-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I185G6wv6pft/XDlm6XAG2Dbwatvqtl9jaLcZFqMwLt34mC/kgf4vkowxgJlFa+h oGDtyYNphRSFksG5kcmiMw== /in/edgar/work/0001011570-00-000011/0001011570-00-000011.txt : 20001114 0001011570-00-000011.hdr.sgml : 20001114 ACCESSION NUMBER: 0001011570-00-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNOLL INC CENTRAL INDEX KEY: 0001011570 STANDARD INDUSTRIAL CLASSIFICATION: [2590 ] IRS NUMBER: 133873847 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12907 FILM NUMBER: 761396 BUSINESS ADDRESS: STREET 1: 1235 WATER ST CITY: EAST GREENVILLE STATE: PA ZIP: 18041 BUSINESS PHONE: 2156797991 MAIL ADDRESS: STREET 1: 1235 WATER STREET CITY: EAST GREENVILLE STATE: PA ZIP: 18041 10-Q 1 0001.txt FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 9/30/2000 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 September 30, 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 November 9, 2000, there were 23,203,748 shares of the Registrant's common stock, par value $0.01 per share, outstanding. 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 September 30, 2000 and December 31, 1999...................................... 3 Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2000 and 1999................................................... 4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 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...................................... 8 3. Quantitative and Qualitative Disclosures about Market Risk....... 10 PART II -- OTHER INFORMATION 2. Changes in Securities and Use of Proceeds........................ 11 6. Exhibits and Reports on Form 8-K................................. 11 Signatures........................................................... 12 Exhibit Index........................................................ 13 2 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)
September 30, 2000 December 31, 1999 ------------------ ----------------- ASSETS Current assets: Cash and cash equivalents........ $ 10,469 $ 10,785 Restricted cash.................. -- 7,776 Customer receivables, net........ 142,229 167,767 Inventories...................... 82,371 82,738 Deferred income taxes............ 22,587 22,440 Prepaid and other current assets......................... 8,749 7,720 --------- -------- Total current assets......... 266,405 299,226 Property, plant and equipment........ 288,027 279,972 Accumulated depreciation............. (114,978) (95,331) --------- -------- Property, plant and equipment, net............. 173,049 184,641 Intangible assets.................... 280,210 281,730 Accumulated amortization............. (32,815) (26,773) --------- -------- Intangible assets, net....... 247,395 254,957 Other noncurrent assets.............. 2,530 3,482 --------- -------- Total Assets................. $ 689,379 $742,306 ========= ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current maturities of long- term debt...................... $ 25,000 $ 17,500 Accounts payable................. 79,426 72,914 Income taxes payable............. 3,775 3,483 Other current liabilities........ 95,918 101,242 --------- -------- Total current liabilities.... 204,119 195,139 Long-term debt....................... 439,273 592,876 Deferred income taxes................ 23,428 18,956 Other noncurrent liabilities......... 30,142 29,529 --------- -------- Total liabilities............ 696,962 836,500 --------- -------- Stockholders' deficit: Common stock, $0.01 par value; 100,000,000 shares authorized; 23,206,748 shares issued and outstanding (net of 8,800 treasury shares) in 2000 and 23,289,898 shares issued and outstanding (net of 1,000 treasury shares) in 1999....... 232 233 Additional paid-in-capital....... 3,695 4,173 Unearned stock grant compensation................... (4) (433) Retained earnings (deficit)...... 1,247 (91,328) Accumulated other comprehensive loss............. (12,753) (6,839) --------- -------- Total stockholders' deficit.. (7,583) (94,194) --------- -------- Total Liabilities and Stockholders' Deficit...... $ 689,379 $742,306 ========= ========
See accompanying notes. 3 KNOLL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Sales...................... $295,357 $247,543 $879,565 $710,479 Cost of sales.............. 173,075 150,958 516,663 430,149 -------- -------- -------- -------- Gross profit............... 122,282 96,585 362,902 280,330 Selling, general and administrative expenses.. 58,188 50,154 175,158 151,469 -------- -------- -------- -------- Operating income........... 64,094 46,431 187,744 128,861 Interest expense........... 10,699 3,796 34,894 12,175 Recapitalization expense... -- 541 -- 3,541 Other income (expense), net...................... 1,044 168 2,606 (769) -------- -------- -------- -------- Income before income tax expense.................. 54,439 42,262 155,456 112,376 Income tax expense......... 21,948 17,249 62,881 47,165 -------- -------- -------- -------- Net income................. $ 32,491 $ 25,013 $ 92,575 $ 65,211 ======== ======== ======== ========
See accompanying notes. 4 KNOLL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Nine Months Ended September 30, ------------------------ 2000 1999 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income..................................... $ 92,575 $ 65,211 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization............ 26,944 26,705 Recapitalization expense................. -- 3,541 Other noncash items...................... (466) 1,419 Changes in assets and liabilities: Customer receivables................. 23,409 (6,647) Inventories.......................... (1,090) (4,106) Accounts payable..................... 8,108 (3,584) Current and deferred income taxes.... 8,210 (1,084) Other current assets and liabilities........................ 3,357 (13,771) Other noncurrent assets and liabilities........................ (1,741) (1,157) --------- -------- Cash provided by operating activities.......... 159,306 66,527 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures........................... (11,916) (14,376) Proceeds from sale of assets................... 93 106 --------- -------- Cash used in investing activities.............. (11,823) (14,270) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of revolving credit facilities, net.. (134,685) (30,000) Repayment of long-term debt.................... (11,250) -- Net proceeds from issuance of stock............ -- 3,674 Purchase of common stock....................... (218) (28,675) Payment of recapitalization costs.............. (230) (2,738) --------- -------- Cash used in financing activities.............. (146,383) (57,739) --------- -------- Effect of exchange rate changes on cash and cash equivalents............................. (1,416) (445) --------- -------- Decrease in cash and cash equivalents.......... (316) (5,927) Cash and cash equivalents at beginning of period.................................... 10,785 17,465 --------- -------- Cash and cash equivalents at end of period..... $ 10,469 $ 11,538 ========= ========
See accompanying notes. 5 KNOLL, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 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 and nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year ending December 31, 2000 or other future periods. 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. During the three months and nine months ended September 30, 1999, the Company incurred $0.5 million and $3.5 million, respectively, of expense relating to the recapitalization of the Company that occurred upon consummation of the merger. This expense was not deductible for income tax purposes. The Company's consolidated balance sheet as of December 31, 1999 includes restricted cash and a current liability of $7.8 million related to merger consideration held by the Company's exchange agent for canceled shares of Knoll common stock that, as of such date, were not yet presented to the exchange agent. 3. Inventories
September 30, 2000 December 31, 1999 ------------------ ----------------- (In Thousands) Raw materials............... $50,989 $49,795 Work in process............. 8,309 10,313 Finished goods.............. 23,073 22,630 ------- ------- Inventories.................. $82,371 $82,738 ======= =======
6 4. Comprehensive Income For the three months ended September 30, 2000 and 1999, total comprehensive income amounted to $30.0 million and $25.5 million, respectively. Total comprehensive income for the nine months ended September 30, 2000 and 1999 was $86.7 million and $66.7 million, respectively. 5. Accounting Pronouncements Pending Implementation In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), which is required to be adopted in fiscal years beginning after June 15, 2000. Because of the Company's limited use of derivatives, management does not anticipate that the adoption of SFAS 133 will have a significant effect on earnings or the financial position of the Company. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," as amended ("SAB 101"). SAB 101 summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements and requires entities to begin reporting changes, if any, to their revenue recognition practices no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. At this time, the Company does not expect any revenue recognition changes as a result of applying SAB 101. 7 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 Third Quarter and Nine Months Ended September 30, 2000 to Third Quarter and Nine Months Ended September 30, 1999 Sales. Sales for the third quarter of 2000 were $295.4 million, an increase of 19.4%, or $47.9 million, from third quarter 1999 sales of $247.5 million. Sales for the nine months ended September 30, 2000 were $879.6 million, an increase of 23.8%, or $169.1 million, from sales of $710.5 million for the same period of 1999. Such growth resulted from increased volume in both North America and Europe. Gross Profit and Operating Income. As a percentage of sales, gross profit increased to 41.4% for the third quarter of 2000 from 39.0% for the third quarter of 1999 and increased to 41.3% for the nine months ended September 30, 2000 from 39.5% for the same period of 1999. Operating income as a percentage of sales increased to 21.7% for the third quarter of 2000 from 18.8% for the third quarter of 1999 and increased to 21.3% for the nine months ended September 30, 2000 from 18.1% for the same period of 1999. Both gross profit and operating income in 2000 benefited from increased volume, the Company's continued focus on cost control and the ability to correct certain manufacturing inefficiencies at the Company's Toronto, Canada facility that resulted in part from implementation issues associated with the transition to a new manufacturing system in 1999. Although selling, general and administrative expenses increased in terms of dollars for the third quarter and nine months ended September 30, 2000 compared to the same periods of 1999, such expenses decreased as a percentage of sales. The increases of $8.0 million and $23.7 million for the third quarter and nine months, respectively, were due primarily to incremental employee costs related to higher sales and profit levels in addition to increased expenses related to sales, marketing and technology initiatives. As a percentage of sales, the Company's selling, general and administrative expenses decreased to 19.7% for the third quarter of 2000 from 20.3% for the third quarter of 1999 and decreased to 19.9% for the nine months ended September 30, 2000 from 21.3% for the same period 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 third quarter and nine months ended September 30, 2000 compared to the same periods of 1999. The higher debt balances were the principal cause of the $6.9 million and $22.7 million increases in interest expense in the third quarter and nine months of 2000, respectively, compared to the same periods of 1999. Recapitalization Expense. During the third quarter and nine months ended September 30, 1999, the Company incurred $0.5 million and $3.5 million, respectively, of expense relating to the recapitalization of the Company that occurred upon consummation of the merger on November 4, 1999. Income Tax Expense. The Company's effective tax rate for the third quarter and nine months ended September 30, 2000 was 40.3% and 40.4%, respectively, compared to 40.8% and 42.0% for the third quarter and nine months ended September 30, 1999, respectively. The decreases in the Company's effective tax rate for the third quarter and nine months were primarily a result of recapitalization expense recorded in 1999 that was not deductible for income tax purposes. The changes in the effective tax rate for the third quarter and nine months have also been impacted by the increase in and mix of pretax income and the varying effective tax rates attributable to the countries in which the Company operates. 8 Liquidity and Capital Resources During the nine months ended September 30, 2000, the Company generated cash flow from operations of $159.3 million. Cash provided by operations resulted primarily from earnings before depreciation and amortization in addition to positive cash flow from working capital. The cash flow from operations was applied to the funding of $11.9 million in capital expenditures and the repayment of $145.9 million of bank debt. As of September 30, 2000, the Company had an aggregate of $285.1 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. 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; risks associated with conducting business via the Internet and the Company's ability to react appropriately and in a timely fashion to changing technologies and business models; 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; 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; 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. 9 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 its variable rate debt, the Company had $356.3 million of such debt outstanding at September 30, 2000, which is a decrease of $145.9 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 September 30, 2000. 10 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 but reserves the right to do so in the 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 5,000 shares of Knoll common stock were granted to an employee of the Company on August 8, 2000. 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. Options to purchase 40,000 shares of Knoll common stock were granted to certain employees of the Company on October 30, 2000. 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. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a. Exhibits: 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 September 30, 2000. 11 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: November 13, 2000 By: /s/ Burton B. Staniar ------------------------------ Burton B. Staniar Chairman of the Board Date: November 13, 2000 By: /s/ Barry L. McCabe ------------------------------ Barry L. McCabe Senior Vice President, Treasurer and Controller (Chief Accounting Officer) 12 EXHIBIT INDEX ------------- Exhibit Number Description Page - --------- ----------------------------------------------------- -------- 27 Financial Data Schedule. 13 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 SEP-30-2000 10,469 0 142,229 0 82,371 266,405 288,027 114,978 689,379 204,119 439,273 0 0 232 (7,815) 689,379 879,565 879,565 516,663 516,663 0 0 34,894 155,456 62,881 92,575 0 0 0 92,575 0 0
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