2019
Annual
Report
Knoll at Fulton Market, Chicago
Dear Fellow Stockholders:
2019 will go down in the books as another year of record
revenue and increased profits as our strategy of diversifying our
sources of revenue into higher-margin Lifestyle businesses with
crossover workplace applicability continued to pay dividends.
The unprecedented headwinds of the Covid-19 pandemic,
however, have slowed this momentum significantly and we are
evaluating the impact and developing contingency plans.
We remain proud of the strong full-year results we delivered
from better than industry Business and Institutional Furniture
Manufacturers Association (BIFMA®AA ) top line growth to solid
increases in our Adjusted EBITDA and earnings per share. While
we did see industry demand decelerate in the back half of the
year, prior to Covid-19, we did see positive secular drivers and
impactful on-trend acquisitions from Muuto to Fully as well as
organic investments in new products and expanded sales and
marketing capabilities. We are continuing to assess the affect
of this unprecedented situation on our global supply chain,
distribution partners and business in general.
For the full year, revenue topped $1.43 billion, growing 9.7%,
or 8.2% excluding the impact of the Fully acquisition, well in
excess of industry growth reported by BIFMA. Full-year growth
was driven by both the Office and Lifestyle segments with
strong growth from Muuto, DatesWeiser, Spinneybeck | Filzfelt,
KnollStudio and North American Office. The growth in Lifestyle
came predominantly from commercial clients, where our 19%
growth rate in Workplace significantly outpaced our residential
growth. We also were particularly pleased with the improved
profitability of our Office segment. Lifestyle margins, while down
somewhat as a higher portion of our mix went through our
dealer channel, were still strong.
The secular drivers of demand continued to strengthen through
2019 and early in 2020. Looking beyond the coronavirus crisis,
we expect that the time away from the workplace will only
make people appreciate even more the benefits of the social
interaction that the workplace provides. First, we expect places
and spaces to continue to matter more than ever. The primacy
of the workplace in attracting and retaining talent is a theme
playing out across almost all of our major client engagements.
Similarly, the “resimercialization” of the workplace and the
continued shifting allocation of space away from the individual
and toward the group continues. This drives demand for more
residential-feeling products with contract level quality – the
primary reason we believe we have seen Muuto gain such
rapid acceptance. The focus on wellness and wellbeing also
continues to drive demand for our fastest growing product
categories including height-adjustable tables. We see these
trends as part of an effort to give users and teams more direct
control in shaping their environments. We are also seeing similar
progress organically with investments in existing businesses
and product lines like Spinneybeck | FilzFelt’s architectural
products, our internally developed Rockwell Unscripted interior
architecture, Creative Wall, and KnollStudio’s Pixel meeting
tables. And by bringing our constellation selling efforts together
in early 2018, we are leveraging our investments across
these categories more efficiently in virtually every major client
engagement. I invite you to check out our new Knoll Works
magazine at knoll.com to see exactly the kind of dynamic
environments we helped create in the past year.
Driving Residential and Consumer Growth
Residential and consumer sales represented about half of
our Lifestyle sales in 2019, including KnollStudio residential
products sold to the decorating trade and through retail
channels, including knoll.com. HOLLY HUNT represents the
largest piece, followed by KnollStudio and then Muuto. While
the high-end residential market was more muted this past year,
we have an exciting series of plans for HOLLY HUNT since our
acquisition. This includes the onboarding of a new President
for this important business; the roll out of our proprietary wall
covering collection throughout the year; a new showroom in
Boston; and planning for a major 2021 street level opening in
Los Angeles, plus a significant digital effort to bring the selling
and marketing of the brand into the 21st century. Consumer end
customers are an area with Muuto that we remain interested
in exploring. Today, about a third of Muuto’s sales, primarily
outside of North America, go through residential channels. At
the time of the acquisition, this was closer to half of its sales, but
with rapid commercial contract growth this, while still growing,
has become a smaller piece of its pie. We expect to launch
a direct to consumer / retail test later this year in France, and
then intend to leverage this experience with a 2021direct-to-
consumer push in North America.
This annual report contains forward-looking statements that are based on numerous assumptions about future events and conditions which may prove to
be inaccurate. See “Forward-Looking Statements” beginning on page 25 of this annual report.
Optimizing our Manufacturing Footprint
We recently announced our plans to consolidate our
manufacturing footprint and optimize our logistics operations
over the next two years. As part of these activities, we will close
our manufacturing facility in Grand Rapids, MI and absorb
those operations into our other North American locations. This
will yield a reduction of our current square footage footprint
by approximately 20%; it is also expected to yield significant
annualized saving as we reach completion of this plan at the
end of 2021.
Leveraging our Constellation
As much as we have worked through both acquisition and
organic product development to expand the breadth of our
offer, 2020 will see focus on the depth of our portfolio as, for
example, we broaden the entry level price points in adjustable
tables and power and data distribution with Antenna Power
Beam, a flexible streamlined technology spine. Later this year,
Knoll Office will be launching a lower price height adjustable
desk, driven from a research and development standpoint by
Fully as well as some of Fully’s ergonomic accessories, and Fully
will start to sell a selection of Knoll and Muuto seating products
at fully.com. It is great to have a digitally native entity part of
Knoll, and together with our own Knoll Shop e-commerce
efforts, we have targeted on-line sales to approach mid-single
digits as a percentage of our revenue.
Additionally, we are poised to address, to quote Florence
Knoll, our “good business” corporate social responsibility
platform. From our founding 82 years ago, Knoll has always
been a purpose-driven enterprise as we have sought to
bring the benefits of good design to where our clients live
and work. Very much core to this mission has been to do
so as sustainably as possible; frankly, there is nothing more
sustainable than producing timeless designs that become
collectibles not disposables. We have helped countless clients
with LEED®, Well and Living Building Challenge-certified
projects while aggressively reducing our own environmental
impact. And in the process, supporting our associates and
the communities where we live and work with initiatives like
the Knoll scholarship program that has helped send over
650 children and grandchildren of Knoll associates with post-
secondary technical, community and 4-year college education.
We are proud of our gender diversity and pay equity from
our board room to our plant floor as well as our progressive
approach to partner benefits and LGBTQ rights. And, to our
knowledge, we are the only public furniture company with its
own B Corp subsidiary, Fully. We do all this not just because it’s
the right thing to do – we do it because it also makes us a better
business and investment for all our stakeholders.
None of this comes together without the dedication of our
3,900 associates, whose health and well-being is our number
one priority. Everyone associated with the Knoll constellation of
brands, including our supply chain and distribution partners, has
been impacted deeply by the effect of Covid-19. Together, we
will address this difficult situation and resume our unparalleled
service to clients across the commercial, education, healthcare,
government and residential sectors, delivering inspired modern
workplaces and residences. I thank our associates and our
dealer and retail partners for their dedication.
Andrew Cogan
Chairman and CEO
Knoll, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 001-12907
KNOLL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
13-3873847
(I.R.S. Employer
Identification Number)
1235 Water Street
East 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
Common Stock, par value $0.01 per share
Name of exchange on which registered
New York Stock Exchange
Trading Symbol
KNL
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the issuer is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act.)
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large Accelerated
Filer
Accelerated
filer
Non-
accelerated filer
Smaller reporting
company
Emerging growth
company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes
No
As of June 30, 2019, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was
approximately $1,128,501,610 based on the closing sale price as reported on the New York Stock Exchange.
As of February 19, 2020, there were 49,804,496 shares (including 742,559 shares of non-voting restricted shares) of the
Registrant's common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders are incorporated by
reference into Part III of this report on Form 10-K to the extent stated therein.
Item
Page
TABLE OF CONTENTS
Business
1.
1A. Risk Factors
1B. Unresolved Staff Comments
2.
3.
4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
5.
6.
7.
7A. Quantitative and Qualitative Disclosures about Market Risk
8.
9.
9A. Controls and Procedures
9B. Other Information
Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
PART III
10. Directors, Executive Officers and Corporate Governance
11.
12.
13.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
14.
Principal Accounting Fees and Services
15.
16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
PART IV
2
3
12
20
21
21
21
22
24
25
35
36
77
77
79
79
79
79
79
79
80
83
84
ITEM 1. BUSINESS
General
PART I
Knoll, Inc. (“Knoll,” the “Company,” “we,” “us,” “our”) is a leading global manufacturer of commercial and residential
furniture, accessories, lighting and coverings, including textiles, felt and leather. Our constellation of design-driven brands
coupled with our perspectives on space planning allow our clients to create inspired modern interiors. Simply stated, we provide
the furnishings to bring the beauty and benefits of modern design to the way we live and work. Our businesses represent a
diversified portfolio that responds to evolving trends and performs throughout business cycles, sharing reputations for high-
quality and sophistication. To the architects and designers we work with, to our clients in the commercial, education, healthcare
and government sectors, and to the many consumers we reach, Knoll represents a commitment to innovative solutions and an
unmatched heritage of modern design.
How people live and work is constantly being reshaped by changing technology and lifestyle trends. Our founders, Hans
and Florence Knoll, believed in the power of design to enhance people’s lives. Since our founding over 80 years ago, Knoll has
won a place in iconic settings and in museums worldwide, earning numerous design honors and awards. Today, we have an
unsurpassed collection of classic products to introduce, and reintroduce, as well as groundbreaking new designs. We leverage
strong relationships with contemporary furniture and industrial designers, and a reputation that attracts talented new designers.
We focus on two distinct “to-the-trade” specifier markets, workplace and residential. Workplace, the largest portion of
our business, is where we see strategic opportunities through the expansion of underpenetrated categories and ancillary markets.
At the same time, in the residential market, we are expanding further into consumer and decorator channels worldwide leveraging
our experience with products that cross-over between the office and the home. We reach customers primarily through a broad
network of independent dealers and distribution partners, our direct sales force, our showrooms, home design shops and our
online presence.
We manage our business through our reportable segments: Office and Lifestyle. All unallocated costs are included within
Corporate.
The Office segment addresses diverse workplace planning paradigms in domestic and international markets, creating high-
quality performing spaces with open plan and private furniture, architectural elements, collaborative and ergonomic seating and
modular storage. Product categories include: office systems furniture, seating, storage, tables, desks and KnollExtra® accessories.
The Office segment includes DatesWeiser®, known for signature spaces with refined and flexible conference furniture platforms
that set a standard of design, quality and technology integration, as well as Fully®, which offers standing desks, high-performance
adjustable height desks, ergonomic chairs and accessories principally for individual home offices and small businesses.
The Lifestyle segment includes KnollStudio®, HOLLY HUNT®, KnollTextiles®, Spinneybeck® | Filzfelt®,Edelman®
Leather and Muuto®. KnollStudio products, which are distributed in North America, Europe, the Middle East and Asia, include
iconic seating, lounge furniture, side, café and dining chairs as well as conference, training, dining and occasional tables, lighting,
rugs, textiles, high-quality fabrics, felt, leather and related architectural products. The Lifestyle segment products represent an
important part of our workplace business.
The Corporate function represents the accumulation of unallocated costs relating to shared services and general corporate
activities including, but not limited to, legal expenses, acquisition expenses, certain finance, human resources, administrative
and executive expenses and other expenses that are not directly attributable to an operating segment. Dedicated, direct selling,
general and administrative expenses of the segments are included within segment operating profit. As we continue to grow both
organically and through acquisitions, the central support of the Corporate function will evolve and grow as well.
For further information regarding our segments see the section below and Note 21 in the accompanying financial
statements.
Strategy
We draw on our constellation of businesses and brands to provide products and designs that meet the needs of our
customers. Our offerings range from our classic signature pieces to our ancillary products which include the Rockwell Unscripted®
collection by The Rockwell Group, the vast product portfolio of Muuto and the products of our most recent acquisition of Fully;
from dramatic textiles, to Filzfelt architectural products for acoustical control. We solve a variety of needs for each customer,
and our goal for each engagement is to maximize the opportunity from the start. To that end, we deploy strategic programs to
better synchronize our office and lifestyle teams and resources to deliver a single compelling customer experience. We also
continue to invest in technology for our dealer partners to make it easier to do business with Knoll.
3
Our growth strategy also focuses on specific international markets where we can significantly build our share, such as
Canada, Mexico, Europe, Asia, the Middle East, and selected under-penetrated areas across the globe where there is a
concentration of discerning clients.
Office Segment
Maximizing the sales growth and profitability of Office, our largest segment, has been a continuing priority. With respect
to growth in our Office segment, a variety of initiatives will contribute to making this growth possible: broadening our Workplace
products portfolio; enhancing sales coverage strategically, including a focus on global accounts; and capturing a greater share
of our dealer's ancillary sales. At the same time, we aim to increase profitability through operational improvements and
investments in our infrastructure. The acquisition of Fully in August 2019 provides the Office segment with a high-quality, cost-
effective complement to our portfolio of office solutions, while also broadening our consumer market through an e-commerce
platform. Our lean manufacturing initiative, combined with continued modernization of our facilities, is allowing us to
progressively deliver on this goal.
The commercial market has shifted dramatically in the last decade. As clients are readdressing the relationship between
individual and collaborative, shared spaces, they are reducing the footprint of individual workstations and investing in more
ancillary furniture. Knoll is committed to maintaining our leadership in open floor-plan workspaces and private offices, while
inventing and innovating new ways for people to work. Our constellation of businesses positions us well to deliver in the evolving
work environment, where people choose how and where they work throughout the day, as the traditional boundaries between
residential and workplace products blur, and the importance of a total environment outshines any one particular element.
We are looking beyond traditional office product categories - systems, task seating and storage - to furniture for shared
spaces and the in-between spaces where people meet. We believe that our success in our traditional office products gives us an
advantage throughout the workplace. As we design new products suited to these more flexible spaces, we are also responding
to demands at different price points with different materials and finishes. Our Rockwell Unscripted™ collection, including
Creative Wall®, continued to receive enthusiastic recognition at the 2019 Knoll Design Days trade show for addressing the idea
of a hospitality work experience. Rockwell Unscripted brings a sense of theater and play to the workplace, putting people at the
center of the work life experience and creating a warm and welcoming place where people want to be. Rockwell Unscripted
Creative Wall has been successful in allowing clients to delineate space in the open environment, creating spaces for teams or
individuals to focus and work. Our breath of height-adjustable tables, including k.TM Stand, k.TM bench, Tone® and Antenna®
Telescope® continue to receive national industry recognition for its straightforward and adaptable concept that delivers a clean,
compact workstation solution with intuitive adjustments and people centered design.
With the evolution from individual workstations to collaborative spaces and ancillary products, Knoll is not only expanding
the breadth of our offerings through our constellation of brands but also strengthening our presence in the marketplace. We are
continuing to partner with our dealers to ensure our customers understand that Knoll provides not just systems or workstations
and work chairs but rather a complete family of complementary ancillary products. Together, we are meeting the demands of
our customers while capturing more of their total spend and elevating the profitability of our engagements.
This approach has served as a catalyst for dealers to invest in their spaces. Their showrooms are becoming extensions of
our own, offering not just product showcases but places to find new integrated workplace solutions from all of Knoll. Dealers
help people to understand workplace needs and planning capabilities, and Knoll is providing more of the training and education
that helps them add value and increase their profits when they sell Knoll.
Our principal Knoll Office product lines, described below, include systems furniture, seating, storage, tables, desks and
KnollExtra ergonomic accessories. The Office segment comprised approximately 61.2% of our sales in 2019, 60.1% of our sales
in 2018, and 63.8% of our sales in 2017.
Systems Furniture
Our office systems furniture encompasses a range of architect and designer-oriented products at different price levels,
with a variety of planning models and product features. Systems furniture comprises integrated panels or table desks, work
surfaces and storage units, power and data systems, and lighting. Many of these components can be moved, re-configured and
re-used to create flexible, space-efficient work environments, tailored to each organization's business objectives with wide range
of laminates, paints, veneers and textiles. Knoll systems can adapt to virtually any office environment, from team spaces to
private executive offices. Through product line enhancements for clients to add to their installations, and through integration
with other Knoll lines, we maximize the long-term value of their investment in Knoll.
4
Knoll systems furniture product lines include these panel, spine, technology wall and desk-based planning models:
•
•
•
•
•
•
Rockwell Unscripted ®
Antenna® Workspaces
AutoStrada®
Currents®
Dividends Horizon®
Reff® Profiles
Seating
We constantly research and assess the general office seating market and offer a range of work chairs that are diverse in
scale, aesthetic and performance, and enhances Knoll’s reputation for ergonomics and value. The result is an increasingly
innovative, versatile seating collection consistent with the Knoll brand.
Clients evaluate work chairs based on ergonomics, aesthetics, comfort, quality and affordability - all Knoll strengths. We
offer market leading, high quality office chairs at a range of price points, performance levels and materials.
Our principal seating product lines include:
•
•
•
•
•
•
LIFE®
Generation by Knoll®
MultiGeneration by Knoll®
ReGeneration by Knoll®
Remix™
Ollo™
Files and Storage
Our files and storage products, featuring the Template®, Calibre®, Series 2™ and Quion® product lines, are designed with
unique features to maximize storage capabilities and personalization throughout the workplace. Our core files and storage
products consist of lateral files, mobile pedestals and other storage units, bookcases and overhead cabinets.
The range of files and storage augments our product offering, allowing clients to address all of their office furniture needs
with us, especially in competitive bid situations where Knoll systems, seating, tables and desks have been specified. The breadth
of the product line also enables our dealers to offer stand-alone products to businesses that have smaller storage requirements.
Files and storage are available in a wide range of sizes, configurations and colors, which can be integrated with other
manufacturers' stand-alone furniture. In addition, some elements of the product line can be configured as freestanding furniture
in private offices or open-plan environments.
Our principal storage product lines include:
•
•
•
•
•
•
Anchor™
Calibre®
Series 2™
Template®
Rockwell Unscripted®
Quion®
Desks and Tables
We offer collections of adjustable tables as well as meeting, conference, training, dining, stand-alone and table desks.
Our Tone™, Upstart® and Antenna® Simple Tables and Rockwell Unscripted® product lines include adjustable, work,
meeting, conference and training tables. Tone, a comprehensive collection of height-adjustable tables compatible with the
Dividends Horizon, Antenna Workspaces, and Reff Profiles systems. Tone features a wide range of support and adjustment
options that integrate seamlessly with Knoll open plan, private office and activity spaces furniture, or are used independently
to create flexible work areas. We also expanded the Reff Profiles product line with a series of meeting tables. Our k. bench and
k. stand products offer height-adjustable tables, which are easy to specify, assemble and use, offer an expanded price point option
for today's office needs.
5
DatesWeiser
Our Office segment includes DatesWeiser which produces refined and flexible high-end contemporary conference
furniture product platforms, including HiGHLiNE®, that feature a broad range of finishes across wood, metal, glass and stone.
DatesWeiser's customers tend to be within the elite professional services markets. DatesWeiser's product offerings specialize in
solutions to meet the needs of business interiors.
Fully
Our Office segment includes Fully which focuses on a human-centered approach to the workplace with adjustable height
tables, seating and accessories designed to create a healthy, supportive workplace. Fully, a certified B Corp, offers standing
desks, high-performance adjustable height desks, ergonomic chairs and accessories principally for individual home offices and
small businesses. Fully is a direct-to-consumer, office furniture brand that addresses the small business and consumer markets
through an e-commerce platform.
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, with flat
panel monitor supports and central processing unit holders that deliver adjustability and save space. The Sapper Monitor Arm
Collection, designed by renowned industrial designer Richard Sapper, offers a clean, modern solution to technology challenges
in the modern workplace; the collection is now in the permanent collection of New York's Museum of Modern Art. KnollExtra
also includes marker boards, free-standing and mounted LED lighting and other technology support for the changing workplace.
Lifestyle Segment
The Lifestyle segment includes KnollStudio, HOLLY HUNT, Muuto, KnollTextiles, Spinneybeck | Filzfelt, and Edelman
Leather. KnollStudio® products, which are distributed primarily in North America and Europe, include iconic seating, lounge
furniture, side, café and dining chairs as well as conference, training, dining and occasional tables. HOLLY HUNT is known
for high quality residential furniture, lighting, rugs, textiles and leathers. In addition, HOLLY HUNT also includes Vladimir
Kagan Design Group, a renowned collection of modern luxury furnishings. The KnollTextiles, Spinneybeck | FilzFelt, and
Edelman Leather businesses provide a wide range of customers with high-quality fabrics, felt, leather and related architectural
products. Muuto rounds out the Lifestyle segment with its ancillary products and affordable luxury furnishings, which includes
seating, lounge furniture, dining and occasional tables, lighting and accessories. These various offerings allow the Lifestyle
segment to provide products for an all-encompassing “resimercial”, high performance workplaces, as well as furnish a range of
living spaces from uber to affordable-luxury living spaces.
KnollStudio
Drawing upon Knoll's iconic heritage, KnollStudio elevates residential and commercial environments with inspiring and
iconic designs that embody quality and craftsmanship.
For over eighty years, Knoll has worked with celebrated architects and designers from around the world, including Ludwig
Mies van der Rohe, Marcel Breuer, Harry Bertoia, Eero Saarinen, Isamu Noguchi, Warren Platner, Frank Gehry, Maya Lin and
Richard Schultz, among others. Many of their designs have remained in production since their initial launch, while others have
been mined from the archives and re-imagined in recent years for a contemporary audience.
Today, KnollStudio works with today's most innovative thinkers worldwide to bring exceptional modern design to the
home and office, collaborating with groundbreaking contemporary designers and architects including David Adjaye, Edward
Barber, Mark Krusin, Piero Lissoni, Marc Newson and Jay Osgerby, to create future classics for residential and commercial
markets. Signature KnollStudio designs display elevated detailing, artistry and comfort, across price points, and often draw
designers and customers into the larger Knoll constellation of brands. Moving forward, KnollStudio has a multi-year strategy
to build its classics portfolio by mining its archive and adding new finishes, as well as to grow its contemporary collections for
both home and office with innovative designs by the new voices of today.
Our principal KnollStudio product lines include seating, storage, lounge furniture, side, café and dining chairs as well as
conference, dining, training and occasional tables. While KnollStudio designs represent different viewpoints and eras, they all
embrace a Modernist aesthetic. As a result, designers can integrate our ensemble of products into harmonious and inspiring
settings furnished entirely with Knoll products.
6
With the trend towards residentially-inspired workplaces, KnollStudio products have gained cross-over appeal between
residential and workplace. In North America, the workplace ancillary sales team continues to expand in size and reach, with a
focus on corporate projects, hotels and restaurants, as well as government and educational institutions. To grow its residential
channel, KnollStudio has expanded its audience in recent years through a to-the-trade showroom in New York City's Decoration
& Design building, branded flagship Knoll Home Design Shops in New York City and Los Angeles, as well as the knoll.com
website, which reach retail consumers and designers alike. Additionally, the company continues to invest in the Knoll Space
retail sales program, which brings consumers the best of Knoll furnishings for their home and home office, through approximately
50 specialty retailers and e-tailers throughout the United States and Canada.
In addition to our presence in North America, KnollStudio is represented by showrooms in Paris, London and Milan and
through our exclusive network of retailers throughout Europe and Asia. Our presence in the European market pursues the
Company’s objective of offering design, innovation, functional excellence and quality, and extending our reach into all markets
through an intensive network of selected dealers.
HOLLY HUNT
Known for a look that is consistently at the forefront of style and quality, our HOLLY HUNT showrooms and collections
lead the industry in luxury home furnishings. The company designs, produces and showcases high-quality, custom design pieces
for the most exquisite interior spaces and properties around the globe, including indoor and outdoor furniture, lighting, rugs,
wall covering, textiles, leathers, art and accessories. As both a premier provider and distributor of furnishings, HOLLY
HUNT continues to expand our reach into the high-end, "to-the-trade" residential marketplace. Our strategy continues to focus
on premium product category expansion and optimizing best-in-class client and operational service levels across domestic,
international and digital trade channels. There are fourteen HOLLY HUNT-owned showrooms in the US and London, along
with partner showrooms in major markets, and an expanding international presence.
KnollTextiles
Our Lifestyle segment includes KnollTextiles, renowned for enriching spaces with color, pattern and textures. In addition
to a direct sales force, KnollTextiles distributes its products through a showroom in New York City's Decoration & Design
building, Knoll consumer retail spaces in New York City and Los Angeles and through the knolltextiles.com website.
KnollTextiles products appeal to contract, hospitality, education and residential clients and we offer a full range of products in
the Modernist tradition from upholstery and drapery to wall coverings and healthcare curtains including some of the industry's
most technically advanced materials. Our KT Collection of upholstery marries classic modern design for everyday use, in a
range of high-performance patterns and textures. Against the backdrop of the rich and storied work of Florence Knoll,
KnollTextiles combines beauty and function, producing fresh perspectives for contemporary interiors.
Spinneybeck | FilzFelt
Our Lifestyle segment includes Spinneybeck | FilzFelt which has expanded from being exclusively a supplier of raw
material to a provider of leather, felt, plaster, cork and wood finished products that enhance the architectural and acoustic
experience of commercial, education and hospitality settings. The same trends that have been transforming Knoll Office
workspaces have created new opportunities for architectural and acoustic products that offer flexible space division and sound
control. Spinneybeck and FilzFelt have evolved, respectively, from an upholstery leather company and 100% wool felt provider
that meets the demand for new and renewable materials to a comprehensive natural materials resource. This approach provides
specifiers and clients with architectural and acoustic solutions that leverage the opportunity for more large-scale orders. Our full
Spinneybeck | Filzfelt assortment includes upholstery and wall coverings, modular acoustic wall tiles and panels, ceiling baffles
and screens.
Edelman Leather
Our Lifestyle segment includes Edelman Leather which offers beautiful, natural leathers for the global design community.
Edelman is a "to-the-trade" supplier and goes to market by leveraging eight branded showrooms and sales representation around
the world. Edelman successfully expanded beyond leather coverings by offering rug furnishings through its distribution partner
Ruckstuhl. Edelman is also developing new leather coverings for the hospitality business, offering quality within the financial
constraints of today’s hotels and restaurants.
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Muuto
The acquisition of Muuto in January 2018 added a resimercial, design-driven provider of affordable luxury furniture,
lighting and accessories for the workplace and home to our Lifestyle segment. Muuto is rooted in Scandinavian design traditions
characterized by enduring aesthetics, functionality, craftsmanship and an honest expression. Muuto products pair seamlessly
with the range of modern Knoll designs, offering an expanded breadth and depth of affordable luxury products with forward-
looking ideas to reflect today's work and lifestyles, and particular appeal to a younger generation of architects, designers and
clients seeking a homier, more relaxed aesthetic.
Muuto's principal furniture product lines include:
•
•
•
•
•
Outline Series
Nerd Series
The Dots Series
Fiber Chairs
Visu Chairs
The Lifestyle segment represented approximately 38.8% of our sales in 2019, 39.9% of our sales in 2018, and 36.2% of
our sales in 2017.
Product Design and Development
Our design philosophy and modern perspective reflects a historical commitment to partnering with preeminent industrial
designers and architects to commercialize products that meet evolving workplace and residential needs. By combining designers'
creative vision with our commitment to innovative materials and technologically advanced processes, we continue to cultivate
brand loyalty among target clients. Our enviable history of nurturing the design process fosters strong, lasting relationships that
attract the world's leading designers. In addition, these collaborations are consistent with our commitment to a lean organization
and incentive-based compensation, by utilizing a variable royalty-based fee as opposed to the fixed costs typically associated
with a larger in-house design staff.
Our broad range of workplace research, which explores the connection between workspace design and human behavior,
health and performance, and the quality of the user experience, drives our workplace product development initiatives. Recent
research initiatives include a study of acoustics in the workplace as well as a new way to think about space, referred to as
Immersive Planning, and contributed to the development of Rockwell Unscripted.
In addition, our Office and Lifestyle segments product development relies upon a New Product Commercialization Process
to ensure quality and consistency of our methodology, reducing product development cycle time without sacrificing quality
objectives. We use Pro/ENGINEER® solids modeling tools and rapid prototyping technology to compress development cycles
and to improve responsiveness to special requests for customized solutions. Working closely with the designers during the early
phases of development provides critical focus to yield the most viable products, balancing innovative modern design with
practical function. Cross-functional teams are employed for all major development efforts with dedicated leaders who facilitate
a seamless flow into manufacturing while aggressively managing cost and schedule opportunities. Increasingly, total
environmental impact is factored into product material and manufacturing process decisions.
Sales and Distribution
We generate workplace sales with our direct sales force and through a network of independent dealers, who jointly market
and sell our products. We generally rely on these independent dealers to also provide a variety of important specification,
installation and after-market services to our clients. Our dealers generally operate under short-term (one to three year), non-
exclusive agreements. Our residential sales products are sold by our own internal sales force through a network of showrooms,
as well as through a network of independent retailers.
Our workplace clients are typically Fortune 1000 companies, governmental agencies and other medium-to-large sized
organizations in a variety of industries including financial, legal, technology, entertainment, accounting, education, government,
healthcare and hospitality. Our direct sales force and independent dealers in North America work in close partnership with clients
and design professionals to specify distinctive work environments. Our direct sales representatives, in conjunction with the
independent dealers, sell to and call directly on key clients. Our independent dealers also call on many other medium and small
sized clients to provide seamless sales support and client service.
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We have aligned our sales force to target strategic areas of opportunity to include global accounts, healthcare, higher
education and others. We have also placed sales representatives and technical specialists into certain dealerships to support
programs such as Knoll Essentials, which is described below. We expanded our sales force to cover a more dispersed market
which has shifted to include increased small to mid-size projects and fewer large projects. Additionally, we have provided
specification tools to our dealers and sellers that enable them to share with our clients real time visual simulations and renderings
from our complete product offerings.
In addition to coordinating sales efforts with the sales representatives, our dealers generally handle project management,
installation and maintenance for client accounts after the initial product selection and sale. Although many of these dealerships
also carry products of other manufacturers, they have agreed not to act as dealers for our principal direct competitors. We have
not experienced significant dealer turnover. Our dealers' substantial commitment to understanding our product lines, and their
strong relationships with us, serve to discourage dealers from changing vendor affiliations. We are not significantly dependent
on any one dealer, the largest of which accounted for approximately 6.5%, 4.8%, and 4.6%, of our North American sales in
2019, 2018, and 2017, respectively.
As part of our commitment to building relationships with our dealers, we offer the Knoll Essentials program. Knoll
Essentials is a catalog program developed in response to dealer requests for a consolidated, user-friendly selling tool for day-
to-day systems, seating, storage, and accessory products. The Knoll Essentials program includes dealer incentives to sell our
products. We also employ a dedicated team of dealer sales representatives to work with our dealerships.
Sales to U.S. and state and local government agencies, respectively, aggregated approximately 4.5% and 7.1%,
respectively, of our consolidated sales in 2019. The U.S. government typically can 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.
Our residential sales are sold through a global network of showrooms, e-commerce, retail stores and independent dealers.
Our clients range from “to the trade” professionals, such as interior designers, to individual consumers.
Our products and knowledgeable sales force have generated strong brand recognition and loyalty among architects,
designers and corporate facility managers, all of whom are key decision-makers in the furniture purchasing process. Our strong
relationships with architects and design professionals help us stay abreast of key workplace and residential furniture trends and
position us to better meet the changing needs of clients.
Manufacturing and Operations
Our global supply chain manufactures and assembles products to specific customer orders and operates all facilities under
a philosophy of continuous improvement and lean manufacturing. Our Office segment is supported by operational and
administrative facilities in Canada, Italy, Michigan, Oregon and Pennsylvania. The Lifestyle Segment is supported by sites in
Connecticut, Illinois, Italy, New York, Pennsylvania, Denmark and Texas. In addition, we utilize many third parties to produce
a variety of our Office and Lifestyle designs.
We continue to look for ways to ensure that our manufacturing capabilities match our supply chain strategy providing
the most value for Knoll. The root of our continuous improvement efforts lies in the philosophy of lean manufacturing that drives
operations. As part of this philosophy, we partner with suppliers who can facilitate efficient and often just-in-time deliveries,
allowing us to manage our raw materials inventory. We also utilize “Kaizen” work groups in the plants to develop best practices
to minimize scrap, time and material waste at all stages of the manufacturing process. The involvement of employees at all levels
ensures an organizational commitment to lean and efficient manufacturing operations. These projects improved customer
responsiveness, quality and significantly improve productivity.
In January 2020, we announced that we will consolidate our manufacturing footprint in North America, resulting in the
closure of our Grand Rapids, Michigan manufacturing facility. We have elected to undergo this restructuring in order to reduce
our structural costs and better optimize our North American manufacturing footprint and supply chain. See Note 22, Subsequent
Events, of Notes to the Consolidated Financial Statements for further information.
Raw Materials and Suppliers
In addition to the continued focus on enhancing the efficiency of the manufacturing operations, we also seek to reduce
costs through our global sourcing effort. We have capitalized on raw material and component cost savings available through
lower cost global suppliers. This broader view of potential sources of supply has enhanced our leverage with domestic supply
sources, and we have been able to reduce cycle times by extracting improvements from all levels throughout the supply chain.
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The purchasing function in North America is centralized at the East Greenville facility for Office, KnollStudio North
America, and Textiles. This centralization, and the close relationships 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 castings are used
in our manufacturing process. The purchasing function for KnollStudio Europe is based in Italy, Muuto is based in Denmark,
Holly Hunt is based in Illinois, Edelman is based in Connecticut, Spinneybeck and DatesWeiser are based in New York. Both
domestic and overseas suppliers of these materials are selected based upon a variety of factors, with the price and quality of the
materials and 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 a particular 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.
Backlog
As of December 31, 2019 and 2018, the company's backlog of unfilled orders was $249.6 million and $249.7 million,
respectively. We expect that substantially all the orders comprising the backlog at December 31, 2019, will be filled during the
next fiscal year. Many orders received by the Company are reflected in the backlog for only a short period while other orders
specify delayed shipments and are carried in our backlog for up to one year. Accordingly, the amount of the backlog at any
particular time does not necessarily indicate the level of net sales for a particular succeeding period.
Competition
The markets in which we compete are highly competitive. We compete on the basis of (i) product design, including
performance, ergonomic and aesthetic features; (ii) product quality and durability; (iii) relationships with clients, architects and
designers; (iv) strength of dealer and distributor network; (v) on-time delivery and service performance; (vi) commitment to
environmental standards by offering products that help clients achieve LEED® (Leadership in Energy and Environmental Design)
certified facilities and minimize environmental impact; and (vii) price. We estimate that our share of the North American
workplace market in 2019 and 2018 was 7.8% and 7.5%, respectively.
Some of our workplace competitors, especially those in North America, are larger and have significantly greater financial,
marketing, manufacturing and technical resources than us. Our most significant competitors in primary markets are Herman
Miller, Inc., Steelcase, Inc., Haworth, Inc. and, to a lesser extent, Teknion Corporation and Allsteel, Inc., an operating unit of
HNI Corporation. These competitors have a substantial volume of furniture installed at businesses throughout North America,
providing a continual source of demand for further products and enhancements. Moreover, the products of these competitors
have strong acceptance in the marketplace. For Muuto, we also compete against smaller open-line brands that can be sold through
our own dealers. Despite our competitors' strength in the marketplace, we believe that we have been able to compete successfully
in the markets to date.
Competition in the residential sector is much more fragmented than in the workplace market. Our Lifestyle businesses
serve the mid-to high-end of the market, but compete against many companies, none of which has a dominant market share.
Patents and Trademarks
We consider securing and protecting our intellectual property rights to be important to the business. We own approximately
59 active U.S. utility patents on various components used in our products and systems and approximately 184 active U.S. design
patents. We also own approximately 494 patents and design rights in various foreign countries. The scope and duration of our
patent protection varies throughout the world by jurisdiction and by individual product. In particular, patents for individual
products extend for varying periods of time according to the date a patent application is filed, the date a patent is granted and
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). We believe that the duration of the applicable patents we are granted is adequate relative to the expected
lives of our products. We own approximately 106 trademark 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®, Calibre®, Currents®, Dividends®, Edelman® Leather, Modern
Always®, Pixel®, Reff®, Sapper XYZ®, Spinneybeck® Leather, Toboggan®, Generation by Knoll®, Regeneration by Knoll®,
MultiGeneration by Knoll®, Remix®, Rockwell Unscripted®, HighLine®, HOLLY HUNT®, GREAT OUTDOORS A HOLLY
HUNT COLLECTION®
, VLADIMIR KAGAN®, MUUTO® and FULLY®.
We also own approximately 338 trademarks and copyrights registered in foreign countries. The scope and duration of
our trademark protection varies throughout the world, with some countries protecting trademarks only as long as the mark is
used, and others requiring registration of the mark and the payment of registration (generally ten years from the date of filing
in the U.S., for example). In order to protect the indefinite duration, we make filings to continue registration of our trademarks.
10
In October 2004, we received registered trademark protection in the United States for five iconic furniture designs by
Ludwig Mies van der Rohe-the Barcelona Chair, the Barcelona Stool, the Barcelona Couch, the Barcelona Table and the Flat
Bar Brno Chair. In 2019, we received similar registered trademark protection for the iconic Eero Saarinen design for the Womb
Chair. This protection recognizes the renown of these designs and reflects our commitment to ensuring that when architects,
furniture retailers, businesses and individuals purchase a Ludwig Mies van der Rohe design, they are acquiring the authentic
product, manufactured in accordance with the designer's historic specifications. Barcelona® is a registered trademark in the U.S.,
Canada and European Community owned by Knoll, Inc.
Environmental Matters
We believe that we are substantially in compliance with all applicable laws and regulations for the protection of the
environment and the health and safety of our employees based upon existing facts presently known to us. Compliance with
federal, state, local and foreign environmental laws and regulations relating to the discharge of substances into the environment,
the disposal of hazardous wastes and other related activities has had and will continue to have an impact on our operations, but
has, since 1990, been accomplished without having a material adverse effect on our operations. There can be no assurance that
such laws and regulations will not change in the future or that we will not incur significant costs as a result of such laws and
regulations. We have trained staff responsible for monitoring compliance with environmental, health and safety requirements.
Our goal is to reduce and, wherever possible, eliminate the creation of hazardous waste in our manufacturing processes. While
it is difficult to estimate the timing and ultimate costs to be incurred due to uncertainties about the status of laws, regulations
and technology, based on information currently known to management, we do not expect environmental costs or contingencies
to have a material adverse effect on our consolidated financial position, results of operations, competitive position, or cash flows.
The operation of manufacturing plants entails risks in these areas, however, and we cannot be certain that we will not incur
material costs or liabilities in the future which could adversely affect our operations.
We have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response
Compensation and Liability Act, or “CERCLA,” for remediation costs associated with waste disposal sites previously used by
us. CERCLA can 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 responsible party being held
responsible for the entire obligation. Liability may also include damages for harm to natural resources. The remediation costs
and our allocated share at some of these CERCLA sites are unknown. We may also be subject to claims for personal injury or
contribution relating to CERCLA sites. We reserve amounts for such matters when expenditures are probable and reasonably
estimable.
Employees
As of December 31, 2019, we employed a total of 3,734 people, consisting of 1,891 hourly and 1,833 salaried employees.
The Grand Rapids, Michigan plant is the only unionized plant within North America and has an agreement with the Carpenters
Union, Local 1615, of the United Brotherhood of Carpenters and Joiners of America, Affiliate of the Carpenters Industrial
Council (the “Union”), covering approximately 187 hourly employees or 5.0% of the Company's labor force. The Collective
Bargaining Agreement was entered into on May 1, 2018 and expires in April 2022. We expect the agreement to terminate as
during the second quarter of 2020 due to the previously announced closure of the Grand Rapids, Michigan facility announced
in January 2020. From time to time, there have been unsuccessful efforts to unionize at our other North American locations. We
believe that relations with our employees are good. Nonetheless, it is possible that our employees may continue attempts to
unionize. Certain workers in the facilities in Italy are also represented by unions.
Available Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to
those reports are made available free of charge through the “Investor Relations” section of our website at www.knoll.com, as
soon as practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission.
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ITEM 1A. RISK FACTORS
RISK FACTORS
Risks Related to our Business
Our product sales are tied to corporate spending and service-sector employment, which are outside of our control. Our sales
and/or growth in sales would be adversely affected by a recessionary economy characterized by decreased corporate spending
and service-sector employment.
Our sales are significantly impacted by the level of corporate spending primarily in North America, which, in turn, is a
function of the general economic environment. In a recessionary economy, business confidence, service-sector employment,
corporate cash flows and residential and non-residential commercial construction decrease, which typically leads to a decrease
in demand for furniture and our other products. In addition, a recessionary economy may also result in saturation of the market
by “just new” used office systems, leading to a decrease in demand for new office environments. Sales of office systems, which
have historically accounted for almost half of our revenues, represent longer term and higher cost investments for our clients.
As a result, sales of office systems are more severely impacted by decreases in corporate spending than sales of seating, ancillary
products, coverings, studio products, and demand for office systems typically takes longer to respond to an economic recovery.
Geopolitical uncertainties, terrorist attacks, acts of war, international public health emergencies, natural disasters, increases
in energy and other costs or combinations of such and other factors that 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 or similar events in the future
could result in downward pressure on the economy, which we would expect to cause demand for our products to decline and
competitive pricing pressures to increase.
Weakness in the economy or uncertainty in the financial markets may adversely affect our results of operations and financial
condition, as well as the financial soundness of our customers and suppliers.
Weakness in the economy or uncertainty in the financial markets may inhibit our ability to access capital and could be
restricted at a time when we would like, or need, to access 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 our products 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, or may delay payment of, accounts receivable owed to us, and our suppliers may restrict
credit or impose different payment terms on us. Any inability of customers 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 may develop 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 to ours, we face significant price competition from our competitors, particularly in the Office
segment. This price competition impacts our ability to implement price 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 competitive advantage over us in making future sales.
Our efforts to introduce new products that meet customer and workplace requirements may not be successful, which could
limit our sales growth or cause our sales to decline.
To keep pace with workplace trends, such as changes in workplace design and increases in the use of technology, and
with evolving regulatory and industry requirements, including environmental, health, safety and similar standards for the
workplace and for product performance, we must periodically introduce new products. The introduction of new products requires
the coordination of the design, manufacturing and marketing of such products, which may be affected by factors beyond our
control. The design and engineering of certain of our new products can take up to a year or more and further time may be required
to achieve client acceptance. In addition, we may face difficulties in introducing new products if we cannot successfully align
ourselves with independent architects and designers who are able to design, in a timely manner, high-quality products consistent
with our image. Accordingly, the launch of any particular product may be later or less successful than originally anticipated by
us. Difficulties or delays in introducing new products or lack of customer acceptance of new products could limit our sales
growth or cause our sales to decline.
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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 business is highly dependent upon our ability to attract and retain qualified employees and upon the
ability of our senior management and other key employees to implement our business strategy. We believe there are only a
limited number of qualified executives in the industry in which we compete. The loss of the services of key members of our
management team could harm our efforts to successfully implement our business strategy.
We are dependent on the pricing and availability of raw materials and components, and price increases and unavailability
of raw materials and components 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 the main raw materials used in our products. The prices and availability of raw materials are subject
to change or curtailment due to, among other things, the supply of, and demand for, such raw materials, changes in laws or
regulations, including duties and tariffs, suppliers' allocations to other purchasers, interruptions in production by raw materials
or component parts suppliers, changes in currency exchange rates and worldwide price levels. We can be significantly impacted
by price increases in these raw materials.
Although no supplier is the only available source for a particular component or raw material, some of our products and
components are extremely specialized 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 materials and components on a timely basis, or any significant delays or
interruptions in the supply of raw materials or components, could prevent us from being able to produce products ordered by
our clients in a timely fashion, which could have a negative impact on our reputation and our dealership network, and could
cause 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. Although we have been successful in countering energy price increases,
primarily through our global sourcing initiatives and continuous improvement programs, we have not been able to offset these
costs entirely.
We rely upon independent furniture dealers, and a loss of a significant number of dealers could affect our business, financial
condition and results of operations.
We rely on a network of independent dealers for the joint marketing of our products to small and mid-sized accounts, and
to assist us in the marketing of 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 prevent our dealers from terminating their relationships with
us at the end of contract terems. In addition, individual dealers may not continue to be viable and profitable and may suffer from
the lack of available credit. While we are not significantly dependent on any single dealer, our largest dealer accounted for 6.5%
of our North American sales in 2019; if dealers go out of business or are restructured, we may suffer losses as they may not be
able to pay us for products previously delivered to them. The loss of a dealer relationship could also negatively affect our ability
to maintain market share in the affected geographic market and to compete for and 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 time and resources.
The loss or termination of a significant dealer or a significant number of dealer relationships could cause significant difficulties
for us in marketing and distributing our products, resulting in a decline in our sales.
Currently, one of our largest clients is the U.S. government, a relationship that is subject to uncertain future funding levels
and federal procurement laws and requires restrictive contract terms; any of these factors could curtail current or future
business.
For the year ended December 31, 2019, we derived approximately 4.5% and 7.1% of our revenue from sales to U.S. and
state and local government agencies, respectively. Our ability to compete successfully for and retain business with the U.S.
government is highly dependent on cost-effective performance and compliance with complex procurement laws. Historically,
federal procurement laws required government agencies to purchase furniture products from Federal Prison Industries,
Incorporated. If these or similar laws were re-instituted, it would make it more difficult for us to sell our furniture to agencies
and departments of the U.S. government.
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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 perform under 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 the future for contracts and orders. Furthermore, if we were found to have
committed fraud or certain criminal offenses, we could be suspended or debarred from all further government contracting.
Given the significance of our governmental business, we are sensitive to decreases in governmental spending. Federal,
state and local government budgets have experienced deficits recently and are under significant pressure to reduce spending.
These spending pressures have resulted in, and may continue to result in, decreased furniture spending, which has negatively
impacted (and may continue to negatively impact) our governmental sales.
Our global operations may be adversely affected by political events, domestic or international hostilities, international health
emergencies, or complications due to natural, nuclear or other disasters.
The ongoing coronavirus outbreak emanating from China at the beginning of 2020 has resulted in increased travel
restrictions and extended shutdown of certain businesses in the region. This or any other governmental developments or health
concerns in China or other countries in which we operate could result in social or economic instability. These uncertainties could
have a material adverse effect on our business, including a potential supply chain impact, and or our results of operations and
financial data.
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 our sources of revenue and reduce our dependence on North American office system sales by, for example,
growing our seating, international, ancillary and lifestyle businesses. While we believe that this strategy enables us to better
maintain and grow our sales and profitability during cyclical ups and downs in the industry, there can be no assurance that this
diversification strategy will be effective in achieving these goals. Our diversification strategy involves the continued expansion
of our lifestyle 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 with new business lines.
We operate with leverage, and a significant amount of cash will be required to service our indebtedness. Restrictions imposed
by the terms of our indebtedness may limit our operating and financial flexibility.
As of December 31, 2019, we had total consolidated outstanding debt of approximately $450.3 million under our credit
facility.
On January 22, 2018, we amended and extended our existing credit facility ("Existing Credit Facility"), dated May 20,
2014, with a new $750.0 million credit facility maturing in January 2023, consisting of a revolving commitment in the amount
of $400.0 million, a U.S. term loan commitment in the amount of $250.0 million, and a multi-currency term loan commitment
in the amount of €81.7 million. The Amended Credit Agreement ("Amended Credit Agreement") also includes an option to
increase the size of the credit facility or incur incremental term loans by up to an additional $250.0 million, subject to the
satisfaction of certain terms and conditions. On August 26, 2019, we entered into a first amendment to the Third Amended and
Restated Credit Agreement (the "Credit Agreement Amendment"), which, among other things, extends the maturity of the credit
facility from January 2023 to August 2024, and reduces both the applicable rate applied to outstanding borrowings and the
commitment fee rate applied to the unutilized balance under the Revolver. The Amended Credit Agreement is described in more
detail in "Capital Resources and Liquidity" under Item 7 as well as in Note 13, Indebtedness, to the Consolidated Financial
Statements under Item 8 of this Annual Report on Form 10-K.
At December 31, 2019, if we were to borrow the maximum available to us under our Credit Facility, we would have total
consolidated outstanding debt of approximately $706.7 million. The high level of our indebtedness could have important
consequences 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 be available for other purposes;
• our ability to obtain additional debt financing in the future for working capital, capital expenditures, research and
development or acquisitions may be limited by the terms of our credit facility; and
• the terms of our credit facility also impose other operating and financial restrictions on us, which could limit our
flexibility in reacting to changes in our industry or in economic conditions generally.
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Our Amended Credit Agreement prevents us and our subsidiaries from incurring any additional indebtedness other than
(i) borrowings under our existing credit facility; (ii) certain types of indebtedness that may be incurred subject to aggregate
dollar limitations identified in the credit facility, including, without limitation, purchase money indebtedness and capital lease
obligations, indebtedness incurred in connection with a permitted acquisition, and loans obtained through 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 to specific
dollar limitations, such as indebtedness incurred in the ordinary course of business and unsecured, subordinated indebtedness.
The aggregate amount of indebtedness that we may incur pursuant to these exceptions is further limited by the financial covenants
in our credit facility and, therefore, will depend on our future results of operations and cannot be determined at this time. As a
result of the financial covenants, our capacity under our credit facility could be reduced if our trailing consolidated EBITDA
(as defined by our credit agreement) declines due to deteriorating market conditions or poor performance. Furthermore, although
we may incur unlimited amounts of certain types of indebtedness, subject to compliance with these financial covenants, the
amount of indebtedness that we may be able to incur will depend on the terms on which such types of debt financing are available
to us, if available at all.
As a result of the foregoing, we may be prevented from engaging in transactions that might further our growth strategy
or otherwise be considered beneficial 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 facility were to be accelerated, our assets could be insufficient to repay
in full the indebtedness under our credit facility and our other liabilities. Any such acceleration 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 our common stock and
jeopardize our ability to continue as a going concern.
We may require additional capital in the future, which may not be available or may be available only on unfavorable terms.
Our capital requirements depend on many factors, including capital improvements, tooling, information technology
upgrades and new product development. To the extent that our existing capital is insufficient to meet these requirements and
cover any losses, we may need to raise additional funds through 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 our common 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 the necessary capital.
An inability to protect our intellectual property could have a significant impact on our business.
We attempt to protect our intellectual property rights, both in the United States and in foreign countries, through a
combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure
and assignment agreements. Because of the differences in foreign trademark, copyright, patent and other laws concerning
proprietary rights, our intellectual property rights do not generally receive the same degree of protection in foreign countries as
they do in the United States. In some parts of the world, we have limited protections, if any, for our intellectual property. Our
ability to compete effectively with our competitors depends, to a significant extent, on our ability to maintain the proprietary
nature of our intellectual property. The degree of protection offered by the claims of the various patents, copyrights, trademarks
and service marks may not be broad enough to provide significant proprietary protection or competitive advantages to us, and
patents, copyrights, trademarks or service marks may not be issued on our pending or contemplated applications. In addition,
not all of our products are covered by patents or similar intellectual property protections. It is also possible that our patents,
copyrights, 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 choices about where and how we pursue enforcement and where we seek and maintain intellectual property
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 intellectual property with respect to
our significant current or proposed products, our competitors may be able to sell copies of our products, which could adversely
affect our ability to sell our original products and could also result in competitive pricing pressures, which may negatively affect
our profitability.
15
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 an infringing product.
We face the risk of claims that we have infringed upon third parties' intellectual property rights. Companies operating in
our industry routinely seek patent protection for their product designs, and many of our principal competitors have large patent
portfolios. Prior to launching major new products in our key markets, we normally evaluate existing intellectual property rights.
However, our competitors may have filed for patent protection which is not, at the time of our evaluation, a matter of public
knowledge. Our efforts to identify and avoid infringing upon third parties' intellectual property rights may not be successful.
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, or rebrand 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's intellectual property.
We could be required to incur substantial costs to comply with environmental requirements. Violations of, and liabilities
under, environmental laws and regulations may increase our costs or require us to change our business practices.
Our past and present ownership and operation of manufacturing plants are subject to extensive and changing federal,
state, local and foreign environmental laws and regulations, including those relating to discharges to air, water and land, the
handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. As a result,
we are involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters
and could become subject to fines or penalties related thereto. We cannot predict what environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental
conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws,
may require additional expenditures by us, some of which may be material. We have been identified as a potentially responsible
party pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, for
remediation costs associated with waste disposal sites previously used by us. In general, CERCLA can 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 to natural resources. The remediation costs and our allocated share at some of these CERCLA sites
are unknown. We may also be subject to claims for personal injury or contribution relating to CERCLA sites. We reserve amounts
for such matters when expenditures are probable and reasonably estimable.
We are subject to potential labor disruptions, which could have a significant impact on our business.
Certain of our employees located in Grand Rapids, Michigan and Italy are represented by unions. The collective bargaining
agreement for our Grand Rapids location expires April 26, 2022. However, we expect this agreement to terminate earlier in
connection with our previously announced closure of the Grand Rapids manufacturing operations. We have also had attempts
to unionize our other North American manufacturing locations, which to date have been unsuccessful. 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 we have
good relations with our workforce, we may experience work stoppages or other labor problems in the future, and further
unionization efforts may be successful. 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 prolonged work 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 manufacturing problems. If product defects do arise, we could incur product warranty costs, product liability costs and
costs associated with recalling and repairing defective products. 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 our products, our actual warranty costs may
exceed this reserve, resulting in a need to increase the amounts accrued for warranty costs. We also maintain product liability
and other insurance coverage that we believe to be generally in accordance with industry practices, but our insurance coverage
does not extend to field 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 fully against 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 product quality. As a result
of these factors, product defects could have a material adverse effect on our results of operations.
16
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, including interest on euro denominated debt, in other 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 operations relative to the strength of the U.S. dollar. The principal foreign currencies in
which we conduct business are the Canadian dollar, the Euro, and the Danish Krone. Approximately 17.6% of our revenues in
2019 and 27.0% of our cost of goods sold in 2019 were denominated in currencies other than the U.S. dollar. From time to time,
we review our foreign currency exposure and evaluate whether we should hedge our exposure.
Pension costs or funding requirements could increase at a higher-than-anticipated rate.
We administer a defined benefit pension plan, which holds significant amounts of equity securities. Changes in interest
rates or other plan assumptions or in the market value of plan assets could affect the funded status of our pension plan. This
could cause volatility in our benefits costs which could increase future funding requirements of our pension plan 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. Volatility in the economic
environment and/or a decline in the equity markets could cause the value of investment assets held by our pension plan to decline.
As a result, we could be required to increase the amount of our cash contributions to our pension plan in order to meet the funding
level requirements of the PPA.
If we fail to protect the integrity and security of our information technology systems and confidential information, it could
adversely affect our business.
We rely upon information technology networks and systems to process, transmit and store electronic information, and to
manage numerous aspects of our business and provide information to management. We also receive certain customer-specific
data, including credit card information, in connection with orders placed through our various businesses, including our e-
commerce websites and our retail stores. The secure operation of these information technology systems, and the processing and
maintenance of this information, is critical to our business operations and strategy. These systems are vulnerable to, among other
things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of
telecommunications services, physical and electronic loss of data, security breaches, hackers and employee misuse. We may
face unauthorized attempts by hackers seeking to harm us or, as a result of industrial espionage, to penetrate our network security
and gain access to our systems, steal intellectual or other proprietary data, including design, sales or personally identifiable
information, introduce malicious software or interrupt our internal systems, manufacturing or distribution. Though we attempt
to prevent and detect these incidents, we may not be successful. Any disruption of our information technology systems, or access
to or disclosure of information stored in or transmitted by our systems, could result in legal claims and damages, loss of intellectual
property or other proprietary information (including customer data), disrupt operations, result in competitive disadvantage and
damage our reputation, which could adversely affect our business and results of operations.
In addition, states and the federal government are increasingly enacting laws and regulations to protect consumers against
identity theft. Also, as our business expands globally, we are subject to data privacy and other similar laws in various foreign
jurisdictions. If we are the target of a cybersecurity attack resulting in unauthorized disclosure of our customer data, we may be
required to undertake costly notification procedures. Compliance with these laws will likely increase the costs of doing business.
Further, if we fail to implement appropriate safeguards or to detect and provide prompt notice of unauthorized access as required
by some of these laws, we could be subject to potential claims for damages and other remedies, which could harm our business.
We are in the process of implementing a new enterprise resource planning system, and problems with the design or
implementation of this system could interfere 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 maintain the company's books and records and provide information to the company's management team
important to the operation of the business. The company's ERP has required, and will continue to require, the investment of
significant human and financial resources. We may not be able to successfully implement the ERP without experiencing delays,
increased costs and other difficulties. If we are unable to successfully design and implement the new ERP system as planned,
our financial positions, results of operations and cash flows could be negatively impacted.
17
We 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 a portion of our future growth may come from such transactions. We evaluate potential acquisitions on
an ongoing basis. However, we may not be able to identify suitable acquisition candidates at prices we consider attractive.
Further, our ability to successfully integrate acquired businesses could be negatively impaired 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 we anticipate;
• 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 may not operate profitably or result in improved operating performance. Additionally, we may not
realize anticipated synergies. If our acquisitions perform poorly, our business and financial results could be adversely affected.
Tax matters, including the changes in corporate tax rates, disagreements with taxing authorities and imposing of new taxes
could impact our results of operations and financial condition.
Our effective tax rates, and tax payments, could be affected by numerous factors, including but not limited to entry into
new geographies, changes to our existing business and operations, acquisitions, changes in our stock price, changes in our
deferred tax assets and liabilities and the related valuation, and changes in relevant tax, accounting, and other laws, regulations,
administrative practices, principles, and interpretations.
We need to comply with new, evolving or revised tax laws and regulations. The enactment of or increases in tariffs, or
other changes in application or interpretation of The Tax Cuts and Jobs Act of 2017, or on specific products that we sell or with
which our products compete, may have an adverse effect on our business or on results of operations.
Any attempt by the Administration to withdraw from or materially modify international trade agreements could adversely
affect our business, financial condition and results of operations.
A significant portion of our business activities are conducted in foreign countries, including Canada and Mexico. The
United States, Canada and Mexico have repealed and replaced NAFTA with the United States-Mexico-Canada Agreement
("USMCA") which could adversely affect our business. If the Administration takes action to withdraw from or materially modify
certain other international trade agreements, our business, financial condition and results of operations could be adversely
affected.
The implementation of tariffs and export controls on our products may have a material impact on our business.
Our global business operations and supply chain could be disrupted by any additional tariffs imposed on our products.
In 2019, the U.S. Trade Representative imposed additional duties, ranging from 15% to 25% on a variety of goods imported
from China. As a result of operational changes, the tariffs did not have, nor do we expect the increase in these tariffs to have, a
significant impact on our business, supply chain, operations or financial results. However, if the United States increases the
amount of these tariffs or adds additional items to the list of products subject to tariff, tariffs could materially adversely affect
our business, financial results and operations.
18
Risks Related to Our Common Stock
Our 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 us that our stockholders may consider favorable. For example, our amended and restated certificate of
incorporation authorizes our board of directors to issue up to 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 acquire us. 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 to obtain 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 of directors.
We are also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Under these
provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for
three years without special approval, which could discourage 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 voting stock during the
past three years, subject to certain exceptions as described in Section 203. Upon any change in control, the lenders under our
credit facility would have the right to require us to repay all of our outstanding obligations under the facility.
Our stock price may be volatile, and your investment in our common stock could suffer a decline in value.
There has been significant volatility in the market price and trading volume of equity securities, which may be unrelated
to the financial performance of the companies issuing the securities. These broad market fluctuations may negatively affect the
market price of our common stock. You may not be able to resell your shares at or above the price at which you purchased them
due to fluctuations in the market price of our common stock caused by changes in our operating 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 our products;
• our announcements or our competitors' announcements of new products;
• the public's reaction to our press releases, our other public announcements and our filings with the SEC;
• strategic actions by us or our competitors, such as acquisitions, joint ventures, strategic investments, or restructurings;
• new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
• changes in accounting standards, policies, guidance, interpretations or principles;
• changes in our growth rates or our competitors' growth rates;
• our inability to raise additional capital;
• conditions of our industry as a result of changes in financial markets or general economic conditions, including those
resulting from war, incidents of terrorism and responses to such events;
• trading volumes in Knoll common stock;
• 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 our industry generally.
19
Our corporate documents provide, subject to certain exceptions, that the Court of Chancery of the State of Delaware is the
exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability
to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our Amended and Restated Bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum
for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting
a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation
or our Amended and Restated Bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine.
This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us
or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other
employees. Alternatively, if a court were to find this provision in our Amended and Restated Bylaws to be inapplicable or
unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which
could adversely affect our business and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
20
ITEM 2. PROPERTIES
We operate over 4.2 million square feet of facilities, including manufacturing plants, warehouses and sales offices. Of
these facilities, we own approximately 2.5 million square feet and lease approximately 1.6 million square feet. The location,
square footage, and use of the facilities as of December 31, 2019 are shown below.
Owned Locations
East Greenville, Pennsylvania
Grand Rapids, Michigan (1)
Toronto, Canada
Muskegon, Michigan
Foligno, Italy
Graffignana, Italy
Square
Footage
(in thousands)
Use
735 Corporate Headquarters, Manufacturing,
Warehouses, and Administration
Reportable Segment
Office and Lifestyle
607 Manufacturing, Distribution, and Administration
386 Manufacturing, Distribution, Warehouses, and
Administration
367 Manufacturing and Administration
Office
Office
Office
259 Manufacturing, Distribution, Warehouses, and
Office and Lifestyle
Administration
108 Manufacturing, Distribution, Warehouses, and
Administration
Office
Paris, France
7 Sales Offices
Office and Lifestyle
Leased Locations
Miscellaneous Showrooms
Allentown, Pennsylvania
LeGrange Highlands, Illinois
Muskegon, Michigan
Toronto, Canada
Buffalo, New York
Portland, Oregon
Rossville, Maryland
New Milford, Connecticut
Square
Footage
(in thousands)
Use
Reportable Segment
Office and Lifestyle
Office and Lifestyle
470 Sales Offices
290 Warehouse, Distribution
210 Warehouse, Distribution (Holly Hunt Enterprises) Lifestyle
105 Manufacturing
102 Manufacturing, Warehouses, Distribution and
Office
Office
Administration
89 Manufacturing and Administration (DatesWeiser) Lifestyle
74 Warehouse, Distribution and Administration
Office
(Fully)
64 Warehouse, Distribution (Fully)
55 Manufacturing and Administration (Edelman
Leather)
Office
Lifestyle
Getzville, New York
East Greenville, Pennsylvania
45 Manufacturing and Administration (Spinneybeck) Office and Lifestyle
38 Warehouse, Distribution
Lifestyle
Dallas, Texas
Chicago, Illinois
Copenhagen, Denmark
Clifton, New Jersey
30 Warehouse, Distribution (Holly Hunt Enterprises) Lifestyle
26 Administration (Holly Hunt Enterprises)
17 Administration (Muuto, Inc.)
13 Warehouse, Distribution (Holly Hunt Enterprises) Lifestyle
Lifestyle
Lifestyle
(1) See Note 22, Subsequent Events, of Notes to the Consolidated Financial Statements.
We believe that our plants and other facilities are sufficient for our needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to litigation or other legal proceedings arising in the ordinary course of business. Based
upon information currently known to us, we believe the outcome of such proceedings will not have, individually or in the
aggregate, a material adverse effect on our business, financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Dividend Policy
Our common stock has been listed on the New York Stock Exchange (“NYSE”) since December 14, 2004, the date of
our initial public offering, under the symbol “KNL.” As of December 31, 2019, there were approximately 382 stockholders of
record of our common stock.
Performance Graph
The 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 of a peer group of companies selected
by us for the period commencing on December 31, 2014 and ending on December 31, 2019. Our share price at the beginning
of the measurement period is $21.17 per share. The graph and table assume that $100 was invested on December 31, 2014 in
each of our common stock, the stock of our peer group, and the S&P 500 Index, and that all dividends were reinvested. Our peer
group is made up of six publicly-held companies, Herman Miller, Inc., Steelcase, Inc., HNI Corp, Kimball International Inc.,
Interface Inc., and Movado Group Inc. The stock performance on the graph below does not necessarily indicate future price
performance.
$100 invested on 12/31/14 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Knoll, Inc.
S&P 500
Peer Group
_______________________________________________________________________________
12/14
100.00
100.00
100.00
12/16
215.52
128.93
224.32
12/17
183.01
159.40
232.10
12/18
134.76
171.11
193.60
12/19
212.47
166.81
263.13
12/15
141.44
123.37
170.15
22
* 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 incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934, unless we specifically incorporate the performance graph by reference therein.
Issuer Purchases of Equity Securities
The following is a summary of share repurchase activity during the three months ended December 31, 2019.
On August 17, 2005, our board of directors approved a stock repurchase program (the “Options Proceeds Program”),
whereby they authorized us to purchase shares of our common stock in the open market using the cash proceeds received by us
upon exercise of outstanding options.
On February 2, 2006, our board of directors approved an additional stock repurchase program, pursuant to which we are
authorized to purchase up to $50.0 million of our common stock in the open market, through privately negotiated transactions,
or otherwise. On February 4, 2008, our board of directors expanded this previously authorized $50.0 million stock repurchase
program by an additional $50.0 million.
Period
October 1, 2019 - October 31, 2019
November 1, 2019 - November 30, 2019
December 1, 2019 - December 31, 2019
Total
Total
Number of
Shares
Purchased
—
—
—
—
Average
Price Paid
Per Share
$
$
—
—
Total Number of
Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Dollar Value
of Shares that May Yet
be Purchased Under the
Plans or Programs(1)
$
$
$
—
—
—
—
32,352,413
32,352,413
32,352,413
_______________________________________________________________________________
(1) There is no limit on the number or value of shares that may be purchased by us under the Options Proceeds Program. Under our $50.0
million stock repurchase program, which was expanded by an additional $50.0 million in February 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 repurchase program as of the end of the period indicated. There is no scheduled expiration date for the Option Proceeds
Program or the $100.0 million stock repurchase program, but our Board of Directors may terminate either program in the future.
23
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with “Management's Discussion and
Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related
notes included elsewhere in this Form 10-K. The selected consolidated financial data for the years ended December 31, 2017,
2018 and 2019 and as of December 31, 2018 and 2019 are derived from our audited financial statements included elsewhere in
this Form 10-K. The selected consolidated financial data for the years ended December 31, 2015 and 2016 and as of December 31,
2015, 2016 and 2017 are derived from our audited financial statements not included in this Form 10-K.
Sales
Net earnings
Per Share Data:
Earnings per share:
Basic
Diluted
Cash dividends declared per share:
Working capital
Total assets
Total long-term debt, including current portion
Total liabilities
Total equity
Consolidated Statements of Operations and Comprehensive Income Data
Years Ended December 31,
(dollars in millions, except per share data)
2015
2016
2017
$
$
1,104.4
65.9
$
1,164.3
82.1
$
1,132.9
80.2
2018
1,302.3
73.3
$
2019
1,428.1
67.5
1.38
1.36
0.51
1.71
1.68
0.60
1.66
1.63
0.60
1.51
1.49
0.60
1.38
1.36
0.66
Consolidated Balance Sheet Data:
As of December 31,
2015
2016
2017
2018
2019
$
92.7
$
54.4
$
55.2
$
58.8
$
(in millions)
853.8
219.7
598.3
255.5
858.6
218.4
549.1
309.4
861.0
191.0
502.3
358.7
1,226.9
461.1
840.4
386.5
50.6
1,357.9
446.0
930.3
427.6
24
ITEM 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 financial condition that should be read in conjunction with the accompanying audited consolidated financial
statements.
Forward-looking Statements
This annual report on Form 10-K contains forward-looking statements, principally in the sections entitled “Business,”
“Risk Factors,” “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative
and Qualitative Disclosures About Market Risk.” Statements and financial discussion and analysis contained in this Form 10-
K that are not historical facts are forward-looking statements. These statements discuss goals, intentions and expectations as to
future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our
current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally
will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,”
“possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. This includes, without limitation,
our statements and expectations regarding any current or future recovery in our industry, our publicly announced plans for
increased capital and investment spending to achieve our long-term revenue and profitability growth goals, our integration of
acquired businesses, and our expectations with respect to leverage. Although we believe these forward-looking statements are
reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove
to be inaccurate. Important factors that could cause actual results to differ materially from the forward-looking statements include,
without limitation: the risks described in Item 1A and in Item 7A of this annual report on Form 10-K; changes in the financial
stability of our clients or the overall economic environment, resulting in decreased corporate spending and service sector
employment; changes in relationships with clients; the mix of products sold and of clients purchasing our products; the success
of new technology initiatives; changes in business strategies and decisions; competition from our competitors; our ability to
recruit and retain an experienced management team; changes in raw material prices and availability; restrictions on government
spending resulting in fewer sales to the U.S. government, one of our largest customers; our debt restrictions on spending; our
ability to protect our patents, copyrights and trademarks; our reliance on furniture dealers to produce sales; lawsuits arising from
patents, copyrights and trademark infringements; violations of environmental laws and regulations; potential labor disruptions;
adequacy of our insurance policies; the availability of future capital and the cost of borrowing; the overall strength and stability
of our dealers, suppliers, and customers; access to necessary capital; our ability to successfully integrate acquired businesses;
the success of our design and implementation of a new enterprise resource planning system; and currency rate fluctuations. The
factors identified above are believed to be important factors but not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors
could also have material adverse effects on us. All forward-looking statements included in this Form 10-K are expressly qualified
in their entirety by the foregoing cautionary statements. Except as required under the Federal securities laws and the rules and
regulations of the SEC, we undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result
of new information, future events, or otherwise.
Overview
We design, manufacture, market and sell high-end commercial and residential furniture, accessories, textiles, fine leathers
and designer felt for the workplace and residential markets, as well as modern outdoor furniture. We work with clients to create
inspired modern interiors. Our design-driven businesses share a reputation for high-quality and sophistication offering a
diversified product portfolio that endures throughout evolving trends. Our products are targeted at the middle to upper-end of
the market where we reach customers primarily through a broad network of independent dealers and distribution partners, our
direct sales force, our showrooms, and our online presence.
Business Highlights
During the last decade we have diversified our sources of revenue among our varying operating segments. Over the last
two years, our efforts to diversify have included the acquisition of Fully in August 2019, a Portland based e-commerce based
company servicing the small business and consumer home office market, the acquisition of Muuto in January 2018, a Danish-
based global commercial furniture design and distribution company, and multiple organic product development and design
projects that have enhanced our portfolio and client offerings. We expect to continue to develop our acquired businesses and
expand organically, be acquisitive on an opportunistic basis and continue our efforts to improve the profitability of our Office
segment. We believe we are well positioned to continue to build on these initiatives and benefit from the trend to more social
and hospitality-based workplaces in the coming years.
Our efforts to diversify our sources of revenue among our operating segments has not detracted from our continued focus
on growing and improving the operating performance of our Office segment. The lean initiatives that were executed in 2019
25
have contributed greatly to the improvements in gross margin, and we expect more positive contributions in this area as we
move into 2020. In addition, we just announced a restructuring plan in January 2020 involving a reduction of our fixed cost
footprint that will occur over the next two years and will yield significant savings on an annualized basis as we near the end of
2021. We are looking beyond the traditional office product categories of systems, task seating and storage, to furniture that
supports activity areas and the in-between spaces where people meet. Additionally, we believe that our success in traditional
office products gives us an advantage throughout the workplace. Our Rockwell Unscripted collection, as well as Muuto offerings,
encompass every product category ranging from seating and lounge to architectural walls and storage. These offerings address
the needs of organizations that seek alternatives to the traditional workspace and are substantially additive to our current product
portfolio. The acquisition of Fully in August 2019, provides the Office segment with high-quality, cost effective complement to
our portfolio of office solutions, while also broadening our outreach to small business and consumer markets through an e-
commerce platform. We aim to increase profitability with these product initiatives, operational improvements we have discussed,
and investments in our physical and technological infrastructure.
We have also remained committed to building a more efficient and responsive customer centric service culture and
technology infrastructure across our organization. In 2019, we completed the technology implementation of the order management
functions as part of our overall enterprise resource planning strategy, and deployed front-end, 3-dimensional rendering tools
that our clients, dealers and design partners can use to efficiently visualize and build out spaces, and then translate into an order
instantaneously. These and other investments have made customer-facing touchpoints meaningfully easier to do business with
us. Our capital expenditures are reflective of our commitment to improving efficiency and expanding our product portfolio, as
we have continued, and expect to continue, to invest in the business through technology infrastructure upgrades, continued
investments in our manufacturing facilities focusing on lean initiatives, and showroom presence.
Results of Operations
Comparison of Consolidated Results for the Years Ended December 31, 2019 and December 31, 2018
Net Sales
Gross profit
Selling, general, and administrative expenses
Restructuring charges
Intangible asset impairment charge
Operating profit
Pension settlement charge
Interest expense
Other expense (income), net
Income tax expense
Net earnings
Net earnings attributable to Knoll, Inc. stockholders
Net earnings per common share attributable to Knoll, Inc.
stockholders:
Basic
Diluted
Statistical Data
Gross profit %
Operating profit %
Year Ended December 31,
2019 vs. 2018
2019
2018
$ Change
% Change
(Dollar in millions)
$
1,428.1
$
1,302.3
$
125.8
549.0
411.9
0.8
6.5
129.8
21.0
21.7
(3.8)
23.4
67.5
67.5
481.5
363.7
2.6
—
115.2
5.7
20.9
(9.6)
24.9
73.3
73.3
67.5
48.2
(1.8)
6.5
14.6
15.3
0.8
5.8
(1.5)
(5.8)
(5.8)
9.7 %
14.0 %
13.3 %
(68.3)%
100.0 %
12.6 %
265.8 %
4.0 %
(60.0)%
(5.9)%
(8.0)%
(8.0)%
$
$
1.38
1.36
$
$
1.51
1.49
$
$
(0.13)
(0.13)
(8.6)%
(8.7)%
38.4%
9.1%
37.0%
8.8%
26
Net Sales
Net sales for the year ended December 31, 2019 were $1,428.1 million, an increase of $125.8 million, or 9.7%, from sales
of $1,302.3 million for the year ended December 31, 2018. Net sales for the Office segment were $873.8 million during the year
ended 2019, an increase of $76.7 million, or 9.6% compared to the year ended 2018. The Office segment sales growth was
primarily due to improved performance in height-adjustable tables, newer office systems products, conference room solutions
and four months of Fully sales since acquisition. Net sales for the Lifestyle segment were $554.3 million during the year ended
2019, an increase of 9.7% compared with the year ended 2018. This increase was primarily driven by strong growth in cross-
over sales into commercial workplace settings, particularly at Muuto.
Gross Profit
Gross profit for 2019 was $549.0 million, an increase of $67.5 million, or 14.0%, from gross profit of $481.5 million in
2018. During the year ended 2019, gross margin increased to 38.4% from 37.0% in the year ended 2018. The increase in gross
margin was mainly driven by continuous improvement activities, net price realization and higher volume absorption of fixed
costs, partially offset by commodity and transportation inflation as well as higher tariffs during the year.
Operating Profit
Operating profit for 2019 was $129.8 million, an increase of $14.6 million, or 12.6%, from operating profit of $115.2
million for 2018. Operating profit as a percentage of sales increased from 8.8% in 2018 to 9.1% in 2019.
Operating expenses were $419.2 million for the year ended 2019, or 29.4% of net sales, compared to $366.3 million, or
28.1% of net sales, for the year ended 2018. The increase in operating expenses was related primarily to higher incentive-based
compensation resulting from increased volume, strategic investments in sales force headcount, information technology
infrastructure, and investments in our showrooms, as well as the inclusion of a partial-year of Fully results. Operating expenses
also included $6.5 million of intangible asset impairment.
Pension Settlement Charge
In 2019, the Company incurred $21.0 million of pension settlement charges that primarily resulted from the purchase of
annuities and lump sum payouts in connection with the termination of the Company's pension plan for union employees. In
addition, the Company incurred settlement charges resulting from cash payments of lump-sum elections related to the Company's
pension plan for non-union employees. In 2018, the Company incurred of $5.7 million of pension settlement charges related to
the purchase of annuities for certain pension plan retirees as well as cash payments from lump sum elections.
Interest Expense
Interest expense for 2019 was $21.7 million, an increase of $0.8 million from $20.9 million for 2018. The increase in
interest expense was due primarily to higher weighted-average interest rates during 2019. During 2019 and 2018, the Company's
weighted average interest rates were approximately 3.9% and 3.6%, respectively.
Other Income, net
Other income in 2019 was $3.8 million compared to $9.6 million in 2018. Other income decreased in 2019 primarily due
to foreign exchange losses of $1.5 million in 2019 compared to foreign exchange gains of $2.0 million in 2018, as well as reduced
net periodic benefit income from the Company's pension and other post-employment benefit plans.
Income Tax Expense (Benefit)
The effective tax rate for the year ended December 31, 2019 was 25.8%, compared to 25.4% for 2018. The increase in
our effective tax rate was primarily due to increases in domestic apportionment percentages to certain high-tax state jurisdictions
(CA and NY, primarily) and the change in the mix of pre-tax income between the U.S. and certain foreign jurisdictions in which
we operate. This increase was partially offset by return to provision adjustments related to the results of examinations of certain
of our tax filings from prior years. During 2018, we also recognized a one-time tax benefit of $1.7 million in connection with
the completion of our accounting for the provisional amounts recognized in December 2017 related to The Tax Cuts and Jobs
Act of 2017.
27
Comparison of Consolidated Results for the Years Ended December 31, 2018 and December 31, 2017
Sales
Gross profit
Operating profit
Pension settlement charge
Interest expense
Other income, net
Income tax expense (benefit)
Net earnings
Net earnings attributable to Knoll, Inc. stockholders
Net earnings per common share attributable to Knoll, Inc.
stockholders:
Basic
Diluted
Statistical Data
Gross profit %
Operating profit %
Year Ended December 31,
2018 vs. 2017
2018
2017
$ Change
% Change
(Dollar in millions)
$
1,302.3
$
1,132.9
$
169.4
481.5
115.2
5.7
20.9
(9.6)
24.9
73.3
73.3
414.6
80.5
2.2
7.4
(7.7)
(1.6)
80.2
80.2
66.9
34.7
3.5
13.5
(1.9)
26.5
(6.9)
(6.9)
15.0 %
16.1 %
43.1 %
165.3 %
179.4 %
24.7 %
(1,656.0)%
(8.6)%
(8.6)%
$
$
1.51
1.49
$
$
1.66
1.63
$
$
(0.15)
(0.14)
(9.0)%
(8.6)%
37.0%
8.8%
36.6%
7.1%
See the Knoll, Inc. 2018 annual report on Form 10-K for discussion related to the 2018 versus 2017 comparison of
consolidated results.
Segment Reporting
The Company manages our business through our reportable segments: Office and Lifestyle. All unallocated expenses are
included within Corporate. The Office segment includes a complete range of workplace products that address diverse workplace
planning paradigms in North America and Europe, while the Lifestyle segment includes high quality residential furniture,
ancillary products and affordable luxury furnishings for high performance workplaces, as well as uber-luxury living spaces to
affordable-luxury residential living.
See Item 1 Business contained in this annual report on Form 10-K for further information regarding the business segments.
The comparisons of segment results found below present our segment information with Corporate costs excluded from
operating segment results.
Comparison of Segment Results for the Years Ended December 31, 2019 and December 31, 2018
SALES
Office
Lifestyle
Corporate
Knoll, Inc.
OPERATING PROFIT (1)
Office
Lifestyle
Corporate
Knoll, Inc.
Year Ended December 31,
2019 vs. 2018
2019
2018
$ Change
% Change
(Dollar in millions)
$
$
$
$
$
$
$
873.8
554.3
—
1,428.1
64.2
90.2
(24.6)
$
$
$
797.1
505.2
—
1,302.3
49.5
90.0
(24.3)
129.8
$
115.2
$
76.7
49.1
—
125.8
14.7
0.2
(0.3)
14.6
9.6%
9.7%
—%
9.7%
29.7%
0.2%
12.3%
12.7%
(1) The Company does not allocate interest expense or other (income) expense, net to the reportable segments.
28
Office
Net sales for the Office segment in 2019 were $873.8 million, an increase of $76.7 million, or 9.6%, when compared
with 2018. The increase in the Office segment was due to improved performance in height-adjustable tables, newer office systems
products, conference room solutions and four months of Fully sales since acquisition. Operating profit for the Office segment
in 2019 was $64.2 million, an increase of $14.7 million, or 29.7%, when compared with 2018. The increase in operating profit
for the Office segment was due primarily to increased sales volume and continuous improvement initiatives, partially offset by
commodity and transportation inflation as well as higher tariffs combined with strategic investments in sales force headcount,
information technology infrastructure, and investments in our showrooms during the year.
Lifestyle
Net sales for the Lifestyle segment in 2019 were $554.3 million, an increase of $49.1 million, or 9.7%, when compared
with 2018. This increase was driven by strong growth in cross-over sales into commercial workplace settings, particularly at
Muuto. Operating profit for the Lifestyle segment in 2019 was $90.2 million, an increase of $0.2 million, or 0.2%, when
compared with 2018. The increase in operating profit for the Lifestyle segment was due primarily to increased sales volume
mostly offset by the $6.5 million intangible asset impairment charge, additional investment spending in product launches and
showrooms and strategic investments in sales-force headcount.
Corporate
Corporate costs in 2019 were $24.6 million, an increase of $0.3 million, or 12.3%, when compared with 2018. The increase
was driven by costs incurred in connection with amending and extending the Company's Amended Credit Facility, partially
offset by lower acquisition costs.
Comparison of Segment Results for the Years Ended December 31, 2018 and December 31, 2017
SALES
Office
Lifestyle
Corporate
Knoll, Inc.
OPERATING PROFIT (1)
Office
Lifestyle
Corporate
Knoll, Inc.
Year Ended December 31,
2018 vs. 2017
2018
2017
$ Change
% Change
(Dollar in millions)
$
$
$
$
797.1
$
733.3
$
505.2
—
1,302.3
49.5
90.0
(24.3)
$
$
399.6
—
1,132.9
26.1
78.5
(24.1)
$
$
115.2
$
80.5
$
63.8
105.6
—
169.4
23.4
11.5
(0.2)
34.7
8.7%
26.4%
—%
15.0%
89.7%
14.6%
15.1%
43.1%
(1) The Company does not allocate interest expense or other (income) expense, net to the reportable segments.
See the Knoll, Inc. 2018 annual report on Form 10-K for discussion related to the 2018 versus 2017 comparison of
consolidated result.
29
Foreign and Domestic Operations
Our principal manufacturing operations and markets are in North America, and we also have manufacturing operations
and markets in Europe. See Note 21, Segments, of Notes to the Consolidated Financial Statements contained elsewhere herein
for our sales to clients and net property, plant and equipment summarized by geographic areas. Sales are attributed to the
geographic areas based on the origin of sale.
Liquidity and Capital Resources
The following table highlights certain key cash flows and capital information pertinent to the discussion that follows:
Cash provided by operating activities
Capital expenditures, net
Purchase of businesses, net of cash acquired
Cash used in investing activities
Purchase of common stock for treasury
Proceeds from credit facilities
Repayment of credit facilities
Proceeds from term loan
Repayment of term loans
Payment of dividends
Proceeds from issuance of common stock
Cash (used in) provided by financing activities
2019
2018
2017
(in thousands)
$
138.2
$
108.2
$
(49.9)
(30.9)
(80.7)
(3.3)
417.5
(413.5)
—
(17.1)
(32.8)
—
(50.7)
(40.3)
(308.0)
(348.3)
(4.4)
490.5
(383.0)
350.2
(177.9)
(30.0)
—
239.8
103.7
(40.6)
—
(40.6)
(10.9)
310.0
(338.0)
—
—
(30.2)
0.6
(74.5)
As of the dates presented, we had the following sources of liquidity to support our business (in millions):
Cash
Availability under revolving credit facility
December 31,
2019
2018
$
8.5
$
256.4
1.6
260.3
We have historically funded our business through cash generated from operations, supplemented by debt borrowings.
Available cash is primarily used for our working capital needs, ongoing operations, capital expenditures, the payment of quarterly
dividends, and the repurchase of shares. Our investment in capital expenditures illustrates our commitment to improving our
operating efficiency, innovation and modernization, showroom investment, new product tooling, manufacturing equipment and
technology infrastructure. During 2019, we made annual dividend payments of $0.66 per share, returning $32.8 million of cash
to our shareholders.
Cash provided by operating activities was $138.2 million, $108.2 million, and $103.7 million in 2019, 2018 and 2017,
respectively. For the year ended December 31, 2019, cash provided by operating activities consisted primarily of $67.5 million
of net income and $82.7 million of various non-cash charges, including $39.5 million of depreciation and amortization, $10.8
million of stock-based compensation, $21.0 million of pension settlement charges and $6.5 million intangible asset impairment.
These favorable changes were partially offset by $12.0 million of unfavorable changes in assets and liabilities primarily driven
by increased inventory as a result of ramping up inventory for our current order backlog and lower accrued expenses. For the
year ended December 31, 2018, cash provided by operating activities consisted primarily of $73.3 million of net income and
$61.4 million of various non-cash charges, including $35.3 million of depreciation and amortization, $9.2 million of stock-based
compensation, $5.7 million pension settlement charges and a $4.8 million provision for deferred income taxes, offset in part by
$26.5 million of unfavorable changes in assets and liabilities primarily driven by growth in accounts receivable and inventory
as a result of growth in sales and ramping up inventory for our current order backlog.
Investing activities for the year ended December 31, 2019 included the purchase of Fully for $30.9 million, net of cash
acquired. In addition, we used $49.9 million of cash for capital expenditures. During 2018, we used $308.0 million, net of cash
acquired, for the purchase of Muuto and $40.3 million of cash for capital expenditures. The capital expenditures are reflective
of our commitment to enhance and modernize our sales, manufacturing and information technology infrastructure. Acquisitions
are reflective of our strategy of building our global capabilities as a singular resource for high-design workplaces and homes.
30
During the year ended December 31, 2019, we entered into a first amendment to the Third Amended and Restated Credit
Agreement (the "Credit Agreement Amendment"), dated as of January 23, 2018 (together, as amended, the "Credit Agreement").
Among other things, the Credit Agreement Amendment extends the maturity of the credit facility from January 2023 to August
2024. Net borrowings under the revolving credit facility (the "Revolver") governed by the Credit Agreement in 2019 were
approximately $4.0 million. Payments on the term loan facility were $17.1 million in 2019. Additionally, we used $32.8 million
of cash to fund dividend payments, $3.3 million to repurchase shares used to offset the cost of employee tax withholdings related
to equity award settlements, and $2.0 million to pay fees related to the Credit Agreement Amendment, of which the majority of
the fees were capitalized and will be amortized over the term of the amended credit agreement.
We use our credit facility in the ordinary course of business to fund our working capital needs and investments and, at
times, make significant borrowings and repayments under the facility depending on our cash needs and availability at such time.
Borrowings under the Credit Agreement may be repaid at any time, but no later than at maturity in August 2024. As of
December 31, 2019, we believe that existing cash balances and internally generated cash flows, together with the borrowing
capacity available under our credit facility, will be sufficient to fund working capital needs, capital spending requirements, debt
service requirements and dividend payments for at least the next twelve months. Future debt payments may be paid out of cash
flows from operations, from future refinancing of our debt or from equity issuance.
In January 2018, we amended and extended what was then our existing credit facility, dated as of May 20, 2014, with a
new $750.0 million credit facility scheduled to mature in January 2023 (the "Third Amended and Restated Credit Agreement").
Cash proceeds received during 2018 from the issuance of revolving and term loan debt totaled approximately $841 million, the
majority of which was issued under the Third Amended and Restated Credit Agreement. These proceeds were used, among other
things, to finance a portion of the Muuto acquisition and repay the outstanding term loan balances of $165.0 million from the
predecessor credit facility. Additionally, we used $30.0 million of cash to fund dividend payments, $4.4 million to repurchase
shares used to offset the cost of employee tax withholdings related to equity award settlements, $7.9 million to fund a contribution
to the defined benefit union plan, and $5.7 million to pay fees related to the issuance of debt under the Third Amended and
Restated Credit Agreement.
The Credit Agreement requires that we comply with two financial covenants; (i) consolidated leverage ratio, defined as
the ratio of total indebtedness to consolidated EBITDA (as defined in the Credit Agreement) and (ii) consolidated interest
coverage ratio, defined as the ratio of our consolidated EBITDA (as defined in the Credit Agreement) to our consolidated interest
expense. Our consolidated leverage ratio cannot exceed 4.00 to 1, which steps down over time to 3.75 to 1 starting with the
quarter ending June 30, 2020, and to 3.50 to 1 starting with the quarter ending June 30, 2021, and which may be increased in
certain circumstances. Our consolidated interest coverage ratio must be a minimum of 3.0 to 1.
Because of the financial covenant mentioned above, our ability to borrow the entire capacity under our credit facility
could be reduced if by borrowing, our leverage ratio would exceed the covenant. We are also required to comply with various
other affirmative and negative covenants including, without limitation, covenants that prevent, restrict or limit the following:
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 sell stock or assets. At December 31, 2019, we were in compliance
with all covenants applicable to our credit facility.
31
Contractual Obligations
The following table summarizes our contractual cash obligations as of December 31, 2019 (in millions):
Long-term debt (1)
Operating lease liabilities
Operating lease obligations (2)
Purchase commitments
Pension and other post-employment benefit plan
obligations (3)
Other liabilities (4)
Total *
Payments Due by Period
Less than
1 year
1 to 3
years
3 to 5
years
More than
5 years
Total
$
$
23.9
26.0
0.6
29.1
0.2
—
61.0
43.5
9.1
5.5
—
—
$
423.5
$
— $
31.8
12.0
—
—
—
27.8
41.5
—
—
—
508.4
129.1
63.2
34.6
0.2
—
$
79.8
$
119.1
$
467.3
$
69.3
$
735.5
(1) Contractual obligations for long-term debt and short-term borrowings include principal and interest payments. Interest payments have
been computed based on an estimated variable interest as of December 31, 2019. The estimated variable interest rate is based on the
company's expected consolidated leverage ratio and the forecasted LIBOR rate for each period presented. The computation of interest,
as included in the above table, is based on our Amended Credit Facility.
(2) As of December 31, 2019, the Company has entered into operating leases for real property that commence in 2020 and 2021. The total
contractual lease payments of $63.2 million associated with these leases, which have not been recognized on the consolidated balance
sheet, have been included above (see Note 9 for further details regarding our leases).
(3) Due to the uncertainty of future cash outflows, contributions to the pension and other post-employment benefit plans subsequent to 2020
have been excluded from the table above.
(4) The maximum earn-out consideration related to the Fully acquisition is $15.0 million. The contingent earn-out consideration is based
on certain revenue and earnings before interest, taxes, depreciation and amortization targets over the next four years. Due to the contingent
nature of the payments, we have not included any earn-out payments in the table above. If these payments were to occur in full at the
earliest time possible, $12.5 million would be paid in 1 to 3 three years, and the remaining $2.5 million would be paid in 3 to 5 years.
* Due to the uncertainty of future cash outflows, uncertain tax positions have been excluded from the table above.
Environmental Matters
Our past and present business operations and the past and present ownership and operation of manufacturing plants on
real property are subject to extensive and changing federal, state, local and foreign environmental laws and regulations, including
those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of
properties affected by hazardous substances. As a result, we are involved from time-to-time in administrative and judicial
proceedings and inquiries relating to environmental matters and could become subject to fines or penalties related thereto. We
cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations
will be administered or interpreted or what environmental conditions may be found to exist. Compliance with more stringent
laws or regulations, or stricter interpretation of existing laws, may require additional expenditures by us, some of which may
be material. We have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (“CERCLA”) for remediation costs associated with waste disposal sites that we
previously used. The remediation costs and our allocated share at some of these CERCLA sites are unknown. We may also be
subject to claims for personal injury or contribution relating to CERCLA sites. We reserve amounts for such matters when
expenditures are probable and reasonably estimable.
Off-Balance Sheet Arrangements
We do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading
activities involving non-exchange-traded contracts. As a result, we are not materially exposed to any financing, liquidity, market
or credit risk that could arise if we had engaged in these relationships.
32
Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in
the U.S. (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts in the consolidated financial
statements and accompanying notes. Actual results may differ from such estimates. We believe that the critical accounting
policies that follow are those policies that require the most judgment, estimation and assumption in preparing our consolidated
financial statements.
Goodwill and Intangible Assets
We record the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired as
goodwill. Goodwill and intangible assets with indefinite lives are tested for impairment at least annually, as of October 1, and
whenever events or circumstances occur indicating that a possible impairment may have been incurred. Intangible assets with
finite lives are amortized over their useful lives.
We assess whether goodwill impairment exists using both qualitative and quantitative assessments. The qualitative
assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value
of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment we determine it
is not more likely than not that the fair value of a reporting unit is less than its carrying amount or if we elect not to perform a
qualitative assessment, a quantitative assessment is performed to determine whether a goodwill impairment exists at the reporting
unit.
We compare the fair value of each reporting unit to its carrying value and if the fair value of the reporting unit exceeds
its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than
the carrying value, the difference is recorded as an impairment loss.
We estimate the fair value of its reporting units using a combination of the fair values derived from both the income
approach and the market approach. Under the income approach, we calculate the fair value of a reporting unit based on the
present value of estimated future cash flows. Cash flow projections are based on our estimates of revenue growth rates and
operating margins, taking into consideration industry and market conditions. The discount rate used to determine the present
value of future cash flows is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-
specific characteristics and the uncertainty related to the business's ability to execute on the projected cash flows. The market
approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly-traded
companies with similar operating and investment characteristics as the reporting unit.
We assess whether indefinite-lived intangible assets impairment exists using both qualitative and quantitative assessments.
The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not
that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, based on this qualitative assessment,
we determine it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount
or if we elect not to perform a qualitative assessment, a quantitative assessment is performed to determine whether an indefinite-
lived intangible asset impairment exists. We test the indefinite-lived intangible assets for impairment by comparing the carrying
value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any
excess of the carrying value over the amount of fair value is recognized as an impairment. Any such impairment would be
recognized in full in the reporting period in which it has been identified.
Based on the results of the annual impairment test as of October 1, 2019, we determined there were no indications of
impairment for goodwill. We did identify an impairment of our Edelman tradename and recorded a $6.5 million impairment
charge (see Notes 7 and 11 to the Consolidated Financial Statements included elsewhere herein). We determined there were no
indications of impairment in any of our other indefinite-lived intangible assets.
Pension and Other Post-Employment Benefits
We sponsor two defined benefit pension plans, one of which has terminated and fully paid out benefits due to all participants,
and the other is an ongoing plan. We also sponsor four other post-employment benefit plans (“OPEB”). Several statistical and
other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans. Key
factors include assumptions about the expected rates of return on plan assets, discount rates, mortality rates and health care cost
trend rates. We consider market and regulatory conditions, including changes in investment returns and interest rates, in making
these assumptions.
33
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's asset mix. We use historic plan asset returns combined with current market conditions to estimate
the rate of return. The expected rate of return on plan assets is a long-term assumption and generally does not change annually.
The discount rate reflects the market rate for high-quality fixed income debt instruments as of our annual measurement date and
is subject to change each year. Holding all other assumptions constant, a one-percentage-point increase or decrease in the assumed
rate of return on plan assets would decrease or increase 2019 net periodic pension expense by approximately $1.9 million.
Likewise, a one-percentage-point increase or decrease in the discount rate would increase or decrease 2019 net periodic pension
expense by approximately $0.4 million or $0.1 million, respectively.
Unrecognized actuarial gains and losses are recognized over the expected remaining lifetime of the plan participants.
Unrecognized actuarial gains and losses arise from several factors, including experience and assumption changes with respect
to the obligations and from the difference between expected returns and actual returns on plan assets. These unrecognized gains
and losses are systematically recognized as a change in future net periodic pension expense in accordance with the appropriate
accounting guidance relating to defined benefit pension and OPEB plans.
We utilize a full yield curve approach in the estimation of this component by applying the specific spot rates along the
yield curve used in the determination of the benefit obligation to the relevant projected cash flows.
Key assumptions that we use in determining the amount of the obligation and expense recorded for OPEB, under the
appropriate accounting guidance, include the assumed discount rate and the assumed rate of increases in future health care costs.
In estimating the health care cost trend rate, we consider actual health care cost experience, future benefit structures, industry
trends and advice from our actuaries. We assume that the relative increase in health care costs will generally trend downward
over the next several years, reflecting assumed increases in efficiency and cost-containment initiatives in the health care system.
For purposes of measuring the benefit obligation associated with the Company's OPEB plans as of December 31, 2019, as well
as the assumed rate for 2020, a 6.30% annual rate of increase in the per capita cost of covered health care benefits was assumed
and an 8.40% 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 4.50% for 2027 and thereafter for both the medical plan and prescription drug plan
and thereafter for the benefit obligation. Increasing the assumed health care cost trend by one-percentage-point in each year
would increase the benefit obligation as of December 31, 2019 by a minimal amount and increase the aggregate of the service
and interest cost components of net periodic benefit cost for 2019 by a minimal amount. Decreasing the assumed health care
cost trend rate by one percentage point in each year would decrease the benefit obligation as of December 31, 2019 by a minimal
amount and decrease the aggregate of the service and interest cost components of net periodic benefit cost for 2019 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 between the fair value of plan assets and the projected benefit obligation) of our defined benefit pension and
OPEB plans. To record the unfunded status of our plans, we recorded an additional liability and an asset 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 changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans
of participants. While we believe that the assumptions used are appropriate, differences in actual experience or changes in
assumptions may materially affect our financial position or results of operations.
34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the normal course of business, we are routinely subjected to market risk associated with interest rate movements
and foreign currency exchange rate movements. Interest rate risk arises from our debt obligations. Foreign currency exchange
rate risk arises from our non-U.S. operations and purchases of inventory from foreign suppliers.
We also have risk in our exposure to certain materials and transportation costs. Steel, leather, wood products and plastics
are all used in our products. For the year ended December 31, 2019, we estimated that materials inflation was approximately
$5.0 million and transportation inflation was approximately $2.1 million. During 2018, we estimated that materials and
transportation inflation were approximately $6.9 million and $7.9 million, respectively. We continue to work to offset price
increases in raw materials and transportation through our global sourcing initiatives, cost improvements and price increases to
our products.
Interest Rate Risk
We have variable rate debt obligations that are denominated in U.S. dollars. A change in interest rates will impact the
interest costs incurred and cash paid on the variable rate debt.
At December 31, 2019, we had $450.3 million in principal of variable rate debt. We have entered into an interest rate
swap agreement which fixes the interest rate for an initial notional amount of $300 million of our variable rate debt which
decreases over time by $50 million increments, matures in January 2023 and effectively fixes our interest rate at 2.63%. Our
remaining variable rate debt of $150.3 million is subject to changes in underlying interest rates, and, accordingly, our interest
payments will fluctuate. During 2019, a 1% change in interest rates would result in a change in interest expense of
approximately $1.5 million per year. As the notional amount of the swap decreases, each $50 million decrease in the notional
amount would be exposed to interest rate fluctuations, and a one percent change in interest rates would change interest
expense by an additional $0.5 million.
Foreign Currency Exchange Rate Risk
We manufacture our products in the United States, Canada and Italy, and sell our products primarily in those markets as
well as in other European countries. Our foreign sales and certain expenses are transacted in foreign currencies. Our production
costs, profit margins and competitive position are affected by the strength of the currencies in countries where we manufacture
or purchase goods relative to the strength of the currencies in countries where our products are sold. Additionally, as our reporting
currency is the U.S. dollar, our financial position is affected by the strength of the currencies in countries where we have operations
relative to the strength of the U.S. dollar. The principal foreign currencies in which we conduct business are the Canadian dollar,
Danish krone and the Euro. Approximately 17.6% and 18.1% of our revenues in 2019 and 2018, respectively, and 27.0% and
28.5% of our cost of goods sold in 2019 and 2018, respectively, were denominated in currencies other than the U.S. dollar.
Assuming a hypothetical adverse (weakening of the U.S. dollar) and favorable (strengthening of the U.S. dollar) change of 10%
on the average foreign currency exchange rate for 2019, earnings before income taxes would have decreased or increased
approximately $4.1 million. Foreign currency exchange rate fluctuations resulted in $1.5 million of translation losses and $2.0
million of translation gains for 2019 and 2018, respectively.
From time to time, we enter into foreign currency hedges to manage our exposure to foreign exchange rates. The terms
of these contracts are typically less than a year. Changes in the fair value of such contracts are reported in earnings in the period
the value of the contract changes. The net gain or loss upon settlement and the change in fair value of outstanding contracts is
recorded as a component of other expense (income).
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Knoll, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Knoll, Inc. (the Company) as of December 31, 2019
and 2018, the related consolidated statements of operations and comprehensive income, equity and cash flows for each of the
three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 21, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures
that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Description
of the Matter
Defined Benefit Pension Obligation
At December 31, 2019, the Company’s projected benefit obligation related to its defined benefit plan was
$203.7 million and exceeded the fair value of pension plan assets of $181.7 million, resulting in an unfunded
defined benefit pension obligation of $22.0 million. As explained in Note 2 to the consolidated financial
statements, the measurement of the Company’s projected benefit obligation is dependent, in part, on the
selection of certain actuarial assumptions.
Auditing the projected benefit obligation was complex and required the involvement of actuarial specialists
due to the highly judgmental nature of the assumptions (e.g., discount rates and mortality rates) used in the
Company’s measurement process. These assumptions had a significant effect on the projected benefit
obligation.
36
How We
Addressed
the Matter in
Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s valuation of the projected benefit obligation. For example, we tested the Company's controls
over management’s review of the significant assumptions utilized in the valuation, including the discount
rates and mortality rates.
To test the projected benefit obligation, we performed audit procedures that included, among others,
evaluating the methodology used, the significant actuarial assumptions described above, and the underlying
data used by the Company. We compared the actuarial assumptions used by management to historical trends
and evaluated the change in the projected benefit obligation from the prior year due to the change in interest
cost, actuarial gains and losses, benefit payments, plan settlements and other activities. In addition, we
involved our actuarial specialists to assist in evaluating management’s methodology for selecting the
appropriate discount rates that reflect the maturity and duration of the expected benefit payments and applying
those discount rates to the benefit payments used to measure the projected benefit obligation. As part of this
assessment, we compared the projected benefit obligation cash flows to those in the prior year and compared
the current-year benefits paid to the prior-year projected cash flows. To evaluate the mortality rates, we
assessed whether the information is consistent with publicly available information, and whether any
adjustments for entity-specific factors were applied. We also tested the completeness and accuracy of the
underlying data, including the participant data used in the actuarial calculations.
Valuation of Goodwill and Other Indefinite-Lived Intangible Assets
Description
of the Matter
At December 31, 2019, the Company’s goodwill and other indefinite-lived intangible assets were $332.1
million and $277.6 million, respectively. As discussed in Note 2 to the consolidated financial statements,
goodwill and other indefinite-lived intangible assets are either qualitatively tested and, when considered
necessary, quantitatively tested, for impairment at least annually. The Company’s goodwill is tested for
impairment at the reporting unit level.
Auditing management’s annual quantitative goodwill and other indefinite-lived intangible assets impairment
tests was complex and involved a high degree of subjectivity due to the significant estimation required in
determining the fair value of the reporting units and the other indefinite-lived intangible assets. In particular,
the fair value estimates were sensitive to significant assumptions such as discount rates, revenue growth
rates, profit margins, royalty rates, and terminal growth rates, which are forward-looking and could be affected
by future economic and market conditions.
How We
Addressed
the Matter in
Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s quantitative goodwill and other indefinite-lived intangible assets annual impairment tests.
For example, we tested controls over management’s review of the valuation models, the significant
assumptions described above, and the completeness and accuracy of the data used in the valuations.
To test the estimated fair value of the Company’s reporting units and other indefinite-lived intangible assets,
we performed audit procedures that included, among others, assessing fair value methodologies and testing
the significant assumptions discussed above and the completeness and accuracy of the underlying data used
by the Company in its analyses. For example, we compared the significant assumptions used by management
to current industry, market and economic trends, to historical results of the Company's business and other
guideline companies within the same industry and to other relevant factors. We assessed the historical
accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to
evaluate the changes in the fair value of the reporting units and other indefinite-lived intangible assets that
would result from changes in the assumptions. We also involved internal valuation specialists to assist in
our evaluation of the significant assumptions and methodologies used by the Company.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1996.
Philadelphia, Pennsylvania
February 21, 2020
37
KNOLL, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Customer receivables, net of allowance for doubtful accounts of $4.0 and $3.7,
respectively
Inventories
Prepaid expenses
Other current assets
Total current assets
Property, plant, and equipment, net
Goodwill
Intangible assets, net
Right-of-use lease assets
Other noncurrent assets
Total Assets
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt
Accounts payable
Current portion of lease liability
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Lease liability
Pension liability
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 14)
Equity: (shares in thousands)
Common stock, $0.01 par value; 200,000 shares authorized; 66,296 shares and 65,779 shares
issued, respectively, and 49,775 and 49,431 shares outstanding, respectively, net, at all periods,
of treasury shares and inclusive of non-voting restricted shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Knoll, Inc. stockholders' equity
Noncontrolling interests
Total equity
Total Liabilities and Equity
December 31,
2019
December 31,
2018
$
8.5
$
1.6
107.4
195.9
17.2
11.6
340.6
239.0
332.1
348.2
120.2
170.5
25.6
13.7
331.6
215.0
320.8
353.9
94.4
3.6
1,357.9
$
—
5.6
1,226.9
$
17.1
131.9
20.7
120.3
290.0
428.9
87.5
87.0
22.0
14.9
930.3
0.5
66.8
429.7
(69.4)
427.6
—
427.6
17.2
126.7
—
128.9
272.8
443.9
86.5
—
13.9
23.3
840.4
0.5
58.8
395.4
(68.4)
386.3
0.2
386.5
$
1,357.9
$
1,226.9
See accompanying notes to the consolidated financial statements.
38
KNOLL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions, except per share data)
Sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Restructuring charges
Write-off of property, plant, and equipment
Intangible asset impairment charge
Operating profit
Pension settlement charges
Interest expense
Other income, net
Income before income tax expense (benefit)
Income tax expense (benefit)
Net earnings
Net earnings per share:
Basic
Diluted
Weighted-average common shares outstanding: (in thousands)
Basic
Diluted
Years ended December 31,
2019
2018
2017
$
1,428.1
$
1,302.3
$
1,132.9
879.1
549.0
411.9
0.8
—
6.5
129.8
21.0
21.7
(3.8)
90.9
23.4
67.5
1.38
1.36
48,846
49,457
$
$
$
820.8
481.5
363.7
2.6
—
—
115.2
5.7
20.9
(9.6)
98.2
24.9
73.3
1.51
1.49
48,657
49,218
$
$
$
718.3
414.6
315.6
2.2
16.3
—
80.5
2.2
7.4
(7.7)
78.6
(1.6)
80.2
1.66
1.63
48,423
49,160
$
$
$
Net earnings
Other comprehensive income (loss), net of tax:
Unrealized loss on cash flow hedge
Pension and other post-employment liability adjustments, net of tax
Foreign currency translation adjustments
Foreign currency translation adjustments on long term intercompany notes
Total other comprehensive loss, net
Comprehensive income
$
67.5
$
73.3
$
80.2
(3.6)
4.3
3.2
(4.9)
(1.0)
66.5
$
(1.3)
2.6
(13.1)
(8.1)
(19.9)
53.4
$
—
(5.3)
4.9
—
(0.4)
79.8
$
See accompanying notes to the consolidated financial statements.
39
KNOLL, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(dollars in thousands, except per share data)
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Total
Knoll, Inc.
Stockholders'
Equity
Noncontrolling
Interests
Balance at December 31, 2016
Net earnings
Other comprehensive loss
Exercise of stock options
Stock-based compensation
Cash dividends ($0.60 per share)
Purchase of common stock for
treasury
Balance at December 31, 2017
Net earnings
Adoption of ASU 2018-02
Other comprehensive loss
Stock-based compensation
Cash dividends ($0.60 per share)
Purchase of common stock for
treasury
Balance at December 31, 2018
Net earnings
Other comprehensive loss
Stock-based compensation
Cash dividends ($0.66 per share)
Purchase of common stock for
treasury
Other
Balance at December 31, 2019
$
$
$
$
0.5
—
—
—
—
—
—
0.5
—
—
—
—
—
—
0.5
—
—
—
—
—
—
0.5
$
$
$
$
Retained
Earnings
297.0
$
80.2
—
—
—
(29.9)
55.1
—
—
0.5
9.8
—
(10.9)
54.5
—
$
—
8.7
—
(4.4)
58.8
—
—
10.8
—
(3.3)
0.5
66.8
$
$
—
347.3
73.3
4.7
—
—
(29.9)
—
395.4
67.5
—
—
(33.2)
—
—
429.7
$
$
$
$
(43.4) $
—
(0.4)
—
—
—
—
(43.8) $
—
(4.7)
(19.9)
—
—
—
(68.4) $
—
(1.0)
—
—
—
—
(69.4) $
309.2
80.2
(0.4)
0.5
9.8
(29.9)
(10.9)
358.5
73.3
—
(19.9)
8.7
(29.9)
(4.4)
386.3
67.5
(1.0)
10.8
(33.2)
(3.3)
0.5
427.6
$
$
$
$
Total
Equity
$ 309.4
80.2
(0.4)
0.5
9.8
(29.9)
(10.9)
$ 358.7
73.3
—
(19.9)
8.7
(29.9)
(4.4)
$ 386.5
67.5
(1.0)
10.8
(33.2)
0.2
—
—
—
—
—
—
0.2
—
—
—
—
—
0.2
—
—
—
—
(0.2)
(3.3)
0.3
— $ 427.6
See accompanying notes to the consolidated financial statements.
40
KNOLL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings
Adjustments to reconcile net earnings to cash provided by operating activities:
Years Ended December 31,
2019
2018
2017
$
67.5
$
73.3
$
80.2
Depreciation
Amortization expense (including debt issuance costs)
Deferred income tax (benefit) expense
Loss on extinguishment of debt
Pension settlement charges
Inventory obsolescence
Unrealized foreign currency losses
Stock-based compensation
Intangible asset impairment charge
Non-cash write-off of property, plant and equipment
Other non-cash items
Changes in assets and liabilities, net of effects of acquisitions:
Customer receivables
Inventories
Prepaid and other current assets
Accounts payable
Other current liabilities
Other noncurrent assets and liabilities
Cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Purchase of businesses, net of cash acquired
Proceeds from sales of assets
Cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility
Repayment of revolving credit facility
Proceeds from term loans
Repayment of term loans
Capitalized debt issuance costs
Payment of fees related to debt extinguishment
Payment of dividends
Proceeds from the issuance of common stock
Purchase of common stock for treasury
Contingent purchase price payment
Cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized
Cash paid for income taxes, net of refunds received
29.6
9.9
(1.3)
0.4
21.0
2.0
2.0
10.8
6.5
—
1.8
13.0
(20.9)
6.2
(1.4)
(8.9)
—
138.2
(49.9)
(30.9)
0.1
(80.7)
417.5
(413.5)
—
(17.1)
(1.5)
—
(32.8)
—
(3.3)
—
(50.7)
0.1
6.9
1.6
8.5
20.3
12.5
$
$
$
25.5
9.8
4.8
1.4
5.7
1.7
0.5
9.2
—
—
2.8
(25.0)
(16.2)
(3.5)
12.5
13.6
(7.9)
108.2
(40.3)
(308.0)
—
(348.3)
490.5
(383.0)
350.2
(177.9)
(4.6)
(1.0)
(30.0)
—
(4.4)
—
239.8
(0.3)
(0.6)
2.2
1.6
18.3
9.6
$
$
$
22.7
3.9
(19.6)
—
2.2
1.9
1.3
9.7
—
16.3
1.8
(5.5)
(4.0)
(3.4)
12.1
(15.9)
—
103.7
(40.6)
—
—
(40.6)
310.0
(338.0)
—
—
—
—
(30.2)
0.6
(10.9)
(6.0)
(74.5)
3.7
(7.7)
9.9
2.2
7.6
22.4
$
$
$
See accompanying notes to the consolidated financial statements.
41
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
Knoll, Inc. and its subsidiaries (the “Company” or “Knoll”) are engaged in the design, manufacture, marketing and sale
of high-end furniture products and accessories, for both workplace and residential markets, as well as modern outdoor furniture.
The Company is also engaged in the sale of fine leather, textiles, and felt, focusing on the middle to high-end segments of the
market. The Company primarily operates in the United States (“U.S.”), Canada and Europe, and sells its products through a
broad network of independent dealers and distribution partners, a direct sales force, its showrooms, and its e-commerce platforms.
Basis of Presentation
The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB
establishes accounting principles generally accepted in the United States (“GAAP”). Rules and interpretive releases of the
Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP
for SEC registrants, which the Company is required to follow. References to GAAP issued by the FASB in these footnotes are
to the FASB Accounting Standards Codification (“ASC”), which serves as a single source of authoritative non-SEC accounting
and reporting standards to be applied by non-governmental entities. Beginning in 2019, the Company began reporting all dollar
amounts in millions. In certain circumstances, this change in rounding resulted in prior year disclosures being removed. Certain
prior period amounts in the consolidated financial statements, as well as in the Notes thereto, have been reclassified to conform
to the current year presentation.
During the fourth quarter of 2019, the Company aligned the consolidation of certain of the Company’s foreign subsidiaries
in the consolidated financial statements which previously included results on a one-month reporting lag. The Company believes
that this change in accounting principle is preferable, as all of the Company's subsidiaries are now reported based on the same
period-end, which improves overall financial reporting to investors by providing the most current information available. In
accordance with applicable accounting literature, the elimination of a one month reporting lag of a subsidiary is treated as a
change in accounting principle and requires retrospective application. The Company has determined that the effect of this change
is not material to the financial statements for all periods presented and therefore, the Company has not presented retrospective
application of this change. The net impact of the elimination of the reporting lag of $0.6 million of loss for the month of December
2019 has been included within "Other income, net" on the Consolidated Statements of Operations and Comprehensive Income
in the fourth quarter of 2019.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned
subsidiaries and any partially-owned subsidiaries that the Company has the ability to control. Significant intercompany
transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results
may differ from such estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly-liquid investments with maturities of three months or less at
the date of purchase.
Revenue Recognition
Revenue for the year ended December 31, 2017 was recognized under ASC 605, Revenue Recognition, when (i) persuasive
evidence of an arrangement existed, (ii) delivery occurred or services were rendered, (iii) the price was fixed or determinable
and (iv) collectability was reasonably assured.
ASC 606, Revenue from Contracts with Customers, was adopted for the fiscal year beginning January 1, 2018. Per the
new standard, the Company determines revenue recognition by applying the following steps: (i) identify the contract with a
customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction
price to the performance obligations and (v) recognize revenue as the performance obligations are satisfied.
42
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The Company recognizes revenue when performance obligations under the terms of a contract with a customer are
satisfied. The Company's primary performance obligation to its customers is the delivery of products. Control of the products
sold typically transfers to the customer upon shipment or delivery depending on the shipping terms of the underlying contract.
Each customer contract sets forth the transaction price for the products and services purchased under that arrangement.
Some customer arrangements include variable consideration, such as volume rebates, some of which depend upon the customers
meeting specified performance criteria, such as a purchasing level over a period of time. The Company uses judgment to estimate
the most likely amount of variable consideration at each reporting date. When estimating variable consideration, the Company
applies judgment when considering the probability of whether a reversal of revenue could occur and only recognize revenue
subject to this constraint.
The Company uses historical customer return data as a basis of estimation for customer returns and records the reduction
of sales at the time revenue is recognized. Customer returns have historically not been significant. The Company may receive
deposits from customers before revenue is recognized, thus resulting in the recognition of a contract liability (customer deposits).
Amounts billed to customers for shipping and handling of products are included in sales and the related costs incurred
by the Company for shipping and handling are included in cost of sales. If shipping activities are performed after a customer
obtains control of a product, the Company applies a policy election to account for shipping and handling as an activity to fulfill
the promise to transfer the product to the customer.
The Company applies an accounting policy election to exclude from the measurement of the transaction price all taxes
assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction
and collected by the Company from a customer.
The Company has elected the practical expedient permitted in ASC 340-40-25-4, which permits an entity to recognize
incremental costs to obtain a contract as an expense when incurred if the amortization period will be less than one year.
The Company has elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to not adjust
the promised amount of consideration for the effects of a significant financing component if a contract has a duration of one
year or less. As the Company’s contracts are typically less than one year in length, consideration will not be adjusted. The
Company’s contracts generally include a standard payment term of 30 days, consequently there is no significant financing
component within its contracts.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for losses associated with accounts receivable balances that
are estimated to be uncollectible. The allowance is determined through an analysis of the aging of accounts receivable and
assessments of risk that are based on historical trends. The Company evaluates the past-due status of its customer receivables
based on the contractual terms of sale. If the financial condition of the Company's customers were to deteriorate, additional
allowances may be required. Accounts receivable and corresponding allowance for doubtful accounts are written off when the
Company determines that the likelihood of recovery is remote and the Company no longer intends to expend resources to attempt
collection.
The following table summarizes the changes in the allowance for doubtful accounts for the periods presented (in millions):
Description
Allowance for doubtful accounts:
Year ended December 31, 2017
$
Year ended December 31, 2018
Year ended December 31, 2019
Inventories
Balance at
Beginning
of Year
Additions
Charged to
Expenses
(Income)
Charge-Offs
Other
Balance at
End of Year
8.0
4.0
3.7
$
(2.2) $
(1.8) $
— $
0.1
0.9
(0.4)
(0.7)
—
0.1
4.0
3.7
4.0
Inventories are stated at the lower of cost or net realizable value and include material, labor and overhead. Cost is
determined using the first-in, first-out method. The Company adjusts for inventory that it believes is impaired or obsolete.
Obsolescence occurs as the result of several factors, including the discontinuance of a product line, changes in product material
specifications, replacement products in the marketplace and other competitive influences.
43
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. The useful lives are as follows:
Category
Useful Life (in years)
Leasehold improvements (1)
Buildings
Building improvements
Office equipment
Software
Machinery and equipment
Various
35-60
5-25
3-10
3-10
4-12
(1) Leasehold improvements are amortized over the shorter of the economic life of the asset or the remaining lease term.
Maintenance and repairs are expensed as incurred. Interest on capital projects is capitalized during the construction period.
The Company reviews the carrying values of its property and equipment for possible impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted estimated
cash flows expected to result from its use and eventual disposition. The factors considered by the Company in performing this
assessment include current operating results, business trends affecting the use of certain assets and other economic factors. In
assessing the recoverability of the carrying value of property and equipment, the Company must make assumptions regarding
future cash flows and other factors. If these estimates or the related assumptions change in the future, the Company may be
required to record an impairment loss for these assets.
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite lives are tested for impairment at least annually, as of October 1, and more
frequently whenever events or circumstances occur indicating that a possible impairment may have been incurred. Intangible
assets with finite lives are amortized over their estimated useful lives.
The Company evaluates goodwill for impairment by way of qualitative and quantitative assessments. A qualitative
assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value
of a reporting unit is less than its carrying amount, including goodwill. If, based on this qualitative assessment, the Company
determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if the Company
elects not to perform a qualitative assessment, a quantitative assessment is performed by determining the fair value of the
Company's reporting units.
The Company estimates the fair value of its reporting units using a combination of the fair values derived from both the
income approach and the market approach. Under the income approach, the Company calculates the fair value of a reporting
unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of
revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate is based
on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the
uncertainty related to the businesses ability to execute on the projected cash flows. The market approach estimates fair value
based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating
and investment characteristics as the reporting unit.
If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required.
If the fair value of the reporting unit is less than the carrying value, an impairment charge is recognized for the amount by which
the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of
goodwill allocated to that reporting unit.
44
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
When performing a qualitative assessment, the Company assesses numerous factors to determine whether it is more likely
than not that the fair value of the reporting units are less than their respective carrying values. The Company considered factors
that would impact the reporting unit fair values as estimated by the market and income approaches used in the last quantitative
assessment. The Company reviewed current projections of cash flows and compared these current projections to the projections
included in the most recent quantitative assessment and considered the fact that no new significant competitors entered the
marketplace in the industry and that consumer demand for the industry’s products remains relatively constant, if not growing
slightly. Also, economic factors during the year did not significantly affect the discount rates used for the valuation of these
reporting units. The Company concluded that events occurring since the last quantitative assessment did not have a significant
impact on the fair value of each of these reporting units. Therefore, the Company determined that it was not necessary to perform
a quantitative goodwill impairment test for certain of these reporting units as the qualitative assessment indicated that it is not
more than likely than not that the fair value of a reporting unit is less than its carrying amount.
The Company assesses whether impairment of indefinite-lived intangible assets, namely tradenames, exists using both
the qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances
exist that indicate it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying
amount. If based on this qualitative assessment, the Company determines it is more likely than not that the fair value of an
indefinite-lived intangible asset is less than its carrying amount or if the Company elects not to perform a qualitative assessment,
a quantitative assessment is performed to determine whether an indefinite-lived intangible asset impairment exists. The Company
tests the indefinite-lived intangible assets for impairment by comparing the carrying value to the fair value based on current
revenue projections of the related operations, under the relief from royalty method. Any excess of the carrying value over the
amount of fair value is recognized as an impairment. Any such impairment is recognized in the reporting period in which it has
been identified.
Finite-lived intangible assets such as customer relationships, non-compete agreements, and licenses are amortized over
their estimated useful lives. The Company reviews the carrying values of these assets for possible impairment whenever events
or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on estimated undiscounted
cash flows expected to result from its use and eventual disposition. The Company regularly evaluates the reasonableness of the
useful lives of these assets.
Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases, (“ASC 842”). The Company determines
if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the
use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease
embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant,
and equipment), and (2) the customer has the right to control the use of the identified asset. The Company determines whether
the contracts are considered an operating or finance lease. The Company does not currently have finance leases.
Operating leases are included in right-of-use (“ROU”) lease assets, current portion lease liability, and lease liabilities on
the Consolidated Balance Sheets when the lease term exceeds one year. The lease liabilities are initially measured at the present
value of the unpaid lease payments at the lease commencement date.
Key estimates and judgments include how the Company determined (1) the discount rate it uses to discount the unpaid
lease payments to present value, (2) lease term and (3) lease payments.
(1) ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that
rate cannot be readily determined, its incremental borrowing rate. As the majority of the Company’s leases do not
provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at
commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate
for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease
payments under similar terms. The Company uses the implicit rate when readily determinable.
(2) The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional
periods covered by a Company option to extend (or not to terminate) the lease that the Company is reasonably certain
to exercise.
(3) Lease payments included in the measurement of the lease liability comprise the following: fixed payments (including
in-substance fixed payments), less any lease incentives paid or payable to the lessee, variable payments that depend
on an index or rate, amounts expected to be payable under a residual value guarantee and the exercise price of the
Company option to purchase the underlying asset if the Company is reasonably certain to exercise.
45
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The ROU asset is initially measured at cost, which comprises the initial measurement of the lease liability adjusted for
lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives
received.
For operating leases, the ROU asset is subsequently measured throughout the lease term at the amount of the remeasured
lease liability, adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the
lease payments are uneven throughout the lease term and any unamortized initial direct costs. Lease expense for lease payments
is recognized on a straight-line basis over the lease term.
Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance
in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expenses
in the Company’s Consolidated Statement of Operations and Comprehensive Income in the same line item as expense arising
from fixed lease payments for operating leases.
ROU assets for operating leases are subject to the long-lived assets impairment guidance in ASC Subtopic 360-10,
Property, Plant, and Equipment.
The Company monitors for events or changes in circumstances that require a reassessment of a lease. When a reassessment
results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding
ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the
amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.
The Company has lease agreements which include lease and non-lease components, which are accounted for separately
using a relative stand-alone price basis.
On January 1, 2019 the Company adopted ASC 842 using a modified retrospective transition method and elected the
optional transition method as defined within Accounting Standards Update ("ASU") 2018-11. As a result, the Company was not
required to adjust its comparative period financial information for effects of the standard or make the new required lease
disclosures for periods before the date of adoption (i.e. January 1, 2019). The Company has elected to adopt the package of
transition practical expedients and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2)
lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized.
The Company did not elect the practical expedient to use hindsight for leases existing at the adoption date.
The Company has elected not to recognize ROU assets and lease liabilities for all short-term leases that have a lease term
of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a
straight-line basis over the lease term. Variable lease payments associated with these leases are recognized and presented in the
same manner as for all other Company leases.
Additionally, the Company applies a portfolio approach to determine the discount rate (i.e. incremental borrowing rate
for leases with similar characteristics). The Company applies the incremental borrowing rate generally based on the transactional
currency of the lease and the lease term.
Business Combinations
The purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities
assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as
goodwill. The results of operations of the acquired business are included in the Company's operating results from the date of
acquisition.
Deferred Financing Fees
Financing fees that are incurred by the Company in connection with the issuance of debt are deferred and amortized to
interest expense over the life of the underlying indebtedness. Deferred financing fees are presented in the Company's consolidated
balance sheets as a direct reduction from long-term debt.
Research and Development Costs
Research and development costs are expensed as incurred, and are included as a component of selling, general, and
administrative expenses. Research and development expenses were $16.4 million for 2019, $20.1 million for 2018, and $19.2
million for 2017.
46
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and
liabilities are determined and recognized based on the differences between the financial statement carrying amounts of assets
and liabilities and their respective tax bases using the tax rates expected to be in effect when the temporary differences are
expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not some portion
or all of the related tax benefit will not be realized. The need to establish valuation allowances against deferred tax assets is
assessed quarterly. The Company's valuation allowances are primarily attributable to net operating loss ("NOL") carryforwards
in certain foreign tax jurisdictions where the Company has incurred historical tax losses from operations and has determined
that it is more likely than not these deferred tax assets will not be realized. The primary factors used to assess the likelihood of
realization are reversals of taxable temporary timing differences, forecasts of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred tax assets.
The Company evaluates tax positions to determine whether the benefits of tax positions are more likely than not to be
sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not to be
sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized
upon ultimate settlement. For tax positions that are not more likely than not to be sustained upon audit, the Company does not
recognize any portion of the benefit. If the more likely than not threshold is not met in the period for which a tax position is
taken, the Company may subsequently recognize the benefit of that tax position if the tax matter is effectively settled, the statute
of limitations expires, or if the more likely than not threshold is met in a subsequent period.
The Company recognizes income tax-related interest and penalties in income tax expense and accrues for interest and
penalties in other noncurrent liabilities.
Fair Value of Financial Instruments
The Company uses the following valuation techniques to measure fair value for its financial assets and financial liabilities:
Level 1
Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2
Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-
corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3
Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are
unobservable.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The Company and its subsidiaries use, as appropriate, a market approach (generally,
data from market transactions), an income approach (generally, present value techniques and option-pricing models), and/or a
cost approach (generally, replacement cost) to measure the fair value of an asset or liability. These valuation approaches
incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated
on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable,
certain risks such as nonperformance risk, which includes credit risk.
Derivative Instruments
The Company utilizes derivative instruments to mitigate volatility related to interest rates on certain debt instruments.
The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company recognizes
derivatives as either assets or liabilities in the Consolidated Balance Sheets and measures those instruments at fair value. Changes
in the fair value of those instruments are initially reported in Accumulated Other Comprehensive Income (Loss) if they qualify
for hedge accounting and are subsequently recognized in earnings when the hedged exposure affects earnings. Derivatives qualify
for hedge accounting if they are designated as hedge instruments and if the hedge is highly effective in achieving offsetting
changes in the cash flows of the asset or liability hedged. Hedge effectiveness is assessed on a regular basis. Changes in fair
value of derivative instruments that do not qualify for hedge accounting are recognized immediately in current net earnings.
47
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
Commitments and Contingencies
The Company establishes reserves for the estimated cost of environmental, legal and other contingencies when such
expenditures are probable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the
ultimate exposure in these matters. The Company engages outside experts as deemed necessary or appropriate to assist in the
evaluation of exposure. From time to time, as information becomes available regarding changes in circumstances for ongoing
issues as well as information regarding emerging issues, the potential liability is reassessed and reserve balances are adjusted
as necessary. Revisions to the estimates of potential liability, and actual expenditures related to commitments and contingencies,
could have a material impact on the results of operations or financial position.
Warranty
The Company generally offers an assurance-type warranty for its products. The specific terms and conditions of those
warranties vary depending upon the product sold. The Company estimates the costs that may be incurred under its warranties
and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's
warranty liability include historical product-failure experience and estimated repair costs for identified matters. The Company
regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Concentration of Credit Risk
The Company's customer receivables are comprised primarily of amounts due from independent dealers and direct
customers. The Company monitors and manages the credit risk associated with the individual dealers and direct customers. The
independent dealers are responsible for assessing and assuming the credit risk of their customers and may require their customers
to provide deposits or other credit enhancement measures. Historically, the Company has had a concentration of federal and
local government receivables; however, they carry minimal credit risk.
Foreign Currency Translation
Results of foreign operations are translated into U.S. dollars using average exchange rates during the year, while assets
and liabilities are translated into U.S. dollars using the exchange rates as of the balance sheet dates. The resulting translation
adjustments are recorded in accumulated other comprehensive income (loss).
Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than
the functional currency of the applicable subsidiary are included in the consolidated statements of operations, within other
income, net, in the year in which the gain or loss occurs.
Stock-Based Compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on
the grant-date fair value of the award. The Company recognizes compensation expense using the straight-line method over the
vesting period. Compensation expense relating to restricted stock units subject to performance conditions is recognized if it is
probable that the performance condition will be achieved. Forfeitures are recognized when they occur.
The fair value of restricted stock and restricted stock units, excluding market-based restricted stock units, is based upon
the closing market price of the Company's common stock on the date of grant.
The fair value of market-based restricted stock units is estimated at the date of grant using a Monte Carlo simulation
model, which requires management to make certain assumptions based on both historical and current data. These awards vest
based upon the performance of the Company's stock price relative to a peer 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 peer group'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 the historical volatility of the Company's and peer group's stock prices. The dividend yield is based on the Company's historical
data.
Pension and Other Post-Employment Benefits
The Company sponsors two defined benefit pension plans, one of which was terminated during 2019, and four other post-
employment benefit plans ("OPEB"), one of which was terminated during 2019. Several statistical and other factors, which
attempt to anticipate future events, are used in calculating the expense and liability related to the plans. Key factors include
assumptions about the expected rates of return on plan assets, discount rates, mortality rates and health care cost trend rates.
The Company considers market and regulatory conditions, including changes in investment returns and interest rates, in making
these assumptions.
48
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The Company determines the expected long-term rate of return on plan assets based on aggregating the expected rates
of return for each component of the 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 of return on plan assets is a long-term assumption. The discount rate
reflects the market rate for high-quality fixed income debt instruments as of the Company's annual measurement date and is
subject to change each year.
Unrecognized actuarial gains and losses are recognized over the expected remaining lifetime of the plan participants.
Unrecognized actuarial gains and losses arise from several factors, including experience and assumption changes with respect
to the obligations of the pension and OPEB plans, and from the difference between expected returns and actual returns on plan
assets. These unrecognized gains and losses are systematically recognized as a change in future net periodic pension expense
in accordance with the appropriate accounting guidance relating to defined benefit pension and OPEB plans.
Key assumptions used in determining the amount of the obligation and expense recorded for the OPEB plans 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 Company considers actual health care cost experience, future benefit structures, industry trends and advice from its actuaries.
The Company assumes that the relative increase in health care costs will generally trend downward over the next several years,
reflecting assumed increases in efficiency and cost-containment initiatives in the health care system.
In accordance with the appropriate accounting guidance, the Company has recognized the funded status (i.e., the difference
between the fair value of plan assets and the projected benefit obligation) of the defined benefit pension and OPEB plans in the
consolidated balance sheets. To record the unfunded status of the plans, the Company recorded an additional liability and an
adjustment to accumulated other comprehensive loss, net of tax. Other changes in the benefit obligation including net actuarial
loss (gain) and prior service cost (credit) are recognized in other comprehensive income.
The actuarial assumptions the Company used in determining the pension and OPEB retirement benefits may differ
materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or
shorter life spans of participants. While the Company believes that the assumptions used are appropriate, differences in actual
experience or changes in assumptions could materially affect the financial position or results of operations.
Segment Information
The Company has two reportable segments: Office and Lifestyle. The Office reportable segment is comprised of the
operations of the Office operating segment. The Lifestyle reportable segment is an aggregation of the Lifestyle, Europe Studio,
and Muuto operating segments. All unallocated expenses are included within Corporate.
The Office reportable segment includes a complete range of workplace products that address diverse workplace planning
paradigms. These products include: systems furniture, seating, storage, tables, desks and KnollExtra® accessories as well as the
international sales of our North American Office products. The Office segment includes DatesWeiser and Fully. DatesWeiser,
known for its sophisticated meeting and conference tables and credenzas, sets a standard of design, quality and technology
integration. Fully is an e-commerce furniture brand selling height-adjustable desks, ergonomic chairs and accessories principally
for individual home offices and small businesses.
The Lifestyle reportable segment aggregates three operating segments: Lifestyle, Europe Studio and Muuto. The Lifestyle
reportable segment products, which are distributed in North America and Europe, include iconic seating, lounge furniture, side,
café and dining chairs as well as conference, training, dining and occasional tables, lighting, rugs, textiles, high-quality fabrics,
felt, leather and related architectural products.
During the first quarter of 2019, the Company changed the structure of its internal organization, resulting in a change to
the composition of its reportable segments. DatesWeiser is now a component of the Office operating segment, as opposed to the
Lifestyle operating segment. As a result of this change in segment reporting, the Company retrospectively revised prior period
results, by segment, to conform to current period presentation.
Corporate costs include unallocated costs relating to shared services and general corporate activities such as legal expenses,
acquisition expenses, certain finance, human resources, administrative and executive expenses and other expenses that are not
directly attributable to an operating segment. Dedicated, direct selling, general and administrative expenses of the segments are
included within segment operating profit. Management regularly reviews the costs included in the Corporate function and
believes disclosing such information provides more visibility and transparency of how the chief operating decision maker reviews
the results for the Company.
49
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology for measuring and
recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range
of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 will be effective for the Company as
of January 1, 2020. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial
statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure
requirements of fair value measurements in Topic 820, Fair Value Measurement. For public companies the ASU removes
disclosure requirements for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers
between levels and the valuation process for Level 3 fair value measurements. The ASU modifies the disclosure requirements
for investments in certain entities that calculate net asset value and clarifies that the measurement uncertainty disclosure is to
communicate information about the uncertainty in measurement as of the reporting date. The ASU adds the disclosure requirement
for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair
value measurements held at the end of the reporting period and the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for all entities for fiscal
years beginning after December 15, 2019 including interim periods within that fiscal year. Early adoption is permitted. The
Company does not believe there will be a material impact to the consolidated financial statements as a result of adopting this
ASU.
Accounting Standards Adopted
In February 2016, the FASB issued guidance codified in ASC 842, Leases, which supersedes the guidance in ASC 840,
Leases. ASC 842 was effective for the Company on January 1, 2019, and the Company adopted the standard using the modified
retrospective approach. The Company recorded lease liabilities of $119.3 million, with an offsetting increase to the right-of-use
assets of $101.7 million, for all leases with an initial term of greater than twelve months regardless of their classification as of
January 1, 2019.
In 2018, the FASB issued clarifying guidance to the topic in ASUs No. 2018-10 and No. 2018-11, which clarified certain
aspects of the new leases standard and provided an optional transition method. The Company has elected the package of practical
expedients and adopted utilizing the optional transition method defined within ASU 2018-11 on January 1, 2019. The Company
did not elect the hindsight expedient. The adoption of the standard did not materially impact the Consolidated Statements of
Operations and Comprehensive Income or Cash Flows.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock compensation (Topic 718) which simplifies several
aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718,
Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-
employees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies
to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own
operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based
payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or
services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The
amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including
interim periods within that fiscal year. The Company adopted this ASU effective January 1, 2019. The adoption of this ASU did
not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic
350-40) which reduces the complexity of accounting for costs of implementing a cloud computing service arrangement and
aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether they convey a license
to the hosted software. Capitalized implementation costs related to a hosting arrangement that is a service contract will be
amortized over the term of the hosting arrangement, beginning when the component of the hosting arrangement is ready for its
intended use. The amendments in this update are effective for public business entities for fiscal years beginning after December
15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The Company adopted the amendment
prospectively as of October 1, 2019 and the adoption did not have a material impact on the Company’s consolidated financial
statements.
50
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
3. REVENUE
Disaggregation of Revenue
The majority of the Company’s revenue presented as “Sales” in the Consolidated Statements of Operations and
Comprehensive Income is the result of contracts with customers for the sale of the Company’s products.
The Company’s sales by product category were as follows (in millions):
Office Segment
Office Systems
Seating
Files and Storage
Ancillary
Other
Total Office Segment
Lifestyle Segment
Studio
Coverings
Total Lifestyle Segment
Total Sales
Contract Balances
Year Ended December 31,
2019
2018
2017
$
449.4
$
439.2
$
131.2
104.9
134.4
53.9
873.8
439.9
114.4
554.3
1,428.1
$
$
$
131.0
92.0
91.9
43.0
797.1
395.2
110.0
505.2
1,302.3
$
$
$
$
$
$
422.7
118.4
90.4
59.5
42.3
733.3
290.6
109.0
399.6
1,132.9
The Company has contract assets consisting of Customer receivables in the Consolidated Balance Sheets which represent
the amount of consideration the Company expects to be entitled to in exchange for the goods or services rendered to its customers.
When the Company receives deposits, the recognition of revenue is deferred and results in the recognition of a contract
liability (Customer deposits) presented as a component of Other Current Liabilities in the Consolidated Balance Sheets. Subsequent
recognition of revenue and the satisfaction of the contract liability is typically less than one year as the Company’s standard contract
is less than one year. As of December 31, 2019 and December 31, 2018, the contract liability related to customer deposits was
$32.5 million and $37.7 million, respectively. The Company recognized revenues that were included in the contract liability at the
beginning of the 2019 and 2018 of $31.1 million and $30.5 million, respectively. In addition, the Company assumed a contract
liability of $0.5 million related to a business combination during the year.
4. ACQUISITIONS
Fully
On August 20, 2019, the Company acquired FHI LLC (“Fully”), a Portland, Oregon-based e-commerce furniture brand
with products targeting the home office and small business markets. The acquisition provides the Company access to new markets
for current products, while simultaneously allowing it to leverage its existing distribution channels to expand its product offerings
to include Fully’s portfolio of high-performance adjustable height desks, ergonomic chairs and accessories.
The aggregate purchase price consists of cash paid at closing of $30.9 million, net of cash acquired of $4.1 million, plus
additional earn-out consideration should Fully achieve certain revenue and earnings targets associated with separate short-term
and long-term earn-out periods of two and four years, respectively (together, the “Earn-Out Consideration”). The estimated fair
value of the Earn-Out Consideration is $2.0 million as of the acquisition date (see Note 11 for further discussion). The acquisition
was funded from cash on hand and borrowings under the Company’s Revolver. The Company recognized the assets acquired
and liabilities assumed at their estimated fair values as of the acquisition date. The excess of the purchase price over the net
tangible and identifiable intangible assets was recorded to goodwill. Adjustments to the initial accounting for the acquisition
may occur if additional information is obtained that results in a revision to the analysis of the facts and circumstances that existed
as of the acquisition date, but no later than one year thereafter (the “Measurement Period”). The results of operations of Fully
are reported in the Office segment and have been included in the consolidated results of operations from the acquisition date.
51
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The pro forma financial information, has not been presented for the Fully acquisition as the financial impact of this acquisition
is not considered material.
The following table summarizes the preliminary fair value and useful lives of the intangible assets acquired as of the
acquisition date of Fully (dollars in millions):
Tradenames
Customer relationships
Non-compete agreements
Goodwill
Muuto
Fair Value as of
August 20, 2019
Estimated useful
Life (in years)
$
10.0
1.0
0.5
14.9
10
5
4
-
On January 25, 2018, the Company acquired one hundred percent (100%) of the shares of Muuto Holding ApS and MIE4
Holding 5 ApS, which collectively held all the business operations of Muuto ApS (“Muuto”). Muuto’s affordable luxury products
span commercial and residential applications, adding scale and diversity to the Company’s business. The aggregate purchase
price for the acquisition was $307.7 million, net of $7.6 million of cash acquired. The Company recognized the assets acquired
and liabilities assumed at their estimated fair values as of the date of acquisition. The results of operations of Muuto have been
included in the Company’s Lifestyle segment beginning January 25, 2018. The Company funded the acquisition with proceeds
from debt issued under the Third Amended and Restated Credit Agreement, as well as cash on hand (see Note 13). The Company
recorded acquisition and certain other costs of $5.1 million within selling, general, and administrative expenses in its Consolidated
Statement of Operations and Comprehensive Income, during the twelve months ended December 31, 2018.
The following table summarizes the fair values assigned to the assets acquired and liabilities assumed of Muuto and the
resulting goodwill as of the January 25, 2018 acquisition date (in millions):
Cash
Customer receivables
Inventory
Other current assets
Property, plant, and equipment, net
Intangible assets
Other non-current assets
Total assets acquired
Accounts payable
Other current liabilities
Deferred income taxes
Total liabilities assumed
Net assets acquired
Purchase price
Less: Fair value of acquired identifiable assets and liabilities
Goodwill
Amount
7.6
8.6
11.1
0.4
1.3
135.6
0.3
164.9
3.4
10.6
29.9
43.9
121.0
315.3
121.0
194.3
$
$
$
$
$
$
The excess of the purchase price over the net tangible and intangible assets is recorded to goodwill and primarily reflects
the assembled workforce and expected synergies. Goodwill is not deductible for tax purposes.
52
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The following table summarizes the estimated fair value of Muuto’s identifiable intangible assets and their estimated
useful lives (in millions):
Indefinite-lived intangible assets:
Trade name
Finite-lived intangible assets:
Wholesale customer relationships
Contract customer relationships
Copyrights & designs
Non-competition agreements
Total intangible assets
Fair Value as of
January 25, 2018
Estimated Useful
Life (in years)
$
$
66.0
Indefinite
35.8
25.0
7.5
1.3
135.6
15
9
7
3
The following table presents unaudited pro forma information for the periods presented as if the acquisition of Muuto
had occurred as of January 1, 2017 (in millions):
Pro forma sales
Pro forma net earnings attributable to Knoll, Inc. stockholders
Year Ended December 31,
2018
2017
$
$
1,306.4
79.0
$
$
1,203.2
77.9
The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily
indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the
future consolidated results of operations of the Company. The pro forma financial information presented above has been derived
from the historical consolidated financial statements of the Company and from the historical consolidated financial statements
of Muuto.
The pro forma financial information presented above include adjustments for: (1) incremental amortization expense
related to fair value adjustments to identifiable intangible assets, (2) incremental interest expense for outstanding borrowings
to reflect the terms of the Amended Credit Agreement, (3) nonrecurring items, (4) the tax effect of the above adjustments.
The pro forma information presented for the twelve months ended December 31, 2018 excludes expenses for future
payments that are considered compensation for post combination service of $3.2 million, loss on debt extinguishment of $1.4
million, acquisition costs of $1.9 million, and acquisition-related inventory step-up valuation adjustment of $0.9 million, and
includes incremental interest expense of $0.1 million and incremental amortization of intangibles of $0.8 million. The income
tax impact of these adjustments for the twelve months ended December 31, 2018 was $1.3 million. The pro forma information
presented for the twelve months ended December 31, 2017 includes incremental amortization of intangibles of $6.6 million,
acquisition costs of $1.9 million, future payments that are considered compensation for post combination service of $3.5 million,
incremental amortization of deferred financing fees of $1.2 million, incremental interest expense of $1.7 million, and an
acquisition-related inventory step-up valuation adjustment of $0.9 million. The income tax impact of these adjustments for the
twelve months ended December 31, 2017 was $4.6 million.
5. INVENTORIES
Information regarding the Company's inventories is as follows (in millions):
Raw materials
Work-in-process
Finished goods
53
December 31,
2019
2018
$
$
58.7
8.1
129.1
195.9
$
$
65.2
8.3
97.0
170.5
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
6. PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following as of the dates presented (in millions):
Land
Leasehold improvements
Buildings
Office equipment
Software
Machinery and equipment
Construction-in-progress
Property, plant and equipment
Accumulated depreciation
Property, plant, and equipment, net
December 31,
2019
2018
16.0
62.9
71.9
27.2
71.2
236.4
35.0
520.6
(281.6)
239.0
$
$
12.0
59.6
68.9
19.5
43.4
237.2
52.7
493.3
(278.3)
215.0
$
$
During 2019, 2018 and 2017, the Company capitalized interest of approximately $0.5 million, $0.8 million and $0.8
million, respectively.
During the fourth quarter of 2017, the Company completed a global design review of the next phases of its enterprise
resource planning ("ERP") system implementation. Through this review, the Company identified certain software items that
were no longer useful to the future phases of the ERP system. As a result, the Company recorded a $16.3 million write-off of
capitalized software costs in 2017.
7. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following table summarizes the carrying amount of goodwill by reportable segment as of the dates presented, as well
as the changes to goodwill during the years ended December 31, 2019 and 2018 (in millions):
Office
Segment
Lifestyle Segment
Total
Balance as of December 31, 2017
Foreign currency translation adjustment
Goodwill recognized in connection with the Muuto acquisition
Balance as of December 31, 2018
Foreign currency translation adjustment
Goodwill recognized in connection with the Fully acquisition
Balance as of December 31, 2019
$
$
39.7
(0.6)
—
39.1
0.3
14.9
54.3
$
$
102.4
(15.3)
194.6
281.7
(3.9)
—
277.8
$
$
142.1
(15.9)
194.6
320.8
(3.6)
14.9
332.1
The Company did not record any goodwill impairment charges in 2019, 2018 or 2017.
54
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
Intangible Assets
Information regarding the Company's other intangible assets is as follows (in millions):
December 31, 2019
December 31, 2018
Gross
Amount
Accumulated
Amortization
Net
Amount
Gross
Amount
Accumulated
Amortization
Net
Amount
Indefinite-lived intangible assets:
Tradenames
$
277.6
$
— $
277.6
$
285.5
$
— $
285.5
Finite-lived intangible assets:
Customer relationships
Various
Total
78.9
30.9
$
387.4
$
(25.0)
(14.2)
(39.2) $
53.9
16.7
78.4
20.5
348.2
$
384.4
$
(18.4)
(12.1)
(30.5) $
60.0
8.4
353.9
Based on the result of the annual impairment test of indefinite-lived intangible assets as of October 1, 2019, the Company
determined that the Edelman Leather tradename was impaired, as the estimated fair value of the Edelman Leather tradename
was less than its respective carrying amount. The decline in the fair value of the Edelman tradename was primarily the result
of weaker than expected revenue performance in late 2019, a corresponding reduction of future revenue expectations and a
reduction of the royalty rate used for valuation purposes. The revenue reductions were primarily a result of lower sales of luxury
products, an aging of Edelman showrooms, and the inability to replace private aviation customers with a comparable revenue
stream. The Edelman Leather tradename was estimated to be fully impaired, resulting in a non-cash pre-tax impairment charge
of $6.5 million during the fourth quarter of 2019. This fair value measurement fell within Level 3 of the fair value hierarchy as
described in Note 2. Edelman Leather is included within the Company's Lifestyle Segment. There were no impairments of
indefinite-lived intangible assets during 2018 or 2017.
Amortization expense related to finite-lived intangible assets was $8.9 million, $8.9 million, and $3.3 million for the
years ended December 31, 2019, 2018, and 2017, respectively. The estimated future amortization expense of finite-lived
intangible assets as of December 31, 2019 is as follows (in millions):
Year
2020
2021
2022
2023
2024
Amount
$
9.6
9.1
8.8
8.7
7.1
8. OTHER CURRENT LIABILITIES
Information regarding the Company's other current liabilities is as follows (in millions):
Accrued employee compensation
Customer deposits
Warranty
Other
Other current liabilities
December 31,
2019
2018
37.4
32.5
10.1
40.3
120.3
$
$
40.6
37.7
9.6
41.0
128.9
$
$
55
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
9. LEASES
The Company has commitments under operating leases for certain machinery and equipment, as well as manufacturing,
warehousing, showroom and other facilities used in its operations. The Company has no finance leases. Excluding short-term
leases, the Company’s leases have initial terms ranging from 1 to 16 years, most of which include options the Company may
exercise to extend or renew the lease for 1.0 to 6 years, and some of which include options to terminate the leases with notice
periods of up to 1 year. Certain lease agreements contain provisions for future rent increases. Payments due under lease contracts
are fixed.
The Company recognized rent expense for 2018 and 2017 of $32.1 million and $28.9 million, respectively. Lease cost
recognized in the consolidated statements of operations for 2019 is summarized as follows (in millions):
Lease cost:
Operating lease cost
Short-term lease cost
Sublease income
Total lease cost
Year Ended
December 31, 2019
$
$
28.6
3.3
(0.2)
31.7
Other lease information as of and for the year ended December 31, 2019 includes (dollars in millions):
Weighted-average remaining lease term (in years)
Operating leases
Weighted-average discount rate
Operating leases
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
ROU assets obtained in exchange for new operating lease liabilities:
Operating leases
December 31, 2019
5.9
4.9%
29.0
15.8
$
$
As of December 31, 2019, the Company has entered into operating leases that have not yet commenced, for which it will
recognize ROU assets and lease liabilities of approximately $43.6 million. These leases will commence in 2020 and 2021 with
lease terms of 7 years to 12 years.
As of December 31, 2019, maturities of the Company's operating lease liabilities are as follows (in millions):
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less imputed interest
Present value of lease liability
$
$
26.0
23.2
20.3
17.4
14.4
27.8
129.1
(21.4)
107.7
Future minimum rental payments under operating leases (net of sublease amounts) that were required to be disclosed
prior to the adoption of the new lease standard as of December 31, 2018 were as follows (in millions):
56
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2019
2020
2021
2022
2023
Thereafter
Total
Future Minimum
Rental Payments
26.4
$
23.8
19.1
17.2
15.1
38.8
140.4
$
10. PENSION AND OTHER POST-EMPLOYMENT BENEFITS
The Company has two domestic defined benefit pension plans and four plans providing for other post-employment
benefits, including two medical and two life insurance coverage plans. One of the pension plans and one each of the medical
and life insurance coverage plans covered eligible U.S. nonunion employees while the other pension plan and one each of the
medical and life insurance coverage plans covered eligible U.S. union employees. The Company uses a December 31
measurement date for all of these plans.
Prior to 2017, the Company froze all of the defined benefit plans thereby eliminating the accrual of future benefits and
closed entry to new participants. During 2019, the union pension plan paid lump sum distributions to certain participants and
purchased annuities from an insurance company to cover the benefits available to employees who did not elect a lump sum
payment, and the Company terminated the plan. The remaining balance of union pension plan assets of $2.0 million was transferred
to the Company's U.S. retirement savings plan. There were no assets or liabilities of the union pension plan remaining at
December 31, 2019. Also during 2019, the Company terminated the medical OPEB plan for nonunion employees.
57
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The following table sets forth a reconciliation of the related benefit obligation and plan assets related to the benefits
provided by the Company (in millions):
Pension Benefits
Other Benefits
2019
2018
2019
2018
Change in projected benefit obligation:
Projected benefit obligation at beginning of the period
$
243.6
$
295.6
$
Expected administrative expenses
Interest cost
Participant contributions
Actuarial loss (gain)
Benefits paid
Benefits paid related to settlement
(Gain) loss related to settlement
Administrative expenses paid
Projected benefit obligation at end of the period
Accumulated benefit obligation at end of the period
Change in fair value of plan assets:
Fair value of plan assets at beginning of the period
Actual return on plan assets
Employer contributions
Transfer to U.S. retirement savings plan
Participant contributions
Actual expenses paid
Benefits paid
Benefits paid related to settlement
Fair value of plan assets at the end of period
Funded status (underfunded)
1.7
9.0
—
40.5
(6.6)
(79.6)
(2.9)
(2.0)
203.7
203.7
233.9
38.0
—
(2.0)
—
(2.0)
(6.6)
(79.6)
181.7
0.9
10.2
—
(26.4)
(7.1)
(29.5)
0.9
(1.0)
243.6
243.6
273.9
(10.3)
7.9
—
—
(1.0)
(7.1)
(29.5)
233.9
$
3.6
—
0.1
0.1
0.3
3.8
—
0.1
0.2
—
(0.2)
(0.5)
—
—
—
3.9
—
—
—
0.1
—
0.1
—
(0.2)
—
—
—
—
—
3.6
—
—
—
0.3
—
0.2
—
(0.5)
—
—
(3.6)
$
(22.0) $
(9.7) $
(3.9) $
The actuarial gain in 2018 was primarily driven by an approximately 70 basis point increase in the discount rates, which
lowered the value of the projected benefit obligation. The actuarial loss in 2019 was primarily due to an approximately 110 basis
point decrease in the discount rate used to value the projected benefit obligation. Additionally, each year the plans experienced
other sources of gains and losses due to other changes in assumptions and demographic data.
Assumptions used in computing the benefit obligation as of December 31, 2019 and 2018 were as follows:
Pension Benefits
Other Benefits
2019
2018
2019
2018
Discount rate
Rate of compensation increase
3.34% 4.37% - 4.46% 2.02% - 3.15% 3.30% - 4.32%
N/A
N/A
N/A
N/A
58
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The following table presents the fair value of the Company's pension plan investments as of December 31, 2019 and 2018
(in millions):
As of December 31, 2019
Level 1
Level 2
Level 3
Total
4.6
$
— $
— $
Short-term investments
U.S. government securities
Corporate bonds
Total investments in the fair value hierarchy
Investments measured at net asset value
Total investments at fair value
Short-term investments
U.S. government securities
Corporate bonds
Certificates of deposit
Asset-backed securities
Total investments in the fair value hierarchy
Investments measured at net asset value
Total investments at fair value
$
$
$
$
Level 1
—
—
4.6
—
4.6
7.5
—
—
—
—
7.5
—
7.5
$
$
$
19.8
57.9
77.7
—
—
—
—
—
4.6
19.8
57.9
82.3
99.4
77.7
$
— $
181.7
As of December 31, 2018
Level 2
Level 3
Total
— $
37.2
71.6
1.5
3.8
114.1
—
114.1
$
— $
—
—
—
—
—
—
— $
7.5
37.2
71.6
1.5
3.8
121.6
112.3
233.9
Short-term investments are primarily held in registered short-term investment vehicles which are valued using a market
approach based on quoted market prices of similar instruments.
U.S. government securities, corporate bonds, certificates of deposit and asset-backed securities are primarily valued using
a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported observable trades for
identical or comparable instruments.
Investments in commingled, common investment trust funds are carried at net asset value ("NAV") as a practical expedient
to estimate fair value. The NAV is the total value of the fund divided by the number of shares outstanding. Adjustments to NAV,
if any, are determined based on evaluation of data provided by fund managers, including valuation of the underlying investments
derived using inputs such as cost, operating results, discounted future cash flows and market-based comparable data. In accordance
with ASC 820-10, investments that are measured at NAV practical expedient are not classified in the fair value hierarchy;
however, their fair value amounts are presented in these tables to permit reconciliation of the fair value hierarchy to the total
plan assets disclosed in this footnote. Termination of investing in the common collective trust requires a 30-day notice period.
See Note 2 of the consolidated financial statements for the description of the levels of the fair value hierarchy.
59
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The following table sets forth the consolidated balance sheets presentation for components relating to the Company's
pension and OPEB plans (in millions):
Amounts recognized in the consolidated
balance sheets consist of:
Other noncurrent assets
Other current liabilities
Pension Liability
Other noncurrent liabilities
Net amount recognized
Amounts recognized in accumulated other
comprehensive income (loss) before taxes:
Net actuarial loss
Prior service (credit)
Net amount recognized
$
$
$
$
Pension Benefits
Other Benefits
2019
2018
2019
2018
— $
—
(22.0)
—
(22.0) $
49.2
—
49.2
$
$
4.2
$
—
(13.9)
—
(9.7) $
55.9
—
55.9
$
$
— $
(0.3)
—
(3.6)
(3.9) $
$
1.1
(1.5)
(0.4) $
—
(0.3)
—
(3.3)
(3.6)
1.1
(2.6)
(1.5)
The following table sets forth changes in the benefit obligation before income taxes recognized in other comprehensive
income for the Company's pension and OPEB plans (in millions):
Net actuarial loss
Amortization of:
Prior service credit
Actuarial (loss) gain
(Loss) gain recognized related to settlement
Total recognized in OCI
$
$
Pension Benefits
Other Benefits
2019
2018
2019
2018
15.1
$
2.4
$
0.3
$
—
(0.8)
(21.0)
(6.7) $
—
(1.0)
(5.7)
(4.3) $
0.7
(0.1)
0.2
1.1
$
—
0.7
0.1
—
0.8
The following table sets forth the components of the net periodic benefit cost (income) of the Company's pension and
OPEB plans (in millions):
Pension Benefits
2018
2019
2017
2019
Other Benefits
2018
2017
Expected administrative expenses
$
Interest cost
Expected return on plan assets
Amortization of prior service credit
Recognized actuarial loss (gain)
Settlement-related expense (1)
1.7
9.0
(15.5)
—
0.8
21.0
$
0.9
$
10.2
(17.6)
—
1.0
5.7
0.2
0.7
9.4
(18.4)
—
0.7
2.2
$
— $
— $
0.1
—
(0.7)
0.1
(0.2)
0.1
—
(0.7)
(0.1)
—
—
0.2
—
(1.5)
—
—
Net periodic benefit cost (income)
$
17.0
$
$
(5.4) $
(0.7) $
(0.7) $
(1.3)
1.
The pension settlement charge for 2019 is comprised of two components. First, the Union Pension Plan terminated in 2019. As a result of the plan
termination the plan settled all participant benefits, which triggered a settlement charge of $14.5 million in 2019. Second, the Nonunion Plan executed a
lump sum window for both retirees and terminated vested participants. The lump sums paid to Nonunion participants caused a settlement charge of $6.6
million in 2019. The pension settlement charge for 2018 related to the purchase of annuities for certain plan retirees as well as cash payments for lump
sum elections. The pension settlement charge for 2017 related to lump sum elections made by employees affected by the restructuring activities in the
second quarter of 2017.
60
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
Assumptions used to determine net periodic benefit cost for the years ended December 31, 2019, 2018, and 2017 were
as follows:
2019
Pension Benefits
2018
2017
2019
Other Benefits
2018
2017
Discount rate
4.37% - 4.46%
3.70 - 3.77%
3.80 - 4.25%
3.30% - 4.32%
2.48 - 3.66%
2.35 - 4.20%
Expected return on plan assets
4.60% - 7.10%
Rate of compensation increase
N/A
7.10%
N/A
7.10%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
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 the investment portfolio. In establishing this assumption, management considers historical and expected
returns for the asset classes in which the plan assets are invested.
For purposes of measuring the benefit obligation associated with the Company's OPEB plans as of December 31, 2019,
as well as the assumed rate for 2019, the following rates were assumed to affect the per capita costs of the following covered
benefits:
Healthcare
Prescription drug
Benefit obligation
Net periodic benefit cost
2019
2027 and thereafter
2019
2027 and thereafter
6.30%
8.40%
4.50%
4.50%
6.50%
9.00%
4.50%
4.50%
The Company's pension plans' weighted-average asset allocations by asset category as of December 31, 2019 and 2018,
were as follows:
Asset Category:
Fixed income funds
Return seeking (growth assets) funds
Total
Plan Assets at
December 31,
2019
2018
46%
54%
100%
52%
48%
100%
The Company's nonunion pension plan investment policy includes an asset mix based on the Company's risk posture.
The investment policy follows a glide path approach that shifts a higher portfolio weighting to assets with interest rate sensitive
characteristics, similar to those used for liability measurement, as the funded status increases. The investment policy states a
target allocation based on the plan's funded status of approximately 54% return seeking investments (growth assets) and 46%
liability hedging investments (fixed income). Inclusion of the fixed income assets is to hedge risk associated with the plan's
liabilities along with providing potential growth through income. These assets should primarily invest in fixed income instruments
of the U.S. Treasury and government agencies and investment-grade corporate bonds. The return seeking investments (growth
assets) can consist of broadly diversified domestic equity, international equity, fixed income, alternative investments,
commodities, and real estate assets. The purpose of these assets is to provide the opportunity for capital appreciation, income,
and the ability to diversify investments. A mix of mutual funds, exchange traded funds, and separate accounts are used as the
plan's investment vehicles with clearly stated investment objectives and guidelines, as well as offer competitive long-term results.
61
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The Company expects to contribute $0.2 million to its OPEB plans in 2020. Currently, no contributions are expected in
2020 for the Company's nonunion pension plan. Estimated future benefit payments under the pension and OPEB plans are as
follows (in millions):
2020
2021
2022
2023
2024
2025 - 2029
Pension Benefits
Other Benefits
$
$
13.0
13.3
13.4
13.0
12.9
59.7
0.2
0.3
0.3
0.3
0.3
1.3
The Company also sponsors 401(k) retirement savings plans for all U.S. associates. Under the 401(k) retirement savings
plans, participants may defer a portion of their earnings up to the annual contribution limits established by the Internal Revenue
Service, and the Company matches a portion of the participant's deferral up to a maximum of 3% of the participant's salary. The
Company also may make profit-sharing contributions based on the Company's financial performance. The Company's total
expense under the 401(k) plans for U.S. employees was $4.3 million for 2019, $3.9 million for 2018 and $5.5 million for 2017.
Employees of the Canadian, Belgium, Denmark and United Kingdom operations also participate in defined contribution pension
plans sponsored by the Company. The Company's expense related to these plans for 2019, 2018, and 2017 was $1.8 million,
$1.7 million, and $1.0 million, respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company’s cash and cash equivalents, classified as Level 1 within the fair value hierarchy,
approximate carrying value due to their short maturities.
The fair value of the Company’s long-term debt, classified as Level 2 within the fair value hierarchy, approximates its
carrying value, as it is variable rate debt and the terms are comparable to market terms as of the balance sheet dates.
Recurring Fair Value Measurements
The Company measures certain financial liabilities at fair value on a recurring basis. The following table summarizes the
valuation of those liabilities as of the dates presented (in millions):
Description:
Interest rate swap
$
— $
6.6
$
— $
Contingent consideration - Fully
Contingent consideration - DatesWeiser
—
—
—
—
2.0
—
Interest Rate Swap
Fair Value as of December 31, 2019
Fair Value as of December 31, 2018
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
6.6
2.0
—
$
— $
1.7
$
— $
—
—
—
—
—
0.8
1.7
—
0.8
The fair value of the interest rate swap is based on observable prices as quoted for receiving the variable one-month
London Interbank Offered Rates (LIBOR) and paying fixed interest rates and therefore is classified as Level 2 within the fair
value hierarchy.
Contingent Consideration - Fully
Earn-Out Consideration payments up to $5.0 million may be required if Fully achieves certain annual targets related to
net sales and earnings before interest, taxes, depreciation and amortization (EBITDA) for each of the calendar years 2020 through
2023. In addition, the Company may be required to pay up to $10.0 million if Fully achieves a certain cumulative EBITDA
target for calendar years 2020 and 2021. The Company classifies these as Level 3 measurements and was required to measure
these liabilities at fair value. The estimated fair value of the Earn-Out Consideration of $2.0 million was determined as of the
acquisition date using net sales and EBITDA projections for Fully through 2023, and a discount rate of 3.7%. Any change in
fair value will be included within Selling, general and administrative expenses.
Contingent Consideration - DatesWeiser
62
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
Pursuant to the agreement governing the acquisition of DatesWeiser, the Company was required to make annual contingent
purchase price payments. The payouts were based upon DatesWeiser reaching an annual net sales target, for each year through
2020. The Company classifies this as a Level 3 measurement and was required to remeasure this liability at fair value on a
recurring basis. The fair value of such contingent purchase price payments, totaling $1.1 million, was determined at the time of
acquisition based upon net sales projections for DatesWeiser through 2020 and a discount rate of 10%. As of December 31,
2019, the Company remeasured the fair value of the liability and determined that it is unlikely that DatesWeiser will meet any
of the remaining future targets related to the agreement. The Company recorded reductions in fair value of $0.8 million and
$0.4 million within Selling, general and administrative expense during 2019 and 2018, respectively. There were no changes in
the fair value during 2017. The maximum amount of possible future contingent payments under the agreement as of December 31,
2019 is $4.0 million.
There were no additional assets and/or liabilities recorded at fair value on a recurring basis as of December 31, 2019 or
2018.
Assets Measured at Fair Value on a Nonrecurring Basis
The following table presents the impairment loss on assets that were measured at fair value on a nonrecurring basis (in
millions):
Assets:
Tradename - Edelman Leather (1)
(1) See Note 7 for additional information.
Level 3 Fair Value as of December 31,
2019
2018
Impairment/Loss
$
— $
6.5
$
6.5
Other than the fair value measurements applied to the Edelman Leather tradename, the Company did not have any non-
recurring fair value measurements as of December 31, 2019 or 2018 and for the years then ended.
12. DERIVATIVE INSTRUMENTS
The Company is exposed to certain market risks, including the effect of changes in interest rates on future payments to be
made on its variable rate debt. The Company utilizes a derivative instrument to mitigate its financial exposure to interest rate
volatility. The derivative instrument, which is placed with a financial institution that the Company believes to be of acceptable
credit risk, takes the form of an interest rate swap. The Company does not use derivatives for speculative trading purposes.
Cash flow hedge
In January 2018, the Company entered into an interest rate swap contract, which is designated as a cash flow hedge of the
forecasted interest payments associated with a portion of the Company's variable rate debt. The interest rate swap hedges one-
month LIBOR, which effectively converts a portion of the variable rate debt to a fixed interest rate. The interest rate swap was
effective as of December 31, 2018, matures January 23, 2023 and carries a fixed rate of 2.63%. As of December 31, 2019, the
interest rate swap has a notional amount of $250.0 million, which decreases over time by $50 million increments as follows:
Period
December 31, 2019 - December 30, 2020
December 31, 2020 - December 30, 2021
December 31, 2021- December 29, 2022
December 30, 2022 - January 23, 2023
Notional Amount (in
millions)
$250
$200
$150
$100
The following table summarizes the fair value of the Company’s derivative instrument, as well as the location of this
instrument on the Consolidated Balance Sheets as of the dates presented (in millions):
63
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
Derivatives designated as hedging instruments
Derivative liabilities:
Interest rate swap
Interest rate swap
Total derivative liabilities
Balance Sheet Location
2019
2018
December 31,
Other current liabilities
Other noncurrent liabilities
$
$
2.6
4.0
6.6
$
$
0.3
1.4
1.7
The fair value of the swap recorded in Accumulated Other Comprehensive Loss ("AOCL") may be recognized in the
Consolidated Statement of Operations if certain terms of the agreement change, are modified or if the loan is extinguished. As
of December 31, 2019, there was no hedge ineffectiveness associated with the Company’s interest rate swap and no portion of the
cash flow hedge is excluded from the assessment of effectiveness. The Company reclassified $1.1 million from AOCL to interest
expense within the Consolidated Statement of Operations during the year ended December 31, 2019. The Company expects to
reclassify in the next twelve months a loss of approximately $2.6 million from AOCL into earnings, as a component of interest
expense, related to the Company's interest rate swap based on the borrowing rates at December 31, 2019.
13. INDEBTEDNESS
The following table summarizes the Company's long-term debt as of the dates presented:
Revolving credit facility
U.S. term loan
Multi-currency term loans
Total long-term debt
Less: Current maturities of long-term debt
Less: Unamortized debt issuance costs
Long-term debt, net
Credit Facility
December 31,
2019
2018
$
$
138.5
228.1
83.7
450.3
17.1
4.3
428.9
$
$
134.5
240.6
90.2
465.3
17.2
4.2
443.9
On August 26, 2019, the Company entered into a first amendment to the Third Amended and Restated Credit Agreement
(the "Credit Agreement Amendment"), dated as of January 23, 2018 (together, as amended, the "Credit Agreement"). The Credit
Agreement Amendment, among other things, extends the maturity of the credit facility from January 2023 to August 2024, and
reduces both the applicable rate applied to outstanding borrowings and the commitment fee rate applied to the unutilized balance
under the revolving credit facility (the "Revolver").
Borrowings under the Revolver and the term loan facilities bear interest, at the Company’s election, at either (i) the
Eurocurrency Rate (as defined in the Credit Agreement), plus a spread based on the Company’s leverage ratio or (ii) the Base
Rate (as defined in the Credit Agreement), which is a fluctuating rate equal to the highest of (a) the prime rate announced from
time-to-time by Bank of America, (b) the Federal Reserve System’s federal funds rate, plus 0.50% and (c) the Eurocurrency
Rate, plus 1.00%.
Indebtedness incurred under the credit facility is secured by substantially all of the Company’s tangible and intangible
assets, including, without limitation, the Company’s intellectual property. The Company’s direct and indirect wholly-owned
domestic subsidiaries have also guaranteed the obligations of the Company and the foreign borrowers under the Credit Agreement
and pledged substantially all of their tangible and intangible assets as security for their obligations under such guarantee. Certain
of the Company’s wholly-owned foreign subsidiaries have guaranteed the obligations of the foreign borrowers under the Credit
Agreement and pledged certain of their assets as security for their obligations under such guarantee.
Repayments under the Credit Agreement can be accelerated by the lenders upon the occurrence of certain events of default,
including, without limitation, a failure to pay any principal, interest or other amounts in respect of loans when due, breach by
the Company (or its subsidiaries) of any of the covenants or representations contained in the Credit Agreement or related loan
documents, failure of the Company (or its material subsidiaries) to pay any amounts owed with respect to other significant
indebtedness of the Company or such subsidiary, or a bankruptcy event with respect to the Company or any of its material
subsidiaries.
64
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The 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 (or under certain circumstances, a maximum specified net secured leverage ratio), and (ii) covenants that prevent or restrict
the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur
future indebtedness, engage in sale-leaseback transactions, alter its capital structure or line of business, prepay subordinated
indebtedness, engage in certain transactions with affiliates and sell stock or assets. At December 31, 2019, the Company was in
compliance with all covenants applicable to its credit facility.
Revolver
The commitments and available borrowing capacity under the Revolver were as follows as of the dates presented:
December 31, 2019
December 31, 2018
Commitments
Outstanding
Borrowings
Letter of Credit
Outstanding
Borrowing
Capacity
$
$
400.0
400.0
$
$
138.5
134.5
$
$
5.1
5.2
$
$
256.4
260.3
At December 31, 2019, borrowings under the Revolver include $10.0 million at a base rate of 5.25% and $128.5 million
at a weighted-average LIBOR rate of 3.27%. At December 31, 2018, borrowings under the revolving credit facility included
$2.5 million at a base rate of 6.25% and $132.0 million at a weighted-average LIBOR rate of 4.25%. At December 31, 2019 and
2018, letters of credit issued under the Revolver incurred interest at the rates of 1.50% and 1.75%, respectively, while commitment
fees on the undrawn portion of the Revolver were charged at the rates of 0.225% and 0.250%, respectively.
Borrowings under the Revolver may be repaid at any time, but no later than at maturity in August 2024. The Company
retains the right to terminate or reduce the size of the Revolver at any time.
Term Loan Facilities
At December 31, 2019, the U.S term loan and multi-currency term loans incurred interest at the rate of 3.30% and 1.50%,
respectively. At December 31, 2018 the U.S. term loan and multi-currency term loans incurred interest at 4.27% and 1.75%,
respectively. The Eurocurrency rates used for the U.S. dollar-denominated term loan and the Euro-denominated term loans are
one-month LIBOR and one-month or three-month Euribor, respectively. Borrowings under the term loan facilities amortize in
equal quarterly installments at the rate of 5% per annum, with the remaining balance due upon maturity.
Third Amended and Restated Credit Agreement
On January 23, 2018, the Company amended its existing credit facility at the time, dated as of May 20, 2014 (the “Second
Amended and Restated Credit Agreement”), whereby the existing credit agreement was amended and restated in its entirety (as
amended and restated, the "Third Amended and Restated Credit Agreement"), by and among the Company and certain foreign
subsidiaries of the Company, as borrowers, and certain domestic and foreign subsidiaries of the Company, as guarantors.
The Third Amended and Restated Credit Agreement provided for a $750.0 million credit facility that was scheduled to
mature in five years, consisting of a revolving commitment in the amount of $400.0 million, which may be made available in
U.S. dollars, Euro, British Pound and other foreign currencies, a U.S. term loan commitment in the amount of $250.0 million
and a multi-currency term loan commitment in the amount of €81.7 million. The Third Amended and Restated Credit Agreement
also includes an option to increase the size of the Revolver or incur incremental term loans by an amount equal to the greater
of $250.0 million or 90% of the EBITDA of the Company and its subsidiaries for the four fiscal quarters prior to such increase
or additional loan, subject to the satisfaction of certain terms and conditions. Proceeds from the debt issued under the Third
Amended and Restated Credit Agreement were used, among other things, to (1) fund the Muuto acquisition and, (2) refinance
certain indebtedness.
Maturities
As of December 31, 2019, the Company's contractual future maturities of its debt are as follows (in millions):
65
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2020
2021
2022
2023
2024
Thereafter
Total
Deferred Financing Fees
$
$
17.1
17.1
17.1
17.1
381.9
—
450.3
Amortization expense related to deferred financing fees, recognized as a component of interest expense on the consolidated
statements of operations, was $1.0 million, $1.1 million and $0.7 million for the years ended December 31, 2019, 2018 and
2017, respectively. In connection with the Credit Agreement Amendment executed in the third quarter of 2019, the Company
incurred $2.0 million of debt issuance costs, the majority of which were capitalized and will be amortized over the term of the
amended credit agreement. The Company recorded a loss on extinguishment of debt of approximately $0.4 million related to
the balance of unamortized costs associated with lenders that exited the credit facility or reduced their Revolver commitment.
During 2018, the Company recorded a loss on extinguishment of debt of approximately $1.4 million related to its
termination of the Second Amended and Restated Credit Agreement.
14. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is currently involved in matters of litigation, including environmental contingencies, arising in the ordinary
course of business. The Company accrues for such matters when expenditures are probable and reasonably estimable. Based
upon information presently known, management is of the opinion that such litigation, either individually or in the aggregate,
will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
Warranty
The Company provides for estimated product warranty expenses, which are included in other current liabilities, when
related products are sold. Because warranty estimates are forecasts that are based on the best available information, primarily
historical claims experience, future warranty claims may differ from the amounts provided.
Changes in the warranty reserve are as follows (in millions):
Balance, beginning of the year
Provision for warranty claims
Warranty claims settled
Warranties acquired through business acquisition
Foreign currency translation adjustment
Balance, end of the year
2019
2018
2017
9.6
$
9.2
$
8.4
(7.8)
—
(0.1)
10.1
7.7
(7.9)
0.6
—
$
9.6
$
8.9
7.1
(6.7)
—
(0.1)
9.2
$
$
66
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
15. STOCK-BASED COMPENSATION
The Company sponsors several stock compensation plans (collectively, the "Stock Compensation Plans") under which
awards denominated or payable in shares, units or options to purchase shares of Knoll common stock may be granted to officers,
certain other employees, directors and consultants of the Company. As of December 31, 2019, there were approximately 1.6
million shares authorized and available for issuance pursuant to the Stock Compensation Plans. Equity awards are granted under
the Stock Compensation Plans based upon terms and conditions established by the Compensation Committee of the Company's
Board of Directors (the "Committee").
Stock-based compensation expense recognized in earnings for the years ended December 31, 2019, 2018, and 2017 totaled
$10.8 million ($8.0 million after-tax), $9.2 million ($6.9 million after-tax) and $9.6 million ($6.1 million after-tax) respectively,
and is included within selling, general, and administrative expenses.
As of December 31, 2019, unrecognized compensation cost related to all unvested equity awards was $16.3 million , the
vast majority of which relates to unvested restricted shares and restricted stock units. This expense is expected to be recognized
over a weighted-average period of 1.7 years.
Restricted Shares
Restricted shares generally vest at the end of the three or four-year period following the grant date. Stock-based
compensation cost is measured at grant date based on the fair value of the underlying awards on the grant date. Grantees of
restricted shares are entitled to participate in dividends declared on the Company's outstanding common stock, the accumulated
balance of which is paid or payable upon the vesting date of the underlying restricted shares.
The following table summarizes activity during 2019 with respect to restricted shares (shares in thousands):
Outstanding at December 31, 2018
Granted
Forfeited
Vested
Outstanding at December 31, 2019
Restricted
Shares
Weighted-Average
Grant Date
Fair Value
$
725
425
$
(20) $
(234) $
$
896
21.03
20.46
21.13
19.07
21.27
The fair value of restricted shares that vested during 2019, 2018 and 2017 was $5.0 million , $7.4 million, $9.5 million,
respectively.
Restricted Stock Units
All of the Company's outstanding restricted stock units ("RSUs") are contingently issuable, as they are subject to either
certain performance-based conditions ("PBRSUs") or a market-based condition related to relative total shareholder return
("MBRSUs"). The Committee determines the time period over which RSUs vest, as well as the vesting schedule per award,
which is generally at the end of the three or four-year period following the grant date. PBRSUs have payouts that range from
0% to 150% of the target award. MBRSUs either payout at 100% or not at all. All RSUs settle in shares and are entitled to
participate in dividends declared on the Company's outstanding common stock, the accumulated balance of which is paid or
payable upon the vesting of the underlying RSUs. To the extent that performance or market conditions are not fully attained,
the underlying RSUs are forfeited.
The estimated fair values of MBRSUs are initially determined on the grant date using a Monte Carlo simulation model.
The Company's assumptions used as inputs into the valuation process are based on the expected life, which matches the applicable
vesting period.
The following weighted-average assumptions were used as inputs into the valuation of the MBRSUs granted during the
fiscal years indicated:
67
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
Weighted-average grant date fair value
Assumptions used to compute fair value :
Volatility
Risk free interest rate
Expected life
Expected dividend yield
2019
2018
2017
$
14.75
$
13.87
$
10.63
28.6%
2.5%
3 years
2.9%
27.3%
2.3%
3 years
2.8%
27.2%
1.6%
3 years
2.6%
The following table summarizes activity during 2019 with respect to RSUs (shares in thousands):
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Weighted-
Average Grant
Date
Fair Value
PBRSUs
MBRSUs
Weighted-
Average Grant
Date
Fair Value
405
$
$
335
(89) $
(57) $
$
594
20.92
20.40
18.93
19.44
21.07
270
$
114
$
— $
(97) $
$
287
12.46
14.75
—
12.68
13.29
The fair value of RSUs that vested and settled in shares during 2019, 2018 and 2017 was $1.9 million, $1.4 million, and
$9.9 million, respectively.
Stock Options
Stock options are granted with an exercise price equal to the market value of Knoll's common stock on the date of grant
and have a maximum contractual term of ten years. The fair value of each option is initially measured on the grant date using
the Black-Scholes option pricing model. The expected life is estimated based on the vesting period and expiration date of the
award. Expected volatility is estimated based on the historical volatility of the Company's stock price over a period of time
matching the expected life. The dividend yield is based on the Company's historical dividend record. The risk-free rate is based
on the applicable U.S. Treasury Note rate.
The following table summarizes activity during 2019 with respect to stock options (shares in thousands):
Outstanding at December 31, 2018
Granted
Outstanding at December 31, 2019
Exercisable at December 31, 2019
Shares under
Options
Weighted-
Average
Exercise Price
Weighted- Average
Remaining
Contractual Life
(years)
Aggregate
Intrinsic Value
20
90
110
20
$
$
$
22.59
20.44
20.83
22.59
8.1
3.6
$
$
0.1
0.1
The weighted-average grant-date fair value of options granted during the years ended December 31, 2019 and 2018 was
$4.65 and $4.01 per option, respectively. There were no options awarded in 2017. The total intrinsic value of options exercised
during the year ended December 31, 2017 was $0.2 million. No options were exercised during 2019 or 2018. The total grant-
date fair value of options that vested during each of the years ended December 31, 2019 and 2017 was less than $0.1 million.
There were no options that vested in 2018.
68
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
16. STOCKHOLDERS' EQUITY
Common Stock
The following table presents the change in the number of shares of common stock outstanding during the years ended
December 2019, 2018, and 2017 (table in thousands and is exclusive of non-voting restricted shares):
Shares outstanding as of December 31, 2016
Purchase of common stock
Shares issued under stock incentive plan, net of awards surrendered to pay applicable taxes
Exercise of stock options
Shares issued to Board of Directors in lieu of cash
Shares outstanding as of December 31, 2017
Shares issued under stock incentive plan, net of awards surrendered to pay applicable taxes
Shares issued to Board of Directors in lieu of cash
Shares outstanding as of December 31, 2018
Shares issued under stock incentive plan, net of awards surrendered to pay applicable taxes
Shares issued to Board of Directors in lieu of cash
Shares outstanding as of December 31, 2019
Treasury Stock (in thousands)
48,102
(17)
385
22
6
48,498
205
3
48,706
171
2
48,879
As of December 31, 2019 and 2018, the Company held 16,521 and 16,348 treasury shares, respectively. The Company
records repurchases of its common stock for treasury at cost.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of 10,000,000 shares of preferred stock with a par
value of $1.00 per share. Subject to applicable laws, the Board of Directors is authorized to provide for the issuance of preferred
shares in one or more series, and may determine the rights, preferences and terms thereof. To date, no preferred shares have
been issued or are outstanding.
69
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in AOCL by component for the following twelve-month periods ended
December 31 (in millions):
Unrealized gains
(losses) on
Interest Rate
Swaps
Foreign Currency
Translation
Adjustment
Foreign Currency
Translation
Adjustment on
Long-term
Intercompany
Notes
Pension and
Other Post-
Employment
Liability
Adjustment
Total
Balance as of December 31, 2016
$
— $
(14.0) $
— $
(29.4) $
(43.4)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from AOCL
Net current period other
comprehensive loss before income tax
Income tax benefit
Other comprehensive income (loss)
—
—
—
—
—
8.4
—
8.4
—
8.4
—
—
—
—
—
(11.2)
1.4
(9.8)
1.0
(8.8)
Balance as of December 31, 2017
$
— $
(5.6) $
— $
(38.2) $
Other comprehensive loss before
reclassifications
Amounts reclassified from AOCL
Net current period other
comprehensive loss before income tax
Income tax benefit (expense)
Other comprehensive loss (income)
ASU 2018-02
(1.6)
—
(1.6)
0.4
(1.2)
—
(13.2)
—
(13.2)
—
(13.2)
—
(8.1)
—
(8.1)
—
(8.1)
—
(2.4)
5.9
3.5
(0.9)
2.6
(4.7)
Balance as of December 31, 2018
$
(1.2) $
(18.8) $
(8.1) $
(40.3) $
Other comprehensive (loss) income
before reclassifications
Amounts reclassified from AOCL
Net current period other
comprehensive loss before income tax
Income tax benefit (expense)
Other comprehensive loss (income)
(6.0)
1.1
(4.9)
1.3
(3.6)
3.2
—
3.2
—
3.2
(4.9)
—
(4.9)
—
(4.9)
(15.4)
21.0
5.6
(1.3)
4.3
Balance as of December 31, 2019
$
(4.8) $
(15.6) $
(13.0) $
(36.0) $
(2.8)
1.4
(1.4)
1.0
(0.4)
(43.8)
(25.3)
5.9
(19.4)
(0.5)
(19.9)
(4.7)
(68.4)
(23.1)
22.1
(1.0)
—
(1.0)
(69.4)
The following pension and OPEB reclassifications were made from AOCL into earnings during the periods presented (in
millions):
Amortization of pension and other post-employment liability adjustments
Prior service credits (1)
Actuarial losses (1)
Loss recognized during settlement
Total before tax
Tax (benefit)
Net of tax
Year Ended December 31,
2019
2018
2017
$
$
0.7
$
0.7
$
(0.9)
(20.8)
(21.0)
(5.5)
(0.9)
(5.7)
(5.9)
(1.5)
(15.5) $
(4.4) $
1.5
(0.7)
(2.2)
(1.4)
(0.6)
(0.8)
(1) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension costs. See Note 10 for additional
information.
70
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
17. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the weighted-average number of common shares
outstanding for the period. Diluted EPS is similarly calculated but includes the weighted-average dilutive effect of outstanding
restricted shares, RSUs and stock options.
The following table sets forth the reconciliation from basic to dilutive average common shares (in millions):
Numerator:
Net earnings attributable to Knoll, Inc. stockholders
$
67.5
$
73.3
$
80.2
Years ended December 31,
2019
2018
2017
Denominator: (shares in thousands)
Denominator for basic earnings per shares - weighted-average shares
48,846
48,657
48,423
Effect of dilutive securities:
Potentially dilutive shares resulting from stock plans
Denominator for diluted earnings per share - weighted-average shares
Antidilutive equity awards not included in weighted-average common
shares - diluted
611
49,457
—
561
49,218
20
737
49,160
—
Net earnings per share:
Basic
Diluted
18. INCOME TAXES
$
$
1.38
1.36
$
$
1.51
1.49
$
$
1.66
1.63
The source of earnings before income taxes consisted of the following (in millions):
U.S. operations
Foreign operations
Total
Income tax expense (benefit) is comprised of the following (in millions):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Income tax expense (benefit)
71
2019
2018
2017
$
$
$
$
$
50.9
40.0
90.9
2019
8.5
5.3
10.9
24.7
(0.7)
(0.4)
(0.2)
(1.3)
23.4
$
$
$
$
$
67.3
30.9
98.2
2018
4.3
2.1
13.7
20.1
6.3
0.9
(2.4)
4.8
24.9
$
$
$
$
$
62.6
16.0
78.6
2017
11.7
2.4
3.9
18.0
(20.6)
2.5
(1.5)
(19.6)
(1.6)
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”), as enacted December 22, 2017, significantly revised U.S. tax law.
The law included significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from
35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S.
international taxation from a worldwide tax system to a territorial tax system.
During the fourth quarter of 2017, the Company recorded an estimated tax benefit derived from the enactment of the Tax
Act of $26.6 million, which primarily related to the remeasurement of the Company's net deferred tax liabilities in the U.S. and
the one-time transition tax on deemed repatriation of foreign earnings. During 2018, the Company completed its accounting for
the provisional amounts recognized in December 2017 and recorded an additional tax benefit of $1.7 million related to the rate
differential on the deferred provision to return.
The following table sets forth the tax effects of temporary differences that give rise to the Company's deferred tax assets
and liabilities (in millions):
Deferred tax assets
December 31,
2019
December 31,
2018
Accounts receivable, principally due to allowance for doubtful accounts
$
1.4
$
Inventories
NOL carryforwards
Accrued pension
Stock-based compensation
Compensation-related accruals
Warranty
OPEB obligation
Accrued liabilities and other items
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Intangibles
Plant and equipment
Gross deferred tax liabilities
Net deferred tax liabilities
$
$
5.9
5.0
5.8
4.8
1.2
2.7
1.0
8.3
36.1
(4.3)
31.8
$
—
5.9
6.9
2.1
3.7
0.7
2.1
0.9
8.4
30.7
(4.8)
25.9
(92.3)
(24.5)
(116.8)
(85.0) $
(85.6)
(26.8)
(112.4)
(86.5)
As of December 31, 2019, the Company had NOL carryforwards of approximately $18.7 million between the United
Kingdom ("U.K."), Germany and Brazil. These NOL carryforwards do not expire. The Company regularly evaluates positive
and negative evidence as it relates to realizability of deferred tax assets in each jurisdiction. During 2017, the Company determined
that the valuation allowance placed against the deferred tax asset associated with the UK NOL should be reversed, as a history
of positive earnings and anticipated future taxable income supported the conclusion that it is more likely than not that the related
tax benefit will be realized. This reversal resulted in the recognition of an income tax benefit of $2.6 million. The Company still
provides valuation allowances against the deferred tax assets associated with the NOL carryovers from operations in Germany
and Brazil due to the uncertainty of their realization, either in whole or in part.
The following table summarizes the activity related to the Company's deferred tax asset valuation allowance and the
changes therein during the periods presented (in millions):
Year ended December 31, 2017
Year ended December 31, 2018
Year ended December 31, 2019
Balance at
Beginning
of Year
Releases
(tax benefit
recognized) (1)
Other(2)
Balance at
End of Year
$
$
6.2
4.8
4.8
(2.6) $
—
(0.2)
1.2
$
—
(0.3)
4.8
4.8
4.3
72
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
(1) During 2017, the valuation allowance related to the NOL carryover from operations in the UK was fully released. During 2019, the
valuation allowance related to the NOL carryover from operations in Germany was partially released.
(2) Primarily foreign exchange impact
The following table sets forth a reconciliation of the statutory federal income tax rate to the effective income tax rate:
Federal statutory tax rate
Increase (decrease) in the tax rate resulting from:
State taxes, net of federal effect
Foreign operations, net (1)
Research and development tax credits
Tax Act (2)
Return to provision adjustments
Change in valuation allowance against deferred tax assets
Other
Effective tax rate
2019
2018
2017
21.0 %
21.0 %
35.0 %
4.2 %
2.5 %
(1.1)%
— %
(3.7)%
(0.3)%
3.2 %
25.8 %
2.4 %
0.7 %
(1.1)%
(3.2)%
1.1 %
— %
4.5 %
25.4 %
5.2 %
(0.9)%
(1.3)%
(33.9)%
(0.5)%
(3.3)%
(2.3)%
(2.0)%
(1) Includes the tax effects of income tax rate differentials, deductions and credits applicable to the operations of the Company's foreign
subsidiaries. Certain provisions of the Tax Act were newly effective for the Company in 2019, including provisions related to inclusions
of foreign-sourced earnings in excess of an allowable return on foreign subsidiaries' tangible assets. These provisions are designed to tax
global intangible low-taxed income ("GILTI"). The Company has elected to account for any GILTI tax in the period in which it is incurred.
(2) Primarily attributable to the impact of the remeasurement of domestic net deferred tax liabilities (at the lower statutory rate of 21.0%)
and the one-time transition tax on unremitted foreign earnings (See Note 2).
As of December 31, 2019, to the extent the Company’s earnings attributable to its foreign subsidiaries are not considered
permanently reinvested, a deferred tax liability for the tax consequences of remitting the accumulated earnings has been provided
in the financial statements.
The following table presents a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end
of the periods presented (in millions):
Balance, beginning of the year
Additions for tax position related to the current year
Lapse of statute of limitations
Balance, end of the year
2019
2018
2017
$
$
0.9
—
(0.1)
0.8
$
$
0.9
0.1
(0.1)
0.9
$
$
0.9
0.1
(0.1)
0.9
All of the unrecognized tax benefits as of December 31, 2019, if recognized, would affect the Company's effective tax
rate. The amounts of income tax-related interest and penalties recognized in the Consolidated Statements of Operations were
not significant for the years ended December 31, 2019 and 2018, and 2017. There were no amounts accrued for the payment of
income tax-related interest and penalties in the Consolidated Balance Sheets as of December 31, 2019 and 2018.
As of December 31, 2019, the Company is subject to U.S. Federal Income Tax examination for the tax years 2016 through
2019, and to non-U.S. income tax examination for the tax years 2012 to 2019. In addition, the Company is subject to state and
local income tax examinations for the tax years 2015 through 2019.
73
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
19. OTHER INCOME, NET
The components of other income, net are as follows (in millions):
Foreign exchange losses (gains)
Net periodic pension and OPEB benefit cost (credit)
Other, net
Other income, net
20. QUARTERLY RESULTS (UNAUDITED)
Years Ended December 31,
2019
2018
2017
$
$
$
1.5
(6.4)
1.1
(3.8) $
(2.0) $
(7.1)
(0.5)
(9.6) $
1.8
(9.6)
0.1
(7.7)
The following tables contain selected unaudited Consolidated Statements of Operations and Comprehensive Income data
for each quarter for the years ended December 31, 2019 and 2018. The operating results for any quarter are not necessarily
indicative of results for any future period. The quarterly results are as follows (in millions):
2019
Sales
Gross profit
Net earnings
Earnings per share—Basic
Earnings per share—Diluted
2018
Sales
Gross profit
Net earnings
Earnings per share—Basic
Earnings per share—Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
332.8
$
367.3
$
356.5
$
371.5
$
1,428.1
123.8
18.0
0.37
0.37
$
$
140.7
21.7
0.44
0.44
$
$
140.4
17.5
0.36
0.35
$
$
144.1
10.3
0.21
0.21
$
$
549.0
67.5
1.38
1.36
(1) (2) (3)
(1) (2) (3)
(1) (2) (3)
296.6
$
323.4
$
327.7
$
354.6
$
1,302.3
107.7
15.3
0.31
0.31
$
$
119.3
13.1
0.27
0.27
$
$
122.8
20.3
0.42
0.41
$
$
131.7
24.6
0.50
0.50
$
$
481.5
73.3
1.51
1.49
(4) (5) (6) (7)
(4) (5) (6) (7)
(4) (5) (6) (7)
$
$
$
$
$
$
(1) During the first, second, third and fourth quarters of 2019, the Company recorded pension settlement charges of $0.2 million, $0.5 million, $9.8 million
and $10.5 million, respectively.
(2) During the first, third and fourth quarters of 2019, the Company recorded restructuring charges of $0.1 million, $0.1 million and $0.6 million, respectively
within the Office segment related to an organizational realignment that will result in greater operating efficiency and control.
(3) During the fourth quarter of 2019, the Company recorded an intangible asset impairment charge of $6.5 million.
(4) During the second, third and fourth quarters of 2018, the Company recorded pension settlement charges of $4.6 million, $0.6 million and $0.5 million,
respectively.
(5) During the first, second, third and fourth quarters of 2018, the Company recorded restructuring charges of $0.5 million, $0.8 million, $1.2 million and $0.1
million, respectively within the Office segment related to an organizational realignment that will result in greater operating efficiency and control.
(6) During the first, second, third and fourth quarters of 2018, the Company recorded acquisition costs of $1.0 million, $0.5 million, $0.2 million and $0.2
million, respectively related to the acquisition of Muuto.
(7) The fourth quarter of 2018 includes the recognition of a tax benefit of $1.7 million related to the Tax Act.
74
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
21. SEGMENT AND GEOGRAPHIC REGION INFORMATION
The tables below present the Company’s segment information (in millions):
SALES
Office
Lifestyle
Corporate
Knoll, Inc.
INTERSEGMENT SALES (1)
Office
Lifestyle
Corporate
Knoll, Inc.
DEPRECIATION AND AMORTIZATION (2)
Office
Lifestyle
Corporate
Knoll, Inc.
OPERATING PROFIT
Office (3)
Lifestyle (4)
Corporate (4)
Knoll, Inc.(5)
CAPITAL EXPENDITURES (6)
Office
Lifestyle
Corporate
Knoll, Inc.
2019
2018
2017
873.8
$
797.1
$
554.3
—
505.2
—
733.3
399.6
—
1,428.1
$
1,302.3
$
1,132.9
2.1
9.9
—
$
1.6
$
10.8
—
12.0
$
12.4
$
$
23.9
14.1
0.5
$
20.7
12.9
0.6
38.5
$
34.2
$
$
64.2
90.2
(24.6)
$
49.5
90.0
(24.3)
129.8
$
115.2
$
36.1
14.7
1.1
$
32.7
$
8.3
0.9
51.9
$
41.9
$
1.3
10.9
—
12.2
18.7
6.3
0.9
25.9
26.1
78.5
(24.1)
80.5
33.3
5.9
0.5
39.7
$
$
$
$
$
$
$
$
$
$
(1)
Intersegment sales are presented on a cost-plus basis which takes into consideration the effect of transfer prices between legal entities.
(2) Excludes amortization of deferred financing fees.
(3) Within the Office segment, Knoll recorded a $16.3 million write-off of property, plant, and equipment during 2017; a $21.0 million, $5.7 million and $2.2
million pension settlement charge during 2019, 2018 and 2017, respectively; and a $0.8 million, $2.6 million and $2.2 million restructuring charge during
2019, 2018 and 2017, respectively.
(4) Knoll recorded acquisition costs of $0.6 million and $1.3 million related to the acquisition of Muuto within the Lifestyle segment and Corporate, respectively,
during 2018.
(5) The Company does not allocate interest expense or other (income) expense, net to the reportable segments.
(6) The amounts reported above do not account for the change in accrued capital costs during the years ended December 31, 2019, 2018 or 2017.
Many of the Company's facilities manufacture products for both reportable segments. Therefore, it is impractical to
disclose asset information on a segment basis.
75
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
The Company markets its products in the United States and internationally, with its principal international markets being
Canada and Europe. The table below contains information about the geographical areas in which the Company operates. Sales
are attributed to the geographic areas based on the origin of sale, and property, plant, and equipment, net is based on the geographic
area in which the asset resides (in millions):
United
States
Canada
Europe
Other
Consolidated
2019
Sales
Property, plant, and equipment, net
2018
Sales
Property, plant, and equipment, net
2017
Sales
$
$
$
1,183.6
$
37.2
$
206.9
$
191.3
28.9
18.8
1,066.8
$
37.3
$
197.4
$
172.7
26.9
15.4
977.7
$
52.9
$
100.2
$
Property, plant, and equipment, net
157.8
29.3
13.5
$
$
$
0.4
—
0.8
—
2.1
—
1,428.1
239.0
1,302.3
215.0
1,132.9
200.6
22. SUBSEQUENT EVENT
On January 16, 2020 the Company announced the closure of the Grand Rapids, Michigan manufacturing operations.
Under the restructuring plan, the Grand Rapids manufacturing operations are expected to be substantially closed by the
end of the second quarter of 2020. As a result of this restructuring plan, the Company will make changes to better optimize
its logistics operations which are expected to be substantially completed by the end of 2021. All product lines currently
manufactured in Grand Rapids will be transitioned to other Knoll manufacturing sites in North America.
76
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. We, under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as of the end of
the period covered by this report (December 31, 2019) ("Disclosure Controls"). Based upon the Disclosure Controls evaluation,
our principal executive officer and principal financial officer have concluded that the Disclosure Controls are effective in reaching
a reasonable level of assurance that (i) information required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and (ii) information required to be disclosed by us in the reports that
we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including
our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management's annual report on internal control over financial reporting. Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934, as amended, for the Company. Internal control over financial reporting is a process to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes
without limitation, maintaining records that in reasonable detail accurately and fairly reflect our transactions, providing reasonable
assurance that transactions are recorded as necessary for preparation of our financial statements, providing reasonable assurance
that receipts and expenditures 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. Because of its inherent limitations, internal control
over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be
prevented or detected.
Our management assessed the effectiveness of our internal control over financial reporting based on the framework in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework). Our evaluation of internal control over financial reporting did not include the internal controls of FHI LLC
(“Fully”), which was acquired on August 29, 2019, and is included in our 2019 consolidated financial statements and constitutes
3.2% of total assets as of December 31, 2019 and 1.3% and 2.6% of sales and net earnings, respectively, for the year then ended.
The Company is currently in the process of integrating Fully into its internal control over financial reporting process pursuant
to the Sarbanes-Oxley Act of 2002. The Company is evaluating changes to processes, information technology systems and other
components of internal controls over financial reporting as part of its ongoing integration activities, and as a result, controls may
be periodically changed. The Company believes, however, that it will be able to maintain sufficient controls over its financial
reporting throughout this integration process. Based on our assessment, with the exclusion of Fully, management concluded that
the Company's internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited
by Ernst & Young LLP, the Company’s independent registered public accounting firm, as stated in their report included in Item
8, “Financial Statements and Supplementary Data.”
Changes in Internal Control Over Financial Reporting. During the period covered by this report, there has been no change
in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
77
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Knoll, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Knoll, Inc.’s internal control over financial reporting as of December 31, 2019, 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). In our opinion, Knoll, Inc. (the Company) maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
As indicated in the accompanying Management’s annual report on internal control over financial reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls
of FHI LLC (Fully), which is included in the 2019 consolidated financial statements of the Company and constituted 3.2% of
total assets as of December 31, 2019 and 1.3% and 2.6% of sales and net earnings, respectively, for the year then ended. Our
audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over
financial reporting of Fully.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the 2019 consolidated financial statements of the Company and our report dated February 21, 2020 expressed
an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s annual
report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal 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 as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 21, 2020
78
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 relating to directors, director nominees and executive officers of the registrant is
incorporated by reference from the 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 2020 Annual Meeting of Stockholders (the “Proxy Statement”).
The information relating to the identification of the audit committee, audit committee financial expert and director
nomination procedures of the registrant 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. For further information see subsection “Code of Ethics” in our Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference from the information under the caption “Executive
Compensation” contained in our Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance Under Equity Compensation Plans
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not
approved by security holders
Total
Equity Compensation Plan Information
As of December 31, 2019
Number of Securities
to be Issued upon
Exercise of
Outstanding Options
(a)
Weighted-Average
Exercise Price of
Outstanding Options
(b)
Number of Shares Remaining for
Future Issuance Under Equity
Compensation Plans (Excluding
Securities Reflected in Column (a))
(c)
110,000
$
—
110,000
22.59
—
1,644,939
—
1,644,939
If there is an expiration, termination, or cancellation of any benefit granted under the plans without the issuance of shares,
the shares subject to or reserved 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 Certain Beneficial Owners and Management” contained in our Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is hereby incorporated by reference from the information under the captions
“Transactions with Related Persons” and “Director Independence” contained in our Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is hereby incorporated by reference from the information under the caption
“Independent Registered Public Accounting Firm” contained in our Proxy Statement.
79
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
Documents filed as part of this Form 10-K:
(1) CONSOLIDATED FINANCIAL STATEMENTS (ITEM 8)
• Consolidated Balance Sheets as of December 31, 2019 and 2018
• Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2019, 2018 and
2017
• Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017
• Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
• Notes to the Consolidated Financial Statements
• Report of Independent Registered Public Accounting Firm
(2) FINANCIAL STATEMENT SCHEDULES
• All schedules for which provision is made in the applicable regulation of the Commission have either been presented
in the Company's financial statements or are not required under the related instructions or are inapplicable and therefore
have been omitted.
(3) EXHIBITS
Exhibit
Number
2.1 (b)
2.2 (g)
3.1 (a)
3.2 (i)
Description
Share Purchase Agreement, dated as of December 10, 2017, among Knoll Denmark ApS, Maj Invest
Equity 4 K/S, B Holding 2005 ApS, KB ApS, Unos ApS and AK Cleemann Holding APS.
Securities Purchase Agreement, dated February 3, 2014, among Knoll, Inc., Holly Hunt Enterprises,
Inc., HHMI LLC, the Shareholders of Holly Hunt Enterprises, Inc. and the Members of HHMI LLC.
Amended and Restated Certificate of Incorporation of Knoll, Inc.
Amended and Restated By-Laws of Knoll, Inc.
4.1 (m)
Form of Stock Certificate.
4.2 *
10.1 (b)
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934
Third Amended and Restated Credit Agreement, dated as of January 23, 2018, by and among
Knoll, Inc., certain of the domestic subsidiaries of Knoll, Inc., Bank of America, N.A., as
Administrative Agent, Swing Line Lender and an L/C Issuer, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Joint Lead Arranger and Sole Bookrunner, and certain other lenders and the other
lenders party thereto.
80
Exhibit
Number
10.2 (q)
First Amendment to Third Amended and Restated Credit Agreement, dated as of August 26, 2019,
among Knoll, Inc., certain subsidiaries of Knoll, Inc., as borrowers, certain foreign and domestic
subsidiaries of Knoll, Inc., as guarantors, Bank of America, N.A., as Administrative Agent, Swing
Line Lender and L/C Issuer, and each of the lenders party thereto.
Description
10.3 (d)*
Amended and Restated Employment Agreement, dated as of July 1, 2016, between Knoll, Inc. and
Andrew B. Cogan.
10.4 (l)*
Amended and Restated Knoll, Inc. 2010 Stock Incentive Plan.
10.5 (o)*
Amended and Restated Knoll, Inc. 2013 Stock Incentive Plan
10.6 (e)
Amended and Restated Knoll, Inc. 2018 Stock Incentive Plan
10.7 (k)
Amended and Restated Knoll, Inc. Non-Employee Director Compensation Plan.
10.8 (h)*
Form of Restricted Share Agreement under the Non-Employee Director Compensation Plan (time
vesting).
10.9 (f)*
Form of Restricted Share Agreement under the 2010 Stock Incentive Plan (time vesting).
10.10 (f)*
Form of Restricted Share Agreement under the 2010 Stock Incentive Plan (time vesting with
accelerated performance vesting).
10.11 (f)*
Form of Non-Qualified Stock Option Agreement under the 2010 Stock Incentive Plan.
10.12 (p)*
Form of Performance-Based Stock Unit Agreement under the 2013 Stock Incentive Plan.
10.13 (n)*
10.14 (c)*
10.15 (c)*
Form of Performance-Based Stock Unit Agreement under the 2013 Stock Incentive Plan (enhanced
vesting).
Form of Restricted Share Agreement under the 2013 Stock Incentive Plan (updated change in
control).
Form of Performance-Based Stock Unit Agreement under the 2013 Stock Incentive Plan (updated
change in control).
10.16 (r)*
Form of Performance-Based Stock Unit Agreement under the 2018 Stock Incentive Plan.
10.17 (r)*
Form of Restricted Share Agreement under the 2018 Stock Incentive Plan.
10.18 (r)*
Form of Non-Qualified Stock Option Agreement under the 2018 Stock Incentive Plan.
10.19 (a)*
Form of Director and Officer Indemnification Agreement.
10.20 (j)*
10.21 (j)*
Andrew B. Cogan 2020 Incentive Compensation Letter, dated December 2, 2019.
2020 Incentive Compensation Letter for Named Executive Officers (other than CEO), dated
December 2, 2019.
10.22 (i)*
Severance Agreement between Company and Charles W. Rayfield.
10.23 (i)*
Severance Agreement between Company and Michael A. Pollner.
10.24 *
Severance Agreement between Company and Christopher M. Baldwin.
18
21
23.1
24.1
31.1
Preferability Letter of Ernst & Young LLP (filed herewith)
Subsidiaries of Knoll, Inc.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney [(included on signature page)].
Certification for Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended.
81
Exhibit
Number
31.2
32.1
32.2
101
104
Description
Certification for Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended.
Certification for Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act
of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification for Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of
1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
The following materials from the Company's Annual Report on Form 10-K for the period ended
December 31, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language):
(i) Consolidated Balance Sheets as of December 31, 2019, and December 31, 2018, (ii) Consolidated
Statements of Operations and Comprehensive Income for the years ended December 31, 2019,
December 31, 2018 and December 31, 2017, (iii) Consolidated Statements of Equity for the years
ended December 31, 2019, December 31, 2018, and December 31, 2017, (iv) Consolidated
Statements of Cash Flows for the years ended December 31, 2019, December 31, 2018, and
December 31, 2017 and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.**
Cover Page Interactive Data File (formatted as Inline XBRL)
_______________________________________________________________________________
* 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
or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and
Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
Incorporated by reference to Knoll, Inc.'s Registration Statement on Form S-1 (File No. 333-118901), which was declared effective by the Commission
on December 13, 2004.
Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on January 25, 2018.
Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on May 10, 2017.
Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2016.
Incorporated by reference to Knoll, Inc.'s Annual Report on Form 8-K filed with the Commission on April 9, 2018.
Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2010.
Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on February 3, 2014.
Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2007.
Incorporated by reference to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2018.
Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on December 6, 2019.
Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2017.
Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on May 11, 2010.
(m)
Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2012.
(n)
(o)
(p)
(q)
(r)
Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2015.
Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on April 26, 2013.
Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013.
Incorporated by reference to Knoll, Inc.'s Current Report on Form 8-K filed with the Commission on August 26, 2019.
Incorporated by reference to Knoll, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2018.
82
ITEM 16. FORM 10-K SUMMARY
None.
83
SIGNATURES
Pursuant 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 to be signed on its behalf by the undersigned, thereunto duly authorized, on this 21st day of February
2020.
KNOLL, INC.
By:
/s/ ANDREW B. COGAN
Andrew B. Cogan
Chairman and Chief Executive Officer
________________________________________________________________________________________________________________________
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and
appoints Andrew B. Cogan and Charles W. Rayfield, 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, in any and all capacities, to sign any and all amendments to this
Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed by the
following persons on behalf of the Registrant and in the capacities and on the date indicated.
/s/ ANDREW B. COGAN
Andrew B. Cogan
Chairman of the Board and Chief Executive Officer,
Knoll, Inc.
2/21/2020
/s/CHARLES W. RAYFIELD
Charles W. Rayfield
Chief Financial Officer (Chief Accounting Officer)
2/21/2020
/s/ DANIEL W. DIENST
Daniel W. Dienst
/s/ JEFFREY A. HARRIS
Jeffrey A. Harris
/s/ RONALD R. KASS
Ronald R. Kass
/s/ JOHN F. MAYPOLE
John F. Maypole
/s/ SARAH E. NASH
Sarah E. Nash
/s/ STEPHEN F. FISHER
Stephen F. Fisher
/s/ STEPHANIE STAHL
Stephanie Stahl
/s/ CHRISTOPHER G. KENNEDY
Christopher G. Kennedy
Director
Director
Director
Director
Director
Director
Director
Director
84
2/21/2020
2/21/2020
2/21/2020
2/21/2020
2/21/2020
2/21/2020
2/21/2020
2/21/2020
Exhibit 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 the statements 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 the financial 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 in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness 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 recent fiscal 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, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 21, 2020
/s/ Andrew B. Cogan
Andrew B. Cogan
Chairman and Chief Executive Officer
Exhibit 31.2
Certification of Chief Financial Officer
I, Charles W. Rayfield, 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 the statements 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 the financial 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 in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness 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 recent fiscal 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, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 21, 2020
/s/ Charles W. Rayfield
Charles W. Rayfield
Chief Financial Officer
Certification of Chief Executive Officer
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Knoll, Inc. (the “Company”) for the year ended December 31,
2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Andrew B. Cogan, Chief Executive
Officer of the Company, certifies, pursuant to 18 U.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; and
b. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 21, 2020
/s/ Andrew B. Cogan
Andrew B. Cogan
Chairman and Chief Executive Officer
Certification of Chief Financial Officer
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Knoll, Inc. (the “Company”) for the year ended December 31,
2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Charles W. Rayfield, Chief Financial
Officer of the Company, certifies, pursuant to 18 U.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; and
b. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 21, 2020
/s/ Charles W. Rayfield
Charles W. Rayfield
Chief Financial Officer
(This page has been left blank intentionally.)
(This page has been left blank intentionally.)
Corporate Information
Officers
Andrew B. Cogan
Chairman of the Board
and Chief Executive Officer
Charles W. Rayfield
Senior Vice President and
Chief Financial Officer
Christopher M. Baldwin
President and Chief Operating
Officer, Knoll Office
Benjamin A. Pardo
Executive Vice President and
Director of Design
David L. Schutte
Executive Vice President,
Specialty Businesses
Michael A. Pollner
Senior Vice President,
Chief Administrative Officer,
General Counsel and Secretary
Roxanne B. Klein
Senior Vice President,
Human Resources
Executive Offices
Knoll, Inc.
1235 Water Street
East Greenville, PA 18041
215 679-7991
knoll.com
Board of Directors
Andrew B. Cogan
Director
Chairman of the Board
and Chief Executive Officer
Daniel W. Dienst
Director
Stephen F. Fisher
Director
Jeffrey A. Harris
Director
Ronald R. Kass
Director
Christopher G. Kennedy
Director
John F. Maypole
Director
Sarah E. Nash
Director
Stephanie Stahl
Director
Stock Listing
New York Stock Exchange
Ticker Symbol: KNL
Muuto
Østergade 36-38
DK-1100 Copenhagen
Denmark
For showrooms and sales offices:
muuto.com
HOLLY HUNT
801 West Adams Street # 700,
Chicago, IL 60607
312 329-5999
For showrooms and sales offices:
hollyhunt.com
Spinneybeck | FilzFelt
425 CrossPoint Parkway
Getzville, NY 14068
716 446-2380
For showrooms and sales offices:
spinneybeck.com
Locations
Knoll, Inc.
Knoll Office KnollStudio
KnollExtra KnollTextiles
1235 Water Street
East Greenville, PA 18041
215 679-7991
For showrooms and sales offices:
knoll.com
DatesWeiser
45 West 21st Street
New York, NY 10010
212 727-8555
For showrooms and sales offices:
datesweiser.com
Edelman Leather
80 Pickett District Road
New Milford, CT 06776
860 350-9600
For showrooms and sales offices:
edelmanleather.com
Fully
117 SE Taylor St
Suite 301
Portland, OR 97214
888 508-3725
For showrooms and sales offices:
fully.com
Independent Registered Public Accounting Firm
Ernst & Young
One Commerce Square
Suite 700
2005 Market Street
Philadelphia, PA 19103
Transfer Agent and Registrar
Computershare Trust Company, N.A.
PO Box 43023
Providence, RI 02940-3023
www.computershare.com
2019
Annual
Report
© 2020 Knoll, Inc. All rights reserved.
Printed in the United States.
Knoll at Fulton Market, Chicago