EAST GREENVILLE, PA -- Knoll, Inc. today announced results for the third quarter ended Sept. 30, 2012. Net sales were $219.8 million for the quarter, a decrease of 8.2% from the third quarter 2011. Operating profit was $23.5 million a decrease of 6.0% from the third quarter 2011, but operating profit as a percent of sales was 10.7%, an increase of 30 basis points from the third quarter of 2011. Net income was $12.2 million during the third quarter of 2012 compared to $18.4 million during the third quarter 2011. Diluted earnings per share for the third quarter of 2012 was $0.26 compared to $0.39 in the prior year. During the third quarter of 2012 foreign exchange losses, negatively impacted earnings per share by approximately $0.04 while foreign exchange gains positively impacted earnings per share by approximately $0.06 in the prior year.

"We are pleased with the strong gross and operating margins we reported in the quarter," commented Andrew Cogan CEO. "In spite of recent softening in industry demand, we expect to be back on a path of growth as we end 2012," he added.

Third Quarter Results

Third quarter 2012 financial results highlights follow:

Dollars in Millions Except Per Share Data
Three Months Ended Percent
9/30/12 9/30/11 Change
Net Sales $ 219.8 $ 239.5 (8.2) %
Gross Profit 74.2 78.9 (6.0) %
Gross Profit % 33.8 % 32.9 % N/A
Operating Expenses 50.7 53.9 (5.9) %
Operating Profit 23.5 25.0 (6.0) %
Operating Profit % 10.7 % 10.4 % N/A
Net Income 12.2 18.4 (33.7) %
Earnings Per Share .26 .39 (33.3) %

Net sales for the quarter were $219.8 million, a decrease of $19.7 million, or 8.2%, over the third quarter of 2011. Net sales for the Office segment were $160.0 million during the third quarter of 2012, a decrease of $13.6 million, or 7.8%, when compared with the third quarter of 2011. This decrease was primarily the result of softening industry demand and lower sales to government and financial services clients. Net sales for the Studio segment were $33.0 million, a decrease of $4.3 million, or 11.5%, when compared with the third quarter of 2011. Lower sales resulting primarily from the poor economic conditions in Europe more than offset the growth of Studio sales in North America. Net sales for the Coverings segment were $26.7 million, a decrease of $1.9 million, or 6.6%, when compared with the third quarter of 2011. The decrease in sales in the Coverings segment during the third quarter of 2012 was the result of lower demand in certain markets such as hospitality and transportation.

Gross profit for the third quarter of 2012 was $74.2 million, a decrease of $4.7 million, or 6.0%, over the same period in 2011. Gross profit as a percentage of net sales increased 90 basis points to 33.8% in the third quarter of 2012 from 32.9% in the same quarter of 2011. The increase in gross profit as a percentage of sales from the third quarter of 2011 largely resulted from a more profitable mix in our business as we saw government shipments, which are generally at higher discount rates, make up a smaller portion of our overall sales. Continuous improvement projects in our factories also positively impacted our gross margin.

Operating expenses for the quarter were $50.7 million, or 23.1% of net sales, compared to $53.9 million, or 22.5% of net sales, for the third quarter of 2011. The decrease in operating expenses during the third quarter of 2012 was primarily due to lower variable compensation spending due to our lower sales but was partially offset with continued spending on new product and growth initiatives.

Operating profit for the third quarter of 2012 was $23.5 million, a decrease of $1.5 million, or 6.0%, when compared to the same period in 2011. Operating profit for the Office segment was $13.0 million in the third quarter of 2012, an increase of $0.2 million, or 1.6%, when compared with the third quarter of 2011. Operating profit for the Studio segment was $5.2 million, a decrease of $0.5 million, or 8.8%, when compared with the third quarter of 2011. Operating profit for the Coverings segment was $5.3 million, a decrease of $1.3 million, or 19.7%, when compared to the third quarter of 2011. The decrease in operating profit in the Coverings segment during the third quarter of 2012 is the result of lower sales to hospitality and transportation clients and increased costs associated with growth initiatives.

Interest expense increased $0.4 million when compared with the third quarter 2011. Other (income) expense for the third quarter of 2012 consisted of expense of $2.8 million primarily related to foreign exchange losses. Other (income) expense for the third quarter 2011 consisted of income of $4.1 million primarily related to foreign exchange gains.

The effective tax rate was 36.1% for the quarter, as compared to 34.0% for the same period last year. The increase in our effective tax rate was due in large part to the mix of pretax income and the varying effective tax rates in the countries in which we operate. Net income for the third quarter 2012 was $12.2 million, or $0.26 diluted earnings per share, as compared to $18.4 million, or $0.39 diluted earnings per share, for the same quarter in 2011.

Cash generated from operations during the third quarter 2012 was $23.9 million, compared to $18.4 million in the same period of 2011. Capital expenditures for the third quarter 2012 totaled $4.0 million compared to $2.5 million for 2011. We repaid $15.0 million of debt during the third quarter of 2012, compared to $13.1 million during the third quarter of 2011. We also paid a quarterly dividend of $5.6 million, or $0.12 per share, in the third quarter of 2012 compared to $4.6 million, or $0.10 per share, in the third quarter of 2011.

"We continue to reduce our bank debt and improve our balance sheet which provides us with the financial flexibility to continue to invest opportunistically in both our growth and infrastructure improvement initiatives," stated 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 Knoll Studio products, and Richard Schultz Design. The KnollStudioportfolio 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 FilzfeltT. These businesses serve a wide range of customers offering high quality textiles and leather.

Three Months Ended
September 30,
Net Sales (in millions) 2012 2011
Office $ 160.0 $ 173.6
Studio 33.0 37.3
Coverings 26.7 28.6
Total Net Sales $ 219.8 (1) $ 239.5


Three Months Ended
September 30,
Operating Profit (in millions) 2012 2011
Office $ 13.0 $ 12.8
Studio 5.2 5.7
Coverings 5.3 6.6
Total Operating Profit $ 23.5 $ 25.0 (1)
  1. Results do not add due to rounding.

 

KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2012 2011 2012 2011
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Sales $ 219,794 $ 239,543 $ 637,473 $ 699,052
Cost of sales 145,578 160,692 425,798 475,306
Gross profit 74,216 78,851 211,675 223,746
Selling, general, and administrative expenses 50,694 53,854 151,899 153,795
Restructuring and other charges - (18) - 696
Operating income 23,522 25,015 59,776 69,255
Interest expense 1,635 1,226 4,778 8,615
Other expense (income), net 2,786 (4,077 ) 3,723 (1,473 )
Income before income tax expense 19,101 27,866 51,275 62,113
Income tax expense 6,904 9,477 18,766 21,547
Net income $ 12,197 $ 18,389 $ 32,509 $ 40,566
Earnings per share:
Basic $ .26 $ .40 $ .70 $ .88
Diluted $ .26 $ .39 $ .69 $ .87
Weighted-average shares outstanding:
Basic 46,667,359 46,250,362 46,595,066 46,219,291
Diluted 47,038,785 46,792,225 47,051,004 46,858,766



KNOLL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

September 30,
2012
December 31, 2011

(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents $ 10,690 $ 28,263
Customer receivables, net 99,631 126,078
Inventories 101,941 89,244
Prepaid and other current assets 25,414 21,308
Total current assets 237,676 264,893
Property, plant, and equipment, net 121,715 121,792
Intangible assets, net 303,376 297,250
Other noncurrent assets 6,017 4,156
Total Assets $ 668,784 $ 688,091
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 73,570 83,824
Other current liabilities 74,589 99,304
Total current liabilities 148,159 183,128
Long-term debt 203,000 212,000
Other noncurrent liabilities 128,553 127,540
Total liabilities 479,712 522,668
Stockholders' equity 189,072 165,423
Total Liabilities and Stockholders' Equity $ 668,784 $ 688,091



KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Nine Months Ended September 30,
2012 2011
(Unaudited) (Unaudited)
Net income $ 32,509 $ 40,566
Cash Flows provided by Operating Activities 30,395 31,124
Cash Flows used in Investing Activities (16,890) (9,733 )
Cash Flows used in Financing Activities (30,218) (39,696 )
Effect of exchange rate changes on cash and cash equivalents (860) 2,108
(Decrease) increase in cash and cash equivalents (17,573) (16,197 )
Cash and cash equivalents at beginning of period 28,263 26,935
Cash and cash equivalents at end of period $ 10,690 $ 10,738

Source: Knoll, Inc.

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