Table ofContents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**x****                QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the quarterly period ended September 30,2010**

 

**OR**

 

**o****                   TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the transition periodfrom                 to                 **

 

**Commission File No. 001-12907**

 

**KNOLL, INC.**

 

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

 

**1235 Water Street**

**East Greenville, PA 18041**

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

 

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

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o, |   | Accelerated filer x,        |
|---------------------------------|--------|----------------------------------|
|                            |   |                             |
| Non-accelerated filer o,   |   | Smaller reporting company o |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act.)  Yes o No x

 

As of November 5, 2010, there were 46,963,086 (including 1,181,240shares of non-voting restricted shares) shares of the Registrant’s commonstock, par value $0.01 per share, outstanding.

 

 

 

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**KNOLL, INC.**

 

**TABLE OF CONTENTS FOR FORM 10-Q**

 
| **Item**                                  | ** ** | ** **                                                                                                                   | ** ** | **Page** |
|-------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|----------|
|                                      |       |                                                                                                                         |       |     |
| PART I  — FINANCIAL INFORMATION |
|                                      |       |                                                                                                                         |       |     |
| 1.                                        |       | Condensed  Consolidated Financial Statements:                                                                                |       |     |
|                                      |       | Condensed Consolidated Balance Sheets at  September 30, 2010 and December 31, 2009                                 |       | 3        |
|                                      |       | Condensed Consolidated Statements of Operations for  the three months and nine months ended September 30, 2010 and 2009 |       | 4        |
|                                      |       | Condensed Consolidated Statements of Cash Flows for  the nine months ended September 30, 2010 and 2009                  |       | 5        |
|                                      |       | Notes to the Condensed Consolidated Financial  Statements                                                                    |       | 6        |
|                                      |       |                                                                                                                         |       |     |
| 2.                                        |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                  |       | 13       |
|                                      |       |                                                                                                                         |       |     |
| 3.                                        |       | Quantitative  and Qualitative Disclosures about Market Risk                                                                  |       | 19       |
|                                      |       |                                                                                                                         |       |     |
| 4.                                        |       | Controls and  Procedures                                                                                                     |       | 20       |
|                                      |       |                                                                                                                         |       |     |
| PART II — OTHER INFORMATION     |
|                                      |       |                                                                                                                         |       |     |
| 1.                                        |       | Legal Proceedings                                                                                                            |       | 21       |
|                                      |       |                                                                                                                         |       |     |
| 1A.                                       |       | Risk  Factors                                                                                                                |       | 21       |
|                                      |       |                                                                                                                         |       |     |
| 2.                                        |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                 |       | 21       |
|                                      |       |                                                                                                                         |       |     |
| 6.                                        |       | Exhibits                                                                                                                     |       | 22       |
|                                      |       |                                                                                                                         |       |     |
| Signatures                                |       | 23                                                                                                                           |

 

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**PART I - FINANCIAL INFORMATION**

 

**ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**KNOLL, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

***(in thousands, except share and pershare data)***

 
| ** **                                                                                                                                                                                                                                                                   | ** ** | **September 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                                   |       |                         | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                                                                                                                                                              |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                    |       | $                            | 7,814      |                        | $          | 5,961 |   |
| Customer receivables, net                                                                                                                                                                                                                                                    |       | 116,735                      |       | 113,652                     |       |
| Inventories                                                                                                                                                                                                                                                                  |       | 80,722                       |       | 79,964                      |       |
| Deferred income taxes                                                                                                                                                                                                                                                        |       | 7,228                        |       | 4,994                       |       |
| Prepaid and other current assets                                                                                                                                                                                                                                             |       | 9,873                        |       | 9,306                       |       |
| Total current assets                                                                                                                                                                                                                                                         |       | 222,372                      |       | 213,877                     |       |
| Property, plant, and equipment, net                                                                                                                                                                                                                                          |       | 121,194                      |       | 135,045                     |       |
| Goodwill, net                                                                                                                                                                                                                                                                |       | 75,792                       |       | 75,612                      |       |
| Intangible assets, net                                                                                                                                                                                                                                                       |       | 222,348                      |       | 223,550                     |       |
| Other non-trade receivables                                                                                                                                                                                                                                                  |       | 4,687                        |       | 5,605                       |       |
| Other noncurrent assets                                                                                                                                                                                                                                                      |       | 2,683                        |       | 1,931                       |       |
| Total Assets                                                                                                                                                                                                                                                                 |       | $                            | 649,076    |                        | $          | 655,620 |   |
|                                                                                                                                                                                                                                                                         |       |                         |       |                        |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                                                                                               |       |                         |       |                        |       |
| Current liabilities:                                                                                                                                                                                                                                                         |       |                         |       |                        |       |
| Current maturities of long-term debt                                                                                                                                                                                                                                         |       | $                            | 132        |                        | $          | 149 |   |
| Accounts payable                                                                                                                                                                                                                                                             |       | 75,008                       |       | 74,687                      |       |
| Income taxes payable                                                                                                                                                                                                                                                         |       | 3,665                        |       | —                      |       |
| Other current liabilities                                                                                                                                                                                                                                                    |       | 85,159                       |       | 78,428                      |       |
| Total current liabilities                                                                                                                                                                                                                                                    |       | 163,964                      |       | 153,264                     |       |
| Long-term debt                                                                                                                                                                                                                                                               |       | 255,000                      |       | 295,156                     |       |
| Deferred income taxes                                                                                                                                                                                                                                                        |       | 44,000                       |       | 36,997                      |       |
| Postretirement benefits other than pensions                                                                                                                                                                                                                                  |       | 24,439                       |       | 23,435                      |       |
| Pension liability                                                                                                                                                                                                                                                            |       | 39,922                       |       | 41,046                      |       |
| International retirement obligation                                                                                                                                                                                                                                          |       | 3,474                        |       | 4,444                       |       |
| Other noncurrent liabilities                                                                                                                                                                                                                                                 |       | 7,472                        |       | 11,716                      |       |
| Total liabilities                                                                                                                                                                                                                                                            |       | 538,271                      |       | 566,058                     |       |
| Stockholders’ equity:                                                                                                                                                                                                                                                   |       |                         |       |                        |       |
| Common stock, $0.01 par value; 200,000,000 shares  authorized; 47,026,967 issued and outstanding (net of 12,902,452 treasury  shares) at September 30, 2010 and 46,934,683 shares issued and  outstanding (net of 12,425,927 treasury shares) at December 31, 2009 |       | 470                          |       | 470                         |       |
| Additional paid-in-capital                                                                                                                                                                                                                                                   |       | 14,133                       |       | 6,736                       |       |
| Retained earnings                                                                                                                                                                                                                                                            |       | 107,003                      |       | 92,583                      |       |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                         |       | (10,801                      | )          | (10,227                     | )          |
| Total stockholders’ equity                                                                                                                                                                                                                                              |       | 110,805                      |       | 89,562                      |       |
| Total Liabilities and Stockholders’ Equity                                                                                                                                                                                                                              |       | $                            | 649,076    |                        | $          | 655,620 |   |

 

See accompanying notes to the condensed consolidated financialstatements

 

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**KNOLL, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

***(in thousands, except share and pershare data)***

 
| ** **                                  | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                  | ** ** | **2010**                                             | ** ** | **2009**                                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Sales                                       |       | $                                                    | 202,149    |                                                | $          | 181,282 |   | $ | 569,683 |   | $ | 596,088 |   |
| Cost of sales                               |       | 134,697                                              |       | 120,009                                             |       | 382,530 |   | 389,319 |   |
| Gross profit                                |       | 67,452                                               |       | 61,273                                              |       | 187,153 |   | 206,769 |   |
| Selling, general, and admistrative expenses |       | 48,223                                               |       | 44,366                                              |       | 140,821 |   | 146,271 |   |
| Restructuring charges                       |       | 120                                                  |       | 110                                                 |       | 5,875 |   | 8,422 |   |
| Operating income                            |       | 19,109                                               |       | 16,797                                              |       | 40,457 |   | 52,076 |   |
| Interest expense                            |       | 4,877                                                |       | 4,054                                               |       | 13,440 |   | 9,681 |   |
| Other expense, net                          |       | 4,274                                                |       | 3,112                                               |       | 3,369 |   | 4,535 |   |
|                                        |       |                                                 |       |                                                |       |   |   |   |   |
| Income before income tax expense            |       | 9,958                                                |       | 9,631                                               |       | 23,648 |   | 37,860 |   |
| Income tax expense                          |       | 3,618                                                |       | 3,905                                               |       | 6,417 |   | 14,535 |   |
| Net Income                                  |       | $                                                    | 6,340      |                                                | $          | 5,726 |   | $ | 17,231 |   | $ | 23,325 |   |
|                                        |       |                                                 |       |                                                |       |   |   |   |   |
| Net earnings per share                      |       |                                                 |       |                                                |       |   |   |   |   |
| Basic                                       |       | $                                                    | 0.14       |                                                | $          | 0.13 |   | $ | 0.38 |   | $ | 0.51 |   |
| Diluted                                     |       | $                                                    | 0.14       |                                                | $          | 0.13 |   | $ | 0.37 |   | $ | 0.51 |   |
| Dividends per share                         |       | $                                                    | 0.02       |                                                | $          | 0.02 |   | $ | 0.06 |   | $ | 0.16 |   |
| Weighted-average shares outstanding:        |       |                                                 |       |                                                |       |   |   |   |   |
| Basic                                       |       | 45,636,771                                           |       | 45,408,555                                          |       | 45,631,910 |   | 45,366,081 |   |
| Diluted                                     |       | 46,154,165                                           |       | 45,417,593                                          |       | 46,020,432 |   | 45,370,009 |   |

 

See accompanying notes to the condensed consolidated financialstatements.

 

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**KNOLL, INC.**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(Unaudited)**

***(in thousands)***

 
| ** **                                                                     | ** ** | **Nine Months Ended********September 30,** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2010**                                                  | ** ** | **2009** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITES**                                        |       |                                                      |       |   |   |
| Net  income                                                                    |       | $                                                         | 17,231     |   | $ | 23,325 |   |
| Adjustments  to reconcile net income to cash provided by operating activities: |       |                                                      |       |   |   |
| Depreciation                                                                   |       | 13,330                                                    |       | 13,729 |   |
| Amortization  of intangible assets                                             |       | 1,514                                                     |       | 1,594 |   |
| Loss  on disposal of fixed assets                                              |       | 9                                                         |       | 140 |   |
| Write-off  of assets due to restructuring                                      |       | 2,338                                                     |       | — |   |
| Unrealized  foreign currency loss                                              |       | 300                                                       |       | 4,207 |   |
| Ineffective  portion of interest rate swaps                                    |       | 1,177                                                     |       | — |   |
| Stock  based compensation                                                      |       | 7,193                                                     |       | 6,186 |   |
| Other  non-cash items                                                          |       | 22                                                        |       | 22 |   |
| Changes  in assets and liabilites:                                             |       |                                                      |       |   |   |
| Customer  receivables                                                          |       | (4,962                                                    | )          | 31,388 |   |
| Inventories                                                                    |       | (2,096                                                    | )          | 17,141 |   |
| Accounts  payable                                                              |       | 2,866                                                     |       | (16,938 | ) |
| Current  and deferred income taxes                                             |       | 7,521                                                     |       | (11,612 | ) |
| Other  current assets                                                          |       | (1,268                                                    | )          | 1,383 |   |
| Other  current liabilities                                                     |       | 7,342                                                     |       | (18,899 | ) |
| Other  noncurrent assets and liabilities                                       |       | (998                                                      | )          | (9,204 | ) |
| Cash  provided by operating activities                                         |       | 51,519                                                    |       | 42,462 |   |
| **CASH FLOWS FOR INVESTING ACTIVITIES**                                        |       |                                                      |       |   |   |
| Capital  expenditures                                                          |       | (3,936                                                    | )          | (11,489 | ) |
| Purchase  of intangibles                                                       |       | (313                                                      | )          | (758 | ) |
| Cash  used in investing activites                                              |       | (4,249                                                    | )          | (12,247 | ) |
| **CASH FLOWS FOR FINANCING ACTIVITIES**                                        |       |                                                      |       |   |   |
| Net  repayments of revolving credit facilites                                  |       | (40,000                                                   | )          | (27,000 | ) |
| Repayment  of long-term debt                                                   |       | (134                                                      | )          | (121 | ) |
| Payment  of dividends                                                          |       | (2,738                                                    | )          | (7,293 | ) |
| Proceeds  from the issuance of common stock                                    |       | 5,578                                                     |       | 84 |   |
| Purchase  of common stock for treasury                                         |       | (5,569                                                    | )          | (778 | ) |
| Tax  benefit from the exercise of stock options                                |       | 195                                                       |       | — |   |
| Cash  used in financing activities                                             |       | (42,668                                                   | )          | (35,108 | ) |
|                                                                           |       |                                                      |       |   |   |
| Effect  of exchange rate changes on cash and cash equivalents                  |       | (2,749                                                    | )          | 3,616 |   |
|                                                                           |       |                                                      |       |   |   |
| Increase  (decrease) in cash and cash equivalents                              |       | 1,853                                                     |       | (1,277 | ) |
|                                                                           |       |                                                      |       |   |   |
| Cash  and cash equivalents at beginning of period                              |       | 5,961                                                     |       | 14,903 |   |
|                                                                           |       |                                                      |       |   |   |
| Cash  and cash equivalents at end of period                                    |       | $                                                         | 7,814      |   | $ | 13,626 |   |

 

See accompanying notes to the condensed consolidated financialstatements

 

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**KNOLL, INC.**

 

**NOTES TO THE CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**SEPTEMBER 30, 2010**

 

**NOTE1:  BASIS OF PRESENTATION**

 

Theaccompanying unaudited condensed consolidated financial statements of Knoll, Inc.(the “Company”) have been prepared pursuant to the rules and regulationsof the United States Securities and Exchange Commission. Certain informationand footnote disclosures normally included in financial statements prepared inaccordance with U.S. generally accepted accounting principles (“GAAP”) havebeen condensed or omitted pursuant to such rules and regulations.  The consolidated balance sheet of theCompany, as of December 31, 2009, was derived from the Company’s auditedconsolidated balance sheet as of that date. All other condensed consolidated financial statements contained hereinare unaudited and reflect all adjustments which are, in the opinion ofmanagement, necessary to summarize fairly the financial position of the Companyand the results of the Company’s operations and cash flows for the periodspresented.  All of these adjustments areof normal recurring nature.  Allintercompany balances and transactions have been eliminated in consolidation.  These condensed consolidated financialstatements should be read in conjunction with the financial statements andnotes thereto included in the Company’s Form 10-K for the year ended December 31,2009.

 

**NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS**

 

Thereare no recently issued accounting standards that are expected to have amaterial effect on our financial condition, results of operations or cashflows.

 

**NOTE 3: INVENTORIES**

 

Inventories,net consist of:

 
| ** **      | ** ** | **September 30,********2010** | ** ** | **December 31,********2009** | ** ** |
|-----------------|------------|------------------------------------|------------|-----------------------------------|------------|
| ** **      | ** ** | **(in thousands)**            | ** ** |
| Raw Materials   |       | $                                  | 37,734     |                              | $          | 39,112 |   |
| Work-in-Process |       | 6,658                              |       | 6,447                             |       |
| Finished Goods  |       | 36,330                             |       | 34,405                            |       |
|            |       |                               |       |                              |       |
|            |       | $                                  | 80,722     |                              | $          | 79,964 |   |

 

Inventoryreserves for obsolescence and other estimated losses were $8.3 million and $8.4million at September 30, 2010 and December 31, 2009, respectively.

 

**NOTE 4: INCOME TAXES**

 

Asof September 30, 2010, the Company had unrecognized tax benefits ofapproximately $2.1 million. The entire amount of the unrecognized tax benefitswould affect the effective tax rate if recognized.  As of September 30, 2010, the Company issubject to U.S. Federal income tax examinations for the tax years 2006 through2009, and to non-U.S. income tax examinations for the tax years 2002 to 2009.In addition, the Company is subject to state and local income tax examinationsfor the tax years 2002 through 2009.

 

TheCompany’s income tax provision consists of federal, state and foreign incometaxes.  The tax provisions for the threeand nine months ended September 30, 2010 and 2009 were based on the estimatedeffective tax rates applicable for the full years ending December 31, 2010and 2009, respectively, after giving effect to items specifically related tothe interim periods. The Company’s effective tax rate was 36.3% for the threemonths ended September 30, 2010 and 40.5% for the three months endedSeptember 30, 2009.  The decrease inthe effective tax rate for the three months ended September 30, 2010 wasdue to the mix of pretax income and the different effective tax rates in thejurisdictions in which the Company operates. The Company’s effective tax ratewas 27.1% for the nine months ended September 30, 2010 and 38.4% for thenine months ended September 30, 2009. The decrease in our effective tax rate for the nine-month period was dueto a $2.5 million tax benefit related to foreign tax credits that wasrecognized as a discrete item due to amended tax returns being filed during thesecond quarter of 2010.

 

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**KNOLL, INC.**

 

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**

 

**NOTE5:  DERIVATIVE FINANCIAL INSTRUMENTS**

 

TheCompany uses derivative financial instruments to reduce its exposure to adversefluctuations in interest rates.

 

OnMay 21, 2008, the Company entered into four interest rate swap agreementsfor purposes of managing its risk in interest rate fluctuations. Theseagreements each hedge a notional amount of $150.0 million of the Company’sborrowings under the revolving credit facility. Two of the agreements wereeffective June 9, 2009 and expired on June 9, 2010. On these twoagreements, the Company paid a fixed rate of 3.51% and received a variable rateof interest equal to three-month London Interbank Offered Rate (LIBOR), asdetermined on the last day of each quarterly settlement period. The other twoagreements were effective on June 9, 2010 and expire on June 9, 2011.The Company pays a fixed rate of 4.10% on these two agreements and receives avariable rate of interest equal to three-month LIBOR as determined on the lastday of each quarterly settlement period.

 

TheCompany has elected to apply hedge accounting to these swap agreements. During the third quarter of 2010, the Company recorded an expense of $1.2million related to the ineffective portion of the above noted swapagreements.  This expense was recordedbecause the outstanding hedge agreements totaling $300.0 million exceed theamount outstanding under the revolver which was $255.0 million as of September 30,2010.  Changes in the fair values of theeffective portion of the interest rate swap agreements are recorded as acomponent of accumulated other comprehensive income (loss) in the equitysection of the balance sheet.  The net amount paid or received uponquarterly settlements is recorded as an adjustment to interest expense, with acorresponding reduction in accumulated other comprehensive income (loss).

 

Theeffect of derivative instruments on the condensed consolidated statement ofincome for the three months ended September 30, 2010 and 2009 was asfollows (in thousands):

 
| **Derivatives in  Cash Flow Hedge Relationship** | ** ** | **Before - Tax Gain  (Loss)  Recognized in  OCI on Derivative  (Effective Portion)** | ** ** | **Locations of (Loss)  Reclassified from  AOCI into Income  (Effective Portion)** | ** **       | **Before - Tax (Loss)  Reclassified from  AOCI into Income  (Effective Portion)** | ** ** | **Locations of (Loss)  Recognized in Income on  Derivative (Ineffective Portion)** | ** ** | **Before - Tax (Loss)  Recognized in Income on  Derivative (Ineffective  Portion)** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------------|----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|
| **September 30, 2010**                                          | ** ** | ** **                                                                                                              | ** ** | ** **                                                                                                      | ** **       | ** **                                                                                                           | ** ** | ** **                                                                                                            | ** ** |                                                                                                                   | ** ** |
| Interest  rate swap contracts                                        |       | $                                                                                                                       | 248        |                                                                                                            | Interest Expense |                                                                                                                 | $          | (2,772                                                                                                                | )          | Other Expense,  net                                                                                                    |       | $ | (1,177 | ) |
| Total                                                                |       | $                                                                                                                       | 248        |                                                                                                            |             |                                                                                                                 | $          | (2,772                                                                                                                | )          |                                                                                                                   |       | $ | (1,177 | ) |
| **September 30, 2009**                                          | ** ** | ** **                                                                                                              | ** ** | ** **                                                                                                      | ** **       | ** **                                                                                                           | ** ** | ** **                                                                                                            | ** ** |                                                                                                                   | ** ** |
| Interest  rate swap contracts                                        |       | $                                                                                                                       | (2,819     | )                                                                                                               | Interest Expense |                                                                                                                 | $          | (2,261                                                                                                                | )          | Other Expense,  net                                                                                                    |       | $ | — |   |
| Total                                                                |       | $                                                                                                                       | (2,819     | )                                                                                                               |             |                                                                                                                 | $          | (2,261                                                                                                                | )          |                                                                                                                   |       | $ | — |   |

 

Theeffect of derivative instruments on the condensed consolidated statement ofincome for the nine months ended September 30, 2010 and 2009 was asfollows (in thousands):

 
| **Derivatives in  Cash Flow Hedge Relationship** | ** ** | **Before - Tax (Loss)  Recognized in  OCI on Derivative  (Effective Portion)** | ** ** | **Locations of (Loss)  Reclassified from  AOCI into Income  (Effective Portion)** | ** **       | **Before - Tax (Loss)  Reclassified from  AOCI into Income  (Effective Portion)** | ** ** | **Locations of (Loss)  Recognized in Income on  Derivative (Ineffective Portion)** | ** ** | **Before - Tax (Loss)  Recognized in Income on  Derivative (Ineffective  Portion)** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------------|----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|
| **September 30, 2010**                                          | ** ** | ** **                                                                                                        | ** ** | ** **                                                                                                      | ** **       | ** **                                                                                                           | ** ** | ** **                                                                                                            | ** ** |                                                                                                                   | ** ** |
| Interest  rate swap contracts                                        |       | $                                                                                                                 | (1,609     | )                                                                                                               | Interest Expense |                                                                                                                 | $          | (7,731                                                                                                                | )          | Other Expense,  net                                                                                                    |       | $ | (1,177 | ) |
| Total                                                                |       | $                                                                                                                 | (1,609     | )                                                                                                               |             |                                                                                                                 | $          | (7,731                                                                                                                | )          |                                                                                                                   |       | $ | (1,177 | ) |
| **September 30, 2009**                                          | ** ** | ** **                                                                                                        | ** ** | ** **                                                                                                      | ** **       | ** **                                                                                                           | ** ** | ** **                                                                                                            | ** ** |                                                                                                                   | ** ** |
| Interest  rate swap contracts                                        |       | $                                                                                                                 | (4,162     | )                                                                                                               | Interest Expense |                                                                                                                 | $          | (2,764                                                                                                                | )          | Other Expense,  net                                                                                                    |       | $ | — |   |
| Total                                                                |       | $                                                                                                                 | (4,162     | )                                                                                                               |             |                                                                                                                 | $          | (2,764                                                                                                                | )          |                                                                                                                   |       | $ | — |   |

 

Assuminginterest rates stay at current levels, in the remaining nine months of the swapagreements, the Company anticipates that approximately $6.7 million will bereclassified from other comprehensive income (loss), to interest expense inconnection with quarterly settlements of the above-referenced swap agreements.

 

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**KNOLL, INC.**

 

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**

 

**NOTE5:  DERIVATIVE FINANCIAL INSTRUMENTS(continued)**

 

The following table sets forth the fair value of theinterest rate swap contract liabilities included in current liabilities withinthe condensed consolidated balance sheets at September 30, 2010 andDecember 31, 2009:

 
| ** **                                             | ** ** | **September 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                             | ** ** | **(in thousands)**      | ** ** |
| **Derivatives designated as hedging  instruments**     |       |                         |       |                        |       |
|                                                   |       |                         |       |                        |       |
| Interest rate swap agreements                          |       | $                            | (6,667     | )                           | $          | (12,789 | ) |
|                                                   |       |                         |       |                        |       |
| **Derivatives not designated as  hedging instruments** |       |                         |       |                        |       |
|                                                   |       |                         |       |                        |       |
| Interest rate swap agreements                          |       | (1,177                       | )          | —                      |       |
|                                                   |       |                         |       |                        |       |
| Total Derivatives                                      |       | $                            | (7,844     | )                           | $          | (12,789 | ) |

 

Thefair value of the Company’s derivative instruments included in current liabilitiesis $7.8 million at September 30, 2010. The fair value of the Company’s derivative instruments included incurrent liabilities is $9.0 million at December 31, 2009. The fair valueof the Company’s derivative instruments included in non-current liabilities is$3.8 million at December 31, 2009.

 

TheCompany will continue to review its exposure to interest rate fluctuations andevaluate whether it should manage such exposure through derivativetransactions.  See note 12 of thecondensed consolidated financial statements for additional informationregarding the fair value of the interest rate swaps.

 

**NOTE 6: CONTINGENT LIABILITIES AND COMMITMENTS**

 

TheCompany is currently involved in matters of litigation, including environmentalcontingencies, arising in the ordinary course of business. The Company accruesfor 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 inthe aggregate, will not have a material adverse effect on the Company’scondensed consolidated financial position, results of operations, or cashflows.

 

AtSeptember 30, 2010, the Company employed a total of approximately 3,000people.  Approximately 14.1% of theemployees are represented by unions.  TheGrand Rapids, Michigan plant is the only unionized plant within the U.S. andhas an agreement with the Carpenters Union, Local 1615, of the UnitedBrotherhood of Carpenters and Joiners of America, Affiliate of the CarpentersIndustrial Council (the Union), covering approximately 229 hourly employees.The Collective Bargaining Agreement expires August 29, 2011.  Certain workers in the facilities in Italyare also represented by unions.

 

TheCompany offers a warranty for all of its products.  The specific terms and conditions of thosewarranties vary depending upon the product sold.  The Company estimates the costs that may beincurred under its warranties and records a liability in the amount of suchcosts at the time product revenue is recognized.  Factors that affect the Company’s liabilityinclude historical product-failure experience and estimated repair costs foridentified matters for each specific product category.  The Company periodically assesses the adequacyof its recorded warranty liabilities and adjusts the amounts as necessary.

 

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**KNOLL, INC.**

 

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**

 

**NOTE6:  CONTINGENT LIABILITIES ANDCOMMITMENTS (continued)**

 
| ** **                     | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------|------------|---------------------------------|------------|
| ** **                     | ** ** | **September 30,  2010**    | ** ** | **September 30,  2009** | ** ** |
| ** **                     | ** ** | **(in thousands)**         | ** ** |
| Balance at beginning of period |       | $                               | 9,773      |   | $ | 11,528 |   |
| Provision for warranty claims  |       | 3,125                           |       | 4,601 |   |
| Warranty claims paid           |       | (4,744                          | )          | (5,485 | ) |
|                           |       |                            |       |   |   |
| Balance at end of period       |       | $                               | 8,154      |   | $ | 10,644 |   |

 

**NOTE 7: PENSIONS**

 

Thefollowing tables summarize the costs of the Company’s employee pension and postretirement plans for the periods indicated.

 
| ** **                         | ** ** | **Pension Benefits**          | ** ** | **Other Benefits**            | ** ** |
|------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| ** **                         | ** ** | **Three months ended**   | ** ** | **Three months ended**   | ** ** |
| ** **                         | ** ** | **September 30,********2010** | ** ** | **September 30,********2009** | ** ** | **September 30,********2010** | ** ** | **September 30,********2009** | ** ** |
| ** **                         | ** ** | **(in thousands)**            | ** ** |
| Service cost                       |       | $                                  | 2,600      |                               | $          | 2,446 |   | $ | 113 |   | $ | 106 |   |
| Interest cost                      |       | 2,703                              |       | 2,411                              |       | 370 |   | 345 |   |
| Expected return on plan assets     |       | (2,918                             | )          | (2,716                             | )          | — |   | — |   |
| Amortization of prior service cost |       | 15                                 |       | 18                                 |       | (301 | ) | (312 | ) |
| Recognized actuarial loss          |       | 265                                |       | 6                                  |       | 138 |   | 101 |   |
|                               |       | 2,665                              |       | 2,165                              |       | 320 |   | 240 |   |
| Curtailment expense (gain)         |       | —                             |       | 28                                 |       | — |   | (1,090 | ) |
| Net periodic benefit cost          |       | $                                  | 2,665      |                               | $          | 2,193 |   | $ | 320 |   | $ | (850 | ) |

 
| ** **                         | ** ** | **Pension Benefits**          | ** ** | **Other Benefits**            | ** ** |
|------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| ** **                         | ** ** | **Nine months ended**    | ** ** | **Nine months ended**    | ** ** |
| ** **                         | ** ** | **September 30,********2010** | ** ** | **September 30,********2009** | ** ** | **September 30,********2010** | ** ** | **September 30,********2009** | ** ** |
| ** **                         | ** ** | **(in thousands)**            | ** ** |
| Service cost                       |       | $                                  | 7,800      |                               | $          | 7,607 |   | $ | 339 |   | $ | 322 |   |
| Interest cost                      |       | 8,109                              |       | 7,279                              |       | 1,110 |   | 1,132 |   |
| Expected return on plan assets     |       | (8,754                             | )          | (7,928                             | )          | — |   | — |   |
| Amortization of prior service cost |       | 45                                 |       | 56                                 |       | (903 | ) | (982 | ) |
| Recognized actuarial loss          |       | 795                                |       | 41                                 |       | 414 |   | 441 |   |
|                               |       | 7,995                              |       | 7,055                              |       | 960 |   | 913 |   |
| Curtailment expense (gain)         |       | —                             |       | 28                                 |       | — |   | (1,090 | ) |
| Net periodic benefit cost          |       | $                                  | 7,995      |                               | $          | 7,083 |   | $ | 960 |   | $ | (177 | ) |

 

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**KNOLL, INC**.

 

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**

 

**NOTE 8: OTHER COMPREHENSIVE INCOME**

 

Comprehensiveincome (loss) consists of net earnings, plus other comprehensive income whichincludes pension liability adjustments, foreign currency translationadjustments, and unrealized losses on derivatives.  Comprehensive incomewas approximately $12.5 million for both the three months ended September 30,2010 and September 30, 2009.  Forthe nine months ended September 30, 2010 and September 30, 2009,comprehensive income was approximately $16.7 million and $37.3 million,respectively.  The following presents thecomponents of “Accumulated Other Comprehensive Income (Loss)” for the periodindicated, net of tax (in thousands).

 
| **Nine months ended:**                 | ** ** | **Beginning** | ** ** | **Before-Tax** | ** ** | **Tax Benefit** | ** ** | **Net-of-Tax** | ** ** | **Ending**  | ** ** |
|--------------------------------------------------|------------|---------------|------------|----------------|------------|----------------------|------------|----------------|------------|-------------|------------|
| **September 30, 2010**                           | ** ** | **Balance**   | ** ** | **Amount**     | ** ** | **(Expense)**        | ** ** | **Amount**     | ** ** | **Balance** | ** ** |
| Pension adjustment                               |       | $             | (24,420    | )              | $          | —               |       | $              | —     |        | $          | — |   | $ | (24,420 | ) |
| Foreign currency translation adjustment          |       | 21,937        |       | (4,292         | )          | —               |       | (4,292         | )          | 17,645      |       |
| Unrealized loss on derivatives                   |       | (7,744        | )          | 6,122          |       | (2,404               | )          | 3,718          |       | (4,026      | )          |
|                                             |       |          |       |           |       |                 |       |           |       |        |       |
| Accumulated other comprehensive loss, net of tax |       | $             | (10,227    | )              | $          | 1,830                |       | $              | (2,404     | )           | $          | (574 | ) | $ | (10,801 | ) |

 

**NOTE 9: COMMON STOCK AND EARNINGS PER SHARE**

 

Basicearnings per share is computed by dividing net income by the weighted-averagenumber of common shares outstanding for the period (excluding unvestedrestricted shares).  Diluted earnings per share reflects the additionaldilution for all shares and potential shares issued under the stock incentiveplans (including unvested restricted shares).

 
| ** **                                                                              | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                              | ** ** | **September 30,  2010**     | ** ** | **September 30,  2009**    | ** ** | **September 30,  2010** | ** ** | **September 30,  2009** | ** ** |
| ** **                                                                              | ** ** | **(in thousands)**          | ** ** |
| Weighted average shares of common stock  outstanding-basic                              |       | 45,637                           |       | 45,409                          |       | 45,632 |   | 45,366 |   |
| Potentially dilutive shares resulting from stock  plans                                 |       | 517                              |       | 9                               |       | 388 |   | 4 |   |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Weighted average common shares-diluted                                                  |       | 46,154                           |       | 45,418                          |       | 46,020 |   | 45,370 |   |
| Antidilutive options not included in the weighted  average common shares — diluted |       | 1,704                            |       | 2,607                           |       | 1,844 |   | 2,607 |   |

 

Commonstock activity for the nine months ended September 30, 2010 and 2009included the repurchase of approximately 464,525 shares for $5.6 million and101,412 shares for $778 thousand, respectively.  Common stock activity forthe first nine months of 2010 also included the exercise of 512,980 options for$5.6 million and the vesting of 39,817 restricted shares in 2010.  Commonstock activity for the first nine months of 2009 included the issuance of11,304 shares for $84 thousand and the vesting of 291,745 restricted shares in2009.

 

**NOTE 10: RESTRUCTURING CHARGES**

 

OnApril 3, 2008, the Company initiated a restructuring plan in order toreduce costs. Additional reductions were announced December 4, 2008, andFebruary 3, 2009.  The Company based its accounting and disclosureson the applicable accounting guidance.  As a result, charges to operationswere made in the periods in which restructuring plan liabilities were incurred.During the three months ended September 30, 2009 the Company incurred $0.1million of restructuring charges.  During the nine months endedSeptember 30, 2009 the Company incurred $8.4 million of restructuringcharges.  These restructuring charges related to employee terminationcosts and costs associated with exiting leased showrooms.  A reserve wasrecorded on the balance sheet for employee termination costs and showroom leasepayments that have not been paid as of September 30, 2010 andDecember 31, 2009.

 

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**KNOLL, INC**.

 

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**

 

**NOTE 10: RESTRUCTURING CHARGES (continued)**

 

OnMarch 18, 2010, the Company announced an additional restructuring plan tobetter align its manufacturing footprint with demand while further focusing theparticular manufacturing activities of each of its North American productionfacilities.  The Company has elected to undergo this restructuring inorder to better utilize its manufacturing capacity, eliminate duplication ofcapabilities and reduce associated costs.  The Company expects the announcedplan to continue through the second quarter of 2011, with estimated charges tototal approximately $7.0 million.  The Company based its accounting anddisclosures on the applicable accounting guidance.  As a result, chargesto operations were made in the periods in which restructuring plan liabilitieswere incurred. During the three months ended September 30, 2010, theCompany incurred approximately $0.1 million of restructuring charges. During the nine months ended September 30, 2010, the Company incurred $5.9million of restructuring charges.  These restructuring charges included$3.5 million of employee termination costs as well as approximately $2.3million of costs associated with the write-off of fixed assets and $0.1 millionof costs associated with the relocation of assets.  A reserve was recordedon the balance sheet for employee termination and relocation costs that havenot been paid as of September 30, 2010.

 

Arollforward of the restructuring reserve for the nine months ended 2010 is asfollows (in thousands):

 
| Reserve balance as of December 31, 2009  |   | $      | 1,774  |   |
|-----------------------------------------------|--------|--------|--------|--------|
| Additions                                     |   | 3,611  |   |
| Payments                                      |   | (3,442 | )      |
| Adjustments                                   |   | (74    | )      |
| Reserve balance as of September 30, 2010 |   | $      | 1,869  |   |

 

Duringthe nine months ended September 30, 2010, $2.3 million of costs associatedwith the write-off of fixed assets were recorded as a direct reduction of theasset which had no further net realizable value as a result of therestructuring.

 

**NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

Thefollowing methods and assumptions are used to estimate the fair value of eachclass of financial instruments for which it is practicable to estimate:

 

*Cash and Cash Equivalents*

 

Thefair value of the Company’s cash and cash equivalents approximates the carryingvalue of the Company’s cash and cash equivalents, due to the short maturity ofthe cash equivalents.

 

*Long-term Debt*

 

Thefair value of the Company’s $255.0 million revolving credit facilityapproximates its carrying value, as it is variable-rate debt. The fair value ofthe Company’s other long-term obligations approximates its carrying value.

 

*Interest Rate Swap Contracts*

 

Thefair value of the Company’s interest rate swap contracts is measured as thepresent value of all expected future cash flows based on the LIBOR-based swapyield curve as of the date of the valuation, subject to a credit adjustment tothe LIBOR-based yield curve’s implied discount rates.  The fair value ofthe Company’s interest rate swap agreements approximates its carrying values.

 

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**KNOLL, INC**.

 

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**

 

**NOTE 12: FAIR VALUE MEASUREMENTS**

 

AccountingStandards Codification 820, “Fair Value Measurements and Disclosures,”establishes a hierarchy that prioritizes fair value measurements based on typesof inputs used for the various valuation techniques (market approach, incomeapproach, and cost approach).  The levels of the hierarchy are describedbelow:

 
| · | Level  1: Observable inputs such as quoted prices in active markets for identical  assets or liabilities                                                                                                                                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                        |
| · | Level  2: Inputs other than quoted prices that are observable for the asset or  liability, either directly or indirectly; these include quoted prices for  similar assets or liabilities in active markets and quoted prices for  identical or similar assets or liabilities in markets that are not active |
|   |                                                                                                                                                                                                                                                                                                        |
| · | Level  3: Unobservable inputs that reflect the reporting entity’s own assumptions                                                                                                                                                                                                                      |

 

TheCompany’s assessment of the significance of a particular input to the fairvalue measurement requires judgment, and may affect the valuation of assets andliabilities and their placement within the fair value hierarchy.  Thefollowing table sets forth the assets and liabilities measured at fair value ona recurring basis, by input level, in the condensed consolidated balance sheetat September 30, 2010 (in thousands):

 
| ** **          | ** ** | **Quoted Prices in********Active Markets for********Identical Assets or********Liabilities (Level1)** | ** ** | **Significant Other********Observable Inputs********(Level 2)** | ** ** | **Significant********Unobservable Inputs********(Level 3)** | ** ** | **Total** | ** ** |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------|------------|
| Liabilities:        |       |                                                                                                                                     |       |                                                                           |       |                                                                  |       |      |       |
| Interest rate swaps |       | $                                                                                                                                        | —     |                                                                           | $          | 7,844                                                                 |       | $         | —     |   | $ | 7,844 |   |
| Total               |       | $                                                                                                                                        | —     |                                                                           | $          | 7,844                                                                 |       | $         | —     |   | $ | 7,844 |   |

 

Theinterest rate swaps are included in current liabilities within the condensedconsolidated balance sheet at September 30, 2010.

 

Thefollowing table sets forth the assets and liabilities measured at fair value ona recurring basis, by input level, in the condensed consolidated balance sheetat December 31, 2009 (in thousands):

 
| ** **          | ** ** | **Quoted Prices in********Active Markets for********Identical Assets or********Liabilities (Level)** | ** ** | **Significant Other********Observable Inputs********(Level 2)** | ** ** | **Significant********Unobservable Inputs********(Level 3)** | ** ** | **Total** | ** ** |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------|------------|
| Liabilities:        |       |                                                                                                                                    |       |                                                                           |       |                                                                  |       |      |       |
| Interest rate swaps |       | $                                                                                                                                       | —     |                                                                           | $          | 12,789                                                                |       | $         | —     |   | $ | 12,789 |   |
| Total               |       | $                                                                                                                                       | —     |                                                                           | $          | 12,789                                                                |       | $         | —     |   | $ | 12,789 |   |

 

Theinterest rate swaps were included in current and non-current liabilities withinthe condensed consolidated balance sheet at December 31, 2009.

 

**NOTE 13: SUBSEQUENT EVENTS**

 

TheCompany evaluated all subsequent events through the date that the condensedconsolidated financial statements were issued.  No material subsequentevents have occurred since September 30, 2010 that required recognition ordisclosure in the condensed consolidated financial statements.

 

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| **ITEM 2:** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS** |
|------------------|-------------------------------------------------------------------------------------------------|

 

*Management’s discussion and analysis of financial conditionand results of operations provides a discussion of our financial performanceand financial condition that should be read in conjunction with theaccompanying unaudited condensed consolidated financial statements*

 

**Forward-looking Statements**

 

ThisQuarterly report on Form 10-Q contains forward-looking statements,principally in the sections entitled “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” and “Quantitative andQualitative Disclosures About Market Risk.” Statements and financial discussionand analysis contained in this Form 10-Q that are not historical facts areforward-looking statements. These statements discuss goals, intentions andexpectations as to future trends, plans, events, results of operations or financialcondition, or state other information relating to us, based on our currentbeliefs as well as assumptions made by us and information currently availableto us. Forward-looking statements generally will be accompanied by words suchas “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 andexpectations regarding any current or future recovery in our industry and ourprojections and estimates with respect to our planned restructuring activities.** **Although we believe theseforward-looking statements are reasonable, they are based upon a number ofassumptions concerning future conditions, any or all of which may ultimatelyprove to be inaccurate. Important factors that could cause actual results todiffer materially from the forward-looking statements include, withoutlimitation: the risks described in Item 1A and in Item 7A of ourAnnual Report on Form 10-K for the year ended December 31, 2009;changes in the financial stability of our clients or the overall economicenvironment, resulting in decreased corporate spending and service sectoremployment; changes in relationships with clients; the mix of products sold andof clients purchasing our products; the success of new technology initiatives;changes in business strategies and decisions; competition from our competitors;our ability to recruit and retain an experienced management team; changes inraw material prices and availability; restrictions on government spendingresulting in fewer sales to the U.S. government, one of our largest customers;our debt restrictions on spending; our ability to protect our patents,copyrights and trademarks; our reliance on furniture dealers to produce sales;lawsuits arising from patents, copyrights and trademark infringements;violations of environment laws and regulations; potential labor disruptions;adequacy of our insurance policies; the availability of future capital; theoverall strength and stability of our dealers, suppliers, and customers; accessto necessary capital; and currency rate fluctuations. The factors identifiedabove are believed to be important factors (but not necessarily all of theimportant factors) that could cause actual results to differ materially fromthose expressed in any forward-looking statement. Unpredictable or unknownfactors could also have material adverse effects on us. All forward-lookingstatements included in this Form 10-Q are expressly qualified in theirentirety by the foregoing cautionary statements. Except as required under theFederal securities laws and rules regulations of the SEC, we undertake noobligation to update, amend, or clarify forward-looking statements, whether asa result of new information, future events, or otherwise.

 

**Overview**

 

Duringthe third quarter of 2010 we experienced double digit growth in sales, grossprofit, operating profit, and net income.  Net sales for the quarter were $202.1 million, an increase of 11.5% overthe third quarter of 2009.   The increasein sales occurred across all product categories and geographies.  Europe posted the largest percentage growthduring the quarter when compared with North America.  Seating continues to outpace the growth ofall our major product categories as our Generation by Knoll***®*** chair sales continue to increase.   The third quarter of 2010 marked the firstquarter in eleven quarters that we experienced growth in sales of our officesystems product category.  Systemscontinues to represent the largest percentage of our overall revenue.  Our backlog of unfilled orders increased on ayear over year basis by 31.9%.  Dilutedearnings per share in the third quarter of 2010 increased 7.7% to $0.14 pershare when compared to $0.13 per share during the same period in the prioryear.

 

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Forthe quarter, gross margin decreased 40 basis points to 33.4% versus thecomparable quarter of the prior year. The decrease in gross margin from the third quarter of 2009 largelyresulted from price deterioration and unfavorable movements in foreignexchange.  Material inflation alsonegatively impacted our gross margin on a year over year basis.  Operating profit for the third quarter of2010 was $19.1 million, an increase of 13.7% from the third quarter of 2009.  Operating expenses for the third quarter of2010 increased $3.8 million, or 8.5%, when compared to the prior year.  Increased commissions and incentivecompensation in conjunction with our higher sales volumes accounted for themajority of this increase.

 

Interestexpense during the third quarter of 2010 increased $0.8 million when comparedto the prior year.  The increase ininterest expense is a result of two interest rate swap agreements we enteredinto during 2008 that went into effect during the second quarter of 2010.  During the third quarter of 2010, we recorded$1.2 million in other expense related to the ineffective portion of ourinterest rates swaps.  This expense wasrecorded because our interest rate swap agreements hedge $300.0 million of our outstandingdebt which currently is only $255.0 million. For a further discussion of the interest rate swap agreements see Note 5to the unaudited condensed consolidated financial statements.

 

Duringthe quarter, we continued to aggressively manage our balance sheet furtherreducing our outstanding debt by $22.0 million. Year-to-date we have reduced our debt by $40.0 million.  We remain in compliance with all our debtcovenants.   Maintaining a strong balancesheet and aggressively freeing up working capital continues to remain a toppriority.

 

This quarter illustrates that we are beginning toemerge from one of the worst declines in the history of our industry.  We are encouraged by the double digit growththis quarter and particularly the 31.9% growth of our backlog.  Inaddition, as we head into the fourth quarter all our leading indicators likeclient renderings, visits, mock-ups and special requests are up double digits.  We are focused on delivering newproduct offerings like our award winningAntennaTM Workspaces that will position us as the supplier of choice for the next generationworkplace.

 

**Critical Accounting Policies**

 

Thepreparation of the consolidated financial statements in conformity withaccounting principles generally accepted in the U.S. requires us to makeestimates and assumptions that affect the reported amounts of certain assets,liabilities, revenues and expenses and the disclosure of certain contingentassets and liabilities. Actual results may differ from such estimates. On anongoing basis, we review our accounting policies and procedures. A moredetailed review of our critical accounting policies is contained in our AnnualReport on Form 10-K for the year ended December 31, 2009.

 

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**Results of Operations**

 

***Comparison of the ThreeMonths and Nine Months Ended September 30, 2010 and 2009***

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | **September 30,  2010**     | ** ** | **September 30,  2009**    | ** ** | **September 30,  2010** | ** ** | **September 30,  2009** | ** ** |
| ** **                                           | ** ** | **(in thousands)**          | ** ** |
| **Consolidated Statement of  Operations Data:**      | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Sales                                            |       | $                                | 202,149    |                            | $          | 181,282 |   | $ | 569,683 |   | $ | 596,088 |   |
| Gross Profit                                         |       | 67,452                           |       | 61,273                          |       | 187,153 |   | 206,769 |   |
| Restructuring charges                                |       | 120                              |       | 110                             |       | 5,875 |   | 8,422 |   |
| Operating Income                                     |       | 19,109                           |       | 16,797                          |       | 40,457 |   | 52,076 |   |
| Interest Expense                                     |       | 4,877                            |       | 4,054                           |       | 13,440 |   | 9,681 |   |
| Other Expense, net                                   |       | 4,274                            |       | 3,112                           |       | 3,369 |   | 4,535 |   |
| Income Tax Expense                                   |       | 3,618                            |       | 3,905                           |       | 6,417 |   | 14,535 |   |
| Net Income                                           |       | $                                | 6,340      |                            | $          | 5,726 |   | $ | 17,231 |   | $ | 23,325 |   |
|                                                 |       |                             |       |                            |       |   |   |   |   |
| **Statistical and Other Data:**                      |       |                             |       |                            |       |   |   |   |   |
| Sales Growth (Decline) from Comparable Prior  Period |       | 11.5                             | %          | (36.1                           | )%         | (4.4 | )% | (29.4 | )% |
| Gross Profit Margin                                  |       | 33.4                             | %          | 33.8                            | %          | 32.9 | % | 34.7 | % |
| Backlog                                              |       | $                                | 160,492    |                            | $          | 121,741 |   | $ | 160,492 |   | $ | 121,741 |   |

 

***Sales***

 

Salesfor the third quarter of 2010 were $202.1 million, an increase of $20.8million, or 11.5%, from sales of $181.3 million for the same period in theprior year.  During the quarter salesincreased across all product categories and geographies.  Sales for the nine months ended September 30,2010 were $569.7 million, a decrease of $26.4 million, or 4.4%, when comparedwith the first nine months of 2009. Competitive pricing in the marketplace continues to impact our sales asdecreased demand in the industry has allowed our customers to obtain higherdiscounts on the products we sell.

 

Duringthe third quarter of 2010, sales to the U.S. government continued to representa large portion of our overall sales.  Sales to the U.S. government were14.7% of net sales during the third quarter of 2010.

 

***Gross Profit and Operating Income***

 

Grossprofit for the third quarter of 2010 was $67.5 million, an increase of $6.2million, or 10.1%, from gross profit of $61.3 million for third quarter of2009.  Gross profit for the nine monthsended September 30, 2010 was $187.2 million, a decrease of $19.6 million,or 9.5%, from gross profit of $206.8 million for the same period in the prioryear.  Operating income for the thirdquarter of 2010 was $19.1 million, an increase of $2.3 million, or 13.7%, fromoperating income of $16.8 million for the third quarter of 2009.  Operating income for the nine months ended September 30,2010 was $40.5 million, a decrease of $11.6 million, or 22.3%, from operatingincome of $52.1 million for the same period in 2009.  As a percentage of sales, gross profitdecreased to 33.4% for the third quarter of 2010 from 33.8% for the thirdquarter of 2009.  For the nine monthsended September 30, 2010, gross profit as a percentage of sales decreasedto 32.9% from 34.7% in 2009.  Thedecrease in gross profit during these periods is largely due to pricedeterioration and unfavorable movements in foreign exchange.  Operating income as a percentage of salesincreased to 9.5% in the third quarter of 2010 from 9.3% over the same periodin 2009.  For the nine months ended September 30,2010, operating income as a percentage of sales decreased to 7.1% from 8.7% in2009.  Operating income for the ninemonths ended, September 30, 2010 and 2009, includes restructuring chargesof $5.9 million and $8.4 million, respectively. For further information regarding these restructuring charges see Note10 of the condensed consolidated financial statements.

 

Operatingexpenses for the third quarter of 2010 were $48.2 million, or 23.9% of sales,compared to $44.4 million, or 24.5% of sales, for the third quarter 2009.  Operating expenses for the nine months ended September 30,2010 were $140.8 million, or 24.7% of sales, compared to $146.3 million, or24.5% of sales, for the same period in 2009. During the third quarter ended September 30, 2010, the increase inoperating expenses was in large part due to increased commission and incentivecompensation in conjunction with our higher sales volumes.

 

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***Interest Expense***

 

Interestexpense for the three months and nine months ended September 30, 2010 was$4.9 million and $13.4 million, respectively, an increase of $0.8 million and$3.8 million, respectively, from the same periods in 2009.  The increase in interest expense for theperiods noted above is due to interest rate swap agreements that went intoeffect during June 2009 and 2010.  For the three months ended September 30,2010, these interest rate swap agreements resulted in additional interestexpense of $2.7 million.  For the ninemonths ended September 30, 2010, these interest rate swap agreementsresulted in additional interest expense of $7.7 million.  Two of these agreements expired June 9,2010 and the remaining two expire June 9, 2011.  See Note 5 of thecondensed consolidated financial statements for further information regardingthe interest rate swap agreements. Taking into account the effect of the interestrate swap agreements, the weighted average interest rate for the third quarterof 2010 was 6.3%. The weighted average interest rate for the same period of2009 was 4.4%.

 

***Other Expense, net***

 

Otherexpense, net for the third quarter of 2010 was $4.3 million.  During the third quarter 2010, we recorded a$1.2 million expense related to the ineffective portion of our interest rateswaps.  See Note 5 of the condensedconsolidated financial statements for further information regarding theinterest rate swap agreements.   Also,included in other expense, net is $3.6 million of foreign exchange losses and$0.5 million of miscellaneous income. Other expense, net for the third quarter of 2009 was $3.1 million whichincluded $3.2 million of foreign exchange losses and $0.1 million ofmiscellaneous income.  For the ninemonths ended September 30, 2010, other expense was $3.4 which included$2.6 million for foreign exchange losses, $1.2 million expense related to theineffective portion of our interest rate swaps, and $0.4 million ofmiscellaneous income.    For the ninemonths ended September 30, 2009, other expense was $4.5 million whichincluded $4.9 million for foreign exchange losses, and $0.4 million ofmiscellaneous income.

 

***Income Tax Expense***

 

Themix of pretax income and the varying effective tax rates in the countries inwhich we operate directly affects our consolidated effective tax rate. Theeffective tax rate was 36.3% for the third quarter of 2010, as compared to40.5% for the same period in 2009.  The effectivetax rate for the nine months ended September 30, 2010 was 27.1% and 38.4%for the same period in 2009.   Thedecrease in year to date effective tax rate was due to a $2.5 million taxbenefit related to foreign tax credits that was recognized as a discrete itemdue to amended tax returns being filed during the second quarter of 2010.

 

**Liquidity and Capital Resources**

 

Thefollowing table highlights certain key cash flows and capital informationpertinent to the discussion that follows:

 
| ** **                            | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **September 30,  2010**    | ** ** | **September 30,  2009** | ** ** |
| ** **                            | ** ** | **(in thousands)**         | ** ** |
| Cash provided by operating activities |       | $                               | 51,519     |   | $ | 42,462 |   |
| Capital expenditures                  |       | (3,936                          | )          | (11,489 | ) |
| Cash used in investing activities     |       | (4,249                          | )          | (12,247 | ) |
| Purchase of common stock for treasury |       | (5,569                          | )          | (778 | ) |
| Net repayment of debt                 |       | (40,134                         | )          | (27,121 | ) |
| Payment of dividends                  |       | (2,738                          | )          | (7,293 | ) |
| Proceeds from issuance of stock       |       | 5,578                           |       | 84 |   |
| Cash used for financing activities    |       | (42,668                         | )          | (35,108 | ) |
|                                       |            |                                 |            |  |  |  |  |

 

Historically,we have carried significant amounts of debt, and cash generated by operatingactivities has been used to fund working capital and capital expenditures,repurchase shares, pay quarterly dividends, and make scheduled payments ofprincipal and interest under our credit facility. Our capital expenditures aretypically for new product tooling and manufacturing equipment. These capitalexpenditures support new products and continuous improvements in ourmanufacturing processes.

 

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Yearto date, net cash provided by operations was $51.5 million of which $43.1million was provided from net income plus non-cash amortizations and stockbased compensation, and $8.4 million of favorable changes in assets andliabilities primarily accounts payable, deferred income taxes, and othercurrent liabilities.  Included in the$43.1 million provided from net income plus non-cash amortizations and stockbased compensation is a $2.3 million write off of fixed assets due torestructuring and $1.2 million related to the change in fair value of theineffective portion of our interest rate swaps.

 

Forthe nine month period ended September 30, 2010, we used available cash,including the $51.5 million of net cash from operating activities, and $5.6million of proceeds from the issuance of common stock, to pay down debt of$40.1 million, fund $3.9 million in capital expenditures, repurchase $5.6million of common stock for treasury, fund dividend payments to shareholderstotaling $2.7 million, and fund working capital.

 

Forthe nine month period ended September 30, 2009, we used available cash,including the $42.5 million of net cash from operating activities, to pay downdebt of $27.1 million, fund $11.5 million in capital expenditures, funddividend payments to shareholders totaling $7.3 million, and fund workingcapital.

 

Cashused in investing activities was $4.2 million for the nine month period ended September 30,2010 and $12.2 million for the same period in 2009. Fluctuations in cash usedin investing activities are primarily attributable to the levels of capitalexpenditures.

 

Weuse our existing secured $500 million revolving credit facility in the ordinarycourse of business to fund our working capital needs, and at times makesignificant borrowings and repayments under the facility depending on our cashneeds and availability at such time.  This facility matures inJune 2013 and provides us with the option to increase the size of thefacility by up to an additional $200 million, subject to the satisfaction ofcertain terms and conditions.  As of September 30, 2010, there wasapproximately $255 million outstanding under the facility, compared to $295million outstanding under the facility as of December 31, 2009. Borrowings under the revolving credit facility may be repaid at any time, butno later than June 2013.

 

Ourrevolving credit facility requires that we comply with two financial covenants:our consolidated leverage ratio, defined as the ratio of total indebtedness toconsolidated EBITDA (as defined in our credit agreement) for a period of fourfiscal quarters, cannot exceed 4 to 1, and our consolidated interest coverageratio, defined as the ratio of our consolidated EBITDA (as defined in ourcredit agreement) for a period of four fiscal quarters to our consolidatedinterest expense, must be a minimum of 3 to 1.  We are also required tocomply with various other affirmative and negative covenants including, withoutlimitation, covenants that prevent or restrict our ability to pay dividends,engage in certain mergers or acquisitions, make certain investments or loans,incur future indebtedness, make significant capital expenditures, engage insale-leaseback transactions, alter our capital structure or line of business,prepay subordinated indebtedness, engage in certain transactions withaffiliates and sell stock or assets.

 

Weare currently in compliance with all of the covenants and conditions under ourcredit facility. We believe that existing cash balances and internallygenerated cash flows, together with borrowings available under our revolvingcredit facility, will be sufficient to fund normal working capital needs,capital spending requirements, debt service requirements and dividend paymentsfor at least the next twelve months. However, because of the financialcovenants mentioned above, our capacity under our revolving credit facilitycould be reduced if our trailing consolidated EBITDA (as defined by our creditagreement) would decline.  Future principal debt payments may be paid outof cash flows from operations, from future refinancing of our debt or fromequity issuances. However, our ability to make scheduled payments of principal,to pay interest on or to refinance our indebtedness, to satisfy our other debtobligations and to pay dividends to stockholders will depend upon our futureoperating performance, which will be affected by general economic, financial,competitive, legislative, regulatory, business and other factors beyond ourcontrol.

 

**Contractual Obligations**

 

Contractualobligations associated with our ongoing business will result in cash paymentsin future periods.  A table summarizing the amounts and timing of thesefuture cash payments was provided in the Company’s Form 10-K filing forthe year ended December 31, 2009.

 

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**Environmental Matters**

 

Ourpast and present business operations and the past and present ownership andoperation of manufacturing plants on real property are subject to extensive andchanging federal, state, local and foreign environmental laws and regulations,including those relating to discharges to air, water and land, the handling anddisposal of solid and hazardous waste and the cleanup of properties affected byhazardous substances.  As a result, we are involved from time-to-time inadministrative and judicial proceedings and inquiries relating to environmentalmatters and could become subject to fines or penalties related thereto. We cannot predict what environmental legislation or regulations will be enactedin the future, how existing or future laws or regulations will be administeredor interpreted or what environmental conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretationof existing laws, may require additional expenditures by us, some of which maybe material.  We have been identified as a potentially responsible partypursuant to the Comprehensive Environmental Response, Compensation andLiability Act of 1980 (“CERCLA”) for remediation costs associated with wastedisposal sites that we previously used.  The remediation costs and ourallocated share at some of these CERCLA sites are unknown. We may also besubject to claims for personal injury or contribution relating to CERCLAsites.  We reserve amounts for such matters when expenditures are probableand reasonably estimable.

 

**Off-Balance Sheet Arrangements**

 

Wedo not currently have any relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements or other contractuallynarrow or limited purposes. In addition, we do not engage in trading activitiesinvolving non-exchange traded contracts.  As a result, we are notmaterially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in these relationships.

 

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| **ITEM 3.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|------------------|----------------------------------------------------------------|

 

Weprovided a discussion of our market risk in Part II, Item 7A, ofour Annual Report on Form 10-K for the year ended December 31, 2009.During the first nine months of 2010, there was no substantive change in ourmarket risk except for the items noted below. This discussion should be read inconjunction with Part II, Item 7A, of our Annual Report on Form 10-Kfor the year ended December 31, 2009.

 

Duringthe normal course of business, we are routinely subjected to market riskassociated with interest rate movements and foreign currency exchange ratemovements. Interest rate risk arises from our debt obligations and relatedinterest rate hedge agreements. Foreign currency exchange rate risk arises fromour non-U.S. operations and purchases of inventory from foreign suppliers.

 

Wehave risk in our exposure to certain material and transportation costs. Steel,leather, wood products and plastics are all used in the manufacture of ourproducts. During the third quarter of 2010, we were impacted by higher steelprices.  We continue to work to offset these price changes in rawmaterials and transportation through our global sourcing initiatives, costimprovements and price increases to our products.

 

***Interest Rate Risk***

 

Wehave variable rate debt obligations that are denominated in U.S. dollars. Achange in interest rates impacts the interest incurred and cash paid on ourvariable-rate debt obligations.

 

Weuse interest rate hedge agreements for other than trading purposes in order tomanage our exposure to fluctuations in interest rates on our variable-ratedebt.  In May of 2008, we enteredinto four interest rate swap agreements in order to manage our interest raterisk. Each agreement hedges a notional amount of $150.0 million of our $500.0million revolving credit facility. Two of the agreements were effective fromJune 9, 2009 through June 9, 2010 and the other two were effectivefrom June 9, 2010 through June 9, 2011. Fluctuations in LIBOR affectboth our net financial instrument position and the amount of cash to be paid orreceived by us, if any, under these agreements. See Note 5 of the condensedconsolidated financial statements included in this quarterly report for furtherinformation regarding the interest rate swap agreements.

 

Takinginto account the effect of the interest rate swap agreements the weightedaverage rate for the third quarter of 2010 was 6.3%.  The weighted average rate for the same periodof 2009 was 4.4%.

 

***Foreign Currency Exchange Rate Risk***

 

Wemanufacture our products in the United States, Canada and Italy, and sell ourproducts primarily in those markets as well as in other European countries. Ourforeign sales and certain expenses are transacted in foreign currencies. Ourproduction costs, profit margins and competitive position are affected by thestrength of the currencies in countries where we manufacture or purchase goods relativeto the strength of the currencies in countries where our products are sold.Additionally, as we report currency in the U.S. dollar, our financial positionis affected by the strength of the currencies in countries where we haveoperations relative to the strength of the U.S. dollar. The principal foreigncurrencies in which we conduct business are the Canadian dollar and the Euro.Approximately 14.9% of our revenues for the nine months ended September 30,2010 and 11.3% in the same period for 2009, and 34.7% of our cost of goods soldfor the nine months ended September 30, 2010 and 33.7% in the same periodfor 2009, were denominated in currencies other than the U.S. dollar.  Foreign currency exchange rate fluctuationsresulted in a $3.6 million translation loss for the third quarter of 2010 and a$3.2 million translation loss for the same period of 2009.  For the nine months ended September 30,2010 and 2009, foreign exchange rate fluctuations included in other expense,net, resulted in a $2.6 million translation loss and a $4.9 million translationloss, respectively.

 

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**ITEM 4.  CONTROLS AND PROCEDURES**

 

*Evaluation of disclosure controls and procedures.* We, under thesupervision and with the participation of our management, including ourprincipal executive officer and principal financial officer, evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures, as defined in Rule 13a-15(e) of the Securities ExchangeAct of 1934 as of the end of the period covered by this report(September 30, 2010) (“Disclosure Controls”). Based upon the DisclosureControls evaluation, our principal executive officer and principal financialofficer have concluded that the Disclosure Controls are effective in reaching areasonable level of assurance that (i) information required to bedisclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’srules and forms and (ii) information required to be disclosed by usin the reports that we file or submit under the Securities Exchange Act of 1934is accumulated and communicated to our management, including our principalexecutive and principal financial officers, or persons performing similarfunctions, as appropriate to allow timely decisions regarding requireddisclosure.

 

*Changes in internal control over financial reporting.* Our principalexecutive officer and principal financial officer also conducted an evaluationof our internal control over financial reporting (“Internal Control”) todetermine whether any changes in Internal Control occurred during the quarterended September 30, 2010 that have materially affected or which arereasonably likely to materially affect Internal Control. Based on thatevaluation, there has been no such change during the quarter endedSeptember 30, 2010.

 

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**PART II — OTHER INFORMATION**

 

**ITEM 1.    LEGAL PROCEEDINGS**

 

Duringthe first three quarters of 2010, there have been no new material legalproceedings or changes in the legal proceedings disclosed in our Annual Reporton Form 10-K for the year ended December 31, 2009.

 

**ITEM 1A. RISK FACTORS**

 

Duringthe first three quarters of 2010, there were no material changes in the riskfactors disclosed in our Annual Report on Form 10-K for the year ended December 31,2009.

 

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

 

**Repurchasesof Equity Securities**

 

The following is a summary of share repurchaseactivity during the three months ended September 30, 2010.

 

OnAugust 17, 2005, our board of directors approved a stock repurchaseprogram (the “Options Proceeds Program”), whereby it authorized us to purchaseshares of our common stock in the open market using the cash proceeds receivedby us upon exercise of outstanding options to purchase shares of our commonstock.

 

OnFebruary 2, 2006, our board of directors approved an additional stockrepurchase program, pursuant to which we are authorized to purchase up to $50.0million of our common stock in the open market, through privately negotiatedtransactions, or otherwise. On February 4, 2008, our board of directorsexpanded this previously authorized $50.0 million stock repurchase program byan 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, 2010 — July 31, 2010           |       | —                                           |       | —                                           |       | —                                                                                                                   |       | 32,352,413                                                                                                                                      |       |
| August 1, 2010 — August 31, 2010       |       | —                                           |       | —                                           |       | —                                                                                                                   |       | 32,352,413                                                                                                                                      |       |
| September 1, 2010 — September 30, 2010 |       | —                                           |       | —                                           |       | —                                                                                                                   |       | 32,352,413                                                                                                                                      |       |
| Total                                                 |       | —                                           |       |                                             |       | —                                                                                                                   |       |                                                                                                                                            |       |

 

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| (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 of 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. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**ITEM 6.  EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                  |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                             |
| 31.1                |       | Certification  of Chief Executive Officer pursuant to Rule 13a-14(a) and  15d-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                           |
| 31.2                |       | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a) and  15d-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                           |
| 32.1                |       | Certification  of Chief Executive Officer pursuant to Rule 13a-14(b) of the  Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2                |       | Certification  of Chief Financial Officer pursuant to Rule 13a-14(b) of the  Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
| **KNOLL, INC.** |                   |   |
|----------------------|------------------------|--------|
| (Registrant)         |                   |   |
|                 |                   |
|                 |                   |
| Date:                | November 9,  2010 |   |
|                 |                   | By:    | /s/ Andrew B. Cogan |   |
|                 |                   |   | **Andrew B. Cogan** |   |
|                 |                   |   | Chief Executive Officer |   |
|                 |                   |   |   |   |
|                 |                   |   |   |   |
| Date:                | November 9,  2010 |   |
|                 |                   | By:    | /s/ Barry L. McCabe |   |
|                 |                   |   | **Barry L. McCabe** |   |
|                 |                   |   | Chief Financial Officer |   |
|                 |                   |   | (Chief Accounting Officer and Controller) |   |
|                      |                        |        |  |  |  |

 

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