<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, 2000
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.
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 10, 2000, there were 23,275,679 shares of the Registrant's common
stock, par value $0.01 per share, outstanding.
<PAGE>
KNOLL, INC.
TABLE OF CONTENTS FOR FORM 10-Q
Item Page
- ---- ----
PART I -- FINANCIAL INFORMATION
1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets at March 31, 2000
and December 31, 1999...................................... 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999................. 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999................. 5
Notes to the Condensed Consolidated Financial Statements..... 6
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 7
3. Quantitative and Qualitative Disclosures about Market Risk....... 9
PART II -- OTHER INFORMATION
2. Changes in Securities and Use of Proceeds........................ 10
6. Exhibits and Reports on Form 8-K................................. 10
Signatures........................................................... 11
Exhibit Index........................................................ 12
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
- ----------------------------------------------------------------
KNOLL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 17,577 $ 10,785
Restricted cash.................... 46 7,776
Customer receivables, net.......... 155,768 167,767
Inventories........................ 86,746 82,738
Deferred income taxes.............. 23,171 22,440
Prepaid and other current assets... 4,143 7,720
-------- --------
Total current assets........... 287,451 299,226
Property, plant and equipment.......... 282,123 279,972
Accumulated depreciation............... (102,002) (95,331)
-------- --------
Property, plant and
equipment, net............... 180,121 184,641
Intangible assets...................... 281,147 281,730
Accumulated amortization............... (28,805) (26,773)
-------- --------
Intangible assets, net......... 252,342 254,957
Other noncurrent assets................ 3,431 3,482
-------- --------
Total Assets................... $723,345 $742,306
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term
debt............................. $ 20,000 $ 17,500
Accounts payable................... 62,947 72,914
Income taxes payable............... 13,260 3,483
Other current liabilities.......... 77,991 101,242
-------- --------
Total current liabilities...... 174,198 195,139
Long-term debt......................... 570,338 592,876
Postretirement benefits other than
pension.............................. 18,717 18,426
Other noncurrent liabilities........... 31,401 30,059
-------- --------
Total liabilities.............. 794,654 836,500
-------- --------
Stockholders' deficit:
Common stock, $0.01 par value;
100,000,000 shares authorized;
23,285,098 shares issued and
outstanding (net of 5,800
treasury shares) in 2000 and
23,289,898 shares issued and
outstanding (net of 1,000
treasury shares) in 1999......... 233 233
Additional paid-in-capital......... 4,039 4,173
Unearned stock grant compensation.. (364) (433)
Retained deficit................... (67,162) (91,328)
Accumulated other comprehensive
loss............................. (8,055) (6,839)
-------- --------
Total stockholders' deficit.... (71,309) (94,194)
-------- --------
Total Liabilities and
Stockholders' Deficit........ $723,345 $742,306
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Sales.......................................... $268,834 $209,210
Cost of sales.................................. 160,651 127,663
-------- --------
Gross profit................................... 108,183 81,547
Selling, general and administrative expenses... 55,217 45,413
-------- --------
Operating income............................... 52,966 36,134
Interest expense............................... 12,477 4,222
Other income (expense), net.................... 436 (398)
-------- --------
Income before income tax expense............... 40,925 31,514
Income tax expense............................. 16,759 13,120
-------- --------
Net income..................................... $ 24,166 $ 18,394
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 24,166 $ 18,394
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization............ 9,014 8,553
Other noncash items...................... 201 620
Changes in assets and liabilities:
Customer receivables................. 11,344 20,709
Inventories.......................... (4,445) (2,928)
Accounts payable..................... (9,316) (8,918)
Current and deferred income taxes.... 10,928 2,230
Other current assets and
liabilities........................ (12,155) (33,596)
Other noncurrent assets and
liabilities........................ 922 2,248
-------- --------
Cash provided by operating activities.......... 30,659 7,312
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................... (3,140) (3,573)
Proceeds from sale of assets................... 30 66
-------- --------
Cash used in investing activities.............. (3,110) (3,507)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of) revolving
credit facility, net......................... (16,250) 25,000
Repayment of long-term debt.................... (3,750) --
Net proceeds from issuance of stock............ -- 649
Purchase of common stock....................... (134) (28,675)
Payment of recapitalization costs.............. (230) --
-------- --------
Cash used in financing activities.............. (20,364) (3,026)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents............................. (393) (338)
-------- --------
Increase in cash and cash equivalents.......... 6,792 441
Cash and cash equivalents at beginning
of period.................................... 10,785 17,465
-------- --------
Cash and cash equivalents at end of period..... $ 17,577 $ 17,906
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
KNOLL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Knoll, Inc. (the "Company" or "Knoll") 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, 1999 is derived from the Company's 1999
audited balance sheet. The unaudited 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, 1999. The results
of operations for the three months ended March 31, 2000 are not necessarily
indicative of the results to be expected for the full year ending December 31,
2000.
2. Recapitalization (Merger)
On November 4, 1999, the Company consummated a merger of a newly formed
entity, which was organized by Warburg, Pincus Ventures, L.P., with and into
Knoll, with Knoll continuing as the surviving corporation. As a result of the
merger, 17,738,634 shares of common stock held by the public stockholders of
Knoll immediately prior to the merger were converted into the right to receive
$28.00 per share in cash and were canceled. Furthermore, the Company's common
stock ceased to be listed on the New York Stock Exchange, and the registration
of the Company's securities under the Securities Exchange Act of 1934 was
terminated. The merger and related transactions were accounted for as a
leveraged recapitalization. The historical accounting bases of Knoll's assets
and liabilities were retained subsequent to the transactions.
The Company's consolidated balance sheets include restricted cash and a
current liability of $46,000 as of March 31, 2000 and $7.8 million as of
December 31, 1999 related to merger consideration held by the Company's
exchange agent for canceled shares of Knoll common stock that were not yet
presented to the exchange agent.
3. Inventories
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(In Thousands)
<S> <C> <C>
Raw materials.................. $50,442 $49,795
Work in process................ 9,860 10,313
Finished goods................. 26,444 22,630
------- -------
Inventories.................... $86,746 $82,738
======= =======
</TABLE>
4. Comprehensive Income
For the three months ended March 31, 2000 and 1999, total comprehensive income
amounted to $23.0 million and $18.5 million, respectively.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
-------------------------
The following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and notes thereto and
in conjunction with the Company's annual report on Form 10-K for the year
ended December 31, 1999.
Results of Operations
Comparison of First Quarter Ended March 31, 2000 to First Quarter Ended
March 31, 1999
Sales. Sales for the first quarter of 2000 were $268.8 million, an increase
of 28.5%, or $59.6 million, from first quarter 1999 sales of $209.2 million.
Such growth resulted from increased volume in both North America and Europe.
A significant portion of the increased sales volume was attributable to sales
of office systems, which grew $49.0 million, or 34.5%.
Gross Profit and Operating Income. As a percentage of sales, gross profit
was 40.2% for the first quarter of 2000 compared to 39.0% for the first
quarter of 1999 and operating income was 19.7% for the first quarter of 2000
compared to 17.3% for the first quarter of 1999. Both gross profit and
operating income in the first quarter of 2000 benefited from increased volume
and the Company's continued focus on cost control.
Although selling, general and administrative expenses increased in terms of
dollars in the first quarter of 2000 compared to the first quarter of 1999,
such expenses decreased as a percentage of sales. The $9.8 million increase
was due primarily to incremental employee costs related to higher sales and
profit levels in addition to increased expenses related to sales and
marketing. As a percentage of sales, the Company's selling, general and
administrative expenses decreased to 20.5% for the first quarter of 2000
from 21.7% for the first quarter of 1999.
Interest Expense. In connection with the merger that was consummated on
November 4, 1999, which is discussed in Note 2 to the condensed consolidated
financial statements, the Company incurred $533.0 million of debt under a new
senior credit agreement with higher interest rates than those under the credit
agreement replaced thereby. Such debt resulted in significantly higher
outstanding debt balances during the first quarter of 2000 compared to the
first quarter of 1999, which was the principal cause of the $8.3 million
increase in interest expense in the first quarter of 2000 compared to the
first quarter of 1999.
Income Tax Expense. The Company's effective tax rate is directly affected
by the mix of pretax income and the varying effective tax rates attributable
to the countries in which it operates. This changing mix is primarily
responsible for the change in the effective tax rate to 41.0% for the first
quarter of 2000 from 41.6% for the first quarter of 1999.
Liquidity and Capital Resources
During the first quarter of 2000, the Company generated cash flow from
operations of $30.7 million. Cash provided by operations resulted primarily
from earnings before depreciation and amortization offset by cash used for
working capital purposes, of which a substantial portion related to the
payment of December 31, 1999 accruals of employee costs associated with 1999
sales and profits. The cash flow from operations was applied to the funding
of $3.1 million in capital expenditures and the repayment of $20.0 million
under the Company's credit facilities.
As of March 31, 2000, the Company had an aggregate of $167.4 million available
for borrowing under its U.S. and European revolving credit facilities. The
Company believes that existing cash balances and internally generated cash
flows, together with borrowings available under its revolving credit
facilities, will be sufficient to fund normal working capital needs, capital
spending requirements and debt service requirements for at least the next
twelve months. The Company's debt instruments contain certain covenants that,
among other things, limit the Company's ability to incur additional
indebtedness, pay dividends and purchase Company stock as well as require the
Company to maintain certain financial ratios.
7
<PAGE>
Backlog
The Company's backlog of unfilled orders was $192.4 million at March 31, 2000
and $161.7 million at March 31, 1999. The Company manufactures substantially
all of its products to order and expects to fill substantially all outstanding
unfilled orders within the next twelve months. As such, backlog is not a
significant factor used to predict the Company's long-term business prospects.
Impact of Year 2000
The Company has not experienced any significant disruptions in mission
critical information technology and non-information technology systems and
believes that its systems have thus far responded successfully to the year
2000 date change. The Company is not aware of any material problems resulting
from year 2000 issues, either with its internal systems or the systems or
products of its vendors, dealers and other third parties. The Company intends
to continue to monitor its mission critical information systems throughout the
year 2000 and address any significant latent year 2000 issues that may arise.
If the Company or its vendors, dealers and other third parties are unable to
successfully address significant latent year 2000 issues that may arise, a
material adverse effect on the Company's operations could result. At this
time, the Company is not aware of any such issues.
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 and Section 21E of the Securities Exchange Act of 1934 that
represent the Company's expectations or beliefs concerning future events.
Forward-looking statements relate to future operations, strategies, financial
results or other developments and are not based on historical information. In
particular, statements using verbs such as "anticipates," "believes,"
"estimates," "expects" or words of similar meaning generally involve forward-
looking statements. Although the Company believes the expectations reflected
in these forward-looking statements are based upon reasonable assumptions, no
assurance can be given that Knoll will attain these expectations or that any
deviations will not be material. Readers of this Form 10-Q are cautioned not
to unduly rely on any forward-looking statements.
The Company cautions that its forward-looking statements are further qualified
by important factors that could cause actual results to differ materially from
those in the forward-looking statements. Such factors include, without
limitation, the highly competitive nature of the market in which the Company
competes, including the introduction of new products, pricing changes by the
Company's competitors and growth rates of the office systems category; risks
associated with the Company's growth strategy, including the risk that the
Company's introduction of new products will not achieve the same degree of
success achieved historically by the Company's products; the Company's
indebtedness, which requires a significant 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; possible risks relating to latent year 2000 issues that may arise,
which could impair the Company's operations if not resolved successfully or
on time; the Company's dependence on key personnel; the ability of the Company
to maintain its relationships with its dealers; the Company's reliance on its
patents and other intellectual property; 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; risks relating to
potential labor disruptions; fluctuations in foreign currency exchange rates;
risks associated with conducting business via the Internet; and fluctuations
in industry revenues driven by a variety of macroeconomic factors, including
white-collar employment levels and corporate cash flows, 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. Except as otherwise required by the federal securities laws, the
Company disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained in this Form 10-Q to
reflect any change in its expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
8
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
During the normal course of business, the Company is routinely subjected
to market risk associated with interest rate movements and foreign currency
exchange rate movements. Interest rate risk arises from the Company's debt
obligations and related interest rate collar agreements. Foreign currency
exchange rate risk arises from the Company's foreign operations and purchases
of inventory from foreign suppliers.
With the exception of the Company's variable rate debt obligations and
interest rate collar agreements, there have been no material changes in the
carrying amounts or fair values of the Company's financial instruments or its
exposure to market risk since December 31, 1999. Regarding the variable rate
debt, the Company had $482.3 million of such debt outstanding at March 31,
2000, which is a decrease of $20.0 million from December 31, 1999. The fair
value of this debt continues to approximate its carrying amount. As disclosed
in the Company's annual report on Form 10-K for the year ended December 31,
1999, the Company entered into three interest rate collar agreements in
January 2000. These agreements, which will expire in February 2003, have an
aggregate notional principal amount of $135.0 million and weighted average
maximum and minimum rates of 10.00% and 5.64%, respectively. The fair value
of the Company's interest rate collar agreements was not material as of
March 31, 2000.
9
<PAGE>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
Restrictions on Dividends
The indenture relating to the Company's 10.875% Senior Subordinated Notes due
2006 and the credit agreement governing the Company's credit facilities limit
the Company's ability to pay dividends to its stockholders. The Company has
never paid dividends on its common stock, and it does not currently contemplate
paying dividends in the near future. 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.
Recent Sales of Unregistered Securities
Options to purchase 10,000 shares of Knoll common stock were granted to
certain employees of the Company on March 6, 2000 pursuant to the Knoll, Inc.
1999 Stock Incentive Plan. These options were granted at an exercise price of
$28.00, will vest in installments over four years (30% on the first vesting
date, 20% on each of the second and third vesting dates and 30% on the fourth
vesting date) and may be exercised pursuant to the terms of the related stock
option agreements. The Company did not receive any consideration for such
grants. These grants were exempt from registration under the Securities Act
of 1933 as not involving the sale of a security.
Options to purchase 5,000 shares of Knoll common stock were granted to an
employee of the Company on April 26, 2000 pursuant to the Knoll, Inc. 1999
Stock Incentive Plan. These options were granted at an exercise price of
$28.00, will vest in installments over four years (30% on the first vesting
date, 20% on each of the second and third vesting dates and 30% on the fourth
vesting date) and may be exercised pursuant to the terms of the related stock
option agreement. The Company did not receive any consideration for such
grant. This grant was exempt from registration under the Securities Act of
1933 as not involving the sale of a security.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a. Exhibits:
10* Amended and Restated Employment Agreement, dated as of
January 1, 2000, between the Company and Burton B. Staniar.
27 Financial Data Schedule.
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, 2000.
- -------------------------------------------------------------------------------
* Incorporated by reference to the Company's annual report on Form 10-K for
the year ended December 31, 1999.
10
<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 12, 2000 By: /s/ Burton B. Staniar
------------------------------
Burton B. Staniar
Chairman of the Board
Date: May 12, 2000 By: /s/ Barry L. McCabe
------------------------------
Barry L. McCabe
Senior Vice President,
Treasurer and Controller
(Chief Accounting Officer)
11
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description Page
- --------- ----------------------------------------------------- --------
10* Amended and Restated Employment Agreement, dated as
of January 1, 2000, between the Company and
Burton B. Staniar.
27 Financial Data Schedule.
- -------------------------------------------------------------------------------
* Incorporated by reference to the Company's annual report on Form 10-K for
the year ended December 31, 1999.
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,623
<SECURITIES> 0
<RECEIVABLES> 155,768
<ALLOWANCES> 0
<INVENTORY> 86,746
<CURRENT-ASSETS> 287,451
<PP&E> 282,123
<DEPRECIATION> 102,002
<TOTAL-ASSETS> 723,345
<CURRENT-LIABILITIES> 174,198
<BONDS> 570,338
0
0
<COMMON> 233
<OTHER-SE> (71,542)
<TOTAL-LIABILITY-AND-EQUITY> 723,345
<SALES> 268,834
<TOTAL-REVENUES> 268,834
<CGS> 160,651
<TOTAL-COSTS> 160,651
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,477
<INCOME-PRETAX> 40,925
<INCOME-TAX> 16,759
<INCOME-CONTINUING> 24,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,166
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
