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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

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

 

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

** **

**OR**

** **

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

 

**For the transition period from                to               **

** **

**Commission File No. 001-12907**

 

**KNOLL, INC.**

 

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

 

**1235 Water Street**

**East Greenville, PA 18041**

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

 

Indicate by check mark whether the Registrant (1) has filed 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

 

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

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definition 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 |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act.) Yes  o   Nox

 

As of August 5, 2010, there were 47,025,380 shares (including1,388,627 shares of non-voting restricted shares) of the Registrant’s common stock,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 June 30,  2010 and December 31, 2009                                | 3        |
|                                     | Condensed Consolidated Statements of Operations for  the three months and six months ended June 30, 2010 and 2009 | 4        |
|                                     | Condensed Consolidated Statements of Cash Flows for  the six months ended June 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                            | 14       |
|                                     |                                                                                                                   |     |
| 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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**ITEM 1. CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

**KNOLL, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

*** ***

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

 
| ** **                                                                                                                                                                                                                                                               | ** ** | **June 30,********2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                               | ** ** | **(Unaudited)**               | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                               |       |                          | ** ** | ** **                  | ** ** |
| Current  assets:                                                                                                                                                                                                                                                         |       |                          |       |                        |       |
| Cash  and cash equivalents                                                                                                                                                                                                                                               |       | $                             | 10,418     |                        | $          | 5,961 |   |
| Customer  receivables, net                                                                                                                                                                                                                                               |       | 109,545                       |       | 113,652                     |       |
| Inventories                                                                                                                                                                                                                                                              |       | 78,282                        |       | 79,964                      |       |
| Deferred  income taxes                                                                                                                                                                                                                                                   |       | 8,870                         |       | 4,994                       |       |
| Prepaid  and other current assets                                                                                                                                                                                                                                        |       | 12,675                        |       | 9,306                       |       |
|                                                                                                                                                                                                                                                                     |       |                          |       |                        |       |
| Total  current assets                                                                                                                                                                                                                                                    |       | 219,790                       |       | 213,877                     |       |
| Property,  plant, and equipment, net                                                                                                                                                                                                                                     |       | 122,576                       |       | 135,045                     |       |
| Goodwill,  net                                                                                                                                                                                                                                                           |       | 75,494                        |       | 75,612                      |       |
| Intangible  assets, net                                                                                                                                                                                                                                                  |       | 222,838                       |       | 223,550                     |       |
| Other  non-trade receivables                                                                                                                                                                                                                                             |       | 4,773                         |       | 5,605                       |       |
| Other  noncurrent assets                                                                                                                                                                                                                                                 |       | 2,789                         |       | 1,931                       |       |
| Total  Assets                                                                                                                                                                                                                                                            |       | $                             | 648,260    |                        | $          | 655,620 |   |
|                                                                                                                                                                                                                                                                     |       |                          |       |                        |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                            |       |                          |       |                        |       |
| Current  liabilities:                                                                                                                                                                                                                                                    |       |                          |       |                        |       |
| Current  maturities of long-term debt                                                                                                                                                                                                                                    |       | $                             | 122        |                        | $          | 149 |   |
| Accounts  payable                                                                                                                                                                                                                                                        |       | 67,419                        |       | 74,687                      |       |
| Other  current liabilities                                                                                                                                                                                                                                               |       | 85,829                        |       | 78,428                      |       |
| Total  current liabilities                                                                                                                                                                                                                                               |       | 153,370                       |       | 153,264                     |       |
| Long-term  debt                                                                                                                                                                                                                                                          |       | 277,128                       |       | 295,156                     |       |
| Deferred  income taxes                                                                                                                                                                                                                                                   |       | 46,208                        |       | 36,997                      |       |
| Postretirement  benefits other than pensions                                                                                                                                                                                                                             |       | 24,109                        |       | 23,435                      |       |
| Pension  liability                                                                                                                                                                                                                                                       |       | 39,725                        |       | 41,046                      |       |
| International  retirement obligation                                                                                                                                                                                                                                     |       | 3,341                         |       | 4,444                       |       |
| Other  noncurrent liabilities                                                                                                                                                                                                                                            |       | 7,597                         |       | 11,716                      |       |
| Total  liabilities                                                                                                                                                                                                                                                       |       | 551,478                       |       | 566,058                     |       |
| Stockholders’  equity:                                                                                                                                                                                                                                              |       |                          |       |                        |       |
| Common  stock, $0.01 par value; 200,000,000 shares authorized; 47,000,380 issued and  outstanding (net of 12,902,452 treasury shares) at June 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                                                                                                                                                                                                                                              |       | 11,677                        |       | 6,736                       |       |
| Retained  earnings                                                                                                                                                                                                                                                       |       | 101,588                       |       | 92,583                      |       |
| Accumulated  other comprehensive loss                                                                                                                                                                                                                                    |       | (16,953                       | )          | (10,227                     | )          |
| Total  stockholders’ equity                                                                                                                                                                                                                                         |       | 96,782                        |       | 89,562                      |       |
| Total  Liabilities and Stockholders’ Equity                                                                                                                                                                                                                         |       | $                             | 648,260    |                        | $          | 655,620 |   |

 

See accompanying notes to thecondensed consolidated financial statements

 

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**KNOLL, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

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

 
| ** **                                  | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                  | ** ** | **2010**                              | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Sales                                       |       | $                                     | 192,275    |                                | $          | 202,197 |   | $ | 367,534 |   | $ | 414,806 |   |
| Cost of sales                               |       | 129,235                               |       | 131,468                             |       | 247,833 |   | 269,310 |   |
| Gross profit                                |       | 63,040                                |       | 70,729                              |       | 119,701 |   | 145,496 |   |
| Selling, general, and admistrative expenses |       | 48,953                                |       | 50,142                              |       | 92,598 |   | 101,905 |   |
| Restructuring charges                       |       | 2,147                                 |       | 2,073                               |       | 5,755 |   | 8,312 |   |
| Operating Income                            |       | 11,940                                |       | 18,514                              |       | 21,348 |   | 35,279 |   |
| Interest expense                            |       | 4,410                                 |       | 2,856                               |       | 8,563 |   | 5,627 |   |
| Other income (expense), net                 |       | 2,318                                 |       | (2,747                              | )          | 905 |   | (1,423 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Income before income tax expense            |       | 9,848                                 |       | 12,911                              |       | 13,690 |   | 28,229 |   |
| Income tax expense                          |       | 1,172                                 |       | 4,837                               |       | 2,799 |   | 10,630 |   |
| Net Income                                  |       | $                                     | 8,676      |                                | $          | 8,074 |   | $ | 10,891 |   | $ | 17,599 |   |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Net earnings per share                      |       |                                  |       |                                |       |   |   |   |   |
| Basic                                       |       | $                                     | 0.19       |                                | $          | 0.18 |   | $ | 0.24 |   | $ | 0.39 |   |
| Diluted                                     |       | $                                     | 0.19       |                                | $          | 0.18 |   | $ | 0.24 |   | $ | 0.39 |   |
| Dividends per share                         |       | $                                     | 0.02       |                                | $          | 0.02 |   | $ | 0.04 |   | $ | 0.14 |   |
| Weighted-average shares outstanding:        |       |                                  |       |                                |       |   |   |   |   |
| Basic                                       |       | 45,631,958                            |       | 45,386,945                          |       | 45,624,003 |   | 45,344,388 |   |
| Diluted                                     |       | 46,041,300                            |       | 45,389,692                          |       | 45,948,089 |   | 45,345,762 |   |

 

See accompanying notes to the condensed consolidated financialstatements.

 

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**KNOLL, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

***(dollars in thousands)***

 
| ** **                                                                     | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                     | ** ** | **2010**                            | ** ** | **2009** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITES**                                        |       |                                |       |   |   |
| Net income                                                                     |       | $                                   | 10,891     |   | $ | 17,599 |   |
| Adjustments to reconcile net income to cash  provided by operating activities: |       |                                |       |   |   |
| Depreciation                                                                   |       | 9,364                               |       | 9,206 |   |
| Amortization of intangible assets                                              |       | 1,024                               |       | 1,103 |   |
| Loss on disposal of fixed assets                                               |       | 9                                   |       | 115 |   |
| Write-off of assets due to restructuring                                       |       | 2,338                               |       | — |   |
| Unrealized foreign currency (gain) loss                                        |       | (1,075                              | )          | 1,955 |   |
| Stock based compensation                                                       |       | 4,760                               |       | 4,130 |   |
| Other non-cash items                                                           |       | 15                                  |       | 12 |   |
| Changes in assets and liabilites:                                              |       |                                |       |   |   |
| Customer receivables                                                           |       | 1,339                               |       | 7,215 |   |
| Inventories                                                                    |       | (157                                | )          | 14,545 |   |
| Accounts payable                                                               |       | (4,393                              | )          | (11,366 | ) |
| Current and deferred income taxes                                              |       | 1,622                               |       | (12,340 | ) |
| Other current assets                                                           |       | (1,275                              | )          | (1,540 | ) |
| Other current liabilities                                                      |       | 8,376                               |       | (21,854 | ) |
| Other noncurrent assets and liabilities                                        |       | (1,498                              | )          | 4,143 |   |
| Cash provided by operating activities                                          |       | 31,340                              |       | 12,923 |   |
| **CASH FLOWS FOR INVESTING  ACTIVITIES**                                       |       |                                |       |   |   |
| Capital expenditures                                                           |       | (2,826                              | )          | (10,243 | ) |
| Purchase of intangibles                                                        |       | (313                                | )          | — |   |
| Proceeds from the sale of assets                                               |       | —                              |       | 10 |   |
| Cash used in investing activites                                               |       | (3,139                              | )          | (10,233 | ) |
| **CASH FLOWS FOR FINANCING  ACTIVITIES**                                       |       |                                |       |   |   |
| Net (repayments) proceeds from revolving credit  facilites, net                |       | (18,000                             | )          | 1,000 |   |
| Payment of dividends                                                           |       | (1,825                              | )          | (6,353 | ) |
| Proceeds from the issuance of common stock                                     |       | 5,554                               |       | 57 |   |
| Purchase of common stock for treasury                                          |       | (5,569                              | )          | (704 | ) |
| Tax benefit from the exercise of stock options                                 |       | 195                                 |       | — |   |
| Cash used in financing activities                                              |       | (19,645                             | )          | (6,000 | ) |
|                                                                           |       |                                |       |   |   |
| Effect of exchange rate changes on cash and cash  equivalents                  |       | (4,099                              | )          | 2,173 |   |
|                                                                           |       |                                |       |   |   |
| Increase (decrease) in cash and cash equivalents                               |       | 4,457                               |       | (1,137 | ) |
|                                                                           |       |                                |       |   |   |
| Cash and cash equivalents at beginning of period                               |       | 5,961                               |       | 14,903 |   |
|                                                                           |       |                                |       |   |   |
| Cash and cash equivalents at end of period                                     |       | $                                   | 10,418     |   | $ | 13,766 |   |

 

See accompanying notes to the condensed consolidated financialstatements

 

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**KNOLL, INC.**

**NOTES TO THE CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**JUNE 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 consolidated financial statements contained herein areunaudited and reflect all adjustments which are, in the opinion of management,necessary to summarize fairly the financial position of the Company and theresults 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 inconsolidation.  These consolidatedfinancial statements should be read in conjunction with the financialstatements and notes thereto included in the Company’s Form 10-K for theyear 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:

 
| ** **      | ** ** | **June 30,  2010** | ** ** | **December 31,********2009** | ** ** |
|-----------------|------------|-------------------------|------------|-----------------------------------|------------|
| ** **      | ** ** | **(in thousands)**      | ** ** |
| Raw Materials   |       | $                       | 35,527     |                              | $          | 39,112 |   |
| Work-in-Process |       | 6,381                   |       | 6,447                             |       |
| Finished Goods  |       | 36,374                  |       | 34,405                            |       |
|            |       |                    |       |                              |       |
|            |       | $                       | 78,282     |                              | $          | 79,964 |   |

 

Inventoryreserves for obsolescence and other estimated losses were $7.9 million and $8.4million at June 30, 2010 and December 31, 2009, respectively.

 

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**KNOLL, INC.**

 

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

 

**NOTE 4: INCOME TAXES**

 

Asof June 30, 2010, the Company had unrecognized tax benefits ofapproximately $2.1 million.  The entire amount of the unrecognized taxbenefits would affect the effective tax rate if recognized.  As ofJune 30, 2010, the Company is subject to U.S. Federal income taxexaminations for the tax years 2006 through 2009, and to non-U.S. income taxexaminations for the tax years 2002 through 2009.  In addition, theCompany is subject to state and local income tax examinations for the tax years2002 through 2009.

 

TheCompany’s income tax provision consists of federal, state and foreign incometaxes.  The tax provisions for the three months ended June 30, 2010and 2009 were based on the estimated effective tax rates applicable for thefull years ending December 31, 2010 and 2009, after giving effect to itemsspecifically related to the interim periods.  The Company’s effective taxrate was 11.9% for the three months ended June 30, 2010 and 37.5% for thethree months ended June 30, 2009.  The Company’s effective tax ratewas 20.4% for the six months ended June 30, 2010 and 37.7% for the sixmonths ended June 30, 2009. The decrease in our effective tax rate 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.  The Company’seffective tax rate is affected by the mix of pretax income and the differenteffective tax rates of the tax jurisdictions in which it operates.

 

**NOTE5:  DERIVATIVE FINANCIAL INSTRUMENTS**

 

TheCompany uses derivative financial instruments, to reduce its exposure toadverse fluctuations in foreign currency exchange rates and interest rates.

 

OnMay 21, 2008, the Company entered into four interest rate swap agreementsfor purposes of managing its risk in interest rate fluctuations.  These agreements each hedge a notional amountof $150.0 million of the Company’s borrowings under the revolving creditfacility.  Two of the agreements wereeffective June 9, 2009 and expired on June 9, 2010.  On these two agreements, the Company paid afixed rate of 3.51% and received a variable rate of interest equal tothree-month London Interbank Offered Rate (LIBOR), as determined on the lastday of each quarterly settlement period. The other two agreements were effective on June 9, 2010 and expireon June 9, 2011.  The Company pays afixed rate of 4.10% on these two agreements and receives a variable rate ofinterest equal to three-month LIBOR as determined on the last day of eachquarterly settlement period.

 

TheCompany has elected to apply hedge accounting to these swap agreements.  The ineffective portion of the above notedswap agreements was deemed immaterial as of June 30, 2010.  Changes in the fair value of these interestrate swap agreements are recorded as a component of accumulated othercomprehensive income (loss) in the equity section of the balance sheet.  The net amount paid or received uponquarterly settlements is recorded as an adjustment to interest expense, with acorresponding reduction in other comprehensive income (loss).

 

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**KNOLL, INC.**

 

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

 

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

 

Theeffect of derivative instruments on the consolidated statement of income forthe three months ended June 30, 2010 and 2009 was as follows (inthousands):

 
| **Derivatives  in  Cash Flow Hedge Relationship** | ** ** | **Gain  (Loss)  Recognized in  OCI on Derivative  (Effective Portion)** | ** ** | **Locations  of Gain (Loss)  Reclassified from  AOCI into Income  (Effective Portion)** | ** **       | **Before  - Tax  Gain (Loss)  Reclassified from  AOCI into Income  (Effective Portion)** | ** ** | **Locations  of Gain (Loss)  Recognized in Income on  Derivative (Ineffective Portion)** | ** ** | **Gain  (Loss)  Recognized in Income on  Derivative (Ineffective  Portion)** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------------|------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| **June 30, 2010**                            | ** ** | ** **                                                                        | ** ** | ** **                                                                              | ** **       | ** **                                                                               | ** ** | ** **                                                                               | ** ** | ** **                                                                   | ** ** |
| Interest  rate swap contracts                     |       | $                                                                                 | (47        | )                                                                                       | Interest Expense |                                                                                     | $          | (2,520                                                                                   | )          | None                                                                         |       | $ | — |   |
| Total                                             |       | $                                                                                 | (47        | )                                                                                       |             |                                                                                     | $          | (2,520                                                                                   | )          |                                                                         |       | $ | — |   |
| **June 30, 2009**                            | ** ** | ** **                                                                        | ** ** | ** **                                                                              | ** **       | ** **                                                                               | ** ** | ** **                                                                               | ** ** | ** **                                                                   | ** ** |
| Interest  rate swap contracts                     |       | $                                                                                 | 3          |                                                                                    | Interest Expense |                                                                                     | $          | (503                                                                                     | )          | None                                                                         |       | $ | — |   |
| Total                                             |       | $                                                                                 | 3          |                                                                                    |             |                                                                                     | $          | (503                                                                                     | )          |                                                                         |       | $ | — |   |

 

Theeffect of derivative instruments on the consolidated statement of income forthe six months ended June 30, 2010 and 2009 was as follows (in thousands):

 
| **Derivatives  in  Cash Flow Hedge Relationship** | ** ** | **Gain  (Loss)  Recognized in  OCI on Derivative  (Effective Portion)** | ** ** | **Locations  of Gain (Loss)  Reclassified from  AOCI into Income  (Effective Portion)** | ** **       | **Before  - Tax  Gain (Loss)  Reclassified from  AOCI into Income  (Effective Portion)** | ** ** | **Locations  of Gain (Loss)  Recognized in Income on  Derivative (Ineffective Portion)** | ** ** | **Gain  (Loss)  Recognized in Income on  Derivative (Ineffective Portion)** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------------|------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| **June 30, 2010**                            | ** ** | ** **                                                                        | ** ** | ** **                                                                              | ** **       | ** **                                                                               | ** ** | ** **                                                                               | ** ** | ** **                                                                  | ** ** |
| Interest  rate swap contracts                     |       | $                                                                                 | (1,857     | )                                                                                       | Interest Expense |                                                                                     | $          | (4,959                                                                                   | )          | None                                                                        |       | $ | — |   |
| Total                                             |       | $                                                                                 | (1,857     | )                                                                                       |             |                                                                                     | $          | (4,959                                                                                   | )          |                                                                        |       | $ | — |   |
| **June 30, 2009**                            | ** ** | ** **                                                                        | ** ** | ** **                                                                              | ** **       | ** **                                                                               | ** ** | ** **                                                                               | ** ** | ** **                                                                  | ** ** |
| Interest  rate swap contracts                     |       | $                                                                                 | (1,343     | )                                                                                       | Interest Expense |                                                                                     | $          | (503                                                                                     | )          | None                                                                        |       | $ | — |   |
| Total                                             |       | $                                                                                 | (1,343     | )                                                                                       |             |                                                                                     | $          | (503                                                                                     | )          |                                                                        |       | $ | — |   |

 

Assuminginterest rates stay at current levels, in the coming twelve months, the Companyanticipates that approximately $9.7 million will be reclassified from othercomprehensive income (loss), to interest expense in connection with quarterlysettlements of the above-referenced swap agreements.

 

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

 
| ** **                    | ** ** | **June 30,**  | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                    | ** ** | **(in thousands)** | ** ** |
| Interest rate swap agreements |       | $                  | (9,687     | )                     | $          | (12,789 | ) |
|                               |            |                    |            |                       |            |  |  |

 

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**KNOLL, INC.**

 

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

 

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

 

Thefair value of the Company’s derivative instruments included in currentliabilities is $9.7 million at June 30, 2010.  The fair value of the Company’s derivativeinstruments included in current liabilities is $9.0 million atDecember 31, 2009. The fair value of the Company’s derivative instrumentsincluded 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.

 

**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. Basedupon information presently known, management is of the opinion that suchlitigation, either individually or in the aggregate, will not have a materialadverse effect on the Company’s consolidated financial position, results ofoperations, or cash flows.

 

AtJune 30, 2010, the Company employed a total of 3,190 people.  Approximately 13.3% of the employees arerepresented by unions.  The Grand Rapids,Michigan plant is the only unionized plant within the U.S and has an agreementwith the Carpenters Union, Local 1615, of the United Brotherhood of Carpentersand Joiners of America, Affiliate of the Carpenters Industrial Council (theUnion), covering approximately 231 hourly employees. The Collective BargainingAgreement expires August 27, 2011. Certain workers in the facilities in Italy are also represented byunions.

 

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 theadequacy of its recorded warranty liabilities and adjusts the amounts asnecessary.

 
| ** **                     | ** ** | **Six Months Ended**    | ** ** |
|--------------------------------|------------|-------------------------|------------|
| ** **                     | ** ** | **June 30,  2010** | ** ** | **June 30,  2009** | ** ** |
| ** **                     | ** ** | **(in thousands)**      | ** ** |
| Balance at beginning of period |       | $                       | 9,773      |   | $ | 11,528 |   |
| Provision for warranty claims  |       | 2,002                   |       | 3,544 |   |
| Warranty claims paid           |       | (3,192                  | )          | (3,955 | ) |
|                           |       |                    |       |   |   |
| Balance at end of period       |       | $                       | 8,583      |   | $ | 11,117 |   |

 

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**KNOLL, INC.**

 

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

 

**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**        | ** ** |
| ** **                         | ** ** | **June 30,********2010** | ** ** | **June 30,********2009** | ** ** | **June 30,********2010** | ** ** | **June 30,********2009** | ** ** |
| ** **                         | ** ** | **(in thousands)**            | ** ** |
| Service cost                       |       | $                             | 2,600      |                          | $          | 2,580 |   | $ | 113 |   | $ | 108 |   |
| Interest cost                      |       | 2,703                         |       | 2,434                         |       | 370 |   | 394 |   |
| Expected return on plan assets     |       | (2,918                        | )          | (2,606                        | )          | — |   | — |   |
| Amortization of prior service cost |       | 15                            |       | 19                            |       | (301 | ) | (335 | ) |
| Recognized actuarial loss          |       | 265                           |       | 18                            |       | 138 |   | 170 |   |
|                               |       |                          |       |                          |       |   |   |   |   |
| Net periodic benefit cost          |       | $                             | 2,665      |                          | $          | 2,445 |   | $ | 320 |   | $ | 337 |   |

 
| ** **                         | ** ** | **Pension Benefits**          | ** ** | **Other  Benefits**           | ** ** |
|------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                         | ** ** | **Six months ended**          | ** ** | **Six months ended**          | ** ** |
| ** **                         | ** ** | **June 30,********2010** | ** ** | **June 30,********2009** | ** ** | **June 30,********2010** | ** ** | **June 30,********2009** | ** ** |
| ** **                         | ** ** | **(in thousands)**            | ** ** |
| Service  cost                      |       | $                             | 5,200      |                          | $          | 5,160 |   | $ | 226 |   | $ | 216 |   |
| Interest cost                      |       | 5,406                         |       | 4,868                         |       | 740 |   | 788 |   |
| Expected return on plan assets     |       | (5,836                        | )          | (5,212                        | )          | — |   | — |   |
| Amortization of prior service cost |       | 30                            |       | 38                            |       | (602 | ) | (670 | ) |
| Recognized actuarial loss          |       | 530                           |       | 36                            |       | 276 |   | 340 |   |
|                               |       |                          |       |                          |       |   |   |   |   |
| Net periodic benefit cost          |       | $                             | 5,330      |                          | $          | 4,890 |   | $ | 640 |   | $ | 674 |   |

 

**NOTE 8: OTHER COMPREHENSIVE INCOME (LOSS)**

 

Comprehensiveincome (loss) consists of net earnings, plus other comprehensive income whichincludes pension liability adjustments, foreign currency translationadjustments, and unrealized losses on derivatives.  Comprehensive income was approximately $2.8million and $18.5 million for the three months ended June 30, 2010 and June 30,2009, respectively.  For the six monthsended June 30, 2010 and June 30, 2009, comprehensive income totaled$4.2 million and $24.8 million, respectively. The following presents the components of “Accumulated OtherComprehensive Income (Loss)” for the period indicated, net of tax (inthousands).

 
| **Six months ended:**                            | ** ** | **Beginning** | ** ** | **Before-Tax** | ** ** | **Tax Benefit** | ** ** | **Net-of-Tax** | ** ** | **Ending**  | ** ** |
|--------------------------------------------------|------------|---------------|------------|----------------|------------|-----------------|------------|----------------|------------|-------------|------------|
| **June  30, 2010**                               | ** ** | **Balance**   | ** ** | **Amount**     | ** ** | **(Expense)**   | ** ** | **Amount**     | ** ** | **Balance** | ** ** |
|                                             |       |          |       |           |       |            |       |           |       |        |       |
| Pension Adjustment                               |       | $             | (24,420    | )              | $          | —          |       | $              | —     |        | $          | — |   | $ | (24,420 | ) |
| Foreign currency translation adjustment          |       | 21,937        |       | (8,603         | )          | —          |       | (8,603         | )          | 13,334      |       |
| Unrealized loss on derivatives                   |       | (7,744        | )          | 3,102          |       | (1,225          | )          | 1,877          |       | (5,867      | )          |
|                                             |       |          |       |           |       |            |       |           |       |        |       |
| Accumulated other comprehensive loss, net of tax |       | $             | (10,227    | )              | $          | (5,501          | )          | $              | (1,225     | )           | $          | (6,726 | ) | $ | (16,953 | ) |

 

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**KNOLL, INC.**

 

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

 

**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 pershare reflects the additional dilution for all shares and potential sharesissued under the stock incentive plans (including unvested restricted shares).

 
| ** **                                                                         | ** ** | **Three months ended**  | ** ** | **Six months ended**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                                         | ** ** | **June 30,  2010** | ** ** | **June 30,  2009** | ** ** | **June 30,  2010** | ** ** | **June 30,  2009** | ** ** |
| ** **                                                                         | ** ** | **(in thousands)**      | ** ** |
| Weighted average shares of common stock  outstanding-basic                         |       | 45,632                  |       | 45,387                  |       | 45,624 |   | 45,344 |   |
| Potentially dilutive shares resulting from stock  plans                            |       | 409                     |       | 3                       |       | 324 |   | 2 |   |
|                                                                               |       |                    |       |                    |       |   |   |   |   |
| Weighted average common shares-diluted                                             |       | 46,041                  |       | 45,390                  |       | 45,948 |   | 45,346 |   |
|                                                                               |       |                    |       |                    |       |   |   |   |   |
| Antidilutive options not included in the weighted  average common shares - diluted |       | 1,724                   |       | 2,727                   |       | 1,884 |   | 2,727 |   |

 

Commonstock activity for the six months ended June 30, 2010 and 2009 includedthe repurchase of approximately 464,525 shares for $5.6 million and 93,073shares for $704 thousand, respectively. Common stock activity for the first six months of 2010 also included theexercise of 512,980 options for $5.5 million and the vesting of 39,817restricted shares in 2010.  Common stockactivity for the first six months of 2009 included the issuance of 8,609 sharesfor $57 thousand and the vesting of 264,745 restricted shares in 2009.

 

**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 June 30, 2009 the Company incurred $2.1million of restructuring charges.  Duringthe six months ended June 30, 2009 the Company incurred $8.3 million ofrestructuring charges.  These restructuring charges related to employeetermination costs and costs associated with exiting leased showrooms.  Areserve was recorded on the balance sheet for employee termination costs and showroomlease payments that have not been paid as of June 30, 2010 andDecember 31, 2009.

 

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 theannounced plan to continue through the second quarter of 2011, with estimatedcharges to total approximately $10.7 million.  The Company based itsaccounting and disclosures on the applicable accounting guidance.  As aresult, charges to operations were made in the periods in which restructuringplan liabilities were incurred. During the three months ended June 30,2010, the Company incurred approximately $2.1 million of restructuringcharges.  During the six months ended June 30,2010, the Company incurred $5.8 million of restructuring charges.  Theserestructuring charges included employee termination costs as well as approximately$2.3 million of costs associated with the write off of fixed-assets.  Areserve was recorded on the balance sheet for employee termination costs thathave not been paid as of June 30, 2010.

 

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**KNOLL, INC.**

 

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

 

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

 

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

 
| Reserve balance as of December 31, 2009 |   | $      | 1,774  |   |
|----------------------------------------------|--------|--------|--------|--------|
| Additions                                    |   | 3,502  |   |
| Payments                                     |   | (1,817 | )      |
| Adjustments                                  |   | (74    | )      |
| Reserve balance as of June 30, 2010     |   | $      | 3,385  |   |

 

During the six months ended June 30, 2010, $2.3million of costs associated with the write-off of fixed assets were recorded asa direct reduction of the asset which had no further net realizable value as aresult of the restructuring.

 

**NOTE 11:  FAIR VALUE OFFINANCIAL 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 $277.1 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 of the Company’s interest rateswap agreements approximates its carrying values.

 

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**KNOLL, INC.**

 

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

 

**NOTE 12:  FAIRVALUE 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 June 30, 2010 (in thousands):

 
| ** **          | ** ** | **Quoted Prices in********Active Markets for********Identical Assets or********Liabilities (Level 1)** | ** ** | **Significant Other********Observable Inputs********(Level 2)** | ** ** | **Significant********Unobservable Inputs********(Level 3)** | ** ** | **Total** | ** ** |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------|------------|
| Liabilities:        |       |                                                                                                                                 |       |                                                                      |       |                                                             |       |      |       |
| Interest rate swaps |       | $                                                                                                                                    | —     |                                                                      | $          | 9,687                                                            |       | $         | —     |   | $ | 9,687 |   |
|                |       |                                                                                                                                 |       |                                                                      |       |                                                             |       |      |       |
| Total               |       | $                                                                                                                                    | —     |                                                                      | $          | 9,687                                                            |       | $         | —     |   | $ | 9,687 |   |

 

Theinterest rate swaps referred to above are included in current liabilitieswithin the condensed consolidated balance sheet at June 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 1)** | ** ** | **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 referred to above were included in current and non-currentliabilities within the condensed consolidated balance sheet atDecember 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 June 30, 2010 that required recognition ordisclosure in the condensed consolidated financial statements.

 

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**ITEM 2:****                           ****MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIALCONDITION 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 orfinancial condition, or state other information relating to us, based on ourcurrent beliefs as well as assumptions made by us and information currentlyavailable to us. Forward-looking statements generally will be accompanied bywords such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,”“intend,” “may,” “possible,” “potential,” “predict,” “project,” or othersimilar words, phrases or expressions. This includes, without limitation, ourstatements and expectations regarding any future recovery in our industry andour projections and estimates with respect to our planned restructuringactivities.** **Although webelieve these forward-looking statements are reasonable, they are based upon anumber of assumptions concerning future conditions, any or all of which mayultimately prove to be inaccurate. Important factors that could cause actualresults to differ materially from the forward-looking statements include,without limitation: the risks described in Item 1A and in Item 7A ofour Annual 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**

 

Ourfinancial performance for the second quarter of 2010 shows that we are beginningto come out of one of the worst downturns our industry has everexperienced.   Net sales were $192.3million for the quarter, a decrease of 4.9% from the second quarter of2009.   When compared with the firstquarter of 2010, net sales increased 9.7%. During the quarter, the office systems segment of our business continuedto experience the largest decline.  Forthe second consecutive quarter, however, our overall seating businessexperienced year-over-year growth.  Thisincrease can be attributed to increased sales of our Generation by Knoll***®*** Chair. Backlog of unfilled orders at June 30, 2010 was $132.5 million, adecrease of $1.6 million, or 1.2%, compared to unfilled orders at June 30,2009.  Diluted earnings per share in thesecond quarter of 2010 increased 5.6% to $0.19 per share when compared to $0.18per share during the same period in the prior year.  During the second quarter of 2010 we recordeda tax benefit of $2.5 million.

 

For the quarter, grossmargin fell 220 basis points to 32.8% versus the comparable quarter of theprior year.  The decrease from the secondquarter of 2009 largely resulted from price deterioration, unfavorablemovements in foreign exchange, higher material prices, and lower absorption ofour fixed costs as a result of our lower sales volumes.

 

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Ouroperating profit for the second quarter of 2010 was $11.9 million, a decreaseof $6.6 million, or 35.5%, over the same period in 2009.  During the second quarter of 2010, weincurred restructuring charges, of $2.1 million.  These charges consisted of employee terminationand severance costs associated with our plan announced in March 2010 tobetter align our manufacturing footprint. Operating expenses for the quarter were $49.0 million, or 25.5% ofsales, compared to $50.1 million, or 24.8% of sales, a year ago.  The modest decrease in operating expenses wasdue to decreased spending in conjunction with our lower sales volumes.

 

Thisquarter we continued to aggressively manage our balance sheet.  Despite the current economic environment wewere able to pay down an additional $13.0 million of debt during the secondquarter of 2010 bringing our total debt pay down for the year to $18.0 millionand $61.0 million in the last twelve months. Interest expense for the quarter increased $1.6 million when comparedwith the second quarter of 2009.  Theincrease in interest expense is due to interest rate swap agreements that wentinto effect during the second quarter of 2009. Two of these agreements expired June 9, 2010 and the remaining twoexpire June 9, 2011.  For a furtherdiscussion of the interest rate swap agreements, see Note 5 to the condensedconsolidated financial statements included in this quarterly report onForm 10-Q.

 

Oureffective tax rate was 11.9% for the quarter, as compared to 37.5% for the sameperiod last year.  The decrease in oureffective tax rate was due to a $2.5 million tax benefit that was recordedduring the second quarter of 2010.  Thetax benefit related to foreign tax credits. Without this benefit, our tax ratefor the second quarter of 2010 would have been 37.0%.

 

Duringthe second half of 2010, we believe we will see improvements in sales andorders.  However, our margins willcontinue to be affected by competitive pricing and inflationary pressures.  We will continue to aggressively manage ourexpenses and invest in new products.  Weare excited that our AntennaTM Workspaces took home a covetedBest of NeoCon***®*** Innovation award at this year’s 2010NeoCon.  It is new products like AntennaWorkspaces and the Generation by Knoll chair that will position us to be amarket leader as the economy recovers.

 

**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.

 

**Results of Operations**

 

***Comparison of the ThreeMonths and Six Months Ended June 30, 2010 and 2009***

 
| ** **                                      | ** ** | **Three Months Ended**  | ** ** | **Six Months Ended**    | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                      | ** ** | **June 30,  2010** | ** ** | **June 30,  2009** | ** ** | **June 30,  2010** | ** ** | **June 30,  2009** | ** ** |
| ** **                                      | ** ** | **(in thousands)**      | ** ** |
| **Consolidated Statement of  Operations Data:** | ** ** | ** **              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Sales                                       |       | $                       | 192,275    |                    | $          | 202,197 |   | $ | 367,534 |   | $ | 414,806 |   |
| Gross Profit                                    |       | 63,040                  |       | 70,729                  |       | 119,701 |   | 145,496 |   |
| Restructuring charges                           |       | 2,147                   |       | 2,073                   |       | 5,755 |   | 8,312 |   |
| Operating Income                                |       | 11,940                  |       | 18,514                  |       | 21,348 |   | 35,279 |   |
| Interest Expense                                |       | 4,410                   |       | 2,856                   |       | 8,563 |   | 5,627 |   |
| Other Income (Expense), net                     |       | 2,318                   |       | (2,747                  | )          | 905 |   | (1,423 | ) |
| Income Tax Expense                              |       | 1,172                   |       | 4,837                   |       | 2,799 |   | 10,630 |   |
| Net Income                                      |       | $                       | 8,676      |                    | $          | 8,074 |   | $ | 10,891 |   | $ | 17,599 |   |
|                                            |       |                    |       |                    |       |   |   |   |   |
| **Statistical and Other Data:**                 |       |                    |       |                    |       |   |   |   |   |
| Sales Growth from Comparable Prior Period       |       | (4.9                    | )%         | (30.9                   | )%         | (11.4 | )% | (26.0 | )% |
| Gross Profit Margin                             |       | 32.8                    | %          | 35.0                    | %          | 32.6 | % | 35.1 | % |
| Backlog                                         |       | $                       | 132,539    |                    | $          | 134,136 |   | $ | 132,539 |   | $ | 134,136 |   |

 

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***Sales***

 

Salesfor the second quarter of 2010 were $192.3 million, a decrease of $9.9 million,or 4.9%, from sales of $202.2 million for the same period in the prioryear.  The decrease in sales wasexperienced across the majority of our product categories, with the exceptionof seating, which increased on a year over year basis.  Sales for the six months ended June 30,2010 were $367.5 million, a decrease of $47.3 million, or 11.4%, over the firstsix months of 2009.  Pricing pressurescontinued to impact our sales this quarter as decreased demand in the industryhas allowed our customers to obtain higher discounts on the products we sell.

 

Duringthe second quarter of 2010, sales to the U.S. government continued to representa large portion of our overall sales.  Sales to the U.S. government were12.5% of net sales during the second quarter of 2010.

 

***Gross Profit and Operating Income***

 

Grossprofit for the second quarter of 2010 was $63.0 million, a decrease of $7.7million, or 10.9%, from gross profit of $70.7 million for the second quarter of2009. Gross profit for the six months ended June 30, 2010 was $119.7million, a decrease of $25.8 million, or 17.7%, from gross profit of $145.5million for the same period in the prior year. Operating income for the second quarter of 2010 was $11.9 million, adecrease of $6.6 million, or 35.5%, from operating income of $18.5 million forthe second quarter of 2009.  Operatingincome for the second quarter of 2010 includes restructuring charges totaling$2.1 million.  Operating income for thesix months ended June 30, 2010 was $21.3 million, a decrease of $14.0million, or 39.7%, from operating income of $35.3 million for the same periodin 2009.  Operating income for the sixmonths ended June 30, 2010 includes restructuring charges totaling $5.8million.  Operating income for the sixmonths ended June 30, 2009 includes restructuring charges totaling $8.3million.  As a percentage of sales, grossprofit decreased from 35.0% for the second quarter of 2009 to 32.8% for thesecond quarter of 2010. Operating income as a percentage of sales decreasedfrom 9.2% in the second quarter of 2009 to 6.2% for the same period of2010.  For the six months ended June 30,2010 and 2009 gross profit as a percentage of sales was 32.6% and 35.1%,respectively.  Operating income as apercentage of sales decreased from 8.5% in the first six months of 2009 to 5.8%in the first six months of 2010.

 

Operatingexpenses for the second quarter 2010 were $49.0 million, or 25.5% of sales,compared to $50.1 million, or 24.8% of sales, for the second quarter 2009.  Operating expenses for the six months ended June 30,2010 were $92.6 million or 25.2% of sales compared to $101.9 million or 24.6%of sales for the same period in 2009. The decrease in operating expense dollars for the quarter and six monthsended June 30, 2010 as compared with the prior year periods was in large partdue to our cost reduction programs in response to decreased demand for ourproducts.

 

***Interest Expense***

 

Interestexpense for the three and six months ended June 30, 2010 was $4.4 millionand $8.6 million, respectively, an increase of $1.6 million and $3.0 million,respectively, from the same periods in 2009. The increase in interest expense for the periods noted above is due tointerest rate swap agreements that went into effect during June 2009.  For the three and six months ended June 30,2010 additional interest expense of $2.5 million and $5.0 million was incurredas a result of the interest rate swap agreements. Two of these agreementsexpired June 9, 2010 and the remaining two expire June 9, 2011.  See Note 5 of the condensed consolidatedfinancial statements for further information regarding the interest rate swapagreements. Taking into account the effect of the interest rate swap payments,the weighted average interest rate for the second quarter of 2010 was 5.4%. Theweighted average interest rate for the same period of 2009 was 2.4%.

 

***Other Income (Expense), net***

 

Otherincome for the second quarter of 2010 was $2.3 million, which included $2.5million of foreign exchange gains on currency offset by $0.2 million ofmiscellaneous expense.  Other expense forthe second quarter of 2009 was $2.7 million which included $2.8 million offoreign exchange losses on currency offset by $0.1 million of miscellaneousincome.

 

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***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 11.9% for the second quarter of 2010, as compared to37.5% for the same period in 2009.  Thedecrease in the effective tax rate was due to a $2.5 million tax benefitrelated to foreign tax credits that was recognized as a discrete item due toamended tax returns being filed during the second quarter of 2010.  Without this benefit, our tax rate for thesecond quarter of 2010 would have been 37.0%. The effective tax rate for the six months ended June 30, 2010 was20.4% and 37.7% for the same period in 2009.

 

**Liquidity and Capital Resources**

 

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

 
| ** **                                                       | ** ** | **Six Months Ended**    | ** ** |
|------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                       | ** ** | **June 30,  2010** | ** ** | **June 30,  2009** | ** ** |
| ** **                                                       | ** ** | **(in thousands)**      | ** ** |
| Cash provided by operating activities                            |       | $                       | 31,340     |   | $ | 12,923 |   |
| Capital expenditures                                             |       | (2,826                  | )          | (10,243 | ) |
| Cash used in investing activities                                |       | (3,139                  | )          | (10,233 | ) |
| Purchase of common stock for treasury                            |       | (5,569                  | )          | (704 | ) |
| Net (repayments) proceeds from revolving credit  facilities, net |       | (18,000                 | )          | 1,000 |   |
| Payment of dividends                                             |       | (1,825                  | )          | (6,353 | ) |
| Proceeds from issuance of stock                                  |       | 5,554                   |       | 57 |   |
| Cash used for financing activities                               |       | (19,645                 | )          | (6,000 | ) |
|                                                                  |            |                         |            |  |  |  |  |

 

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 schedule payments of principaland interest under our credit facility. Our capital expenditures are typically for new product tooling and manufacturingequipment. These capital expenditures support new products and continuousimprovements in our manufacturing processes.

 

Year-to-datenet cash provided by operations was $31.3 million of which (i) $27.3million was provided from net income plus non-cash amortizations and stockbased compensation and (ii) $4.0 million resulted from favorable changesin assets and liabilities.

 

Forthe six month period ended June 30, 2010, we used available cash,including the $31.3 million of net cash from operating activities, to repay$18.0 million of outstanding debt, repurchase shares totaling $5.6 million,fund $2.8 million in capital expenditures, fund dividend payments toshareholders totaling $1.8 million, and fund working capital.

 

Forthe six month period ended June 30, 2009, we used available cash,including the $12.9 million of net cash from operating activities, to fund$10.2 million in capital expenditures, fund dividend payments to shareholderstotaling $6.4 million, and fund working capital.

 

Cashused in investing activities was $3.1 million for the six month period ended June 30,2010 and $10.2 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 in June 2013 and provides us with the optionto increase the size of the facility by up to an additional $200 million,subject to the satisfaction of certain terms and conditions.  As of June 30, 2010, there was approximately$277 million outstanding under the facility, compared to $338 millionoutstanding under the facility as of June 30, 2009.  Borrowings under the revolving creditfacility may be repaid at any time, but no later than June 2013.

 

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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 to comply with various other affirmative andnegative covenants, including without limitation, covenants that prevent orrestrict our ability to pay dividends, engage in certain mergers oracquisitions, make certain investments or loans, incur future indebtedness,make significant capital expenditures, engage in sale-leaseback transactions,alter our capital structure or line of business, prepay subordinatedindebtedness, engage in certain transactions with affiliates and sell stock orassets.

 

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) continues to decline due to deteriorating market conditions.  Future principal debt payments may be paidout of 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**

 

Contractual obligations associated with our ongoingbusiness will result in cash payments in future periods.  A table summarizing the amounts and timing ofthese future cash payments was provided in the Company’s Form 10-K filingfor the year ended December 31, 2009.

 

**Environmental Matter**

 

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, weare involved from time-to-time in administrative and judicial proceedings andinquiries relating to environmental matters and could become subject to finesor penalties related thereto.  We cannotpredict what environmental legislation or regulations will be enacted in thefuture, how existing or future laws or regulations will be administered orinterpreted or what environmental conditions may be found to exist.  Compliance with more stringent laws orregulations, or stricter interpretation of existing laws, may requireadditional expenditures by us, some of which may be material.  We have been identified as a potentiallyresponsible party pursuant to the Comprehensive Environmental Response,Compensation and Liability Act of 1980 (“CERCLA”) for remediation costsassociated with waste disposal sites that we previously used.  The remediation costs and our allocated shareat some of these CERCLA sites are unknown. We may also be subject to claims forpersonal injury or contribution relating to CERCLA sites.  We reserve amounts for such matters whenexpenditures are probable and reasonably estimable.

 

**Off-Balance Sheet Arrangements**

 

Wedo not currently have any relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structured financeor special purpose entities, which would have been established for the purposeof facilitating off-balance sheet arrangements or other contractually narrow orlimited purposes. In addition, we do not engage in trading activities involvingnon-exchange traded contracts.  As aresult, we are not materially exposed to any financing, liquidity, market orcredit risk that could arise if we had engaged in these relationships.

 

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**ITEM 3.****                            ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

Weprovided a discussion of our market risk in Part II, Item 7A, of ourAnnual Report on Form 10-K for the year ended December 31, 2009.  During the first six months of 2010, therewas no substantive change in our market risk except for the items notedbelow.  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 second quarter of 2010 we were impacted by higher steelprices.  We continue to work to offsetthese price changes in raw materials and transportation through our globalsourcing initiatives, cost improvements 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 entered into four interest rate swap agreementsin order to manage our interest rate risk. Each agreement hedges a notionalamount of $150.0 million of our $500.0 million revolving credit facility. Twoof the agreements were effective from June 9, 2009 through June 9, 2010and the other two are effective from June 9, 2010 through June 9,2011.  Fluctuations in LIBOR affect bothour 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 for further information regarding theinterest rate swap agreements.

 

Takinginto account the effect of the interest rate swap payments, the weightedaverage interest rate for the second quarter of 2010 was 5.4%. The weighted averageinterest rate for the same period of 2009 was 2.4%.

 

***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 goodsrelative to the strength of the currencies in countries where our products aresold. Additionally, as we report currency in the U.S. dollar, our financialposition is affected by the strength of the currencies in countries where wehave operations relative to the strength of the U.S. dollar. The principalforeign currencies in which we conduct business are the Canadian dollar and theEuro. Approximately 15.6% of our revenues for the first half of 2010 and 11.9%in the same period for 2009, and 34.3% of our cost of goods sold for the firsthalf of 2010 and 34.8% in the same period for 2009, were denominated incurrencies other than the U.S. dollar. Foreign currency exchange rate fluctuations resulted in a $2.5 milliontransaction gain for the second quarter of 2010 and a $2.8 million transactionloss for the same period of 2009.  The$2.5 million gain was largely due to the weakening Canadian dollar.  For the six months ended June 30, 2010and 2009, foreign exchange rate fluctuations included in other income resultedin a $1.0 million translation gain and a $1.7 million translation loss,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 (June 30,2010) (“Disclosure Controls”). Based upon the Disclosure Controls evaluation,our principal executive officer and principal financial officer have concludedthat the Disclosure Controls are effective in reaching a reasonable level ofassurance that (i) information required to be disclosed by us in thereports that we file or submit under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms and(ii) information required to be disclosed by us in the reports that we fileor submit under the Securities Exchange Act of 1934 is accumulated andcommunicated to our management, including our principal executive and principalfinancial officers, or persons performing similar functions, as appropriate toallow timely decisions regarding required disclosure.

 

*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”) to determinewhether any changes in Internal Control occurred during the quarter ended June 30,2010 that have materially affected or which are reasonably likely to materiallyaffect Internal Control. Based on that evaluation, there has been no suchchange during the quarter ended June 30, 2010.

 

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**PART II — OTHER INFORMATION**

 

**ITEM 1.    LEGAL PROCEEDINGS**

 

Duringthe first two 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 two 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 June 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)** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|
| April 1, 2010 – April 30, 2010 |       | 6,120                                       | (2)        | 12.88                                            |       | —                                                                                               |       | 32,352,413                                                                                                             |       |
| May 1, 2010 – May 31, 2010     |       | —                                      |       | —                                           |       | —                                                                                               |       | 32,352,413                                                                                                             |       |
| June 1, 2010 – June 30, 2010   |       | —                                      |       | —                                           |       | —                                                                                               |       | 32,352,413                                                                                                             |       |
| Total                                         |       | 6,120                                       |       |                                             |       | —                                                                                               |       |                                                                                                                   |       |

 

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(1)          There is no limit on the number or value of sharesthat may be purchased by us under the Options Proceeds Program.  Under our $50.0 million stock repurchaseprogram, which was expanded by an additional $50.0 million in February of2008, we are only authorized to spend an aggregate of $100.0 million on stockrepurchases.  Amounts in this columnrepresent the amounts that remain available under the $100.0 million stockrepurchase program as of the end of the period indicated.  There is no scheduled expiration date for theOption Proceeds Program or the $100.0 million stock repurchase program, but ourboard of directors may terminate either program in the future.

 

(2)          On April 21, 2010,20,000 shares of outstanding restricted stock vested. Concurrently with thevesting, 6,120 shares were forfeited by the holder of the vested restrictedshares to cover applicable taxes paid on the holders’ behalf by the Company.

 

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**ITEM 6.  EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                             |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                        |
| 10.1                |       | Credit  Agreement, dated as of June 29, 2007, among Knoll, Inc., the  domestic subsidiaries of Knoll, Inc., Bank of America, N.A., Banc of  America Securities LLC, HSBC Bank USA, National Association, Citizens Bank  and the other lenders party thereto (including the Schedules and Exhibits  thereto). |
| 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:  August 9,  2010 |                                      |
|----------------------------------|-------------------------------------------|
| By:                              | /s/ Andrew B. Cogan                       |   |
|                             | **Andrew B. Cogan**                       |   |
|                             | Chief Executive Officer                   |   |
|                             |                                      |   |
|                             |                                      |   |
| Date:  August 9,  2010 |                                      |
| By:                              | /s/ Barry L. McCabe                       |   |
|                             | **Barry L. McCabe**                       |   |
|                             | Chief Financial Officer                   |   |
|                             | (Chief Accounting Officer and Controller) |   |

 

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