Knoll Reports Strong Third Quarter 2011 Results

EAST GREENVILLE, PA. -- Knoll, Inc. today announced results for the third quarter ended Sept. 30, 2011.  Net sales were $239.5 million for the quarter, an increase of 18.5% over the third quarter 2010.  Operating profit was $25.0 million, an increase of 30.9% over the third quarter 2010.  Operating profit as a percent of net sales increased 90 basis points to 10.4% from the third quarter of 2010.  Net income was $18.4 million, an increase of 192.1% over the third quarter 2010.  Diluted earnings per share for the third quarter of 2011 was $0.39, an increase of 178.6% from earnings per share of $0.14 for the third quarter of 2010. 

"We are pleased to continue to generate strong growth and leverage that into increased earnings per share," commented Andrew Cogan, CEO. "Our strategy of focusing on high design, high margin businesses continues to work well. We are looking forward to tomorrow night's Cooper-Hewitt National Design Awards Gala where we will receive the 2011 award for Corporate and Institutional Achievement. This award speaks powerfully to our commitment to design in everything we do."

Third Quarter Results

Third quarter 2011 financial results highlights follow:

 

Dollars in Millions Except Per Share Data          Three Months Ended          Percent

                                                                       9/30/11    9/30/10       Change

 

Net Sales                                                        $239.5     $ 202.1            18.5   %

Gross Profit                                                         78.9          67.5            16.9   %

Operating Expenses                                             53.9          48.2            11.8   %

Operating Profit                                                   25.0          19.1            30.9   %

Net Income                                                         18.4           6.3           192.1   %

Earnings Per Share – Diluted                                     .39          .14           178.6  %

 

 Net sales for the quarter were $239.5 million, an increase of $37.4 million, or 18.5%, over the third quarter of 2010.  During the quarter we experienced increased volumes across all product categories with the largest gain occurring in office systems.   Geographically, sales growth in North America outpaced international.

Gross profit for the third quarter of 2011 was $78.9 million, an increase of $11.4 million, or 16.9%, over the same period in 2010.  Gross profit as a percentage of net sales decreased to 32.9% in the third quarter of 2011 from 33.4% in the same quarter of 2010.  The decrease in gross margin from the third quarter of 2010 largely resulted from material and transportation inflation as well as unfavorable movements in foreign exchange.  Sequentially, gross profit as a percentage of net sales increased to 32.9% from 32.1% in the second quarter of 2011.  The increase in gross margin from the second quarter of 2011 was largely the result of improved pricing, more favorable customer mix, and better factory performance

Operating expenses for the quarter were $53.9 million, or 22.5% of net sales, compared to $48.2 million, or 23.8% of net sales, for the third quarter of 2010.  The increase in operating expenses during the third quarter of 2011 was in large part due to increased sales commissions and incentive compensation resulting from our higher sales and profits. 

We generated operating profit for the third quarter of 2011 of $25.0 million, an increase of $5.9 million, or 30.9%, over the same period in 2010.  Operating profit as a percentage of net sales was 10.4% for the third quarter of 2011.  Operating profit as a percentage of net sales was 9.5% for the third quarter of 2010.

Interest expense during the quarter decreased $3.7 million over the third quarter 2010.  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 for the third quarter 2011 was $4.1 million consisting of foreign exchange gains that resulted from favorable movement in the Canadian dollar since the second quarter of 2011.  Other expense for the third quarter of 2010 was $4.3 million.  During the third quarter 2010 we recorded a $1.2 million non-cash expense related to the ineffective portion of our interest rate swaps.  Also included in other expense during the third quarter of 2010 was $3.6 million of foreign exchange losses and $0.5 million of miscellaneous income. 

Our effective tax rate was 34.0% for the quarter, as compared to 36.3% for the same period last year.  The decrease in the effective tax rate is largely due to the mix of pretax income in the countries in which we operate.  Net income for the third quarter 2011 was $18.4 million, or $0.39 diluted earnings per share, as compared to $6.3 million, or $0.14 diluted earnings per share, for the same quarter in 2010. 

Cash generated from operations during the third quarter 2011 was $18.4 million, compared to $20.2 million in the same period of 2010.  Capital expenditures for the third quarter 2011 totaled $2.6 million compared to $1.1 million for 2010. We repaid $13.1 million of debt during the third quarter of 2011, compared to $22.1 million during the third quarter of 2010.  We also paid a quarterly dividend of $4.6 million, or $0.10 per share, in the third quarter of 2011 compared to $0.9 million, or $0.02 per share, in the third quarter of 2010.

"Despite the current economic uncertainty, we continued to both improve our operating performance and strengthen our balance sheet.  Operating margin is over 10%, our bank leverage ratio is now below 2:1 and our all bank revolver debt is at a 10 year low," commented Barry L. McCabe, EVP & CFO.

Bank leverage ratio is calculated in accordance with our revolving credit facility by dividing (i) outstanding debt by (ii) EBITDA (as defined in our revolving credit facility) for the last twelve months.  For details of the leverage ratio calculation, please see below.

Dollars in millions                              9/30/2011

 

Debt Levels (1)                                    $220.0

LTM Net Income                                     $51.4

LTM Adjustments

 Interest                                                 12.0

 Taxes                                                    28.0

 Depreciation and Amortization                  18.4

 Non-cash items (2)                                 10.0

LTM Adjusted EBITDA        $                    119.8

Bank Leverage Calculation (3)                  1.84 x

(1 ) - Debt levels include outstanding letters of credit.

(2) - Non-cash items include stock-based compensation expenses,

unrealized gains and losses on foreign exchange,

restructuring charges, and unrealized gains/losses on our interest

rate swaps (as set forth in Knoll's senior secured credit facility).

(3) - Debt divided by  LTM Adjusted EBITDA.

Note: For more details on this calculation, please see Knoll's Senior Credit Agreement dated June 29, 2007, a copy of which is attached to Knoll, Inc.'s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 9, 2010.

 Source: Knoll, Inc.

 

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