ACQUISITION

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 hold substantially 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 $303.7 million, net of $7.5 million of cash acquired and subject to certain customary adjustments. The Company recorded the acquisition of Muuto using the acquisition method of accounting and 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 borrowings from the Amended Credit Agreement as well as cash on hand. See Note 10 for information on the Company’s borrowings. The Company recorded acquisition costs in its Consolidated Statement of Operations and Comprehensive Income, within selling, general, and administrative expenses during the six months ended June 30, 2018 of $1.5 million.

The amount of sales and net loss that resulted from the acquisition and attributable to Knoll, Inc. stockholders included in the Condensed Consolidated Statements of Operations and Comprehensive Income during the periods ended June 30, 2018 were as follows (in thousands):



	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Sales	$	21,005		$	36,191
Net loss attributable to Knoll, Inc. stockholders	$	(1,951	)	$	(2,105	)

The following table summarizes the preliminary fair values assigned to the assets acquired and liabilities assumed and resulting goodwill. These values are not yet finalized and are subject to change, which could be significant. The amounts recognized will be finalized as the information necessary to complete the analyses is obtained, but no later than one year from the acquisition date (“the measurement period”).

Recognized amounts of identifiable assets and liabilities as of the January 25, 2018 acquisition date (in thousands):



	Amounts Recognized as of Acquisition Date (Previously disclosed in March 31, 2018 Form 10-Q)		Measurement period adjustments			Amounts Recognized as of Acquisition Date
Cash	$	7,506	$	—		$	7,506
Customer receivables	8,717		—			8,717
Inventory	14,675		(3,851		)	10,824
Other current assets	447		—			447
Property, plant, and equipment, net	1,250		—			1,250
Intangible assets	131,300		25			131,325
Other non-current assets	292		—			292
Total assets acquired	$	164,187	$	(3,826	)	$	160,361
Accounts payable	3,374		—			3,374
Other current liabilities	12,244		(3,614		)	8,630
Deferred income taxes	29,744		(816		)	28,928
Other noncurrent liabilities	1,637		—			1,637
Total liabilities assumed	$	46,999	$	(4,430	)	$	42,569
Net assets acquired	$	117,188	$	604		$	117,792

Purchase price	$	311,254				$	311,254
Less: Fair value of acquired identifiable assets and liabilities	117,188					117,792
Goodwill	$	194,066				$	193,462

The measurement period adjustments related to the identifiable assets and liabilities acquired during the three months ended June 30, 2018 represent an inventory valuation adjustment of $3.9 million, a $3.6 million adjustment for future payments that are considered compensation for post combination service and a $0.8 million adjustment to the long-term deferred tax liability.

The following table summarizes the estimated fair value of Muuto’s identifiable intangible assets and their estimated useful lives (in thousands):



	Fair Value as of January 25, 2018		Estimated Useful Life (in years)
Indefinite-lived intangible assets:
Trade name	$	65,000	Indefinite
Finite-lived intangible assets:
Wholesale customer relationships	33,000		15
Contract customer relationships	22,000		9
Copyrights & designs	10,000		7
Non-competition agreements	1,325		3
	$	131,325

The preliminary purchase price of Muuto has been allocated to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated acquisition date fair values. The excess of the purchase price over the net tangible and intangible assets is recorded to goodwill. Goodwill is not deductible for tax purposes. The preliminary allocation of purchase price is based upon a valuation undertaken by the Company and is subject to change during the measurement period. The initial accounting for the acquisition of Muuto is incomplete pending final valuation of the tangible and identifiable intangible assets acquired and liabilities assumed.

Unaudited pro forma information for the Company for the six months ended June 30, 2018 and 2017 as if the acquisition had occurred January 1, 2017 is as follows (in thousands):



	Six Months Ended June 30,
	2018		2017
Pro forma sales	$	624,058	$	557,494
Pro forma net earnings attributable to Knoll, Inc. stockholders	$	32,591	$	25,601

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 condensed 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 six months ended June 30, 2018 includes adjustments for future payments that are considered compensation for post combination service of $1.5 million, loss on debt extinguishment of $1.4 million, acquisition costs of $1.5 million, acquisition related inventory valuation of $0.9 million, incremental interest expense of $0.9 million, and incremental amortization of intangibles of $0.1 million. The income tax impact of these adjustments for the six months ended June 30, 2018 was $0.9 million. The pro forma information presented for the six months ended June 30, 2017 includes adjustments for amortization of intangibles of $3.3 million, future payments that are considered compensation for post combination service of $1.8 million, loss on debt extinguishment of $1.5 million, interest expense of $4.5 million, and acquisition related inventory valuation of $0.9 million. The income tax impact of these adjustments for the six months ended June 30, 2017 was $3.4 million. The pro forma financial information does not include adjustments for potential future cost savings.