UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2017~~March 31, 2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-12907

KNOLL, INC.



A Delaware Corporation		I.R.S. Employer No. 13-3873847

1235 Water Street

East Greenville, PA 18041

Telephone Number (215) 679-7991

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o No x

As of ~~August 7, 2017,~~May 9, 2018, there were ~~49,321,826~~49,385,466 shares (including ~~853,360~~696,044 non-voting restricted shares) of the Registrant’s common stock, par value $0.01 per share, outstanding.

KNOLL, INC.

TABLE OF CONTENTS FOR FORM 10-Q


Item	Item	Page	Item	Page

PART I — FINANCIAL INFORMATION	PART I — FINANCIAL INFORMATION		PART I — FINANCIAL INFORMATION

1.	Condensed Consolidated Financial Statements:		Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	3	Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	3
	Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2017 and 2016	4	Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2018 and 2017	4
	Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2017 and 2016	5	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	5
	Notes to the Condensed Consolidated Financial Statements	6	Notes to the Condensed Consolidated Financial Statements	6

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

3.	Quantitative and Qualitative Disclosures about Market Risk	24	Quantitative and Qualitative Disclosures about Market Risk	28

4.	Controls and Procedures	25	Controls and Procedures	29

PART II — OTHER INFORMATION	PART II — OTHER INFORMATION		PART II — OTHER INFORMATION

1.	Legal Proceedings	26	Legal Proceedings	30

1A.	Risk Factors	26	Risk Factors	30

2.	Unregistered Sales of Equity Securities and The Use of Proceeds	26	Unregistered Sales of Equity Securities and The Use of Proceeds	30

6.	Exhibits	27	Exhibits	31

Signatures	Signatures	28	Signatures	32

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

KNOLL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share and per share data)


	June 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
ASSETS	(Unaudited)						(Unaudited)
Current assets:
Cash and cash equivalents	$	5,924		$	9,854		$	16,154		$	2,203
Customer receivables, net of allowance for doubtful accounts of $6,108 and $8,059, respectively	77,762			84,425
Inventories, net	150,076			142,072
Customer receivables, net of allowance for doubtful accounts of $4,408 and $4,039, respectively							101,156			86,687
Inventories							167,973			144,945
Prepaid expenses	28,801			27,461			26,742			29,272
Other current assets	13,957			12,996			15,446			15,163
Total current assets	276,520			276,808			327,471			278,270
Property, plant, and equipment, net	204,693			197,084			201,515			200,630
Goodwill	141,759			141,391			337,135			142,113
Intangible assets, net	240,226			241,870			367,950			238,581
Other non-trade receivables	27			26
Other noncurrent assets	1,423			1,434			1,431			1,447
Total assets	$	864,648		$	858,613		$	1,235,502		$	861,041
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	10,000		$	10,000		$	17,535		$	10,000
Accounts payable	99,885			97,518			109,219			108,922
Income taxes payable	32			81
Other current liabilities	94,955			114,774			111,013			104,158
Total current liabilities	204,872			222,373			237,767			223,080
Long-term debt	223,716			208,383			505,152			181,048
Deferred income taxes	80,123			76,854			84,601			54,671
Post-employment benefits other than pensions	4,976			5,124
Pension liability	13,332			17,428			20,177			21,671
Other noncurrent liabilities	17,303			18,982			21,411			21,842
Total liabilities	544,322			549,144			869,108			502,312
Commitments and contingent liabilities
Equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; 65,434,707 shares issued and 49,321,826 shares outstanding (including 853,360 non-voting restricted shares and net of 16,112,881 treasury shares) at June 30, 2017 and 64,741,648 shares issued and 49,096,290 shares outstanding (including 993,962 non-voting restricted shares and net of 15,645,358 treasury shares) at December 31, 2016	493			491
Common stock, $0.01 par value; 200,000,000 shares authorized; 65,722,418 shares issued and 49,500,794 shares outstanding (including 893,544 non-voting restricted shares and net of 16,221,624 treasury shares) at March 31, 2018 and 65,460,014 shares issued and 49,339,552 shares outstanding (including 841,610 non-voting restricted shares and net of 16,120,462 treasury shares) at December 31, 2017							495			493
Additional paid-in capital	50,170			55,148			54,954			54,455
Retained earnings	310,305			297,011			361,475			347,304
Accumulated other comprehensive loss	(40,878		)	(43,403		)	(50,789		)	(43,774		)
Total Knoll, Inc. stockholders' equity	320,090			309,247
Total Knoll, Inc. stockholders’ equity							366,135			358,478
Noncontrolling interests	236			222			259			251
Total equity	320,326			309,469			366,394			358,729
Total liabilities and equity	$	864,648		$	858,613		$	1,235,502		$	861,041

See accompanying notes to the condensed consolidated financial statements.

KNOLL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(dollars in thousands, except share and per share data)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Sales	$	268,694		$	294,700		$	525,514		$	579,329		$	296,559		$	256,820
Cost of sales	168,736			180,636			329,882			357,501			188,848			161,146
Gross profit	99,958			114,064			195,632			221,828			107,711			95,674
Selling, general, and administrative expenses	75,578			80,590			148,218			156,505			84,725			75,038
Restructuring charges	2,150			—			2,150			—			526			—
Operating profit	22,230			33,474			45,264			65,323			22,460			20,636
Interest expense	1,859			1,307			3,530			2,861			4,083			1,671
Other expense, net	229			185			436			2,789
Loss on extinguishment of debt													1,445			—
Other income, net													(4,002		)	(2,195		)
Income before income tax expense	20,142			31,982			41,298			59,673			20,934			21,160
Income tax expense	7,182			10,341			12,946			20,621			5,667			5,764
Net earnings	12,960			21,641			28,352			39,052			15,267			15,396
Net earnings attributable to noncontrolling interests	22			6			14			17
Net earnings (loss) attributable to noncontrolling interests													8			(8		)
Net earnings attributable to Knoll, Inc. stockholders	$	12,938		$	21,635		$	28,338		$	39,035		$	15,259		$	15,404

Net earnings per common share attributable to Knoll, Inc. stockholders:
Basic	$	0.27		$	0.45		$	0.59		$	0.81		$	0.31		$	0.32
Diluted	$	0.26		$	0.44		$	0.57		$	0.80		$	0.31		$	0.31

Dividends per share	$	0.15		$	0.15		$	0.30		$	0.30		$	0.15		$	0.15

Weighted-average number of common shares outstanding:
Basic	48,464,605			48,018,733			48,375,241			47,961,661			48,556,686			48,456,225
Diluted	49,376,506			48,832,874			49,294,525			48,713,633			49,204,776			49,382,892

Net earnings	$	12,960		$	21,641		$	28,352		$	39,052		$	15,267		$	15,396
Other comprehensive income (loss):
Unrealized loss on interest rate swap, net of tax													(130		)	—
Pension and other post-employment liability adjustment, net of tax	(138		)	(136		)	(275		)	(272		)	211			(137		)
Foreign currency translation adjustment	2,320			1,566			2,800			5,616			(339		)	480
Total other comprehensive income (loss), net of tax	2,182			1,430			2,525			5,344
Foreign currency translation adjustment on long term intercompany notes													(507		)	—
Total other comprehensive (loss) income, net of tax													(765		)	343
Total comprehensive income	15,142			23,071			30,877			44,396			14,502			15,739
Comprehensive income attributable to noncontrolling interests	22			6			14			17			8			(8		)
Comprehensive income attributable to Knoll, Inc. stockholders	$	15,120		$	23,065		$	30,863		$	44,379		$	14,494		$	15,747

See accompanying notes to the condensed consolidated financial statements.

KNOLL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(dollars in thousands)


	Six Months Ended June 30,						Three Months Ended March 31,
	2017			2016			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	28,352		$	39,052		$	15,267		$	15,396
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation	10,668			9,248			6,254			5,089
Amortization expense (including deferred financing fees)	1,977			1,977			2,189			989
Loss on extinguishment of debt							1,445			—
Inventory obsolescence	1,203			1,423			497			744
Loss on disposal of property, plant and equipment	29			1			4			25
Unrealized foreign currency (gains) losses	(122		)	1,605
Unrealized foreign currency (gains)							(1,954		)	(12		)
Stock-based compensation	5,043			4,592			2,426			3,344
Bad debt and customer credits	(1,650		)	1,282
Bad debt and customer claims							386			(9		)
Changes in assets and liabilities:
Customer receivables	8,420			16,216			(6,248		)	1,376
Inventories	(8,811		)	(6,410		)	(9,619		)	(4,765		)
Prepaid and other current assets	(1,807		)	(2,675		)	2,969			1,456
Accounts payable	6,015			(10,109		)	(168		)	(5,105		)
Current and deferred income taxes	2,567			710			1,873			2,447
Other current liabilities	(13,729		)	(9,787		)	(4,220		)	(13,895		)
Other noncurrent assets and liabilities	(5,917		)	(786		)	(5,500		)	(3,255		)
Cash provided by operating activities	32,238			46,339			5,601			3,825
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net	(20,756		)	(15,057		)
Capital expenditures							(8,468		)	(10,650		)
Purchase of business, net of cash acquired							(303,748		)	—
Cash used in investing activities	(20,756		)	(15,057		)	(312,216		)	(10,650		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from credit facility	214,000			173,500
Repayment of credit facility	(199,000		)	(185,500		)
Proceeds from revolving credit facility							282,000			130,000
Repayment of revolving credit facility							(132,000		)	(103,500		)
Proceeds from term loan							350,458			—
Repayment of term loan							(165,000		)	(2,500		)
Payment of financing fees							(4,509		)	—
Loss on debt extinguishment							(1,023		)	—
Payment of dividends	(15,729		)	(14,727		)	(7,656		)	(8,427		)
Proceeds from the issuance of common stock	551			2,120			27			526
Purchase of common stock for treasury	(10,570		)	(3,903		)	(1,952		)	(10,348		)
Contingent purchase price payment	(6,000		)	(5,000		)	—			(6,000		)
Cash used in financing activities	(16,748		)	(33,510		)
Cash provided by (used in) financing activities							320,345			(249		)
Effect of exchange rate changes on cash and cash equivalents	1,336			1,584			221			255
Net decrease in cash and cash equivalents	(3,930		)	(644		)
Net increase (decrease) in cash and cash equivalents							13,951			(6,819		)
Cash and cash equivalents at beginning of period	9,854			4,192			2,203			9,854
Cash and cash equivalents at end of period	$	5,924		$	3,548		$	16,154		$	3,035

See accompanying notes to the condensed consolidated financial statements.

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Knoll, Inc. (the “Company”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~U.S.~~ generally accepted accounting principles ~~(“GAAP”) have been condensed or omitted pursuant~~for interim financial information and with the instructions to ~~such rules~~Form 10-Q and ~~regulations. The consolidated balance sheet~~Article 10 of Regulation S-X. Accordingly, they do not include all of the ~~Company, as of December 31, 2016, was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated~~information and footnotes required by generally accepted accounting principles for complete financial ~~statements contained herein are unaudited and reflect all adjustments which are, in~~statements. In the opinion of management, ~~necessary to summarize fairly the financial position~~all adjustments (consisting of ~~the Company and the results of the Company’s operations and cash flows for the periods presented. All of these adjustments are of a~~ normal recurring ~~nature.~~accruals) considered necessary for a fair presentation have been included. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and any partially owned subsidiaries that the Company has the ability to control. All significant intercompany balances and transactions have been eliminated in consolidation. ~~These~~Operating results for the three month periods ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ended December 31, 2018.

The condensed consolidated balance sheet of the Company, as of December 31, 2017, has been derived from the Company’s audited consolidated financial statements ~~should be read in conjunction with~~at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and ~~notes~~footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2016.~~2017.

New Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, ~~“Revenue~~“Revenue from Contracts with ~~Customers”~~Customers”, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This ASU supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. ~~This ASU sets forth~~

The standard provides a ~~five-step~~five step model ~~for determining when and how revenue is recognized. Under the model,~~to be applied to all contracts with customers, with an underlying principle that an entity will ~~be required to~~ recognize revenue to depict the transfer of goods or services to ~~a customer~~customers at an amount ~~reflecting~~that the ~~consideration it~~entity expects to ~~receive~~be entitled to in exchange for those goods or services. ~~ASU 2014-09~~The standard is effective for ~~interim and~~ annual reporting periods beginning after December 15, ~~2016.~~2017 and interim periods therein. The ~~FASB subsequently deferred~~Company adopted the ~~effective date of this~~ standard ~~to December 15, 2017 with early adoption permitted~~ as of ~~December 15, 2016.~~ January 1, 2018.

The Company ~~will adopt~~has completed its assessment of the impact of the new standard inand adopted the ~~annual period beginning~~new standard for all open contracts as of January 1, 2018. The standard permits the use of either the full retrospective or modified retrospective (cumulative effect) transition method. Transition practical expedients are available for both methods. The Company plans to apply2018 using the modified retrospective transition ~~method.~~method, and applied the guidance to report new disclosures surrounding the Company’s recognition of revenue. The ~~Company assembled an implementation work team to assess and document the accounting conclusions for the adoption of ASU 2014-09. Based on this analysis, the Company does not believe the~~ adoption of the ~~ASU will~~new standard did not have a material impact toon the financial ~~statements. The Company continues to assess the potential impact on accounting policies, internal control processes and related disclosures required under the new guidance.~~

~~In July 2015, the FASB issued ASU 2015-11 -~~ ~~Inventory (Topic 330), which amends existing guidance for measuring inventories. This amendment will require~~position of the Company, ~~to measure inventories recorded using~~ the ~~first-in, first-out method at the lower~~results of ~~cost~~its operations or its cash flows as of and ~~net realizable value. This amendment does not change the methodology~~ for ~~measuring inventories recorded using the last-in, first-out method. This amendment is effective for fiscal years beginning after December 15, 2016. The Company adopted this standard during~~ the three months ended March 31, ~~2017,~~2018, and the ~~impact~~Company’s internal controls over financial reporting. There was no cumulative effect of adopting the standard at the date of initial application in retained earnings. The Company’s Revenue Recognition accounting policy has been updated for the new standard. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The amount of consideration received and revenue recognized varies with changes in returns, rebates, cash sales incentives and other allowances offered to customers based on ~~its consolidated financial statements was not material.~~the Company’s experience. The new standard further requires quantitative and qualitative disclosures about the Company’s contracts with customers which have been included within this Form 10-Q.

In February 2016, the FASB issued ~~guidance codified in ASC 842,~~ASU 2016-02, Leases (Topic 842), which supersedes the guidance in ASC 840, Leases. ASC 842 will be effective for the Company on January 1, 2019, and the Company will adopt the standard using the modified retrospective approach. While the Company continues to evaluate the provisions of ASC 842 to determine how it will be affected, the primary effect of adopting the new standard will be to record assets and obligations for current operating leases. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.

In ~~January 2017,~~June 2016, the FASB issued ASU ~~2017-04,~~2016-13, ~~Intangibles~~Financial Instruments - ~~Goodwill~~Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology for measuring and ~~Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairment by removing the second step~~recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of ~~the goodwill impairment test that requires~~ a ~~hypothetical purchase price allocation. Under the new guidance, goodwill impairment will be measured~~broader range of reasonable and ~~recognized as the amount by which a reporting unit’s carrying value exceeds its fair value, not~~supportable information to exceed the carrying amount of goodwill allocated to the reporting unit. The revised guidance does not affect the reporting entity’s ability to first assess qualitative factors by reporting unit to determine whether it is necessary to perform the quantitative goodwill impairment test. The guidanceinform credit loss estimates. This amendment is effective for ~~goodwill impairment tests in~~ fiscal years beginning after December 15, 2019. ~~Early~~The Company is currently in the process of evaluating the impact of adoption ~~is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.~~of the ASU on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715).. The new standard ~~improves~~requires the service cost component of net periodic benefit cost to be presented in the same income statement line as other employee compensation costs arising from services rendered during the period and the other components of net periodic benefit cost to be presented separately from the income statement lines that include service cost and outside of any subtotal of operating income. The Company adopted the new standard for the period beginning January 1, 2018, resulting in no change in presentation of ~~Net Periodic Pension Cost~~the

service cost component of net periodic benefit cost, which has historically been reported in selling, general and ~~Net Periodic Postretirement Benefit Cost. This~~administrative expenses along with other employee compensation costs. The retrospective adoption resulted in a change in presentation of the other components of net periodic benefit cost for the year ended December 31, 2017, and interim periods therein, by reclassifying net periodic benefit income of $2.4 million for the period ended March 31, 2017 from Selling, general and administrative to Other income, net.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815). The new standard is intended to better align a company’s risk management strategies and financial reporting for hedging relationships. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. In addition, the new guidance amends presentation and disclosure requirements. The guidance is effective for fiscal years beginning after December 15, ~~2017,~~2018 with early adoption permitted, including the interim periods within those ~~fiscal~~ years. The Company early adopted the standard as of January 1, 2018. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). The new standard will ~~require all components~~allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“Tax Act”). The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statements users. However, because the amendment only relates to the reclassification of the ~~Company's net periodic benefit cost (income),~~income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, including the interim periods within those years. The Company adopted the standard effective January 1, 2018 and reclassified $6.3 million from accumulated other comprehensive income to retained earnings related to the Company’s minimum pension liability.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) which incorporates the provisions of SAB 118 into the accounting standards codification. The Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance regarding situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with the ~~exception~~SAB 118, the Company has made a reasonable estimate of ~~service cost, currently reported~~the effects on its existing deferred tax balances and the one-time transition tax. The ultimate impact of the Tax Act may differ from this estimate, possibly materially, due to changes in interpretations and assumptions, and guidance that may be issued and actions the Company may take in response to the Tax Act. The Tax Act is highly complex and the Company will continue to assess the impact that various provisions will have on the business and the consolidated financial statements.

NOTE 2. REVENUE

Disaggregation of Revenue

The majority of the Company’s revenue presented as “Sales” in the Condensed Consolidated Statements of Operations and Comprehensive Income is the result of contracts with customers for the sale of the Company’s products. All other sources of revenue are not material to the Company's results of operations. The other sources of revenue include installation revenue and royalty revenue.

The Company’s net sales by product category were as follows (in thousands):



	Three Months Ended March 31,
	2018		2017
Office Segment
Office Systems	$	103,354	$	100,228
Seating	29,957		25,662
Files and Storage	22,078		18,535
Ancillary	19,145		8,071
Other	7,084		5,502
Total Office Segment	$	181,618	$	157,998
Lifestyle Segment
Studio	87,567		70,907
Coverings	27,374		27,915
Total Lifestyle Segment	$	114,941	$	98,822
Total Sales	$	296,559	$	256,820

Contract Balances

The Company has contract assets consisting of Customer Receivables in the Condensed Consolidated Balance Sheets which represent the amount of consideration the Company expects to be entitled to in exchange for the goods or services rendered to its customers.

The Company generally receives deposits from customers before revenue is recognized, thus resulting in the recognition of a contract liability (Customer deposits) presented as a component of Other Current Liabilities in the Condensed Consolidated Balance Sheets. Significant changes in the Customer deposits balances during the three months ended March 31, 2018 are as follows:



Balance as of January 1, 2018		Revenue recognized that was included in the contract liability balance at the beginning of the period ended March 31, 2018			Increases due to cash received, excluding amounts recognized as revenue during the period ended March 31, 2018		Balance as of March 31, 2018
$	30,484	$	(6,485	)	$	10,256	$	34,255

Increases to customer deposits as a result of business combinations during the three months ended March 31, 2018 balance were $1.5 million.

Performance Obligations

The Company recognizes revenue when performance obligations under the terms of a contract with its customer are satisfied. This occurs when the control of the goods and services have been transferred to the customer. Accordingly, revenue for sale of goods is generally recognized upon shipment or delivery depending on the shipping terms of the underlying contract. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. The Company does not disclose the value of unsatisfied (or potentially unsatisfied) performance obligations for contracts with an original length of one year or less.

Amounts billed to customers for shipping and handling activities to fulfill the Company’s promise to transfer the goods are included in Sales, and costs incurred by the Company for the delivery of goods are classified as Cost of sales in the Condensed Consolidated Statements of Operations and Comprehensive Income. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company generally offers assurance-type warranties for its products. The specific terms and conditions of those warranties vary depending upon the product. The Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the warranty liability include historical product-failure experience and estimated repair costs for identified matters. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Practical Expedients Elected

Incremental Costs of Obtaining a Contract - The Company has elected the practical expedient permitted in ASC 340-40-25-4, which permits an entity to recognize incremental costs to obtain a contract as an expense when incurred if the amortization period will be less than one year.

Significant Financing Component - The Company has elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to not adjust the promised amount of consideration for the effects of a significant financing component if a contract has a duration of one year or less. As the Company’s contracts are typically less than one year in length, consideration will not be adjusted. The Company’s contracts include a standard payment term of 30 days, consequently there is no significant financing component within contracts.

NOTE 3. ACQUISITION

On January 25, 2018, the Company acquired one hundred percent (100%) of the shares of Muuto Holding ApS and MIE4 Holding 5 ApS, which collectively hold substantially all the business operations of Muuto ApS (“Muuto”). Muuto’s affordable luxury products span commercial and residential applications, adding scale and diversity to the Company’s business. The aggregate purchase price for the acquisition was $303.7 million, net of $7.5 million of cash acquired and subject to certain customary adjustments. The Company recorded the acquisition of Muuto using the acquisition method of accounting and recognized the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition. The results of operations of Muuto have been included in the Company’s Lifestyle segment beginning January 25, 2018. The Company funded the acquisition with borrowings from the Amended Credit Agreement as well as cash on hand. See Note 10 for information on the Company’s borrowings. The Company recorded acquisition costs in its Consolidated Statement of Operations and Comprehensive Income, within selling, general, and administrative expenses ~~to be reclassified and reported within other expense. The adoption~~during the three months ended March 31, 2018 of ~~this new standard will have no impact on pre-tax income or net income reported.~~$1.0 million.

~~In May 2017,~~The amount of sales and net earnings that resulted from the ~~FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718).~~acquisition and attributable to Knoll, Inc. stockholders included in the Condensed Consolidated Statements of Operations and Comprehensive Income during the three months ended March 31, 2018 were as follows (in thousands):



Sales	$	15,186
Net loss attributable to Knoll, Inc. stockholders	$	(154	)

The ~~new standard provides guidance about which changes~~following table summarizes the preliminary fair values assigned to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under the new guidance, an entity should account for the effects of a modification unless allassets acquired and liabilities assumed as of the January 25, 2018 acquisition date (in thousands):



Cash	$	7,506
Customer receivables	8,717
Inventory	14,675
Other current assets	447
Property, plant, and equipment, net	1,250
Intangible assets	131,300
Other non-current assets	292
Accounts payable	3,374
Other current liabilities	12,244
Deferred income taxes	29,744
Other noncurrent liabilities	1,637
Fair value of acquired identifiable assets and liabilities	$	117,188

Purchase price	$	311,254
Less: Fair value of acquired identifiable assets and liabilities	117,188
Goodwill	$	194,066

The following ~~are met, (i)~~table summarizes the estimated fair value of Muuto’s identifiable intangible assets and their estimated useful lives (in thousands):



	Fair Value as of January 25, 2018		Estimated Useful Life
Indefinite-lived intangible assets:
Trade name	$	65,000	Indefinite
Finite-lived intangible assets:
Wholesale customer relationships	33,000		15
Contract customer relationships	22,000		9
Copyrights & designs	10,000		7
Non-competition agreements	1,300		3
	$	131,300

The preliminary purchase price of Muuto has been allocated to the ~~modified award~~Company’s tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated acquisition date fair values. The excess of the purchase price over the net tangible and intangible assets is recorded to goodwill. Goodwill is not deductible for tax purposes. The preliminary allocation of purchase price is based upon a valuation undertaken by the ~~same~~Company with the assistance of an independent third party valuation service and is subject to change during the measurement period. The initial accounting for the acquisition of Muuto is incomplete pending final valuation of the tangible and identifiable intangible assets acquired and liabilities assumed.

Unaudited pro forma information for the Company for the three month periods ended March 31, 2018 and 2017 as if the acquisition had occurred January 1, 2017 is as follows:



	Three Months Ended
	March 31, 2018		March 31, 2017
Pro forma sales	$	300,707	$	272,520
Pro forma net earnings attributable to Knoll, Inc. stockholders	$	17,626	$	15,911

The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the future consolidated results of operations of the Company. The pro forma financial information presented above has been derived from the historical condensed consolidated financial statements of the Company and from the historical consolidated financial statements of Muuto.

The pro forma financial information presented above includes adjustment for: (1) incremental amortization expense related to fair value adjustments to identifiable intangible assets, (2) incremental interest expense for outstanding borrowings to reflect the terms of the ~~original award, (ii)~~Amended Credit Agreement, (3) nonrecurring items and (4) the ~~vesting conditions~~tax effect of the ~~modified award are~~above adjustments.

Nonrecurring adjustments related to acquisition costs and loss on debt extinguishment of $2.4 million were recorded during the ~~same as~~three month period of March 31, 2018 were recorded in the ~~original awards immediately before modification,~~Condensed Consolidated Statements of Operations. A pro forma adjustment was made to incorporate the effect of nonrecurring costs related to loss on debt extinguishment of $1.7 million during the period of March 31, 2017. Adjustments were made in the calculation of pro forma amounts to remove the effect of these nonrecurring items and ~~(iii) the classification of the modified award as an equity instrument or liability instrument is the same as the classification immediately prior to modification.~~related income taxes. The ~~guidance is effective~~pro forma financial information does not include adjustments for annual periods and interim periods within those beginning after December 15, 2017. Early adoption is permitted for annual and interim periods with a prospective application to an award modified on or after the adoption date. At this time, the Company believes there will be an immaterial impact to the financial statements as a result of adopting this ASU.potential future cost savings.

NOTE 2.4. INVENTORIES

Information regarding the ~~Company's~~Company’s inventories is as follows (in thousands):


	June 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Raw materials	$	59,247	$	60,217	$	62,745	$	58,725
Work-in-process	7,830		7,186		7,520		6,943
Finished goods	82,999		74,669		97,708		79,277
	$	150,076	$	142,072	$	167,973	$	144,945

~~Inventory reserves for obsolescence and other estimated losses were $10.6 million and $9.5 million at June 30, 2017 and December 31, 2016, respectively, and have been included in the amounts above.~~

NOTE 3.5. PENSION AND OTHER POST-EMPLOYMENT BENEFITS

The following tables set forth the components of the net periodic benefit income for the ~~Company's~~Company’s pension and other post-employment benefit plans (in thousands):

Pension Benefits Other Benefits
Three Months Ended June 30, Three Months Ended June 30,
2017 2016 2017 2016
Service cost $ 175
$ 468
$ —
$ —
Interest cost 2,390
2,416
43
49
Expected return on plan assets (4,615 ) (3,612 ) —
—
Amortization of prior service credit —
—
(371 ) (280 )
Recognized actuarial loss (gain) 154
123
1
(62 )
Net periodic benefit (income) cost $ (1,896 ) $ (605 ) $ (327 ) $ (293 )


	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	Six Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017			2018			2017
Service cost	$	350		$	936		$	—		$	—		$	235		$	175		$	—		$	—
Interest cost	4,780			4,832			86			98			2,504			2,390			30			43
Expected return on plan assets	(9,230		)	(7,224		)	—			—			(4,606		)	(4,615		)	—			—
Amortization of prior service credit	—			—			(742		)	(560		)	—			—			(182		)	(371		)
Recognized actuarial loss (gain)	308			246			2			(124		)	366			154			(18		)	1
Net periodic benefit (income) cost	$	(3,792	)	$	(1,210	)	$	(654	)	$	(586	)
Net periodic benefit income													$	(1,501	)	$	(1,896	)	$	(170	)	$	(327	)

NOTE 4.6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Instruments

The fair values of the Company’s cash and cash equivalents ~~customer receivables, and accounts payable~~ approximate carrying value due to their short ~~maturities.~~maturities and are classified as Level 1.

The fair value of the Company’s long-term debt approximates its carrying value, as it is variable rate debt and the terms are comparable to market terms as of the balance sheet dates, and are classified as Level 2.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following table represents the assets and liabilities, measured at fair value on a recurring basis and the basis for that measurement (in thousands):


	Fair Value as of June 30, 2017								Fair Value as of December 31, 2016								Fair Value as of March 31, 2018								Fair Value as of December 31, 2017
Liabilities:	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Contingent purchase price payment - HOLLY HUNT®	$	—	$	—	$	—	$	—	$	—	$	—	$	6,000	$	6,000
Interest rate swap																	$	—	$	175	$	—	$	175	$	—	$	—	$	—	$	—
Contingent purchase price payment - DatesWeiser	—		—		1,100		1,100		—		—		1,100		1,100		—		—		1,100		1,100		—		—		1,100		1,100
Total	$	—	$	—	$	1,100	$	1,100	$	—	$	—	$	7,100	$	7,100	$	—	$	175	$	1,100	$	1,275	$	—	$	—	$	1,100	$	1,100

Interest Rate Swap

~~Pursuant to the agreement governing the acquisition~~The Company’s interest rate swap has a maturity of HOLLY HUNT®, the Company was required to make annual contingent purchase price payments. The payouts were based upon HOLLY HUNT® reaching an annual net sales target, for each year through 2016, and were paid out on or around February 20 of the following calendar year. The Company classifies this as a Level 3 measurementfive years and is ~~required~~with a counterparty with a credit rating of A- according to ~~remeasure this liability at fair value on a recurring basis.~~S&P and Fitch. The fair value of ~~such contingent purchase price payments, totaling $16.0 million, was determined at~~interest rate swap agreement is based on observable prices as quoted for receiving the ~~time of acquisition based upon net sales projections for HOLLY HUNT® for 2014, 2015,~~variable one month London Interbank Offered Rates or LIBOR and ~~2016. The Company paid the remaining $6.0 million contingent purchase price in the three months ended March 31, 2017,~~paying fixed interest rates and therefore, were classified as ~~a result of HOLLY HUNT® achieving the 2016 net sales projections.~~Level 2.

Contingent Payment

Pursuant to the agreement governing the acquisition of DatesWeiser, the Company may be required to make annual contingent purchase price payments. The payouts are based upon DatesWeiser reaching an annual net sales target, for each year through 2020. The Company classifies this as a Level 3 measurement and is required to remeasure this liability at fair value on a recurring basis. The fair value of such contingent purchase price payments, totaling $1.1 million, was determined at the time of acquisition based upon net sales projections for DatesWeiser for 2017, 2018, 2019 and 2020. Excluding the initial recognition of the liability for the contingent purchase price payments and payments made to reduce the liability, any changes in the fair value will be included within selling, general and administrative expenses.

There were no additional assets and/or liabilities recorded at fair value on a recurring basis as of ~~June 30, 2017~~March 31, 2018 or December 31, ~~2016.~~2017.

NOTE 7. DERIVATIVE INSTRUMENTS

The Company is exposed to interest rate risks related to its business operations. To reduce the interest rate risk the Company uses derivative instruments, including interest rate swaps contracts. The Company does not use derivatives for speculative trading purposes.

Cash flow hedge

To offset the variability of cash flows in interest payments associated with a portion of the Company’s variable rate debt, the Company entered into an interest rate swap contract in January 2018 which is designated as a cash flow hedge. The interest rate swap hedges US LIBOR based debt which effectively converts variable-rate debt to a fixed interest rate. As of March 31, 2018 the Company’s interest rate swap agreement had a notional amount of $300.0 million that hedges certain long-term debt obligations. The contract has a rate of 2.63%.

The following table illustrates the location and fair value of the Company’s interest rate swap at March 31, 2018 and December 31, 2017 (in thousands):



	Liability Derivatives
	2018			2017
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments under ASC 815
Interest rate swap	Other liabilities	$	175	Other liabilities	$	—
Total derivatives designated as hedging instruments under ASC 815		$	175		$	—

As of March 31, 2018 there was no hedge ineffectiveness associated with the Company’s interest rate swap and no portion of our cash flow hedge is excluded from the assessment of effectiveness. The Company will defer any effective portion of the cash flow hedge to accumulated other comprehensive income and will reclassify into earnings when the transaction occurs. The interest rate swap had no effect on the Statement of Operations for the three months ended March 31, 2018. The Company does not expect any material reclassifications from accumulated other comprehensive income into earnings over the next 12 months.

NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Information regarding the Company's other intangible assets are as follows (in thousands):



	March 31, 2018							December 31, 2017
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Indefinite-lived intangible assets:
Tradenames	$	290,600	$	—		$	290,600	$	225,600	$	—		$	225,600
Finite-lived intangible assets:
Customer relationships	77,497		(12,922		)	64,575		22,497		(11,575		)	10,922
Copyrights & design	10,000		(265		)	9,735		—		—			—
Various	13,388		(10,348		)	3,040		12,088		(10,029		)	2,059
Total	$	391,485	$	(23,535	)	$	367,950	$	260,185	$	(21,604	)	$	238,581

The Company's amortization expense, which is recorded on a straight line basis, related to finite-lived intangible assets was $1.9 million and $0.8 million for the three months ended March 31, 2018 and 2017, respectively. The expected amortization expense based on the finite-lived intangible assets as of March 31, 2018 is as follows (in thousands):



	Estimated Amortization
Remainder of 2018	$	7,076
2019	8,792
2020	8,718
2021	8,172
2022	$	7,877

The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands):



	Office Segment			Lifestyle Segment		Total
Balance as of December 31, 2017	$	36,220		$	105,893	$	142,113
Foreign currency translation adjustment	(203		)	1,159		956
Goodwill acquired	—			194,066		194,066
Balance as of March 31, 2018	$	36,017		$	301,118	$	337,135

NOTE 5.9. OTHER CURRENT LIABILITIES

Information regarding the ~~Company's~~Company’s other current liabilities is as follows (in thousands):


	June 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Accrued employee compensation	$	29,070	$	46,508	$	35,492	$	41,144
Customer deposits	34,640		31,216		34,255		30,484
Warranty	8,944		8,906		9,793		9,174
Contingent payout	1,100		7,100		1,100		1,100
Other	21,201		21,044		30,373		22,256
Other current liabilities	$	94,955	$	114,774	$	111,013	$	104,158

NOTE 6.10. INDEBTEDNESS

The ~~Company's~~Company’s long-term debt is summarized as follows (in thousands):


	June 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Balance of revolving credit facility	$	65,000	$	45,000	$	177,000	$	27,000
Balance of term loan	170,000		175,000		350,458		165,000
Total long-term debt	235,000		220,000		527,458		192,000
Less: Current maturities of long-term debt	10,000		10,000
Less: Deferred financing fees, net	1,284		1,617
Less: current maturities of long-term debt					17,535		10,000
Less: deferred financing fees, net					4,771		952
Long-term debt	$	223,716	$	208,383	$	505,152	$	181,048

On January 23, 2018, the Company completed an amendment to its existing credit facility, dated May 20, 2014 (the “Existing Credit Agreement”), whereby the Existing Credit Agreement was amended and restated in its entirety by the Third Amended and Restated Credit Agreement, among the Company and certain foreign subsidiaries of the Company, as borrowers, and certain domestic and foreign subsidiaries of the Company, as guarantors, (the “Amended Credit Agreement”).

The Amended Credit Agreement provides for a $750.0 million credit facility that matures in five years, consisting of a revolving commitment in the amount of $400.0 million, which may be available in U.S. dollars, Euro, British Pound and other foreign currencies, a U.S. term loan commitment in the amount of $250.0 million and a multicurrency term loan commitment in the amount of €81.7 million. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility or incur incremental term loans by up to the greater of $250.0 million or 90% of the EBITDA of the Company and its subsidiaries for the four fiscal quarters prior to such increase or additional loan, subject to the satisfaction of certain terms and conditions. The proceeds of the credit facility were used to (1) consummate the Muuto acquisition and, (2) refinance certain indebtedness and will also be used, among other things, for general corporate and operational purposes. Borrowings under the credit facility may be repaid at any time, but no later than the maturity date on January 23, 2023. The Company retains the right to terminate or reduce the size of the revolving credit facility at any time. Borrowings under the term loan facilities amortize in equal quarterly installments equaling 5% per annum, with the remaining borrowings due on the maturity date.

Interest on the revolving credit and term loans will accrue, at the Company’s election, at (i) the Eurocurrency Rate (as defined in the Amended Credit Agreement), plus additional percentage points based on the Company’s leverage ratio or (ii) the Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by Bank of America, N.A., (b) the Federal Reserve System’s federal funds rate, plus .50% or (c) the Eurocurrency Rate, plus 1.00%; Base Rate is defined in detail in the Amended Credit Agreement), plus additional percentage points based on the Company’s leverage ratio.

The Amended Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio (or under certain circumstances, a maximum specified net secured leverage ratio), and (ii) covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, engage in sale-leaseback transactions, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates and sell stock or assets.

Repayments under the Amended Credit Agreement can be accelerated by the lenders upon the occurrence of certain events of default, including, without limitation, a failure to pay any principal, interest or other amounts in respect of loans when due, breach by the Company (or its subsidiaries) of any of the covenants or representations contained in the Amended Credit Agreement or related loan documents, failure of the Company (or its material subsidiaries) to pay any amounts owed with respect to other significant indebtedness of the Company or such subsidiary, or a bankruptcy event with respect to the Company or any of its material subsidiaries.

The indebtedness incurred under the Amended Credit Agreement is secured by substantially all of the Company’s tangible and intangible assets, including, without limitation, the Company’s intellectual property. The Company’s direct and indirect wholly-owned domestic subsidiaries have also guaranteed the obligations of the Company and the foreign borrowers under the Amended Credit Agreement and pledged substantially all of their tangible and intangible assets as security for their obligations under such guarantee. Certain of the Company’s wholly-owned foreign subsidiaries have guaranteed the obligations of the foreign borrowers under the Amended Credit Agreement and pledged certain of their assets as security for their obligations under such guarantee.

The aggregate maturities of long-term debt are as follows:



	Future minimum debt payments
2018	$	13,151
2019	17,535
2020	17,535
2021	17,535
2022	17,535
Thereafter	444,167
Total	$	527,458

Deferred Financing Fees

In conjunction with the issuance of the Amended Credit Agreement, the Company incurred $4.5 million in debt issuance costs, which are being deferred and amortized over the term of the Amended Credit Agreement. In conjunction with terminating the Company’s Existing Credit Agreement, $0.4 million in unamortized debt issuance costs and $1.0 million of third party fees related to debt extinguishment were written-off as a loss on extinguishment of debt during the three months ended March 31, 2018. The remaining unamortized fees are being amortized over the term of the Amended Credit Agreement.

NOTE 7.11. CONTINGENT LIABILITIES AND COMMITMENTS

Litigation

The Company is currently involved in matters of litigation, including environmental contingencies, arising in the ordinary course of business. The Company accrues for such matters when expenditures are probable and reasonably estimable. Based upon information presently known, management is of the opinion that such litigation, either individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Warranty

The Company provides for estimated product warranty expenses when related products are sold and are included within other current liabilities. Because warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, future warranty claims may differ from the amounts provided.

Changes in the warranty reserve are as follows (in thousands):


Balance, December 31, 2016	$	8,906
Balance, December 31, 2017				$	9,174
Provision for warranty claims	2,832			1,921
Warranties acquired through business combinations				611
Warranty claims paid	(3,044		)	(1,942		)
Foreign currency translation adjustment	250			29
Balance, June 30, 2017	$	8,944
Balance, March 31, 2018				$	9,793

Warranty expense for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017 was ~~$1.7~~$1.9 million and ~~$2.8~~$1.1 million, respectively. ~~Warranty expense for the three and six months ended June 30, 2016 was $1.8 million and $3.4 million, respectively.~~

NOTE 8.12. EQUITY

The following table shows the change in equity attributable to Knoll, Inc. stockholders and noncontrolling interests during the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 (in thousands):

Common
Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
Knoll, Inc.
Stockholders' Equity Noncontrolling Interests Total Equity
Balance at December 31, 2016 $ 491
$ 55,148
$ 297,011
$ (43,403 ) $ 309,247
$ 222
$ 309,469
Net earnings —
—
28,338
—
28,338
14
28,352
Other comprehensive income —
—
—
2,525
2,525
—
2,525
Shares issued for consideration:
Exercise of stock options (22,500 shares) —
472
—
—
472
—
472
Shares issued under stock incentive plan (676,850) 7
(3 ) —
—
4
—
4
Shares issued to Board of Directors in lieu of cash (3,188 shares) —
75
—
—
75
—
75
Stock-based compensation, net of forfeitures (1 ) 5,044
—
—
5,043
—
5,043
Cash dividend ($0.30 per share) —
—
(15,044 ) —
(15,044 ) —
(15,044 )
Purchase of common stock (420,072 shares) (4 ) (10,566 ) —
—
(10,570 ) —
(10,570 )
Balance at June 30, 2017 $ 493
$ 50,170
$ 310,305
$ (40,878 ) $ 320,090
$ 236
$ 320,326



	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Knoll, Inc. Stockholders' Equity			Noncontrolling Interests		Total Equity
Balance at December 31, 2017	$	493		$	54,455		$	347,304		$	(43,774	)	$	358,478		$	251	$	358,729
Adoption of ASU 2018-02	—			—			6,250			(6,250		)	—			—		—
Net earnings	—			—			15,259			—			15,259			8		15,267
Other comprehensive income	—			—			—			(765		)	(765		)	—		(765		)
Shares issued for consideration:
Shares issued under stock incentive plan (261,167 shares)	3			(1		)	—			—			2			—		2
Shares issued to Board of Directors in lieu of cash (1,238 shares)	—			25			—			—			25			—		25
Stock-based compensation, net of forfeitures	—			2,426			—			—			2,426			—		2,426
Cash dividend ($0.15 per share)	—			—			(7,338		)	—			(7,338		)	—		(7,338		)
Purchase of common stock (95,412 shares)	(1		)	(1,951		)	—			—			(1,952		)	—		(1,952		)
Balance at March 31, 2018	$	495		$	54,954		$	361,475		$	(50,789	)	$	366,135		$	259	$	366,394

NOTE 9.13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 (in thousands):

Foreign
Currency
Translation
Adjustment Pension and
Other Post-Employment
Liability
Adjustment Total
Balance, as of December 31, 2016 $ (13,998 ) $ (29,405 ) $ (43,403 )
Other comprehensive income before reclassifications 2,800
—
2,800
Amounts reclassified from accumulated other comprehensive income (loss) —
(275 ) (275 )
Net current-period other comprehensive income 2,800
(275 ) 2,525
Balance, as of June 30, 2017 $ (11,198 ) $ (29,680 ) $ (40,878 )



	Unrealized gains (losses) on Interest Rate Swaps			Foreign Currency Translation Adjustment			Pension and Other Post-Employment Liability Adjustment			Total
Balance, as of December 31, 2017	$	—		$	(5,487	)	$	(38,287	)	$	(43,774	)
Adoption of ASU 2018-02	—			—			(6,250		)	(6,250		)
Other comprehensive income before reclassifications	(130		)	(846		)	—			(976		)
Amounts reclassified from accumulated other comprehensive loss	—			—			211			211
Net current-period other comprehensive income	(130		)	(846		)	211			(765		)
Balance, as of March 31, 2018	$	(130	)	$	(6,333	)	$	(44,326	)	$	(50,789	)

The following reclassifications were made from accumulated other comprehensive income (loss) to the condensed consolidated statements of operations and other comprehensive income (in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016			March 31, 2018			March 31, 2017
Amortization of pension and other post-employment liability adjustments
Prior service credits ⁽¹⁾	$	(371	)	$	(280	)	$	(742	)	$	(560	)	$	(182	)	$	(371	)
Actuarial losses ⁽¹⁾	155			61			310			122			348			155
Total before tax	(216		)	(219		)	(432		)	(438		)	166			(216		)
Tax benefit	78			83			157			166
Tax (benefit) expense													(45		)	79
Net of tax	$	(138	)	$	(136	)	$	(275	)	$	(272	)	$	211		$	(137	)

(1) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension ~~costs.~~costs, and are included in Other income, net within the Condensed Consolidated Statements of Operations and Comprehensive Income. See Note 35 for additional information.

NOTE ~~10.~~14. EARNINGS PER SHARE

Basic earnings per share excludes the dilutive effect of common shares that could potentially be issued due to the exercise of stock options and vesting of unvested restricted stock and restricted stock units, and is computed by dividing net ~~income~~earnings available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share ~~includes~~reflects the ~~effect of shares~~potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. At March 31, 2018 and ~~potential shares~~2017, the Company had restricted stock and restricted stock units, ~~issued under~~which could potentially dilute basic earnings per share in the ~~stock incentive plans.~~future. The following table sets forth the reconciliation from basic to dilutive average common shares (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018		2017
Numerator:
Net earnings attributable to Knoll, Inc. stockholders	$	12,938	$	21,635	$	28,338	$	39,035	$	15,259	$	15,404

Denominator:
Denominator for basic earnings per shares - weighted-average shares	48,465		48,019		48,375		47,962		48,557		48,456
Effect of dilutive securities:
Potentially dilutive shares resulting from stock plans	912		814		920		752		648		927
Denominator for diluted earnings per share - weighted-average shares	49,377		48,833		49,295		48,714		49,205		49,383
Antidilutive equity awards not included in weighted-average common shares—diluted	—		—		12		—		1		12

Net earnings per common share attributable to Knoll, Inc. stockholders:
Basic	$	0.27	$	0.45	$	0.59	$	0.81	$	0.31	$	0.32
Diluted	$	0.26	$	0.44	$	0.57	$	0.80	$	0.31	$	0.31

NOTE ~~11.~~15. INCOME TAXES

The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provisions for the three months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ were based on the estimated effective tax rates applicable for the full years ending December 31, ~~2017~~2018 and ~~2016~~2017 and includes items specifically related to the interim periods. The Company’s effective tax rate was ~~31.3%~~27.1% and ~~34.6%~~27.2% for the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. The decrease in the ~~Company's~~Company’s effective tax rate for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 was due ~~primarily~~ to the ~~adoption of ASU 2016-09 in~~Tax Act legislation offset by the ~~third quarter of 2016, which impacted the accounting treatment of excess tax benefits related to~~ vesting of equity awards inwhen compared to the ~~six~~three months ended ~~June 30,~~March 31, 2017. ~~This resulted in the realization of tax benefits as a reduction to income tax expense in the quarter. In addition, the effective tax rate was affected by the~~The Company’s geographic mix of pretax income and the varying effective tax rates in the countries and states in which the Company ~~operates.~~operates also impacts its effective tax rate.

As of ~~June 30, 2017~~both March 31, 2018 and December 31, ~~2016,~~2017, the Company had unrecognized tax benefits of approximately $0.9 million, respectively. These unrecognized tax benefit amounts would affect the effective tax rate if recognized. As of ~~June 30, 2017,~~March 31, 2018, the Company is subject to U.S. Federal Income Tax examination for the tax years 2007 through ~~2016,~~2017, and to non-U.S. income tax examination for the tax years 2010 ~~to 2016.~~through 2017. In addition, the Company is subject to state and local income tax examinations for the tax years 2007 through ~~2016.~~2017.

NOTE ~~12.~~16. SEGMENT INFORMATION

The Company manages its business through its ~~reporting~~reportable segments: Office ~~Studio,~~ and ~~Coverings. All unallocated expenses are included within Corporate.~~Lifestyle.

The Office segment includes a complete range of workplace products that address diverse workplace planning ~~paradigms.~~paradigms in North America and Europe. These products include: systems furniture, seating, storage, tables, desks and KnollExtra® accessories as well as the international sales of ~~North American~~our Office products.

The ~~Studio~~Lifestyle segment includes KnollStudio®, HOLLY HUNT®, ~~Knoll~~DatesWeiser, Muuto, KnollTextiles®, Spinneybeck® (including Filzfelt®), and Edelman® Leather. KnollStudio products, which are distributed in North America and Europe, ~~and DatesWeiser. KnollStudio® products,~~ include iconic seating, lounge furniture, side, cafe and dining chairs as well as conference, training and dining and occasional tables. HOLLY HUNT® is known for high quality residential furniture, lighting, rugs, textiles and leathers. In ~~2016,~~addition, HOLLY HUNT® ~~acquired~~also includes Vladimir Kagan Design Group, a renowned collection of modern luxury furnishings. ~~Knoll Europe, which markets and sells both KnollStudio® and Knoll Office products, manufactures and sells products to customers primarily in Europe.~~ DatesWeiser, known for its sophisticated meeting and conference tables and credenzas, sets a standard for design, quality and technology integration.

The ~~Coverings segment includes~~ KnollTextiles®, Spinneybeck® (including Filzfelt®), and Edelman® ~~Leather. These~~Leather businesses provide a wide range of customers with high-quality fabrics, felt, leather and related architectural products. The acquisition of Muuto rounds out the Lifestyle segment with its ancillary products and affordable luxury furnishings to make the Lifestyle segment an all encompassing “resimercial”, high performance workplace, from uber-luxury living spaces to affordable luxury residential living.

In 2018, the Company revised its segment presentation by aggregating the former Studio and Coverings segments with Muuto. Additionally, the Office segment now includes our office business in Europe which was historically reported in Studio. The Company believes this revised presentation better aligns the segments with how management views and operates the Company. As a result of this change in segment reporting, the Company retrospectively revised prior period results, by segment, to conform to current period presentation.

Corporate costs include unallocated costs relating to shared services and general corporate activities such as legal expenses, acquisition expenses, certain finance, human resources, administrative and executive expenses and other expenses that are not directly attributable to an operating segment. Dedicated, direct selling, general and administrative expenses, of the segments ~~continue to be~~are included within segment operating profit. Management regularly reviews the costs included in the Corporate function and believes disclosing such information provides more visibility and transparency of how the chief operating decision maker reviews the results for the Company.

The tables below present the Company’s segment information with Corporate costs excluded from ~~operating~~reporting segment results. Prior year amounts have been recast to conform to the current presentation (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
SALES
Office	$	153,042		$	179,270		$	302,874		$	364,626		$	181,618		$	157,998
Studio	88,039			88,650			167,112			160,156
Coverings	27,613			26,780			55,528			54,547
Lifestyle													114,941			98,822
Knoll, Inc.	$	268,694		$	294,700		$	525,514		$	579,329		$	296,559		$	256,820
INTERSEGMENT SALES ⁽¹⁾
Office	$	450		$	488		$	724		$	1,069		$	512		$	274
Studio	1,493			1,753			2,591			3,058
Coverings	649			2,008			2,600			4,255
Lifestyle													2,354			2,307
Knoll, Inc.	$	2,592		$	4,249		$	5,915		$	8,382		$	2,866		$	2,581
OPERATING PROFIT
Office ⁽²⁾	$	4,395		$	15,794		$	13,171		$	35,627		$	8,866		$	8,828
Studio	14,919			15,627			26,558			26,110
Coverings	6,194			6,458			12,430			13,180
Corporate	(3,278		)	(4,405		)	(6,895		)	(9,594		)
Knoll, Inc.⁽³⁾	$	22,230		$	33,474		$	45,264		$	65,323
Lifestyle													20,176			18,411
Corporate ⁽³⁾													(6,582		)	(6,603		)
Knoll, Inc.⁽⁴⁾													$	22,460		$	20,636

(1) Intersegment sales are presented on a cost-plus basis which takes into consideration the effect of transfer prices between legal entities.

(2) ~~Office Operating Profit includes $2.2 million of~~Knoll recorded restructuring charges ~~for~~of $0.5 million during the three ~~and six~~ months ended ~~June 30, 2017. The restructuring charges~~March 31, 2018 within the Office segment related to ~~headcount rationalization~~an organizational realignment that will result in greater operating efficiency and ~~modernization~~control.

(3) Knoll recorded acquisition costs of ~~equipment. The Company does not expect to incur additional restructuring charges~~$1.0 million related to ~~these activities.~~the acquisition of Muuto within the Corporate segment during the three months ended March 31, 2018.

~~(3)~~(4) The Company does not allocate interest expense or other ~~(income) expense,~~income, net to the reportable segments.

ITEM 2. ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Management's~~Management’s discussion and analysis of financial condition and results of operations provides an account of our financial performance and financial condition that should be read in conjunction with the accompanying audited consolidated financial statements.

Forward-looking Statements

This quarterly report on Form 10-Q contains forward-looking statements, principally in the sections entitled ~~“Business,”~~ “Risk Factors,” ~~“Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk.” Statements and financial discussion and analysis contained in this Form 10-Q that are not historical facts are forward-looking statements. These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. This includes, without limitation, our statements and expectations regarding any current or future recovery in our industry and publicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals, and our expectations with respect to leverage. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation: the risks described in Item 1A and in Item 7A ofon our Annual Report on Form 10-K for the year ended December 31, ~~2016;~~2017; changes in the financial stability of our clients or the overall economic environment, resulting in decreased corporate spending and service sector employment; changes in relationships with clients; the mix of products sold and of clients purchasing our products; the success of new technology initiatives; changes in business strategies and decisions; competition from our competitors; our ability to recruit and retain an experienced management team; changes in raw material prices and availability; restrictions on government spending resulting in fewer sales to the U.S. government, one of our largest customers; our debt restrictions on spending; our ability to protect our patents, copyrights and trademarks; our reliance on furniture dealers to produce sales; lawsuits arising from ~~allegations of~~ patents, copyrights and trademark infringements; violations of environmental laws and regulations; potential labor disruptions; adequacy of our insurance policies; the availability of future capital and the cost of borrowing; the overall strength and stability of our dealers, suppliers, and customers; access to necessary capital; our ability to successfully integrate acquired businesses; the success of our design and implementation of a new enterprise resource planning system; and currency rate fluctuations. The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material adverse effects on us. All forward-looking statements included in this Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements. Except as required under the Federal securities laws and the rules and regulations of the SEC, we undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

We design, manufacture, market and sell high-end commercial and residential furniture, accessories, textiles, fine leathers and designer felt for the workplace and ~~home.~~residential markets, as well as modern outdoor furniture. We work with clients to create inspired modern interiors. Our design-driven businesses share a reputation for high-quality and sophistication offering a diversified product portfolio that endures throughout evolving ~~trends.~~trends and performs throughout business cycles. Our products are targeted at the middle to upper-end of the market, where we reach customers primarily through a broad network of independent dealers and distribution partners, our direct sales force, our showrooms, and our online presence.

Business Highlights

During the last decade we have diversified our sources of revenue among our varying operating segments. We continue to build Knoll with an eye toward what works for our customers and shareholders: a constellation of ~~high-design, high-margin businesses that leverage~~design-driven brands and people, working together with our ~~historic relationships~~clients to create inspired modern interiors combined with ~~architects, designers~~our disciplined approach to the management of our business has resulted in the creation of a singular entity.

Over time we believe our diversification efforts and ~~decorators.~~strategy will continue to result in a more profitable and less cyclical enterprise. Knoll brands span commercial and residential applications with high design opportunities, and are heavily influenced by architect and designer specifiers. We are focused on targeting under-penetrated and emerging ancillary categories and markets as well as expanding our reach into residential and decorator channels around the world.

Our efforts to diversify our sources of revenue among our operating segments has not detracted from our continued focus on growing and improving the operating performance of our Office segment. We are looking beyond the traditional office product categories of systems, task seating and storage, to furniture that supports activity areas and the in-between spaces where people meet. We believe that our success in traditional office products gives us an advantage throughout the workplace. Our new Rockwell Unscripted collection encompasses every product category ranging from seating and lounge to architectural walls and storage. It addresses the needs of organizations that seek alternatives to the traditional workspace, and is substantially additive to our current product portfolio. In addition to these initiatives, we aim to increase profitability through operational improvements and investments in our physical and technological infrastructure. ~~Our investments in lean manufacturing, combined with continued modernization of our facilities, is allowing us to progressively deliver on this goal.~~

We believe that over time our diversification efforts and strategy will continue to result in a more profitable and less cyclical enterprise. The 2016 acquisitions of DatesWeiser and Vladimir Kagan further advance our strategy of building global capability as a singular go-to resource for high-design workplaces and homes. DatesWeiser plays an integral role in the creation of high performance workplaces as its sophisticated meeting and conference tables and credenzas set a standard for design, quality and technology integration. DatesWeiser products are offered as a compliment of our ‘ancillary’ offerings. Vladimir Kagan's elegant and contemporary designs are leveraged within our HOLLY HUNT® distribution channels to maximize profitability and growth in future years.

We are committed to building a more efficient and responsive customer centric service culture and technology infrastructure across our organization. Our capital expenditures are reflective of this commitment as we continued to invest in the business through technology infrastructure upgrades and continued investments in our manufacturing facilities focusing on lean initiatives and ~~in our~~ showroom ~~footprint.~~presence.

Results of Operations

Comparison of Consolidated Results for the Three Months Ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~


	Three Months Ended June 30,						2017 vs. 2016					Three Months Ended March 31,						2018 vs. 2017
	2017			2016			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands, except per share data)											(Dollars in thousands, except per share data)
Net Sales	$	268,694		$	294,700		$	(26,006	)	(8.8	)%	$	296,559		$	256,820		$	39,739		15.5	%
Gross profit	99,958			114,064			(14,106		)	(12.4	)%	107,711			95,674			12,037			12.6	%
Selling, general, and administrative expenses	75,578			80,590			(5,012		)	(6.2	)%	84,725			75,038			9,687			12.9	%
Restructuring charges	2,150			—			2,150			100.0	%
Operating profit	22,230			33,474			(11,244		)	(33.6	)%	22,460			20,636			1,824			8.8	%
Interest expense	1,859			1,307			552			42.2	%	4,083			1,671			2,412			144.3	%
Other expense, net	229			185			44			23.8	%
Other income, net												(4,002		)	(2,195		)	(1,807		)	82.3	%
Income tax expense	7,182			10,341			(3,159		)	(30.5	)%	5,667			5,764			(97		)	(1.7	)%
Net earnings	12,960			21,641			(8,681		)	(40.1	)%	15,267			15,396			(129		)	(0.8	)%
Net earnings attributable to Knoll, Inc. stockholders	12,938			21,635			(8,697		)	(40.2	)%	15,259			15,404			(145		)	(0.9	)%
Net earnings per common share attributable to Knoll, Inc. stockholders:
Basic	$	0.27		$	0.45		$	(0.18	)	(40.0	)%	$	0.31		$	0.32		$	(0.01	)	(3.1	)%
Diluted	$	0.26		$	0.44		$	(0.18	)	(40.9	)%	$	0.31		$	0.31		$	—		—	%
Statistical Data
Gross profit %	37.2		%	38.7		%						36.3		%	37.3		%
Operating profit %	8.3		%	11.4		%						7.6		%	8.0		%
Selling, general, and administrative expenses %	28.1		%	27.3		%						28.6		%	29.2		%

Net Sales

Net sales for the three months ended ~~June 30, 2017~~March 31, 2018 were ~~$268.7~~$296.6 million, ~~a decrease~~an increase of ~~$26.0~~$39.7 million, or ~~8.8%~~15.5%, from sales of ~~$294.7~~$256.8 million for the three months ended ~~June 30, 2016.~~March 31, 2017. Net sales for the Office segment were ~~$153.0~~$181.6 million for the three months ended ~~June 30, 2017, a decrease~~March 31, 2018, an increase of ~~14.6%~~14.9%, when compared ~~with~~to the three months ended ~~June 30, 2016.~~March 31, 2017. The ~~decrease~~increase in the Office segment was a result of ~~lower government~~strong growth in commercial sales in both North America and ~~fewer large commercial projects.~~Europe. Newer workplace platforms and complimentary products drove sales growth, while legacy system sales were consistent with the first quarter of 2017. Net sales for the ~~Studio~~Lifestyle segment were ~~$88.0~~$114.9 million during the three months ended ~~June 30, 2017, a decrease~~March 31, 2018, an increase of ~~0.7%~~16.3%, ~~when compared with the same period of 2016. Growth in HOLLY HUNT® and the incremental sales~~ from ~~DatesWeiser were offset by the decrease in KnollStudio® and Europe. Net sales for the Coverings segment were $27.6 million during~~ the three months ended ~~June 30, 2017, an~~March 31, 2017. This increase was primarily driven by the inclusion of ~~3.1%, when compared with the three~~two months ~~ended June 30, 2016. The increase in Coverings~~of sales from Muuto, which was ~~driven primarily by~~acquired on January 25, 2018, as well as higher ~~volume in Spinneybeck~~ | ~~FilzFelt.~~sales at DatesWeiser.

Gross Profit

Gross profit for the three months ended ~~June 30, 2017~~March 31, 2018 was ~~$100.0~~$107.7 million, ~~a decrease~~an increase of ~~$14.1~~$12.0 million, or ~~12.4%~~12.6%, from gross profit of ~~$114.1~~$95.7 million for the three months ended ~~June 30, 2016.~~March 31, 2017. As a percentage of sales, gross profit decreased from ~~38.7%~~37.3% for the three months ended ~~June 30, 2016~~March 31, 2017 to ~~37.2%~~36.3% for the three months ended ~~June 30, 2017.~~March 31, 2018. This decrease was driven mainly by the Office segment, where ~~lower~~higher volume ~~had an unfavorable impact on fixed-cost leverage, partially~~and a favorable shift of mix towards new product platforms were offset by ~~net price realization.~~unfavorable commodity and transportation inflation when compared to the three months ended March 31, 2017.

Operating Profit

Operating profit for the three months ended ~~June 30, 2017~~March 31, 2018 was ~~$22.2~~$22.5 million, ~~a decrease~~an increase of ~~$11.2~~$1.8 million, or ~~33.6%~~8.8%, from operating profit of ~~$33.5~~$20.6 million for the three months ended ~~June 30, 2016.~~March 31, 2017. The ~~decrease~~increase in operating profit was driven primarily by ~~the Office segment resulting from lower~~higher sales volume ~~partially offset by reduced performance based incentive accruals~~ and ~~lower sales commissions.~~the inclusion of Muuto. Operating profit for the Office segment was ~~$4.4~~$8.9 million ~~or 2.9% of net sales~~ for the three months ended ~~June 30, 2017, a decrease~~March 31, 2018, an increase of ~~$11.4~~less than $0.1 million, or ~~72.2%~~0.4%, ~~when compared with~~from the three months ended ~~June 30, 2016.~~March 31, 2017.

Selling, general, and administrative expenses for the three months ended ~~June 30, 2017~~March 31, 2018 were ~~$75.6~~$84.7 million, or ~~28.2%~~28.6% of sales, ~~compared to $80.6~~an increase of $9.7 million from $75.0 million, or ~~27.0%~~29.2% of sales, for the three months ended ~~June 30, 2016.~~March 31, 2017. The ~~decrease is~~increase was due primarily to ~~lower incentive accruals from decreased profitability,~~increased sales and distribution expenses as well as ~~lower~~higher incentive compensation from increased sales ~~commissions~~volume and profitability partially offset by a decrease in benefit costs. Additionally, as a result of ~~a reduction~~adopting ASU 2017-07 we reclassified $2.1 million and $2.4 million of net periodic benefit income from operating expense to other income on the Statement of Operations for the periods ending March 31, 2018 and 2017, respectively.

We recorded acquisition costs of $1.0 million related to the Muuto acquisition, and $0.5 million of restructuring charges related to an organizational realignment in ~~volume in the Office segment.~~our manufacturing plants.

Interest Expense

Interest expense for the three months ended ~~June 30, 2017~~March 31, 2018 was ~~$1.9~~$4.1 million, an increase of ~~$0.6~~$2.4 million from interest expense of ~~$1.3~~$1.7 million for the three months ended ~~June 30, 2016.~~March 31, 2017. The increase inwas due primarily to increased debt levels and higher interest ~~expense is due to an increase in outstanding borrowings in the three months ended June 30, 2017 compared to the same period in 2016.~~rates. During the three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ our weighted average interest rate was approximately ~~2.4%~~3.2% and ~~1.9%~~2.0%, respectively.

Loss on Extinguishment of Debt

Deferred financing fees incurred as a result of the Amended Credit Agreement were $5.5 million. We recorded a loss on extinguishment of debt of $1.4 million resulting from the refinancing of our credit facility which includes a $0.4 million loss on previously recorded and unamortized deferred financing fees and $1.0 million of fees paid to creditors on the Amended Credit Agreement.

Other ~~Expense,~~Income, net

During the three months ended ~~June 30,~~March 31, 2018 and 2017, other income was $4.0 million and ~~2016,~~$2.2 million, respectively. The increase in other ~~expense~~income was ~~$0.2 million. Other expenses are~~due primarily ~~related~~to an increase in foreign exchange gains of $1.8 million for the three months ended March 31, 2018 compared to foreign exchange ~~losses.~~losses of less than $0.1 million for the three months ended March 31, 2017. We reclassified $2.1 million and $2.4 million of pension-related income from selling, general, and administrative expense to other income as a result of the adoption of ASU 2017-07.

Income Tax Expense

Our effective tax rate was ~~35.7%~~27.1% for the three months ended ~~June 30, 2017,~~March 31, 2018, compared to ~~32.3%~~27.2% for the three months ended ~~June 30, 2016.~~March 31, 2017. The ~~increase~~decrease in the tax rate ~~was~~is due ~~primarily~~ to ~~a favorable income tax examination ruling received from a non-U.S. income tax jurisdiction during~~ the ~~second quarter~~passage of ~~2016. The tax rate was also affected by~~the U.S. Tax Cuts and Jobs Act as well as the mix of pretax income and the varying effective tax rates in the countries and states in which we operate.

~~Comparison of Consolidated Results for the Six Months Ended June 30,~~ The March 31, 2017 ~~and 2016~~

Six Months Ended June 30, 2017 vs. 2016
2017 2016 $ Change % Change
(Dollars in thousands, except per share data)
Net Sales $ 525,514
$ 579,329
$ (53,815 ) (9.3 )%
Gross profit 195,632
221,828
(26,196 ) (11.8 )%
Selling, general, and administrative expenses 148,218
156,505
(8,287 ) (5.3 )%
Restructuring expense 2,150
—
2,150
100.0 %
Operating profit 45,264
65,323
(20,059 ) (30.7 )%
Interest expense 3,530
2,861
669
23.4 %
Other expense (income), net 436
2,789
(2,353 ) (84.4 )%
Income tax expense 12,946
20,621
(7,675 ) (37.2 )%
Net earnings 28,352
39,052
(10,700 ) (27.4 )%
Net earnings attributable to Knoll, Inc. stockholders 28,338
39,035
(10,697 ) (27.4 )%
Net earnings per common share attributable to Knoll, Inc. stockholders:
Basic $ 0.59
$ 0.81
$ (0.22 ) (27.2 )%
Diluted $ 0.57
$ 0.80
$ (0.23 ) (28.8 )%
Statistical Data
Gross profit % 37.2 % 38.3 %
Operating profit % 8.6 % 11.3 %
Selling, general, and administrative expenses % 28.2 % 27.0 %

~~Net Sales~~

Net sales for the six months ended June 30, 2017 were $525.5 million, a decrease of $53.8 million, or 9.3%, from sales of $579.3 million for the six months ended June 30, 2016. The decrease in sales was due to a $61.8 million decrease in our Office segment sales resulting from a reduction in the quantity and lower average size of project opportunities, lower government sales, and a limited ship week at the end of March to facilitate the first phase of the implementation of a new enterprise resource planning system. The decrease in sales in our Office segment were partially offset by our Studio segment, where sales increased 4.3% from the same period in the prior year. The increase in the Studio segment was driven by strong sales growth in HOLLY HUNT® and incremental sales from DatesWeiser which was acquired in the fourth quarter of 2016.

~~Gross Profit~~

Gross profit for the six months ended June 30, 2017 was $195.6 million, a decrease of $26.2 million, or 11.8%, from gross profit of $221.8 million for the six months ended June 30, 2016. As a percentage of sales, gross profit decreased from 38.3% for the six months ended June 30, 2016 to 37.2% for the six months ended June 30, 2017. This decrease was driven primarily by the Office segment, where lower volume had an unfavorable impact on fixed-cost leverage, partially offset by net price realization.

~~Operating Profit~~

Operating profit for the six months ended June 30, 2017 was $45.3 million, a decrease of $20.1 million, or 30.7%, from operating profit of $65.3 million for the six months ended June 30, 2016. The decrease in operating profit was driven primarily by the Office segment resulting from lower sales volume partially offset by reduced performance based incentive accruals and lower sales commissions. Operating profit as a percentage of sales decreased from 11.3% in the six months ended June 30, 2016 to 8.6% in the six months ended June 30, 2017.

Selling, general, and administrative expenses for the six months ended June 30, 2017 were $148.2 million, or 28.2% of sales, compared to $156.5 million, or 27.0% of sales, for the six months ended June 30, 2016. The decrease is due primarily to lower incentive accruals from decreased profitability as well as lower sales commissions as a result of a reduction in volume in the Office segment, partially offset by increased investments in training and costs related to the rollout of the ~~Rockwell Unscripted~~ ~~product line.~~

~~Interest Expense~~

Interest expense for the six months ended June 30, 2017 was $3.5 million, an increase of $0.7 million from interest expense of $2.9 million for the six months ended June 30, 2016. During the six months ended June 30, 2017 and 2016, our weighted average interest rate was approximately 2.3% and 2.1%, respectively.

~~Other Expense, net~~

Other expense for the six months ended June 30, 2017 was $0.4 million a decrease of $2.4 million from $2.8 million for the six months ended June 30, 2016. Other expense for the six months ended June 30, 2017 was primarily related to foreign exchange losses. Other expense for the six months ended June 30, 2016 was primarily related to foreign exchanges losses that resulted from the revaluation of intercompany balances between our Canadian and U.S. entities.

~~Income Tax Expense~~

~~Our~~ effective tax rate was ~~31.3% for the six months ended June 30, 2017, compared to 34.6% for the six months ended June 30, 2016. The change in the~~reduced by income tax ~~rate was due primarily to the early adoption of ASU 2016-09 in the third quarter of 2016, which impacted the accounting treatment of~~benefits recognized stemming from the vesting of a large ~~quantity of~~ equity ~~awards.~~award. This resulted in the realization of tax benefits recognized as a reduction of income tax expense. ~~In addition, the tax rate was affected by the mix of pretax income and the varying effective tax rates in the countries and states in which we operate.~~

Segment Reporting

We manage our business through our reporting segments: Office ~~Studio,~~ and ~~Coverings. All unallocated expenses are included within Corporate.~~Lifestyle.

~~Our~~The Office segment includes a complete range of workplace products that address diverse workplace planning ~~paradigms.~~paradigms in North America and Europe. These products include: systems furniture, seating, storage, tables, desks and KnollExtra® accessories as well as the international sales of our ~~North American~~ Office products.

~~Our Studio~~The Lifestyle segment includes KnollStudio®, HOLLY HUNT®, ~~Knoll~~DatesWeiser, Muuto, KnollTextiles®, Spinneybeck® (including Filzfelt®), and Edelman® Leather. KnollStudio products, which are distributed in North America and Europe, ~~and DatesWeiser. KnollStudio® products,~~ include iconic seating, lounge furniture, side, cafe and dining chairs as well as conference, training and dining and occasional tables. HOLLY HUNT® is known for high quality residential furniture, lighting, rugs, textiles and leathers. In ~~2016,~~addition, HOLLY HUNT® ~~acquired~~also includes Vladimir Kagan Design Group, a renowned collection of modern luxury furnishings. ~~Knoll Europe, which distributes both KnollStudio® and Knoll Office products, manufactures and sells products to customers primarily in Europe.~~ DatesWeiser, known for its sophisticated meeting and conference tables and credenzas, sets a standard for design, quality and technology integration.

~~Our Coverings segment includes~~ The KnollTextiles®, Spinneybeck® (including Filzfelt®), and Edelman® ~~Leather. These~~Leather businesses provide a wide range of customers with high-quality fabrics, felt, leather and related architectural products.

~~In 2016, we revised our~~ The acquisition of Muuto rounds out the Lifestyle segment ~~presentation~~with its ancillary products and affordable luxury furnishings to ~~segregate Corporate costs. We believe this facilitates improved communication as we report~~make the Lifestyle segment ~~results and better aligns with how we view and operate the Company. Corporate costs represent the portion of unallocated expenses relating~~an all encompassing “resimercial”, high performance workplace, from uber-luxury living spaces to shared services and general corporate functions including, but not limited to, legal expenses, acquisition expenses, certain finance, human resources, administrative and executive expenses and other expenses that are not directly attributable to an operating segment. Dedicated, direct selling, general and administrative expenses of the segments continue to be included within segment operating profit. We regularly review the costs included in the Corporate function, and believe disclosing such information provides more visibility and transparency of how our chief operating decision maker reviews the results for the Company.affordable luxury residential living.

The comparisons of segment results found below ~~present our~~has been retrospectively adjusted to reflect the change in segment ~~information with Corporate costs excluded from operating segment results. Prior year amounts have been recast to conform to the current presentation.~~reporting discussed in Reportable Segments above.

Comparison of Segment Results for the Three Months Ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~


	Three Months Ended June 30,						2017 vs. 2016					Three Months Ended March 31,						2018 vs. 2017
	2017			2016			$ Change			% Change		2018			2017			$ Change		% Change
	(Dollars in thousands)											(Dollars in thousands)
SALES
Office	$	153,042		$	179,270		$	(26,228	)	(14.6	)%	$	181,618		$	157,998		$	23,620	14.9	%
Studio	88,039			88,650			(611		)	(0.7	)%
Coverings	27,613			26,780			833			3.1	%
Lifestyle												114,941			98,822			16,119		16.3	%
Knoll, Inc.	$	268,694		$	294,700		$	(26,006	)	(8.8	)%	$	296,559		$	256,820		$	39,739	15.5	%
OPERATING PROFIT
Office	$	4,395		$	15,794		$	(11,399	)	(72.2	)%	$	8,866		$	8,828		$	38	0.4	%
Studio	14,919			15,627			(708		)	(4.5	)%
Coverings	6,194			6,458			(264		)	(4.1	)%
Lifestyle												20,176			18,411			1,765		9.6	%
Corporate	(3,278		)	(4,405		)	1,127			(25.6	)%	(6,582		)	(6,603		)	21		(0.3	)%
Knoll, Inc. ⁽¹⁾	$	22,230		$	33,474		$	(11,244	)	(33.6	)%	$	22,460		$	20,636		$	1,824	8.8	%

(1) ~~The Company does~~We do not allocate interest expense or other expense (income), net to the reportable segments.

Office

Net sales for the Office segment for the three months ended ~~June 30, 2017~~March 31, 2018 were ~~$153.0~~$181.6 million, ~~a decrease~~an increase of ~~$26.2~~$23.6 million, or ~~14.6%~~14.9%, when compared with the three months ended ~~June 30, 2016.~~March 31, 2017. The ~~decrease~~increase in the Office segment was ~~a result of lower government~~due primarily to an increase in the North American Office sales due primarily to strong volume growth in new workplace platforms and ~~fewer large~~ancillary products in the commercial ~~projects.~~space. Operating profit for the Office segment in the three months ended ~~June 30, 2017~~March 31, 2018 was ~~$4.4~~$8.9 million, ~~a decrease~~an increase of ~~$11.4~~$0.1 million, or ~~72.2%~~0.4%, when compared with the three months ended June 30, 2016. The decrease in operating profit for the Office segment was due primarily to lower sales volume partially offset by reduced performance-based incentive accruals and lower sales commissions.March 31, 2017.

~~Studio~~Lifestyle

Net sales for the ~~Studio~~Lifestyle segment for the three months ended ~~June 30, 2017~~March 31, 2018 were ~~$88.0~~$114.9 million, ~~a decrease~~an increase of ~~$0.6~~$16.1 million, or ~~0.7%~~16.3%, when compared with the three months ended ~~June 30, 2016. Double digit growth~~March 31, 2017. The increase was due primarily to the acquisition of Muuto combined with increased sales from DatesWeiser and Studio partially offset by declines at HOLLY HUNT®, Spinneybeck® and ~~the incremental sales from DatesWeiser were offset by the decreases in contract shipments at both KnollStudio® and Europe.~~Edelman®. Operating profit for the ~~Studio~~Lifestyle segment in the three months ended ~~June 30, 2017~~March 31, 2018 was ~~$14.9~~$20.2 million, ~~a decrease~~an increase of ~~$0.7~~$1.8 million, or ~~4.5%~~9.6%, when compared with the three months ended ~~June 30, 2016.~~March 31, 2017. The ~~decrease~~increase in operating profit was driven primarily by ~~decreased volume, partially offset by~~the acquisition of Muuto combined with net price ~~realization.~~realization and increased volume.

~~Coverings~~

Net sales for the Coverings segment for the three months ended June 30, 2017 were $27.6 million, an increase of $0.8 million, or 3.1%, when compared with the three months ended June 30, 2016. The increase in Coverings was driven primarily by higher volume in the Spinneybeck | FilzFelt business. Operating profit for the Coverings segment in the three months ended June 30, 2017 was $6.2 million, a decrease of $0.3 million, or 4.1%, when compared with the three months ended June 30, 2016.

Corporate

Corporate costs for the three months ended ~~June 30, 2017~~March 31, 2018 were ~~$3.3~~$6.6 million, ~~a decrease of $1.1 million, or 25.6%,~~which were flat, when compared with the three months ended ~~June 30, 2016.~~March 31, 2017. The decrease was ~~driven primarily by reduced costs associated with employee benefits and incentive compensation.~~

~~Comparison of Segment Results for~~due to increased spending on outside services during the ~~Six Months Ended June 30, 2017 and 2016~~

Six Months Ended June 30, 2017 vs. 2016
2017 2016 $ Change % Change
(Dollars in thousands)
SALES
Office $ 302,874
$ 364,626
$ (61,752 ) (16.9 )%
Studio 167,112
160,156
6,956
4.3 %
Coverings 55,528
54,547
981
1.8 %
Knoll, Inc. $ 525,514
$ 579,329
$ (53,815 ) (9.3 )%
OPERATING PROFIT
Office $ 13,171
$ 35,627
$ (22,456 ) (63.0 )%
Studio 26,558
26,110
448
1.7 %
Coverings 12,430
13,180
(750 ) (5.7 )%
Corporate (6,895 ) (9,594 ) 2,699
(28.1 )%
Knoll, Inc. ⁽¹⁾
$ 45,264
$ 65,323
$ (20,059 ) (30.7 )%

~~(1) The Company does not allocate interest expense or other expense (income), net to the reportable segments.~~

~~Office~~

~~Net sales for the Office segment for the six~~three months ended ~~June 30, 2017 were $302.9 million, a decrease of $61.8 million, or 16.9%, when compared with the six~~March 31, 2018 offset by increased stock compensation expense during three months ended June 30, 2016. The decrease in the Office segment was a result of lower government sales and fewer large commercial projects. Operating profit for the Office segment in the six months ended June 30, 2017 was $13.2 million, a decrease of $22.5 million, or 63.0%, when compared with the six months ended June 30, 2016. The decrease in operating profit for the Office segment was due primarily to lower sales volume partially offset by reduced performance based incentive accruals and lower sales commissions.

~~Studio~~

Net sales for the Studio segment for the six months ended June 30, 2017 were $167.1 million, an increase of $7.0 million, or 4.3%, when compared with the six months ended June 30, 2016. This increase was driven by strong growth at HOLLY HUNT® and incremental sales from DatesWeiser, offset by the decreases in contract shipments at KnollStudio®. Operating profit for the Studio segment in the six months ended June 30, 2017 was $26.6 million, an increase of $0.4 million, or 1.7%, when compared with the six months ended June 30, 2016. The increase in operating profit was driven primarily by net price realization, partially offset by foreign exchange.

~~Coverings~~

Net sales for the Coverings segment for the six months ended June 30, 2017 were $55.5 million, an increase of $1.0 million, or 1.8%, when compared with the six months ended June 30, 2016. The increase in Coverings was driven primarily by higher volume in the Spinneybeck | FilzFelt business. Operating profit for the Coverings segment in the six months ended June 30, 2017 was $12.4 million, a decrease of $0.8 million, or 5.7%, when compared with the six months ended June 30, 2016.

~~Corporate~~

Corporate costs for the six months ended June 30, 2017 were $6.9 million, a decrease of $2.7 million, or 28.1%, when compared with the six months ended June 30, 2016. The decrease was driven primarily by reduced costs associated with employee benefits and incentive compensation, partially offset by an increase in stock based compensation expense.March 31, 2017.

Liquidity and Capital Resources

The following table highlights certain key cash flows and capital information pertinent to the discussion that follows:


	Six Months Ended June 30,						Three Months Ended March 31,
	2017			2016			2018			2017
	(in thousands)						(in thousands)
Cash provided by operating activities	$	32,238		$	46,339		$	5,601		$	3,825
Capital expenditures, net	(20,756		)	(15,057		)	(8,468		)	(10,650		)
Purchase of business, net of cash acquired							(303,748		)	—
Purchase of common stock for treasury	(10,570		)	(3,903		)	(1,952		)	(10,348		)
Proceeds from credit facilities	214,000			173,500
Repayment of credit facilities	(199,000		)	(185,500		)
Proceeds from revolving credit facilities							282,000			130,000
Repayment of revolving credit facilities							(132,000		)	(103,500		)
Proceeds of term loans							350,458			—
Repayment of term loans							(165,000		)	(2,500		)
Payment of dividends	(15,729		)	(14,727		)	(7,656		)	(8,427		)
Payment of financing fees							(4,509		)	—
Loss on debt extinguishment							(1,023		)	—
Contingent purchase price payment	(6,000		)	(5,000		)	—			(6,000		)
Cash used in financing activities	(16,748		)	(33,510		)
Cash provided by (used in) financing activities							320,345			(249		)

We have historically funded our business through cash generated from operations, supplemented by debt borrowings. Available cash is primarily used for our working capital needs, ongoing operations, capital expenditures, the payment of quarterly dividends, and the repurchase of shares. Capital expenditures are related primarily to investments in assets that help to improve operating efficiency, innovation and modernization, showroom refreshes and technology infrastructure. During the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, we made quarterly dividend payments of ~~$0.30~~$0.15 per share, returning ~~$14.6~~$7.4 million of cash to our shareholders. In addition to our quarterly dividend payments, we also paid accrued dividends on vested shares of ~~$1.1~~$0.3 million.

Cash provided by operating activities was ~~$32.2~~$5.6 million for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 compared to ~~$46.3~~$3.8 million for the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2017. For the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, cash provided by operating activities consisted primarily of ~~$45.5~~$26.5 million from net income and various non-cash charges, including ~~$12.6~~$8.4 million of depreciation and amortization, ~~and $5.0~~$2.4 million of stock based compensation and $2.0 million of unrealized foreign currency gains, partially offset by ~~$13.3~~$20.9 million of unfavorable changes in assets and liabilities driven primarily by ~~incentive compensation payments,~~ increased inventory purchases and ~~a reduction of benefits liabilities.~~increased accounts receivable. For the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017, cash provided by operating activities consisted of ~~$59.2~~$25.6 million from net income and various non-cash charges, including ~~$11.2~~$6.1 million of depreciation and amortization and ~~$4.6~~$3.3 million of stock based compensation, partially offset by ~~$12.8~~$21.7 million of unfavorable changes in assets and liabilities.

Investing activities during the three months ended March 31, 2018 include the purchase of Muuto for $303.7 million, net of cash acquired, in January 2018. During the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ we used ~~$20.8~~$8.5 million and ~~$15.1~~$10.7 million of cash for capital expenditures, respectively. The capital expenditures are reflective of our continued commitment to enhance and modernize our sales, manufacturing and information technology infrastructure.

Cash provided by financing activities was $320.3 million for the three months ended March 31, 2018 compared cash used by financing activities of $0.2 million for the three months ended March 31, 2017. During the ~~six~~three months ended ~~June 30,~~March 31, 2018, we amended and extended our Existing Credit Facility. The proceeds from our term loans and revolving credit facilities under our Amended Credit Facility of $350.5 million and $282.0 million, respectively, were used to finance a portion of the Muuto acquisition, repay the outstanding balance on the term loans of our Existing Credit Facility of $165.0 million as well as to fund our working capital needs. Additionally, we paid $5.5 million of fees related to the issuance of the Amended Credit Facility, of which $4.5 million was capitalized as deferred financing fees and $1.0 million was expensed as a loss on debt extinguishment. For the three months ended March 31, 2017, we used ~~cash of $10.6~~$10.3 million for the purchase of common stock to satisfy employee tax withholding requirements related to the vesting of restricted shares, and $6.0 million of a contingent purchase price payment related to an earn-out for the HOLLY HUNT® acquisition in 2014. The Company also used $15.7 million of cash to pay dividends, of which $1.1 million was for accrued dividends on vested shares in addition to quarterly dividend payments of $0.30 per share ~~returning $14.6 million of cash to our shareholders. For the six months ended June 30, 2016, we used $14.7~~repurchases, $8.4 million of cash to fund dividend payments to shareholders, ~~$5.0~~and $6.0 million for the HOLLY HUNT® contingent purchase price ~~payment, and $3.9 million for share repurchases.~~payment.

On January 23, 2018, we amended and extended our Existing Credit Facility, dated May 20, 2014, with a new $750.0 million credit facility maturing on January 23, 2023. We use our credit facility in the ordinary course of business to fund our working capital needs and, at times, make significant borrowings and repayments under the facility depending on our cash needs and availability at such time. Borrowings under the ~~credit facility~~Amended Credit Agreement may be repaid at any time, but no later than ~~May 2019. See Note 12 of the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 for further information regarding this facility.~~ January 23, 2023.

The combination of increased debt levels and a reduction of EBITDA caused leverage to increase from 1.37 at December 31, 2016 to 1.57 at June 30, 2017. The calculation of our leverage ratio under our credit facility includes the use of adjusted EBITDA, a non-GAAP financial measure. For details on the leverage ratio calculations, see “Reconciliation of Non-GAAP Financial Measures” below.

~~Our credit facility~~Amended Credit Agreement requires that we comply with two financial covenants, consolidated leverage ratio, defined as the ratio of total indebtedness to consolidated EBITDA (as defined in our credit agreement) and consolidated interest coverage ratio, defined as the ratio of our consolidated EBITDA (as defined in our credit agreement) to our consolidated interest expense. Our consolidated leverage ratio cannot exceed 4.25 to 1, an increase from our Existing Credit Facility at December 31, 2017 of 4.0 to 1, and our consolidated interest coverage ratio must be a minimum of 3.0 to 1. However, because of the financial covenant mentioned above, our capacity under our credit facility could be reduced if our trailing consolidated EBITDA (as defined by our credit agreement) declines due to deteriorating market conditions or poor performance. We are also required to comply with various other affirmative and negative covenants including, without limitation, covenants that prevent or restrict our ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, engage in sale-leaseback transactions, alter our capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates and sell stock or assets.

We are currently in compliance with all of the covenants and conditions under our credit facility. We believe that existing cash balances and internally generated cash flows, together with borrowings available under our credit facility, will be sufficient to fund working capital needs, capital spending requirements, debt service requirements and dividend payments for at least the next twelve months. Future debt payments may be paid out of cash flows from operations, from future refinancing of our debt or from equity issuances. Our ability to make scheduled payments of principal, pay interest on or to refinance our indebtedness, satisfy our other debt obligations and to pay dividends to stockholders will depend upon our future operating performance, which is affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.

~~Reconciliation of Non-GAAP Financial Measures~~

This quarterly report on Form 10-Q contains certain non-GAAP financial measures. A “non-GAAP financial measure” is a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”) in the statements of income, balance sheets, or statements of cash flow of the company. These non-GAAP financial measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore, management believes this information is also useful for investors. Pursuant to applicable reporting requirements, the company has provided reconciliations below of non-GAAP financial measures to the most directly comparable GAAP measure.

The non-GAAP financial measures presented within this quarterly report on Form 10-Q are Last Twelve Months (“LTM”) Adjusted EBITDA. These non-GAAP measures are not indicators of our financial performance under GAAP and should not be considered as an alternative to the applicable GAAP measure. These non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, in evaluating these non-GAAP measures, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of these non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results and using non-GAAP measures only as supplemental presentations.Contractual Obligations

The following table ~~reconciles net earnings to adjusted EBITDA~~summarizes our contractual cash obligations as of March 31, 2018 (in thousands):



	Payments Due by Period
	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years	Total
Long-term debt (a)	$	27,023	$	70,136	$	513,253	—	$	610,412

(a) Contractual obligations for long-term debt and ~~computes our bank~~short-term borrowings include principal and interest payments. Interest payments have been computed based on an estimated variable interest as of March 31, 2018. The estimated variable interest rate is based on the Company's expected consolidated leverage ~~calculations~~ratio and the forecasted LIBOR rate for ~~the periods shown. The bank leverage calculation is in accordance with our Second Amended and Restated Credit Agreement dated May 20, 2014.~~

6/30/2016 9/30/2016 12/31/2016 3/31/2017 6/30/2017
($ in millions)
Debt Levels ⁽¹⁾
$ 221.7
$ 206.7
$ 231.8
$ 249.8
$ 240.4
LTM Net Earnings 69.3
74.1
82.1
80.1
72.8
LTM Adjustments
Interest 6.2
5
4.7
4.9
5.4
Taxes 39.3
39.6
45.4
40.9
38.5
Depreciation and Amortization 21.3
22.5
23
23.5
24.4
Non-cash items and Other ⁽²⁾
22.4
23.8
13.4
13.3
12.0
LTM Adjusted EBITDA $ 158.5
$ 165.0
$ 168.6
$ 162.7
$ 153.1
Bank Leverage Calculation ⁽³⁾
1.40
1.25
1.37
1.53
1.57

(1) Outstanding debt levels include outstanding letters of credit and guarantee obligations. Excess cash over $15.0 million reduces outstanding debt per the terms of our credit facility, a copy of which was filed with the Securities and Exchange Commission on May 21, 2014.

(2) Non-cash items and Other includes, but is not limited to, intangible asset impairment charges, pension settlements and other post-employment benefit curtailments, stock-based compensation expenses, unrealized gains and losses on foreign exchange, and restructuring charges.

(3) Debt divided by LTM Adjusted EBITDA, as calculated in accordance with our credit facility.
each period presented.

Environmental Matters

Our past and present business operations and the past and present ownership and operation of manufacturing plants on real property are subject to extensive and changing federal, state, local and foreign environmental laws and regulations, including those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. As a result, we are involved from time-to-time in administrative and judicial proceedings and inquiries relating to environmental matters and could become subject to fines or penalties related thereto. We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures by us, some of which may be material. We have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) for remediation costs associated with waste disposal sites that we previously used. The remediation costs and our allocated share at some of these CERCLA sites are unknown. We may also be subject to claims for personal injury or contribution relating to CERCLA sites. We reserve amounts for such matters when expenditures are probable and reasonably estimable.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange-traded contracts. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Critical Accounting Policies

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the reported amounts and disclosures in the condensed consolidated financial statements. Actual results may differ from such estimates. On an ongoing basis, we review our accounting policies and procedures. A more detailed review of our critical accounting policies is contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We provided a discussion of our market risk in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. There have been no substantive changes in our market risk described in our Annual Report on Form 10-K except for the items noted below. During the normal course of business, we are routinely subjected to market risk associated with interest rate movements and foreign currency exchange rate movements. Interest rate risk arises from our debt obligations and foreign currency exchange rate risk arises from our non-U.S. operations and purchases of inventory from foreign suppliers.

We also have risk in our exposure to certain materials and transportation costs. Steel, leather, wood products and plastics are all used in our products. For the ~~six~~three months ended ~~June 30,~~March 31, 2018, we estimated that materials inflation was approximately $1.4 million and transportation inflation approximately $0.7 million. During the three months ended March 31, 2017, we estimated that materials inflation was approximately ~~$2.2~~$0.9 million and transportation deflation ~~was less than $0.1 million. During the six months ended June 30, 2016, we estimated that materials deflation was~~ approximately ~~$0.7 million and transportation inflation was less than~~ $0.1 million, respectively. We continue to work to offset price increases in raw materials and transportation through our global sourcing initiatives, cost improvements and price increases to our products.

Interest Rate Risk

We have variable rate debt obligations that are denominated in U.S. dollars. A change in interest rates will impact the interest costs incurred and cash paid on the variable rate debt. During the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ our weighted average interest rates were approximately ~~2.3%~~3.2% and ~~2.1%~~2.2%, respectively.

Foreign Currency Exchange Rate Risk

We manufacture our products in the United States, Canada and Italy, and sell our products primarily in those markets as well as in other countries. Our foreign sales and certain expenses are transacted in foreign currencies. Our production costs, profit margins and competitive position are affected by the strength of the currencies in countries where we manufacture or purchase goods relative to the strength of the currencies in countries where our products are sold. Additionally, as our reporting currency is the U.S. dollar, our financial position is affected by the strength of the currencies in countries where we have operations relative to the strength of the U.S. dollar. The principal foreign currencies in which we conduct business are the Canadian dollar the Euro, and with the ~~Euro.~~acquisition of Muuto, the Danish Krone. Approximately ~~13.1%~~17.3% and ~~11.6%~~13.3% of our revenues in the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively, and ~~27.1%~~29.0% and ~~27.7%~~28.0% of our cost of goods sold in the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively, were denominated in currencies other than the U.S. dollar. Foreign currency exchange rate fluctuations resulted in ~~$0.5~~$1.9 million of translation gains and ~~$3.1~~$0.2 million of translation losses for the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. We, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report ~~(June 30, 2017) ("~~(March 31, 2018) (“Disclosure ~~Controls"~~Controls”). Based upon the Disclosure Controls evaluation, our principal executive officer and principal financial officer have concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that (i) information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange ~~Commission's~~Commission’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. ~~During~~Except for the ~~second quarter of 2017, Knoll implemented a new enterprise resource planning system which resulted in a material change to~~Muuto acquisition, our ~~internal control over~~aforementioned principal executive officer and principal financial reporting. We continue to review the impact of the implementation and make changes to the internal control over financial reporting to address the inherent risks associated with implementing the new system. The implementation of the system is expected to strengthen our overall internal controls. Other than the enterprise resource planning system implementation,officer have concluded that there were no other changes in our internal control over financial reporting during ~~the second~~our first fiscal quarter ~~of 2017~~ that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management is currently evaluating the impact of Muuto on Knoll, Inc’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, there have been no new material legal proceedings or material changes in the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

ITEM 1A. RISK FACTORS

For the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, there have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND THE USE OF PROCEEDS

Repurchases of Equity Securities

The following is a summary of share repurchase activity during the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018.

On August 17, 2005, our board of directors approved a stock repurchase program (the “Options Proceeds Program”), whereby they authorized us to purchase shares of our common stock in the open market using the cash proceeds received by us upon exercise of outstanding options.

On February 2, 2006, our board of directors approved an additional stock repurchase program, pursuant to which we are authorized to purchase up to $50.0 million of our common stock in the open market, through privately negotiated transactions, or otherwise. On February 4, 2008, our board of directors expanded this previously authorized $50.0 million stock repurchase program by an additional $50.0 million.

Period Total
Number of
Shares
Purchased Average
Price Paid
Per Share Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Dollar Value
of Shares that May Yet
be Purchased Under the
Plans or Programs ⁽¹⁾
April 1, 2017 - April 31, 2017 9,455

⁽²⁾
$ 23.51
—
$ 32,352,413
May 1, 2017 - May 31, 2017 —

$ —
—
$ 32,352,413
June 1, 2017 - June 30, 2017 —

$ —
—
$ 32,352,413
Total 9,455

—



Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs ⁽¹⁾
January 1, 2018 - January 31, 2018	—		$	—	—	$	32,352,413
February 1, 2018 - February 28, 2018	95,372	⁽²⁾	$	20.43	—	$	32,352,413
March 1, 2018 - March 31, 2018	40	⁽³⁾	$	22.24	—	$	32,352,413
Total	95,412				—

(1) There is no limit on the number or value of shares that may be purchased by us under the Options Proceeds Program. Under our $50.0 million stock repurchase program, which was expanded by an additional $50.0 million in February 2008, we are only authorized to spend an aggregate of $100.0 million on stock repurchases. Amounts in this column represent the amounts that remain available under the $100.0 million stock repurchase program as of the end of the period indicated. There is no scheduled expiration date for the Option Proceeds Program or the $100.0 million stock repurchase program, but our Board of Directors may terminate either program in the future.

(2) In ~~April 2017, 15,451~~February 2018, 157,500 shares of outstanding restricted stock and ~~5,000~~54, 167 restricted stock units vested. Concurrently with the vesting, ~~9,455~~95,372 shares were forfeited by the holders of the shares to cover applicable taxes paid on the ~~holders'~~holders’ behalf by the Company.

(3) In March 2018, 833 shares of outstanding restricted stock vested. Concurrently with the vesting, 40 shares were forfeited by the holders of the shares to cover applicable taxes paid on the holders’ behalf by the Company.

ITEM 6. EXHIBITS



Exhibit Number		Description

10.1		Amendment to Amended and Restated Knoll, Inc. 2013 Stock Incentive Plan
10.2		Amended and Restated Knoll, Inc. Non-Employee Director Compensation Plan
10.3		Form of Performance-Based Stock Unit Agreement (EBITDA Targets)
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
~~32.1~~ 32		Certification of Chief Executive Officer ~~pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended,~~ and ~~18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~32.2~~		~~Certification of~~ Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following materials from the ~~Company's~~Company’s Quarterly Report on Form 10-Q for the period ended ~~June 30, 2017~~March 31, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, (ii) Condensed Consolidated Statements of Operations and Other Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (iii) Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*

* The Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



KNOLL, INC.
(Registrant)

Date:	~~August 9, 2017~~May 10, 2018
		By:	/s/ Andrew B. Cogan
			Andrew B. Cogan
			Chief Executive Officer

Date:	~~August 9, 2017~~May 10, 2018
		By:	/s/ Charles W. Rayfield
			Charles W. Rayfield
			Chief ~~Accounting~~Financial Officer
			(Principal Financial Officer)

2832



	6/30/2016		9/30/2016		12/31/2016		3/31/2017		6/30/2017
	($ in millions)
Debt Levels ⁽¹⁾	$	221.7	$	206.7	$	231.8	$	249.8	$	240.4
LTM Net Earnings	69.3		74.1		82.1		80.1		72.8
LTM Adjustments
Interest	6.2		5		4.7		4.9		5.4
Taxes	39.3		39.6		45.4		40.9		38.5
Depreciation and Amortization	21.3		22.5		23		23.5		24.4
Non-cash items and Other ⁽²⁾	22.4		23.8		13.4		13.3		12.0
LTM Adjusted EBITDA	$	158.5	$	165.0	$	168.6	$	162.7	$	153.1
Bank Leverage Calculation ⁽³⁾	1.40		1.25		1.37		1.53		1.57

(1) Outstanding debt levels include outstanding letters of credit and guarantee obligations. Excess cash over $15.0 million reduces outstanding debt per the terms of our credit facility, a copy of which was filed with the Securities and Exchange Commission on May 21, 2014.

(2) Non-cash items and Other includes, but is not limited to, intangible asset impairment charges, pension settlements and other post-employment benefit curtailments, stock-based compensation expenses, unrealized gains and losses on foreign exchange, and restructuring charges.

(3) Debt divided by LTM Adjusted EBITDA, as calculated in accordance with our credit facility.