Backlog, Sales, Operating Profits and Operating Margins All at the Highest Levels Since 2008
EAST GREENVILLE, Pa., Feb. 4, 2011 -- Knoll, Inc. (NYSE: KNL) today announced results for the fourth quarter and year ended December 31, 2010. Net sales were $239.8 million for the quarter, an increase of 30.4% from fourth quarter 2009. Operating profit was $24.2 million, or 10.1% of net sales, an increase of 112.3% from the fourth quarter 2009.
Excluding restructuring charges of $1.7 million, adjusted operating profit was $25.9 million during the fourth quarter of 2010, or 10.8% of net sales, an increase of 73.8% when compared to adjusted operating profit from the fourth quarter of 2009. Net income was $10.8 million, an increase of 170.0% when compared with the fourth quarter of 2009.
Diluted earnings per share was $0.23 for the quarter compared to $0.09 per share in the prior year. Adjusted earnings per share was $0.26 for the quarter compared to $0.14 per share in the prior year. For the full year, net sales were $809.5 million, an increase of 3.8% when compared to 2009. Operating profit was $64.7 million, or 8.0% of net sales, an increase of 1.9% when compared to 2009. Operating profit for the full year of 2010 includes restructuring charges of $7.6 million. Excluding these charges adjusted operating profit was $72.2 million, or 8.9% of net sales, a decrease of 4.4% when compared to the full year 2009 adjusted operating profit.
Net income was $28.0 million, an increase of 2.2% when compared to 2009. Diluted earnings per share was $0.61 for the year compared to $0.60 per share in the prior year. Adjusted earnings per share was $0.71 compared to $0.77 per share in the prior year.
"We ended 2010 on a high note," commented Andrew Cogan, CEO. "The combination of improved economic conditions and our investments in innovative new designs drove better than industry growth and the highest operating margins and backlog since the end of 2008. For over a decade now we have been building a diversified design driven product portfolio and flexible business model that has delivered industry leading financial results in all market conditions. In the years ahead we see tremendous opportunity to continue to differentiate Knoll through an ongoing commitment to design based businesses."
Fourth Quarter ResultsAdjusted earnings per share and adjusted operating profit are calculated by excluding from earnings per share and operating profit items webelieve to be infrequent or not indicative of our operating performance. For a reconciliation of adjusted earnings per share and adjusted operating profit to GAAP earnings per share and GAAP operating profit, respectively, see "Reconciliation of Non-GAAP Financial Measures" below.
Net sales for the quarter were $239.8 million, an increase of $55.9 million, or 30.4%, when compared with the fourth quarter of 2009, representing increased volume across all product categories and geographies. During the quarter, office systems experienced double digit growth. Seating once again had the largest percentage growth rate as sales for our Generation by Knoll(R) chair continue to increase. During the fourth quarter of 2010 sales growth in Europe outpaced North America.
Backlog of unfilled orders at December 31, 2010 was $196.6 million, an increase of $43.6 million, or 28.5%, versus the prior year.
Gross profit for the fourth quarter of 2010 was $77.2 million, an increase of $14.5 million, or 23.1%, from the same period in 2009. Gross margin decreased from 34.1% in the fourth quarter of 2009 to 32.2%. The decrease from the fourth quarter of 2009 resulted from price deterioration, a greater mix of government sales, material inflation and expedited freight costs to meet customer demand. The strengthening of the Canadian dollar also negatively affected our gross margin.
Operating expenses for the quarter were $51.3 million, or 21.4% of net sales, compared to $47.7 million, or 25.9% of net sales, for fourth quarter of 2009. The increase in operating expenses during the fourth quarter of 2010 was in large part due to increased commissions and incentive compensation associated with our higher sales volumes.
Our operating profit for the fourth quarter of 2010 was $24.2 million, an increase of $12.8 million, or 112.3%, when compared to the same period in 2009. Operating profit as a percentage of net sales was 10.1% for the fourth quarter of 2010 and includes restructuring charges of $1.7 million. Excluding those restructuring charges, operating profit would have been $25.9 million, or 10.8% of net sales. For a reconciliation of adjusted operating profit to GAAP operating profit, see "Reconciliation of Non-GAAP Financial Measures" below.
During the fourth quarter 2010, other expense included $2.9 million of foreign exchange losses and $0.1 million of miscellaneous expense. Other expense for the fourth quarter 2009 included $1.7 million of foreign exchange losses offset by $0.4 million of miscellaneous income.
The effective tax rate was 37.2% for the fourth quarter of 2010, as compared to 32.1% 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 2010 was $10.8 million, or $0.23 diluted earnings per share, as compared to $4.0 million, or $0.09 per share, for the same quarter in 2009.
Cash generated from operations during the fourth quarter 2010 was $38.2 million, compared to $10.4 million in the same period of 2009. Capital expenditures for the fourth quarter 2010 totaled $4.4 million compared to $2.2 million for 2009. We repaid $10.0 million of debt during the fourth quarter of 2010 compared to $15.0 million during 2009. During the fourth quarter of 2010, we increased our quarterly dividend from $0.02 per share to $0.06 per share.
Full Year Results
For the year, net sales totaled $809.5 million an increase of $29.5 million, or 3.8%, from 2009 net sales of $780.0 million. Seating experienced double digit growth during the year as our Generation by Knoll(R) chaircontinues to gain seating market share. Systems sales declined on a year over basis but showed significant improvement during the third and fourth quarters of 2010. Based upon percentage growth, Europe grew faster than North America in 2010.
During the full year 2010, gross margin decreased from 34.5% in 2009 to 32.7% in 2010. The largest contributors to this decrease were price deterioration and material inflation, particularly steel. The strengthening of the Canadian dollar during 2010 also negatively affected our gross margin. Gross profit dollars decreased 1.9% from $269.4 million in 2009 to $264.3 million in 2010.
Operating expenses for 2010 were $192.1 million, or 23.7% of net sales, compared to $194.0 million, or 24.9% of net sales, for 2009. The modest decrease in operating expenses during 2010 was in large part due to cost control measures that were put in place during the downturn in the industry and which more than offset increased incentive compensation this year.
Our operating profit for 2010 was $64.7 million, an increase of $1.2 million, or 1.9%, when compared with the same period in 2009. Operating profit as a percent of net sales was 8.0% for 2010 and includes restructuring charges of $7.6 million. Excluding those restructuring charges, operating profit would have been $72.2 million, or 8.9% as a percent of net sales. For a reconciliation of adjusted operating profit to GAAP operating profit, see "Reconciliation of Non-GAAP Financial Measures" below.
Interest expense for 2010 increased $3.6 million when compared with the full year 2009. The increase in interest expense is due to interest rate swap agreements that we entered into during 2008. These agreements expire June 9, 2011. Other expense in 2010 included $5.5 million of foreign exchange losses, a $1.2 million non-cash expense related to the ineffective portion of our interest rate swaps, and a $0.3 million gain on miscellaneous income. Other expense in 2009 included $6.6 million of foreign exchange losses offset by a $0.8 million gain on miscellaneous income.
The effective tax rate was 31.4% for the year, as compared to 37.5% for the same period last year. The decrease in our effective tax rate was due to a $2.5 million tax benefit related to foreign tax credits that was recorded during the second quarter of 2010. Without this benefit, our tax rate for the year would have been 37.5%. Our effective tax rate is dependent upon the mix of pretax income between the countries in which we operate.
We generated 2010 net income of $28.0 million, or $0.61 diluted earnings per share, compared to $27.4 million, or $0.60 diluted earnings per share, in 2009.
Annual cash generated from operations in 2010 was $89.7 million, compared to $52.9 million the year before. Capital expenditures in 2010 totaled $8.3 million compared to $13.7 million for 2009. During 2010 the Company repaid $50.0 million of debt compared to $42.0 million in 2009. The Company also paid dividends of $5.5 million in 2010.
"Over the past 12 months we went from managing a dramatic contraction in demand to managing a more robust recovery in demand. Throughout this cycle we continued to invest in the business while simultaneously strengthening our balance sheet. As a result when conditions improved we were able to generate double digit operating margins and increase the cash we return to our shareholders through our dividend," commented Barry L. McCabe, EVP & CFO.
The Company added that on February 3, 2011, its Board of Directors declared a quarterly cash dividend of $0.06 per share payable on March 31, 2011, to stockholders of record on March 15, 2011.
Reconciliation of Non-GAAP Financial Measures
Have something to say? Share your thoughts with us in the comments below.