Knoll, Inc.

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Knoll, Inc.

1235 Water Street
East Greenville, Pennsylvania 18041
U.S.A.
Telephone: (215) 679-7991
Toll Free: (800) 343-5665
Fax: (215) 679-1755
Web site: http://www.knoll.com

Public Company
Incorporated: 1938 as Knoll Furniture
Employees: 3,775
Sales: $807.96 million (2005)
Stock Exchanges: New York
Ticker Symbol: KNL
NAIC: 337120 Household and Institutional Furniture Manufacturing; 337127 Institutional Furniture Manufacturing; 3372 Office Furniture (Including Fixtures) Manufacturing; 33721 Office Furniture (Including Fixtures) Manufacturing; 337211 Wood Office Furniture Manufacturing; 337214 Office Furniture (Except Wood) Manufacturing; 337215 Showcase, Partition, Shelving, and Locker Manufacturing

Knoll, Inc., is a leading U.S. manufacturer of office furniture. Its products include chairs, wood casegoods, files and storage mechanisms, and full office systems. Knoll also produces textiles on contract and markets computer support accessories. The company sells its products through showrooms, sales offices, and dealerships in about 500 over 300 U.S. locations. It also sells through independent dealers in Europe, the Pacific Rim, and Latin America.

1938–1946: EARLY YEARS

Knoll was founded in 1938 by Hans Knoll. Knoll, the son of a German furniture maker, was living in New York at the time. Hans, like his father, was a craftsman, but he believed that new woodworking and manufacturing technology being introduced at the time could be integrated with his skills. His primary goal was to produce furniture that was elegant and functional but also affordable. That design philosophy would be hugely successful for Knoll and would guide the company not only through the 1940s but even into the 1990s. Knoll found a willing local market for his furniture designs during the late 1930s and early 1940s.

Knoll's design philosophy was heavily influenced by the famous Bauhaus school of design that was becoming dominant at the time. The Bauhaus was founded in 1919 by architectural renegade Walter Gropius, who merged an art academy and an arts-and-crafts school. He based the school on the canon that no distinction should be made between fine arts and practical crafts, including furniture. Furthermore, the school held that modern art and architecture must be responsive to the aesthetic and engineering needs of the industrial world. The Bauhaus style, or "International Style," adopted by Knoll and other progressive designers was distinguished by minimal ornamentation and an emphasis on simplistic beauty. Famed architect Ludwig Mies van der Rohe was running the school shortly before it was shut down by the Nazis in 1933. By that time, however, its principles were being adopted worldwide. In fact, many of the school's faculty immigrated to the United States where they influenced designers such as Knoll.

1946–1983: EXPANSION

In 1946 Knoll married designer Florence Schust. Schust had been trained as an architect and would ultimately be recognized as one of the most influential women in 20th-century design. The two formed Knoll Associates to help customers realize the value of design in the modern office. Their major breakthrough came shortly after they were married when they were hired to design the Rockefeller family offices in Rockefeller Plaza. The job was heralded as a benchmark for office designs of the day, and it became a springboard for Hans and Florence into other high-profile office design jobs.

During the 1940s and 1950s Florence Knoll worked closely with clients to design their spaces. Importantly, she pioneered the concept of developing a relationship with the client and designing to meet their needs. She began each project with a series of intensive interviews of executives and support staff to discover exactly what they needed. She would then use that information to design spaces and to help Hans design the furniture. Although that type of partnering relationship became commonplace in the design field during the middle and late 1900s, it was considered revolutionary at the time.

Hans Knoll remained focused on the manufacturing end of the business. In 1945 he moved the company's production facilities from New York to an old mill in East Greenville, Pennsylvania, which is in the Upper Perkiomen Valley. That region provided a skilled and dedicated labor force for Knoll's furniture operations for several years. Indeed, during the 1950s and 1960s Knoll became known for its innovative designs and high-quality office furniture. Besides its good reputation, Knoll benefited from spiraling office furniture markets during the post-World War II economic and population boom.

Throughout the 1950s, 1960s, and much of the 1970s, corporate America built and furnished billions of square feet of office space throughout the country. To exploit that surging demand, Knoll expanded throughout most of the country with sales offices, showrooms, and dealerships that emphasized contract sales. Knoll's furniture designs evolved to keep up with a changing office marketplace during that period, but innovation, thoughtful design, and affordability remained its cornerstone creed. Well-known designers that worked for Knoll included Vico Magistretti, Kazhuhide Takahama, Warren Platner, and Tobia Scarpa. In recognition of Knoll's contribution to modern design, the world-renowned Louvre's Musee des Arts Decoratifs in Paris staged a 1972 exhibit devoted solely to the company's furniture.

Importantly, Knoll introduced its first open-office furniture system in 1973. The Stephens System, designed by Bill Stephens, capitalized on the dominant trend during the 1970s and 1980s toward open offices, as opposed to walled-in spaces. Despite increases in open-office products, the overall office furniture industry stumbled during the commercial construction drought of the late 1970s and early 1980s. Although the market would recover, the downturn marked an end to the booming traditional office furniture markets of the mid-1900s when many corporations spared little expense in furnishing their offices. The office furniture industry bottomed out in the early 1980s. During that time, Knoll, still privately held, was bought out by floor-covering manufacturer General Felt Industries Inc. General Felt took Knoll public in 1983 (as Knoll International) in a stock offering that raised about $56 million. Unfortunately, Knoll languished under General Felt's control.

COMPANY PERSPECTIVES

Knoll is recognized internationally for creating workplace furnishings that inspire, evolve and endure. Our commitment to innovation and modern design has yielded a comprehensive portfolio of office systems, seating, files and storage, tables and desks, wood case-goods, textiles and accessories. We believe good design is good business. Since our founding in 1938, we have been recognized as a design leader worldwide. Our products are exhibited in major art museums worldwide, with more than 40 pieces in the permanent Design Collection of The Museum of Modern Art in New York. We know that workplace needs change, and so we dedicate ourselves to listening carefully to our customers. We're thinking about the emergence of a new workplace climate, the meaning of new workplace planning models and how ecological principles inform our product designs. Our designers are experts in innovation, offering insight into what's possible in the workplace, now and in the future.

1983–1996: STAGNATED GROWTH AND OWNERSHIP TURNOVERS

Knoll's problems during the 1980s were partially caused by evolving and volatile office-furniture markets. However, they were also the result of decisions made at General Felt, which was headed by Marshall Cogan and Stephen Swid. Cogan worked at CBS and investment firm Orvis & Co. before taking a job as an auto analyst in 1964 at Carter, Berlind & Weill. Interestingly, that entrepreneurial investment company flourished under the direction of talents like Rober Berlind (the successful Broadway producer) and Arthur Levitt, who became president of the American Stock Exchange. The company became the nucleus of Shearson, Leob Rhoades, which was sold in 1981 to American Express for $900 million. Cogan profited handsomely as an executive at the company, but was pushed out shortly after the American Express buyout.

Cogan teamed up with money manager Stephen Swid in 1982 to purchase the money-losing General Felt, a carpet underlay business. They quickly returned the company to profitability. A few years later they purchased Knoll with the intent of improving it as they had General Felt. Cogan and Swid, through General Felt, also purchased "21," a high-profile New York restaurant. The partners' strategy seemed sound at first, but the hard-charging Cogan gradually got carried away. He tried to take over the Boston Red Sox, the prestigious Sotheby's auction house, and the respected Wall Street investment firm of L.F. Rothschild Unterberg Towbin. After those defeats, General Felt succeeded in buying steering wheel and dashboard manufacturer Sheller-Globe.

Knoll posted profits during its first few years under General Felt's wing, but the venerable furniture maker eventually got lost in the shuffle. Knoll retained its status as one of the largest contract office furniture manufacturers in the nation, but its profits began to slide in 1986. By that time, General Felt had amassed a mountain of debt and all of its companies were struggling. Knoll had supplied about 80 percent of the cash flow generated by General Felt's three holdings in 1985, but by 1986 Knoll was losing money. Swid wanted to settle down and focus on improving existing operations while Cogan was eager to do more deals. The two had a falling out and Cogan kicked out Swid. To make matters worse, Cogan infuriated investors late in 1986 when he offered to buy back shares of Knoll for $12 each—he had sold them in 1983 for $16. GFI finally did spend about $38 million to take Knoll private in 1986.

Despite Cogan's blunders, Knoll claimed some gains during the mid-1980s. In 1986, for example, the company tapped the cash from the public offering to pay for a $20-million expansion of the East Greenville manufacturing plant. In addition, Knoll introduced its successful KnollStudio collection in 1985. That line, which was designed for executive offices and residences, integrated classic icons of modern furniture by renowned designers like Mies van der Rohe, Marcel Breuer, Harry Bertoia, and Eero Saarinen. New product introductions and increased production capacity allowed Knoll to take advantage of surging office furniture markets during the late 1980s. The industry became increasingly consolidated and competitive during that period, however, and the company was ill-prepared to deal with the inevitable slowdown.

KEY DATES

1938:: An admirer of the German-based Bauhaus style, Hans Knoll begins making furniture.
1945:: Knoll moves from New York to an old mill in East Greenville, Pennsylvania.
1946:: Hans Knoll marries designer Florence Schust.
1973:: Knoll introduces its first open-office furniture system.
1983:: General Felt takes Knoll public in 1983 in a stock offering that raises some $56 million.
1986:: General Felt spends an estimated $38 million to take Knoll private.
1990:: Westinghouse purchases Knoll for an undisclosed amount of cash.
1996:: Westinghouse sells Knoll for $565 million to Warburg, Pincus Ventures.
1997:: Knoll goes public for the second time.
1999:: Knoll becomes a privately owned company.
2001:: An economic slump reduces the entire office industry's orders by 16 percent.
2004:: Knoll goes public for a third time.

The office furniture market finally did crash beginning in the late 1980s and during the early 1990s. New office construction levels plummeted throughout the nation. At the same time, cost-conscious companies began looking for ways to reduce costs, including those related to furnishings. With sales dropping, General Felt began looking for a buyer for Knoll. In 1990 Westing-house purchased Knoll International for an undisclosed amount of cash, $112 million worth of stock, and assumption of the company's $111 million of debt. Shortly before buying Knoll, Westinghouse had bought furniture makers Shaw-Walker and Reff Inc. in deals worth a combined total of about $250 million. In 1990, Westinghouse combined Knoll, Shaw-Walker, Reff, and Westinghouse Furniture Systems into a single subsidiary called Knoll Group Inc. The consolidation boosted Knoll's status from fourth to third largest contract office furniture manufacturer in the United States (behind Steelcase and Herman Miller).

Given the industry downturn, the operations of Knoll Group were bloated. To whip the new company into shape and to combat proliferating competition, Westinghouse initiated a reorganization of all of Knoll's operations. The effort was designed to cut costs, improve efficiency, and conform to evolving market demands for cost-efficient office systems. Knoll Group, under the direction of Chief Executive Maurice C. Sardi, immediately began laying off workers and shifting production. Two Pennsylvania manufacturing facilities were shuttered and about 20 percent of Knoll's work force was eliminated between 1991 and 1993. That brought the total number of employees to about 4,200, roughly 1,200 of whom worked at the East Greenville facility. At the same time, the company invested an average of about $30 million annually to update plants and product lines.

Lagging furniture markets in effect canceled West-inghouse's efforts to streamline its furniture operations. Sales increased to $673 million in 1991, but the company still posted a disappointing net loss in 1991 of more than $1 million. Deep industry discounting and stagnant markets contributed to a much greater loss in 1992 of about $15 million on diminished sales of $576 million. Frustrated and seeking a narrower definition of its own operations, parent company Westinghouse decided early in 1993 to sell off Knoll Group. However, Westinghouse had trouble finding a willing buyer and by late 1993 was still trying to dump the division. Sardi took early retirement late in 1993 and was replaced by 51-year-old Burton B. Staniar.

Under Staniar's leadership, Knoll continued to pursue two goals reflective of the new office furniture environment: developing products aimed at the value segment of the market and intensifying effort to reach the small business and individual consumer. To that end, Knoll revamped its offerings during the early 1990s and converted its contract showrooms into more visible, consumer-oriented sales centers. Knoll introduced a new line of stand-alone furniture for the home-office crowd with desks retailing for less than $1,000. It also introduced several new products geared for ergonomically conscious buyers and for disabled users. It also beefed up offerings in its core office environments furniture lines with, for example, more convenient and comfortable desks and storage units.

Knoll continued to lose money in 1994, although its losses were considerably less than those suffered in 1993. Westinghouse was also on the rebound and had even temporarily decided, early in 1994, not to sell Knoll Group. Significant new products being marketed in 1994 and 1995 included the Gehry Collection, which was composed of bentwood tables and chairs, and the propeller Table, a line of innovative conference and training tables designed with modern electronic technology in mind. In mid-1995 Knoll Group was employing about 4,000 people worldwide and supporting approximately 500 locations. Knoll's main goal, as it had been since Hans Knoll founded the company in 1938, was to be a leader in the production and sale of innovative, functional, affordable office furnishings.

1996 AND ONWARD

After years of uncertainty under Westinghouse's ownership, Knoll was finally sold in 1996 for $565 million to Warburg, Pincus Ventures LP, a New York-based financial services company. Westinghouse used the sale to pay down some of its $5.4 billion debt incurred from acquiring the television network CBS Inc. in 1995. Westinghouse's reputation as an electrical company was not regarded as the best fit for Knoll. Knoll's disappointing sales for 1994 also prompted the sale.

By the time the sale was completed with Warburg Pincus in early 1996, the furniture industry had improved and Knoll was posting higher earnings. The firm went public again in May 1997 under its new CEO John Lynch. Funds raised by the offering helped Knoll's sales in 1997 leap 26.6 percent above the previous year. Knoll also released a successful line of furniture designed by Maya Lin, the architect of both the Civil Rights Memorial in Montgomery, Alabama, and the Vietnam memorial in Washington, D.C.

When Knoll announced plans to return to private ownership, its shareholders filed a lawsuit that was eventually settled in 1999. Warburg Pincus and a Knoll management group then purchased the remaining shares for nearly $500 million. Knoll was once again a privately owned company. Even though the employment for office jobs was strong in 1999, the office furniture industry had slumped. Industry analysts blamed the plummeting Asian economies, corporate mergers, and even the widespread trepidation concerning the Y2K problem. It was assumed that electronic devices would not be able to handle the dating algorithms for the new millennium. Businesses, fearing that they would soon be replacing all of their electronic equipment, were sheepish about upgrading their office furniture.

In 2000 the office furniture industry finally caught up with America's inflated economy, but soon after the U.S. economy plummeted. The office furniture industry's upswing was short-lived; in 2001 shipments were down 16 percent from the previous year. Knoll began layoffs at several of its manufacturing facilities to cut costs and weather what many were calling a recession. CEO John Lynch was replaced by Knoll's COO Andrew Cogan. In 2002 the new CEO oversaw the spending of millions on manufacturing upgrades. Knoll also introduced its award-winning LIFE chair, a high-end office chair that bolstered overall sales for the company. Knoll posted net profits of $15.3 million during the first half of 2003.

In 2004 Knoll once again went public, hoping to raise as much as $230 million from the IPO. Knoll quadrupled its storage product offering by launching the Knoll Essentials collection, a line of chairs, desks, tables, file cabinets, and other office furniture. In 2005 the collection and an improved economy had helped Knoll post net profits that were 14.4 percent greater than the previous year. There was also a nationwide increase in new commercial construction and decrease in overall business space vacancies. Executives at Knoll began reducing the release of new textiles such as upholstery, panel fabrics, wall coverings, and drapery. They began focusing more on a furniture collection called Knoll-Studio, a throwback to mid-century styling that was partially pioneered by Hans Knoll and Florence Schust. Consumers had a shown a renewed interest in the style and Knoll promptly responded. The company remained a world leader by selling its goods through over 100 showrooms and regional offices, along with a network of over 200 Knoll dealerships.

Dave Mote

Updated, Kevin Teague

PRINCIPAL SUBSIDIARIES

Knoll International Ltd. (United Kingdom); Knoll International S.A. (Belgium); Knoll International GmbH (Germany); Knoll International S.p.A. (Italy); Knoll International S.A. (France).