EAST GREENVILLE, PA -- Knoll, Inc. (NYSE: KNL) today announced results for the third quarter ended September 30, 2010.
Net sales were $202.1 million for the quarter, an increase of 11.5% over the third quarter 2009. Operating profit was $19.1 million, an increase of 13.7% over the third quarter 2009. Sequentially, net sales increased $9.8 million, or 5.1%, and operating profit increased $7.2 million, or 60.0%, when compared with the second quarter of 2010. Operating profit as a percent of net sales increased 20 basis points from the third quarter of 2009 and 330 basis points from the second quarter of 2010.
Net income was $6.3 million, an increase of 10.5% over the third quarter 2009. Earnings per share for the third quarter of 2010 was $0.14, a slight increase from earnings per share of $0.13 for the third quarter of 2009.
During the quarter earnings per share was negatively impacted by $0.06 of non-cash other expense from foreign exchange related to the Canadian Dollar and Euro and the mark to market cost related to the ineffective portion of our interest rate swaps.
"We are in the midst of a genuine recovery in demand," commented Andrew Cogan, CEO. "While we are benefiting from improved demand conditions, it is encouraging to see our rate of growth accelerating relative to the overall industry as our new product initiatives gain significant traction led by our innovative Generation by Knoll work chair. Our team did a nice job of sequentially leveraging this growth to improve on our industry leading levels of profitability. With all our leading indicators continuing to show double digit year over year growth we look forward to ending 2010 on a positive note."
Net sales for the quarter were $202.1 million, an increase of $20.8 million, or 11.5%, over the third quarter of 2009. During the quarter we experienced increased volumes across all product categories and geographies. Sales in Europe outpaced our growth in North America. Seating continues to have the largest percentage growth rate as it experienced its third consecutive year-over-year growth during the quarter as sales continue to increase for our Generation by Knoll Chair(R).
The third quarter of 2010 marked the first quarter in eleven quarters that we experienced growth in sales of our office systems product category. Systems continues to represent the largest percentage of our overall revenue.
Backlog of unfilled orders at September 30, 2010 was $160.5 million, an increase of $38.8 million, or 31.9% compared to unfilled orders at September 30, 2009.
Gross profit for the third quarter of 2010 was $67.5 million, an increase of $6.2 million, or 10.1%, over the same period in 2009. Gross profit as a percentage of net sales decreased to 33.4% in the third quarter of 2010 from 33.8% in the same quarter of 2009. Sequentially, gross profit as a percentage of net sales increased to 33.4% from 32.8% in the second quarter of 2010. The decrease in gross margin from the third quarter of 2009 largely resulted from price deterioration and unfavorable movements in foreign exchange.
Operating expenses for the quarter were $48.3 million, or 23.9% of net sales, compared to $44.5 million, or 24.5% of net sales, for the third quarter of 2009. The increase in operating expenses during the third quarter of 2010 was in large part due to increased commissions and incentive compensation in conjunction with our higher sales volumes.
We generated operating profit for the third quarter of 2010 of $19.1 million, an increase of $2.3 million, or 13.7%, over the same period in 2009. Operating profit as a percentage of net sales was 9.5% for the third quarter of 2010. Operating profit as a percentage of net sales was 9.3% for the third quarter of 2009.
Interest expense increased $0.8 million over the third quarter 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 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 is $3.6 million of foreign exchange losses and $0.5 million of miscellaneous income. Other expense for the third quarter 2009 was $3.1 million which included $3.2 million of foreign exchange losses offset by $0.1 million of miscellaneous income.
The effective tax rate was 36.3% for the quarter, as compared to 40.5% 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 2010 was $6.3 million, or $0.14 diluted earnings per share, as compared to $5.7 million, or $0.13 diluted earnings per share, for the same quarter in 2009.
Cash generated from operations during the third quarter 2010 was $20.2 million, compared to $29.5 million in the same period of 2009. Capital expenditures for the third quarter 2010 totaled $1.1 million compared to $1.2 million for 2009. We repaid $22.1 million of debt during the third quarter of 2010 compared to $28.1 million during 2009. We also paid a quarterly dividend of $0.9 million, or $0.02 per share, in the third quarter of 2009 and 2010.
This quarter we reduced our bank debt by $22.1 million and by $55.1 million from a year ago. We are comfortably in compliance with our bank covenants. "The progress we have made in debt paydown and working capital management during this terrible economic environment is a testimony to how this company and its associates respond to challenges," commented Barry L. McCabe, EVP & CFO.
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