplaces and homes, including the commercial contract, decorator to-the-trade and consumer markets.The aggregate purchase price for the acquisition was $95.0 million, plus certain contingent payouts of up to $16.0 million in the aggregate based on thefuture performance of the business. The purchase price was funded from borrowings under the Company's revolving credit facility. The Company recordedthe acquisition of HOLLY HUNT using the acquisition method of accounting and recognized the assets acquired and liabilities assumed at their fair values asof the date of the acquisition. The results of operations of HOLLY HUNT have been included in the Company's Studio segment beginning February 3, 2014.The amount of sales and net earnings that resulted from the acquisition and attributable to Knoll, Inc. stockholders included in the consolidatedstatements of operations and comprehensive income during the twelve months ended December 31, 2014 were as follows (in thousands):Sales$102,572Net earnings attributable to Knoll, Inc. stockholders$6,291The following table summarizes the preliminary fair values assigned to the assets acquired and liabilities assumed as of the February 3, 2014 acquisitiondate (in thousands):Working Capital (1)$14,376Property, plant and equipment5,995Intangible assets41,786Contingent consideration(16,000)Noncontrolling interests(218)Other liabilities(604)Fair value of net acquired identifiable assets and liabilities$45,335 Purchase Price$95,000Less: Fair value of net acquired identifiable assets and liabilities45,335Goodwill$49,665(1) Working capital accounts include cash, customer receivables, inventories, prepaid expenses and other current assets, accounts payable, and other current liabilities.These above amounts are reflective of adjustments made during the fourth quarter of 2014, which include a $0.6 million reduction to working capitaland an offsetting increase to goodwill. Additionally, these amounts are determined based on certain valuations and studies that have yet to be finalized, andaccordingly, the assets acquired and liabilities assumed, as detailed above, are subject to adjustment once the detailed analyses are finalized. The goodwillrecorded is deductible for income tax purposes.57Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20143. ACQUISITIONS (continued)The following table summarizes the preliminary fair value of intangible assets as of the acquisition date (in thousands): Fair ValueWeighted-Average UsefulLifeIntangible assets: Tradename$23,479Indefinite Non-competition agreements2,4404 Customer relationships15,86710Total intangible assets$41,786 The Company recorded acquisition costs in its consolidated statement of operations and comprehensive income, within selling, general, andadministrative expenses during the year ended December 31, 2014 as follows (in thousands):Accounting and legal fees$435Other275Total$710The following unaudited pro forma summary financial information presents the operating results of the combined company, assuming the acquisitionhad occurred as of January 1, 2013 (in thousands): Years Ended December 31, 2014 2013Pro forma sales$1,058,115 $956,795Pro forma net earnings attributable to Knoll, Incstockholders$47,079 $25,450The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results that would havebeen attained had the acquisition occurred on January 1, 2013, nor is it indicative of results of operations for future periods. The pro forma informationpresented includes adjustments for acquisition costs, interest expense that would have been incurred to finance the acquisition, amortization anddepreciation.On March 1, 2012, the Company acquired Richard Schultz Design Inc., a designer and manufacturer of outdoor furniture for the residential, hospitalityand contract office furniture markets. The closing cash purchase price was approximately $6.0 million. The Company acquired intangible assets, inconnection with the acquisition, including the tradename ($2.8 million), customer relationships ($0.2 million), and non-competition agreements ($0.2million). Goodwill relating to the acquisition was recorded at $3.2 million. Goodwill for tax purposes will be amortized over 15 years. The remainingintangibles acquired (customer relationships and non-competition agreements) were assigned finite useful lives and amortization will be recorded over theeconomic life of the intangibles.The results of these acquisitions have been included in the Company's results of operations as of the respective acquisition dates. These acquisitionsstrengthen the Company's portfolio of products that can be offered.58Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20144. RESTRICTED CASHIncluded in the Company's consolidated balance sheet in cash and cash equivalents is restricted cash of $0.6 million and $0.4 million at December 31,2014 and 2013, respectively. This restricted cash primarily represents a bond held in the United Kingdom in order to defer the payment of duties on importsinto the United Kingdom.5. CUSTOMER RECEIVABLES, NETCustomer receivables are presented net of an allowance for doubtful accounts of $7.2 million and $5.7 million at December 31, 2014 and 2013,respectively. Management performs ongoing credit evaluations of its clients and generally does not require collateral.6. INVENTORIES Information regarding the Company's inventories is as follows (in thousands): December 31, 2014 December 31, 2013Raw materials$54,376 $49,479Work-in-process7,265 6,598Finished goods79,194 40,594$140,835 $96,671Inventory reserves for obsolescence and other estimated losses were $8.4 million and $7.2 million at December 31, 2014 and 2013, respectively, andhave been included in the amounts above.7. PROPERTY, PLANT, AND EQUIPMENT, NETInformation regarding the Company's property, plant and equipment is as follows (in thousands): December 31,2014 December 31,2013Land and buildings$120,165 $117,653Machinery and equipment261,415 255,390Construction in progress23,684 18,683Property, plant and equipment405,264 391,726Accumulated depreciation(240,245) (253,833)Property, plant, and equipment, net$165,019 $137,893Included in construction in progress are computer software costs of $12.6 million and $10.2 million as of December 31, 2014 and 2013, respectivelyDuring 2014, $1.3 million of computer software costs were capitalized. No computer software costs were capitalized in 2013. During 2014 and 2013, theCompany capitalized interest of approximately $0.4 million and $0.2 million, respectively. No interest was capitalized in 2012.59Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20148. GOODWILL AND INTANGIBLE ASSETS, NETInformation regarding the Company's intangible assets is as follows (in thousands): December 31, 2014 December 31, 2013 GrossAmount AccumulatedAmortization NetAmount GrossAmount AccumulatedAmortization NetAmountIndefinite-lived intangibleassets: Tradenames$231,300 $— $231,300 $207,821 $— $207,821Finite-lived intangible assets: Various34,215 (11,776) 22,439 15,593 (8,719) 6,874Total$265,515 $(11,776) $253,739 $223,414 $(8,719) $214,695The Company's amortization expense related to finite-lived intangible assets was $3.1 million, $1.0 million, and $1.0 million for the years endedDecember 31, 2014, 2013, and 2012, respectively. The expected amortization expense based on the finite-lived intangible assets as of December 31, 2014 isas follows (in thousands): Estimated Amortization2015$3,25120163,23720173,20020182,37520192,142The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands): OfficeSegment StudioSegment CoveringsSegment TotalBalance as of December 31, 2013$37,578 $5,414 $36,959 $79,951Goodwill acquired in HOLLY HUNT acquisition— 49,665 — 49,665Foreign currency translation adjustment(730) 32 — (698)Balance as of December 31, 2014$36,848 $55,111 $36,959 $128,91860Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 20149. OTHER CURRENT LIABILITIESInformation regarding the Company's other current liabilities are as follows (in thousands): December 31,2014 December 31,2013Accrued employee compensation$35,030 $31,395Accrued pension costs— 12,260Customer deposits24,927 5,200Warranty8,180 8,214Contingent payout5,000 —Other20,828 18,915Other current liabilities$93,965 $75,98410. INDEBTEDNESSThe Company's long-term debt is summarized as follows (in thousands): December 31,2014 December 31,2013Balance of revolving credit facility$63,000 $173,000Balance of term loan195,000 —Total long-term debt258,000 173,000Less: Current maturities of long-term debt10,000 —Long-term debt$248,000 $173,000Credit FacilitiesOn May 20, 2014, the Company amended and restated its existing credit facility, dated February 3, 2012, with a new $500.0 million credit facilitymaturing on May 20, 2019, consisting of a revolving commitment in the amount of $300.0 million and a term loan commitment in the amount of $200.0million ("Amended Credit Agreement"). The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility or incurincremental term loans by up to an additional $200.0 million, subject to the satisfaction of certain terms and conditions. Borrowings under the revolving credit facility may be repaid at any time, but no later than the maturity date on May 20, 2019. Obligations under thecredit facility are secured by a first priority security interest in (i) the capital stock of certain present and future subsidiaries (with limitations on foreignsubsidiaries) and (ii) all present and future property and assets of the Company (with various limitations and exceptions). The Company retains the right toterminate or reduce the size of the revolving credit facility at any time. Borrowings under the term loan facility are due in equal quarterly installments of $2.5million, with the remaining borrowings due on the maturity date.Interest on revolving credit and term loans will accrue, at the Company’s election, at (i) the Eurocurrency Rate (as defined in the Amended CreditAgreement), plus additional percentage points based on the Company’s leverage ratio or (ii) the Base Rate (a rate based on the higher of (a) the prime rateannounced from time-to-time by Bank of America, N.A., (b) the Federal Reserve System’s federal funds rate, plus .50% or (c) the Eurocurrency Rate plus1.00%; Base Rate is defined in detail in the Amended Credit Agreement), plus additional percentage points based on the Company’s leverage ratio.61Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201410. INDEBTEDNESS (continued)The Company is required to pay an annual 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 is required topay a letter of credit fee equal to the applicable rate based upon the Company's leverage ratio as set forth in the credit agreement times the daily maximumamount available to be drawn under such letter of credit. The commitment and letter of credit fees are payable in arrears on the last business day of eachquarter.At December 31, 2014 and December 31, 2013, the Company's interest rates were approximately 2.3% and 2.4%, respectively.The Amended Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation(i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) covenants that prevent or restrict theCompany’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, engage in sale-leaseback transactions, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates and sellstock or assets. The Company was in compliance with the Amended Credit Agreement covenants at December 31, 2014. Repayments under the Amended Credit Agreement can be accelerated by the lenders upon the occurrence of certain events of default, including,without limitation, a failure to pay any principal, interest or other amounts in respect of loans when due, breach by the Company (or its subsidiaries) of any ofthe covenants or representations contained in the Amended Credit Agreement or related loan documents, failure of the Company (or its material subsidiaries)to pay any amounts owed with respect to other significant indebtedness of the Company or such subsidiary, or a bankruptcy event with respect to theCompany or any of its material subsidiaries.Deferred Financing FeesIn connection with the refinancing of the Company's previous credit facility during 2014, the Company wrote off $0.3 million of unamortized deferredfinancing fees associated with the previous credit facility and incurred $1.9 million in new financing fees that will be amortized as a component of interestexpense over the life of the new facility through May 2019. Deferred financing fees, net of accumulated amortization, totaled $2.9 million and $2.0 millionas of December 31, 2014 and 2013, respectively. Amortization expense related to the deferred financing fees, included in interest expense, was $0.7 millionfor the year ended December 31, 2014 and $0.6 million for the years ended December 31, 2013 and 2012.OthersThe 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, 2014, total credit available under such agreements was approximately $11.4million. There is currently no expiration date on these agreements. The interest rates on borrowings are variable and are based on the monetary market ratethat is linked to each country's prime rate. The Company had no outstanding borrowings under the European credit facilities as of December 31, 2014 and2013.Interest PaidDuring 2014, 2013, and 2012, the Company made interest payments totaling $7.3 million, $5.4 million, and $5.4 million, respectively.62Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201411. STOCKHOLDERS' EQUITYPreferred StockThe Company's Certificate of Incorporation authorizes the issuance of 10,000,000 shares of preferred stock with a par value of $1.00 per share. Subjectto applicable laws, the Board of Directors is authorized to provide for the issuance of preferred shares in one or more series, for such consideration and withdesignations, powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof, as shallbe determined by the Board of Directors. There was no Preferred Stock outstanding as of December 31, 2014 and 2013.The following demonstrates the change in the number of shares of common stock outstanding during the years ended December 2012, 2013, and 2014(excludes non-voting restricted shares).Shares outstanding as of December 31, 201146,362,147Purchase of common stock(68,805)Shares issued under stock incentive plan, net of awards surrender to pay applicable taxes383,980Exercise of stock options93,839Shares issued to Board of Directors in lieu of cash3,391Shares issued under the employee stock purchase plan21Shares outstanding as of December 31, 201246,774,573Purchase of common stock(211,546)Shares issued under stock incentive plan, net of awards surrender to pay applicable taxes162,549Exercise of stock options330,895Shares issued to Board of Directors in lieu of cash2,987Shares outstanding as of December 31, 201347,059,458Purchase of common stock(270,467)Shares issued under stock incentive plan, net of awards surrender to pay applicable taxes319,773Exercise of stock options375,718Shares issued to Board of Directors in lieu of cash3,028Shares outstanding as of December 31, 201447,487,51063Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201411. STOCKHOLDERS' EQUITY (continued)Accumulated Other Comprehensive Income (Loss)The components of accumulated other comprehensive income (loss) are as follows (in thousands): BeginningBalance Before-TaxAmount Tax Benefit(Expense) Net-of-TaxAmount EndingBalanceDecember 31, 2012 Pension and other postretirement liabilityadjustment$(33,600) $(20,165) $7,807 $(12,358) $(45,958)Foreign currency translation adjustment17,714 1,466 — 1,466 19,180Accumulated other comprehensive income(loss)$(15,886) $(18,699) $7,807 $(10,892) $(26,778)December 31, 2013 Pension and other postretirement liabilityadjustment$(45,958) $59,743 $(23,014) $36,729 $(9,229)Foreign currency translation adjustment19,180 (4,814) — (4,814) 14,366Accumulated other comprehensive income(loss)$(26,778) $54,929 $(23,014) $31,915 $5,137December 31, 2014 Pension and other postretirement liabilityadjustment$(9,229) $(41,906) $16,358 $(25,548) $(34,777)Foreign currency translation adjustment14,366 (12,271) — (12,271) 2,095Accumulated other comprehensive income(loss)$5,137 $(54,177) $16,358 $(37,819) $(32,682)The following reclassifications were made from accumulated other comprehensive income (loss) to the statement of operations are as follows (inthousands): December 31,2014 December 31,2013Amortization of pension and other post-retirement liability adjustments Prior Service Costs (1)$2,019 $3,364Actuarial Losses (1)(2,540) (9,390)Loss recognized during settlement(6,509) —Total Before Tax(7,030) (6,026)Tax Benefit(2,714) (2,410)Net of Tax$(4,316) $(3,616)(1) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension costs. See Note 17 foradditional information.64Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201412. EARNINGS PER SHAREBasic 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 stock and restricted stock units and is computed by dividing net income by the weighted-average number of common sharesoutstanding for the period. Diluted earnings per share includes the effect of shares and potential shares and units issued under the stock incentive plans. Thefollowing table sets forth the reconciliation from basic to dilutive average common shares (in thousands): December 31, 2014 2013 2012Weighted-average shares of common stock outstanding—basic47,347 46,917 46,635Potentially dilutive shares resulting from stock plans721 742 424Weighted-average common shares—diluted48,068 47,659 47,059Antidilutive equity awards not included in weighted-average common shares—diluted144 164 59613. DERIVATIVE FINANCIAL INSTRUMENTS The Company entered into one foreign currency option contract during the year ended December 31, 2014, and the contract expired unexercised during2014. The Company entered into two foreign currency contracts during the year ended December 31, 2013. Both contracts entered into during 2013 expiredunexercised during 2013. No foreign currency contracts were entered into during the year ended December 31, 2012. There were no outstanding derivativecontracts as of December 31, 2014 and 2013.14. COMMITMENTS AND CONTINGENCIES Litigation The Company is currently involved in matters of litigation, including environmental contingencies, arising in theordinary course of business. The Company accrues for such matters when expenditures are probable and reasonably estimable. Based upon informationpresently known, management is of the opinion that such litigation, either individually or in the aggregate, will not have a material adverse effect on theCompany’s financial position, results of operations, or cash flows.Collective Bargaining At December 31, 2014, the Company employed a total of 3,343 people. Approximately 11.3% of the employees are represented by unions. The GrandRapids, Michigan plant is the only unionized plant within the U.S. and has an agreement with the Carpenters Union, Local 1615, of the United Brotherhoodof Carpenters and Joiners of America, Affiliate of the Carpenters Industrial Council, covering approximately 190 hourly employees. The CollectiveBargaining Agreement expires April 30, 2015. Approximately 187 workers in Italy are also represented by unions. The union contracts under which theseItalian workers are represented expire in 2015 and 2016.65Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201414. COMMITMENTS AND CONTINGENCIES (continued)Warranty The Company provides for estimated product warranty expenses when related products are sold and are included within other current liabilities.Because warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, future warranty claims maydiffer from amounts provided.Changes in the warranty reserve are as follows (in thousands): 2014 2013 2012Balance, beginning of the year$8,214 $7,852 $8,146Provision for warranty claims6,664 7,092 6,488Warranty claims paid(6,631) (6,716) (6,887)Increase due to acquisition— — 106Foreign currency translation adjustment(67) (14) (1)Balance, end of the year$8,180 $8,214 $7,85215. INCOME TAXESIn conjunction with the year-end financial statement close process, an error was identified in the historical accounting for income taxes during theannual and quarterly periods from 2007 to 2014. The error resulted from the failure to identify the income tax ramifications associated with the non-timelysettlement of sales transactions between the Company's Canadian subsidiary, Knoll North America Corp., and Knoll, Inc. The errors resulted in improperlystated deferred tax assets and liabilities, uncertain tax positions, other comprehensive income, and income tax expense. Consequently, the Company hasrestated certain prior period amounts. The Company has also corrected certain other identified errors, including the recognition of certain sales and cost ofsales in the incorrect fiscal periods. See Notes 23 and 24 for the impact of these corrections on previously reported amounts.Income before income tax expense consists of the following (in thousands): 2014 2013 2012U.S. operations$61,353 $32,328 $63,049Foreign operations14,397 6,574 18,858Total$75,750 $38,902 $81,90766Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201415. INCOME TAXES (continued)Income tax expense is comprised of the following (in thousands): 2014 2013 2012Current: Federal$20,154 $6,665 $18,708State4,472 1,903 3,347Foreign4,808 3,621 3,936Total current29,434 12,189 25,991Deferred: Federal(1,315) 4,135 2,934State753 607 608Foreign293 (1,213) 851Total deferred(269) 3,529 4,393Income tax expense$29,165 $15,718 $30,384The following table sets forth the tax effects of temporary differences that give rise to the deferred tax assets and liabilities (in thousands): December 31,2014 December 31,2013Deferred tax assets Accounts receivable, principally due to allowance for doubtful accounts$2,750 $2,127Inventories3,883 3,649Net operating loss carryforwards8,626 8,817Accrued pension27,598 3,136Stock-based compensation5,794 7,347Compensation-related accruals4,218 3,364Warranty2,893 2,880Obligation for postretirement benefits other than pension3,706 3,770Accrued liabilities and other items9,247 7,956Gross deferred tax assets68,715 43,046Valuation allowance(7,901) (8,991)Net deferred tax assets60,814 34,055Deferred tax liabilities: Intangibles86,464 82,837Plant and equipment22,685 16,245Gross deferred tax liabilities109,149 99,082Net deferred tax liabilities$(48,335) $(65,027)Income taxes paid, net of refunds received, by the Company during 2014, 2013, and 2012, totaled $18.6 million, $18.3 million, and $26.7 million,respectively.As of December 31, 2014, the Company had net operating loss carryforwards totaling approximately $32.4 million in Brazil, the United Kingdom, andGermany. The net operating loss carryforwards may be carried forward indefinitely in Brazil, United Kingdom, and Germany. The Company provides avaluation allowance against certain net foreign deferred tax assets (principally the net operating loss carryforwards) due to the uncertainty that they can berealized.67Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201415. INCOME TAXES (continued)The following table sets forth a reconciliation of the statutory federal income tax rate to the effective income tax rate: 2014 2013 2012Federal statutory tax rate35.0 % 35.0 % 35.0 %Increase (decrease) in the tax rate resulting from: State taxes, net of federal effect3.5 % 3.7 % 3.3 %Effect of tax rates of other countries(0.4)% 0.2 % (0.5)%Section 199 deduction(1.2)% (1.7)% (1.5)%Change in Contingency Reserve0.7 % 2.0 % (1.8)% Limitation on deduction of Officer’s compensation1.5 % 2.6 % 1.7 %Other(0.6)% (1.4)% 0.9 %Effective tax rate38.5 % 40.4 % 37.1 %As of December 31, 2014, there is $139.7 million of cumulative earnings overseas. Approximately $64.6 million has been subject to tax under the U.S.Subpart F of Section 956 provisions. Accordingly, $75.1 million of earnings have not been subject to U.S. tax and are reinvested indefinitely. It is notpractical to estimate the amount of U.S. tax that would result upon the eventual repatriation of such earnings.As of December 31, 2014 and 2013, the Company had unrecognized tax benefits of approximately $4.9 million and $4.6 million, respectively. Theentire amount of the unrecognized tax benefits would reduce the effective tax rate if recognized.The following table summarizes the activity related to our unrecognized tax benefits during 2014, 2013, and 2012 (in thousands): 2014 2013 2012Balance, beginning of the year$4,611 $4,039 $4,930Additions for tax position related to the current year125 691 125Additions for tax position related to the prior year350 — 191Decreases for tax position related to the prior year— — (1,207)Prior year reductions Lapse of statute of limitations(164) (119) —Change in exchange rate— — —Balance, end of the year$4,922 $4,611 $4,039Included in the unrecognized tax benefits at December 31, 2014 is $4.3 million associated with errors on previously reported income tax returns. It isanticipated that amended returns will be filed to report the incremental taxable income within the next twelve months.During 2014, 2013, and 2012, respectively, the Company recognized approximately $0.2 million of interest and penalties. The Company has accruedapproximately $0.5 million and $0.4 million for the payment of interest and penalties as of December 31, 2014 and December 31, 2013, respectively.As of December 31, 2014, the Company is subject to U.S. Federal Income Tax examination for the tax years 2011 through 2014, and to non-U.S.income tax examination for the tax years 2005 to 2014. In addition, the Company is subject to state and local income tax examinations for the tax years 2005through 2014.68Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201416. LEASESThe Company has commitments under operating leases for certain machinery and equipment as well manufacturing, warehousing, showroom and otherfacilities used in its operations. Some of the leases contain renewal provisions and generally require the Company to pay certain operating expenses,including utilities, insurance and taxes, which are subject to escalation. At times the Company enters into lease agreements which contain a provision forcash abatements related to certain leasehold improvements. These abatements are recognized on a straight-line basis as a reduction to rent expense over thelease term. The unamortized portions as of December 31, 2014 and 2013 were $9.2 million and $8.1 million, respectively. Total rent expense for 2014, 2013,and 2012 was $28.8 million, $18.8 million, and $15.9 million, respectively. Future minimum rental payments required, excluding maintenance and othermiscellaneous charges, under those operating leases are as follows (in thousands): Future MinimumRental Payments2015$24,122201622,095201719,002201817,302201912,859Subsequent years39,571Total minimum lease payments$134,95117. PENSION AND OTHER POSTRETIREMENT BENEFITSThe 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 benefit plans cover eligible U.S. nonunion employees while the otherpension plan and other postretirement benefits plan cover eligible U.S. union employees. The Company uses a December 31 measurement date for both ofthese plans.Both the pension plans and the other postretirement benefit plans were modified during the year ended December 31, 2011. Participants who had 70 ormore points (age plus completed years of service) could elect to stay in the pension and accrue additional benefits or receive the Company's 401K matchwhich was reinstated as of January 1, 2012. Those with less than 70 points were phased-out from the pension plan and do not accrue any additional benefitsafter December 31, 2011. However, these individuals may receive the Company's 401K matching contributions. The Company's other postretirement benefitplans are in the process of being eliminated.During 2014, the Company offered a one-time lump sum payment option to terminated vested participants in exchange for the right to receive futurepension payments. As a result, the Company settled $30.2 million of benefit obligations and recorded a $6.1 million settlement charge during the year endedDecember 31, 2014.69Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201417. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)The following table sets forth a reconciliation of the related benefit obligation and plan assets related to the benefits provided by the Company (inthousands): Pension Benefits Other Benefits 2014 2013 2014 2013Change in projected benefit obligation: Projected benefit obligation at beginning of the period$261,714 $278,416 $10,063 $11,146Service cost6,937 8,009 23 37Interest cost13,341 12,066 385 325Participant contributions— — 326 275Actuarial (gain) loss58,922 (31,585) (362) (583)Benefits paid(36,476) (5,192) (1,324) (1,137)Liability loss related to curtailment— — 693 —Liability gain related to settlement(8,022) — — —Projected benefit obligation at end of the period$296,416 $261,714 $9,804 $10,063Accumulated benefit obligation at end of the period$290,933 $256,002 $— $—Change in plan assets: Fair value of plan assets at beginning of the period$244,302 $193,389 $— $—Actual return on plan assets18,036 35,460 — —Employer contributions— 20,645 998 862Participant contributions— — 326 275Benefits paid(6,270) (5,192) (1,324) (1,137)Benefits paid related to settlement(30,206) — — —Fair value of plan assets at the end of period$225,862 $244,302 $— $—Funded status$(70,554) $(17,412) $(9,804) $(10,063)Assumptions used in computing the benefit obligation as of December 31, 2014 and 2013 were as follows: Pension Benefits Other Benefits 2014 2013 2014 2013Discount rate4.20 - 4.27% 5.10 - 5.18% 3.03 - 4.20% 2.97 - 5.05%Expected return on plan assets7.10% 7.10% N/A N/ARate of compensation increase2.50% 2.50% N/A N/A70Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201417. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)The following table presents the fair value of the Company's pension plan investments as of December 31, 2014 and 2013 (in thousands): Level 1 Level 2 Level 3 TotalEquity Securities U.S. equity securities$115,102 $— $— $115,102Non-U.S. equity securities22,081 — — 22,081Debt Securities Fixed income funds and cash investment funds88,679 — — 88,679December 31, 2014$225,862 $— $— $225,862Equity Securities U.S. equity securities$128,766 $— $— $128,766Non-U.S. equity securities25,461 — — 25,461Debt Securities Fixed income funds and cash investment funds90,075 — — 90,075December 31, 2013$244,302 $— $— $244,302See Note 2 of the consolidated financial statements for the description of the levels of the fair value hierarchy. Pension Benefits Other Benefits 2014 2013 2014 2013 (in thousands)Amounts recognized in the consolidated balance sheets consist of: Current liabilities$— $(12,260) $(1,039) $(1,155)Noncurrent liabilities(70,554) (5,152) (8,765) (8,908)Net amount recognized$(70,554) $(17,412) $(9,804) $(10,063)Amounts recognized in accumulated other comprehensive incomebefore taxes: Net actuarial loss$58,780 $18,239 $1,018 $1,913Prior service cost (credit)— 11 (2,768) (5,040)Net amount recognized$58,780 $18,250 $(1,750) $(3,127)71Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201417. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)The following table sets forth other changes in the benefit obligation recognized in other comprehensive income for the Company's pension and otherpostretirement benefits plans (in thousands): Pension Benefits Other Benefits 2014 2013 2014 2013Net actuarial loss (gain)$48,606 $(53,134) $330 $(583)Amortization of: Prior service (credit) cost(10) (14) 2,029 3,378Actuarial (gain)(2,006) (8,623) (534) (767) Loss recognized related to settlement(6,060) — — —Loss recognized related to curtailment— — (449) —Total recognized in OCI$40,530 $(61,771) $1,376 $2,028The net actuarial loss of $48.6 million in 2014 was mainly due to lower discount rates as compared to 2013 and the change in the mortality tables fromthe RP-2000 mortality tables to the RP-2014 mortality tables. The net actuarial gain of $53.1 million in 2013 was mainly due to higher discount rates ascompared to 2012 and a gain on plan assets held during the year.The estimated net actuarial loss for the defined benefit pension plans included in accumulated other comprehensive income and expected to berecognized in net periodic pension cost during the fiscal year ended December 31, 2015 are $8.7 million.The following table sets forth the components of the net periodic benefit cost for the Company's pension and other postretirement benefit plans (inthousands): Pension Benefits Other Benefits 2014 2013 2012 2014 2013 2012Service cost$6,937 $8,009 $7,209 $23 $37 $50Interest cost13,341 12,066 11,819 385 325 457Expected return on plan assets(15,743) (13,912) (12,523) — — —Amortization of prior service cost(credit)10 14 14 (2,029) (3,378) (3,375)Recognized actuarial loss2,006 8,623 4,108 534 767 983Settlement and curtailment relatedexpense6,060 — — 449 — —Net periodic benefit cost$12,611 $14,800 $10,627 $(638) $(2,249) $(1,885)For the year ended December 31, 2014, $7.3 million of pension expense was recorded in cost of sales and $5.3 million was recorded in selling general,and administrative expenses.Assumptions used to determine net periodic benefit cost for the years ended December 31, 2014, 2013, and 2012 were as follows: Pension Benefits Other Benefits 2014 2013 2012 2014 2013 2012Discount rate5.10 - 5.18% 4.30 - 4.40% 5.10 - 5.15% 2.69 - 5.05% 2.25 - 4.25% 3.40 - 5.05%Expected return on plan assets7.10% 7.10% 7.10% N/A N/A N/ARate of compensation increase2.50% 2.50% 2.50% N/A N/A N/A72Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201417. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)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 assets areinvested.For purposes of measuring the benefit obligation associated with the Company's other postretirement benefit plans as of December 31, 2014, as well asthe assumed rate for 2015, an annual rate increase of 7.75% to 8.25% in the per capita cost of covered health care benefits was assumed and a 7.0% annualrate of increase in the per capita cost of covered prescription drug benefits was assumed. The rates were then assumed to decrease to an ultimate rate of 5.0%for 2022 and thereafter. For purposes of measuring the net periodic benefit cost for 2014 associated with the Company's other postretirement benefits plans,an 8.0% to 8.5% annual rate of increase in the per capita cost of covered medical benefits was assumed and a 7.25% annual rate of increase in the per capitacost of covered presciption drug benefits was assumed. The rate was then assumed to decrease to an ultimate rate of 5.0% for 2022 for both the medical planand prescription drug plan and thereafter. Increasing the assumed health care cost trend rate by 1.0% would increase the benefit obligation as of December 31,2014 by $343,000 and increase the aggregate of the service and interest cost components of net periodic benefit cost for 2014 by $11,000. Decreasing theassumed health care cost trend rate by 1.0% would decrease the benefit obligation as of December 31, 2014 by $336,000 and decrease the aggregate of theservice and interest cost components of net periodic benefit cost for 2014 by $10,000.The Company's pension plans' weighted-average asset allocations as of December 31, 2014 and 2013, by asset category were as follows: Plan Assets atDecember 31, 2014 2013Asset Category: Temporary investment funds4% 4%Equity investment funds61 63Fixed income funds35 33Total100% 100%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 equity fundinvestments can consist of a broadly diversified domestic equity fund, an actively managed domestic equity fund and an actively managed internationalequity fund. The purpose of these funds is to provide the opportunity for capital appreciation, income, and the ability to diversify investments outside theU.S. equity market. Mutual funds are used as the plans' investment vehicle since they have clearly stated investment objectives and guidelines, offer a highdegree of investment flexibility, offer competitive long-term results, and are cost effective for small asset balances.The Company does not expect to contribute to its pension plans in 2015. The Company expects to contribute approximately $1.0 million to its otherpostretirement benefit plans in 2015. Estimated future benefit payments under the pension and other postretirement plans are as follows (in thousands): Pension Benefits Other Benefits2015$7,699 $1,03820168,958 1,023201710,342 940201811,678 851201912,978 8232020 - 202484,889 3,33273Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201417. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)The Company also sponsors 401K retirement savings plans for all U.S. associates who do not participate in the Company's pension plans. Under the401K retirement savings plans, participants may defer a portion of their earnings up to the annual contribution limits established by the Internal RevenueService. The Company's total expense under the 401K plans for U.S. employees was $2.5 million for 2014, $2.0 million for 2013 and $3.0 million for 2012.Employees of the Canadian, Belgium and United Kingdom operations also participate in defined contribution pension plans sponsored by the Company. TheCompany's expense related to these plans for 2014, 2013, and 2012 was $1.2 million, $1.2 million, and $1.3 million, respectively.18. STOCK PLANSAs of December 31, 2014, the Company sponsors three stock incentive plans under which awards denominated or payable in shares, units or options topurchase shares of Knoll common stock may be granted to officers, certain other employees, directors and consultants of the Company. As of December 31,2014, 2,248,456 shares remained available for issuance under these plans.A Committee of the Board of Directors, currently consisting of the Compensation Committee of the Company's Board of Directors has sole discretionconcerning administration of the plans, including selection of individuals to receive awards, types of awards, the terms and conditions of the awards and thetime at which awards will be granted.Restricted Stock and Restricted Stock UnitsDuring 2012, the Company granted 425,030 restricted stock awards and restricted stock units to certain key employees and the Company's Board ofDirectors at the weighted-average fair value of $15.48 per restricted stock award at the date of grant. The majority of these awards cliff vest on the thirdanniversary of the grant date.During 2013, the Company granted 441,629 restricted stock awards to certain key employees and the Company's Board of Directors at the weighted-average fair value of $16.56 per restricted stock award at the date of grant. The majority of these awards cliff vest on the third anniversary of the grant date.During 2014, the Company granted 1,106,919 restricted stock awards and restricted stock units to certain key employees and the Company's Board ofDirectors. 462,773 of these awards were granted at the weighted-average fair value of $15.43 per restricted stock award at the date of grant. The majority ofthese awards cliff vest on the third anniversary of the grant date. 200,000 of these awards were granted at the weighted-average fair value of $18.72 perrestricted stock award and cliff vest on the fourth anniversary of the grant date. 331,896 of these awards were granted at the weighted-average fair value of$17.34 per restricted stock award. These awards vest based upon the Company achieving certain cumulative operating performance target goals over the nextthree years. 112,250 of these awards were granted at the weighted-average fair value of $8.24 per restricted stock award. These awards vest based upon theperformance of the Company's stock price relative to a peer group over the next three years.74Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201418. STOCK PLANS (continued)The weighted-average fair value of the market performance restricted stock units granted in 2014 was $8.24 based on the following assumptions used inthe lattice valuation model:Range of expected volatilities of theCompany and peer group41.8% - 54.7%Expected dividend yield3.2%Expected term (in years)3Risk-free interest rate2.5%The following table summarizes the Company's restricted stock activity during the year: RestrictedStock Weighted-AverageFair ValueOutstanding at December 31, 20131,230,488 $18.32Granted662,773 16.42Forfeited(108,875) 16.01Vested(548,482) 20.84Outstanding at December 31, 20141,235,904 $16.38The following table summarizes the Company's restricted stock units activity during the year: RestrictedStock Units Weighted-AverageFair Value RestrictedStock UnitsPerformanceBased Weighted-AverageFair Value RestrictedStock UnitsMarket Based Weighted-AverageFair ValueOutstanding at December 31, 201395,000 $14.04 — $— — $—Granted— — 331,896 17.34 112,250 8.24Forfeited— — (8,813) 15.19 (8,813) 8.14Vested(15,000) 14.04 — — — —Outstanding at December 31, 201480,000 $14.04 323,083 $17.36 103,437 $8.1875Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201418. STOCK PLANS (continued)Stock OptionsIn 2012, the Company granted 20,000 stock options to certain key employees of the Company. These options vest ratably over a five-year period onthe anniversary of the grant date. The contractual life of these options is 10 years. In addition, the options have accelerated vesting provisions upon a changeof control of the Company. The grant-date fair value of these options granted was $6.26 based on the following assumptions used in the Black-Scholesoption pricing model:Expected volatility51%Expected dividend yield2.50%Expected term (in years)6Risk-free interest rate1.36%Exercise price$15.98The following table summarizes the Company's stock option activity for the preceding three years. Number ofOptions Weighted-AverageExercisePrice Weighted-AverageRemainingContractualLife (years) AggregateIntrinsic ValueOutstanding at December 31, 20111,540,193 $13.83 $3,631,381Granted20,000 15.98 —Exercised(93,839) 11.09 426,278Expired(37,070) 16.34 37,070Forfeited(65,000) 16.76 76,425Outstanding at December 31, 20121,364,284 $13.84 3.53 $3,686,098Exercised(330,895) 11.98 1,739,700Forfeited(10,000) 10.24 42,400Outstanding at December 31, 20131,023,389 $14.48 2.71 $4,625,520Exercised(375,718) 12.93 2,237,704Outstanding at December 31, 2014647,671 $15.37 2.16 $4,016,809Exercisable at December 31, 2014635,671 $15.36 2.07 $3,954,52976Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201418. STOCK PLANS (continued)The following table summarizes information regarding stock options outstanding and exercisable at December 31, 2014: Options Outstanding Options ExercisableRanges of Exercise PricesNumber ofOptions Weighted-AverageRemainingContractualLife (years) Weighted-AverageExercisePrice Number ofOptions Weighted-AverageExercisePrice$10.24 - $15.00357,171 2.34 $11.20 357,171 $11.20$15.01 - $18.77135,500 1.75 18.00 123,500 18.20$18.78 - $23.47155,000 2.12 22.68 155,000 22.68$10.24 - $23.47647,671 2.16 $15.37 635,671 $15.36A summary of the status of the Company's non-vested options as of December 31, 2014 and 2013, and changes during the year ended December 31,2014, is presented below. Number ofOptions Weighted-AverageGrant-DateFair ValueNon-vested at December 31, 201316,000 $6.26Vested(4,000) 6.26Non-vested at December 31, 201412,000 $6.26The total fair value of options vested during 2014 was minimal. For the years 2013 and 2012 the total fair value of options vested was $0.9 million and$1.0 million, respectively.Total AwardsCompensation costs related to stock-based compensation for the years ended December 31, 2014, 2013, and 2012 totaled $7.8 million pre-tax ($4.8million after-tax), $10.5 million pre-tax ($6.3 million after-tax), and $10.4 million pre-tax ($6.6 million after-tax), respectively, and are included withinselling, general, and administrative expenses.At December 31, 2014, the total compensation cost related to non-vested awards not yet recognized equaled $16.3 million including $0.1 million forstock options and $16.2 million for restricted stock awards and restricted stock units, respectively. The weighted-average remaining period over which thecost is to be recognized is 1.8 years.77Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201419. SEGMENT AND GEOGRAPHIC REGION INFORMATIONThe following information below categorizes certain financial information into the Company's reportable segments for the years ended December 31,2014, 2013, and 2012 (in thousands): 2014 2013 2012SALES Office$656,228 $599,131 $644,318Studio279,167 154,083 147,550Coverings114,899 109,038 106,628Knoll, Inc. $1,050,294 $862,252 $898,496INTERSEGMENT SALES (1) Office$2,776 $1,698 $1,727Studio5,918 6,594 5,299Coverings10,576 9,722 9,591Knoll, Inc. $19,270 $18,014 $16,617DEPRECIATION AND AMORTIZATION Office$13,747 $13,116 $13,409Studio5,313 2,085 2,055Coverings982 1,160 1,083Knoll, Inc. $20,042 $16,361 $16,547OPERATING PROFIT Office$29,412 $16,111 $52,210Studio33,451 18,310 21,786Coverings22,021 20,996 17,476Subtotal84,884 55,417 91,472Pension settlement and OPEB curtailment (2)6,509 — —Restructuring and other charges (3)1,532 5,104 —Intangible Asset Impairment Charge— Coverings— 8,900 —Knoll, Inc.(4)$76,843 $41,413 $91,472CAPITAL EXPENDITURES, NET Office$33,226 $25,300 $14,251Studio8,075 3,063 1,871Coverings285 701 423Knoll, Inc. $41,586 $29,064 $16,545_______________________________________________________________________________(1)Intersegment sales are presented on a cost-plus basis which takes into consideration the effect of transfer prices between legal entities.(2)During 2014, pension settlement and OPEB curtailment charges were $5.3 million, $0.8 million , and $0.4 million for the Office, Studio, and Coveringssegments, respectively.(3) See Note 21 for further information regarding restructuring charges by segment.(4) The Company does not allocate interest expense or other (income) expense, net to the reportable segments.78Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201419. SEGMENT AND GEOGRAPHIC REGION INFORMATION (continued)Many of the Company's facilities manufacture products for all three reporting segments. Therefore, it is impractical to disclose asset information on asegment basis.The Company's net sales by product category were as follows (in thousands): Year Ended December 31, 2014 2013 2012Office Systems$429,503 $392,700 $432,124Seating108,635 109,650 104,388Files and Storage84,297 68,185 79,108Studio279,167 154,083 147,550Coverings114,899 109,038 106,628Other33,793 28,596 28,698Total$1,050,294 $862,252 $898,496The 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 are attributed to the geographic areas based on theorigin of sale (in thousands): UnitedStates Canada Europe Consolidated2014 Sales$928,733 $32,811 $88,750 $1,050,294Property, plant, and equipment, net123,821 25,669 15,529 165,0192013 Sales$752,347 $36,240 $73,665 $862,252Property, plant, and equipment, net94,896 27,938 15,059 137,8932012 Sales$785,651 $40,669 $72,176 $898,496Property, plant, and equipment, net80,953 29,064 14,821 124,83820. OTHER (INCOME) EXPENSE, NETThe components of other (income) expense, net are as follows (in thousands): Years Ended December 31, 2014 2013 2012Foreign exchange (gain) loss$(5,801) $(3,502) $2,834Write-off of deferred financing fees347 — 477Other(831) 72 (96)Other (income) expense, net$(6,285) $(3,430) $3,21579Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201421. RESTRUCTURING AND OTHER CHARGESDuring 2013, the Company approved certain restructuring activities. These restructuring activities primarily related to headcount reductions in theOffice segment as part of the Company's previously announced strategic supply chain initiatives and headcount reductions in the Studio segment associatedwith factory overhead consolidations.During 2014, the Company approved additional restructuring actions. These actions primarily included reductions in headcount in the Office andCoverings segments, the exiting of certain showrooms within our Coverings segment, and charges related to improvements to better utilize the Company'smanufacturing capacity. The Company does not expect any additional charges related to these restructuring actions in the future. The Company anticipatesthat the majority of the remaining liability will be paid during the first quarter of 2015. Below is a rollforward of the restructuring liability that is recordedwithin other current liabilities in the accompanying balance sheets (in thousands): OfficeSegment StudioSegment CoveringsSegment TotalBalance, December 31, 2012$— $— $— $—Additions2,129 2,975 — 5,104Balance, December 31, 20132,129 2,975 — 5,104Additions2,199 — 318 2,517Payments(3,194) (2,078) (302) (5,574)Adjustments to accrual(88) (897) — (985)Balance, December 31, 2014$1,046 $— $16 $1,06222. FAIR VALUE OF FINANCIAL INSTRUMENTS Financial InstrumentsThe fair values of the Company’s cash and cash equivalents, accounts receivable, and accounts payable approximate carrying value due to their shortmaturities. The fair value of the Company’s long-term debt approximates its carrying value, as it is variable rate debt and the terms are comparable to market termsas of the balance sheet dates, and are classified as Level 2.Assets and Liabilities Recorded at Fair Value on a Recurring BasisThe following table represents the assets and liabilities, measured at fair value on a recurring basis as of December 31, 2014 and the basis for thatmeasurement (in thousands): Liabilities:Level 1 Level 2 Level 3 TotalContingent purchase price payments related to theacquisition of HOLLY HUNT$— $— $16,000 $16,000Pursuant to the agreement governing the acquisition of HOLLY HUNT, the Company may be required to make annual contingent purchase pricepayments in 2015, 2016 and 2017. The payouts are based upon HOLLY HUNT reaching annual sales targets in 2014, 2015, and 2016, and are paid out byFebruary 15 of the following year. The Company classifies these contingent purchase price payments as a Level 3 measurement and is required to remeasurethis liability at fair value on a recurring basis. The fair value of such contingent purchase price payments was determined based upon net sales projections forHOLLY HUNT for 2014, 2015, and 2016. Based on sales achievement made by HOLLY HUNT during 2014, $5.0 million of the $16.0 million contingentpurchase price was paid by February 15, 2015. Excluding the initial recognition of the liability for the contingent purchase price payments and paymentsmade to reduce the liability, any changes in the fair value will be included within selling, general and administrative expenses.80Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 2014 22. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)There were no assets or liabilities recorded at fair value on a recurring basis as of December 31, 2013.Assets and Liabilities Recorded at Fair Value on a Nonrecurring BasisThe following table represents the assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2013 and the basis for thatmeasurement (in thousands): Fair Value Measurements at December 31, 2013 UsingDescription Total Level 1 Level 2 Level 3 Total ImpairmentEdelman Leather tradename (1) $17,150 — — 17,150 $8,900(1) The Company estimated the fair value of the indefinite-life intangible asset using the relief-from-royalty method under the income approach as ofDecember 31, 2013. The Company used a royalty rate of 5.0% based on comparable market rates and a discount rate of 12.7%. Based on the results of the 2013 annual impairment test, the Company determined that the Edelman Leather tradename was impaired as the estimatedfair value of the tradename was less than its respective carrying amount due to a 100-basis-point increase in the assumed discount rate and a reduction inexpected future revenue growth rates. As a result, the carrying amount of the Edelman Leather tradename was reduced from $26.1 million to its estimated fairvalue of $17.2 million, resulting in a non-cash pre-tax impairment charge of $8.9 million during the fourth quarter of 2013. There were no assets or liabilitiesrecorded at fair value on a nonrecurring basis as of December 31, 2014.81Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201423. QUARTERLY RESULTS (UNAUDITED)The following tables contain selected unaudited Consolidated Statements of Operations and Comprehensive Income data for each quarter for the yearsended December 31, 2014 and 2013. The operating results for any quarter are not necessarily indicative of results for any future period. The quarterly resultsare as follows (in thousands): FirstQuarter SecondQuarter ThirdQuarter FourthQuarter FiscalYear 2014 Sales$229,601 $265,943 $268,297 $286,453 $1,050,294 Gross profit76,598 97,274 94,962 102,850 371,685 (1)Net earnings7,832 10,841 15,597 12,316 46,585 (1) (2)Net earnings attributable to Knoll, Inc.stockholders7,826 10,855 15,628 12,288 46,596 (1) (2)Earnings per share—Basic$0.17 $0.23 $0.33 $0.26 $0.98 (1)Earnings per share—Diluted$0.16 $0.23 $0.33 $0.26 $0.97 (1)2013 Sales$200,586 $214,312 $216,898 $230,456 $862,252 Gross profit63,877 69,881 72,339 74,235 280,332 Net earnings6,395 7,813 8,230 746 23,184 (3)Net earnings attributable to Knoll, Inc.stockholders6,395 7,813 8,230 746 23,184 (3)Earnings per share—Basic$0.14 $0.17 $0.18 $0.02 $0.49 (1)Earnings per share—Diluted$0.13 $0.16 $0.17 $0.02 $0.49 (1)_______________________________________________________________________________(1)Results do not add due to rounding.(2)During 2014, the Company recorded $1.5 million of pre-tax restructuring charges. These charges were incurred in the first, second, and fourthquarters of 2014 and were $0.6 million, $0.2 million, and $0.7 million, respectively. Additionally, during the fourth quarter of 2014, the Companyrecorded pension settlement and OPEB curtailment charges of $6.5 million.(3)During the fourth quarter of 2013, the Company recorded a non-cash pre-tax impairment charge of $8.9 million and a pre-tax restructuring charge of$5.1 million.82Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201423. QUARTERLY RESULTS (UNAUDITED) (continued)The following information reconciles the Company's previously reported information with as restated amounts for quarterly periods ending betweenMarch 31, 2013 and September 30, 2014. Refer to Notes 2 and 15 for additional information regarding the restatement of previously reported financialinformation. Three months ended Three months ended March 31, 2014 March 31, 2013 (dollars in thousands)Consolidated Statements of OperationsAs previouslyreported Correction of priorperiodmisstatements As restated As previouslyreported Correction of priorperiod misstatements As restatedSales$229,331 $270 $229,601 $200,586 $— $200,586Cost of sales152,856 147 153,003 136,959 (250) 136,709Gross profit76,475 123 76,598 63,627 250 63,877Selling, general, and administrativeexpenses64,650 72 64,722 53,333 396 53,729Restructuring charges— 592 592 — — —Operating profit11,825 (541) 11,284 10,294 (146) 10,148Interest expense1,671 — 1,671 1,495 — 1,495Other (income) expense, net(2,504) — (2,504) (1,291) — (1,291)Income before income tax expense12,658 (541) 12,117 10,090 (146) 9,944Income tax expense4,466 (181) 4,285 4,016 (467) 3,549Net earnings8,192 (360) 7,832 6,074 321 6,395Net earnings attributable tononcontrolling interests6 — 6 — — —Net earnings attributable to Knoll, Inc.stockholders$8,186 $(360) $7,826 $6,074 $321 $6,395 Earnings per share: Basic$0.17 $— $0.17 $0.13 $0.01 $0.14Diluted$0.17 $(0.01) $0.16 $0.13 $— $0.1383Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201423. QUARTERLY RESULTS (UNAUDITED) (continued) Three months ended Three months ended June 30, 2014 June 30, 2013 (dollars in thousands)Consolidated Statements of OperationsAs previouslyreported Correction of priorperiod misstatements As restated As previouslyreported Correction of priorperiodmisstatements As restatedSales$265,797 $146 $265,943 $214,312 $— $214,312Cost of sales168,594 75 168,669 144,431 — 144,431Gross profit97,203 71 97,274 69,881 — 69,881Selling, general, and administrativeexpenses74,805 28 74,833 57,473 (197) 57,276Restructuring charges203 — 203 — — —Operating profit22,195 43 22,238 12,408 197 12,605Interest expense1,944 — 1,944 1,517 — 1,517Other (income) expense, net2,700 — 2,700 (2,206) — (2,206)Income before income tax expense17,551 43 17,594 13,097 197 13,294Income tax expense6,712 41 6,753 5,209 272 5,481Net earnings10,839 2 10,841 7,888 (75) 7,813Net losses attributable to noncontrollinginterests(14) — (14) — — —Net earnings attributable to Knoll, Inc.stockholders$10,853 $2 $10,855 $7,888 $(75) $7,813 Earnings per share: Basic$0.23 $— $0.23 $0.17 $— $0.17Diluted$0.23 $— $0.23 $0.17 $(0.01) $0.1684Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201423. QUARTERLY RESULTS (UNAUDITED) (continued) Three months ended Three months ended September 30, 2014 September 30, 2013 (dollars in thousands)Consolidated Statements of OperationsAs previouslyreported Correction of priorperiod misstatements As restated As previouslyreported Correction of priorperiodmisstatements As restatedSales$268,297 $— $268,297 $216,898 $— $216,898Cost of sales173,335 — 173,335 144,559 — 144,559Gross profit94,962 — 94,962 72,339 — 72,339Selling, general, and administrativeexpenses71,647 — 71,647 55,288 197 55,485Operating profit23,315 — 23,315 17,051 (197) 16,854Interest expense1,899 — 1,899 1,484 — 1,484Other (income) expense, net(3,294) — (3,294) 2,224 — 2,224Income before income tax expense24,710 — 24,710 13,343 (197) 13,146Income tax expense9,088 25 9,113 4,793 123 4,916Net earnings15,622 (25) 15,597 8,550 (320) 8,230Net losses attributable to noncontrollinginterests(31) — (31) — — —Net earnings attributable to Knoll, Inc.stockholders$15,653 $(25) $15,628 $8,550 $(320) $8,230 Earnings per share: Basic$0.33 $— $0.33 $0.18 $— $0.18Diluted$0.33 $— $0.33 $0.18 $(0.01) $0.1785Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201423. QUARTERLY RESULTS (UNAUDITED) (continued) Three months ended December 31, 2013 (dollars in thousands)Consolidated Statements of OperationsAs previouslyreported Correction of priorperiod misstatements As restated Sales$230,872 $(416) $230,456 Cost of sales156,443 (222) 156,221 Gross profit74,429 (194) 74,235 Selling, general, and administrativeexpenses58,525 (100) 58,425 Restructuring charges5,696 (592) 5,104 Intangible asset impairment charge8,900 — 8,900 Operating profit1,308 498 1,806 Interest expense1,445 — 1,445 Other (income) expense, net(2,157) — (2,157) Income before income tax expense2,020 498 2,518 Income tax expense1,386 386 1,772 Net earnings634 112 746 Net losses attributable to noncontrollinginterests— — — Net earnings attributable to Knoll, Inc.stockholders$634 $112 $746 Earnings per share: Basic$0.01 $0.01 $0.02 Diluted$0.01 $0.01 $0.02 86Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201424. RECONCILIATION OF PREVIOUSLY REPORTED AMOUNTS TO AMOUNTS AS RESTATEDAs described in Notes 2 and 15, we have identified certain immaterial errors within our income tax accounts and have corrected these prior periodmisstatements in the accompanying consolidated financial statements. The Company has also corrected certain other identified immaterial errors, includingthe recognition of certain sales and cost of sales in the incorrect fiscal periods. The impacts of these changes on selected financial statement amounts withinour consolidated financial statements as of December 31, 2013 and for the years ended December 31, 2013 and 2012 are summarized below: December 31, 2013 December 31, 2012Consolidated Statements of Operations andComprehensive IncomeAs previouslyreported Correction of priorperiod misstatements As restated As previouslyreported Correction of priorperiod misstatements As restated (in thousands, except per share data)Sales$862,668 $(416) $862,252 $887,499 $10,997 $898,496Cost of sales582,393 (473) 581,920 593,149 7,453 600,602Gross profit280,275 57 280,332 294,350 3,544 297,894Selling, general, and administrativeexpenses224,619 296 224,915 206,449 (27) 206,422Restructuring and other charges5,696 (592) 5,104 — — —Intangible asset impairment charge8,900 — 8,900 — — —Operating profit41,060 353 41,413 87,901 3,571 91,472Interest expense5,941 — 5,941 6,350 — 6,350Other (income) expense, net(3,430) — (3,430) 3,215 — 3,215Income before income tax expense38,549 353 38,902 78,336 3,571 81,907Income tax expense15,403 315 15,718 28,335 2,049 30,384Net earnings$23,146 $38 $23,184 $50,001 $1,522 $51,523 Earnings per share: Basic$0.49 $— $0.49 $1.07 $0.03 $1.10Diluted$0.49 $— $0.49 $1.06 $0.03 $1.09 Net earnings$23,146 $38 $23,184 $50,001 $1,522 $51,523Other comprehensive income (loss):Pension and other postretirementliability adjustment, net of tax36,729 — 36,729 (12,358) — (12,358)Foreign currency translationadjustment(5,947) 1,133 (4,814) 1,981 (515) 1,466Total other comprehensive income(loss), net of tax30,782 1,133 31,915 (10,377) (515) (10,892)Total comprehensive income$53,928 $1,171 $55,099 $39,624 $1,007 $40,63187Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201424. RECONCILIATION OF PREVIOUSLY REPORTED AMOUNTS TO AMOUNTS AS RESTATED (continued) December 31, 2013Consolidated Balance SheetAs previously reported Correction of prior periodmisstatements As restated (dollars in thousands)ASSETS Cash and cash equivalents$12,026 $— $12,026Customer receivables, net104,171 (416) 103,755Inventories96,449 222 96,671Deferred income taxes11,408 (1,378) 10,030Prepaid and other current assets12,145 — 12,145Total current assets236,199 (1,572) 234,627Property, plant, and equipment, net137,893 — 137,893Goodwill79,951 — 79,951Intangible assets, net214,695 — 214,695Other non-trade receivables4,250 — 4,250Other noncurrent assets4,346 — 4,346Total Assets$677,334 $(1,572) $675,762 LIABILITIES AND EQUITY Current liabilities: Accounts payable$91,378 $— $91,378Income taxes payable249 189 438Other current liabilities76,676 (692) 75,984Total current liabilities168,303 (503) 167,800Long-term debt173,000 — 173,000Deferred income taxes75,670 (613) 75,057Postretirement benefits other than pensions8,908 — 8,908Pension liability5,615 — 5,615Other noncurrent liabilities17,396 4,159 21,555Total liabilities448,892 3,043 451,935 Equity: Common stock483 — 483Additional paid-in capital37,258 — 37,258Retained earnings184,799 (3,850) 180,949Accumulated other comprehensive income (loss)5,902 (765) 5,137Total equity228,442 (4,615) 223,827Total Liabilities and Equity$677,334 $(1,572) $675,76288Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201424. RECONCILIATION OF PREVIOUSLY REPORTED AMOUNTS TO AMOUNTS AS RESTATED (continued)As previously reported Correction of prior periodmisstatements As restated (dollars in thousands)Retained earnings: Retained earnings— December 31, 2011$155,818 $(5,410) $150,408Net earnings50,001 1,522 51,523Cash dividend ($0.44 per share)(21,069) — (21,069)Retained Earnings— December 31, 2012184,750 (3,888) 180,862Net earnings23,146 38 23,184Cash dividend ($0.48 per share)(23,097) — (23,097)Retained Earnings— December 31, 2013$184,799 $(3,850) $180,949 Accumulated other comprehensive income (loss): Accumulated other comprehensive income (loss)— December 31, 2011$(14,503) $(1,383) $(15,886)Other comprehensive loss(10,377) (515) (10,892)Accumulated other comprehensive income (loss)— December 31, 2012(24,880) (1,898) (26,778)Other comprehensive income30,782 1,133 31,915Accumulated other comprehensive income (loss)— December 31, 2013$5,902 $(765) $5,13789Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201424. RECONCILIATION OF PREVIOUSLY REPORTED AMOUNTS TO AMOUNTS AS RESTATED (continued) December 31, 2013 December 31, 2012Consolidated Statements of Cash FlowsAs previouslyreported Correction of priorperiod misstatements As restated As previouslyreported Correction of priorperiod misstatements As restated (dollars in thousands)Cash Flows from Operating Activities Net earnings$23,146 $38 $23,184 $50,001 $1,522 $51,523Adjustments to reconcile net income to cashprovided by operating activities: Depreciation14,727 — 14,727 14,632 — 14,632Amortization expense (including deferredfinancing fees)1,634 — 1,634 1,915 — 1,915Provision for deferred taxes3,532 (3) 3,529 4,393 — 4,393Write-off of deferred financing fees— — — 477 — 477Unrealized foreign currency (gains) losses(4,578) — (4,578) 1,338 — 1,338Stock-based compensation10,473 — 10,473 10,356 — 10,356Intangible asset impairment charge8,900 — 8,900 — — —Other non-cash items153 — 153 (412) — (412)Changes in assets and liabilities, net ofeffects of acquisitions: Customer receivables2,039 416 2,455 20,131 (10,997) 9,134Inventories1,431 (473) 958 (7,512) 8,531 1,019Accounts payable6,204 — 6,204 (563) (1,078) (1,641)Current income taxes15,345 318 15,663 (15,831) 2,049 (13,782)Other current assets414 — 414 (3,920) — (3,920)Other current liabilities(7,827) (296) (8,123) 815 (27) 788Other noncurrent assets and liabilities(20,979) — (20,979) (5,252) — (5,252)Cash provided by operating activities54,614 — 54,614 70,568 — 70,568 Cash provided by (used in) investingactivities(29,379) — (29,379) (23,001) — (23,001) Cash used in financing activities(43,508) — (43,508) (45,791) — (45,791)Effect of exchange rate changes on cash andcash equivalents343 — 343 (83) — (83)Net increase (decrease) in cash and cashequivalents(17,930) — (17,930) 1,693 — 1,693Cash and cash equivalents at beginning ofyear29,956 — 29,956 28,263 — 28,263Cash and cash equivalents at end of year$12,026 $— $12,026 $29,956 $— $29,95690Table of ContentsKNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)DECEMBER 31, 201425. SUBSEQUENT EVENTSIn February 2015, the Company granted an aggregate of 248,000 equity-based awards to certain employees and the Company's Board of Directors. Thevesting of these awards are subject to certain service, performance or market conditions. Also, in February 2015, the Board of Directors declared a cashdividend of $0.12 per share on the Company's common stock payable on March 31, 2015 to shareholders of record on March 13, 2015.91Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURESNoneITEM 9A. CONTROLS AND PROCEDURESEvaluation of disclosure controls and procedures. We, under the supervision and with the participation of our management, including our principalexecutive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as definedin Rule 13a-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report (December 31, 2014) ("Disclosure Controls"). Asdescribed below, management has identified a material weakness in our internal control over financial reporting, which is an integral component of ourdisclosure controls and procedures. As a result of the material weakness, our principal executive officer and principal financial officer have concluded thatthe Disclosure Controls were not effective at December 31, 2014 in reaching a reasonable level of assurance that (i) information required to be disclosed by usin the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission's rules and forms and (ii) information required to be disclosed by us in the reports that we file or submitunder the Securities 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.92Table of ContentsINTERNAL CONTROL OVER FINANCIAL REPORTINGManagement's annual report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, for the Company. Internalcontrol over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation offinancial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control overfinancial reporting includes without limitation, maintaining records that in reasonable detail accurately and fairly reflect our transactions, providingreasonable assurance that transactions are recorded as necessary for preparation of our financial statements, providing reasonable assurance that receipts andexpenditures of company assets are made in accordance with management authorization, and providing reasonable assurance that unauthorized acquisition,use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Becauseof its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financialstatements 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 (2013 framework). Our evaluation of internal control overfinancing reporting did not include the internal controls of Holly Hunt Enterprises, Inc., which was acquired on February 3, 2014, and is included in our 2014consolidated financial statements and constituted approximately 16.8% of total assets as of December 31, 2014 and 9.8% and 13.5% of sales and netearnings, respectively, for the year then ended. Due to the material weakness described below, management has concluded the Company’s internal controlover financial reporting was not effective as of December 31, 2014.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.Management concluded that the Company did not maintain effective internal controls as of December 31, 2014 related to accounting for income taxes.Specifically, the following material weakness was identified:In conjunction with the financial statement close process, it was determined that the income tax accounts were not maintained appropriately, includinggiving proper consideration to the income tax consequences of foreign source income required to be recognized in the Company's U.S. federal and stateincome tax returns. The error resulted in the understatement of income tax expense and the overstatement and understatement of other comprehensive incomein the annual and interim periods from 2007 through 2014. These errors were not prevented or detected in a timely manner as a result of deficiencies in thedesign and operation of a combination of review controls associated with the Company's income tax process. Accordingly, the Company did not maintaineffective controls to ensure the accuracy of the provision for income taxes. Specifically, the Company did not maintain a sufficient complement of taxresources with the required proficiency to identify, evaluate, review, and report complex tax accounting matters. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 has been audited by Ernst & Young LLP, theCompany’s independent registered public accounting firm, as stated in their report included in Item 8, “Financial Statements and Supplementary Data.”Management's plans for remediation. The Company has begun to implement a number of remediation steps to address the material weakness discussedabove and to improve its internal control over income tax accounting. Specifically, the following have been, are being or are planned to be implemented:dedicating additional internal and external personnel resources with the appropriate level of proficiency to identify, evaluate, and review complex taxaccounting matters; organizational structure changes which better integrate the tax accounting and finance functions; enhancement of our processes andprocedures for determining, documenting and calculating our income tax provision; and increasing the level of certain tax review activities during thefinancial statement close process.The measures described above should remediate the material weakness identified and strengthen our internal controls over income tax accounting.Management is committed to improving the Company’s internal control process. As the Company continues to evaluate and improve its internal control overincome tax accounting, additional measures to address the material weakness or modifications to certain of the remediation procedures described above maybe identified. The Company expects to complete the required remedial actions during 2015.93Table of ContentsChanges 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.94Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of Knoll, Inc.We have audited Knoll, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Knoll,Inc.’s management 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. Our responsibilityis 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 was maintained inall material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe 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 are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial 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 the degreeof compliance with the policies or procedures may deteriorate.As indicated in the accompanying Management’s annual report on internal control over financial reporting, management’s assessment of andconclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Holly Hunt Enterprises, Inc., which isincluded in the 2014 consolidated financial statements of Knoll, Inc. and constituted 16.8% of total assets as of December 31, 2014 and 9.8% and 13.5% ofsales and net earnings, respectively, for the year then ended. Our audit of internal control over financial reporting of Knoll, Inc. also did not include anevaluation of the internal control over financial reporting of Holly Hunt Enterprises, Inc.A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.Management has identified a material weakness associated with the design and operation of a combination of review controls associated with the Company'sincome tax process. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of Knoll, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensiveincome, equity and cash flows for each of the three years in the period ended December 31, 2014. This material weakness was considered in determining thenature, timing and extent of audit tests applied in our audit of the 2014 consolidated financial statements, and this report does not affect our report datedMarch 2, 2015, which expressed an unqualified opinion on those financial statements.95Table of ContentsIn our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Knoll, Inc.has not maintained effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria. /s/ Ernst & Young LLPPhiladelphia, PennsylvaniaMarch 2, 201596Table of ContentsITEM 9B. OTHER INFORMATIONNone.PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by Item 10 relating to directors, director nominees and executive officers of the registrant is incorporated by reference fromthe information under the captions "Board of Directors," "Election of Directors," "Executive Officers," "Board Meetings and Committees," "Code of Ethics,"and "Section 16(a) Beneficial Ownership Reporting Compliance" contained in our Proxy Statement for our 2015 Annual Meeting of Stockholders (the "ProxyStatement").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 at www.knoll.com. Forfurther information see subsection "Code of Ethics" in our Proxy Statement.ITEM 11. EXECUTIVE COMPENSATIONThe information required by Item 11 is hereby incorporated by reference from the information under the caption "Executive Compensation" containedin our Proxy Statement.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSSecurities Authorized for Issuance Under Equity Compensation Plans Equity Compensation Plan InformationAs of December 31, 2014Plan 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)Equity compensation plans approved bysecurity holders 647,671 $15.37 2,248,456Equity compensation plans not approved bysecurity holders — — —Total 647,671 2,248,456If 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 of CertainBeneficial Owners and Management" contained in our Proxy Statement.97Table of ContentsITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by Item 13 is hereby incorporated by reference from the information under the captions "Transactions with Related Persons"and "Director Independence" contained in our Proxy Statement.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe 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.98Table of ContentsPART IVITEM 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, 2014 and 2013•Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2014, 2013, and 2012•Consolidated Statements of Equity for the Years Ended December 31, 2014, 2013, and 2012•Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013, and 2012•Notes to the Consolidated Financial Statements•Report of Independent Registered Public Accounting Firm(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. All otherschedules for which provision is made in the applicable regulation of the Commission have either been presented in the Company's financialstatements or are not required under the related instructions or are inapplicable and therefore have been omitted.(3) EXHIBITS99Table of Contents ExhibitNumber Description2.1(m)Securities Purchase Agreement, dated February 3, 2014, among Knoll, Inc., Holly HuntEnterprises, Inc., HHMI LLC, the Shareholders of Holly Hunt Enterprises, Inc. and the Membersof HHMI LLC. 3.1(a)Amended and Restated Certificate of Incorporation of Knoll, Inc. 3.2(p)Amended and Restated By-Laws of Knoll, Inc. 4.1(u)Form of Stock Certificate. 10.1(b)Second Amended and Restated Credit Agreement, dated as of May 20, 2014, by and amongKnoll, Inc., certain of the domestic subsidiaries of Knoll, Inc., Bank of America, N.A., MerrillLynch, Pierce, Fenner and Smith Incorporated, and the other lenders party thereto. 10.2(g)*Amended and Restated Employment Agreement, executed March 14, 2006, effective as ofJanuary 1, 2006, between Knoll, Inc. and Burton B. Staniar. 10.3(r)*Amendment to Amended and Restated Employment Agreement, dated as of May 4, 2009,between Knoll, Inc. and Burton B. Staniar. 10.4(d)*Employment Agreement, dated as of March 23, 2001, between Knoll, Inc. and Andrew B.Cogan. 10.5(a)*Amendment No. 1 to Employment Agreement, dated as of August 25, 2004, between Knoll, Inc.and Andrew B. Cogan. 10.6(g)*Amendment No. 2 to Employment Agreement, dated as of March 14, 2006, between Knoll, Inc.and Andrew B. Cogan. 10.7(h)*Amendment No. 3 to Employment Agreement, dated as of December 11, 2006, betweenKnoll, Inc. and Andrew B. Cogan. 10.8(k)*Amendment No. 4 to Employment Agreement, dated as of December 10, 2007, betweenKnoll, Inc. and Andrew B. Cogan. 10.9(x)*Amendment No. 5 to Employment Agreement dated as of June 12, 2014, between Knoll, Inc.and Andrew B. Cogan 10.10(o)*Employment Agreement, dated as of March 3, 2008, between Knoll, Inc. and Lynn M. Utter. 10.11(x)*Amendment No. 1 to Employment Agreement, dated as of June 12, 2014, between Knoll, Inc.and Lynn M. Utter. 10.12*Separation Agreement, dated as of January 12, 2015, between Knoll, Inc. and Lynn M. Utter. 10.13(v)*Offer Letter, dated August 15, 2013, from Knoll, Inc. to Craig B. Spray. 100Table of ContentsExhibitNumber Description10.14*Summary of Benjamin A. Pardo 2015 Compensation. 10.15*Summary of Pamela J. Ahrens 2015 Compensation. 10.16(c)*Amended and Restated Knoll, Inc. 1997 Stock Incentive Plan. 10.17(a)*Amended and Restated Knoll, Inc. 1999 Stock Incentive Plan. 10.18(l)*Amended and Restated Knoll, Inc. 2007 Stock Incentive Plan. 10.19(s)*Amended and Restated Knoll, Inc. 2010 Stock Incentive Plan. 10.20(w)*Amended and Restated Knoll, Inc. 2013 Stock Incentive Plan 10.21(t)*Amended and Restated Knoll, Inc. Non-Employee Director Compensation Plan. 10.22(e)*Form of Non-Qualified Stock Option Agreement under the Amended and Restated Knoll, Inc.1997 Stock Incentive Plan, entered into by Knoll, Inc. and certain executive officers. 10.23(c)*Form of Non-Qualified Stock Option Agreement under the Amended and Restated Knoll, Inc.1999 Stock Incentive Plan, entered into by Knoll, Inc. and certain executive officers. 10.24(n)*Form of Non-Qualified Stock Option Agreement under the 2007 Stock Incentive Plan, enteredinto by Knoll, Inc. and certain executive officers. 10.25(n)*Form of Restricted Share Agreement under the 2007 Stock Incentive Plan (time vesting withaccelerated performance vesting). 10.26(n)*Form of Restricted Share Agreement under the 2007 Stock Incentive Plan (time vesting). 10.27(n)*Form of Restricted Share Agreement under the Non-Employee Director Compensation Plan(time vesting). 10.28(j)*Form of Restricted Share Agreement under the 2010 Stock Incentive Plan (time vesting). 10.29(j)*Form of Restricted Share Agreement under the 2010 Stock Incentive Plan (time vesting withaccelerated performance vesting). 10.30(j)*Form of Non-Qualified Stock Option Agreement under the 2010 Stock Incentive Plan. 10.31(y)*Form of Performance-Based Stock Unit Agrement under the 2013 Stock Incentive Plan. 10.32(a)*Form of Director and Officer Indemnification Agreement. 10.33(a)*Offer Letter, dated October 6, 2004, from Knoll, Inc. to John F. Maypole. 101Table of ContentsExhibitNumber Description10.34(f)*Offer Letter, dated November 23, 2005, from Knoll, Inc. to Stephen F. Fisher. 10.35(i)*Offer Letter, dated September 25, 2006, from Knoll, Inc. to Sarah E. Nash. 10.36(q)*Andrew B. Cogan 2015 Incentive Compensation Letter, dated December 4, 2014. 10.37(q)*Craig B. Spray 2015 Incentive Compensation Letter, dated December 4, 2014. 10.38(q)*Benjamin A. Pardo 2015 Incentive Compensation Letter, dated December 4, 2014. 10.39(q)*Pamela J. Ahrens 2015 Incentive Compensation Letter, dated December 4, 2014. 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 ExchangeAct of 1934, as amended. 31.2 Certification for Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities ExchangeAct of 1934, as amended. 32.1 Certification for Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities ExchangeAct of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 32.2 Certification for Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities ExchangeAct of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 101 The following materials from the Company's Annual Report on Form 10-K for the period endedDecember 31, 2012, formatted in XBRL (eXtensible Business Reporting Language):(i) Consolidated Balance Sheets as of December 31, 2012, and December 31, 2011,(ii) Consolidated Statements of Operations and Comprehensive Income for the years endedDecember 31, 2012, December 31, 2011 and December 31, 2010, (iii) Consolidated Statementsof Stockholders' Equity for the years ended December 31, 2012, December 31, 2011, andDecember 31, 2010, (iv) Consolidated Statements of Cash Flows for the years endedDecember 31, 2012, December 31, 2011, and December 31, 2010 and (v) Notes to ConsolidatedFinancial Statements.**_______________________________________________________________________________102Table of Contents* Management Contract or Compensatory Plan or Arrangement required to be identified by Item 15(a) (3) of Form 10-K.** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement orprospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities andExchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.(a)Incorporated by reference to Knoll, Inc.'s Registration Statement on Form S-1 (File No. 333-118901), which was declared effective by theCommission on December 13, 2004.(b)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on May 21, 2014.(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 10.23. Exhibit is substantially identical to Exhibit 10.23.(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 December 11, 2006.(i)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on September 27, 2006.(j)Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2010.(k)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on December 10, 2007.(l)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2007.(m)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on February 3, 2014.(n)Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2007.(o)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2008.(p)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on September 25, 2008.(q)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on December 9, 2014.(r)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on May 11, 2009.(s)Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on May 11, 2010.(t)Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2011.(u)Incorporated by reference to Knoll, Inc's Annual Report on Form 10-K for the year ended December 31, 2012.(v)Incorporated by reference to Knoll, Inc's Current Report on Form 8-K filed with the Commission on September 23, 2013.(w)Incorporated by reference to Knoll, Inc's Current Report on Form 8-K filed with the Commission on April 26, 2013.(x)Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on August 11, 2014.(y)Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013.103Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K tobe signed on its behalf by the undersigned, thereunto duly authorized, on this 2nd day of March 2015. KNOLL, INC. By:/s/ ANDREW B. COGAN Andrew B. Cogan Chief Executive Officer________________________________________________________________________________________________________________________KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Andrew B. Cogan andCraig B. Spray, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, inany and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto and all documents in connectiontherewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to doand perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might orcould do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, maylawfully 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 on behalf ofthe Registrant and in the capacities and on the date indicated. /s/ BURTON B. STANIARBurton B. Staniar Chairman of the Board March 2, 2015/s/ ANDREW B. COGANAndrew B. Cogan Chief Executive Officer,Knoll, Inc. and Director March 2, 2015/s/ CRAIG B. SPRAYCraig B. Spray Chief Financial Officer (Chief Accounting Officer andController) March 2, 2015/s/ JEFFREY A. HARRISJeffrey A. Harris Director March 2, 2015/s/ SIDNEY LAPIDUSSidney Lapidus Director March 2, 2015/s/ KATHLEEN G. BRADLEYKathleen G. Bradley Director March 2, 2015/s/ JOHN F. MAYPOLEJohn F. Maypole Director March 2, 2015/s/ SARAH E. NASHSarah E. Nash Director March 2, 2015/s/ STEPHEN F. FISHERStephen F. Fisher Director March 2, 2015/s/ STEPHANIE STAHLStephanie Stahl Director March 2, 2015/s/ CHRISTOPHER G. KENNEDYChristopher G. Kennedy Director March 2, 2015104Table of ContentsSCHEDULE IIKNOLL, INC.VALUATION AND QUALIFYING ACCOUNTS(In Thousands)Description Balance atBeginningof Year AdditionsCharged toExpenses(Income) Charge-Offs Other(1) Balance atEnd of YearAllowance for doubtful accounts: Year ended December 31, 2012 $4,203 $1,443 $133 $1 $5,514Year ended December 31, 2013 5,514 1,253 1,072 (18) 5,677Year ended December 31, 2014 5,677 2,494 972 (2) 7,197Reserve for inventory valuation: Year ended December 31, 2012 $7,743 $1,309 $2,146 $10 $6,916Year ended December 31, 2013 6,916 2,043 1,734 (23) 7,202Year ended December 31, 2014 7,202 1,761 508 (51) 8,404Valuation allowance for deferred income tax assets: Year ended December 31, 2012 $7,385 $646 $— $(233) $7,798Year ended December 31, 2013 7,798 889 — 304 8,991Year ended December 31, 2014 8,991 254 — (1,344) 7,901_______________________________________________________________________________(1)Primarily the impact of currency changesS-1EXHIBIT 10.12SEPARATION AGREEMENTThis Separation Agreement (“Agreement”) is made and entered into by and between Lynn M. Utter (“Ms. Utter”) and Knoll, Inc.(“Knoll”) as of January 12, 2015.WHEREAS, Ms. Utter and Knoll are parties to an Employment Agreement dated March 3, 2008, as amended (the “EmploymentAgreement”), andWHEREAS, Ms. Utter has been employed under the terms of the Employment Agreement as the President and Chief OperatingOfficer of Knoll North America and, most recently, as President and Chief Operating Officer, Knoll Office; andWHEREAS, Ms. Utter and Knoll now wish to end their employment relationship on mutually agreeable terms and provide for anorderly transition of her responsibilities.NOW, THEREFORE, intending to be legally bound Ms. Utter and Knoll agree as follows:1.TERMINATION OF EMPLOYMENT. Ms. Utter hereby resigns, effective April 10, 2015, from: (a) her currentposition with Knoll as President and Chief Operating Officer, Knoll Office, and (b) all other titles/positions currently held by Ms. Utterat Knoll or its affiliates and subsidiaries. Ms. Utter hereby resigns effective immediately from her position on the Knoll RetirementPlans Administration Committee.2.TRANSITION PERIOD. In order to provide for a smooth transition, Ms. Utter will remain an “at-will” employee ofKnoll until April 10, 2015 (the “Transition Term”). During the Transition Term, Ms. Utter will be responsible for assisting in thetransition of her job responsibilities as directed by the Knoll Chief Executive Officer or the Knoll Board of Directors. Ms. Utter willcontinue to have a duty to act in the best interests of Knoll during the Transition Term. Ms. Utter agrees to take all accrued vacationtime available to her during the Transition Term. Notwithstanding anything contained herein to the contrary, Ms. Utter agrees she willnot bind Knoll (or its subsidiaries) to any obligation, contractual or otherwise, during the Transition Term without the prior writtenconsent of the Knoll Chief Executive Officer, and Ms. Utter agrees to indemnify and hold Knoll harmless for any breach of theforegoing covenant.3.SEPARATION PAYMENTS. Upon the conclusion of the Transition Term, or Ms. Utter’s earlier termination fromemployment without Cause (as defined in Section 5.01 of the Employment Agreement), Knoll will offer to provide SeparationPayments equal to 12 months of Ms. Utter's base salary pursuant to the same payment schedule set forth in Section 5.04 of theEmployment Agreement (the "Separation Payments"). In order to receive the Separation Payments, Ms. Utter must execute theGeneral Release Agreement attached hereto as Exhibit A (the“General Release”) after the conclusion of the Transition Term and prior to May 10, 2015, and she must continue to comply with herobligations under the General Release and Section 4.03 of the Employment Agreement. Notwithstanding anything contained herein, ifKnoll terminates Ms. Utter’s employment prior to the end of the Transition Term for Cause (as defined in the EmploymentAgreement), or if Ms. Utter fails or refuses to perform the duties reasonably requested of her during the Transition Term, then Knollshall have no obligation to pay the Separation Payments or any other amounts to Ms. Utter. For clarity purposes, Ms. Utter agrees heronly rights to compensation based on separation of employment are the Separation Payments under and pursuant to this Agreement,and she has no rights to compensation under Section 5.04 of the Employment Agreement.4.SALARY AND BENEFITS. During the Transition Term (or such shorter period if Ms. Utter’s employment withKnoll ends prior to April 10, 2015), Ms. Utter will be paid at her existing annual salary rate of $425,000, which will be paid inaccordance with Knoll’s standard payroll practices, less all current and appropriate deductions. Ms. Utter will continue to participate asan employee in all of Knoll’s group benefits (health, dental, pension, 401(k)) until the conclusion of the Transition Term (or suchearlier date if Ms. Utter’s employment with Knoll ends prior to April 10, 2015), at which time all benefits will terminate according totheir terms, subject to available continuation coverage under “COBRA”. If Ms. Utter remains employed with Knoll as of the dateKnoll pays out its 2014 incentive compensation payments (expected to be early to mid-February 2015), Ms. Utter will receive$400,000, representing a 2014 annual incentive bonus.5.PROPRIETARY INFORMATION AND NON-COMPETITION. Ms. Utter acknowledges and reaffirms herConfidentiality, Non-Competition and Non-Solicitation obligations under Section 4.03 of the Employment Agreement and she agreesto fully comply with those restrictions. Ms. Utter agrees that, with the execution of this Agreement, she has returned to Knoll allConfidential Information and Documents (as defined in Section 4.03(a) of the Employment Agreement) and all other Knoll property.The Confidentiality obligations under Section 4.03 will continue to apply to any Confidential Information that Ms. Utter obtains orcreates during the Transition Term, and all such remaining Confidential Information, Documents and other Knoll property shall bereturned at the conclusion of the Transition Term. Nothing in this Agreement is intended to preclude Ms. Utter from testifyingtruthfully in any court of law or before an administrative agency, although Ms. Utter agrees that she will testify as to Knoll matters onlyif served with a lawfully executed subpoena. In the event that Ms. Utter receives any such subpoena to testify in a matter relating toKnoll, she shall notify Knoll's General Counsel within 48 hours.6.NON-ADMISSION OF LIABILITY OR WRONGFUL CONDUCT. This Agreement shall not be construed asan admission by Knoll or Ms. Utter of any liability or acts of wrongdoing, nor shall it be considered to be evidence of any such liabilityor wrongdoing. This Agreement is executed as a compromise and to bring an amicable conclusion to the employment relationship.7.CONFIDENTIALITY AND NON-DISPARAGEMENT. The existence, nature and terms of this Agreement andthe General Release are strictly confidential and they have not been and shall not be disclosed by Knoll or Ms. Utter at any time to anyperson other than to theirrespective lawyers, accountants, family members (in the case of Ms. Utter), and managers or executives with a business need to know(in the case of Knoll) without the prior written consent of the other party, except as required by applicable law, including withoutlimitation, applicable securities disclosure rules and regulations. Ms. Utter will not at any time criticize or disparage Knoll, or any Knollofficer, director or employee, or otherwise engage in any communications that would reflect adversely upon Knoll's reputation andgoodwill. Knoll officers and executives with knowledge of this Agreement will not criticize or disparage Ms. Utter, or otherwiseengage in any communications that would reflect adversely upon her reputation, except as required by applicable law, includingwithout limitation, applicable securities disclosure rules and regulations.8. GOVERNING LAW. This Agreement shall be interpreted under the laws of the Commonwealth of Pennsylvania.9. SEVERABILITY. The provisions of this Agreement are severable, and if any part of this Agreement is found by a courtof law to be unenforceable, the remainder of the Agreement will continue to be valid and effective.10. SOLE AND ENTIRE AGREEMENT. This Agreement, together with those sections of the Employment Agreementreferenced herein, sets forth the entire agreement between the parties with respect to the matters covered herein. Ms. Utter affirms thatno other promise or agreement of any kind has been made to or with her by any person or entity to cause her to execute this document,and that she fully understands the meaning and intent of this Agreement, including but not limited to, its final and binding effect.Date:January 12, 2015 /s/ Lynn M. UtterLynn M. UtterDate:January 12, 2015For:Knoll, Inc.By: /s/ Andrew B. Cogan Andrew B. Cogan Chief Executive Officer EXHIBIT AGENERAL RELEASE AGREEMENTEXHIBIT 10.14Summary of Benjamin A. Pardo 2015 CompensationThe Knoll, Inc. compensation committee approved an annual base salary of $285,000 for Benjamin A. Pardo, with a bonus target of$285,000. Mr. Pardo is also entitled to participate in the benefit plans provided by Knoll that are generally available to Knollemployees.EXHIBIT 10.15Summary of Pamela J. Ahrens 2015 CompensationThe Knoll, Inc. compensation committee approved an annual base salary of $285,000 for Pamela J. Ahrens, with a bonus target of$285,000. Ms. Ahrens is also entitled to participate in the benefit plans provided by Knoll that are generally available to Knollemployees.EXHIBIT 21 LIST OF SUBSIDIARIES WHOLLY OWNED SUBSIDIARIES OF KNOLL, INC.JURISDICTION OFINCORPORATIONKnoll North America CorpOntario, Canada Spinneybeck Enterprises, Inc.New York Spinneybeck, LTD. (wholly owned subsidiary of Spinneybeck Enterprises, Inc.)Ontario, Canada Spinneybeck Limited (wholly owned subsidiary of Spinneybeck Enterprises, Inc.)Ireland Edelman Leather, LLCDelaware Edelman Leather Limited (wholly owned subsidiary of Edelman Leather, LLC)Ireland Richard Schultz Design, LLCDelaware 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 Coverings Hong Kong Limited (wholly owned subsidiary of Knoll Overseas, Inc.)Hong Kong Knoll Commerce and Trade (Shanghai) Co., Ltd. (wholly owned subsidiary of Knoll Coverings Hong Kong Limited)Shanghai, China Knoll Europe B.V. (wholly owned subsidiary of Knoll Overseas, Inc.)Netherlands Knoll International S.p.A. (wholly owned subsidiary of Knoll Europe B.V.)Italy Knoll International, Ltd. (wholly owned subsidiary of Knoll Europe B.V.)England & Wales Knoll International S.A.S.U. (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 Holly Hunt Enterprises, Inc.Illinois HHE Brazil 1 LLC (wholly-owned subsidiary of Holly Hunt Enterprises, Inc.)Illinois HHE Brazil 2 LLC (wholly-owned subsidiary of Holly Hunt Enterprises, Inc.)Illinois Holly Hunt Do Brasil Importação E Comércio De Mobiliários LTDA(wholly owned subsidiary of HHE Brazil 1 LLC and HHE Brazil 2 LLC)Brazil HHM2, LLC (wholly-owned subsidiary of Holly Hunt Enterprises, Inc.)Delaware HH Ruseau, LLC (75% owned by HHM2, LLC)Delaware Holly Hunt Ireland Limited (wholly owned subsidiary of Holly Hunt Enterprises, Inc.)IrelandExhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-8 No. 333-121232) pertaining to the Knoll, Inc. 1996 Stock Incentive Plan, Knoll, Inc. 1997 Stock Incentive Plan, Knoll,Inc. 1999 Stock Incentive Plan, Knoll, Inc. Employee Stock Purchase Plan and The Knoll Retirement Savings Plan,(2)Registration Statement (Form S-8 No. 333-144020) pertaining to the Knoll, Inc. 2007 Stock Incentive Plan,(3)Registration Statement (Form S-8 No. 333-167788) pertaining to the Amended and Restated Knoll, Inc. 2010 Stock Incentive Plan, and(4)Registration Statement (Form S-8 No. 333-190522) pertaining to the Knoll, Inc. Amended and Restated 2013 Stock Incentive Plan;of our reports dated March 2, 2015, with respect to the consolidated financial statements and schedule of Knoll, Inc. and the effectiveness of internal controlover financial reporting of Knoll, Inc. included in this Annual Report (Form 10-K) of Knoll, Inc. for the year ended December 31, 2014./s/ Ernst & Young LLPPhiladelphia, PennsylvaniaMarch 2, 2015Exhibit 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 this report; (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 defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others 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 for external purposesin 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 most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to material affect, theregistrant’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, tothe 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 are reasonablylikely 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 internal controlover financial reporting. Date: March 2, 2015/s/ Andrew B. CoganAndrew B. CoganChief Executive OfficerExhibit 31.2 Certification of Chief Financial Officer I, Craig B. Spray, 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 this report; (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 defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others 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 for external purposesin 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 most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to material affect, theregistrant’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, tothe 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 are reasonablylikely 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 internal controlover financial reporting. Date: March 2, 2015/s/ Craig B. SprayCraig B. SprayChief Financial OfficerExhibit 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, 2014, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), Andrew B. Cogan, Chief Executive Officer of the Company, certifies, pursuant to 18U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge: a. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; andb. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. March 2, 2015 /s/ Andrew B. CoganAndrew B. CoganChief Executive OfficerExhibit 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, 2014, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), Craig B. Spray, Chief Financial Officer of the Company, certifies, pursuant to 18U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge: a. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; andb. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. March 2, 2015 /s/ Craig B. SprayCraig B. SprayChief Financial Officer

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