Earnings Disclosure

EAST GREENVILLE, PA, February 5, 2013 -- Knoll, Inc. (NYSE: KNL) today announced results for the fourth quarter and year ended December 31, 2012.  Net sales were $250.0 million for the quarter, an increase of 12.1% from fourth quarter 2011.  Operating profit was $28.1 million, or 11.2% of net sales, an increase of 1.1% from the fourth quarter of 2011.  Operating profit during the fourth quarter of 2011 includes a $5.4 million curtailment benefit associated with the modification of the Company's post-retirement medical benefits.  Excluding this benefit, operating profit during the fourth quarter of 2012 increased $5.7 million or 25.4% when compared with the same period in the prior year.  Net income was $17.5 million during the fourth quarter of 2012 compared to $17.4 million in the fourth quarter of 2011.  Diluted earnings per share was $0.37 during the fourth quarter of 2012 compared to $0.37 for 2011.  Excluding the curtailment benefit noted above, diluted earnings per share would have been $0.30 per share during the fourth quarter of 2011.

For the full year, net sales were $887.5 million, a decrease of 3.8% when compared to 2011.  Operating profit was $87.9 million, or 9.9% of net sales, a decrease of 9.5% when compared to 2011.  Excluding the curtailment benefit noted above and $0.7 million of restructuring charges in 2011, operating profit during 2012 decreased 4.8% when compared with the same period in the prior year.  Net income was $50.0 million for 2012, a decrease of 13.8% when compared to 2011.  Diluted earnings per share was $1.06 for the year compared to $1.24 per share in the prior year.  Excluding the curtailment benefit and restructuring charges noted above, diluted earnings per share would have been $1.18 per share during 2011.

"We are pleased with the top and bottom line growth we reported in the fourth quarter as sales increased in all our segments," commented Andrew Cogan, CEO. "We ended the year with a strong balance sheet that gives us the ability to step up our strategic investments in the front and back ends of our business to achieve our longer term revenue and margin objectives. While we expect the combination of these incremental investments and a flattish overall demand environment to depress earnings in the short term, we are confident that they will make our longer term aspirations more achievable. As we celebrate the 75th anniversary of our founding, our commitment to the principles of modern design and its benefits for our clients, associates and shareholders is as strong as ever."

 

Fourth Quarter Results

Fourth quarter 2012 financial results highlights follow:

Dollars in Millions Except Per Share Data		Three Months Ended						Percent
		12/31/12			12/31/11			Change
Net Sales		$	250.0		$	223.1			12.1	%
Gross Profit			82.7			70.7			17.0	%
Gross Profit %			33.1	%		31.7	%		4.4	%
Operating Expenses			54.5			48.3			12.8	%
Operating Profit			28.1			27.8			1.1	%
Operating Profit %			11.2	%		12.5	%		(10.4)	%
Adjusted Operating Profit			28.1			22.4			25.4	%
Adjusted Operating Profit %			11.2	%		10.0	%		12.0	%
Net Income			17.5			17.4			0.6	%
Earnings Per Share - Diluted			.37			.37			-	%
Adjusted Earnings Per Share - Diluted			.37			.30			23.3	%

Adjusted earnings per share and adjusted operating profit are non-GAAP financial measures and are calculated by excluding from earnings per share and operating profit items we believe to be infrequent or not indicative of our operating performance. For a reconciliation of adjusted earnings per share and adjusted operating profit to earnings per share and operating profit, respectively, see "Reconciliation of Non-GAAP Financial Measures" below.

Net sales for the quarter were $250.0 million, an increase of $26.9 million, or 12.1%, when compared with the fourth quarter of 2011.  Net sales for the Office segment were $181.1 million in the fourth quarter of 2012, an increase of $23.8 million, or 15.1% when compared with the fourth quarter of 2011.  The increase in sales in the Office segment during the fourth quarter of 2012 was mainly attributable to double digit growth in sales of our office systems and seating products.  Net sales for the Studio segment were $42.1 million, an increase of $2.0 million, or 5.0%, when compared with the fourth quarter of 2011.  Net sales in the Studio segment in North America increased 16.8% while sales in Europe declined 6.1%.  Net sales for the Coverings segment were $26.8 million, an increase of $1.1 million, or 4.3%, when compared with the fourth quarter of 2011. 

Gross profit for the fourth quarter of 2012 was $82.7 million, an increase of $12.0 million, or 17.0%, from the same period in 2011.   Gross margin increased from 31.7% in the fourth quarter of 2011 to 33.1% in the fourth quarter of 2012.  The increase in gross margin from the fourth quarter of 2011 was largely the result of a more profitable mix in our business as we saw government shipments, which are generally contracted at higher discount rates, make up a smaller portion of our overall sales.  Continuous improvement projects in our factories, better absorption of our fixed costs in conjunction with the higher sales volumes, and lower transportation costs also positively impacted our gross margin during the fourth quarter of 2012. 

Operating expenses for the quarter were $54.5 million, or 21.8% of net sales, compared to $48.3 million, or 21.6% of net sales, for fourth quarter of 2011.  Excluding the curtailment benefit noted above operating expenses were $53.7 million during the fourth quarter of 2011.  The increase in operating expenses during the fourth quarter of 2012 was in large part due to continued spending on new products and growth initiatives in our Studio and Coverings segments. 

Operating profit as a percent of net sales was 11.2% during the fourth quarter of 2012 compared to 12.5% during the fourth quarter of 2011.  Operating profit for the fourth quarter of 2011 includes a curtailment benefit of $5.4 million.  Excluding the curtailment benefit, operating profit would have been $22.4 million, or 10.0% of net sales, during the fourth quarter of 2011.  For a reconciliation of adjusted operating profit to GAAP operating profit, see "Reconciliation of Non-GAAP Financial Measures" below.  Operating profit for the Office segment was $20.0 million in the fourth quarter of 2012, an increase of $9.3 million, or 86.9%, when compared with the fourth quarter of 2011.  Operating profit for the Studio segment was $6.2 million, an increase of $0.2 million, or 3.3%, when compared with the fourth quarter of 2011.  Operating profit for the Coverings segment was $1.9 million, a decrease of $3.8 million, or 66.7% when compared to the fourth quarter of 2011.  During the fourth quarter of 2012, one of our leather subsidiaries incurred a $2.9 million one-time charge for inventory costs that were not being properly transferred to cost of goods sold due to a computer programming change.

During the fourth quarter of 2012, other (income) expense consisted of income of $0.6 million related to foreign exchange gains offset by $0.1 million of miscellaneous expense.  During the fourth quarter of 2011, other (income) expense consisted primarily of income of $0.6 million related to foreign exchange gains offset by expense of $0.6 million related to a negative judicial ruling. 

The effective tax rate was 35.4% for the fourth quarter of 2012, as compared to 34.7% for the same period last year.  The increase in the effective tax rate is largely due to the mix of pretax income between the countries in which we operate.

Net income for the fourth quarter of 2012 was $17.5 million compared to $17.4 million during the fourth quarter of 2011.  

Cash generated from operations during the fourth quarter 2012 was $41.5 million, compared to $35.8 million in the same period of 2011.  Capital expenditures for the fourth quarter 2012 totaled $6.5 million compared to $5.7 million for 2011.  We repaid $10.0 million of debt during the fourth quarter of 2012 compared to $5.0 million during the fourth quarter of 2011.  At the end 2012 the Company's net leverage ratio was 1.63:1.  For more detailed information on the calculation of net leverage ratio, see Reconciliation of Non-GAAP financial measures below.  The Company also paid dividends of $5.6 million, or $0.12 per share during the fourth quarter of 2012 compared to $4.6 million, $0.10 per share during the fourth quarter of 2011.

Full Year Results

2012 financial results highlights follow:

Dollars in Millions Except Per Share Data		Twelve Months Ended						Percent
		12/31/12			12/31/11			Change
Net Sales		$	887.5		$	922.2			(3.8)	%
Gross Profit			294.4			294.4			-	%
Gross Profit %			33.2	%		31.9	%		4.1	%
Operating Expenses			206.4			202.1			2.1	%
Operating Profit			87.9			97.1			(9.5)	%
Operating Profit %			9.9	%		10.5	%		(5.7)	%
Adjusted Operating Profit			87.9			92.3			(4.8)	%
Adjusted Operating Profit %			9.9	%		10.0	%		(1.0)	%
Net Income			50.0			58.0			(13.8)	%
Earnings Per Share - Diluted			1.06			1.24			(14.5)	%
Adjusted Earnings Per Share Diluted			1.06			1.18			(10.2)	%

For the year, net sales totaled $887.5 million, a decrease of $34.7 million, or 3.8%, from 2011 net sales of $922.2 million.  Net sales for the Office segment were $633.3 million, a decrease of $30.8 million, or 4.6%, when compared with 2011.  This decrease in the Office Segment for the year was the result of lower sales to government and financial services clients.  Sales to commercial clients grew during 2012, however, this growth was not enough to offset the decline in government and financial services clients.  Net sales for the Studio segment were $147.6 million, a decrease of $5.1 million, or 3.3%, when compared with 2011.   Lower sales resulting primarily from the poor economic conditions in Europe more than offset the growth of Studio sales in North America for the year.Net sales for the Coverings segment were $106.6 million, an increase of $1.2 million, or 1.1%, when compared with 2011. 

During the full year, gross margin increased from 31.9% in 2011 to 33.2% in 2012.  The largest contributors to this increase for 2012 were a more profitable business mix, pricing, and continuous improvement projects in our factories.  Gross profit dollars were $294.4 million in 2011 and 2012. 

Operating expenses for 2012 were $206.4 million, or 23.3% of net sales, compared to $202.1 million, or 21.9% of net sales, for 2011.  The increase in operating expenses during 2012 was in large part due to increased spending on growth initiative programs in our Studio and Coverings segments as well as technology infrastructure upgrades. 

Our operating profit for 2012 was $87.9 million, a decrease of $9.2 million, or 9.5%, when compared with the same period in 2011.  Operating profit as a percent of net sales was 9.9% for 2012 compared to 10.5% in 2011.  Operating profit for 2011 includes a curtailment benefit of $5.4 million and restructuring charges of $0.7 million.  Excluding these amounts, operating profit would have been $92.3 million, or 10.0% of net sales, during 2011.  For a reconciliation of adjusted operating profit to GAAP operating profit, see "Reconciliation of Non-GAAP Financial Measures" below.  Operating profit for the Office segment was $48.6 million in 2012, an increase of $2.0 million, or 4.3%, when compared with 2011.  Operating profit for the Studio segment was $21.8 million, a decrease of $1.2 million, or 5.2%, when compared with 2011.  Operating profit for the Coverings segment was $17.5 million, a decrease of $5.2 million, or 22.9%, when compared to 2011.

Interest expense for 2012 decreased $3.4 million when compared with the full year 2011.  The decrease in interest expense is due to our lower outstanding debt and the expiration of two interest rate swap agreements that expired on June 9, 2011.  Other (income) expense in 2012 consisted of expense related to $2.8 million of foreign exchange losses, expense of $0.5 million related to the write-off of deferred financing fees in conjunction with our new debt agreement completed in February of 2012, offset by  $0.1 million of miscellaneous income.  Other (income) expense in 2011 consisted of income of $2.7 million of foreign exchange gains, $1.6 million of miscellaneous expense related to a negative judicial ruling, and $0.4 million of miscellaneous income. 

The effective tax rate was 36.2% for the year, as compared to 34.7% for the same period last year.  Our effective tax rate is dependent upon the mix of pretax income in the countries in which we operate.  

We generated 2012 net income of $50.0 million, or $1.06 diluted earnings per share, compared to $58.0 million, or $1.24 diluted earnings per share, in 2011. 

Annual cash generated from operations in 2012 was $70.6 million, compared to $66.9 million the year before. Capital expenditures in 2012 totaled $16.6 million compared to $15.2 million for 2011.  During 2012 we repaid $19.0 million of debt compared to $33.1 million in 2011.  We also paid dividends of $20.5 million in 2012 compared with $16.7 million in 2011.

"A strong balance sheet remains a top priority and once again our balance sheet is stronger than the year before as we target working capital improvements and reduce our debt.  With our strong balance sheet, we are well positioned to support and fund our longer term strategic investments and initiatives.  Today we posted on our website a new investor presentation to further explain our three-year strategic investment plan," commented Barry L. McCabe, EVP & CFO.
  

Business Segment Results

The following information categorizes the Company's results into its defined reporting segments.
The Office segment serves corporate, government, healthcare, retail and other customers in the United States and Canada providing a portfolio of office furnishing solutions including office systems, seating, storage, tables, desks and KnollExtra ^® ergonomic accessories.  The Office segment also includes international sales of our North American office products.  The Studio segment includes KnollStudio^®, Knoll Europe which sells primarily KnollStudio products, and Richard Schultz^® Design.  The KnollStudio^® portfolio includes a range of lounge seating; side, café and dining chairs; barstools; and conference, dining and occasional tables.  The Coverings segment includes, KnollTextiles^®, Spinneybeck^®, Edelman^® Leather, and Filzfelt^TM. These businesses serve a wide range of customers offering high quality textiles and leather. 

1. Results do not add due to rounding.

		Three Months Ended        December 31, 2012
			2012			2011
Earnings per Share - Diluted		$	0.37			$	0.37
Add back (deduct):
Curtailment Benefit			-				(0.07)
Adjusted Earnings per Share - Diluted		$	0.37			$	0.30
		Twelve Months Ended            December 31,
			2012			2011
Earnings per Share - Diluted		$	1.06			$	1.24
Add back (deduct):
Curtailment Benefit			-				(0.07)
Restructuring charges - primarily Office			-				0.01
Adjusted Earnings per Share - Diluted		$	1.06			$	1.18

		Three Months Ended            December 31,
			2012			2011
Operating Profit ($mm)		$	28.1			$	27.8
Add back:
Curtailment Benefit			-				(5.4)
Adjusted Operating Profit		$	28.1			$	22.4
Net Sales		$	250.0			$	223.1
Operating Margin			11.2%				12.5%
Adjusted Operating Margin			11.2%				10.0%

		Twelve Months Ended            December 31,
			2012			2011
Operating Profit ($mm)		$	87.9			$	97.1
Add back:
Curtailment Benefit			-				(5.4)
Restructuring Charges -primarily Office			-				0.7
Adjusted Operating Profit		$	87.9			$	92.3	(1)
Net Sales		$	887.5			$	922.2
Operating Margin			9.9%				10.5%
Adjusted Operating Margin			9.9%				10.0%

		Three Months Ended                    December 31,								Twelve Months Ended                    December 31,
			2012			2011				2012			2011
Sales		$	250,026			$	223,148			$	887,499		$	922,200
Cost of sales			167,351				152,498				593,149			627,803
Gross profit			82,675				70,650				294,350			294,397
Selling, general, and administrative expenses			54,549				48,281				206,449			202,075
Restructuring and other charges			-				-				-			696
Curtailment benefit			-				(5,445	)			-			(5,445	)
Operating profit			28,126				27,814				87,901			97,071
Interest expense			1,572				1,138				6,350			9,753
Other (income) expense, net			(509	)			(35	)			3,215			(1,508	)
Income before income tax expense			27,063				26,711				78,336			88,826
Income tax expense			9,570				9,268				28,335			30,815
Net income		$	17,493			$	17,443			$	50,001		$	58,011
Earnings per share:
Basic		$	0.37			$	0.38			$	1.07		$	1.25
Diluted		$	0.37			$	0.37			$	1.06		$	1.24
Weighted-average shares outstanding:
Basic			46,753,272				46,339,443				46,634,834			46,249,571
Diluted			47,082,864				46,767,149				47,059,186			46,835,712

		December 31,  2012				December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents		$	29,956			$	28,263
Customer receivables, net			105,877				126,078
Inventories			98,195				89,244
Prepaid and other current assets			24,494				21,308
Total current assets			258,522				264,893
Property, plant, and equipment, net			124,838				121,792
Intangible assets, net			302,830				297,250
Other noncurrent assets			8,863				4,156
Total Assets		$	695,053			$	688,091
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable			83,600				83,824
Other current liabilities			92,345				99,304
Total current liabilities			175,945				183,128
Long-term debt			193,000				212,000
Other noncurrent liabilities			136,691				127,540
Total liabilities			505,636				522,668
Stockholders' equity			189,417				165,423
Total Liabilities and Stockholders' Equity		$	695,053			$	688,091

		Year Ended December 31,
		2012				2011
Net income		$	50,001			$	58,011
Cash Flows provided by Operating Activities			70,568				66,921
Cash Flows used in Investing Activities			(23,001	)			(16,332	)
Cash Flows used in Financing Activities			(45,791	)			(49,913	)
Effect of exchange rate changes on cash and cash equivalents			(83	)			652
Increase in cash and cash equivalents			1,693				1,328
Cash and cash equivalents at beginning of period			28,263				26,935
Cash and cash equivalents at end of period		$	29,956			$	28,263