<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
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. 333-02972
KNOLL, INC.
A Delaware Corporation I.R.S. Employer No. 13-3873847
1235 Water Street
East Greenville, PA 18041
Telephone Number (215) 679-7991
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of May 14, 1997, there were 42,732,227 shares of the Registrant's common
stock, par value $0.01 per share, outstanding.
<PAGE>
KNOLL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
PART I -- FINANCIAL INFORMATION
<S> <C> <C>
1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996................................................ 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1997, the one month ended March 31, 1996
and the two months ended February 29, 1996 (Predecessor)......... 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1997, the one month ended March 31, 1996
and the two months ended February 29, 1996 (Predecessor)......... 5
Notes to the Condensed Consolidated Financial Statements.......... 6
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 10
PART II -- OTHER INFORMATION
2. Changes in Securities................................................ 12
4. Submission of Matters to a Vote of Security Holders.................. 12
5. Other Information.................................................... 12
6. Exhibits and Reports on Form 8-K..................................... 13
Signatures............................................................... 14
Exhibit Index............................................................ 15
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
KNOLL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 11,064 $ 8,804
Customer receivables, net............. 105,478 111,166
Inventories........................... 61,033 57,811
Deferred income taxes................. 19,010 17,474
Prepaid and other current assets...... 4,914 7,424
-------- --------
Total current assets............... 201,499 202,679
Property, plant, and equipment at cost.. 196,726 195,483
Accumulated depreciation................ (25,826) (19,265)
-------- --------
Property, plant and equipment, net. 170,900 176,218
Intangible assets at cost............... 293,206 293,753
Accumulated amortization................ (8,873) (6,813)
-------- --------
Intangible assets, net............. 284,333 286,940
Other noncurrent assets................. 5,302 9,875
-------- --------
Total Assets....................... $662,034 $675,712
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.. $ 20,238 $ 23,265
Accounts payable...................... 50,226 50,250
Income taxes payable.................. 4,292 388
Other current liabilities............. 54,027 64,022
-------- --------
Total current liabilities.......... 128,783 137,925
Long-term debt.......................... 315,796 330,889
Postretirement benefits obligation...... 16,193 15,873
Other noncurrent liabilities............ 13,888 13,221
-------- --------
Total liabilities.................. 474,660 497,908
-------- --------
Stockholders' equity:
Preferred stock; $1.00 par value;
authorized 10,000,000 shares, issued
and outstanding 1,602,998 shares
of Series A 12% Participating
Convertible Preferred Stock
(liquidation preference of
$160,300)........................... 1,603 1,603
Common stock, $0.01 par value;
authorized 100,000,000 shares;
issued and outstanding 7,291,308
shares.............................. 73 73
Additional paid-in-capital............ 160,147 160,147
Unearned stock grant compensation..... (1,381) (1,387)
Retained earnings..................... 28,474 16,836
Cumulative foreign currency
translation adjustment.............. (1,542) 532
-------- --------
Total stockholders' equity........ 187,374 177,804
-------- --------
Total Liabilities and
Stockholders' Equity............ $662,034 $675,712
</TABLE> ======== ========
See accompanying notes.
3
<PAGE>
KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
| THE KNOLL GROUP, INC.
| (PREDECESSOR)
THREE MONTHS ENDED ONE MONTH ENDED | TWO MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996 | FEBRUARY 29, 1996
------------------ --------------- | ---------------------
<S> <C> <C> | <C>
Sales......................... $177,833 $48,080 | $ 90,232
|
Cost of sales................. 109,859 32,543 | 59,714
-------- ------- | --------
|
Gross profit.................. 67,974 15,537 | 30,518
|
Selling, general and |
administrative expenses..... 40,058 10,999 | 21,256
|
Westinghouse long-term |
incentive compensation...... -- -- | 47,900
|
Allocated corporate |
expenses.................... -- -- | 921
-------- ------- | --------
|
Operating income (loss)....... 27,916 4,538 | (39,559)
|
Interest expense.............. 7,742 3,602 | 340
|
Other expense, net............ 74 49 | 296
-------- ------- | --------
|
Income (loss) before income |
tax expense (benefit)....... 20,100 887 | (40,195)
|
Income tax expense |
(benefit)................... 8,462 438 | (16,107)
-------- ------- | --------
|
Net income (loss)............. $ 11,638 $ 449 | $(24,088)
======== ======= | ========
|
Earnings per share (Note 9): |
Pro forma net income per |
share of common stock..... $ 0.33 $ 0.01 |
======== ======= |
|
Pro forma weighted average |
shares of common stock |
outstanding................. 34,815 34,815 |
======== ======= |
</TABLE>
See accompanying notes.
4
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KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
| THE KNOLL GROUP, INC.
| (PREDECESSOR)
THREE MONTHS ENDED ONE MONTH ENDED | TWO MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996 | FEBRUARY 29, 1996
------------------ --------------- | ---------------------
<S> <C> <C> | <C>
CASH FLOWS FROM OPERATING |
ACTIVITIES |
Net income (loss).......... $ 11,638 $ 449 | $(24,088)
Noncash items included |
in income: |
Depreciation and |
amortization........... 8,693 2,903 | 4,317
Other.................... 81 -- | --
Changes in assets |
and liabilities: |
Customer receivables..... 4,693 (3,684) | 8,798
Inventories.............. (3,845) 2,656 | 671
Accounts payable......... 1,053 (2,853) | (15,292)
Current and deferred |
income taxes........... 6,830 873 | (16,627)
Other current assets and |
liabilities............ (9,686) 3,807 | (4,907)
Other noncurrent assets |
and liabilities........ 4,470 (330) | (6,911)
-------- --------- | --------
Cash provided by (used in) |
operating activities..... 23,927 3,821 | (54,039)
-------- --------- | --------
|
CASH FLOWS FROM INVESTING |
ACTIVITIES |
Acquisition of the Company |
from Westinghouse........ -- (579,801) | --
Purchases of property, |
plant and equipment...... (2,844) (447) | (2,296)
Proceeds from sale of |
assets................... 33 -- | --
-------- --------- | --------
Cash used in investing |
activities............... (2,811) (580,248) | (2,296)
-------- --------- | --------
CASH FLOWS FROM FINANCING |
ACTIVITIES |
Repayment of short-term |
debt..................... -- -- | (3,805)
Proceeds from long-term |
debt..................... 2,500 425,000 | --
Repayment of long-term |
debt..................... (20,500) -- | --
Issuance of stock.......... -- 160,000 | --
Net receipts from parent |
company.................. -- -- | 60,848
-------- --------- | --------
Cash provided by (used in) |
financing activities..... (18,000) 585,000 | 57,043
-------- --------- | --------
|
Effect of exchange rate |
changes on cash and cash |
equivalents.............. (856) 379 | 58
-------- --------- | --------
Increase in cash and cash |
equivalents.............. 2,260 8,952 | 766
|
Cash and cash equivalents |
at beginning of period... 8,804 2,335 | 1,569
-------- --------- | --------
Cash and cash equivalents |
at end of period......... $ 11,064 $ 11,287 | $ 2,335
======== ========= | ========
</TABLE>
See accompanying notes.
5
<PAGE>
KNOLL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial statements of
Knoll, Inc. (the Company) and The Knoll Group, Inc. (the Predecessor) have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X and therefore do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation are reflected
in the condensed consolidated financial statements. The condensed consolidated
balance sheet as of December 31, 1996 and the condensed consolidated statement
of operations and condensed consolidated statement of cash flows for the two
months ended February 29, 1996 are derived from audited financial statements.
The condensed consolidated financial statements and notes thereto should be read
in conjunction with the consolidated financial statements and notes thereto
contained in the Company's annual report on Form 10-K for the year ended
December 31, 1996. The results of operations for the three months ended March
31, 1997 are not necessarily indicative of the results to be expected for the
full year ending December 31, 1997.
2. ACQUISITION OF KNOLL
On December 20, 1995, Westinghouse Electric Corporation (Westinghouse) entered
into a Stock Purchase Agreement (the Agreement) with T.K.G. Acquisition Corp.
(TKG), a subsidiary of Warburg, Pincus Ventures, L.P. Under the terms of the
Agreement, TKG acquired all of the outstanding capital stock of The Knoll Group,
Inc. and related entities on February 29, 1996 through its wholly owned
subsidiary T.K.G. Acquisition Sub, Inc. Immediately following this transaction,
T.K.G. Acquisition Sub, Inc. and The Knoll Group, Inc. merged with and into
Knoll North America, Inc., the principal United States operating company of The
Knoll Group, Inc. Knoll North America, Inc. changed its name to Knoll, Inc. at
the time of the merger. On March 14, 1997, Knoll, Inc. merged with and into
TKG. TKG then changed its name to Knoll, Inc.
3. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(In Thousands)
<S> <C> <C>
Raw materials.... $35,969 $34,147
Work in process.. 7,488 7,508
Finished goods... 17,576 16,156
------- -------
Inventories...... $61,033 $57,811
======= =======
</TABLE>
4. DIVIDENDS IN ARREARS
Dividends on the Series A 12% Participating Convertible Preferred Stock (Series
A Preferred Stock) are fully cumulative, accrue on a quarterly basis at a rate
of $12 per annum and are payable only at the discretion of the Board of
Directors. Upon conversion of Series A Preferred Stock to common stock, the
holders lose their right to any dividends, including dividends in arrears. As
of March 31, 1997 and December 31, 1996, the aggregate
6
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amount of cumulative dividends in arrears was $21.9 million and $16.6 million,
respectively, and the per share amount was $13.66 and $10.36, respectively. See
Note 8.
5. PRO FORMA RESULTS OF OPERATIONS
The following table sets forth unaudited pro forma consolidated results of
operations assuming that the acquisition of the Predecessor from Westinghouse
had taken place on January 1, 1996:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1996
--------------
(In Thousands,
Except Per Share
Amount)
<S> <C>
Sales................................... $138,312
Cost of sales........................... 93,610
--------
Gross profit............................ 44,702
Selling, general and administrative
expenses.............................. 33,038
--------
Operating income........................ 11,664
Interest expense........................ 10,680
Other expense, net...................... 345
--------
Income before income tax expense........ 639
Income tax expense...................... 442
--------
Net income.............................. $ 197
========
Earnings per share (Note 9):
Pro forma net income per share of
common stock........................ $ 0.01
========
Pro forma weighted average shares of
common stock outstanding.............. 34,815
========
</TABLE>
The pro forma results of operations for the three month period ended March 31,
1996 reflect the following adjustments: cost of sales and selling, general and
administrative expenses have been increased by $552,000 and $369,000,
respectively, to reflect the reclassification of allocated corporate expenses
from Westinghouse. The reclassified allocated corporate expenses approximate
the replacement cost to the Company for services formerly provided by
Westinghouse to the Predecessor, including (i) benefit expense related to the
adoption of various independent benefit plans comparable to Westinghouse benefit
plans and (ii) the cost of services required to replace specific activities
formerly provided by Westinghouse to the Predecessor, including audit, tax,
general ledger, accounts receivable, human resources, legal, insurance and data
communications. Cost of sales has been increased by $801,000 to reflect
increased depreciation resulting from the acquisition of the Predecessor from
Westinghouse. Selling, general and administrative expenses have been increased
by $414,000 to reflect increased depreciation and amortization resulting from
the acquisition. The Westinghouse long-term incentive compensation of $47.9
million for the two months ended February 29, 1996 has been eliminated on a pro
forma basis due to the amounts becoming payable, and for which the amounts
payable were established and subsequently paid by Westinghouse, as a result of
consummation of the acquisition. Interest expense (including the amortization
of deferred financing fees) has been increased by $6.7 million assuming the
acquisition had been completed on January 1, 1996. Interest expense assumes a
weighted average interest rate of 9.2%, which approximates the actual interest
rate on the date of the acquisition on $424.1 million in average outstanding
borrowings and amortization of deferred financing charges. If interest rates
changed 1/8%, the pro forma adjustment for interest costs would have changed by
approximately $88,000. Income tax expense has been increased by $16.1 million
to reflect the assumed tax rate applied to the pro forma income. The pro forma
information does not purport to represent what the Company's
7
<PAGE>
results actually would have been if such events had occurred at the date
indicated, nor does such information purport to project the results of the
Company for any future periods. The unaudited pro forma financial information
is based upon assumptions that the Company believes are reasonable.
6. STOCK INCENTIVE PLANS
On February 14, 1997, the Company established the Knoll, Inc. 1997 Stock
Incentive Plan (the 1997 Stock Plan). Under the 1997 Stock Plan, awards
denominated or payable in shares or options to purchase shares of the Company's
common stock may be granted to directors, officers and other key employees of
the Company. A combined maximum of 1,255,772 shares or options to purchase
shares may be granted under the 1997 Stock Plan. The 1997 Stock Plan provides
for the issuance of discounted options as well as repricing of options. A Stock
Plan Committee of the Company's Board of Directors has sole discretion
concerning administration of the 1997 Stock Plan, including selection of
individuals to receive awards, types of awards, the terms and conditions of the
awards and the time at which awards will be granted. The Board of Directors may
amend or terminate the 1997 Stock Plan at its discretion at any time.
On March 7, 1997, the Company granted 753,456 options to purchase shares under
the 1997 Stock Plan in addition to granting the remaining 565,096 shares
available under the Knoll, Inc. 1996 Stock Incentive Plan in the form of
options. The exercise price of these options is $15.93 per share. In addition,
in connection with the public offering discussed in Note 8, the Company has
granted each of its two new directors options to purchase 25,000 shares of
common stock under the 1997 Stock Plan at an exercise price of $17.00 per share.
7. CAPITAL STRUCTURE
On May 6, 1997, the Company's Certificate of Incorporation was amended to
increase the number of authorized shares of common stock from 24,000,000 to
100,000,000, increase the number of authorized shares of preferred stock from
3,000,000 to 10,000,000 and effect a 3.13943-for-1 split of common stock whereby
each share of common stock was exchanged for 3.13943 shares of common stock.
The amendment to the Certificate of Incorporation had no effect on the par value
of the common or preferred stock. Fractional shares resulting from the common
stock split will be settled in cash.
8. INITIAL PUBLIC OFFERING
On April 18, 1997, April 30, 1997, May 6, 1997 and May 9, 1997, the Company
filed amendments to its registration statement on Form S-1 dated March 14, 1997
with the Securities and Exchange Commission in connection with the initial
public offering of its common stock. The Securities and Exchange Commission
declared the registration statement effective on May 9, 1997. In connection with
the public offering, a portion of the Company's Series A Preferred Stock was
redeemed, and the remaining shares of Series A Preferred Stock were converted
into shares of common stock. The net proceeds from the sale of 8,000,000 shares
of common stock amounted to $126.3 million after deducting related expenses. The
net proceeds together with borrowings of $18.8 million under the Company's
revolving credit facilities (i) have been used to redeem a portion of the Series
A Preferred Stock for $80.0 million and (ii) will be used to redeem an aggregate
principal amount of $57.8 million of the Company's 10.875% senior subordinated
notes for a total redemption price of $65.1 million, including a redemption
premium of $5.7 million and accrued and unpaid interest thereon of $1.6 million.
The redemption premium of $5.7 million, along with the write-off of unamortized
financing costs of $3.5 million associated with the redemption of the senior
subordinated notes, will result in an extraordinary loss of $5.6 million, net of
taxes, that will be reflected in the Company's second quarter financial
statements.
8
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9. SHARE AND PER SHARE AMOUNTS
All common stock share and per share amounts have been adjusted to give
retroactive effect to the 3.13943-for-1 stock split that occurred on May 6,
1997, as discussed in Note 7.
Because of the significance of the redemption and conversion into common stock
of the outstanding Series A Preferred Stock in connection with the initial
public offering discussed in Note 8, historical net income (loss) per share is
not presented herein. Pro forma net income per share amounts are based on the
weighted average number of shares of common stock and common stock equivalents
(employee stock options) outstanding during the period, after giving effect to
the redemption and conversion into common stock of the Series A Preferred Stock
assuming such redemption and conversion had occurred at the beginning of each
period presented. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, all common stock and options to purchase common
stock issued at prices below the initial public offering price per share during
the twelve month period immediately preceding the initial filing date of the
Company's registration statement for the offering have been included as
outstanding for all periods presented (using the treasury stock method at the
initial public offering price).
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
Knoll, Inc. (the Company) was formed as a result of the acquisition of the
office furniture business unit (The Knoll Group, Inc. and related entities) of
Westinghouse Electric Corporation (Westinghouse) on February 29, 1996. This
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" has been prepared using the unaudited actual results for the three
months ended March 31, 1997 and the unaudited pro forma results for the three
months ended March 31, 1996. The unaudited condensed pro forma consolidated
statement of operations for the three months ended March 31, 1996 gives effect
to the acquisition of The Knoll Group, Inc. and related entities from
Westinghouse as if the acquisition occurred on January 1, 1996. This
presentation provides information about the impact of the acquisition by showing
how it might have affected historical financial statements if the acquisition
had been consummated at such earlier time. Management believes that a
comparison between actual results for the three months ended March 31, 1997 and
pro forma results for the three months ended March 31, 1996 is more meaningful
than a comparison between actual results for both periods due to the
significance of the acquisition.
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
COMPARISON OF FIRST QUARTER ENDED MARCH 31, 1997 TO PRO FORMA FIRST QUARTER
ENDED MARCH 31, 1996
Sales. Sales for the first quarter of 1997 were $177.8 million, an increase of
$39.5 million, or 28.6%, from first quarter 1996 sales of $138.3 million. The
sales growth principally resulted from increased volume across all North
American product categories, offset by a slight reduction in European volume. A
significant portion of the growth in sales volume was attributable to sales of
office systems, which grew $32.6 million, or 32.2%. Additionally, first quarter
sales growth benefited from favorable industry dynamics which the Company
believes were, in part, the result of strong white collar employment growth in
the United States (U.S.) in the second half of 1996.
Gross profit. Gross profit was $68.0 million for the first quarter of 1997,
increasing $23.3 million, or 52.1%, from gross profit of $44.7 million for the
first quarter of 1996. Gross profit as a percentage of sales increased to 38.2%
for the first quarter of 1997 from 32.3% for the first quarter of 1996. These
increases were principally due to the higher sales volume and better pricing in
North America, continued worldwide factory operating cost improvements, the
benefit of lower operating costs in Europe resulting from consolidation and
centralization of functions implemented in 1996 and other fixed cost reductions.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $40.1 million for the first quarter of 1997, an
increase of $7.1 million from $33.0 million for the first quarter of 1996. The
increase was primarily due to increased sales incentive compensation and
employee benefits related to higher sales volumes in North America and expenses
related to new product and technology initiatives, partially offset by the
centralization of administrative functions in Europe. As a percentage of sales,
the Company's selling, general and administrative expenses decreased to 22.6%
for the first quarter of 1997 from 23.9% for the same period in 1996.
Operating income. Operating income increased to $27.9 million for the first
quarter of 1997 from $11.7 million for the first quarter of 1996. As a
percentage of sales, operating income increased to 15.7% for the first quarter
of 1997 from 8.5% in the first quarter of 1996. As noted above, this
improvement was driven by higher sales volume, better pricing, factory cost
improvements and efficiencies gained from consolidation and centralization of
administrative functions.
Interest expense. Interest expense decreased $2.9 million for the first quarter
of 1997 to $7.7 million from $10.7 million for the first quarter of 1996. The
decrease was primarily attributable to the refinancing of the Company's
previously existing credit agreement in December 1996 and the prepayment of
$72.0 million of indebtedness under such credit agreement during the ten month
period ended December 31, 1996.
10
<PAGE>
Income tax expense. Income tax expense for the first quarter of 1997 was 42.1%
of pre-tax income as compared to 69.2% for the first quarter of 1996. The
decrease in the effective tax rate was primarily attributable to pre-tax losses
incurred in Europe in the first quarter of 1996 for which no benefit was
recorded.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1997, the Company generated cash flows from
operations of $23.9 million. Cash provided by operations resulted primarily
from earnings net of depreciation and amortization.
The Company's investing activities used $2.8 million during the first quarter of
1997 for capital expenditures. The $18.0 million used by the Company in its
financing activities during the first quarter of 1997 included $14.3 million for
the prepayment of senior bank debt.
As of March 31, 1997, the Company had an aggregate of $62.3 million available
for borrowing under its U.S. and European revolving credit facilities. The
Company believes that internally generated cash flows together with borrowings
under its revolving credit facilities will be sufficient to meet its cash needs
for the next twelve months. The Company's debt instruments contain covenants
which, among other things, restrict the Company's ability to incur additional
indebtedness and pay dividends as well as require the maintenance of certain
financial ratios.
BACKLOG
The Company's backlog of unfilled orders was $110.7 million at March 31, 1997
and $84.1 million at March 31, 1996. The Company expects to fill substantially
all outstanding unfilled orders by December 31, 1997. The Company manufactures
substantially all of its products to order, and its average manufacturing time
is approximately five weeks. As a result, backlog is not a significant factor
used to predict the Company's long-term business prospects.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain portions of this Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contain various
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events. The Company cautions that these statements are further qualified
by important factors that could cause actual results to differ materially from
those in the forward looking statements, including, without limitation, the high
level of the Company's indebtedness, which requires a substantial portion of the
Company's cash flow from operations to be dedicated to debt service, making such
cash flow unavailable for other purposes, and which could limit the Company's
flexibility in reacting to changes in its industry or economic conditions
generally. In addition, these statements are further qualified by other
important factors that could cause actual results to differ materially from
those in the forward looking statements, including, without limitation, the
ability of the Company to sustain the cost savings achieved through its
restructuring program; the Company's dependence on key personnel; the highly
competitive nature of the markets in which the Company competes; the ability of
the Company to maintain its relationships with its dealers; environmental laws
and regulations, including those that may be enacted in the future, that affect
the ownership and operation of the Company's manufacturing plants; fluctuations
in foreign currency exchange rates; and fluctuations in industry revenues driven
by a variety of macroeconomic factors, including white collar employment levels,
corporate cash flows, and non-residential commercial construction, as well as by
a variety of industry factors such as corporate reengineering and restructuring,
technology demands, ergonomic, health and safety concerns and corporate
relocations.
11
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
SALES OF UNREGISTERED SECURITIES
Options to purchase 565,096 shares and 753,456 shares of the Company's common
stock were granted to certain employees of the Company on March 7, 1997 pursuant
to the Knoll, Inc. 1996 Stock Incentive Plan and the Knoll, Inc. 1997 Stock
Incentive Plan (the 1997 Stock Plan), respectively. These options were issued
at an exercise price of $15.93 per share and vest over periods determined at
their date of grant. Such grants were made in reliance on the exemption from
registration pursuant to Section 4(2) of the Securities Act.
In connection with the initial public offering of the Company's common stock,
options to purchase an aggregate of 50,000 shares of common stock were granted
to the Company's two new directors pursuant to the 1997 Stock Plan. These
options were granted at an exercise price of $17.00 per share and vest at a rate
of 20% per year, commencing on the date of grant. Such grants were made in
reliance on the exemption from registration pursuant to Section 4(2) of the
Securities Act.
RESTRICTIONS ON DIVIDENDS
The credit agreement governing the Company's term and revolving loans and the
indenture relating to the Company's 10.875% senior subordinated notes restrict
the Company's ability to pay dividends to its stockholders. In addition, the
current policy of the Company's Board of Directors is to retain earnings to
finance the operations and expansion of the Company's business. Any future
determination to pay dividends will depend on the Company's results of
operations, financial condition, capital requirements, contractual restrictions
and other factors deemed relevant by the Board of Directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
On February 14, 1997, by written consent of the Company's majority stockholder
in an action taken without a meeting, the Knoll Inc. 1997 Stock Incentive Plan
was approved and adopted.
On March 4, 1997, by written consent of the Company's majority stockholder in an
action taken without a meeting, an amendment to and restatement of the Company's
Certificate of Incorporation was approved and adopted.
On May 6, 1997, by written consent of the Company's majority stockholder in an
action taken without a meeting, in lieu of the Company's 1997 annual meeting of
stockholders, amendments to and restatements of the Company's Certificate of
Incorporation and By-Laws were approved and adopted.
ITEM 5. OTHER INFORMATION
- --------------------------
On April 18, 1997, April 30, 1997, May 6, 1997 and May 9, 1997, the Company
filed amendments to its registration statement on Form S-1 dated March 14, 1997
with the Securities and Exchange Commission in connection with the initial
public offering of its common stock. The Securities and Exchange Commission
declared the registration statement effective on May 9, 1997. However, there is
no assurance that an active trading market will develop or be sustained.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibits:
<TABLE>
<S> <C>
3.1** Amended and Restated Certificate of Incorporation of the Company.
3.2** Restated By-Laws of the Company
4* Supplemental Indenture No. 2, dated as of March 14, 1997, by and among
the Company, the Guarantors (as defined therein), and IBJ Schroder Bank
& Trust Company, as trustee, relating to $165,000,000 principal amount
of 10 7/8% Senior Subordinated Notes due 2006, including form of
Initial Global Note.
10.1* Knoll, Inc. 1997 Stock Incentive Plan.
10.2** Form of Agreement, dated as of April 15, 1997, by and among the
Company, Warburg, Pincus Ventures, L.P., NationsBanc Investment Corp.
and the Investors (as defined therein).
10.3** Amendment to Employment Agreement, dated as of April 30, 1997, between
the Company and Andrew B. Cogan.
11 Statement Re: Computation of Earnings Per Share.
27 Financial Data Schedule.
</TABLE>
b. Current Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three months
ended March 31, 1997.
- --------------
* Incorporated by reference to the Company's annual report on Form 10-K for the
year ended December 31, 1996.
** Incorporated by reference to the Company's registration statement on Form S-1
(Registration No. 333-23399), which was declared effective by the Commission
on May 9, 1997.
13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KNOLL, INC.
Date: May 14, 1997 By: /s/ Burton B. Staniar
---------------------
BURTON B. STANIAR
Chairman of the Board
Date: May 14, 1997 By: /s/ Douglas J. Purdom
----------------------
DOUGLAS J. PURDOM
Senior Vice President and
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1** Amended and Restated Certificate of Incorporation of the Company.
3.2** Restated By-Laws of the Company
4* Supplemental Indenture No. 2, dated as of March 14, 1997, by and among
the Company, the Guarantors (as defined therein), and IBJ Schroder Bank
& Trust Company, as trustee, relating to $165,000,000 principal amount
of 10 7/8% Senior Subordinated Notes due 2006, including form of
Initial Global Note.
10.1* Knoll, Inc. 1997 Stock Incentive Plan.
10.2** Form of Agreement, dated as of April 15, 1997, by and among the
Company, Warburg, Pincus Ventures, L.P., NationsBanc Investment Corp.
and the Investors (as defined therein).
10.3** Amendment to Employment Agreement, dated as of April 30, 1997, between
the Company and Andrew B. Cogan.
11 Statement Re: Computation of Earnings Per Share.
27 Financial Data Schedule.
</TABLE>
- --------------
* Incorporated by reference to the Company's annual report on Form 10-K for
the year ended December 31, 1996.
** Incorporated by reference to the Company's registration statement on Form
S-1 (Registration No. 333-23399), which was declared effective by the
Commission on May 9, 1997.
15
<PAGE>
EXHIBIT 11
KNOLL, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS THREE MONTHS ONE MONTH
ENDED ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net income.................. $11,638 $ 197 $ 449
======= ======= =======
Common stock outstanding
during the period......... 7,291 7,291 7,291
Dilutive effect of stock
options computed in
accordance with the
treasury stock method as
required by SAB 83........ 83 83 83
Conversion of preferred
shares into common shares
upon completion of the
initial public offering
(IPO)..................... 27,441 27,441 27,441
------- ------- -------
Pro forma weighted average
number of common shares
outstanding prior to
shares issued in
connection with the IPO... 34,815 34,815 34,815
======= ======= =======
Pro forma net income per
share of common stock..... $ 0.33 $ 0.01 $ 0.01
======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,064
<SECURITIES> 0
<RECEIVABLES> 105,478
<ALLOWANCES> 0
<INVENTORY> 61,033
<CURRENT-ASSETS> 201,499
<PP&E> 196,726
<DEPRECIATION> 25,826
<TOTAL-ASSETS> 662,034
<CURRENT-LIABILITIES> 128,783
<BONDS> 315,796
0
1,603
<COMMON> 73
<OTHER-SE> 185,698
<TOTAL-LIABILITY-AND-EQUITY> 662,034
<SALES> 177,833
<TOTAL-REVENUES> 177,833
<CGS> 109,859
<TOTAL-COSTS> 109,859
<OTHER-EXPENSES> 40,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,742
<INCOME-PRETAX> 20,100
<INCOME-TAX> 8,462
<INCOME-CONTINUING> 11,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,638
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0
</TABLE>
