UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020



☐			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.~~



~~Delaware~~KNOLL, INC.

Exact name of registrant as specified in its charter


Delaware						13-3873847
State or other jurisdiction of incorporation or organization						I.R.S. Employer Identification No.



	1235 Water Street
East Greenville,	PA	18041
Address of principal executive offices			Zip Code

~~Telephone Number (215~~) (215) 679-7991

Registrant’s telephone number, including are code

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class

Trading Symbol

Name of exchange on which registered

~~Trading Symbol~~

Common Stock, par value $0.01 per share

KNL

New York Stock Exchange

~~KNL~~

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐

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

Yes ☐ No ☒

As of ~~November~~May 7, ~~2019,~~2020, there were ~~49,774,598~~50,647,480 shares (including ~~896,181~~1,581,952 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		Page

PART I — FINANCIAL INFORMATION

1.	Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 201 9	3
	Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2020 and 201 9	4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	5
	Notes to the Condensed Consolidated Financial Statements	6

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

3.	Quantitative and Qualitative Disclosures about Market Risk	23

4.	Controls and Procedures	24

PART II — OTHER INFORMATION

1.	Legal Proceedings	25

1A.	Risk Factors	25

2.	Unregistered Sales of Equity Securities and The Use of Proceeds	25

6.	Exhibits	27

Signatures			28

Item Page

PART I — FINANCIAL INFORMATION

1.
Condensed Consolidated Financial Statements:

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
3

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2019 and 2018
4

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018
5

Notes to the Condensed Consolidated Financial Statements
6

2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22

3.
Quantitative and Qualitative Disclosures about Market Risk
32

4.
Controls and Procedures
33

PART II — OTHER INFORMATION

1.
Legal Proceedings
34

1A.
Risk Factors
34

2.
Unregistered Sales of Equity Securities and The Use of Proceeds
34

6.
Exhibits
35

Signatures
36

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

KNOLL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in millions, except ~~share and~~ per share data)


	September 30, 2019			December 31, 2018				March 31, 2020		December 31, 2019
ASSETS	(Unaudited)						ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	8.3		$	1.6		Cash and cash equivalents	$	130.6	$	8.5
Customer receivables, net of allowance for doubtful accounts of $4.3 and $3.7, respectively	111.2			120.2
Customer receivables, net of allowance for doubtful accounts of $4.8 and $4.0, respectively							Customer receivables, net of allowance for doubtful accounts of $4.8 and $4.0, respectively	114.2		107.4
Inventories	192.6			170.5			Inventories	203.9		195.9
Prepaid and other current assets	29.8			39.3
Prepaid expenses							Prepaid expenses	19.3		17.2
Other current assets							Other current assets	11.4		11.6
Assets held for sale							Assets held for sale	11.1		—
Total current assets	341.9			331.6			Total current assets	490.5		340.6
Property, plant, and equipment, net	223.5			215.0			Property, plant, and equipment, net	224.9		239.0
Goodwill	329.3			320.8			Goodwill	328.0		332.1
Intangible assets, net	356.1			353.9			Intangible assets, net	343.4		348.2
Right-of-use lease assets	96.8			—			Right-of-use lease assets	107.1		94.4
Other noncurrent assets	6.8			5.6
Other non-current assets							Other non-current assets	2.4		3.6
Total assets	$	1,354.4		$	1,226.9		Total assets	$	1,496.3	$	1,357.9
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:							Current liabilities:
Current maturities of long-term debt	$	17.0		$	17.2		Current maturities of long-term debt	$	17.0	$	17.1
Accounts payable	122.1			126.7			Accounts payable	122.3		131.9
Current portion of lease liability	23.2			—			Current portion of lease liability	24.9		20.7

Other current liabilities	132.5			128.9			Other current liabilities	110.6		120.3
Total current liabilities	294.8			272.8			Total current liabilities	274.8		290.0
Long-term debt, net	440.8			443.9			Long-term debt, net	589.3		428.9
Deferred income taxes	84.4			86.5			Deferred income taxes	77.1		87.5

Pension liability	21.8			13.9			Pension liability	33.5		22.0
Lease liability	87.3			—			Lease liability	98.7		87.0
Other noncurrent liabilities	19.2			23.3
Other non-current liabilities							Other non-current liabilities	19.2		14.9
Total liabilities	948.3			840.4			Total liabilities	1,092.6		930.3
Commitments and contingent liabilities
Equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; 66,295,547 and 65,778,891 shares issued, respectively, 49,774,598 and 49,431,178 shares outstanding, respectively, net, at all periods, of treasury shares and inclusive of non-voting restricted shares	0.5			0.5
Commitments and contingent liabilities (Note 9)							Commitments and contingent liabilities (Note 9)
Shareholders’ equity: (shares in thousands)							Shareholders’ equity: (shares in thousands)
Common stock,$0.01 par value; 200,000 shares authorized; 67,336 and 66,296 shares issued, respectively, 50,649 and 49,775 shares outstanding, respectively, net, at all periods, of treasury shares and inclusive of non-voting restricted shares							Common stock,$0.01 par value; 200,000 shares authorized; 67,336 and 66,296 shares issued, respectively, 50,649 and 49,775 shares outstanding, respectively, net, at all periods, of treasury shares and inclusive of non-voting restricted shares	0.5		0.5
Additional paid-in capital	63.7			58.8			Additional paid-in capital	64.4		66.8
Retained earnings	427.9			395.4			Retained earnings	432.1		429.7
Accumulated other comprehensive loss	(86.0		)	(68.4		)	Accumulated other comprehensive loss	(93.3)		(69.4)
Total Knoll, Inc. stockholders’ equity	406.1			386.3
Noncontrolling interests	—			0.2
Total equity	406.1			386.5
Total liabilities and equity	$	1,354.4		$	1,226.9
Total shareholders’ equity							Total shareholders’ equity	403.7		427.6
Total liabilities and shareholders’ equity							Total liabilities and shareholders’ equity	$	1,496.3	$	1,357.9

See accompanying notes to the condensed consolidated financial statements.

KNOLL, INC.

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENT OF OPERATIONS ~~AND COMPREHENSIVE INCOME~~

(Unaudited)

(~~dollars~~ in millions, except ~~share and~~ per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
	2019			2018			2019			2018				2020		2019
Sales	$	356.5		$	327.7		$	1,056.6		$	947.6		Sales	$	340.0	$	332.8
Cost of sales	216.1			204.9			651.7			597.8			Cost of sales	217.7		209.0
Gross profit	140.4			122.8			404.9			349.8			Gross profit	122.3		123.8
Selling, general, and administrative expenses	103.6			88.7			304.9			267.0			Selling, general, and administrative expenses	103.3		94.5
Restructuring charges	0.1			1.2			0.2			2.6			Restructuring charges	7.6		0.1

Operating profit	36.7			32.9			99.8			80.2			Operating profit	11.4		29.2
Interest expense	5.5			5.0			16.2			14.4			Interest expense	4.9		5.2
Loss on extinguishment of debt	0.4			—			0.4			1.4
Pension settlement charge	9.8			0.6			10.4			5.2

Pension settlement charges													Pension settlement charges	0.7		0.2
Other income, net	(2.5		)	(0.2		)	(4.1		)	(7.0		)	Other income, net	(1.2)		(0.7)
Income before income tax expense	23.5			27.5			76.9			66.2			Income before income tax expense	7.0		24.5
Income tax expense	6.0			7.2			19.8			17.5
Income tax (benefit) expense													Income tax (benefit) expense	(3.9)		6.5
Net earnings	$	17.5		$	20.3		$	57.1		$	48.7		Net earnings	$	10.9	$	18.0

Net earnings per common share attributable to Knoll, Inc. stockholders:

Net earnings per share:													Net earnings per share:
Basic	$	0.36		$	0.42		$	1.17		$	1.00		Basic	$	0.22	$	0.37
Diluted	$	0.35		$	0.41		$	1.16		$	0.99		Diluted	$	0.22	$	0.37

Dividends per share	$	0.17		$	0.15		$	0.49		$	0.45

Weighted-average number of common shares outstanding:
Weighted-average common shares outstanding: (in thousands)													Weighted-average common shares outstanding: (in thousands)
Basic	48,873,186			48,694,438			48,834,737			48,641,595			Basic	48,973		48,775
Diluted	49,573,706			49,231,376			49,359,812			49,189,592			Diluted	49,708		49,190

Net earnings	$	17.5		$	20.3		$	57.1		$	48.7		Net earnings	$	10.9	$	18.0
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate swap, net of tax and amounts reclassified into earnings	(0.4		)	0.9			(4.7		)	2.0
Pension and other post-employment liability adjustment, net of tax	(2.5		)	1.1			(2.0		)	9.0
Foreign currency translation adjustment	(4.0		)	(4.6		)	(1.7		)	(10.9		)
Foreign currency translation adjustment on long term intercompany notes	(7.1		)	3.1			(9.2		)	(2.5		)
Total other comprehensive income (loss), net of tax	(14.0		)	0.5			(17.6		)	(2.4		)
Total comprehensive income	$	3.5		$	20.8		$	39.5		$	46.3
Other comprehensive income (loss), net of tax:													Other comprehensive income (loss), net of tax:
Unrealized losses on cash flow hedge, net of amounts reclassified into earnings													Unrealized losses on cash flow hedge, net of amounts reclassified into earnings	(4.6)		(1.5)
Pension and other post-employment liability adjustments													Pension and other post-employment liability adjustments	(8.4)		0.1
Foreign currency translation adjustments													Foreign currency translation adjustments	(9.3)		1.9
Foreign currency translation adjustments on long-term intercompany notes													Foreign currency translation adjustments on long-term intercompany notes	(1.6)		(4.1)
Total other comprehensive (loss) income, net													Total other comprehensive (loss) income, net	(23.9)		(3.6)
Total comprehensive (loss) income													Total comprehensive (loss) income	$	(13.0)	$	14.4

See accompanying notes to the condensed consolidated financial statements.

KNOLL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(dollars in millions)


	Nine Months Ended September 30,							Three Months Ended March 31,
	2019			2018				2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES							CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	57.1		$	48.7		Net earnings	$	10.9	$	18.0
Adjustments to reconcile net earnings to cash provided by operating activities:
Adjustments to reconcile net earnings to cash provided by (used in) operating							Adjustments to reconcile net earnings to cash provided by (used in) operating
activities:							activities:
Depreciation	21.4			19.0			Depreciation	8.4		6.3
Amortization expense (including debt issuance costs)	7.4			7.1			Amortization expense (including debt issuance costs)	2.9		2.5
Loss on extinguishment of debt	0.4			1.4
Deferred income tax benefit							Deferred income tax benefit	(6.3)		—

Pension settlement charges	10.4			5.2			Pension settlement charges	0.7		0.2
Inventory obsolescence	1.7			1.7
Unrealized foreign currency losses	1.3			0.4

Stock-based compensation	7.7			6.7			Stock-based compensation	1.6		2.2
Bad debt and customer claims	0.7			(0.6		)

Other non-cash items	0.2			(0.3		)	Other non-cash items	1.4		1.4
Changes in assets and liabilities:							Changes in assets and liabilities:
Customer receivables	8.1			(14.7		)	Customer receivables	(9.4)		11.4
Inventories	(17.6		)	(16.2		)	Inventories	(10.2)		(7.1)
Prepaid and other current assets	0.9			16.6
Prepaid expenses and other assets							Prepaid expenses and other assets	(0.8)		1.8
Accounts payable	(5.0		)	6.2			Accounts payable	(6.8)		(7.5)
Accrued liabilities	15.8			(4.1		)
Other noncurrent assets and liabilities	(12.4		)	(13.3		)
Cash provided by operating activities	98.1			63.8

Other liabilities							Other liabilities	(8.8)		(10.1)

Cash provided by (used in) operating activities							Cash provided by (used in) operating activities	(16.4)		19.1
CASH FLOWS FROM INVESTING ACTIVITIES							CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(32.4		)	(21.3		)	Capital expenditures	(10.7)		(9.2)
Purchase of businesses, net of cash acquired	(30.9		)	(308.0		)

Other							Other	0.4		—
Cash used in investing activities	(63.3		)	(329.3		)	Cash used in investing activities	(10.3)		(9.2)
CASH FLOWS FROM FINANCING ACTIVITIES							CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility	350.5			409.0			Proceeds from revolving credit facility	219.5		111.0
Repayment of revolving credit facility	(336.5		)	(287.5		)	Repayment of revolving credit facility	(53.5)		(105.0)
Proceeds from term loan	—			395.1
Repayment of term loan	(12.8		)	(224.1		)
Capitalized debt issuance costs	(1.4		)	(4.6		)
Payment of fees related to debt extinguishment	—			(1.0		)

Repayment of term loans							Repayment of term loans	(4.2)		(4.3)

Payment of dividends	(24.5		)	(22.7		)	Payment of dividends	(8.9)		(7.8)
Purchase of common stock for treasury	(3.3		)	(4.4		)
Cash (used in) provided by financing activities	(28.0		)	259.8

Payments of withholding taxes related to net share settlements of equity awards							Payments of withholding taxes related to net share settlements of equity awards	(3.8)		(3.0)

Cash provided by (used in) financing activities							Cash provided by (used in) financing activities	149.1		(9.1)
Effect of exchange rate changes on cash and cash equivalents	(0.1		)	10.8			Effect of exchange rate changes on cash and cash equivalents	(0.3)		—
Net increase in cash and cash equivalents	6.7			5.1			Net increase in cash and cash equivalents	122.1		0.8
Cash and cash equivalents at beginning of period	1.6			2.2			Cash and cash equivalents at beginning of period	8.5		1.6
Cash and cash equivalents at end of period	$	8.3		$	7.3		Cash and cash equivalents at end of period	$	130.6	$	2.4

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 in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by ~~generally accepted accounting principles~~GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring 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. Operating results for the three ~~and nine-month periods~~month period ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. Beginning with the March 31, 2019 Form 10-Q, the Company began reporting all dollar amounts in millions. In certain circumstances, this change in rounding resulted in prior year disclosures being removed.2020.

The condensed consolidated balance sheet of the Company, as of December 31, ~~2018,~~2019, has been derived from the Company’s audited consolidated financial statements at that date, but does not include all of the information and footnotes required by ~~generally accepted accounting principles~~GAAP for complete financial statements.

Certain reclassifications have been made to prior year balances to conform to current year presentation in the condensed consolidated statement of cash flows.

During the fourth quarter of 2019, the Company aligned the consolidation of certain of its foreign subsidiaries in the consolidated financial statements which previously included results on a one-month reporting lag. The Company has determined that the effect of this change is not material to the condensed consolidated financial statements for the prior period presented and therefore has not presented retrospective application of this change.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~New~~ Use of Estimates

U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including, but not limited to, the potential impacts arising from the coronavirus pandemic of 2019 (“COVID-19”) and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and duration of the impacts of COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from those estimates.

Examples of significant estimates include the allowance for credit losses, the recoverability of property, plant and equipment, the incremental borrowing rate for lease liabilities, the recoverability of intangible assets and other long-lived assets, fair value measurements, including those related to financial instruments, goodwill and intangible assets, valuation allowances on tax assets, pension and postretirement benefit obligations, contingencies and the identification and valuation of assets acquired and liabilities assumed in connection with business combinations.

Credit Losses

Subsequent to January 1, 2020, accounts receivable are recorded at amortized cost less an allowance for expected credit losses. The Company maintains an allowance for credit losses for the expected failure or inability of its customers to make required payments. The Company recognizes the allowance for expected credit losses at inception and reassesses quarterly based on management’s expectation of the asset’s collectability. The allowance is based on multiple factors including historical experience with bad debts, the credit quality of the customer base, the aging of such receivables and current macroeconomic conditions, as well as management’s expectations of conditions in the future. The Company’s allowance for uncollectible accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics.

Management analyzes receivables based on the credit quality indicators and shared risk characteristics of our dealers and other customers. Management stratifies the dealer population generally by the level of their purchase activity, mainly recurring purchasers compared to non-recurring purchasers, as well as the financial strength of the dealer. Management also stratifies receivables based on government and corporate purchasers with common risk characteristics. Management considers multiple factors, including payment history, frequency of purchases and financial strength of the purchaser to determine the reserve needed..

Accounting ~~Pronouncements Not Yet~~Standards Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or other reference rate expected to be discontinued due to reference rate reform. The amendments in this ASU are effective immediately and may be applied to impacted contracts and hedges prospectively through December 31, 2022. The adoption of the ASU had no impact on the Company’s condensed consolidated financial statements for the period ended March 31, 2020.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying and adding certain disclosures. The Company adopted ASU 2018-13 as of January 1, 2020. The adoption of this ASU did not have a significant impact on the Company’s condensed consolidated financial statements or disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses, ~~and~~which requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted ASU 2016-13 ~~will be effective for the Company~~ as of January 1, 2020. ~~The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement~~ (Topic 820) which modifies the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement. For public companies the ASU removes disclosure requirements for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation process for Level 3 fair value measurements. The ASU modifies the disclosure requirements for investments in certain entities that calculate net asset value and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The ASU adds the disclosure requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019 including interim periods within that fiscal year. Early adoption is permitted. The Company does not plan to early adopt this ASU, and the Company does not believe there will be a material impact to the financial statements as a result of adopting this ASU.

~~Accounting Standards Adopted~~

~~In February 2016, the FASB issued guidance codified in ASC 842,~~ ~~Leases,~~ which supersedes the guidance in ASC 840, Leases. ASC 842 was effective for the Company on January 1, 2019, and the Company adopted the standard using the modified retrospective approach. The Company recorded lease liabilities of $117.2 million, with an offsetting increase to right-of-use assets of $102.4 million, for all leases with an initial term of greater than twelve months regardless of their classification as of January 1, 2019.

In 2018, the FASB issued clarifying guidance to the topic in ASUs No. 2018-10 and No. 2018-11, which clarified certain aspects of the new leases standard and provided an optional transition method. The Company has elected the package of practical expedients and adopted utilizing the optional transition method defined within ASU 2018-11 on January 1, 2019. The Company did not elect the hindsight expedient. The adoption of the standard did not materially impact the Condensed Consolidated Statements of Operations and Comprehensive Income or Cash Flows.

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation - Stock compensation~~ (Topic 718) which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, ~~Revenue from Contracts with Customers~~. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company adopted this ASU effective January 1, 2019. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) which reduces the complexity of accounting for costs of implementing a cloud computing service arrangement and aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the component of the hosting arrangement is ready for its intended use. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The Company adopted the amendment prospectively as of October 1, 2019 and does not expect the adoption to have a material impact on the Company’s condensed consolidated financial statements.

NOTE 2. ~~SIGNIFICANT ACCOUNTING POLICIES~~

~~Leases~~

~~The Company accounts for leases in accordance with ASC Topic 842,~~ ~~Leases~~, (“ASC 842”). The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the customer has the right to control the use of the identified asset. The Company determines whether the contracts are considered an operating or finance lease. The Company does not currently have finance leases.

Operating leases are included in right-of-use (“ROU”) lease assets, current portion lease liability, and lease liabilities on the Condensed Consolidated Balance Sheets. The lease liabilities are initially measured at the present value of the unpaid lease payments at the lease commencement date.

~~Key estimates and judgments include how the Company determined (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.~~

~~(1)~~

ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As the majority of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The Company uses the implicit rate when readily determinable.


~~(2)~~	The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise.

~~(3)~~

Lease payments included in the measurement of the lease liability comprise the following: fixed payments (including in-substance fixed payments), less any lease incentives paid or payable to the lessee, variable payments that depend on an index or rate, amounts expected to be payable under a residual value guarantee and the exercise price of the Company option to purchase the underlying asset if the Company is reasonably certain to exercise.

The ROU asset is initially measured at cost, which comprises the initial measurement of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives received.

For operating leases, the ROU asset is subsequently measured throughout the lease term at the amount of the remeasured lease liability, adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term and any unamortized initial direct costs. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expenses in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income in the same line item as expense arising from fixed lease payments for operating leases.

~~ROU assets for operating leases are subject to the long-lived assets impairment guidance in ASC Subtopic 360-10,~~ ~~Property, Plant, and Equipment - Overall.~~ ~~As of September 30, 2019, the Company has not incurred any impairment losses.~~

The Company monitors for events or changes in circumstances that require a reassessment of a lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.

~~The Company has lease agreements which include lease and non-lease components, which are accounted for separately using a relative stand-alone price basis.~~

~~Lease expense for short-term leases are recognized on a straight-line basis over the lease term.~~

On January 1, 2019 the Company adopted ASC 842 using a modified retrospective transition method and elected the optional transition method as defined within ASU 2018-11. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption (i.e. January 1, 2019). The Company has elected to adopt the package of transition practical expedients and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized. The Company did not elect the practical expedient to use hindsight for leases existing at the adoption date.

The Company has elected not to recognize ROU assets and lease liabilities for all short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term. Variable lease payments associated with these leases are recognized and presented in the same manner as for all other Company leases.

Additionally, the Company applies a portfolio approach to determine the discount rate (i.e. incremental borrowing rate for leases with similar characteristics). The Company applies the incremental borrowing rate generally based on the transactional currency of the lease and the lease term.

~~All other significant accounting policies are consistent with those disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2018.~~

~~NOTE 3.~~ REVENUE

Disaggregation of Revenue

The Company’s revenue presented as “Sales” in the Condensed Consolidated Statements of Operations and Comprehensive Income is derived from contracts with customers for the sale of the Company’s products.

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Office Segment
Office Systems $ 111.2
$ 112.3
$ 332.3
$ 322.3
Seating 32.3
30.0
97.8
95.1
Files and Storage 26.0
24.1
78.9
67.7
Ancillary 36.6
24.7
92.5
64.1
Other 13.0
9.5
43.0
31.1
Total Office Segment 219.1
200.6
644.5

580.3
Lifestyle Segment
Studio 108.7
98.4
323.5
283.4
Coverings 28.7
28.7
88.6
83.9
Total Lifestyle Segment 137.4
127.1
412.1

367.3
Total Sales $ 356.5
$ 327.7
$ 1,056.6

$ 947.6


	Three Months Ended March 31,
	2020		2019
Office Segment
Office Systems	$	100.9	$	106.3
Seating	30.4		30.9
Files and Storage	25.2		25.6
Ancillary	49.3		25.5
Other	10.6		13.9
Total Office Segment	216.4		202.2
Lifestyle Segment
Studio	96.3		101.6
Coverings	27.3		29.0
Total Lifestyle Segment	123.6		130.6
Total Sales	$	340.0	$	332.8

Contract Balances

The Company’s contract assets consist of trade receivables, the balances of which are included in Customer receivables, net in the Condensed Consolidated Balance Sheets. These amounts represent the amount of consideration the Company expects to be entitled to in exchange for the goods delivered to its customers.

When the Company receives deposits, the recognition of revenue is generally deferred and results in the recognition of a contract liability (Customer deposits), which is included in Other current liabilities in the Condensed Consolidated Balance Sheets. Subsequent recognition of revenue and discharge of the contract liability typically occurs within a year of a deposit receipt, as the Company’s standard contract is less than one year. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the contract liability related to customer deposits was ~~$39.9~~$35.8 million and ~~$37.7~~$32.5 million, respectively. During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, the Company recognized revenues that were included in the contract liability at the beginning of the ~~current~~respective year of ~~$29.0 million.~~$19.0 million and $19.8 million, respectively.

~~NOTE 4. ACQUISITIONS~~

On August 20, 2019 (the “Acquisition Date”), the Company acquired FHI LLC (“Fully”), a Portland, Oregon-based e-commerce furniture brand with products targeting the home office and small business markets. The acquisition provides the Company access to new marketsAllowance for current products, while simultaneously allowing it to leverage its existing distribution channels to expand its product offerings to include Fully’s portfolio of high-performance adjustable height desks, ergonomic chairs and accessories.

The aggregate purchase price consists of cash paid at closing of $30.9 million, net of cash acquired of $4.1 million, plus additional earn-out consideration should Fully achieve certain revenue and earnings targets associated with separate short-term and long-term earn-out periods of two and four years, respectively (together, the “Earn-Out Consideration”). The estimated fair value of the Earn-Out Consideration is $5.0 million as of the Acquisition Date (see Note 7 for further discussion). The acquisition was funded from cash on hand and borrowings under the Company’s Revolver. The Company recognized the assets acquired and liabilities assumed at their estimated fair values as of the Acquisition Date. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded to goodwill. Adjustments to the initial accounting for the acquisition may occur if additional information is obtained that results in a revision to the analysis of the facts and circumstances that existed as of the Acquisition Date, but no later than one year thereafter (the “Measurement Period”). The results of operations of Fully are reported in the Office segment and have been included in the consolidated results of operations from the Acquisition Date. ~~The results of Fully, as well as pro forma financial information, have not been presented as the financial impact of this acquisition is not considered material.~~

~~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 $307.8 million, net of $7.6 million of cash acquired. The Company recorded acquisition costs and certain other costs of $1.6 million within selling, general, and administrative expenses in its Condensed Consolidated Statement of Operations and Comprehensive Income during the nine months ended September 30, 2018.Doubtful Accounts

The following table ~~presents unaudited pro forma information~~sets forth the changes in the Company’s allowance for doubtful accounts for the ~~period presented as if the acquisition of Muuto had occurred as of January 1, 2017~~three months ended March 31, 2020 (in millions):


Balance at December 31, 2019	$	4.0
Provision for doubtful accounts	0.6
Other	0.2
Balance at March 31, 2020	$	4.8

Nine Months Ended September 30, 2018
Pro forma sales $ 951.8
Pro forma net earnings attributable to Knoll, Inc. stockholders $ 53.7

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

NOTE 3. INVENTORIES

Inventories consisted of the ~~Company. The pro forma financial information presented above has been derived from the historical condensed consolidated financial statements~~following as of the ~~Company and from the historical consolidated financial statements of Muuto.~~

~~The pro forma financial information~~dates 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 Amended Credit Agreement, (3) nonrecurring items and (4) the tax effect of the above adjustments.

The pro forma information presented for the nine months ended September 30, 2018 includes adjustments for future payments that are considered compensation for post combination service of $2.3 million, acquisition related inventory valuation of $0.9 million, incremental interest expense of $0.9 million, incremental amortization of intangibles of $0.1 million, as well as combined acquisition costs and loss on debt extinguishment of $3.0 million. The income tax impact of these adjustments for the nine months ended September 30, 2018 was $1.1 million.

~~For further information on acquisitions, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.~~

~~NOTE 5. INVENTORIES~~

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


	March 31, 2020		December 31, 2019
Raw materials	$	58.1	$	58.7
Work-in-process	8.4		8.1
Finished goods	137.4		129.1
	$	203.9	$	195.9

September 30, 2019 December 31, 2018
Raw materials $ 59.7
$ 65.1
Work-in-process 9.1
8.3
Finished goods 123.8
97.1
$ 192.6
$ 170.5

NOTE 6.4. PENSION AND OTHER POST-EMPLOYMENT BENEFITS

The following tables set forth the components of the net periodic benefit cost (credit) for the Company’s pension and other post-employment benefit plans (in millions):


														Pension Benefits						Other Benefits
	Pension Benefits						Other Benefits							Three Months Ended March 31,						Three Months Ended March 31,
	Three Months Ended September 30,						Three Months Ended September 30,							2020		2019		2020		2019
	2019			2018			2019			2018
Interest cost	2.5			2.6			(0.1		)	—			Interest cost	$	1.5	$	2.5	$	—	$	0.1
Expected return on plan assets	(3.9		)	(4.0		)	—			—			Expected return on plan assets	(2.7)		(4.0)		—		—
Amortization of prior service credit	—			—			(0.1		)	(0.2		)	Amortization of prior service credit	—		—		—		(0.2)
Recognized actuarial loss	0.1			0.1			—			—			Recognized actuarial loss	0.3		0.1		—		—
Pension settlement charge ⁽¹⁾	9.8			0.6			—			—			Pension settlement charge ⁽¹⁾	0.7		0.2		—		—
Net periodic benefit cost (credit)	$	8.5		$	(0.7	)	$	(0.2	)	$	(0.2	)	Net periodic benefit cost (credit)	$	(0.2)	$	(1.2)	$	—	$	(0.1)

Pension Benefits Other Benefits
Nine Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Interest cost 7.4
7.6
0.1
0.1
Expected return on plan assets (11.9 ) (13.2 ) —
—
Amortization of prior service credit —
—
(0.5 ) (0.5 )
Recognized actuarial loss 0.4
0.8
—
(0.1 )
Pension settlement charge ⁽¹⁾
10.4
5.2
—
—
Net periodic benefit cost (credit) $ 6.3

$ 0.4

$ (0.4 )
$ (0.5 )

(1) The pension settlement ~~charges for the three and nine months ended September 30, 2019~~charge was related to cash payments ~~made~~ from the Company’s 2 domestic defined benefit pension plans (the “Plans”) to settle lump sum elections and to fund the purchase of annuities for certain plan participants associated with the union plan termination, which is expected to be finalized in the fourth quarter of 2019. The pension settlement charges for the three and nine months ended September 30, 2018 related to the Plans’ funding of the purchase of annuities for certain pension plan retirees, as well as cash payments made from the Plans to settle lump sum elections.

~~During the three and nine months ended September 30, 2018, the Company made a voluntary contribution to the tax-qualified U.S. pension plan for Union Employees of $7.9 million.~~

NOTE 7.5. FAIR VALUE MEASUREMENTS

The fair values of the Company’s cash and cash equivalents, classified as Level 1 within the fair value hierarchy, approximate carrying value due to their short maturities.

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

Recurring Fair Value Measurements

~~Certain~~The Company measures certain financial liabilities ~~are measured~~ at fair value on a recurring ~~basis on the Condensed Consolidated Balance Sheets.~~basis. The following table summarizes the valuation of those liabilities as of the dates presented (in millions):

Fair Value as of September 30, 2019 Fair Value as of December 31, 2018
Liabilities: Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Interest rate swap $ —
$ 8.1
$ —
$ 8.1
$ —
$ 1.7
$ —
$ 1.7
Earn-Out Consideration - Fully ⁽¹⁾
—
—
5.0
5.0
—
—
—
—
Contingent consideration related to a previously completed acquisition —
—
0.8
0.8
—
—
0.8
0.8


	Fair Value as of March 31, 2020														Fair Value as of December 31, 2019
Liabilities:	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Interest rate swap	$	—	$	12.8	$	—	$	12.8	$	—	$	6.6	$	—	$	6.6
Contingent consideration obligations ⁽¹⁾	—		—		2.0		2.0		—		—		2.0		2.0

(1) In connection with the Company’s acquisition of FHI LLC (“Fully”) in August 2019, the Company is contingently liable to make additional payments in the form of consideration based upon the achievement of certain performance targets. The maximum amount of ~~Earn-Out Consideration~~contingent consideration that could be earned through 2023 as of ~~September 30, 2019~~March 31, 2020 is $15.0 ~~million. Changes in~~million (see Note 4 to the Company’s 2019 Annual Report on Form 10-K for additional information on the Fully acquisition). As of March 31, 2020 and December 31, 2019, the fair value of the ~~Earn-Out Consideration during~~contingent consideration obligations was reflected as a component of Other non-current liabilities in the Measurement Period attributable to additional information related to the facts and circumstances that existed as of the Acquisition Date will be recorded as an offset to Goodwill. All other changes will be included within Selling, general and administrative expenses.condensed consolidated balance sheets.

Interest Rate Swap

The fair value of the interest rate swap is based on observable prices as quoted for receiving the variable one-month ~~London Interbank Offered Rates (LIBOR)~~LIBOR and paying fixed interest rates and therefore is classified as Level 2 within the fair value hierarchy.

Non-Recurring Fair Value Measurements

~~Other than the fair value measurements applied to the acquisition of Fully (see Note 4), the~~The Company did not have any non-recurring fair value measurements during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

NOTE 8.6. DERIVATIVE INSTRUMENTS

The Company is exposed to certain market risks, including the effect of changes in interest rates on future interest payments to be made on its variable rate debt. The Company utilizes a derivative instrument to mitigate its financial exposure to interest rate volatility. The derivative instrument, which is placed with a financial institution that the Company believes to be of acceptable credit risk, takes the form of an interest rate swap. The Company does not use derivatives for speculative trading purposes.

Cash flow hedge

In January 2018, the Company entered into an interest rate swap contract, which is designated as a cash flow hedge of the forecasted interest payments associated with a portion of the Company’s variable rate debt. The interest rate swap hedges one-month LIBOR, which effectively converts a portion of the variable rate debt to a fixed interest rate. The interest rate swap effective date was December 31, 2018, ~~and the maturity date is~~matures January 23, ~~2023.~~2023 and carries a fixed rate of 2.63%. As of ~~September 30, 2019,~~March 31, 2020, the interest rate swap has a notional amount of ~~$300.0~~$250.0 million, which decreases over time by $50 million increments. ~~The contract has a fixed rate of 2.63%.~~

The following table summarizes the fair value of the Company’s derivative instrument, as well as the location of this instrument on the Condensed Consolidated Balance Sheets as of the dates presented (in millions):


Derivatives designated as hedging instruments	Balance Sheet Location	March 31, 2020		December 31, 2019
Derivative liabilities:

Interest rate swap	Other current liabilities	$	5.5	$	2.6
Interest rate swap	Other non-current liabilities	7.3		4.0
Total derivative liabilities		$	12.8	$	6.6

Derivatives designated as hedging instruments Balance Sheet Location September 30, 2019 December 31, 2018
Derivative liabilities:
Interest rate swap Other current liabilities $ 2.6
$ 0.3
Interest rate swap Other noncurrent liabilities 5.5
1.4
Total derivative liabilities $ 8.1
$ 1.7

The fair value of the swap recorded in Accumulated Other Comprehensive Loss (“AOCL”) may be recognized in the Condensed Consolidated Statement of Operations if certain terms of the agreement change, are modified or if the loan is extinguished. As of ~~September 30, 2019,~~March 31, 2020, there was no hedge ineffectiveness associated with the Company’s interest rate swap and no portion of the cash flow hedge is excluded from the assessment of effectiveness. The Company reclassified ~~$0.3 million and $0.5~~$0.6 million from AOCL to interest expense within the Condensed Consolidated Statement of Operations during the three ~~and nine~~ months ended ~~September 30, 2019, respectively. The~~March 31, 2020. Based on the forward interest rate curve in place as of March 31, 2020, the Company expects to reclassify ~~in the next 12 months a loss~~approximately $5.5 million of ~~approximately $2.6 million~~unrealized losses related to its cash flow hedge from AOCL into earnings ~~as a component of interest expense, related to~~in the ~~Company’s interest rate swap based on the borrowing rates at September 30, 2019.~~

next twelve months.

~~NOTE 9. LEASES~~

The Company has commitments under operating leases for certain machinery and equipment, as well as manufacturing, warehousing, showroom and other facilities used in its operations. The Company has no finance leases. Excluding short-term leases, the Company’s leases have initial terms ranging from 1 to 16 years, most of which include options the Company may elect to extend or renew the lease for 0.1 to 6 years, and some of which may include options to terminate the leases with notice periods of up to 1 year. Certain lease agreements contain provisions for future rent increases. Payments due under lease contracts are fixed.

~~The components of lease cost for the three and nine months ended September 30, 2019 are as follows (in millions):~~

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Lease cost:
Operating lease cost $ 7.5
$ 21.2
Short-term lease cost 1.6
2.2
Sublease income — (0.1 )
Total lease cost $ 9.1
$ 23.3

~~Other lease information as of and for the period ended September 30, 2019 includes:~~



	~~September 30, 2019~~
~~Weighted-average remaining lease term (in years)~~
~~Operating leases~~	~~5.9~~
~~Weighted-average discount rate~~
~~Operating leases~~	~~4.9~~	%

(dollars in millions) Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 21.4
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases $ 12.3

As of September 30, 2019, the Company has additional operating leases that have not yet commenced for which it will record a right of use asset and lease liability of approximately $6.5 million. The leases will commence in the first quarter of 2020 with lease terms of approximately 10 years.

~~Future minimum lease payments under non-cancellable leases, net of sublease income, as of September 30, 2019 are as follows (in millions):~~

September 30, 2019
2019 (remaining three months) $ 7.4
2020 28.9
2021 22.2
2022 19.3
2023 16.5
Thereafter 44.0
Total undiscounted lease payments 138.3
Less: imputed interest (26.9 )
Total lease liability $ 111.4

NOTE ~~10.~~7. OTHER CURRENT LIABILITIES

Other current liabilities are comprised of the following (in millions):


	March 31, 2020		December 31, 2019

Customer deposits	$	35.8	$	32.5
Accrued employee compensation	19.2		37.4
Warranty	10.1		10.1

Other	45.5		40.3
Other current liabilities	$	110.6	$	120.3

September 30, 2019 December 31, 2018
Accrued employee compensation $ 37.2
$ 40.6
Customer deposits 39.9
37.7
Warranty 10.1
9.6
Other 45.3
41.0
Other current liabilities $ 132.5
$ 128.9

NOTE ~~11.~~8. INDEBTEDNESS

The following table summarizes the Company’s long-term debt as of the dates ~~presented:~~presented (in millions):

September 30, 2019 December 31, 2018
Revolving credit facility $ 148.5
$ 134.5
Term loans 313.7
330.8
Total long-term debt 462.2
465.3
Less: Current maturities of long-term debt 17.0
17.2
Less: Unamortized debt issuance costs 4.4
4.2
Long-term debt, net $ 440.8
$ 443.9


	March 31, 2020		December 31, 2019
Revolving credit facility	$	304.5	$	138.5
U.S. term loans	225.0		228.1
Multi-currency term loans	80.8		83.7
Total long-term debt	610.3		450.3
Less: Current maturities of long-term debt	17.0		17.1
Less: Unamortized debt issuance costs	4.0		4.3
Long-term debt, net	$	589.3	$	428.9

Credit Facility

The commitments and available borrowing capacity under the revolving credit facility (the “Revolver”) were as follows as of the dates ~~presented:~~presented (in millions):


	Commitments		Outstanding Borrowings		Letters of Credit Outstanding		Borrowing Capacity
March 31, 2020	$	400.0	$	304.5	$	5.1	$	90.4
December 31, 2019	$	400.0	$	138.5	$	5.1	$	256.4

Commitments Outstanding Borrowings Letters of Credit Outstanding Borrowing Capacity
September 30, 2019 $400.0 $148.5 $5.1 $246.4
December 31, 2018 $400.0 $134.5 $5.2 $260.3

On August 26, 2019, the Company entered into a first amendment to the Third Amended and Restated Credit Agreement (the “Credit Agreement Amendment”), dated as of January 23, 2018. The Credit Agreement Amendment, among other things, extends the maturity of the credit facility from January 2023 to August 2024, and reduces both the applicable rate applied to outstanding borrowings and the commitment fee rate applied to the unutilized balance under the Revolver.

The Company incurred $1.9 million of debt issuance costs in connection with the Credit Agreement Amendment, the majority of which were capitalized and will be amortized over the term of the amended credit agreement. The Company also recorded a non-cash charge of approximately $0.4 million for loss on extinguishment of debt related to the balance of unamortized costs associated with lenders that exited the credit facility or reduced their Revolver commitment. The remaining unamortized costs of approximately $3.1 million will also be amortized over the term of the amended credit agreement.

At ~~September 30, 2019,~~March 31, 2020, borrowings under the ~~revolving credit facility~~Revolver include ~~$5.0~~$15.0 million at a base rate of ~~5.50%~~3.75% and ~~$143.5~~$289.5 million at a ~~weighted average~~weighted-average LIBOR rate of ~~3.54%~~2.42%. At December 31, ~~2018,~~2019, borrowings under the ~~revolving credit facility include $2.5~~Revolver included $10.0 million at a base rate of ~~6.25%~~5.25% and ~~$132.0~~$128.5 million at a ~~weighted average~~weighted-average LIBOR rate of ~~4.25%~~3.27%. ~~At September 30, 2019~~As of March 31, 2020 and December 31, ~~2018, the~~2019, letters of credit issued under the ~~revolving credit facility~~Revolver incurred interest at the rate of 1.50% ~~and 1.75%, respectively.~~.

At ~~September 30,~~March 31, 2020, the U.S. term loan and multi-currency term loan incurred interest at 2.49% and 1.50%, respectively. At December 31, 2019, the U.S. term loan and multi-currency term loan incurred interest at ~~3.54%~~3.30% and 1.50%~~, respectively. At December 31, 2018 the U.S. term loan and multi-currency term loan incurred interest at 4.27% and 1.75%~~, respectively. The Eurocurrency rates used for the U.S. dollar-denominated term loan and the Euro-denominated term loan are one-month LIBOR and ~~one-month~~three-month Euribor, respectively. Borrowings under the term loan facilities amortize in equal quarterly installments at a rate of 5% per annum, with the remaining balance due upon maturity.

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

Future minimum debt payments
2019 $ 4.1
2020 17.0
2021 17.0
2022 17.0
2023 17.0
Thereafter 390.1
Total $ 462.2

NOTE ~~12.~~9. 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 ~~accrues~~provides for estimated ~~future~~product warranty ~~costs~~expenses, which are included in ~~the period in which the sale for the~~Other current liabilities, when related products ~~is recorded. As~~are sold. 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 accrued.

Changes in the ~~Company’s product~~ warranty ~~accrual during the periods presented were~~reserve are as follows (in millions):


Balance, December 31, 2019	$	10.1
Provision for warranty claims	2.0
Warranty claims settled	(2.0)

Balance, March 31, 2020	$	10.1

Balance, December 31, 2018 $ 9.6
Provision for warranty claims 6.7
Warranty claims settled (5.9 )
Foreign currency translation adjustment (0.3 )
Balance, September 30, 2019 $ 10.1

Warranty expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 was ~~$2.1~~$2.0 million and ~~$6.7 million, respectively. Warranty expense for the three and nine months ended September 30, 2018 was $1.7 million and $4.6~~$1.9 million, respectively.

NOTE ~~13.~~10. RESTRUCTURING

In January 2020, the Company announced the closure of its Grand Rapids, Michigan manufacturing operations (“Grand Rapids”). Pursuant to this action, Grand Rapids is expected to be substantially closed, and its production substantially migrated to other North America facilities, by the end of the second quarter of 2020. Additionally, the Company will make changes to better optimize its logistics operations, which are expected to be completed by the end of 2021. The Company expects to incur total charges of approximately $18.2 million in connection with these actions, comprised of severance and retention costs of $7.0 million, moving and training costs of $6.0 million, facilities-related costs of $3.7 million and equipment write-offs of $1.5 million.

During the three months ended March 31, 2020, the Company recognized restructuring charges of $8.2 million, attributable to the Office and Lifestyle segments in the amounts of $7.5 million and $0.7 million, respectively. These charges relate primarily to severance and retention, as well as certain facilities-related initiatives. The restructuring charges have been recognized between operating expenses and Cost of sales in the amounts of $7.6 million and $0.6 million, respectively, on the accompanying condensed consolidated statement of operations. The restructuring charge of $0.6 million included in Cost of sales represents accelerated depreciation expense related to equipment that is expected to be abandoned as part of the restructuring. As of March 31, 2020, the Company expects that all of the $4.9 million restructuring reserve, which is included as a component of Other current liabilities, will be utilized (settled in cash) during 2020.

In connection with the restructuring actions noted above, the Company classified its Grand Rapids land and building assets, which have an aggregate carrying amount of approximately $11.1 million, as held for sale on the accompanying condensed consolidated balance sheet.

NOTE 11. EQUITY

The following table ~~shows~~summarizes the ~~change in~~components of shareholders’ equity ~~attributable to Knoll, Inc. stockholders~~ and ~~noncontrolling interests~~the changes therein during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and (in millions, except share information):


	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at December 31, 2019	$	0.5	$	66.8	$	429.7	$	(69.4)	$	427.6
Net earnings	—		—		10.9		—		10.9
Other comprehensive loss	—		—		—		(23.9)		(23.9)






Stock-based compensation, net	—		1.6		—		—		1.6
Dividends declared ($0.17 per share)	—		—		(8.5)		—		(8.5)
Purchase of common stock (154,012 shares)	—		(4.0)		—		—		(4.0)

Balance at March 31, 2020	$	0.5	$	64.4	$	432.1	$	(93.3)	$	403.7

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, 2018 $ 0.5
$ 58.8
$ 395.4
$ (68.4 ) $ 386.3
$ 0.2
$ 386.5
Net earnings —
—
18.0
—
18.0
—
18.0
Other comprehensive loss —
—
—
(3.6 ) (3.6 ) —
(3.6 )
Stock-based compensation, net of forfeitures —
2.2
—
—
2.2
—
2.2
Cash dividend ($0.15 per share) —
—
(7.5 ) —
(7.5 ) —
(7.5 )
Purchase of common stock (141,738 shares) —
(3.0 ) —
—
(3.0 ) —
(3.0 )
Other —
0.4
—
—
0.4
(0.2 ) 0.2
Balance at March 31, 2019 $ 0.5
$ 58.4
$ 405.9
$ (72.0 ) $ 392.8
$ —
$ 392.8
Net earnings —
—
21.7
—
21.7
—
21.7
Other comprehensive loss —
—
—
—
—
—
—
Stock-based compensation, net
of forfeitures
—
2.4
—
—
2.4
—
2.4
Cash dividend ($0.17 per share) —
—
(8.6 ) —
(8.6 ) —
(8.6 )
Other —
0.1
—
—
0.1
—
0.1
Balance at June 30, 2019 $ 0.5

$ 60.9

$ 419.0

$ (72.0 )
$ 408.4

$ —

$ 408.4
Net earnings —
—
17.5
—
17.5
—
17.5
Other comprehensive loss —
—
—
(14.0 ) (14.0 ) —
(14.0 )
Stock-based compensation, net
of forfeitures
—
3.1
—
—
3.1
—
3.1
Cash dividend ($0.17 per share) —
—
(8.6 ) —
(8.6 ) —
(8.6 )
Purchase of common stock (11,465 shares) —
(0.3 ) —
—
(0.3 ) —
(0.3 )
Balance at September 30, 2019 $ 0.5

$ 63.7

$ 427.9

$ (86.0 )
$ 406.1

$ —

$ 406.1

The following table ~~shows~~summarizes the change in the number of shares of common stock outstanding during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 (table in thousands and is exclusive of non-voting restricted shares):



Shares outstanding as of December 31, ~~2018~~2019						~~48,706~~48,879
Shares issued under stock incentive ~~plan,~~plans, net of awards surrendered to pay applicable taxes						~~171~~184
~~Shares issued to Board of Directors in lieu of cash~~						1
Shares outstanding as of ~~September 30, 2019~~March 31, 2020						~~48,878~~49,063

The following table ~~shows~~summarizes the ~~change in~~components of shareholders’ equity ~~attributable to Knoll, Inc. stockholders~~ and ~~noncontrolling interests~~the changes therein during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 (in millions, except share information):

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 $ 0.5
$ 54.5
$ 347.3
$ (43.8 ) $ 358.5
$ 0.3
$ 358.8
Adoption of ASU 2018-02 —
—
6.3
(6.3 ) —
—
—
Net earnings —
—
15.3
—
15.3
—
15.3
Other comprehensive (loss) income —
—
—
(0.8 ) (0.8 ) —
(0.8 )
Stock-based compensation, net of forfeitures —
2.4
—
—
2.4
—
2.4
Cash dividend ($0.15 per share) —
—
(7.3 ) —
(7.3 ) —
(7.3 )
Purchase of common stock (95,412 shares) —
(2.0 ) —
—
(2.0 ) —
(2.0 )
Balance at March 31, 2018 $ 0.5
$ 54.9
$ 361.6
$ (50.9 ) $ 366.1
$ 0.3
$ 366.4
Net earnings —
—
13.1
—
13.1
—
13.1
Other comprehensive (loss) income —
—
—
(2.2 ) (2.2 ) —
(2.2 )
Stock-based compensation, net of forfeitures —
2.1
—
—
2.1
—
2.1
Cash dividend ($0.15 per share) —
—
(7.9 ) —
(7.9 ) —
(7.9 )
Purchase of common stock —
(2.4 ) —
—
(2.4 ) —
(2.4 )
Balance at June 30, 2018 $ 0.5
$ 54.6
$ 366.8
$ (53.1 ) $ 368.8
$ 0.3
$ 369.1
Net earnings —
—
20.3
—
20.3
—
$ 20.3
Other comprehensive (loss) income —
—
—
0.5
0.5
—
0.5
Stock-based compensation, net of forfeitures —
2.2
—
—
2.2
—
2.2
Cash dividend ($0.15 per share) —
—
(7.1 ) —
(7.1 ) —
(7.1 )
Purchase of common stock —
—
—
—
—
—
—
Balance at September 30, 2018 $ 0.5

$ 56.8

$ 380.0

$ (52.6 )
$ 384.7

$ 0.3

$ 385.0


	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Knoll, Inc. Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2018	$	0.5	$	58.8	$	395.4	$	(68.4)	$	386.3	$	0.2	$	386.5
Net earnings	—		—		18.0		—		18.0		—		18.0
Other comprehensive loss	—		—		—		(3.6)		(3.6)		—		(3.6)
Stock-based compensation, net	—		2.2		—		—		2.2		—		2.2
Dividends declared ($0.15 per share)	—		—		(7.5)		—		(7.5)		—		(7.5)
Purchase of common stock (141,738 shares)	—		(3.0)		—		—		(3.0)		—		(3.0)
Other	—		0.4		—		—		0.4		(0.2)		0.2
Balance at March 31, 2019	$	0.5	$	58.4	$	405.9	$	(72.0)	$	392.8	$	—	$	392.8

The following table ~~shows~~summarizes the change in the number of shares of common stock outstanding during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 (table in thousands and is exclusive of non-voting restricted shares):



Shares outstanding as of December 31, ~~2017~~2018						~~48,498~~48,706
Shares issued under stock incentive ~~plan,~~plans, net of awards surrendered to pay applicable taxes						~~194~~139
~~Shares issued to Board of Directors in lieu of cash~~						2
Shares outstanding as of ~~September 30, 2018~~March 31, 2019						~~48,694~~48,845

NOTE ~~14.~~12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in AOCL by component for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 (in millions):


	Unrealized gains (losses) on Interest Rate Swaps		Foreign Currency Translation Adjustment		Foreign Currency Translation Adjustment on Long-term Intercompany Notes		Pension and Other Post-Employment Liability Adjustment		Total
Balance as of December 31, 2019	$	(4.8)	$	(15.6)	$	(13.0)	$	(36.0)	$	(69.4)
Other comprehensive loss before reclassifications	(6.8)		(9.3)		(1.6)		(12.3)		(30.0)
Amounts reclassified from AOCL	0.6		—		—		1.0		1.6
Net current-period other comprehensive loss before income tax	(6.2)		(9.3)		(1.6)		(11.3)		(28.4)
Income tax benefit	1.6		—		—		2.9		4.5
Other comprehensive loss	(4.6)		(9.3)		(1.6)		(8.4)		(23.9)
Balance as of March 31, 2020	$	(9.4)	$	(24.9)	$	(14.6)	$	(44.4)	$	(93.3)

Unrealized gains (losses) on Interest Rate Swaps Foreign
Currency
Translation
Adjustment Foreign Currency Translation Adjustment on Long-term Intercompany Notes Pension and
Other Post-Employment
Liability
Adjustment Total
Balance as of December 31, 2018 $ (1.2 ) $ (18.8 ) $ (8.1 ) $ (40.3 ) $ (68.4 )
Other comprehensive loss before reclassifications (6.9 ) (1.7 ) (9.2 ) (13.0 ) (30.8 )
Amounts reclassified from AOCL 0.5
—
—
10.3
10.8
Net current-period other comprehensive loss before income tax (6.4 )
(1.7 ) (9.2 ) (2.7 ) (20.0 )
Income tax benefit 1.7
—
—
0.7
2.4
Other comprehensive loss (4.7 )
(1.7 )
(9.2 )
(2.0 )
(17.6 )
Balance as of September 30, 2019 $ (5.9 )
$ (20.5 )
$ (17.3 )
$ (42.3 )
$ (86.0 )

The following pension and other post-employment benefit reclassifications were made from AOCL to the Condensed Consolidated Statements of Operations and Other Comprehensive Income (in millions):


	Three Months Ended						Nine Months Ended							Three Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018				March 31, 2020		March 31, 2019
Amortization of pension and other post-employment liability adjustments													Amortization of pension and other post-employment liability adjustments
Prior service credits ⁽¹⁾	$	(0.1	)	$	(0.2	)	$	(0.5	)	$	(0.5	)	Prior service credits ⁽¹⁾	$	—	$	(0.2)
Actuarial losses ⁽¹⁾	0.1			0.1			0.4			0.7			Actuarial losses ⁽¹⁾	0.3		0.1
Pension settlement charge	9.8			0.6			10.4			5.2			Pension settlement charge	0.7		0.2
Total before tax	9.8			0.5			10.3			5.4			Total before tax	1.0		0.1
Tax benefit	(2.7		)	(0.2		)	(2.7		)	(1.4		)
Tax expense													Tax expense	(0.2)		—
Net of tax	$	7.1		$	0.3		$	7.6		$	4.0		Net of tax	$	0.8	$	0.1

(1) These AOCL components are included in the computation of net periodic pension costs, and are included in Other income, net within the Condensed Consolidated Statements of Operations and Comprehensive Income. See Note 64 for additional information.

The following table summarizes the unrealized gains (losses) on derivative instruments, including the impact of components reclassified into net income from AOCL, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in millions):


	Three Months Ended
	March 31, 2020		March 31, 2019
Unrealized gain (loss) on derivative instruments	$	(6.8)	$	(2.1)
Loss on derivatives reclassified into income	0.6		0.1
Total before tax	(6.2)		(2.0)
Tax benefit	1.6		0.5
Net of tax	$	(4.6)	$	(1.5)

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Unrealized gain (loss) on derivative instruments $ (0.9 ) $ 0.9
$ (6.9 ) $ 2.0
Loss on derivatives reclassified into income 0.3
—
0.5
—
Total before tax (0.6 ) 0.9
(6.4 ) 2.0
Tax benefit 0.2
—
1.7
—
Net of tax $ (0.4 ) $ 0.9
$ (4.7 ) $ 2.0

NOTE ~~15.~~13. 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~~(“EPS”) is computed by dividing net income ~~available to common shareholders~~ by the weighted-average number of common shares outstanding for the period. Diluted ~~earnings per share reflects~~EPS is similarly calculated but includes the ~~potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. At September 30, 2019 and 2018, the Company had~~weighted-average dilutive effect of outstanding restricted ~~stock,~~shares, restricted stock units and stock ~~options, which could potentially dilute basic earnings per share in the future.~~ options.

The following table sets forth the ~~components used in the calculation of~~reconciliation from basic and diluted ~~earnings per share for the periods presented~~average common shares (in ~~millions, except per share data, and shares, which are in thousands)~~millions):


	Three Months Ended March 31,
	2020		2019
Numerator:
Net earnings	$	10.9	$	18.0

Denominator: (shares in thousands)
Denominator for basic earnings per shares - weighted-average shares	48,973		48,775
Effect of dilutive securities:
Potentially dilutive shares resulting from stock plans	735		415
Denominator for diluted earnings per share - weighted-average shares	49,708		49,190
Stock options excluded from the computation of diluted EPS ⁽¹⁾	110		110

Net earnings per share:
Basic	$	0.22	$	0.37
Diluted	$	0.22	$	0.37

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Numerator:
Net earnings attributable to Knoll, Inc. stockholders $ 17.5
$ 20.3
$ 57.1
$ 48.7

Denominator:
Denominator for basic earnings per shares - weighted-average shares 48,873
48,694
48,835
48,642
Effect of dilutive securities:
Potentially dilutive shares resulting from stock plans 701
537
525
548
Denominator for diluted earnings per share - weighted-average shares 49,574
49,231
49,360
49,190
Anti-dilutive equity awards not included in weighted-average common shares—diluted —
1
—
—

Net earnings per common share attributable to Knoll, Inc. stockholders:

Basic $ 0.36
$ 0.42
$ 1.17
$ 1.00
Diluted $ 0.35
$ 0.41
$ 1.16
$ 0.99
(1) Inclusion of stock options would have been anti-dilutive.

NOTE ~~16.~~14. INCOME TAXES

The Company develops interim income tax provisions based on estimates of the effective tax rates expected to apply per tax domicile for the current annual reporting period. These estimates are reevaluated each quarter and updated as necessary. The tax effects of any discrete items are recorded in the period in which they occur and are excluded from the interim estimates of the effective annual rates.

On March 27, 2020, the U.S. federal government enacted tax legislation under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in response to the economic impacts of the spread of COVID-19. The ~~Company’s effective~~CARES Act provides relief to corporate taxpayers by permitting additional carryback allowances for net operating losses (“NOLs”) incurred for periods beginning after January 1, 2017 and before January 1, 2021. The CARES Act also provides changes to the limitations on interest expense deductibility for tax ~~rates~~years beginning in 2019 and 2020. The Company is continuing to evaluate the overall impact of this tax legislation on its operations and income tax position, and has incorporated changes related to the CARES Act in the interim tax provision for the three months ended ~~September 30, 2019 and 2018 was 25.4% and 26.1%, respectively, and 25.7% and 26.4%~~March 31, 2020.

The Company’s effective tax (benefit) rate for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 was (54.6)% and ~~2018,~~26.6%, respectively. Changes in the effective tax ~~rates~~rate for the ~~third~~first quarter ~~and nine months~~ ended ~~September 30, 2019,~~March 31, 2020, as compared to the same ~~periods~~period in ~~2018,~~2019, were primarily driven by the impacts of the CARES Act, specifically the rate differential on the carryback of NOLs to years where the U.S. federal income tax rate was 35.0%, compared to the current rate of 21.0%. Additional factors impacting the change in rate include vesting of equity ~~awards. In addition,~~awards, discrete significant restructuring costs, and changes in the relative taxable income in the countries and states in which the Company ~~operates impact the effective tax rate.~~operates.

NOTE ~~17.~~15. SEGMENT INFORMATION

The Company has 2 reportable segments: Office and Lifestyle. The Office reportable segment is comprised of the operations of the Office operating segment. The Lifestyle reportable segment is an aggregation of the Lifestyle, Europe, and Muuto operating segments. All unallocated expenses are included within Corporate.

The Office segment includes a complete range of workplace products that address diverse workplace planning paradigms in North America and Europe. These products include: office systems furniture, seating, storage, tables, desks and KnollExtra® accessories. The Office segment includes DatesWeiser and Fully. DatesWeiser, known for its sophisticated meeting and conference tables and credenzas, sets a standard of design, quality and technology integration. Fully is an e-commerce furniture brand selling height-adjustable desks, ergonomic chairs and accessories principally for individual home offices and small businesses.

The Lifestyle segment includes KnollStudio®, HOLLY HUNT®, Muuto®, KnollTextiles®, Spinneybeck® (including Filzfelt®), and Edelman® Leather. Lifestyle products, which are distributed globally, include iconic seating, lounge furniture, side, café and dining chairs as well as conference, training, dining and occasional tables, lighting, rugs, textiles, high-quality fabrics, felt, leather and related architectural products.

During the first quarter of 2019, the Company changed the structure of its internal organization which caused the composition of its reportable segments to change. As a result, DatesWeiser is now a component of the Office operating segment as opposed to the Lifestyle operating segment. 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 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 reporting segment ~~results. Prior year amounts have been recast to conform to the current presentation~~results (in millions):


	Three Months Ended March 31,
	2020		2019
SALES
Office	$	216.4	$	202.2
Lifestyle	123.6		130.6

Knoll, Inc.	$	340.0	$	332.8
INTERSEGMENT SALES ⁽¹⁾
Office	$	0.3	$	0.4
Lifestyle	2.3		2.5

Knoll, Inc.	$	2.6	$	2.9






OPERATING PROFIT
Office ⁽²⁾	$	3.9	$	14.1
Lifestyle ⁽²⁾	13.6		20.7
Corporate	(6.1)		(5.6)
Knoll, Inc.	$	11.4	$	29.2

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
SALES
Office $ 219.1
$ 200.6
$ 644.5
$ 580.3
Lifestyle 137.4
127.1
412.1
367.3
Knoll, Inc. $ 356.5
$ 327.7
$ 1,056.6
$ 947.6
INTERSEGMENT SALES ⁽¹⁾

Office $ 0.6
$ 0.4
$ 1.5
$ 1.4
Lifestyle 2.2
2.6
7.2
8.0
Knoll, Inc. $ 2.8
$ 3.0
$ 8.7
$ 9.4
OPERATING PROFIT

Office ⁽²⁾
$ 18.3
$ 15.5
$ 46.8
$ 34.7
Lifestyle 25.0
22.7
71.3
63.8
Corporate ⁽³⁾
(6.6 ) (5.3 ) (18.3 ) (18.3 )
Knoll, Inc. $ 36.7

$ 32.9

$ 99.8

$ 80.2

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

(2) ~~Knoll recorded~~Operating profit reflects restructuring charges of ~~$0.1~~$7.5 million and ~~$0.2~~$0.7 million within the Office and Lifestyle segments, respectively, during the three ~~and nine~~ months ended ~~September 30, 2019, respectively~~March 31, 2020, and ~~$1.2~~$0.1 million ~~and $2.6 million during the three and nine months ended September 30, 2018, respectively,~~ within the Office segment ~~related to an organizational realignment that will result in greater operating efficiency and control.~~

~~(3) Knoll recorded acquisition costs within the Corporate segment of $0.3 million related to the acquisition of Fully~~ during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 ~~and $0.1 million and $1.6 million related~~(refer to Note 10 for further information regarding the ~~acquisition of Muuto~~Company’s restructuring actions taken during the ~~three and nine months ended September 30, 2018.~~first quarter of 2020).

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


	Office Segment		Lifestyle Segment		Total
Balance as of December 31, 2019	$	54.3	$	277.8	$	332.1
Foreign currency translation adjustment	(0.6)		(3.5)		(4.1)

Balance as of March 31, 2020	$	53.7	$	274.3	$	328.0

Office
Segment Lifestyle Segment Total
Balance as of December 31, 2018 $ 39.1
$ 281.7
$ 320.8
Foreign currency translation adjustment 0.2
(8.8 ) (8.6 )
Goodwill from current year acquisition 17.1
—
17.1
Balance as of September 30, 2019 $ 56.4
$ 272.9
$ 329.3

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

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~~unaudited condensed 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 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, our publicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals, our integration of acquired businesses, 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. ~~Factors~~Important factors that ~~may~~could cause actual results to differ materially from ~~those in~~ the forward-looking statements include, without limitation: the risks described in Item 1A and Item 7A of our annual report on Form 10-K; changes in the financial stability of our clients or the overall economic environment, resulting in decreased corporate spending and service-sector ~~employment, price~~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 ~~acceptance~~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 ~~Knoll's new products,~~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 patents, copyrights and trademark infringements; violations of environmental laws and regulations; potential labor disruptions; adequacy of our insurance policies; the ~~pricing and~~ availability of ~~raw materials~~future capital and ~~components, foreign currency exchange, transportation costs, demand for high quality, well designed furniture solutions, changes in~~ the ~~competitive marketplace, changes in~~cost of borrowing; the ~~trends in the market for furniture or coverings, the financial~~overall strength and stability of our dealers, suppliers, ~~customers~~ and ~~dealers,~~customers; access to ~~capital, our success in designing and implementing our new enterprise resource planning system,~~necessary capital; our ability to successfully integrate acquired ~~businesses,~~businesses; the success of our ~~supply chain optimization initiatives~~design and ~~other risks identified in Knoll's annual report on Form 10-K,~~implementation of a new enterprise resource planning system; currency rate fluctuations; and ~~other filings with~~ the ~~Securities~~uncertainty and ~~Exchange Commission.~~ultimate economic impact of the COVID-19 pandemic. 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, lighting, accessories, textiles, fine leathers and designer felt for the workplace and 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 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.

COVID-19

The global outbreak of the coronavirus disease 2019 (“COVID-19”) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets. The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to manufacture and ship product in the expected timeframe, will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain and cannot be predicted. The outbreak did not have a material impact on our operating results or business in the first quarter of 2020.

During 2020, we have experienced the temporary closures of certain facilities, however these closures have not had a material impact on our operational and financial performance. At many of our facilities, we have been experiencing reduced productivity and increased employee absences, which we expect to continue as COVID-19 continues to spread and impact populations where our facilities are located.As a result of the COVID-19 pandemic and the measures taken to prevent the spread of the disease or to address its effect, a significant number of our employees are working from home, and we have

altered our manufacturing operations to allow for appropriate social distancing, hygiene, cleaning, and disinfecting. In our supply chain, we have experienced isolated instances of suppliers temporarily closing their operations, delaying order fulfillment or limiting their production, and we are utilizing alternative supply arrangements as needed.

We continue to believe that we will emerge from these events well positioned for long-term growth, though we cannot reasonably estimate the duration and severity of this global pandemic or its ultimate impact on the global economy and our business and results. Given our financial strength, we expect to be able to maintain adequate liquidity as we manage through the current environment. In the first quarter, we took additional actions to provide additional liquidity and flexibility, as described in “Liquidity and Capital Resources” section below, and we will continue to actively monitor the potential impacts of COVID-19 and related events on our industry, the financial markets and the overall economy.

Business Highlights

During the last decade we have diversified our sources of revenue among our varying operating segments. ~~These diversification~~Over the last two years, our efforts ~~coupled with~~to diversify have included the acquisition of Fully in August 2019, a Portland based e-commerce based company servicing the small business and consumer home office market, the acquisition of Muuto in January 2018, a Danish-based global commercial furniture design and distribution company, and multiple organic product development and design projects that have enhanced our portfolio and client offerings. We expect to continue to develop our acquired businesses and expand organically, be acquisitive on an opportunistic basis and continue our efforts to improve the profitability of our Office ~~segment profitability, have resulted in growth and margin expansion.~~segment. We believe we are well positioned to continue to build on these initiatives and benefit from the trend to more social and hospitality-based workplaces in ~~2019 and beyond.~~the coming years.

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. The lean initiatives that were executed in 2019 have contributed greatly to the improvements in gross margin, and we expect more positive contributions in this area as we progress through 2020. In addition, we announced a restructuring plan in January 2020 involving a reduction of our fixed cost footprint that will occur over the next two years and will yield significant savings on an annualized basis as we near the end of 2021. 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. WeAdditionally, we believe that our success in traditional office products gives us an advantage throughout the workplace. Our Rockwell Unscripted collection, as well as Muuto offerings, encompass every product category ranging from seating and lounge to architectural walls and storage. These offerings address the needs of organizations that seek alternatives to the traditional workspace, and are substantially additive to our current product portfolio. ~~Also,~~The acquisition of Fully in August 2019, provides the Office segment with ~~the completion~~high-quality, cost effective complement to our portfolio of ~~the Fully acquisition, we are able~~office solutions, while also broadening our outreach to ~~access previously unserved direct to consumer and~~ small business ~~workplace~~and consumer markets through an e-commerce platform. ~~In addition to these initiatives, we~~We aim to increase profitability ~~through~~with these product initiatives, operational improvements we have discussed, and investments in our physical and technological infrastructure.

We also remain committed to building a more efficient and responsive, customer-centric service culture and technology infrastructure across our organization. In 2019, we completed the technology implementation of the order management functions as part of our overall enterprise resource planning strategy, and deployed front-end, 3-dimensional rendering tools that our clients, dealers and design partners can use to efficiently visualize and build out spaces, and then translate into an order instantaneously. These and other investments have made customer-facing touchpoints meaningfully easier to do business with us. Our capital expenditures are reflective of ~~this~~our commitment to improving efficiency and expanding our product portfolio, as we have continued, and expect to continue, to invest in the business through technology infrastructure upgrades, continued investments in our manufacturing facilities ~~with a focus~~focusing on lean initiatives and showroom presence.

We are carefully evaluating the longer-term impacts of the COVID-19 pandemic in relation to our business. While we expect changes in the way our clients work and live, the details and extent of those changes are not knowable at this time. However, we are confident in our overall capabilities and our ability to evolve our own strategy as we participate in, and, in many cases, lead changes in our industry.

Results of Operations

Comparison of Consolidated Results for the Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~


	Three Months Ended September 30,						2019 vs. 2018						Three Months Ended March 31,								Change
	2019			2018			$ Change			% Change			2020			2019			$		%
	(Dollars in millions, except per share data)												(Dollars in millions, except per share data)
Net Sales	$	356.5		$	327.7		$	28.8		8.8	%	Net Sales	$	340.0		$	332.8		$	7.2	2.2	%
Gross profit	140.4			122.8			17.6			14.4	%	Gross profit	122.3			123.8			(1.5)		(1.2)	%
Selling, general, and administrative expenses	103.6			88.7			14.9			16.9	%	Selling, general, and administrative expenses	103.3			94.5			8.8		9.3	%
Restructuring charges												Restructuring charges	7.6			0.1			7.5		100.0	%
Operating profit	36.7			32.9			3.8			11.4	%	Operating profit	11.4			29.2			(17.8)		(60.9)	%
Interest expense	5.5			5.0			0.5			53.1	%	Interest expense	4.9			5.2			(0.3)		(5.3)	%
Pension settlement charge	9.8			0.6			9.2			1,462.4	%	Pension settlement charge	0.7			0.2			0.5		231.5	%
Other income, net	(2.5		)	(0.2		)	(2.3		)	50.8	%	Other income, net	(1.2)			(0.7)			(0.5)		153.3	%
Income tax expense	6.0			7.2			(1.2		)	(16.6	)%	Income tax expense	(3.9)			6.5			(10.4)		(20.2)	%
Net earnings	17.5			20.3			(2.8		)	(24.7	)%	Net earnings	10.9			18.0			(7.1)		(89.7)	%

Net earnings per common share attributable to Knoll, Inc. stockholders:												Net earnings per common share attributable to Knoll, Inc. stockholders:
Basic	$	0.36		$	0.42		$	(0.06	)	(14.3	)%	Basic	$	0.22		$	0.37		$	(0.15)	(40.5)	%
Diluted	$	0.35		$	0.41		$	(0.06	)	(14.6	)%	Diluted	$	0.22		$	0.37		$	(0.15)	(40.5)	%
Statistical Data												Statistical Data
Gross profit %	39.4		%	37.5		%						Gross profit %	36.0		%	37.2		%
Operating profit %	10.3		%	10.0		%						Operating profit %	3.4		%	8.8		%
Selling, general, and administrative expenses %	29.1		%	27.1		%						Selling, general, and administrative expenses %	30.4		%	28.4		%

Net Sales

Net sales for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$356.5~~$340.0 million, an increase of ~~$28.8~~$7.2 million, or ~~8.8%~~2.2%, from sales of ~~$327.7~~$332.8 million for the three months ended ~~September 30, 2018.~~March 31, 2019. Net sales for the Office segment were ~~$219.1~~$216.4 million for the three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~9.2%~~7.0%, when compared to the three months ended ~~September 30, 2018.~~March 31, 2019. The increase in the Office segment was a driven primarily by ~~an increase in height adjustable table offerings, improved storage system products, continued growth in conference room solutions and~~ the ~~addition~~inclusion of ~~Fully.~~Fully’s work-from-home e-commerce offering. Net sales for the Lifestyle segment were ~~$137.4~~$123.6 million during the three months ended ~~September 30, 2019, an increase~~March 31, 2020, a decrease of ~~8.2%~~5.3%, from the three months ended ~~September 30, 2018.~~March 31, 2019. Lifestyle segment sales ~~growth was~~were down primarily due to ~~strong~~challenging year-over-year comparisons in our KnollStudio workplace sales, and residential weakness at HOLLY HUNT and Knoll Europe where we had to close design center showrooms, partially offset by continued double-digit growth at ~~Muuto and increased crossover sales in commercial workplace settings.~~Muuto.

Gross Profit

Gross profit for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$140.4~~$122.3 million, ~~an increase~~a decrease of ~~$17.6~~$1.5 million, or ~~14.4%~~1.2%, from gross profit of ~~$122.8~~$123.8 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease for the three months ended ~~September 30, 2019~~March 31, 2020 was due primarily to unfavorable fixed cost leverage in our manufacturing facilities from ~~higher~~decreased volume absorption ~~continuous improvement initiatives~~ and ~~price realization,~~unfavorable product mix, partially offset by ~~commodity inflation~~net price realization and ~~tariffs.~~continuous improvement initiatives.

Operating Profit

Operating profit for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$36.7~~$11.4 million, ~~an increase~~a decrease of ~~$3.8~~$17.8 million, or ~~11.4%~~60.9%, from operating profit of ~~$32.9~~$29.2 million for the three months ended ~~September 30, 2018.~~March 31, 2019. Operating profit as a percentage of sales ~~increased~~decreased from ~~10.0%~~8.8% for the three months ended ~~September 30, 2018~~March 31, 2019 to ~~10.3%~~3.4% for the three months ended ~~September 30, 2019,~~March 31, 2020, primarily as a result of the ~~improvement in~~ gross profit ~~offset by~~decline and restructuring charges associated with the ~~increase in operating expenses.~~

Company’s previously announced plans to close its Grand Rapids, Michigan manufacturing plant and consolidate operations into its remaining North American manufacturing plants.

Selling, general, and administrative expenses for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$103.6~~$103.3 million, or ~~29.1%~~30.4% of sales, an increase of ~~$14.9~~$8.8 million from ~~$88.7~~$94.5 million, or ~~27.1%~~28.4% of sales, for the three months ended ~~September 30, 2018.~~March 31, 2019. The increase was due primarily to higher commission and selling expenses from increased volume, and strategic investments in information technology infrastructure, showrooms, marketing and product development initiatives, and $0.5 millionthe addition of ~~debt refinancing expense. These increases were partially offset by reductions of restructuring charges of $1.1 million which related to supply chain optimization~~Fully, acquired during the third quarter of ~~2018.~~2019, our national sales meeting that took place for the first time in three years, and increased provisions for uncollectable accounts.

Restructuring charges in the three months ended March 31, 2020 were primarily related to expenses associated with the Company’s previously announced plans to close its Grand Rapids, Michigan manufacturing plant and consolidate operations into its remaining North American manufacturing plants.

Interest Expense

Interest expense for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$5.5~~$4.9 million, ~~an increase~~a decrease of ~~$0.5~~$0.3 million from interest expense of ~~$5.0~~$5.2 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease was due primarily to ~~higher~~lower interest ~~rates in 2019 and realized losses attributable to swap settlements.~~rates. During the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ our weighted average interest rate was approximately ~~3.9%~~3.4% and ~~3.7%~~4.0%, respectively.

Pension Settlement Charge

Pension settlement charge for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$9.8~~$0.7 million, an increase of ~~$9.2~~$0.5 million from ~~$0.6~~$0.2 million for the three months ended ~~September 30, 2018.~~ March 31, 2019. Pension settlement charges resulted from the purchase of annuities in connection with the termination and funding of the pension plan for our bargaining unit associates as well as cash payments of lump sum elections. Pension settlement charges during the three months ended September 30, 2018 resulted from cash payments of lump sum ~~elections.~~elections for each of the three month periods ended March 31, 2020 and 2019.

Other Income, net

During the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ other income was ~~$2.5~~$1.2 million and ~~$0.2~~$0.7 million, respectively. The increase in other income was due primarily to foreign exchange gains driven by the appreciation of the US dollar against the ~~Danish Krone in~~Canadian dollar during the ~~third~~first quarter of ~~2019 compared to the third quarter of 2018.~~2020.

Income Tax Expense

On March 27, 2020, the U.S. government enacted tax legislation under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the economic impacts of the COVID-19 outbreak.The CARES Act provides relief to corporate taxpayers by permitting additional carryback allowances for net operating losses incurred for periods beginning after January 1, 2017 and before January 1, 2021.The CARES Act also provides changes to the limitation on interest expense deductibility for tax years beginning in 2019 and 2020.The Company is continuing to evaluate the overall impact of this tax legislation on our operations and overall income tax position and has incorporated changes related to the CARES Act in the interim tax provision for the three months ended March 31, 2020.

Our effective tax rate was ~~25.4%~~(54.6)% for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~26.1%~~26.6% for the three months ended ~~September 30, 2018. The decrease~~March 31, 2019. Changes in the effective tax rates for the first quarter ended March 31, 2020, as compared to the same periods in 2019, were primarily driven by the impacts of the “CARES Act”, specifically the rate differential on net operating loss carryback to years where the US federal tax rate ~~is primarily due~~was 35% compared to the current enacted rate of 21%.Additional factors impacting the rate include vesting of equity ~~awards. In addition our effective tax rates~~awards, significant restructuring expenses that are ~~impacted by relative~~discrete in nature, and changes in ~~taxable~~the relative pretax income in the countries and states in which ~~we operate.~~

~~Comparison of Consolidated Results for~~ the ~~Nine Months Ended September 30, 2019 and 2018~~Company operates.

Nine Months Ended September 30, 2019 vs. 2018
2019 2018 $ Change % Change
(Dollars in millions, except per share data)
Net Sales $ 1,056.6
$ 947.6
$ 109.0
11.5 %
Gross profit 404.9
349.8
55.1
15.8 %
Selling, general, and administrative expenses 304.9
267.0
37.9
14.2 %
Operating profit 99.8
80.2
19.6
24.4 %
Interest expense 16.2
14.4
1.8
12.7 %
Loss on debt extinguishment 0.4
1.4
(1.0 ) (70.1 )%
Pension settlement charge 10.4
5.2
5.2
98.9 %
Other income, net (4.1 ) (7.0 ) 2.9
(51.6 )%
Income tax expense 19.8
17.5
2.3
13.1 %
Net earnings 57.1
48.7
8.4
13.9 %
Net earnings per common share attributable to Knoll, Inc. stockholders:
Basic $ 1.17
$ 1.00
$ 0.17
17.0 %
Diluted $ 1.16
$ 0.99
$ 0.17
17.2 %
Statistical Data
Gross profit % 38.3 % 36.9 %
Operating profit % 9.4 % 8.5 %
Selling, general, and administrative expenses % 28.9 % 28.2 %

~~Net Sales~~

Net sales for the nine months ended September 30, 2019 were $1,056.6 million, an increase of $109.0 million, or 11.5%, from sales of $947.6 million for the nine months ended September 30, 2018. The increase in sales was driven by strong sales across both of our segments. A $64.2 million increase in our Office segment sales resulting from an increase in height-adjustable tables and improved office system products, as well as continued growth in our conference room solutions. Our Lifestyle segment sales increased $44.8 million, or 12.2%, from the same period in the prior year. This increase was primarily driven by strong volume growth at Muuto and increased crossover sales in commercial workplace settings.

~~Gross Profit~~

Gross profit for the nine months ended September 30, 2019 was $404.9 million, an increase of $55.1 million, or 15.8%, from gross profit of $349.8 million for the nine months ended September 30, 2018. As a percentage of sales, gross profit increased from 36.9% for the nine months ended September 30, 2018 to 38.3% for the nine months ended September 30, 2019. This increase was driven mainly by higher volume absorption of fixed costs and continuous improvement initiatives, partially offset by higher tariffs and commodity and transportation inflation during the nine months ended September 30, 2019. The nine months ended September 30, 2018 included an acquisition-related inventory charge of $0.9 million.

~~Operating Profit~~

Operating profit for the nine months ended September 30, 2019 was $99.8 million, increase of $19.6 million, or 24.4%, from operating profit of $80.2 million for the nine months ended September 30, 2018. Operating profit as a percentage of sales was 9.4% for the nine months ended September 30, 2019 compared to 8.5% in the nine months ended September 30, 2018, primarily as a result of the improvement in gross profit, offset by the increase in operating expenses.

Selling, general, and administrative expenses for the nine months ended September 30, 2019 were $304.9 million, or 28.9% of sales, compared to $267.0 million, or 28.2% of sales, for the nine months ended September 30, 2018. The increase was due primarily to higher incentive-based compensation resulting from increased volume, strategic investments in sales force headcount, information technology infrastructure and our showrooms.

Operating expenses also included restructuring changes of $0.4 million and $1.4 million in the nine months ended September 30, 2019 and 2018, respectively. The restructuring charges in the nine months ended September 30, 2018 included supply chain optimization expenses of $0.5 million, an organizational realignment in our manufacturing plants of $0.5 million, and an organizational realignment within the sales and customer service functions of $0.3 million.

~~Interest Expense~~

Interest expense for the nine months ended September 30, 2019 was $16.2 million, an increase of $1.8 million from interest expense of $14.4 million for the nine months ended September 30, 2018. During the nine months ended September 30, 2019 and 2018, our weighted average interest rate was approximately 4.0% and 3.5%, respectively. In addition to the higher weighted-average interest rate, average outstanding debt levels were higher in the current period.

~~Loss on Extinguishment of Debt~~

We recorded a loss on extinguishment of debt of $0.4 and $1.4 million for the nine months ended September 30, 2019 and 2018, respectively, resulting from the amendment of our credit agreement in August of 2019 and the refinancing of our credit facility in January of 2018. Both periods include a $0.4 million loss on previously recorded and unamortized deferred financing fees and the nine months ended September 30, 2018 also includes $1.0 million of fees paid to creditors for the refinancing.

~~Pension Settlement Charge~~

Pension settlement charge for the nine months ended September 30, 2019 was $10.4 million, an increase of $5.2 million from $5.2 million for the nine months ended September 30, 2018. Pension settlement charges resulted primarily from annuities purchased to terminate the pension plan for bargaining unit employees combined with cash payments of lump sum elections for both the union and non-union plans during the nine months ended September 30, 2019, and the purchase of annuities for certain pension plan retirees as well as cash payments from lump sum elections in the nine months ended September 30, 2018.

~~Other Income, net~~

Other income for the nine months ended September 30, 2019 was $4.1 million, a decrease of $2.9 million from $7.0 million for the nine months ended September 30, 2018. The decrease in other income, net for the nine months ended September 30, 2019 from the prior year period was primarily due to foreign exchange losses during the nine months ended September 30, 2019 compared to foreign exchange gains during the nine months ended September 30, 2018. Additionally, other income was reduced by lower net periodic benefit income from the Company's pension and other post-employment benefit plans in the first nine months of 2019 compared to the prior year period.

~~Income Tax Expense~~

Our effective tax rate was 25.7% for the nine months ended September 30, 2019, compared to 26.4% for the nine months ended September 30, 2018. The decrease in the tax rate is primarily due to the vesting of equity awards. In addition our effective tax rates are impacted by relative changes in taxable income in the countries and states in which we operate.

Segment Reporting

The Company has two reportable segments: Office and Lifestyle.

During the first quarter of 2019, the Company changed the structure of its internal organization which caused the composition of its reportable segments to change. As a result, DatesWeiser is now a component of the Office operating segment as opposed to the Lifestyle operating segment. The comparisons of segment results found below have been retrospectively adjusted to reflect the change in segment reporting discussed in Note 17 of Notes to Condensed Consolidated Financial Statements included elsewhere herein.

Comparison of Segment Results for the Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~


	Three Months Ended March 31,						Change
	2020		2019		$		%
	(Dollars in millions)
SALES
Office	$	216.4	$	202.2	$	14.2	7.0	%
Lifestyle	123.6		130.6		(7.0)		(5.3)	%
Knoll, Inc.	$	340.0	$	332.8	$	7.2	2.2	%
OPERATING PROFIT
Office	$	3.9	$	14.1	$	(10.2)	(72.6)	%
Lifestyle	13.6		20.7		(7.1)		(34.0)	%
Corporate	(6.1)		(5.6)		(0.5)		8.9	%
Knoll, Inc.	$	11.4	$	29.2	$	(17.8)	(60.9)	%

Three Months Ended September 30, 2019 vs. 2018
2019 2018 $ Change % Change
(Dollars in millions)
SALES
Office $ 219.1
$ 200.6
$ 18.5
9.2 %
Lifestyle 137.4
127.1
10.3
8.2 %
Knoll, Inc. $ 356.5
$ 327.7
$ 28.8
8.8 %
OPERATING PROFIT
Office $ 18.3
$ 15.5
$ 2.8
18.6 %
Lifestyle 25.0
22.7
2.3
9.7 %
Corporate (6.6 ) (5.3 ) (1.3 ) 24.5 %
Knoll, Inc. $ 36.7
$ 32.9
$ 3.8
11.4 %

~~_______________________________________________________________________________~~

Office

Net sales for the Office segment for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$219.1~~$216.4 million, an increase of ~~$18.5~~$14.2 million, or ~~9.2%~~7.0%, when compared with the three months ended ~~September 30, 2018.~~March 31, 2019. This increase was driven primarily by ~~an increase in sales from height adjustable tables, conference room solutions, and improved storage systems, as well as continued growth from ancillary products.~~the inclusion of Fully’s work-from-home e-commerce offering. Operating profit for the Office segment in the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$18.3~~$3.9 million, ~~an increase~~a decrease of ~~$2.8~~$(10.2) million, or ~~18.6%~~(72.6)%, from ~~$15.5~~$14.1 million when compared with the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease was due primarily to increased sales volume and continuous improvement initiatives, partially offset by commodity inflation, higher incentive-based compensation from increased volume, and strategic investments in increased sales force headcount, information technology infrastructure andrestructuring charges related to our ~~showrooms.~~previously announced plans to close our Grand Rapids, Michigan manufacturing plant to consolidate operations within our three continuing North American manufacturing plants.

Lifestyle

Net sales for the Lifestyle segment for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$137.4~~$123.6 million, ~~an increase~~a decrease of ~~$10.3~~$7.0 million, or ~~8.2%~~(5.3)%, when compared with the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease was due primarily to a decrease in volume ~~growth from increased crossover penetration into commercial workplace settings.~~in the residential channel combined with reduced operations due to government mandated shutdowns in both North America and Europe, partially offset by strong Muuto growth. Operating profit for the Lifestyle segment in the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$25.0~~$13.6 million, ~~an increase~~a decrease of ~~$2.3~~$7.1 million, or ~~9.7%~~(34.0)%, from ~~$22.7~~$20.7 million when compared with the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease in Operating profit was due primarily to decreased volume ~~growth, partially offset by commodity inflation~~ and ~~strategic investments in sales force headcount and showrooms.~~unfavorable product mix.

Corporate

Corporate costs for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$6.6~~$6.1 million, an increase of ~~$1.3~~$0.5 million, when compared with the three months ended ~~September 30, 2018. The increase was due primarily to acquisition costs and costs incurred in connection with amending and extending the Amended Credit Facility.~~March 31, 2019.

~~Comparison of Segment Results for the Nine Months Ended September 30, 2019 and 2018~~

Nine Months Ended September 30, 2019 2019 vs. 2018
2019 2018 $ Change % Change
(Dollars in millions)
SALES
Office $ 644.5
$ 580.3
$ 64.2
11.1 %
Lifestyle 412.1
367.3
44.8
12.2 %
Knoll, Inc. $ 1,056.6
$ 947.6
$ 109.0
11.5 %
OPERATING PROFIT
Office $ 46.8
$ 34.7
$ 12.1
34.9 %
Lifestyle 71.3
63.8
7.5
11.8 %
Corporate (18.3 ) (18.3 ) —
— %
Knoll, Inc. ⁽¹⁾
$ 99.8
$ 80.2
$ 19.6
24.4 %

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

~~Office~~

Net sales for the Office segment for the nine months ended September 30, 2019 were $644.5 million, an increase of $64.2 million, or 11.1%, when compared with the nine months ended September 30, 2018. The increase in the Office segment was due primarily to an increase in sales from height adjustable tables, conference room solutions, and improved storage systems, as well as continued growth from ancillary products. Operating profit for the Office segment in the nine months ended September 30, 2019 was $46.8 million, an increase of $12.1 million, or 34.9%, when compared with the nine months ended September 30, 2018. The increase in operating profit for the Office segment was due primarily to increased sales volume and continuous improvement initiatives, partially offset by commodity and transportation inflation, higher incentive-based compensation from increased volume, and strategic investments in increased sales force headcount, information technology infrastructure and our showrooms.

~~Lifestyle~~

Net sales for the Lifestyle segment for the nine months ended September 30, 2019 were $412.1 million, an increase of $44.8 million, or 12.2%, when compared with the nine months ended September 30, 2018. This increase was due primarily to volume growth primarily from crossover penetration into commercial workplace settings. Operating profit for the Lifestyle segment in the nine months ended September 30, 2019 was $71.3 million, an increase of $7.5 million, or 11.8%, when compared with the nine months ended September 30, 2018. The increase in operating profit was driven primarily by volume growth, partially offset by additional investment spending in product launches and showrooms combined with commodity and transportation inflation and strategic investments in sales force headcount.

~~Corporate~~

Corporate costs for the nine months ended September 30, 2019 were $18.3 million, unchanged when compared with the nine months ended September 30, 2018. Costs incurred in connection with amending and extending the Amended Credit Facility were offset by lower acquisition costs.

Liquidity and Capital Resources

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


								Three Months Ended March 31,
	Nine Months Ended September 30,							2020		2019
	2019			2018				(in millions)
Cash provided by (used in) operating activities							Cash provided by (used in) operating activities	$	(16.4)	$	19.1
Capital expenditures, net							Capital expenditures, net	(10.7)		(9.2)
	(in millions)
Cash provided by operating activities	$	98.1		$	63.8
Capital expenditures, net	(32.4		)	(21.3		)
Purchase of business, net of cash acquired	(30.9		)	(308.0		)
Cash used in investing activities	(63.3		)	(329.3		)	Cash used in investing activities	(10.3)		(9.2)
Proceeds from revolving credit facilities	350.5			409.0			Proceeds from revolving credit facilities	219.5		111.0
Repayment of revolving credit facilities	(336.5		)	(287.5		)	Repayment of revolving credit facilities	(53.5)		(105.0)
Proceeds of term loans	—			395.1

Repayment of term loans	(12.8		)	(224.1		)	Repayment of term loans	(4.2)		(4.3)
Payment of dividends	(24.5		)	(22.7		)	Payment of dividends	(8.9)		(7.8)
Purchase of common stock for treasury	(3.3		)	(4.4		)	Purchase of common stock for treasury	(3.8)		(3.0)
Payment of financing fees	(1.4		)	(4.6		)
Payment of fees related to debt extinguishment	—			(1.0		)
Cash (used in) provided by financing activities	(28.0		)	259.8

Cash provided by (used in) financing activities							Cash provided by (used in) financing activities	149.1		(9.1)

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. Our capital expenditures are primarily related to investments in the improvement of our operating efficiency, innovation and modernization, showroom investment, new product tooling, manufacturing equipment and technology infrastructure. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we made quarterly dividend payments of ~~$0.15 per share in the first quarter and~~ $0.17 per share, ~~in each of the second and third quarters,~~ returning ~~$24.5~~$8.9 million of cash to our shareholders, which includes the payment of accrued dividends on share-based awards that vested during the period.

Cash ~~provided by~~used in operating activities was ~~$98.1~~$16.4 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$63.8 million for the nine months ended September 30, 2018. For the nine months ended September 30, 2019,~~ cash provided by operating activities ~~consisted primarily~~ of ~~$108.3~~$19.1 million for the three months ended March 31, 2019. For the three months ended March 31, 2020, cash used in operating activities included $10.9 million from net income. The cash ~~provided by operations~~used in operating activities is also reflective of various non-cash charges, including ~~$28.8~~$10.7 million of depreciation and amortization, ~~$10.4~~$1.6 million of stock-based compensation and $0.7 million of pension settlement ~~charges and $7.7 million of stock-based compensation, partially~~charges. These positive cash sources in operations were offset by ~~$10.2~~$36.0 million of unfavorable changes in working ~~capital.~~capital, driven by approximately $18.7 million of annual incentive payments from 2019 that were paid in the first quarter of 2020, as well as increases in Inventory and Customer receivables of $10.2 million and $9.4 million, respectively. For the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, cash provided by operating activities consisted of ~~$89.3~~$18.0 million from net income and various non-cash charges, including ~~$26.1~~$8.8 million of depreciation and amortization and ~~$6.7~~$2.2 million of stock based compensation, partially offset by ~~$25.5~~$11.5 million of unfavorable changes in working ~~capital driven primarily by increased inventory purchases and increased accounts receivable from higher sales.~~capital.

Cash used in investing activities in the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ was ~~$63.3~~$10.3 million and ~~$329.3~~$9.2 million, respectively. Capital expenditures were ~~$32.4~~$10.7 million and ~~$21.3~~$9.2 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, related to showroom investments, operating expenditures from maintenance activities and investments in lean initiatives, and our continued commitment to optimizing our information technology infrastructure. ~~The nine~~

Cash provided by financing activities was $149.1 million for the three months ended ~~September 30, 2018 includes the purchase of Muuto of $303.7 million, net of~~March 31, 2020 compared to cash ~~acquired, in January 2018.~~

~~Cash~~ used in financing activities ~~was $28.0~~of $9.1 million for the ~~nine~~three months ended ~~September 30, 2019 compared to cash provided by financing activities of $259.8 million for~~March 31, 2019. For the ~~nine~~three months ended ~~September 30, 2018. For the nine months ended September 30,~~March 31, 2020 and March 31, 2019, ~~and September 30, 2018,~~ we used ~~$3.3~~$3.8 million and ~~$4.4~~$3.0 million, respectively, for share repurchases, and used ~~$24.5~~$8.9 million and ~~$22.7~~$7.8 million of cash, respectively, to fund dividend payments to our shareholders. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we repaid ~~$12.8~~$4.2 million of our outstanding term loans and had net borrowings under our revolving credit facility of ~~$14.0 million.~~$166.0 million primarily to maintain liquidity. The additional borrowings during the three months ended March 31, 2020 were done as a precautionary measure in consideration of the uncertainty around capital market stability during the onset of the COVID-19 health crisis. This resulted in approximately $130.6 million of cash on our balance sheet as of March 31, 2020. We ~~also amended our Amended Credit Facility in August 2019~~intend to ~~extend~~repay these borrowings once the ~~term and amend certain interest rates. We paid fees~~stability of ~~$1.9 million related to~~ the ~~amendment, of which $1.4 million was capitalized and $0.5 million was expensed in selling, general and administrative expenses.~~

capital markets is reasonably assured. During the ~~nine~~three months ended ~~September 30, 2018, the proceeds from~~March 31, 2019, we repaid $4.3 million of our outstanding term loans and had net borrowings under our revolving credit ~~facilities under our Amended Credit Facility~~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 and fund our working capital needs. We amended and extended our Existing Credit Facility in January 2018, and 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.$6.0 million.

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had the following resources available to us to support our business (in millions):


	March 31, 2020		December 31, 2019
Cash	$	130.6	$	8.5
Availability under revolving credit facility	$	90.4	$	256.4

September 30, 2019 December 31, 2018
Cash $ 8.3
$ 1.6
Availability under revolving credit facility $ 246.4
$ 260.3

We are currently in compliance with all of the covenants and conditions under our Amended Credit Agreement. 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.

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 may be repaid at any time, but no later than ~~January 23, 2023.~~August 2024. See Note 13 of the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for further information regarding this facility.

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 currently 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, ~~2018.~~2019.

With the adoption of ASC 842, we present value future lease payments using an incremental borrowing rate based on information available at the commencement of each lease as our leases do not provide an implicit rate.

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, ~~2018.~~2019. 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 ~~nine~~three months ended ~~September 30,~~March 31, 2020, we estimated that materials deflation was approximately $0.7 million and transportation costs were flat compared to the three months ended March 31, 2019. During the three months ended March 31, 2019, we estimated that materials inflation was approximately ~~$4.5 million and transportation inflation approximately $3.3 million. During the nine months ended September 30, 2018, we estimated that materials inflation was approximately $4.4~~$2.0 million and transportation inflation was approximately ~~$8.1~~$2.7 million, ~~respectively.~~respectively, compared to the first quarter of 2018. 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

At ~~September 30, 2019,~~March 31, 2020, we had ~~$462.2~~$610.3 million in principal of variable rate debt. We ~~have entered into~~are party to an interest rate swap ~~agreement which~~contract that effectively fixes the interest rate ~~for~~on an ~~initial notional~~ amount ~~of $300 million~~ of our variable rate debt equal to the notional amount of the contract, which is currently $250 million. The interest rate swap, which decreases in notional value over time by $50 million increments, matures in January 2023 and ~~effectively fixes our interest~~carries a fixed rate atof 2.63%. Our remaining variable rate debt of ~~$162.2~~$360.3 million is subject to changes in underlying interest rates, and, accordingly, our interest payments will fluctuate. During ~~2019,~~2020, a 1% change in interest rates would result in a change in interest expense of approximately ~~$1.6~~$3.6 million per year. As the notional amount of the swap decreases, each $50 million decrease in the notional amount would be exposed to interest rate fluctuations, and a one percent change in interest rates would change interest expense by an additional $0.5 million.

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 the Danish Krone. Approximately ~~16.8%~~17.0% and ~~18.4%~~17.8% of our revenues in the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, and ~~26.8%~~25.2% and ~~29.0%~~28.7% of our cost of goods sold in the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, were denominated in currencies other than the U.S. dollar. Foreign currency exchange rate fluctuations from transaction and translation activity resulted in a net gain of $0.3 million and net loss of ~~$0.6 million and a net gain of $1.1~~$0.9 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

From time to time, we enter into foreign currency hedges to manage our exposure to foreign exchange rates. The terms of these contracts are typically one month or less. The net gain or loss upon settlement is recorded as a component of other income, net.

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 ~~(September 30, 2019)~~(March 31, 2020) (“Disclosure 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 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. Our aforementioned principal executive officer and principal financial officer have concluded that there were no ~~other~~ changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, 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, ~~2018.~~2019.

ITEM 1A. RISK FACTORS

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, 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, ~~2018.~~2019 except as follows:

The COVID-19 pandemic has adversely affected and is expected to continue to pose risks to our business, results of operations, financial condition and cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.

As previously disclosed, we face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic. COVID-19 has spread across the globe during 2020 and is impacting economic activity worldwide. The COVID-19 pandemic and measures implemented to prevent its spread or address its effects have caused disruption and volatility in the global capital markets, and have resulted in a global slowdown in economic activity. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. Although our production facilities have remained substantially operational, these measures have resulted in attenuating activity, including required temporary closures of certain of our facilities and the closure of many showrooms and our retail locations. The duration of these measures is unknown, may be extended and additional measures may be imposed.

In addition, the potential effects of COVID-19 and other similar outbreaks on the company include, but are not limited to, the following:

•Reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate operating results, and reduced business and consumer spending, which may adversely affect our results of operations by reducing our sales, margins and/or net income as a result of a slowdown in customer orders or order cancellations. In addition, volatility in the financial markets could increase the cost of capital and/or limit its availability.

•Economic uncertainty as a result of COVID-19 is expected to make it difficult for our dealers, customers, suppliers and the company to accurately forecast and plan future business activities.

•The potential to weaken the financial position of some of our customers. If circumstances surrounding our customers’ financial capabilities were to deteriorate, write-downs or write-offs could negatively affect our operating results and, if large, could have a material adverse effect on our business, financial condition, results of operations and cash flow.

•Subsequent disruptions in our operations and our supply chain could occur.

•Volatility related to pension plan assets. While our plan assets are broadly diversified, there are inherent market risks associated with investments. We may need to make additional contributions to address an increase in obligations and/or a loss in plan assets as a result of the combination of declining market interest rates and/or past or future plan asset investment losses, which could adversely impact our financial position, results of operations and cash flows.

To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and cash flows, it may also heighten many of the other risks described in this section and in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

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 ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

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)
July 1, 2019 - July 31, 2019 —
$ —
—
$ 32,352,413
August 1, 2019 - August 31, 2019 —
$ —
—
$ 32,352,413
September 1, 2019 - September 30, 2019 —
$ —
—
$ 32,352,413
Total —

—


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, 2020 - January 31, 2020	—		$	—	—	$	32,352,413
February 1, 2020 - February 29, 2020	154,012	⁽²⁾	$	25.68	—	$	32,352,413
March 1, 2020 - March 31, 2020	—		$	—	—	$	32,352,413
Total	154,012				—

~~_______________________________________________________________________________~~

(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 February 2020, 147,500 shares of outstanding restricted stock and 142,667 restricted stock units vested. Concurrently with the vesting, 154,012 shares were surrendered by the holders of the shares to cover applicable taxes paid on the holders’ behalf by the Company.

ITEM 6. EXHIBITS



Exhibit Number						Description

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						Certification of Chief Executive Officer and 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~~
101						The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2019~~March 31, 2020 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, (ii) Condensed Consolidated Statements of Operations and Other Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iii) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*
104						Cover Page Interactive Data File (formatted as Inline XBRL and embedded within the Inline XBRL information contained in Exhibit 101).

* 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:

~~November 8, 2019~~May 11, 2020

By:

/s/ Andrew B. Cogan

Andrew B. Cogan

Chairman and Chief Executive Officer

Date:

~~November 8, 2019~~May 11, 2020

By:

/s/ Charles W. Rayfield

Charles W. Rayfield

Chief Financial Officer

(Principal Financial Officer)



	Nine Months Ended September 30, 2018
Pro forma sales	$	951.8
Pro forma net earnings attributable to Knoll, Inc. stockholders	$	53.7



	September 30, 2019		December 31, 2018
Raw materials	$	59.7	$	65.1
Work-in-process	9.1		8.3
Finished goods	123.8		97.1
	$	192.6	$	170.5



	Fair Value as of September 30, 2019								Fair Value as of December 31, 2018
Liabilities:	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Interest rate swap	$	—	$	8.1	$	—	$	8.1	$	—	$	1.7	$	—	$	1.7
Earn-Out Consideration - Fully ⁽¹⁾	—		—		5.0		5.0		—		—		—		—
Contingent consideration related to a previously completed acquisition	—		—		0.8		0.8		—		—		0.8		0.8



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Lease cost:
Operating lease cost	$	7.5	$	21.2
Short-term lease cost	1.6		2.2
Sublease income	—		(0.1		)
Total lease cost	$	9.1	$	23.3



(dollars in millions)	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	21.4
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	12.3



	September 30, 2019
2019 (remaining three months)	$	7.4
2020	28.9
2021	22.2
2022	19.3
2023	16.5
Thereafter	44.0
Total undiscounted lease payments	138.3
Less: imputed interest	(26.9		)
Total lease liability	$	111.4



	Future minimum debt payments
2019	$	4.1
2020	17.0
2021	17.0
2022	17.0
2023	17.0
Thereafter	390.1
Total	$	462.2



Balance, December 31, 2018	$	9.6
Provision for warranty claims	6.7
Warranty claims settled	(5.9		)
Foreign currency translation adjustment	(0.3		)
Balance, September 30, 2019	$	10.1