false--12-31Q2201900010115703300000370000043000000.150.150.150.170.010.01200000000200000000657788916628705449431178497775700.0175725252913675954121417381634771316509484
0001011570
2019-01-01
2019-06-30
0001011570
us-gaap:CommonStockMember
2019-08-05
0001011570
us-gaap:RestrictedStockMember
2019-08-05
0001011570
2019-06-30
0001011570
2018-12-31
0001011570
2019-04-01
2019-06-30
0001011570
2018-01-01
2018-06-30
0001011570
2018-04-01
2018-06-30
0001011570
2017-12-31
0001011570
2018-06-30
0001011570
us-gaap:AccountingStandardsUpdate201602Member
2019-01-01
0001011570
knl:SeatingMember
knl:OfficeSegmentMember
2018-01-01
2018-06-30
0001011570
knl:LifestyleSegmentMember
2018-04-01
2018-06-30
0001011570
knl:LifestyleSegmentMember
2018-01-01
2018-06-30
0001011570
knl:FilesAndStorageMember
knl:OfficeSegmentMember
2019-04-01
2019-06-30
0001011570
knl:OtherProductsMember
knl:OfficeSegmentMember
2019-01-01
2019-06-30
0001011570
knl:OtherProductsMember
knl:OfficeSegmentMember
2018-04-01
2018-06-30
0001011570
knl:ProductsAndServicesAncillaryMember
knl:OfficeSegmentMember
2018-01-01
2018-06-30
0001011570
knl:ProductsAndServicesCoveringsMember
knl:LifestyleSegmentMember
2019-01-01
2019-06-30
0001011570
knl:OfficeSystemsMember
knl:OfficeSegmentMember
2019-04-01
2019-06-30
0001011570
knl:FilesAndStorageMember
knl:OfficeSegmentMember
2018-01-01
2018-06-30
0001011570
knl:OfficeSystemsMember
knl:OfficeSegmentMember
2018-01-01
2018-06-30
0001011570
knl:OfficeSegmentMember
2018-04-01
2018-06-30
0001011570
knl:SeatingMember
knl:OfficeSegmentMember
2018-04-01
2018-06-30
0001011570
knl:LifestyleSegmentMember
2019-01-01
2019-06-30
0001011570
knl:OtherProductsMember
knl:OfficeSegmentMember
2019-04-01
2019-06-30
0001011570
knl:SeatingMember
knl:OfficeSegmentMember
2019-04-01
2019-06-30
0001011570
knl:OfficeSegmentMember
2019-01-01
2019-06-30
0001011570
knl:OfficeSystemsMember
knl:OfficeSegmentMember
2019-01-01
2019-06-30
0001011570
knl:ProductsAndServicesStudioMember
knl:LifestyleSegmentMember
2019-01-01
2019-06-30
0001011570
knl:ProductsAndServicesAncillaryMember
knl:OfficeSegmentMember
2018-04-01
2018-06-30
0001011570
knl:OfficeSegmentMember
2019-04-01
2019-06-30
0001011570
knl:ProductsAndServicesCoveringsMember
knl:LifestyleSegmentMember
2018-01-01
2018-06-30
0001011570
knl:LifestyleSegmentMember
2019-04-01
2019-06-30
0001011570
knl:ProductsAndServicesAncillaryMember
knl:OfficeSegmentMember
2019-01-01
2019-06-30
0001011570
knl:ProductsAndServicesStudioMember
knl:LifestyleSegmentMember
2019-04-01
2019-06-30
0001011570
knl:ProductsAndServicesStudioMember
knl:LifestyleSegmentMember
2018-01-01
2018-06-30
0001011570
knl:ProductsAndServicesCoveringsMember
knl:LifestyleSegmentMember
2018-04-01
2018-06-30
0001011570
knl:FilesAndStorageMember
knl:OfficeSegmentMember
2019-01-01
2019-06-30
0001011570
knl:ProductsAndServicesAncillaryMember
knl:OfficeSegmentMember
2019-04-01
2019-06-30
0001011570
knl:OtherProductsMember
knl:OfficeSegmentMember
2018-01-01
2018-06-30
0001011570
knl:FilesAndStorageMember
knl:OfficeSegmentMember
2018-04-01
2018-06-30
0001011570
knl:OfficeSegmentMember
2018-01-01
2018-06-30
0001011570
knl:SeatingMember
knl:OfficeSegmentMember
2019-01-01
2019-06-30
0001011570
knl:ProductsAndServicesStudioMember
knl:LifestyleSegmentMember
2018-04-01
2018-06-30
0001011570
knl:OfficeSystemsMember
knl:OfficeSegmentMember
2018-04-01
2018-06-30
0001011570
knl:ProductsAndServicesCoveringsMember
knl:LifestyleSegmentMember
2019-04-01
2019-06-30
0001011570
knl:MuutoAcquisitionMember
2018-01-01
2018-06-30
0001011570
knl:MuutoAcquisitionMember
us-gaap:FairValueAdjustmentToInventoryMember
2018-01-01
2018-06-30
0001011570
knl:MuutoAcquisitionMember
us-gaap:AcquisitionRelatedCostsMember
2018-01-01
2018-06-30
0001011570
knl:MuutoAcquisitionMember
2018-01-25
2018-01-25
0001011570
2018-01-25
2018-01-25
0001011570
knl:MuutoAcquisitionMember
2018-01-25
0001011570
us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember
2019-04-01
2019-06-30
0001011570
us-gaap:PensionPlansDefinedBenefitMember
2018-04-01
2018-06-30
0001011570
us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember
2018-04-01
2018-06-30
0001011570
us-gaap:PensionPlansDefinedBenefitMember
2019-04-01
2019-06-30
0001011570
us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember
2018-01-01
2018-06-30
0001011570
us-gaap:PensionPlansDefinedBenefitMember
2019-01-01
2019-06-30
0001011570
us-gaap:PensionPlansDefinedBenefitMember
2018-01-01
2018-06-30
0001011570
us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember
2019-01-01
2019-06-30
0001011570
us-gaap:InterestRateSwapMember
us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
2019-06-30
0001011570
us-gaap:InterestRateSwapMember
us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
2019-06-30
0001011570
knl:DatesWeiserMember
us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
2018-12-31
0001011570
us-gaap:InterestRateSwapMember
us-gaap:FairValueMeasurementsRecurringMember
2018-12-31
0001011570
us-gaap:InterestRateSwapMember
us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
2018-12-31
0001011570
us-gaap:InterestRateSwapMember
us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
2019-06-30
0001011570
knl:DatesWeiserMember
us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
2019-06-30
0001011570
knl:DatesWeiserMember
us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
2019-06-30
0001011570
us-gaap:InterestRateSwapMember
us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
2018-12-31
0001011570
us-gaap:InterestRateSwapMember
us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
2018-12-31
0001011570
knl:DatesWeiserMember
us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
2018-12-31
0001011570
us-gaap:InterestRateSwapMember
us-gaap:FairValueMeasurementsRecurringMember
2019-06-30
0001011570
knl:DatesWeiserMember
us-gaap:FairValueMeasurementsRecurringMember
2019-06-30
0001011570
knl:DatesWeiserMember
us-gaap:FairValueMeasurementsRecurringMember
2018-12-31
0001011570
knl:DatesWeiserMember
us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
2019-06-30
0001011570
knl:DatesWeiserMember
us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
2018-12-31
0001011570
srt:MaximumMember
knl:DatesWeiserMember
2019-06-30
0001011570
us-gaap:OtherNoncurrentLiabilitiesMember
us-gaap:InterestRateSwapMember
us-gaap:DesignatedAsHedgingInstrumentMember
2018-12-31
0001011570
us-gaap:OtherCurrentLiabilitiesMember
us-gaap:InterestRateSwapMember
us-gaap:DesignatedAsHedgingInstrumentMember
2019-06-30
0001011570
us-gaap:DesignatedAsHedgingInstrumentMember
2019-06-30
0001011570
us-gaap:DesignatedAsHedgingInstrumentMember
2018-12-31
0001011570
us-gaap:OtherNoncurrentLiabilitiesMember
us-gaap:InterestRateSwapMember
us-gaap:DesignatedAsHedgingInstrumentMember
2019-06-30
0001011570
us-gaap:OtherCurrentLiabilitiesMember
us-gaap:InterestRateSwapMember
us-gaap:DesignatedAsHedgingInstrumentMember
2018-12-31
0001011570
us-gaap:InterestRateSwapMember
2019-01-01
2019-06-30
0001011570
us-gaap:InterestRateSwapMember
2019-06-30
0001011570
srt:MaximumMember
2019-06-30
0001011570
srt:MinimumMember
2019-06-30
0001011570
knl:TermLoanMember
2018-12-31
0001011570
us-gaap:RevolvingCreditFacilityMember
us-gaap:LineOfCreditMember
2019-06-30
0001011570
us-gaap:RevolvingCreditFacilityMember
us-gaap:LineOfCreditMember
2018-12-31
0001011570
knl:TermLoanMember
2019-06-30
0001011570
us-gaap:RevolvingCreditFacilityMember
knl:CreditAgreementMember
us-gaap:LondonInterbankOfferedRateLIBORMember
2019-01-01
2019-06-30
0001011570
us-gaap:RevolvingCreditFacilityMember
knl:CreditAgreementMember
us-gaap:BaseRateMember
2018-01-01
2018-12-31
0001011570
knl:AmendedCreditAgreementMember
2019-06-30
0001011570
us-gaap:RevolvingCreditFacilityMember
knl:CreditAgreementMember
us-gaap:BaseRateMember
2019-01-01
2019-06-30
0001011570
knl:TermLoanMember
knl:AmendedCreditAgreementMember
2019-06-30
0001011570
us-gaap:RevolvingCreditFacilityMember
knl:CreditAgreementMember
us-gaap:LondonInterbankOfferedRateLIBORMember
2018-01-01
2018-12-31
0001011570
knl:MulticurrencyTermLoanMember
knl:AmendedCreditAgreementMember
2019-06-30
0001011570
knl:MulticurrencyTermLoanMember
knl:AmendedCreditAgreementMember
2018-12-31
0001011570
us-gaap:LetterOfCreditMember
knl:CreditAgreementMember
2019-06-30
0001011570
knl:AmendedCreditAgreementMember
2018-12-31
0001011570
knl:TermLoanMember
knl:AmendedCreditAgreementMember
2018-12-31
0001011570
us-gaap:RevolvingCreditFacilityMember
knl:CreditAgreementMember
2019-06-30
0001011570
us-gaap:RevolvingCreditFacilityMember
knl:CreditAgreementMember
2018-12-31
0001011570
us-gaap:LetterOfCreditMember
knl:CreditAgreementMember
2018-12-31
0001011570
2018-01-01
2018-03-31
0001011570
us-gaap:AdditionalPaidInCapitalMember
2018-04-01
2018-06-30
0001011570
us-gaap:RetainedEarningsMember
2018-03-31
0001011570
us-gaap:ParentMember
2018-01-01
2018-03-31
0001011570
us-gaap:RetainedEarningsMember
2018-04-01
2018-06-30
0001011570
2018-03-31
0001011570
us-gaap:ParentMember
2018-03-31
0001011570
us-gaap:ParentMember
2018-04-01
2018-06-30
0001011570
us-gaap:AccountingStandardsUpdate201802Member
us-gaap:RetainedEarningsMember
2018-01-01
2018-03-31
0001011570
us-gaap:NoncontrollingInterestMember
2017-12-31
0001011570
us-gaap:AdditionalPaidInCapitalMember
2018-01-01
2018-03-31
0001011570
us-gaap:AdditionalPaidInCapitalMember
2017-12-31
0001011570
us-gaap:AccountingStandardsUpdate201802Member
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2018-01-01
2018-03-31
0001011570
us-gaap:NoncontrollingInterestMember
2018-01-01
2018-03-31
0001011570
us-gaap:CommonStockMember
2018-03-31
0001011570
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2018-03-31
0001011570
us-gaap:AdditionalPaidInCapitalMember
2018-03-31
0001011570
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2017-12-31
0001011570
us-gaap:ParentMember
2017-12-31
0001011570
us-gaap:RetainedEarningsMember
2018-01-01
2018-03-31
0001011570
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2018-06-30
0001011570
us-gaap:AdditionalPaidInCapitalMember
2018-06-30
0001011570
us-gaap:NoncontrollingInterestMember
2018-06-30
0001011570
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2018-04-01
2018-06-30
0001011570
us-gaap:CommonStockMember
2017-12-31
0001011570
us-gaap:NoncontrollingInterestMember
2018-03-31
0001011570
us-gaap:RetainedEarningsMember
2018-06-30
0001011570
us-gaap:CommonStockMember
2018-06-30
0001011570
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2018-01-01
2018-03-31
0001011570
us-gaap:RetainedEarningsMember
2017-12-31
0001011570
us-gaap:ParentMember
2018-06-30
0001011570
2019-01-01
2019-03-31
0001011570
us-gaap:ParentMember
2019-01-01
2019-03-31
0001011570
us-gaap:ParentMember
2019-04-01
2019-06-30
0001011570
us-gaap:NoncontrollingInterestMember
2019-03-31
0001011570
us-gaap:ParentMember
2019-03-31
0001011570
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-06-30
0001011570
us-gaap:ParentMember
2019-06-30
0001011570
us-gaap:AdditionalPaidInCapitalMember
2019-03-31
0001011570
us-gaap:CommonStockMember
2019-03-31
0001011570
us-gaap:ParentMember
2018-12-31
0001011570
us-gaap:NoncontrollingInterestMember
2019-01-01
2019-03-31
0001011570
us-gaap:AdditionalPaidInCapitalMember
2019-01-01
2019-03-31
0001011570
us-gaap:CommonStockMember
2018-12-31
0001011570
us-gaap:RetainedEarningsMember
2019-01-01
2019-03-31
0001011570
us-gaap:AdditionalPaidInCapitalMember
2018-12-31
0001011570
us-gaap:AdditionalPaidInCapitalMember
2019-04-01
2019-06-30
0001011570
us-gaap:RetainedEarningsMember
2019-04-01
2019-06-30
0001011570
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-01-01
2019-03-31
0001011570
us-gaap:RetainedEarningsMember
2018-12-31
0001011570
us-gaap:CommonStockMember
2019-06-30
0001011570
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2019-03-31
0001011570
us-gaap:NoncontrollingInterestMember
2018-12-31
0001011570
us-gaap:AdditionalPaidInCapitalMember
2019-06-30
0001011570
2019-03-31
0001011570
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2018-12-31
0001011570
us-gaap:RetainedEarningsMember
2019-03-31
0001011570
us-gaap:NoncontrollingInterestMember
2019-06-30
0001011570
us-gaap:RetainedEarningsMember
2019-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetGainLossIncludingPortionAttributableToNoncontrollingInterestMember
2019-04-01
2019-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember
2019-04-01
2019-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember
2018-04-01
2018-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember
2018-01-01
2018-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
knl:AccumulatedDefinedBenefitPlansAdjustmentPensionSettlementChargeIncludingPortionAttributabletoNoncontrollingInterestMember
2018-04-01
2018-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceIncludingPortionAttributableToNoncontrollingInterestMember
2019-04-01
2019-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
knl:AccumulatedDefinedBenefitPlansAdjustmentPensionSettlementChargeIncludingPortionAttributabletoNoncontrollingInterestMember
2019-01-01
2019-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetGainLossIncludingPortionAttributableToNoncontrollingInterestMember
2018-04-01
2018-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceIncludingPortionAttributableToNoncontrollingInterestMember
2019-01-01
2019-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetGainLossIncludingPortionAttributableToNoncontrollingInterestMember
2019-01-01
2019-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceIncludingPortionAttributableToNoncontrollingInterestMember
2018-04-01
2018-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember
2019-01-01
2019-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetGainLossIncludingPortionAttributableToNoncontrollingInterestMember
2018-01-01
2018-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
knl:AccumulatedDefinedBenefitPlansAdjustmentPensionSettlementChargeIncludingPortionAttributabletoNoncontrollingInterestMember
2018-01-01
2018-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
knl:AccumulatedDefinedBenefitPlansAdjustmentPensionSettlementChargeIncludingPortionAttributabletoNoncontrollingInterestMember
2019-04-01
2019-06-30
0001011570
us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceIncludingPortionAttributableToNoncontrollingInterestMember
2018-01-01
2018-06-30
0001011570
knl:AccumulatedForeignCurrencyTranslationAdjustmentOnLongtermIntercompanyNotesMember
2019-01-01
2019-06-30
0001011570
us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember
2019-01-01
2019-06-30
0001011570
us-gaap:AccumulatedTranslationAdjustmentMember
2019-01-01
2019-06-30
0001011570
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember
2018-12-31
0001011570
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember
2019-01-01
2019-06-30
0001011570
us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember
2019-06-30
0001011570
us-gaap:AccumulatedTranslationAdjustmentMember
2019-06-30
0001011570
us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember
2018-12-31
0001011570
knl:AccumulatedForeignCurrencyTranslationAdjustmentOnLongtermIntercompanyNotesMember
2019-06-30
0001011570
us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember
2019-06-30
0001011570
knl:AccumulatedForeignCurrencyTranslationAdjustmentOnLongtermIntercompanyNotesMember
2018-12-31
0001011570
us-gaap:AccumulatedTranslationAdjustmentMember
2018-12-31
0001011570
us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember
2018-12-31
0001011570
us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember
2019-06-30
0001011570
us-gaap:InterestRateContractMember
2019-01-01
2019-06-30
0001011570
us-gaap:InterestRateContractMember
2018-04-01
2018-06-30
0001011570
us-gaap:InterestRateContractMember
2019-04-01
2019-06-30
0001011570
us-gaap:InterestRateContractMember
2018-01-01
2018-06-30
0001011570
knl:OfficeSegmentMember
2018-12-31
0001011570
knl:OfficeSegmentMember
2019-06-30
0001011570
knl:StudioSegmentMember
2019-01-01
2019-06-30
0001011570
knl:StudioSegmentMember
2018-12-31
0001011570
knl:StudioSegmentMember
2019-06-30
0001011570
us-gaap:OperatingSegmentsMember
knl:OfficeSegmentMember
2018-04-01
2018-06-30
0001011570
us-gaap:CorporateNonSegmentMember
2018-01-01
2018-06-30
0001011570
us-gaap:OperatingSegmentsMember
2018-01-01
2018-06-30
0001011570
us-gaap:OperatingSegmentsMember
2019-04-01
2019-06-30
0001011570
us-gaap:CorporateNonSegmentMember
2018-04-01
2018-06-30
0001011570
us-gaap:CorporateNonSegmentMember
2019-01-01
2019-06-30
0001011570
us-gaap:OperatingSegmentsMember
2018-04-01
2018-06-30
0001011570
us-gaap:OperatingSegmentsMember
knl:LifestyleSegmentMember
2018-04-01
2018-06-30
0001011570
us-gaap:OperatingSegmentsMember
knl:LifestyleSegmentMember
2019-04-01
2019-06-30
0001011570
us-gaap:OperatingSegmentsMember
knl:OfficeSegmentMember
2018-01-01
2018-06-30
0001011570
us-gaap:OperatingSegmentsMember
knl:OfficeSegmentMember
2019-01-01
2019-06-30
0001011570
us-gaap:OperatingSegmentsMember
knl:LifestyleSegmentMember
2018-01-01
2018-06-30
0001011570
us-gaap:OperatingSegmentsMember
knl:OfficeSegmentMember
2019-04-01
2019-06-30
0001011570
us-gaap:OperatingSegmentsMember
knl:LifestyleSegmentMember
2019-01-01
2019-06-30
0001011570
us-gaap:OperatingSegmentsMember
2019-01-01
2019-06-30
0001011570
us-gaap:CorporateNonSegmentMember
2019-04-01
2019-06-30
xbrli:pure
xbrli:shares
iso4217:USD
iso4217:USD
xbrli:shares
knl:segment
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019
OR |
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-12907
|
| | |
Delaware | | 13-3873847 |
State or other jurisdiction of incorporation or organization | | I.R.S. Employer No. |
|
| | |
| 1235 Water Street |
|
East Greenville | PA | 18041 |
Telephone Number (215) 679-7991
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: |
| | | | |
Title of each class | | Name of exchange on which registered | | Trading Symbol |
Common Stock, par value $0.01 per share | | New York Stock Exchange | | KNL |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | | |
Large Accelerated Filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes ☐ No ☒
As of August 5, 2019, there were 49,775,599 shares (including 896,181 non-voting restricted shares) of the Registrant’s common stock, par value $0.01 per share, outstanding.
KNOLL, INC.
TABLE OF CONTENTS FOR FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KNOLL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share and per share data)
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
ASSETS | (Unaudited) | | |
|
Current assets: | |
| | |
|
Cash and cash equivalents | $ | 2.9 |
| | $ | 1.6 |
|
Customer receivables, net of allowance for doubtful accounts of $4.3 and $3.7, respectively | 118.8 |
| | 120.2 |
|
Inventories | 182.0 |
| | 170.5 |
|
Prepaid expenses | 21.1 |
| | 25.6 |
|
Other current assets | 12.6 |
| | 13.7 |
|
Total current assets | 337.4 |
| | 331.6 |
|
Property, plant, and equipment, net | 221.8 |
| | 215.0 |
|
Goodwill | 319.7 |
| | 320.8 |
|
Intangible assets, net | 350.1 |
| | 353.9 |
|
Right-of-use lease assets | 94.4 |
| | — |
|
Other noncurrent assets | 10.1 |
| | 5.6 |
|
Total assets | $ | 1,333.5 |
| | $ | 1,226.9 |
|
LIABILITIES AND EQUITY | |
| | |
|
Current liabilities: | |
| | |
|
Current maturities of long-term debt | $ | 17.1 |
| | $ | 17.2 |
|
Accounts payable | 131.7 |
| | 126.7 |
|
Current portion of lease liability | 21.1 |
| | — |
|
Other current liabilities | 123.9 |
| | 128.9 |
|
Total current liabilities | 293.8 |
| | 272.8 |
|
Long-term debt | 430.2 |
| | 443.9 |
|
Deferred income taxes | 88.7 |
| | 86.5 |
|
Pension liability | 12.1 |
| | 13.9 |
|
Lease liability | 87.1 |
| | — |
|
Other noncurrent liabilities | 13.2 |
| | 23.3 |
|
Total liabilities | 925.1 |
| | 840.4 |
|
Commitments and contingent liabilities |
|
| |
|
|
Equity: | |
| | |
|
Common stock, $0.01 par value; 200,000,000 shares authorized; 66,287,054 shares issued and 49,777,570 shares outstanding (including 913,675 non-voting restricted shares and net of 16,509,484 treasury shares) at June 30, 2019 and 65,778,891 shares issued and 49,431,178 shares outstanding (including 725,252 non-voting restricted shares and net of 16,347,713 treasury shares) at December 31, 2018 | 0.5 |
| | 0.5 |
|
Additional paid-in capital | 60.9 |
| | 58.8 |
|
Retained earnings | 419.0 |
| | 395.4 |
|
Accumulated other comprehensive loss | (72.0 | ) | | (68.4 | ) |
Total Knoll, Inc. stockholders’ equity | 408.4 |
| | 386.3 |
|
Noncontrolling interests | — |
| | 0.2 |
|
Total equity | 408.4 |
| | 386.5 |
|
Total liabilities and equity | $ | 1,333.5 |
| | $ | 1,226.9 |
|
See accompanying notes to the condensed consolidated financial statements.
KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(dollars in millions, except share and per share data)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Sales | $ | 367.3 |
| | $ | 323.4 |
| | $ | 700.1 |
| | $ | 619.9 |
|
Cost of sales | 226.6 |
| | 204.2 |
| | 435.6 |
| | 392.9 |
|
Gross profit | 140.7 |
| | 119.2 |
| | 264.5 |
| | 227.0 |
|
Selling, general, and administrative expenses | 106.8 |
| | 93.6 |
| | 201.3 |
| | 178.4 |
|
Restructuring charges | — |
| | 0.8 |
| | 0.1 |
| | 1.4 |
|
Operating profit | 33.9 |
| | 24.8 |
| | 63.1 |
| | 47.2 |
|
Interest expense | 5.5 |
| | 5.3 |
| | 10.7 |
| | 9.3 |
|
Loss on extinguishment of debt | — |
| | — |
| | — |
| | 1.4 |
|
Pension settlement charge | 0.5 |
| | 4.6 |
| | 0.6 |
| | 4.6 |
|
Other income, net | (1.0 | ) | | (2.8 | ) | | (1.6 | ) | | (6.8 | ) |
Income before income tax expense | 28.9 |
|
| 17.7 |
| | 53.4 |
| | 38.7 |
|
Income tax expense | 7.2 |
| | 4.6 |
| | 13.8 |
| | 10.3 |
|
Net earnings | $ | 21.7 |
| | $ | 13.1 |
| | $ | 39.6 |
| | $ | 28.4 |
|
| | | | | | | |
Net earnings per common share attributable to Knoll, Inc. stockholders: | | | | | |
| | |
|
Basic | $ | 0.44 |
| | $ | 0.27 |
| | $ | 0.81 |
| | $ | 0.58 |
|
Diluted | $ | 0.44 |
| | $ | 0.27 |
| | $ | 0.80 |
| | $ | 0.58 |
|
| | | | | | | |
Dividends per share | $ | 0.17 |
| | $ | 0.15 |
| | $ | 0.32 |
| | $ | 0.30 |
|
| | | | | | | |
Weighted-average number of common shares outstanding: | | | | | |
| | |
|
Basic | 48,855,064 |
| | 48,672,144 |
| | 48,815,194 |
| | 48,614,733 |
|
Diluted | 49,314,364 |
| | 49,131,106 |
| | 49,252,546 |
| | 49,137,528 |
|
| | | | | | | |
Net earnings | $ | 21.7 |
| | $ | 13.1 |
| | $ | 39.6 |
| | $ | 28.4 |
|
Other comprehensive income (loss): | | | | | |
| | |
|
Unrealized (loss) gain on interest rate swap, net of tax | (2.8 | ) | | 1.2 |
| | (4.3 | ) | | 1.1 |
|
Pension and other post-employment liability adjustment, net of tax | 0.4 |
| | 7.7 |
| | 0.5 |
| | 7.9 |
|
Foreign currency translation adjustment | 0.4 |
| | (6.0 | ) | | 2.3 |
| | (6.3 | ) |
Foreign currency translation adjustment on long term intercompany notes | 2.0 |
| | (5.1 | ) | | (2.1 | ) | | (5.6 | ) |
Total other comprehensive income (loss), net of tax | — |
| | (2.2 | ) | | (3.6 | ) | | (2.9 | ) |
Total comprehensive income | $ | 21.7 |
| | $ | 10.9 |
| | $ | 36.0 |
| | $ | 25.5 |
|
See accompanying notes to the condensed consolidated financial statements.
KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in millions)
|
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
|
Net earnings | $ | 39.6 |
| | $ | 28.4 |
|
Adjustments to reconcile net earnings to cash provided by operating activities: | |
| | |
|
Depreciation | 13.7 |
| | 12.7 |
|
Amortization expense (including deferred financing fees) | 4.9 |
| | 4.6 |
|
Loss on extinguishment of debt | — |
| | 1.4 |
|
Inventory obsolescence | 0.7 |
| | 0.8 |
|
Unrealized foreign currency loss (gains) | 2.0 |
| | (1.8 | ) |
Stock-based compensation | 4.6 |
| | 4.5 |
|
Bad debt and customer claims | 0.9 |
| | 0.7 |
|
Changes in assets and liabilities: | |
| | |
|
Customer receivables | 0.4 |
| | (11.5 | ) |
Inventories | (11.8 | ) | | (13.6 | ) |
Prepaid and other current assets | (0.8 | ) | | 0.8 |
|
Accounts payable | 4.3 |
| | 7.8 |
|
Accrued liabilities | 4.4 |
| | 0.1 |
|
Other noncurrent assets and liabilities | (7.0 | ) | | (1.2 | ) |
Cash provided by operating activities | 55.9 |
|
| 33.7 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
|
Capital expenditures | (21.9 | ) | | (16.0 | ) |
Purchase of business, net of cash acquired | — |
| | (304.1 | ) |
Cash used in investing activities | (21.9 | ) | | (320.1 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
|
Proceeds from revolving credit facility | 198.5 |
| | 339.0 |
|
Repayment of revolving credit facility | (203.5 | ) | | (211.0 | ) |
Proceeds from term loan | — |
| | 352.5 |
|
Repayment of term loan | (8.6 | ) | | (171.8 | ) |
Payment of financing fees | — |
| | (4.5 | ) |
Payment of fees related to debt extinguishment | — |
| | (1.0 | ) |
Payment of dividends | (16.1 | ) | | (15.4 | ) |
Purchase of common stock for treasury | (3.0 | ) | | (4.4 | ) |
Cash (used in) provided by financing activities | (32.7 | ) | | 283.4 |
|
Effect of exchange rate changes on cash and cash equivalents | — |
| | 2.2 |
|
Net increase (decrease) in cash and cash equivalents | 1.3 |
| | (0.8 | ) |
Cash and cash equivalents at beginning of period | 1.6 |
| | 2.2 |
|
Cash and cash equivalents at end of period | $ | 2.9 |
| | $ | 1.4 |
|
See accompanying notes to the condensed consolidated financial statements.
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Knoll, Inc. (the “Company”) have been prepared with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they 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 have been included. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and any partially-owned subsidiaries that the Company has the ability to control. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the three and six-month periods ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. Beginning with the March 31, 2019 Form 10-Q, the Company began reporting all dollar amounts in millions. In certain circumstances, this change in rounding resulted in prior year disclosures being removed.
The condensed consolidated balance sheet of the Company, as of December 31, 2018, has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2018.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This amendment is effective for fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement. For public companies the ASU removes disclosure requirements for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation process for Level 3 fair value measurements. The ASU modifies the disclosure requirements for investments in certain entities that calculate net asset value and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The ASU adds the disclosure requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019 including interim periods within that fiscal year. Early adoption is permitted. The Company does not plan to early adopt this ASU and the Company does not believe there will be a material impact to the financial statements as a result of adopting this ASU.
Accounting Standards Adopted
In February 2016, the FASB issued guidance codified in ASC 842, Leases, which supersedes the guidance in ASC 840, Leases. ASC 842 was effective for the Company on January 1, 2019, and the Company adopted the standard using the modified retrospective approach. The Company recorded lease liabilities of $117.2 million, with an offsetting increase to right-of-use assets of $102.4 million, for all leases with an initial term of greater than twelve months regardless of their classification as of January 1, 2019.
In 2018, the FASB issued clarifying guidance to the topic in ASUs No. 2018-10 and No. 2018-11, which clarified certain aspects of the new leases standard and provided an optional transition method. The Company has elected the package of practical expedients and adopted utilizing the optional transition method defined within ASU 2018-11 on January 1, 2019. The Company did not elect the hindsight expedient. The adoption of the standard did not materially impact the Condensed Consolidated Statements of Operations and Comprehensive Income or Cash Flows.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock compensation (Topic 718) which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies
to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company adopted this ASU effective January 1, 2019. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases, (“ASC 842”). The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the customer has the right to control the use of the identified asset. The Company determines whether the contracts are considered an operating or finance lease. The Company does not currently have finance leases.
Operating leases are included in right-of-use (“ROU”) lease assets, current portion lease liability, and lease liabilities on the Condensed Consolidated Balance Sheets. The lease liabilities are initially measured at the present value of the unpaid lease payments at the lease commencement date.
Key estimates and judgments include how the Company determined (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.
| |
(1) | ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As the majority of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The Company uses the implicit rate when readily determinable. |
| |
(2) | The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise. |
| |
(3) | Lease payments included in the measurement of the lease liability comprise the following: fixed payments (including in-substance fixed payments), less any lease incentives paid or payable to the lessee, variable payments that depend on an index or rate, amounts expected to be payable under a residual value guarantee and the exercise price of the Company option to purchase the underlying asset if the Company is reasonably certain to exercise. |
The ROU asset is initially measured at cost, which comprises the initial measurement of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives received.
For operating leases, the ROU asset is subsequently measured throughout the lease term at the amount of the remeasured lease liability, adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term and any unamortized initial direct costs. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expenses in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income in the same line item as expense arising from fixed lease payments for operating leases.
ROU assets for operating leases are subject to the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment - Overall. As of June 30, 2019, the Company has not incurred any impairment losses.
The Company monitors for events or changes in circumstances that require a reassessment of a lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.
The Company has lease agreements which include lease and non-lease components, which are accounted for separately using a relative stand-alone price basis.
Lease expense for short-term leases are recognized on a straight-line basis over the lease term.
On January 1, 2019 the Company adopted ASC 842 using a modified retrospective transition method and elected the optional transition method as defined within ASU 2018-11. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption (i.e. January 1, 2019). The Company has elected to adopt the package of transition practical expedients and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized. The Company did not elect the practical expedient to use hindsight for leases existing at the adoption date. Further, the Company does not expect the amendments in ASU 2018-01: Land Easement Practical Expedient for Transition to Topic 842 to have an effect on the Company because it does not enter into land easement arrangements.
The Company has elected not to recognize ROU assets and lease liabilities for all short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term. Variable lease payments associated with these leases are recognized and presented in the same manner as for all other Company leases.
Additionally, the Company applies a portfolio approach to determine the discount rate (i.e. incremental borrowing rate for leases with similar characteristics). The Company applies the incremental borrowing rate generally based on the transactional currency of the lease and the lease term.
All other significant accounting policies are consistent with those disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2018.
NOTE 3. REVENUE
Disaggregation of Revenue
The majority of the Company’s revenue presented as “Sales” in the Condensed Consolidated Statements of Operations and Comprehensive Income is the result of contracts with customers for the sale of the Company’s products.
The Company’s sales by product category were as follows (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Office Segment | | | | | | | |
Office Systems | $ | 114.8 |
| | $ | 106.0 |
| | 221.1 |
| | $ | 210.0 |
|
Seating | 34.6 |
| | 34.1 |
| | 65.5 |
| | 65.1 |
|
Files and Storage | 27.4 |
| | 21.4 |
| | 52.9 |
| | 43.6 |
|
Ancillary | 30.3 |
| | 20.9 |
| | 55.9 |
| | 39.4 |
|
Other | 16.1 |
| | 12.2 |
| | 30.0 |
| | 21.6 |
|
Total Office Segment | 223.2 |
| | 194.6 |
| | 425.4 |
|
| 379.7 |
|
Lifestyle Segment | | | | | | | |
Studio | 113.3 |
| | 101.0 |
| | 214.8 |
| | 185.0 |
|
Coverings | 30.8 |
| | 27.8 |
| | 59.9 |
| | 55.2 |
|
Total Lifestyle Segment | 144.1 |
| | 128.8 |
| | 274.7 |
|
| 240.2 |
|
Total Sales | $ | 367.3 |
| | $ | 323.4 |
| | $ | 700.1 |
|
| $ | 619.9 |
|
Contract Balances
The Company has contract assets consisting of Customer receivables in the Condensed Consolidated Balance Sheets which represent the amount of consideration the Company expects to be entitled to in exchange for the goods or services rendered to its customers.
When the Company receives deposits, generally the recognition of revenue is deferred and results in the recognition of a contract liability (Customer deposits) presented as a component of Other Current Liabilities in the Condensed Consolidated Balance Sheets. Subsequent recognition of revenue and the satisfaction of the contract liability is typically less than one year as the Company’s standard contract is less than one year. As of June 30, 2019 and December 31, 2018, the contract liability related to customer deposits was $41.3 million and $37.7 million. The Company recognized revenues that were included in the contract liability at the beginning of the current year of $28.8 million.
NOTE 4. 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 $7.6 million of cash acquired. The Company recorded acquisition costs and certain other costs of $1.5 million within selling, general, and administrative expenses in its Condensed Consolidated Statement of Operations and Comprehensive Income, during the six months ended June 30, 2018.
The following table presents unaudited pro forma information for the period presented as if the acquisition had occurred as of January 1, 2017 (in millions):
|
| | | | |
| | Six Months Ended June 30, 2018 |
Pro forma sales | | $ | 624.1 |
|
Pro forma net earnings attributable to Knoll, Inc. stockholders | | $ | 32.6 |
|
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 includes adjustment 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 and (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, acquisition related inventory valuation of $0.9 million, incremental interest expense of $0.9 million, incremental amortization of intangibles of $0.1 million, as well as combined acquisition costs and loss on debt extinguishment of $2.9 million. The income tax impact of these adjustments for the six months ended June 30, 2018 was $0.9 million.
For further information on acquisitions, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2018.
NOTE 5. INVENTORIES
Information regarding the Company’s inventories is as follows (in millions):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Raw materials | $ | 58.6 |
| | $ | 65.1 |
|
Work-in-process | 10.2 |
| | 8.3 |
|
Finished goods | 113.2 |
| | 97.1 |
|
| $ | 182.0 |
| | $ | 170.5 |
|
NOTE 6. PENSION AND OTHER POST-EMPLOYMENT BENEFITS
The following tables set forth the components of the net periodic benefit (income) cost for the Company’s pension and other post-employment benefit plans (in millions):
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| Three Months Ended June 30, | | Three Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Interest cost | 2.4 |
| | 2.5 |
| | 0.1 |
| | — |
|
Expected return on plan assets | (4.0 | ) | | (4.6 | ) | | — |
| | — |
|
Amortization of prior service credit | — |
| | — |
| | (0.2 | ) | | (0.2 | ) |
Recognized actuarial loss | 0.2 |
| | 0.4 |
| | — |
| | — |
|
Pension settlement charge (1) | 0.5 |
| | 4.6 |
| | — |
| | — |
|
Net periodic benefit (income) cost | $ | (0.9 | ) |
| $ | 2.9 |
|
| $ | (0.1 | ) |
| $ | (0.2 | ) |
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| Six Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Interest cost | 4.9 |
| | 5.0 |
| | 0.2 |
| | 0.1 |
|
Expected return on plan assets | (8.0 | ) | | (9.2 | ) | | — |
| | — |
|
Amortization of prior service credit | — |
| | — |
| | (0.4 | ) | | (0.4 | ) |
Recognized actuarial loss | 0.3 |
| | 0.7 |
| | — |
| | — |
|
Pension settlement charge (1) | 0.6 |
| | 4.6 |
| | — |
| | — |
|
Net periodic benefit (income) cost | $ | (2.2 | ) |
| $ | 1.1 |
|
| $ | (0.2 | ) |
| $ | (0.3 | ) |
(1) The pension settlement charge for the periods ended June 30, 2019 related to cash payments from lump sum elections. The pension settlement charge for the six months ended June 30, 2018 was related to the purchase of annuities for certain pension plan retirees as well as cash payments from lump sum elections.
NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Instruments
The fair values of the Company’s cash and cash equivalents, classified as Level 1 within the fair value hierarchy, approximate carrying value due to their short maturities.
The fair value of the Company’s long-term debt, classified as Level 2 within the fair value hierarchy, approximates its carrying value, as it is variable rate debt and the terms are comparable to market terms as of the balance sheet dates.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following table represents the assets and liabilities, measured at fair value on a recurring basis and the basis for that measurement (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value as of June 30, 2019 | | Fair Value as of December 31, 2018 |
Liabilities: | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Interest rate swap | | $ | — |
| | $ | 7.5 |
| | $ | — |
| | $ | 7.5 |
| | $ | — |
| | $ | 1.7 |
| | $ | — |
| | $ | 1.7 |
|
Contingent purchase price payment - DatesWeiser | | — |
| | — |
| | 0.8 |
| | 0.8 |
| | — |
| | — |
| | 0.8 |
| | 0.8 |
|
Interest Rate Swap
The Company’s interest rate swap is with a counterparty with a credit rating of A- according to S&P and Fitch. The fair value of the interest rate swap agreement is based on observable prices as quoted for receiving the variable one-month London Interbank Offered Rates (LIBOR) and paying fixed interest rates and therefore were classified as Level 2 within the fair value hierarchy.
Contingent Purchase Price Payment
Pursuant to the agreement governing the acquisition of DatesWeiser, which took place in 2016, the Company may be required to make annual contingent purchase price payments. The payouts are based upon DatesWeiser reaching an annual net sales target, for each year through 2020. The Company classifies this as a Level 3 measurement and is required to remeasure this liability at fair value on a recurring basis. Any changes in the fair value will be included within selling, general and administrative expenses. The maximum amount of possible future contingent payments under the agreement as of June 30, 2019 is $4.0 million.
There were no additional assets and/or liabilities recorded at fair value on a recurring basis as of June 30, 2019 or December 31, 2018.
NOTE 8. DERIVATIVE INSTRUMENTS
The Company is exposed to interest rate risks related to its business operations. To reduce the interest rate risk the Company uses an interest rate swap contract. The Company does not use derivatives for speculative trading purposes.
Cash flow hedge
To offset the variability of cash flows in interest payments associated with a portion of the Company’s variable rate debt, the Company entered into an interest rate swap contract in January 2018 which is designated as a cash flow hedge. The interest rate swap hedges one-month LIBOR, which effectively converts a portion of the variable-rate debt to a fixed interest rate. The interest rate swap effective date is December 31, 2018 and the maturity date is January 23, 2023. As of June 30, 2019, the Company’s interest rate swap agreement, which hedges long-term debt obligations, has a notional amount of $300.0 million, which decreases over time by $50 million increments. The contract has a fixed rate of 2.63%.
The following table summarizes the fair value of the Company’s derivative instruments, as well as the location of these instruments on the Condensed Consolidated Balance Sheets as of the dates presented (in millions):
|
| | | | | | | | | |
Derivatives designated as hedging instruments | Balance Sheet Location | | June 30, 2019 | | December 31, 2018 |
Derivative liabilities: | |
Interest rate swap | Other current liabilities | | $ | 2.1 |
| | $ | 0.3 |
|
Interest rate swap | Other noncurrent liabilities | | 5.4 |
| | 1.4 |
|
Total derivative liabilities | | | $ | 7.5 |
| | $ | 1.7 |
|
The interest rate swap is included at its estimated fair value as an asset or a liability in the Condensed Consolidated Balance Sheet based on a discounted cash flow model using applicable market swap rates and certain assumptions. The fair value of the swap recorded in Accumulated Other Comprehensive Income (Loss) may be recognized in the Condensed Consolidated Statement of Operations if certain terms of the agreement change, are modified or if the loan is extinguished. As of June 30, 2019 there was no hedge ineffectiveness associated with the Company’s interest rate swap and no portion of the cash flow hedge is excluded from the assessment of effectiveness. The Company reclassified $0.1 million and $0.2 million from other comprehensive loss to interest expense within the Condensed Consolidated Statement of Operations during the three and six months ended June 30, 2019, respectively. The Company expects to reclassify in the next 12 months a loss of approximately $2.1 million from accumulated other comprehensive income into earnings, as a component of interest expense, related to the Company’s interest rate swap based on the borrowing rates at June 30, 2019.
NOTE 9. LEASES
The Company has commitments under operating leases for certain machinery and equipment as well as manufacturing, warehousing, showroom and other facilities used in its operations. The Company does not have finance leases. Excluding short-term leases, the Company’s leases have initial terms ranging from 1 to 16 years, most of which include options the Company may elect to extend or renew the lease for 0.1 to 6 years, and some of which may include options to terminate the leases with notice periods of up to 1 year. Certain lease agreements contain provisions for future rent increases. Payments due under lease contracts are fixed.
The components of lease cost for the three and six months ended June 30, 2019 are as follows (in millions):
|
| | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2019 | | June 30, 2019 |
Lease cost: | | | | |
Operating lease cost | | $ | 6.8 |
| | $ | 13.7 |
|
Short-term lease cost | | 0.5 |
| | 0.6 |
|
Sublease income | | — |
| | (0.1 | ) |
Total lease cost | | $ | 7.3 |
| | $ | 14.2 |
|
As of December 31, 2018, minimum rental payments under operating leases were recognized on a straight-line basis over the term of the lease including any periods of free rent.
Other lease information as of and for the period ended June 30, 2019 includes:
|
| | | |
| | June 30, 2019 |
Weighted-average remaining lease term (in years) | | |
Operating leases | | 6.2 |
|
Weighted-average discount rate | | |
Operating leases | | 4.8 | % |
|
| | | | |
(dollars in millions) | | Six Months Ended |
| | June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows from operating leases | | $ | 13.9 |
|
Right-of-use assets obtained in exchange for lease liabilities: | |
|
Operating leases | | $ | 5.0 |
|
As of June 30, 2019, the Company has an additional operating lease that has not yet commenced for which it will record a right of use asset and lease liability of approximately $3.3 million. The lease will commence in January 2020 with a lease term of approximately 10 years.
Future minimum lease payments under non-cancellable leases, net of sublease income, as of June 30, 2019 is as follows (in millions):
|
| | | | |
| | June 30, 2019 |
2019 (remaining six months) | | $ | 12.5 |
|
2020 | | 26.0 |
|
2021 | | 20.0 |
|
2022 | | 17.4 |
|
2023 | | 14.8 |
|
Thereafter | | 40.4 |
|
Total undiscounted lease payments | | 131.1 |
|
Less: imputed interest | | (22.9 | ) |
Total lease liability | | $ | 108.2 |
|
NOTE 10. OTHER CURRENT LIABILITIES
Information regarding the Company’s other current liabilities is as follows (in millions):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Accrued employee compensation | $ | 28.4 |
| | $ | 40.6 |
|
Customer deposits | 41.3 |
| | 37.7 |
|
Warranty | 10.1 |
| | 9.6 |
|
Other | 44.1 |
| | 41.0 |
|
Other current liabilities | $ | 123.9 |
| | $ | 128.9 |
|
NOTE 11. INDEBTEDNESS
The Company’s long-term debt is summarized as follows (in millions):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Balance of revolving credit facility | $ | 129.5 |
| | $ | 134.5 |
|
Balance of term loans | 321.5 |
| | 330.8 |
|
Total long-term debt | 451.0 |
| | 465.3 |
|
Less: Current maturities of long-term debt | 17.1 |
| | 17.2 |
|
Less: Deferred financing fees, net | 3.7 |
| | 4.2 |
|
Long-term debt | $ | 430.2 |
| | $ | 443.9 |
|
Credit facility
The following revolving credit facility was in place at June 30, 2019 and December 31, 2018 (in millions):
|
| | | | | | | |
| Capacity | | Amount Borrowed | | Letters of Credit Outstanding | | Unused Capacity |
June 30, 2019 | $400.0 | | $129.5 | | $5.2 | | $265.3 |
December 31, 2018 | $400.0 | | $134.5 | | $5.2 | | $260.3 |
At June 30, 2019, borrowings under the revolving credit facility include $7.0 million at a base rate of 6.25% and $122.5 million at a weighted average LIBOR rate of 4.15%. At December 31, 2018, borrowings under the revolving credit facility include $2.5 million at a base rate of 6.25% and $132.0 million at a weighted average LIBOR rate of 4.25%. At June 30, 2019 and December 31, 2018, the letters of credit issued under the revolving credit facility incurred interest at 1.75% for both periods.
At June 30, 2019, the U.S. term loan and multicurrency term loan incurred interest at 4.15% and 1.75%, respectively. At December 31, 2018 the U.S. term loan and multicurrency term loan incurred interest at 4.27% and 1.75%, respectively. The
Eurocurrency rates used for the U.S. dollar-denominated term loan and the Euro-denominated term loan are one-month LIBOR and one-month Euribor, respectively.
Deferred Financing Fees
Deferred financing fees, net of accumulated amortization, totaled $3.7 million and $4.2 million as of June 30, 2019 and December 31, 2018, respectively. In conjunction with terminating the Company’s Existing Credit Agreement, $0.4 million in unamortized debt issuance costs and $1.0 million of third party fees related to debt extinguishment were written-off as a loss on extinguishment of debt during the six months ended June 30, 2018.
NOTE 12. CONTINGENT LIABILITIES AND COMMITMENTS
Litigation
The Company is currently involved in matters of litigation, including environmental contingencies, arising in the ordinary course of business. The Company accrues for such matters when expenditures are probable and reasonably estimable. Based upon information presently known, management is of the opinion that such litigation, either individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
Warranty
The Company provides for estimated product warranty expenses when related products are sold and are included within other current liabilities. Because warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, future warranty claims may differ from the amounts provided.
Changes in the warranty reserve are as follows (in millions):
|
| | | | |
Balance, December 31, 2018 | | $ | 9.6 |
|
Provision for warranty claims | | 4.6 |
|
Warranty claims settled | | (4.0 | ) |
Foreign currency translation adjustment | | (0.1 | ) |
Balance, June 30, 2019 | | $ | 10.1 |
|
Warranty expense for the three and six months ended June 30, 2019 was $2.7 million and $4.6 million, respectively. Warranty expense for the three and six months ended June 30, 2018 was $1.9 million and $3.8 million, respectively.
NOTE 13. EQUITY
The following table shows the change in equity attributable to Knoll, Inc. stockholders and noncontrolling interests during the six months ended June 30, 2019 (in millions except share information):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Knoll, Inc. Stockholders' Equity | | Noncontrolling Interests | | Total Equity |
Balance at December 31, 2018 | | $ | 0.5 |
| | $ | 58.8 |
| | $ | 395.4 |
| | $ | (68.4 | ) | | $ | 386.3 |
| | $ | 0.2 |
| | $ | 386.5 |
|
Net earnings | | — |
| | — |
| | 18.0 |
| | — |
| | 18.0 |
| | — |
| | 18.0 |
|
Other comprehensive (loss) income | | — |
| | — |
| | — |
| | (3.6 | ) | | (3.6 | ) | | — |
| | (3.6 | ) |
Stock-based compensation, net of forfeitures | | — |
| | 2.2 |
| | — |
| | — |
| | 2.2 |
| | — |
| | 2.2 |
|
Cash dividend ($0.15 per share) | | — |
| | — |
| | (7.5 | ) | | — |
| | (7.5 | ) | | — |
| | (7.5 | ) |
Purchase of common stock (141,738 shares) | | — |
| | (3.0 | ) | | — |
| | — |
| | (3.0 | ) | | — |
| | (3.0 | ) |
Other | | — |
| | 0.4 |
| | — |
| | — |
| | 0.4 |
| | (0.2 | ) | | 0.2 |
|
Balance at March 31, 2019 | | $ | 0.5 |
| | $ | 58.4 |
| | $ | 405.9 |
| | $ | (72.0 | ) | | $ | 392.8 |
| | $ | — |
| | $ | 392.8 |
|
Net earnings | | — |
| | — |
| | 21.7 |
| | — |
| | 21.7 |
| | — |
| | 21.7 |
|
Other comprehensive (loss) income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Stock-based compensation, net of forfeitures | | — |
| | 2.4 |
| | — |
| | — |
| | 2.4 |
| | — |
| | 2.4 |
|
Cash dividend ($0.17 per share) | | — |
| | — |
| | (8.6 | ) | | — |
| | (8.6 | ) | | — |
| | (8.6 | ) |
Other | | — |
| | 0.1 |
| | — |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
Balance at June 30, 2019 | | $ | 0.5 |
|
| $ | 60.9 |
|
| $ | 419.0 |
|
| $ | (72.0 | ) |
| $ | 408.4 |
|
| $ | — |
|
| $ | 408.4 |
|
The following table shows the change in the number of shares of common stock outstanding during the six months ended June 30, 2019 (table in thousands and excluding non-voting restricted shares):
|
| | | |
Shares outstanding as of December 31, 2018 | | 48,706 |
|
Shares issued under stock incentive plan, net of awards surrendered to pay applicable taxes | | 157 |
|
Shares issued to Board of Directors in lieu of cash | | 1 |
|
Shares outstanding as of June 30, 2019 | | 48,864 |
|
The following table shows the change in equity attributable to Knoll, Inc. stockholders and noncontrolling interests during the six months ended June 30, 2018 (in millions except share information): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Knoll, Inc. Stockholders' Equity | | Noncontrolling Interests | | Total Equity |
Balance at December 31, 2017 | | $ | 0.5 |
| | $ | 54.5 |
| | $ | 347.3 |
| | $ | (43.8 | ) | | $ | 358.5 |
| | $ | 0.3 |
| | $ | 358.8 |
|
Adoption of ASU 2018-02 | | — |
| | — |
| | 6.3 |
| | (6.3 | ) | | — |
| | — |
| | — |
|
Net earnings | | — |
| | — |
| | 15.3 |
| | — |
| | 15.3 |
| | — |
| | 15.3 |
|
Other comprehensive (loss) income | | — |
| | — |
| | — |
| | (0.8 | ) | | (0.8 | ) | | — |
| | (0.8 | ) |
Stock-based compensation, net of forfeitures | | — |
| | 2.4 |
| | — |
| | — |
| | 2.4 |
| | — |
| | 2.4 |
|
Cash dividend ($0.15 per share) | | — |
| | — |
| | (7.3 | ) | | — |
| | (7.3 | ) | | — |
| | (7.3 | ) |
Purchase of common stock (95,412 shares) | | — |
| | (2.0 | ) | | — |
| | — |
| | (2.0 | ) | | — |
| | (2.0 | ) |
Balance at March 31, 2018 | | $ | 0.5 |
| | $ | 54.9 |
| | $ | 361.5 |
| | $ | (50.8 | ) | | $ | 366.1 |
| | $ | 0.3 |
| | $ | 366.4 |
|
Net earnings | | — |
| | — |
| | 13.1 |
| | — |
| | 13.1 |
| | — |
| | 13.1 |
|
Other comprehensive (loss) income | | — |
| | — |
| | — |
| | (2.2 | ) | | (2.2 | ) | | — |
| | (2.2 | ) |
Stock-based compensation, net of forfeitures | | — |
| | 2.1 |
| | — |
| | — |
| | 2.1 |
| | — |
| | 2.1 |
|
Cash dividend ($0.15 per share) | | — |
| | — |
| | (7.9 | ) | | — |
| | (7.9 | ) | | — |
| | (7.9 | ) |
Purchase of common stock | | — |
| | (2.4 | ) | | — |
| | — |
| | (2.4 | ) | | — |
| | (2.4 | ) |
Balance at June 30, 2018 | | $ | 0.5 |
| | $ | 54.6 |
| | $ | 366.7 |
| | $ | (53.0 | ) | | $ | 368.8 |
| | $ | 0.3 |
| | $ | 369.1 |
|
The following table shows the change in the number of shares of common stock outstanding during the six months ended June 30, 2018 (table in thousands and excluding non-voting restricted shares):
|
| | | |
Shares outstanding as of December 31, 2017 | | 48,498 |
|
Shares issued under stock incentive plan, net of awards surrendered to pay applicable taxes | | 194 |
|
Shares issued to Board of Directors in lieu of cash | | 2 |
|
Shares outstanding as of June 30, 2018 | | 48,694 |
|
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2019 (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| Unrealized gains (losses) on Interest Rate Swaps | | Foreign Currency Translation Adjustment | | Foreign Currency Translation Adjustment on Long-term Intercompany Notes | | Pension and Other Post-Employment Liability Adjustment | | Total |
Balance, as of December 31, 2018 | $ | (1.2 | ) | | $ | (18.8 | ) | | $ | (8.1 | ) | | $ | (40.3 | ) | | $ | (68.4 | ) |
Other comprehensive income (loss) before reclassifications | (6.0 | ) | | 2.3 |
| | (2.1 | ) | | — |
| | (5.8 | ) |
Amounts reclassified from accumulated other comprehensive loss | 0.2 |
| | — |
| | — |
| | 0.5 |
| | 0.7 |
|
Net current-period other comprehensive income (loss) before income tax | (5.8 | ) |
| 2.3 |
| | (2.1 | ) | | 0.5 |
| | (5.1 | ) |
Income tax benefit (expense) | 1.5 |
| | — |
| | — |
| | — |
| | 1.5 |
|
Other comprehensive income (loss) | (4.3 | ) |
| 2.3 |
|
| (2.1 | ) |
| 0.5 |
|
| (3.6 | ) |
Balance, as of June 30, 2019 | $ | (5.5 | ) |
| $ | (16.5 | ) |
| $ | (10.2 | ) |
| $ | (39.8 | ) |
| $ | (72.0 | ) |
The following pension and other post-retirement benefit reclassifications were made from accumulated other comprehensive income (loss) to the Condensed Consolidated Statements of Operations and Other Comprehensive Income (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
Amortization of pension and other post-employment liability adjustments | | | | | | | |
Prior service credits (1) | $ | (0.2 | ) | | $ | (0.2 | ) | | $ | (0.4 | ) | | $ | (0.4 | ) |
Actuarial losses (1) | 0.2 |
| | 0.3 |
| | 0.3 |
| | 0.7 |
|
Pension settlement charge | 0.5 |
| | 4.6 |
| | 0.6 |
| | 4.6 |
|
Total before tax | 0.5 |
| | 4.7 |
| | 0.5 |
| | 4.9 |
|
Tax benefit | (0.2 | ) | | (1.3 | ) | | — |
| | (1.3 | ) |
Net of tax | $ | 0.3 |
| | $ | 3.4 |
| | $ | 0.5 |
| | $ | 3.6 |
|
(1) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension costs, and are included in Other income, net within the Condensed Consolidated Statements of Operations and Comprehensive Income. See Note 6 for additional information.
The following table summarizes the unrealized gains (losses) on derivative instruments, including the impact of components reclassified into net income from accumulated other comprehensive income (loss), for the three and six months ended June 30, 2019 and 2018 (in millions):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
Unrealized gain (loss) on derivative instruments | | $ | (3.9 | ) | | $ | 1.2 |
| | $ | (6.0 | ) | | $ | 1.1 |
|
Loss (gain) on derivatives reclassified into income: | | | | | | | | |
Interest rate contracts | | 0.1 |
| | — |
| | 0.2 |
| | — |
|
Total reclassified into income | | 0.1 |
| | — |
| | 0.2 |
| | — |
|
Income tax benefit | | 1.0 |
| | — |
| | 1.5 |
| | — |
|
Amounts reclassified from accumulated other comprehensive income, net of tax | | 1.1 |
| | — |
| | 1.7 |
| | — |
|
Unrealized gain (loss) on derivative instruments, net of tax | | $ | (2.8 | ) | | $ | 1.2 |
| | $ | (4.3 | ) | | $ | 1.1 |
|
NOTE 15. EARNINGS PER SHARE
Basic earnings per share excludes the dilutive effect of common shares that could potentially be issued due to the exercise of stock options and vesting of unvested restricted stock and restricted stock units, and is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. At June 30, 2019 and 2018, the Company had restricted stock, restricted stock units and stock options, which could potentially dilute basic earnings per share in the future. The following table sets forth the reconciliation from basic to dilutive average common shares (in millions, except shares which are in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Numerator: | | | | | | | |
Net earnings attributable to Knoll, Inc. stockholders | $ | 21.7 |
| | $ | 13.1 |
| | $ | 39.6 |
| | $ | 28.4 |
|
| | | | | | | |
Denominator: | | | | | | | |
Denominator for basic earnings per shares - weighted-average shares | 48,855 |
| | 48,672 |
| | 48,815 |
| | 48,615 |
|
Effect of dilutive securities: | | | | | | | |
Potentially dilutive shares resulting from stock plans | 459 |
| | 459 |
| | 438 |
| | 523 |
|
Denominator for diluted earnings per share - weighted-average shares | 49,314 |
| | 49,131 |
| | 49,253 |
| | 49,138 |
|
Antidilutive equity awards not included in weighted-average common shares—diluted | — |
| | — |
| | — |
| | — |
|
| | | | | | | |
Net earnings per common share attributable to Knoll, Inc. stockholders: | |
| | |
| | |
| | |
|
Basic | $ | 0.44 |
| | $ | 0.27 |
| | $ | 0.81 |
| | $ | 0.58 |
|
Diluted | $ | 0.44 |
| | $ | 0.27 |
| | $ | 0.80 |
| | $ | 0.58 |
|
NOTE 16. INCOME TAXES
The Company develops interim income tax provisions based on estimates of the effective tax rates expected to apply per tax domicile for the current annual reporting period. These estimates are reevaluated each quarter and updated as necessary. The tax effects of any discrete items are recorded in the period in which they occur and are excluded from the interim estimates of the effective annual rates.
The Company’s effective tax rates for the three months ended June 30, 2019 and 2018 were 25.1% and 26.0%, respectively, and 25.8% and 26.6% for the six months ended June 30, 2019 and 2018, respectively. Changes in the effective tax rates for the second quarter and first half of 2019, as compared to the same periods in 2018, were primarily driven by the amount and timing of share-based compensation deductions, the recognition of certain tax credits and the timing of the impact of certain provisions of the Tax Act applicable to our foreign jurisdictions.
NOTE 17. SEGMENT INFORMATION
The Company has two reportable segments: Office and Lifestyle. The Office reportable segment is comprised of the operations of the Office operating segment. The Lifestyle reportable segment is an aggregation of the Lifestyle, Europe, and Muuto operating segments. All unallocated expenses are included within Corporate.
The Office segment includes a complete range of workplace products that address diverse workplace planning paradigms in North America and Europe. These products include: office systems furniture, seating, storage, tables, desks and KnollExtra® accessories. The Office segment includes DatesWeiser, known for its sophisticated meeting and conference tables and credenzas, sets a standard of design, quality and technology integration.
The Lifestyle segment includes KnollStudio®, HOLLY HUNT®, Muuto®, KnollTextiles®, Spinneybeck® (including Filzfelt®), and Edelman® Leather. Lifestyle products, which are distributed globally, include iconic seating, lounge furniture, side, café and dining chairs as well as conference, training, dining and occasional tables, lighting, rugs, textiles, high-quality fabrics, felt, leather and related architectural products.
During the first quarter of 2019, the Company changed the structure of its internal organization which caused the composition of its reportable segments to change. As a result, DatesWeiser is now a component of the Office operating segment as opposed to the Lifestyle operating segment. As a result of this change in segment reporting, the Company retrospectively revised prior period results, by segment, to conform to current period presentation.
Corporate costs include unallocated costs relating to shared services and general corporate activities such as legal expenses, acquisition expenses, certain finance, human resources, administrative and executive expenses and other expenses that are not directly attributable to an operating segment. Dedicated, direct selling, general and administrative expenses of the segments are included within segment operating profit. Management regularly reviews the costs included in the Corporate function and believes disclosing such information provides more visibility and transparency of how the chief operating decision maker reviews the results for the Company.
The tables below present the Company’s segment information with Corporate costs excluded from reporting segment results. Prior year amounts have been recast to conform to the current presentation (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
SALES | | | | | | | |
Office | $ | 223.2 |
| | $ | 194.6 |
| | 425.4 |
| | 379.7 |
|
Lifestyle | 144.1 |
| | 128.8 |
| | 274.7 |
| | 240.2 |
|
Knoll, Inc. | $ | 367.3 |
| | $ | 323.4 |
| | 700.1 |
| | 619.9 |
|
INTERSEGMENT SALES (1) | | | | | | | |
Office | $ | 0.5 |
| | $ | 0.5 |
| | 0.9 |
| | 1.0 |
|
Lifestyle | 2.6 |
| | 3.1 |
| | 5.0 |
| | 5.4 |
|
Knoll, Inc. | $ | 3.0 |
| | $ | 3.5 |
| | 5.9 |
| | 6.4 |
|
OPERATING PROFIT | | | |
| | | | |
Office (2) | $ | 14.3 |
| | $ | 10.4 |
| | 28.5 |
| | 19.2 |
|
Lifestyle | 25.6 |
| | 20.9 |
| | 46.3 |
| | 41.1 |
|
Corporate | (6.0 | ) | | (6.5 | ) | | (11.7 | ) | | (13.1 | ) |
Knoll, Inc. | $ | 33.9 |
|
| $ | 24.8 |
|
| $ | 63.1 |
|
| $ | 47.2 |
|
_______________________________________________________________________________
(1) Intersegment sales are presented on a cost-plus basis which takes into consideration the effect of transfer prices between legal entities.
(2) Knoll recorded restructuring charges of $0.1 million during the six months ended June 30, 2019 and $0.8 million and $1.4 million during the three and six months ended June 30, 2018, respectively, within the Office segment related to an organizational realignment that will result in greater operating efficiency and control.
The changes in the carrying amount of goodwill by reportable segment are as follows (in millions):
|
| | | | | | | | | | | |
| Office Segment | | Lifestyle Segment | | Total |
Balance as of December 31, 2018 | $ | 39.1 |
| | $ | 281.7 |
| | $ | 320.8 |
|
Foreign currency translation adjustment | 0.3 |
| | (1.4 | ) | | (1.1 | ) |
Balance as of June 30, 2019 | $ | 39.4 |
| | $ | 280.3 |
| | $ | 319.7 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis of financial condition and results of operations provides an account of our financial performance and financial condition that should be read in conjunction with the accompanying audited consolidated financial statements.
Forward-looking Statements
This quarterly report on Form 10-Q contains forward-looking statements, principally in the sections entitled “Business,” “Risk Factors,” “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk.” Statements and financial discussion and analysis contained in this Form 10-Q that are not historical facts are forward-looking statements. These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. This includes, without limitation, our statements and expectations regarding any current or future recovery in our industry, our publicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals, our integration of acquired businesses, and our expectations with respect to leverage. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Factors that may cause actual results to differ materially from those in the forward-looking statements include corporate spending and service-sector employment, price competition, acceptance of Knoll's new products, the pricing and availability of raw materials and components, foreign currency exchange, transportation costs, demand for high quality, well designed furniture solutions, changes in the competitive marketplace, changes in the trends in the market for furniture or coverings, the financial strength and stability of our suppliers, customers and dealers, access to capital, our success in designing and implementing our new enterprise resource planning system, our ability to successfully integrate acquired businesses, our supply chain optimization initiatives and other risks identified in Knoll's annual report on Form 10-K, and other filings with the Securities and Exchange Commission. The factors identified above are believed to be important factors but not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material adverse effects on us. All forward-looking statements included in this Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements. Except as required under the Federal securities laws and the rules and regulations of the SEC, we undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
Overview
We design, manufacture, market and sell high-end commercial and residential furniture, lighting, accessories, textiles, fine leathers and designer felt for the workplace and residential markets, as well as modern outdoor furniture. We work with clients to create inspired modern interiors. Our design-driven businesses share a reputation for high-quality and sophistication, offering a diversified product portfolio that endures throughout evolving trends and performs throughout business cycles. Our products are targeted at the middle to upper-end of the market where we reach customers primarily through a broad network of independent dealers and distribution partners, our direct sales force, our showrooms, and our online presence.
Business Highlights
During the last decade we have diversified our sources of revenue among our varying operating segments. These diversification efforts coupled with efforts to improve our Office segment profitability, have resulted in growth and margin expansion. We believe we are well positioned to continue to build on these initiatives and benefit from the trend to more social and hospitality-based workplaces in 2019 and beyond.
Our efforts to diversify our sources of revenue among our operating segments has not detracted from our continued focus on growing and improving the operating performance of our Office segment. We are looking beyond the traditional office product categories of systems, task seating and storage, to furniture that supports activity areas and the in-between spaces where people meet. We believe that our success in traditional office products gives us an advantage throughout the workplace. Our Rockwell Unscripted collection, as well as Muuto offerings, encompass every product category ranging from seating and lounge to architectural walls and storage. These offerings address the needs of organizations that seek alternatives to the traditional workspace, and are substantially additive to our current product portfolio. In addition to these initiatives, we aim to increase profitability through operational improvements and investments in our physical and technological infrastructure.
We also remain committed to building a more efficient and responsive, customer-centric, service culture and technology infrastructure across our organization. Our capital expenditures are reflective of this commitment as we continue to invest in
the business through technology infrastructure upgrades, continued investments in our manufacturing facilities with a focus on lean initiatives and showroom presence.
Results of Operations
Comparison of Consolidated Results for the Three Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | 2019 vs. 2018 |
| | 2019 | | 2018 | | $ Change | | % Change |
| | (Dollars in millions, except per share data) |
Net Sales | | $ | 367.3 |
| | $ | 323.4 |
| | $ | 43.9 |
| | 13.6 | % |
Gross profit | | 140.7 |
| | 119.2 |
| | 21.5 |
| | 17.9 | % |
Selling, general, and administrative expenses | | 106.8 |
| | 93.6 |
| | 13.2 |
| | 14.0 | % |
Operating profit | | 33.9 |
| | 24.8 |
| | 9.1 |
| | 36.7 | % |
Interest expense | | 5.5 |
| | 5.3 |
| | 0.2 |
| | 4.5 | % |
Pension settlement charge | | 0.5 |
| | 4.6 |
| | (4.1 | ) | | (90.2 | )% |
Other income, net | | (1.0 | ) | | (2.8 | ) | | 1.8 |
| | (65.7 | )% |
Income tax expense | | 7.2 |
| | 4.6 |
| | 2.6 |
| | 55.8 | % |
Net earnings | | 21.7 |
| | 13.1 |
| | 8.6 |
| | 65.7 | % |
Net earnings per common share attributable to Knoll, Inc. stockholders: | | | | | | | | |
Basic | | $ | 0.44 |
| | $ | 0.27 |
| | $ | 0.17 |
| | 63.0 | % |
Diluted | | $ | 0.44 |
| | $ | 0.27 |
| | $ | 0.17 |
| | 63.0 | % |
Statistical Data | | | | | | | | |
Gross profit % | | 38.3 | % |
| 36.9 | % | | | | |
Operating profit % | | 9.2 | % |
| 7.7 | % |
| | | |
Selling, general, and administrative expenses % | | 29.1 | % | | 28.9 | % | | | | |
Net Sales
Net sales for the three months ended June 30, 2019 were $367.3 million, an increase of $43.9 million, or 13.6%, from sales of $323.4 million for the three months ended June 30, 2018. Net sales for the Office segment were $223.2 million for the three months ended June 30, 2019, an increase of 14.7%, when compared to the three months ended June 30, 2018. The increase in the Office segment was a driven primarily by investments made in expanding our range of height adjustable tables and improved storage systems, as well as continued growth from ancillary products. Net sales for the Lifestyle segment were $144.1 million during the three months ended June 30, 2019, an increase of 11.9%, from the three months ended June 30, 2018. Lifestyle segment sales growth was primarily due to strong organic growth at Muuto, Spinneybeck and KnollStudio, primarily from increased crossover penetration of commercial workplace settings.
Gross Profit
Gross profit for the three months ended June 30, 2019 was $140.7 million, an increase of $21.5 million, or 17.9%, from gross profit of $119.2 million for the three months ended June 30, 2018. Gross margin in the second quarter of 2018 was negatively impacted by an acquisition related inventory adjustment of $0.9 million. The remaining increase for the three months ended June 30, 2019 was due primarily to fixed cost leverage in our manufacturing facilities from higher volume absorption, continuous improvement activities and favorable product mix, partially offset by transportation and commodity inflation.
Operating Profit
Operating profit for the three months ended June 30, 2019 was $33.9 million, an increase of $9.1 million, or 36.7%, from operating profit of $24.8 million for the three months ended June 30, 2018. Operating profit as a percentage of sales increased from 7.7% for the three months ended June 30, 2018 to 9.2% for the three months ended June 30, 2019, primarily due to the improvement in gross profit.
Selling, general, and administrative expenses for the three months ended June 30, 2019 were $106.8 million, or 29.1% of sales, an increase of $13.2 million from $93.6 million, or 28.9% of sales, for the three months ended June 30, 2018. The increase was due primarily to higher incentive-based compensation from increased volume, and strategic investments in increased sales force headcount, information technology infrastructure and our showrooms, partially offset by $1.9 million lower acquisition-related expenses.
Operating expenses also included restructuring charges of $0.8 million in the three months ended June 30, 2018. The restructuring charges were related to supply chain optimization expenses of $0.5 million as well as organizational realignment within the sales and customer service functions that have resulted in greater operational efficiency and control of $0.3 million.
Interest Expense
Interest expense for the three months ended June 30, 2019 was $5.5 million, an increase of $0.2 million from interest expense of $5.3 million for the three months ended June 30, 2018. The increase was due primarily to higher interest rates offset by reduced average outstanding debt. During the three months ended June 30, 2019 and 2018, our weighted average interest rate was approximately 4.0% and 3.6%, respectively.
Pension Settlement Charge
Pension settlement charge for the three months ended June 30, 2019 was $0.5 million, a decrease of $4.1 million from $4.6 million for the three months ended June 30, 2018. Pension settlement charges resulted from cash payments of lump sum elections in the second quarter of 2019 and the purchase of annuities for certain pension plan retirees as well as cash payments from lump sum elections in the second quarter of 2018.
Other Income, net
During the three months ended June 30, 2019 and 2018, other income was $1.0 million and $2.8 million, respectively. The decrease in other income was due primarily to foreign exchange losses driven by the depreciation of the US dollar against the Canadian dollar and a reduction in net periodic benefit income from the Company's pension and other post-employment benefit plans in the second quarter of 2019 compared to the second quarter of 2018.
Income Tax Expense
Our effective tax rate was 25.1% for the three months ended June 30, 2019, compared to 26.0% for the three months ended June 30, 2018. The decrease in the tax rate is primarily due to the Tax Act legislation, state income tax and income tax credits offset by the vesting of equity awards when compared to the three months ended June 30, 2018.
Comparison of Consolidated Results for the Six Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | 2019 vs. 2018 |
| | 2019 | | 2018 | | $ Change | | % Change |
| | (Dollars in millions, except per share data) |
Net Sales | | $ | 700.1 |
| | $ | 619.9 |
| | $ | 80.2 |
| | 12.9 | % |
Gross profit | | 264.5 |
| | 227.0 |
| | 37.5 |
| | 16.5 | % |
Selling, general, and administrative expenses | | 201.3 |
| | 178.4 |
| | 22.9 |
| | 12.8 | % |
Operating profit | | 63.1 |
| | 47.2 |
| | 15.9 |
| | 33.6 | % |
Interest expense | | 10.7 |
| | 9.3 |
| | 1.4 |
| | 14.7 | % |
Loss on debt extinguishment | | — |
| | 1.4 |
| | (1.4 | ) | | (100.0 | )% |
Pension settlement charge | | 0.6 |
| | 4.6 |
| | (4.0 | ) | | (86.9 | )% |
Other income, net | | (1.6 | ) | | (6.8 | ) | | 5.2 |
| | (76.8 | )% |
Income tax expense | | 13.8 |
| | 10.3 |
| | 3.5 |
| | 33.7 | % |
Net earnings | | 39.6 |
| | 28.4 |
| | 11.2 |
| | 39.6 | % |
Net earnings per common share attributable to Knoll, Inc. stockholders: | | | | | | | | |
Basic | | $ | 0.81 |
| | $ | 0.58 |
| | $ | 0.23 |
| | 39.7 | % |
Diluted | | $ | 0.80 |
| | $ | 0.58 |
| | $ | 0.22 |
| | 37.9 | % |
Statistical Data | | | | | | | | |
Gross profit % | | 37.8 | % | | 36.6 | % | | | | |
Operating profit % | | 9.0 | % | | 7.6 | % | | | | |
Selling, general, and administrative expenses % | | 28.7 | % | | 28.8 | % | | | | |
Net Sales
Net sales for the six months ended June 30, 2019 were $700.1 million, an increase of $80.2 million, or 12.9%, from sales of $619.9 million for the six months ended June 30, 2018. The increase in sales was driven by strong sales across both of our segments. A $45.7 million increase in our Office segment sales resulting from continued growth in height-adjustable tables and storage systems, as well as continued growth in our ancillary offerings. Our Lifestyle segment sales increased $34.5 million, or 14.3%, from the same period in the prior year. This increase was primarily driven by strong volume growth at Muuto, Spinneybeck|Filzfelt and KnollStudio, primarily from increased crossover penetration in commercial workplace settings as well.
Gross Profit
Gross profit for the six months ended June 30, 2019 was $264.5 million, an increase of $37.5 million, or 16.5%, from gross profit of $227.0 million for the six months ended June 30, 2018. As a percentage of sales, gross profit increased from 36.6% for the six months ended June 30, 2018 to 37.8% for the six months ended June 30, 2019. This increase was driven mainly by fixed cost leverage in our manufacturing facilities from higher volume absorption and continuous improvement initiatives partially offset by unfavorable commodity and transportation inflation when compared to the six months ended June 30, 2018.
Operating Profit
Operating profit for the six months ended June 30, 2019 was $63.1 million, increase of $15.9 million, or 33.6%, from operating profit of $47.2 million for the six months ended June 30, 2018. Operating profit as a percentage of sales was 9.0% for the six months ended June 30, 2019 compared to 7.6% in the six months ended June 30, 2018, primarily due to the improvement in gross profit.
Selling, general, and administrative expenses for the six months ended June 30, 2019 were $201.3 million, or 28.7% of sales, compared to $178.4 million, or 28.8% of sales, for the six months ended June 30, 2018. The increase was due primarily to higher incentive-based compensation resulting from increased volume, and strategic investments in increased sales force headcount, information technology infrastructure and our showrooms.
Operating expenses also included restructuring changes of $1.4 million in the six months ended June 30, 2018. The restructuring charges included supply chain optimization expenses of $0.5 million, an organizational realignment in our manufacturing plants of $0.5 million, as well as organizational realignment within the sales and customer service functions that have resulted in greater operational efficiency and control of $0.3 million.
Interest Expense
Interest expense for the six months ended June 30, 2019 was $10.7 million, increase of $1.4 million from interest expense of $9.3 million for the six months ended June 30, 2018. During the six months ended June 30, 2019 and 2018, our weighted average interest rate was approximately 4.0% and 3.6%, respectively. The higher weighted-average interest rate was partially offset by a decreased average outstanding debt level.
Loss on Extinguishment of Debt
We recorded a loss on extinguishment of debt of $1.4 million resulting from the refinancing of our credit facility which includes a $0.4 million loss on previously recorded and unamortized deferred financing fees and $1.0 million of fees paid to creditors on the Amended Credit Agreement during the six months ended June 30, 2018.
Pension Settlement Charge
Pension settlement charge for the six months ended June 30, 2019 was $0.6 million, a decrease of $4.0 million from $4.6 million for the six months ended June 30, 2018. Pension settlement charges resulted from cash payments of lump sum elections in the first half of 2019 and the purchase of annuities for certain pension plan retirees as well as cash payments from lump sum elections in the first half of 2018.
Other Income, net
Other income for the six months ended June 30, 2019 was $1.6 million, a decrease of $5.2 million from $6.8 million for the six months ended June 30, 2018. The decrease in other income, net for the six months ended June 30, 2019 and 2018 was primarily due to foreign exchange losses driven by the depreciation of the US Dollar against the Canadian Dollar during the six months ended June 30, 2019 compared to foreign exchange gains in the prior year period. Additionally, a reduction in net periodic benefit income from the Company's pension and other post-employment benefit plans in the first half of 2019 compared to the prior year period contributed to the reduction of other income.
Income Tax Expense
Our effective tax rate was 25.8% for the six months ended June 30, 2019, compared to 26.6% for the six months ended June 30, 2018. The decrease in the tax rate is due to the passage of the U.S. Tax Cuts and Jobs Act and state income tax credits offset by the vesting of equity awards, as well as the varying effective tax rates in the countries and states in which we operate.
Segment Reporting
The Company has two reportable segments: Office and Lifestyle.
The Office segment includes a complete range of workplace products that address diverse workplace planning paradigms in North America and Europe. These products include: office systems furniture, seating, storage, tables, desks and KnollExtra® accessories. The Office segment includes DatesWeiser, known for its sophisticated meeting and conference tables and credenzas, sets a standard of design, quality and technology integration.
The Lifestyle segment includes KnollStudio®, HOLLY HUNT®, Muuto®, KnollTextiles®, Spinneybeck® (including Filzfelt®), and Edelman® Leather. Lifestyle products, which are distributed globally, include iconic seating, lounge furniture, side, café and dining chairs as well as conference, training, dining and occasional tables, lighting, rugs, textiles, high-quality fabrics, felt, leather and related architectural products.
During the first quarter of 2019, the Company changed the structure of its internal organization which caused the composition of its reportable segments to change. As a result, DatesWeiser is now a component of the Office operating segment as opposed to the Lifestyle operating segment. The comparisons of segment results found below have been retrospectively adjusted to reflect the change in segment reporting discussed in Note 17 of Notes to Condensed Consolidated Financial Statements included elsewhere herein.
Comparison of Segment Results for the Three Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | 2019 vs. 2018 |
| | 2019 | | 2018 | | $ Change | | % Change |
| | (Dollars in millions) |
SALES | | | | | | | | |
Office | | $ | 223.2 |
| | $ | 194.6 |
| | $ | 28.6 |
| | 14.7 | % |
Lifestyle | | 144.1 |
| | 128.8 |
| | 15.3 |
| | 11.9 | % |
Knoll, Inc. | | $ | 367.3 |
| | $ | 323.4 |
| | $ | 43.9 |
| | 13.6 | % |
OPERATING PROFIT | | | | | | | | |
Office | | $ | 14.3 |
| | $ | 10.4 |
| | $ | 4.0 |
| | 38.2 | % |
Lifestyle | | 25.6 |
| | 20.9 |
| | 4.7 |
| | 22.5 | % |
Corporate | | (6.0 | ) | | (6.5 | ) | | 0.5 |
| | (7.7 | )% |
Knoll, Inc. | | $ | 33.9 |
| | $ | 24.8 |
| | $ | 9.2 |
| | 36.7 | % |
_______________________________________________________________________________Office
Net sales for the Office segment for the three months ended June 30, 2019 were $223.2 million, an increase of $28.6 million, or 14.7%, when compared with the three months ended June 30, 2018. This increase was driven primarily by investments made in height adjustable tables and improved storage systems, as well as continued growth from ancillary products. Operating profit for the Office segment in the three months ended June 30, 2019 was $14.3 million, an increase of $4.0 million, or 38.2%, from $10.4 million when compared with the three months ended June 30, 2018. The increase was due primarily to increased sales volume and continuous improvement initiatives, partially offset by transportation and commodity inflation, higher incentive-based compensation from increased volume, and strategic investments in increased sales force headcount, information technology infrastructure and our showrooms.
Lifestyle
Net sales for the Lifestyle segment for the three months ended June 30, 2019 were $144.1 million, an increase of $15.3 million, or 11.9%, when compared with the three months ended June 30, 2018. The increase was due primarily to volume growth in various Lifestyle businesses, primarily from increased crossover penetration of commercial workplace settings. Operating profit for the Lifestyle segment in the three months ended June 30, 2019 was $25.6 million, an increase of $4.7 million, or 22.5%, from $20.9 million when compared with the three months ended June 30, 2018. The increase was due primarily to volume growth, partially offset by commodity and transportation inflation and strategic investments in sales force headcount and showrooms.
Corporate
Corporate costs for the three months ended June 30, 2019 were $6.0 million, a decrease of $0.5 million, when compared with the three months ended June 30, 2018. The decrease was due primarily to decreased stock compensation expense.
Comparison of Segment Results for the Six Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2019 | | 2019 vs. 2018 |
| | 2019 | | 2018 | | $ Change | | % Change |
| | (Dollars in millions) |
SALES | | | | | | | | |
Office | | $ | 425.4 |
| | $ | 379.7 |
| | $ | 45.7 |
| | 12.0 | % |
Lifestyle | | 274.7 |
| | 240.2 |
| | 34.5 |
| | 14.3 | % |
Knoll, Inc. | | $ | 700.1 |
| | $ | 619.9 |
| | $ | 80.2 |
| | 12.9 | % |
OPERATING PROFIT | | | | | | | | |
Office | | $ | 28.5 |
| | $ | 19.2 |
| | $ | 9.3 |
| | 48.4 | % |
Lifestyle | | 46.3 |
| | 41.1 |
| | 5.2 |
| | 12.7 | % |
Corporate | | (11.7 | ) | | (13.1 | ) | | 1.4 |
| | (10.7 | )% |
Knoll, Inc. (1) | | $ | 63.1 |
| | $ | 47.2 |
| | $ | 15.9 |
| | 33.7 | % |
_______________________________________________________________________________
(1) The Company does not allocate interest expense or other expense (income), net, with the exception of pension expense, to the reportable segments.
Office
Net sales for the Office segment for the six months ended June 30, 2019 were $425.4 million, an increase of $45.7 million, or 12.0%, when compared with the six months ended June 30, 2018. The increase in the Office segment was due primarily to higher volume resulting from investments made in height adjustable tables and improved storage systems, as well as continued growth from ancillary products. Operating profit for the Office segment in the six months ended June 30, 2019 was $28.5 million, an increase of $9.3 million, or 48.4%, when compared with the six months ended June 30, 2018. The increase in operating profit for the Office segment was due primarily to increased sales volume and continuous improvement initiatives, partially offset by transportation and commodity inflation, higher incentive-based compensation from increased volume, and strategic investments in increased sales force headcount, information technology infrastructure and our showrooms.
Lifestyle
Net sales for the Lifestyle segment for the six months ended June 30, 2019 were $274.7 million, an increase of $34.5 million, or 14.3%, when compared with the six months ended June 30, 2018. This increase was due primarily to volume growth primarily from crossover penetration of commercial workplace settings. Operating profit for the Lifestyle segment in the six months ended June 30, 2019 was $46.3 million, an increase of $5.2 million, or 12.7%, when compared with the six months ended June 30, 2018. The increase in operating profit was driven primarily by volume growth, partially offset by additional investment spending in product launches and showrooms combined with commodity and transportation inflation and strategic investments in sales force headcount.
Corporate
Corporate costs for the six months ended June 30, 2019 were $11.7 million, a decrease of $1.4 million, or 10.7%, when compared with the six months ended June 30, 2018. The decrease was due primarily to decreased stock compensation expense of $0.8 million and the costs related to the acquisition of Muuto.
Liquidity and Capital Resources
The following table highlights certain key cash flows and capital information pertinent to the discussion that follows:
|
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
| (in millions) |
Cash provided by operating activities | $ | 55.9 |
| | $ | 33.7 |
|
Capital expenditures, net | (21.9 | ) | | (16.0 | ) |
Purchase of business, net of cash acquired | — |
| | (304.1 | ) |
Cash used in investing activities | (21.9 | ) | | (320.1 | ) |
Proceeds from revolving credit facilities | 198.5 |
| | 339.0 |
|
Repayment of revolving credit facilities | (203.5 | ) | | (211.0 | ) |
Proceeds of term loans | — |
| | 352.5 |
|
Repayment of term loans | (8.6 | ) | | (171.8 | ) |
Payment of dividends | (16.1 | ) | | (15.4 | ) |
Purchase of common stock for treasury | (3.0 | ) | | (4.4 | ) |
Payment of financing fees | — |
| | (4.5 | ) |
Payment of fees related to debt extinguishment | — |
| | (1.0 | ) |
Cash (used in) provided by financing activities | (32.7 | ) | | 283.4 |
|
We have historically funded our business through cash generated from operations, supplemented by debt borrowings. Available cash is primarily used for our working capital needs, ongoing operations, capital expenditures, the payment of quarterly dividends, and the repurchase of shares. Our capital expenditures are primarily related to investments in the improvement of our operating efficiency, innovation and modernization, showroom investment, new product tooling, manufacturing equipment and technology infrastructure. During the six months ended June 30, 2019, we made quarterly dividend payments of $0.15 in the first quarter and $0.17 per share in the second quarter, returning $16.1 million of cash to our shareholders, which includes payment of accrued dividends on share-based awards that vested during the period.
Cash provided by operating activities was $55.9 million for the six months ended June 30, 2019 compared to $33.7 million for the six months ended June 30, 2018. For the six months ended June 30, 2019, cash provided by operating activities consisted primarily of $66.4 million from net income and various non-cash charges, including $13.7 million of depreciation and amortization and $4.6 million of stock based compensation, partially offset by $10.5 million of unfavorable changes in working capital. For the six months ended June 30, 2018, cash provided by operating activities consisted of $51.3 million from net income and various non-cash charges, including $12.7 million of depreciation and amortization and $4.5 million of stock based compensation, partially offset by $17.6 million of unfavorable changes in working capital.
Investing activities used in the six months ended June 30, 2019 and 2018, was $21.9 million and $320.1 million, respectively. Capital expenditures were $21.9 million and $16.0 million for the six months ended June 30, 2019 and 2018, respectively, related to showroom investments, operating expenditures from maintenance activities and investments in lean initiatives, and our continued commitment to optimizing our information technology infrastructure. The six months ended June 30, 2018 includes the purchase of Muuto of $304.1 million, net of cash acquired, in January 2018.
Cash used in financing activities was $32.7 million for the six months ended June 30, 2019 compared to cash provided by financing activities of $283.4 million for the six months ended June 30, 2018. For the six months ended June 30, 2019 and June 30, 2018, we used $3.0 million and $4.4 million, respectively, for share repurchases, and used $16.1 million and $15.4 million of cash, respectively, to fund dividend payments to our shareholders. During the six months ended June 30, 2019, we repaid $8.6 million of our outstanding term loans and $5.0 million of our revolving credit facility borrowings. During the six months ended June 30, 2018, we amended and extended our Existing Credit Facility. The proceeds from our term loans and revolving credit facilities under our Amended Credit Facility of $352.5 million and $339.0 million, respectively, were used to finance a portion of the Muuto acquisition, repay the outstanding balance on the term loans of our Existing Credit Facility of $165.0 million and fund our working capital needs. Additionally, we paid $5.5 million of fees related to the issuance of the Amended Credit Facility, of which $4.5 million was capitalized as deferred financing fees and $1.0 million was expensed as a loss on debt extinguishment.
At June 30, 2019 and December 31, 2018, we had the following resources available to us to support our business (in millions):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Cash | $ | 2.9 |
| | $ | 1.6 |
|
Availability under revolving credit facility | $ | 265.3 |
| | $ | 260.3 |
|
We are currently in compliance with all of the covenants and conditions under our Amended Credit Agreement. We believe that existing cash balances and internally generated cash flows, together with borrowings available under our credit facility, will be sufficient to fund working capital needs, capital spending requirements, debt service requirements and dividend payments for at least the next twelve months. Future debt payments may be paid out of cash flows from operations, from future refinancing of our debt or from equity issuances. Our ability to make scheduled payments of principal, pay interest on or to refinance our indebtedness, satisfy our other debt obligations and to pay dividends to stockholders will depend upon our future operating performance, which is affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.
We use our credit facility in the ordinary course of business to fund our working capital needs and, at times, make significant borrowings and repayments under the facility depending on our cash needs and availability at such time. Borrowings under the credit facility may be repaid at any time, but no later than January 23, 2023. See Note 13 of the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information regarding this facility.
Environmental Matters
Our past and present business operations and the past and present ownership and operation of manufacturing plants on real property are subject to extensive and changing federal, state, local and foreign environmental laws and regulations, including those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. As a result, we are involved from time-to-time in administrative and judicial proceedings and inquiries relating to environmental matters and could become subject to fines or penalties related thereto. We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures by us, some of which may be material. We have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) for remediation costs associated with waste disposal sites that we previously used. The remediation costs and our allocated share at some of these CERCLA sites are unknown. We may also be subject to claims for personal injury or contribution relating to CERCLA sites. We reserve amounts for such matters when expenditures are probable and reasonably estimable.
Off-Balance Sheet Arrangements
We do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange-traded contracts. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
Critical Accounting Policies
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the reported amounts and disclosures in the condensed consolidated financial statements. Actual results may differ from such estimates. On an ongoing basis, we review our accounting policies and procedures. A more detailed review of our critical accounting policies is contained in our Annual Report on Form 10-K for the year ended December 31, 2018.
With the adoption of ASC 842, we present value future lease payments using an incremental borrowing rate based on information available at the commencement of each lease as our leases do not provide an implicit rate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We provided a discussion of our market risk in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no substantive changes in our market risk described in our Annual Report on Form 10-K except for the items noted below. During the normal course of business, we are routinely subjected to market risk associated with interest rate movements and foreign currency exchange rate movements. Interest rate risk arises from our debt obligations and foreign currency exchange rate risk arises from our non-U.S. operations and purchases of inventory from foreign suppliers.
We also have risk in our exposure to certain materials and transportation costs. Steel, leather, wood products and plastics are all used in our products. For the six months ended June 30, 2019, we estimated that materials inflation was approximately $3.5 million and transportation inflation approximately $4.2 million. During the six months ended June 30, 2018, we estimated that materials inflation was approximately $1.6 million and transportation inflation approximately $3.0 million, respectively. We continue to work to offset price increases in raw materials and transportation through our global sourcing initiatives, cost improvements and price increases to our products.
Interest Rate Risk
At June 30, 2019, we had $451.0 million in principal of variable rate debt. We have entered into an interest rate swap agreement which fixes the interest rate for an initial notional amount of $300 million of our variable rate debt which decreases over time by $50 million increments, matures in January 2023 and effectively fixes our interest rate at 2.63%. Our remaining variable rate debt of $151.0 million is subject to changes in underlying interest rates, and, accordingly, our interest payments will fluctuate. During the period when our interest rate swap agreement is $300 million, a 1% change in interest rates would result in a change in interest expense of approximately $1.5 million per year. As the notional amount of the swap decreases, each $50 million decrease in the notional amount would be exposed to interest rate fluctuations, and a one percent change in interest rates would change interest expense by an additional $0.5 million.
Foreign Currency Exchange Rate Risk
We manufacture our products in the United States, Canada and Italy, and sell our products primarily in those markets as well as in other countries. Our foreign sales and certain expenses are transacted in foreign currencies. Our production costs, profit margins and competitive position are affected by the strength of the currencies in countries where we manufacture or purchase goods relative to the strength of the currencies in countries where our products are sold. Additionally, as our reporting currency is the U.S. dollar, our financial position is affected by the strength of the currencies in countries where we have operations relative to the strength of the U.S. dollar. The principal foreign currencies in which we conduct business are the Canadian Dollar the Euro, and with the acquisition of Muuto, the Danish Krone. Approximately 17.6% and 19.0% of our revenues in the six months ended June 30, 2019 and 2018, respectively, and 27.6% and 30.0% of our cost of goods sold in the six months ended June 30, 2019 and 2018, respectively, were denominated in currencies other than the U.S. dollar. Foreign currency exchange rate fluctuations resulted in $1.6 million of translation losses and $2.2 million of translation gains for the six months ended June 30, 2019 and 2018, respectively.
From time to time, we enter into foreign currency hedges to manage our exposure to foreign exchange rates. The terms of these contracts are typically less than a year. Changes in the fair value of such contracts are reported in earnings in the period the value of the contract changes. The net gain or loss upon settlement and the change in fair value of outstanding contracts is recorded as a component of other income, net.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. We, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report (June 30, 2019) (“Disclosure Controls”). Based upon the Disclosure Controls evaluation, our principal executive officer and principal financial officer have concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that (i) information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For the six months ended June 30, 2019, there have been no new material legal proceedings or material changes in the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
ITEM 1A. RISK FACTORS
For the six months ended June 30, 2019, there have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND THE USE OF PROCEEDS
Repurchases of Equity Securities
The following is a summary of share repurchase activity during the six months ended June 30, 2019.
On August 17, 2005, our board of directors approved a stock repurchase program (the “Options Proceeds Program”), whereby they authorized us to purchase shares of our common stock in the open market using the cash proceeds received by us upon exercise of outstanding options.
On February 2, 2006, our board of directors approved an additional stock repurchase program, pursuant to which we are authorized to purchase up to $50.0 million of our common stock in the open market, through privately negotiated transactions, or otherwise. On February 4, 2008, our board of directors expanded this previously authorized $50.0 million stock repurchase program by an additional $50.0 million.
|
| | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) |
April 1, 2019 - April 30, 2019 | — |
| |
| $ | — |
| | — |
| | $ | 32,352,413 |
|
May 1, 2019 - May 31, 2019 | — |
| |
| $ | — |
| | — |
| | $ | 32,352,413 |
|
June 1, 2019 - June 30, 2019 | — |
| |
| $ | — |
| | — |
| | $ | 32,352,413 |
|
Total | — |
| | | |
| | — |
| | |
|
_______________________________________________________________________________(1) There is no limit on the number or value of shares that may be purchased by us under the Options Proceeds Program. Under our $50.0 million stock repurchase program, which was expanded by an additional $50.0 million in February 2008, we are only authorized to spend an aggregate of $100.0 million on stock repurchases. Amounts in this column represent the amounts that remain available under the $100.0 million stock repurchase program as of the end of the period indicated. There is no scheduled expiration date for the Option Proceeds Program or the $100.0 million stock repurchase program, but our Board of Directors may terminate either program in the future.
ITEM 6. EXHIBITS
|
| | |
Exhibit Number | | Description |
| | |
| | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
| | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
| | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | | The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018, (ii) Condensed Consolidated Statements of Operations and Other Comprehensive Income for the three and six months ended June 30, 2019 and 2018, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018, and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.* |
* The Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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. | | |
(Registrant) | | |
| | | |
Date: | August 7, 2019 |
| | By: | /s/ Andrew B. Cogan |
| | | Andrew B. Cogan |
| | | Chairman and Chief Executive Officer |
| | | |
Date: | August 7, 2019 |
| | By: | /s/ Charles W. Rayfield |
| | | Charles W. Rayfield |
| | | Chief Financial Officer |
| | | (Principal Financial Officer) |