What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-01-11 compared with 2022-10-12 · 222 added, 134 removed, 233 unchanged (60% of the section changed)

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The Company’s products are sold in over 100 countries primarily through independent contract furniture dealers, direct customer sales, owned and independent retailers, direct-mail catalogs, and the Company’s eCommerce platforms.

The following is a summary of results for the three months ended September 3, 2022:

• Net sales were $1,078.8 million and orders were $1,013.1 million, representing an increase of 36.6% and 10.5%, respectively, when compared to the same quarter of the prior year.

The increase in net sales was driven by the consolidation of Knoll results for the full quarter, as compared to a portion of the quarter in the prior year, the impact of the additional week in the first quarter of the current year, as well as growth within the Americas Contract and International Contract & Specialty segments.

On an organic basis, which excludes the impact of acquisitions, the extra week in the period, dealer divestitures and foreign currency translation, net sales were $883.7 million (*) and orders were $812.8 million, representing an increase of 12.3% and decrease of 11.0% , respectively, when compared to the same quarter of the prior year.

The following is a summary of results for the three months ended December 3, 2022:

• Net sales were $1,066.9 million and orders were $1,013.4 million, representing an increase of 4.0% and a decrease of 12.5%, respectively, when compared to the same quarter of the prior year.

On an organic basis, which excludes the impact of foreign currency translation and the divesting of an owned dealership in the prior year, net sales were $1,100.7 million (*) and orders were $1,047.5 million, representing an increase of 7.6% and decrease of 9.2%, respectively, when compared to the same quarter of the prior year.

• Gross margin was 34.5% as compared to 34.4% for the same quarter of the prior year.

The decrease in gross margin was driven primarily by higher commodity costs and other inflationary pressures, offset in part by the benefit from recently implemented price increases.

This decrease was offset in part by the prior year negative impact of charges totaling $6.3 million related to the initial purchase accounting effects of the Company's acquisition of Knoll.

The increase in gross margin was driven primarily by price increases, net of incremental discounting as well as the margin impact of Knoll purchase accounting amortization that occurred in the prior year, offset in part by higher commodity costs and increased inventory storage and handling costs within the Global Retail segment.

• Operating expenses decreased by $17.9 million or 5.2% as compared to the same quarter of the prior year.

The decrease was driven primarily by the decrease in Knoll acquisition and integration costs, which decreased $64.3 million from the prior year and the decrease in amortization of purchased intangibles related to the Knoll acquisition of $19.7 million.

These decreases were offset in part by the consolidation of Knoll results for the full quarter, which contributed to an increase in operating expense of approximately $50 million.

The impact of the additional week in the current year period contributed an additional $13 million.

The decrease was driven by a decrease of approximately $42 million in integration and amortization expenses related to the acquisition of Knoll.

This decrease was offset in part by restructuring expense of $14.7 million in the current period, increased marketing and selling expenses of approximately $3 million and increases in compensation and benefit costs of approximately $7 million.

• The integration of the Knoll acquisition continues to progress as planned.

At the close of the first quarter, we had implemented approximately $80 million in annualized run rate savings, and we remain confident in our ability to deliver an additional $40 million in cost synergies by July of 2024.

At the close of the second quarter, we had implemented approximately $101 million in annualized run rate savings, and have increased the targeted run-rate cost synergies from $120 million to $140 million within three years of the Knoll acquisition.

• The effective tax rate was 19.8% compared to 77.6% for the same quarter of the prior year.

The year over year change in the effective tax rate for the three months ended September 3, 2022 resulted from the current year quarter reporting pre-tax book income with favorable foreign tax credit impacts in the United States and the same quarter of the prior year reporting pre-tax book loss with non-deductible discrete compensation and acquisition costs in connection with the Knoll acquisition.

• Diluted earnings per share was $0.34 as compared to loss per share of $0.92 in the prior year.

Excluding integration related costs, restructuring costs, and the amortization of purchased intangible assets, adjusted diluted earnings per share was $0.44 (*) , a 12.0% (*) decrease as compared to prior year adjusted diluted earnings per share.

The year over year change in the effective tax rate for the three months ended December 3, 2022 resulted from the year over year change in pre-tax book income as well as the year over year change in forecasted full year pre-tax income.

The rate in the second quarter of fiscal 2023 was also impacted by favorable foreign tax credits in the United States.

• Diluted earnings per share was $0.21 as compared to a loss per share of $0.02 in the prior year.

Excluding integration related costs, restructuring costs, and the amortization of intangible assets purchased as part of the Knoll acquisition, adjusted diluted earnings per share was $0.46 (*) , a 14.8% (*) decrease as compared to prior year adjusted diluted earnings per share.

(*) Non-GAAP measurements;

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• The Company's financial performance is sensitive to changes in certain input costs, including steel and steel component parts.

Ongoing cost reduction initiatives and recent price increase actions have begun to offset these cost pressures, and the benefit from these initiatives is expected to continue to offset these pressures over time.

• During the quarter the Company saw the impact of economic uncertainty in many of the geographies and markets in which we operate.

The Company believes that our first quarter financial results reflect how strong performance in different segments of our business helps to mitigate softness in others, and how our global reach and operations continue to provide opportunities for growth, even when certain segments of the business are experiencing pressure.

• The Americas Contract segment in the first quarter reported new orders of $511.3 million, which was an increase of 3.2% from the prior year, but down 17.2% on an organic basis.

This decline in year-over-year orders on an organic basis was driven by increased order volume in the prior year from pandemic related pent-up demand as well as the impact of customer concern about the global economic environment and delays in projects.

• The International Contract and Specialty segment had net sales in the first quarter totaled $272.5 million, an increase of 63.1% from the year-ago period on a reported basis and up 30.0% organically.

New orders in this segment totaled $252.4 million, representing a year-over-year increase of 30.8% on a reported basis and up 0.8% organically.

From a market demand perspective, we saw strong order growth in India, South Korea and the Middle East, partially offset by softer demand in China and Central and Eastern Europe.

• The results this quarter within our our Global Retail segment reflect a decrease in customer demand versus the same period last year.

New orders for this segment of $249.4 million were 9.3% higher than last year on a reported basis, and down 7.7% organically.

This organic decline is attributed to a shift in consumer spending away from home-related investments toward post-pandemic travel and leisure and, more recently, growing concern over the macro-economic environment.

In response, the Global Retail segment has taken actions to manage spending and investments to mitigate the impact of these pressures and to invest in growth opportunities, such as eCommerce, trade programs and digital tools.

Ongoing cost reduction initiatives and price increase actions have been implemented to help offset these cost pressures, and the benefit from these initiatives is expected to increase over time.

• During the quarter the Company has continued to experience the impact of economic uncertainty in many of the geographies and markets in which we operate.

The Company believes that our second quarter financial results reflect

how our diversified business model, with brands across multiple channels, customer segments and geographies, provides risk diversification and opportunities for future growth.

• The Americas Contract segment in the second quarter reported net sales totaling $529.7 million, up 6.1% compared to the prior year period on a reported basis and up 7.3% organically.

Americas Contract had new orders of $474.1 million, which was a decrease of 17.3% from the prior year, and down 16.2% on an organic basis.

The decline in orders year-over-year reflected the impact of pandemic-driven pent-up demand in the prior year period, compounded by a challenging macro-economic environment and many customers opting to pilot smaller projects as part of their return to office efforts following the extended impacts of COVID on office utilization rates.

• The International Contract & Specialty segment delivered net sales in the second quarter of $264.9 million, an increase of 7.2% from the year-ago period on a reported basis and up 15.4% organically.

New orders in this segment totaled $241.7 million, representing a year-over-year decrease of 7.4% on a reported basis and an increase of 0.1% organically.

During the quarter, lower demand levels in China, France and Ireland were partially offset by growth in India, South Korea and the Middle East.

Additionally, lower order demand for Holly Hunt was offset by growth in the textile brands and Spinneybeck Filzfelt.

• Net sales in the second quarter for our Global Retail segment totaled $272.3 million, a decline of 2.8% over the same quarter last year on a reported basis and up 1.2% organically.

New orders in the quarter totaled $297.6 million, down 8.1% compared to the same period last year on a reported basis and down 4.4% organically.

Investments in digital capabilities, reliability and strategic marketing promotion helped bolster sales during the quarter.

The Company's fiscal year is the 52 or 53 week period ending on the Saturday closest to May 31.

The fiscal year ended May 28, 2022 ("fiscal 2022") was a 52 week period while the fiscal year ending June 3, 2023 ("fiscal 2023") will be a 53 week period.

The first quarter of fiscal 2022 contained 13 weeks, and the first quarter of fiscal 2023 contained 14 weeks.

This is a factor that should be considered when comparing the Company's first quarter financial results to the prior year period.

The remaining sections within Item 2 include additional analysis of the three months ended September 3, 2022, including discussion of significant variances compared to the prior year periods.

The first six months of fiscal 2022 contained 26 weeks, and the six months of fiscal 2023 contained 27 weeks.

This is a factor that should be considered when comparing the Company's year to date financial results to the prior year period.

The remaining sections within Item 2 include additional analysis of the three and six months ended December 3, 2022, including discussion of significant variances compared to the prior year periods.

Reconciliation of Non-GAAP Financial Measures

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The Company believes these non-GAAP measures are useful for investors as they provide financial information on a more comparative basis for the periods presented.

The non-GAAP financial measures referenced within this presentation include:

The non-GAAP financial measures referenced within this report include:

Adjusted Earnings per Share and Organic Growth (Decline).

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Organic Growth (Decline) represents the change in sales and orders, excluding currency translation effects and the impact of acquisitions and divestitures.

The adjustments made to arrive at these non-GAAP financial measures are as follows:

• Amortization of Purchased Intangibles:

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We exclude the impact of the amortization of purchased intangibles, including the fair value adjustment to inventory, as such non-cash amounts were significantly impacted by the size of the Knoll acquisition.

Furthermore, we believe that this adjustment enables better comparison of our results as Amortization of Purchased Intangibles will not recur in future periods once such intangible assets have been fully amortized.

Furthermore, we believe that this adjustment

enables better comparison of our results as Amortization of Purchased Intangibles will not recur in future periods once such intangible assets have been fully amortized.

Any future acquisitions may result in the amortization of additional intangible assets.

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Three Months Ended

September 3, 2022

December 3, 2022

Americas International & Specialty Retail Total

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% change from PY 6.1 % 7.2 % (2.8) % 4.0 %

Currency Translation Effects (1)

2.7 20.1 11.0 33.8

Net Sales, organic $ 532.4 $ 285.0 $ 283.3 $ 1,100.7

% change from PY 7.3 % 15.4 % 1.2 % 7.6 %

Three Months Ended

November 27, 2021

Americas International & Specialty Retail Total

Net Sales, as reported $ 499.3 $ 247.0 $ 280.0 $ 1,026.3

Dealer Divestitures (3.1) — — (3.1)

Net sales, organic $ 496.2 $ 247.0 $ 280.0 $ 1,023.2

(1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period

Six Months Ended

December 3, 2022

Americas International & Specialty Retail Total

Net Sales, as reported $ 1,067.1 $ 537.4 $ 541.2 $ 2,145.7

% change from PY 21.2 % 29.8 % 3.8 % 18.2 %

Acquisitions (77.2) (55.5) (31.1) (163.8)

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% change from PY 10.5 % 21.3 % (1.1) % 9.6 %

Three Months Ended

August 28, 2021

Six Months Ended

November 27, 2021

Americas International & Specialty Retail Total

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Three Months Ended

September 3, 2022

December 3, 2022

Americas International and Specialty Retail Total

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% change from PY (17.3) % (7.4) % (8.1) % (12.5) %

Currency Translation Effects (1)

2.5 19.7 11.9 34.1

Orders, organic $ 476.6 $ 261.4 $ 309.5 $ 1,047.5

% change from PY (16.2) % 0.1 % (4.4) % (9.2) %

Three Months Ended

November 27, 2021

Americas International and Specialty Retail Total

Orders, as reported $ 573.1 $ 261.1 $ 323.7 $ 1,157.9

Dealer Divestitures (4.7) — — (4.7)

Orders, organic $ 568.4 $ 261.1 $ 323.7 $ 1,153.2

(1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period.

Six Months Ended

December 3, 2022

Americas International and Specialty Retail Total

Orders, as reported $ 985.4 $ 494.1 $ 547.0 $ 2,026.5

% change from PY (7.8) % 8.8 % (0.9) % (2.3) %

Acquisition (80.3) (57.5) (32.2) (170.0)

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% change from PY (16.6) % 0.4 % (5.7) % (10.0) %

Three Months Ended

August 28, 2021

Six Months Ended

November 27, 2021

Americas International and Specialty Retail Total

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The following table reconciles earnings per share - diluted to adjusted earnings per share - diluted for the periods ended as indicated below:

Three Months Ended

September 3, 2022 August 28, 2021

Three Months Ended Six Months Ended

December 3, 2022 November 27, 2021 December 3, 2022 November 27, 2021

Earnings (Loss) per Share - Diluted $ 0.21 $ (0.02) $ 0.55 $ (0.94)

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Weighted Average Shares Outstanding (used for Calculating Adjusted Earnings per Share) – Diluted 75,878,078 75,304,752 76,042,640 70,803,483

Analysis of Results for Three Months

The following table presents certain key highlights from the results of operations for the three months ended:

Three Months Ended

(In millions, except share data) September 3, 2022 August 28, 2021 % Change

Analysis of Results for Three and Six Months

The following table presents certain key highlights from the results of operations for the three and six months ended:

Three Months Ended Six Months Ended

(In millions, except share data) December 3, 2022 November 27, 2021 % Change December 3, 2022 November 27, 2021 % Change

Net sales $ 1,066.9 $ 1,026.3 4.0 % $ 2,145.7 $ 1,816.0 18.2 %

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Net earnings (loss) 17.5 0.6 2,816.7 % 44.9 (59.2) 175.8 %

Net earnings attributable to redeemable noncontrolling interests 1.6 1.6 —

Net earnings attributable to redeemable noncontrolling interests 1.5 2.3 n/a 3.1 3.9 n/a

Net earnings (loss) attributable to MillerKnoll, Inc.

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Backlog $ 815.4 $ 967.3 (15.7) %

The following table presents select components of the Company's Condensed Consolidated Statements of Comprehensive (Loss) Income as a percentage of net sales, for the three months ended:

Three Months Ended

September 3, 2022 August 28, 2021

The following table presents select components of the Company's Condensed Consolidated Statements of Comprehensive (Loss) Income as a percentage of net sales, for the three and six months ended:

Three Months Ended Six Months Ended

December 3, 2022 November 27, 2021 December 3, 2022 November 27, 2021

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Net earnings (loss) attributable to MillerKnoll, Inc.

The following charts present graphically the primary drivers of the year-over-year change in net sales for the three months ended September 3, 2022.

1.5 (0.2) 1.9 (3.5)

The following charts present graphically the primary drivers of the year-over-year change in net sales for the three and six months ended December 3, 2022.

The amounts presented in the graphs are expressed in millions and have been rounded.

Net sales increased $289 million or 36.6% in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

Net sales increased $41 million or 4.0% in the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022.

The following items contributed to the change:

• Incremental price increases, net of price discounting drove an increase in net sales of approximately $79 million.

• Increased sales volumes within the International Contract & Specialty segment contributed to sales growth in the quarter by approximately $23 million.

The growth was driven, in part, by a strong backlog of orders coming into the second quarter.

• Decreased sales volume within the Americas and Global Retail segments offset these increases by approximately $12 million and $15 million, respectively.

• Foreign currency translation decreased net sales by approximately $34 million.

Net sales increased $330 million or 18.2% in the first six months of fiscal 2023 compared to the first six months of fiscal 2022.

The following items contributed to the change:

• Increase of $161 million due to the Knoll acquisition that was completed on July 19, 2021 of the prior year, net of a decrease in sales related to the divestiture of an owned dealership in the prior year.

• Increased sales volumes within the International Contract & Specialty and Americas Contract segments contributed to sales growth in the quarter by approximately $54 million and $7 million, respectively.

The International Contract & Specialty and Americas Contract segments' growth was driven, in part, by a strong backlog of orders coming into the first quarter.

• The additional week during the first quarter of the current year contributed to approximately $53 million of the net sales increase.

• Incremental price increases, net of price discounting drove an increase in net sales of approximately $130 million.

• Decreased sales volume within the Global Retail segment offset these increases by approximately $15 million.

• Foreign currency translation had a negative impact on net sales of approximately $22 million.

Gross margin was 34.5% in the first quarter of fiscal 2023 as compared to 35.2% in the first quarter of fiscal 2022.

• Increased sales volumes within the International Contract & Specialty segment contributed to sales growth in the quarter by approximately $77 million.

The International Contract & Specialty segment's growth was driven, in part, by a strong backlog of orders in the first half of the year.

• The additional week during the first quarter of the current year contributed to approximately $53 million of the year to date net sales increase.

• Decreased sales volume within the Americas and Global Retail segments offset these increases by approximately $6 million and $30 million, respectively.

• Foreign currency translation decreased net sales by approximately $55 million.

Gross margin was 34.5% in the second quarter of fiscal 2023 as compared to 34.4% in the second quarter of fiscal 2022.

The following factors summarize the major drivers of the year-over-year change in gross margin percentage:

• Cost pressures from commodities, freight and product distribution costs had a negative impact on gross margin of approximately 370 basis points.

• Price increases, net of incremental discounting, contributed to margin improvement of approximately 350 basis points.

• The impact of amortization of purchased intangibles related to the Knoll acquisition recorded in the prior year that did not occur in the current period had a favorable impact on gross margin of approximately 40 basis points.

These factors were offset in part by the following factors;

• Cost pressures from commodities, storage and handling costs, freight and product distribution costs, which decreased gross margin by approximately 250 basis points.

• Increased labor and overhead costs had a negative impact on margin of approximately 60 basis points.

• Unfavorable product and channel mix as compared to the prior year also had a negative impact on gross margin.

Gross margin was 34.5% in the six months ended December 3, 2022 as compared to 34.7% for the same period in the prior fiscal year.

The following factors summarize the major drivers of the year-over-year change in gross margin percentage:

• Cost pressures from commodities, storage and handling costs, freight and product distribution costs decreased gross margin by approximately 320 basis points.

• Increased labor costs had a negative impact on margin of approximately 60 basis points.

• Price increases offset by discounting helped offset some of these pressures by approximately 330 basis points.

These factors were offset in part by the following factors;

• The positive impact of price increases, net of incremental discount, offset some of these pressures by approximately 340 basis points.

• Unfavorable channel and product mix contributed to the remaining decrease in gross margin.

Operating Expenses

The following charts present graphically the primary drivers of the year-over-year change in operating expenses for the three months ended September 3, 2022.

The following charts present graphically the primary drivers of the year-over-year change in operating expenses for the three and six months ended December 3, 2022.

The amounts presented in the graphs are expressed in millions and have been rounded.

Operating expenses decreased by $9 million or 2.7% in the first quarter of fiscal 2023 compared to the prior year period.

Operating expenses decreased by $18 million or 5.2% in the second quarter of fiscal 2023 compared to the prior year period.

The following factors contributed to the change:

• Restructuring expenses increased by approximately $15 million related to voluntary and involuntary reductions in the Company's workforces.

• Compensation and benefit costs increased approximately $7 million, driven by increases in variable-based compensation and incentives as well as increased benefit costs related to the harmonization of benefits across the organization.

• Increased marketing costs of approximately $3 million, primarily driven by the Global Retail segment.

• An increase of approximately $3 million related to the expansion of physical store locations within the Global Retail segment.

• Acquisition related integration and amortization expense decreased $42 million from the prior year period.

• Favorable foreign currency translation of approximately $3 million.

Operating expenses decreased by $27 million or 4.0% in the first six months of fiscal 2023 compared to the first six months of fiscal 2022.

The following factors contributed to the change:

• The consolidation of Knoll results for the entirety of the first quarter of fiscal 2023 increased operating expenses by $50 million.

• Restructuring expenses increased by approximately $15 million related to voluntary and involuntary reductions in the Company's workforces.

• Compensation and benefit costs increased approximately $14 million, driven by increases in variable-based compensation and incentives as well as increased benefit costs related to the harmonization of benefits across the organization.

• The impact of an extra week in the first quarter of fiscal 2023 increased operating expenses by approximately $13 million.

• Compensation and benefit costs increased approximately $7 million due to increases in variable-based compensation.

• Increased spending in technology and digital tools across primarily the Americas and Retail segments totaled $12 million.

• Acquisition related integration and amortization expense decreased $126 million from the prior year period.

• Unfavorable foreign currency translation of approximately $5 million.

• The remaining change was primarily due to an increase in product development costs as well as increased studio and marketing costs primarily in the Retail segment.

• Favorable foreign currency translation of approximately $8 million.

• The remaining change was primarily due to investments in technology and digital tools primarily across the Americas and Retail segments.

Other Income/Expense

During the three months ended September 3, 2022, net other expense was $17.1 million, representing a favorable change of $0.9 million compared to the same period in the prior year.

Other income/expense in the three months ended August 28, 2021 included a loss on extinguishment of debt of approximately $13.4 million, which represented the premium on early debt redemption.

This was offset by $11.1 million of higher interest expense in the current quarter resulting from higher levels of debt required to finance the acquisition of Knoll.

During the three months ended December 3, 2022, net other expense was $17.1 million, representing an unfavorable change of $8.9 million compared to the same period in the prior year.

Other income/expense in the three months ended December 3, 2022 included $9.1 million of higher interest expense resulting from higher levels of debt and increased interest rates as compared to the same period of the prior year.

During the six months ended December 3, 2022, net other expense was $34.2 million, representing an unfavorable change of $8.1 million compared to the same period in the prior year.

Other income/expense in the six months ended November 27, 2021 included a loss on extinguishment of debt of approximately $13.4 million, which represented the premium on early debt redemption.

This was offset by $20.2 million of higher interest expense during the current year resulting from higher levels of debt as well as increases in interest expense.

See Note 10 of the Condensed Consolidated Financial Statements for additional information.

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For descriptions of each segment, refer to Note 15 of the Condensed Consolidated Financial Statements.

The charts below present the relative mix of Net sales and Operating earnings across each of the Company's segments during the three month period ended September 3, 2022.

The charts below present the relative mix of Net sales and Operating earnings across each of the Company's segments during the three and six month periods ended December 3, 2022.

This is followed by a discussion of the Company's results, by reportable segment.

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Americas Contract

Three Months Ended

(Dollars in millions) September 3, 2022 August 28, 2021 Change

Three Months Ended Six Months Ended

(Dollars in millions) December 3, 2022 November 27, 2021 Change December 3, 2022 November 27, 2021 Change

Net sales $ 529.7 $ 499.3 $ 30.4 $ 1,067.1 $ 880.6 $ 186.5

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For the three month comparative period, net sales increased 6.1%, or 7.3% (*) on an organic basis, over the prior year period due to:

• An increase in sales of $74 million due to impact of consolidating Knoll in the results for a full quarter, net of the decrease in sales related to the divestiture of an owned dealership in the prior year.

• Price increases, net of incremental discounting of $46 million;

• The positive impact of the additional sales from the extra week in the quarter of $27 million;

• Increased sales volumes within the segment of approximately $7 million, due primarily to the shipment of backlog that was built during the prior year;

partially offset by unfavorable foreign currency translation of approximately $1 million.

For the three month comparative period, operating earnings increased $31.0 million, or 292.5%, over the prior year period due to:

• Increased gross margin of $38 million due to sales volume increases described above, offset in part by decreased gross margin percentage of 110 basis points.

The decrease in gross margin percentage was due primarily to the impact of higher commodity, labor, freight and product distribution costs, which were mitigated in part by realization of price increase actions taken in the prior year;

offset in part by

• Increased operating expenses of $7 million driven primarily by:

◦ An increase of approximately $20 million from consolidating Knoll results for the entirety of the first quarter of fiscal 2023;

◦ An increase of approximately $6 million related to the additional week in the current period;

◦ An increase in compensation and benefits of approximately $3 million as well as increased spending in technology and digital tools of $2 million.

These increases in operating expenses were offset by lower amortization and integration charges related to the Knoll acquisition as compared to the prior year of approximately $17 million as well as decreased marketing and selling expenses.

• Decreased sales volumes within the segment of approximately $12 million, which were driven by challenging macro-economic conditions as well as the year-over-year impact of higher shipments in the prior year related to pent-up demand after the COVID-19 pandemic;

as well as unfavorable foreign currency translation of approximately $3 million.

For the six month comparative period, Net sales increased 21.2%, or 10.5% (*) on an organic basis, over the prior year period due to:

• An increase in sales of $74 million due to the Knoll acquisition that was completed on July 19, 2021.

The increase represents the impact of consolidating Knoll results for the entirety of the first quarter of fiscal 2023.

• Price increases, net of incremental discounting of $94 million;

• An increase of approximately $27 million related to the additional week in the first quarter;

offset in part by

• Decreased sales volumes within the segment of approximately $6 million, which were driven by challenging macro-economic conditions as well as the year-over-year impact of higher shipments in the prior year related to pent-up demand after the COVID-19 pandemic;

as well as unfavorable foreign currency translation of approximately $4 million.

(*) Non-GAAP measurements;

see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."

For the three month comparative period, operating earnings increased $36.2 million, or 332.1%, over the prior year period due to:

• Increased gross margin of $30 million due to the increase in net sales described above, as well as increased gross margin percentage of 430 basis points.

The increase in gross margin percentage was due primarily to the impact of price increase actions taken in the prior year as well as from the impact of amortization of purchased intangibles related to the Knoll acquisition recorded in the prior year that did not occur in the current period, offset in part by higher commodity and labor costs.

• Decreased operating expenses of $6 million driven primarily a decrease in acquisition related integration and amortization expense of $17 million from the prior year period.

These decreases in operating expenses were offset in part by increased restructuring expenses of approximately $13 million related to voluntary and involuntary reductions in the Company's workforces as well as increased compensation and benefit costs of $1 million due to increases in variable-based compensation.

For the six month comparative period, Operating earnings increased $67.2 million, or 312.6%, over the prior year period due to:

• Increased Gross margin of $68.3 million due to the increase in net sales described above, as well as increased gross margin percentage of 180 basis points due primarily to incremental list price increases, net of contract price discounting, as well as from the impact of amortization of purchased intangibles related to the Knoll acquisition recorded in the prior year that did not occur in the current period, offset in part by higher commodity and labor costs.

• Increased Operating expenses of $1.1 million.

The following factors contributed to the change:

◦ An increase of approximately $20 million from consolidating Knoll results for the entirety of the first quarter of fiscal 2023.

◦ An increase of approximately $6 million related to the additional week in the first quarter of fiscal 2023.

◦ Increased restructuring expenses of approximately $13 million related to voluntary and involuntary reductions in the Company's workforces.

These increases in operating expenses were offset by lower amortization and acquisition related integration charges of $28 million from the prior year period as well as lower technology, product, and marketing spend.

International Contract & Specialty

Three Months Ended

(Dollars in millions) September 3, 2022 August 28, 2021 Change

Three Months Ended Six Months Ended

(Dollars in millions) December 3, 2022 November 27, 2021 Change December 3, 2022 November 27, 2021 Change

Net sales $ 264.9 $ 247.0 $ 17.9 $ 537.4 $ 414.1 $ 123.3

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For the three month comparative period, net sales increased 7.2%, or 15.4% (*) on an organic basis, over the prior year period due to:

• Increased sales volume of approximately $23 million, driven by robust return to office plans within many international markets, continued growth within the India, South Korea and Middle East markets, and strength within the Holly Hunt and Spinneybeck Filzfelt businesses;

• Price increases, net of incremental discounting of $15 million;

offset in part by

• Unfavorable foreign currency translation of approximately $20 million.

For the six month comparative period, Net sales increased 29.8%, or 21.3% (*) on an organic basis, over the prior year period due to:

• Increased sales volume of approximately $77 million;

• An increase in sales of $56 million due to the Knoll acquisition that was completed on July 19, 2021.

The increase represents the impact of consolidating Knoll results for the entirety of the first quarter of fiscal 2023;

• Increased sales volume of approximately $54 million, and

• The positive impact of the additional sales from the 14th week in the quarter of $12 million;

partially offset by

• Unfavorable foreign currency translation of approximately $12 million, and

• The negative impact of incremental discounting, net of incremental price increases of approximately $4 million.

The impact of discounting was driven by larger than average project sizes across the business, as well as increased sales volume, as a percentage of total mix, from geographies with generally higher levels of discounting.

For the three month comparative period, operating earnings increased $21.3 million, or 322.7%, over the prior year period due to:

• Increased gross margin of $46 million due to the increase in sales explained above, as well as the increased gross margin percentage of 140 basis points due primarily to the leverage of fixed costs on higher sales volume.

• Increased operating expenses of approximately $25 million driven primarily from consolidating Knoll results for the entirety of the first quarter of fiscal 2023, the impact of the additional week in the current period as compared to the prior year, and increased compensation and benefit costs, partially offset by the impact of foreign currency translation.

• The positive impact of the additional sales from the additional week in the first quarter of $12 million;

• Price increases, net of incremental discounting of $11 million;

offset in part by

• Unfavorable foreign currency translation of approximately $32 million.

(*) Non-GAAP measurements;

see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."

For the three month comparative period, Operating earnings increased $13.5 million, or 91.2%, over the prior year period due to:

• Increased Gross margin of $11 million due to the increase in sales explained above, as well as the increased gross margin percentage of 120 basis points due primarily to the leverage of fixed costs on higher sales volume as well as from the impact of amortization of purchased intangibles related to the Knoll acquisition recorded in the prior year that did not occur in the current period.

• Decreased operating expenses of approximately $3 million driven primarily by decreased amortization and acquisition related integration changes of approximately $5 million, as well as favorable foreign currency exchange impacts of approximately $3 million, offset in part by increased compensation, variable-incentive and benefit costs.

For the six month comparative period, Operating earnings increased $34.8 million, or 162.6%, over the prior year period due to:

• Increased Gross margin of $56.7 million due to the increase in sales explained above, and increased gross margin percentage of 140 basis points due primarily to the leverage of fixed costs on higher sales volume as well as from the

impact of amortization of purchased intangibles related to the Knoll acquisition recorded in the prior year that did not occur in the current period.

• Increased Operating expenses of $21.9 million driven primarily from consolidating Knoll results for the entirety of the first quarter of fiscal 2023, the impact of the additional week in the current period as compared to the prior year, and increased compensation and benefit costs, partially offset by the impact of foreign currency translation as well as lower amortization and acquisition related integration charges as compared to the same period of the prior year.

Global Retail

Three Months Ended

(Dollars in millions) September 3, 2022 August 28, 2021 Change

Three Months Ended Six Months Ended

(Dollars in millions) December 3, 2022 November 27, 2021 Change December 3, 2022 November 27, 2021 Change

Net sales $ 272.3 $ 280.0 $ (7.7) $ 541.2 $ 521.3 $ 19.9

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Operating earnings % 0.7 % 12.3 % (11.6) % 3.7 % 11.7 % (8.0) %

For the three month comparative period, net sales increased 11.4%, and decreased 3.7% (*) on an organic basis, over the prior year period due to:

For the three month comparative period, Net sales decreased 2.8%, and increased 1.2% (*) on an organic basis, over the prior year period due to:

• Price increases, net of incremental discounting, which increased sales by $19 million;

more than offset by

• A decrease in sales volume of approximately $15 million, driven by changes in customer spending trends;

• Unfavorable foreign currency translation of approximately $11 million.

For the six month comparative period, Net sales increased 3.8%, and decreased 1.1% (*) on an organic basis, over the prior year period due to:

• An increase in sales of $31 million due to the Knoll acquisition that was completed on July 19, 2021.

The increase represents the impact of consolidating Knoll results for the entirety of the first quarter of fiscal 2023;

• The positive impact of additional sales from the 14th week in the quarter of $14 million and

• Price increases, net of incremental discounting, which increased sales by $25 million;

partially offset by

• Unfavorable foreign currency translation of approximately $8 million and

• A decrease in sales volume of approximately $15 million, driven primarily by changes in customer spending trends.

For the three month comparative period, operating earnings decreased $9 million or 32.6% over the prior year period due to:

• Increased operating expenses of $19 million driven primarily from consolidating Knoll results for the entirety of the first quarter of fiscal 2023, the increase in expense from the impact of an additional week in the current period, increased compensation and benefit costs, partially offset by the favorable operating expense impact of foreign currency translation;

• The positive impact of additional sales from the 14th week in the first quarter of $14 million;

offset in part by

• Increased gross margin of $10 million due to the increase in sales explained above, offset in part by a decrease in gross margin percentage of 60 basis points attributable to the unfavorable impact of higher commodity and product distribution costs as well as unfavorable changes in product mix, partially offset in part by the favorable impact of pricing.

• A decrease in sales volume of approximately $30 million, driven by changes in customer spending trends;

• Unfavorable foreign currency translation of approximately $19 million.

(*) Non-GAAP measurements;

see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."

Corporate unallocated expenses totaled $15 million for the first quarter of fiscal 2023, a decrease of $60 million from the first quarter of fiscal 2022.

The decrease was driven by $64 million of integration and transaction costs related to the Knoll acquisition in the in fiscal 2022 compared to $1 million of integration and transaction costs in the first quarter of fiscal 2023.

For the three month comparative period, Operating earnings decreased $32 million or 94.2% over the prior year period due to:

• Decreased Gross margin of $26 million due to the decrease in sales explained above, and decreased gross margin percentage of 830 basis points attributable to the unfavorable impact of higher inventory related costs, including storage, freight and distribution as well as unfavorable changes in product mix, partially partially offset in part by the favorable impact of pricing.

• Increased operating expenses of $6 million driven primarily by increased marketing costs and costs associated with the expansion of physical store locations.

For the six month comparative period, Operating earnings decreased $41 million, or 67.4%, over the prior year period due to:

• Decreased Gross margin of $16 million driven by the decreased gross margin percentage of 460 basis points attributable to the unfavorable impact of higher commodity and inventory storage costs as well as unfavorable changes in product mix, partially offset in part by the favorable impact of pricing.

• Increased Operating expenses of $25 million primarily due to consolidating Knoll results for the entirety of the first quarter of fiscal 2023 and increased marketing and costs associated with the expansion of physical store locations.

Corporate unallocated expenses totaled $17 million for the second quarter of fiscal 2023, a decrease of $15 million from the second quarter of fiscal 2022.

The decrease was driven by a reduction of integration and transaction costs related to the Knoll acquisition, which were $21 million in the prior period compared to $2 million in the second quarter of fiscal 2023.

Corporate unallocated expenses totaled $32.2 million for the first six months of fiscal 2023, a decrease of $74.9 million from the same period of fiscal 2022.

The decrease was driven by a reduction of integration and transaction costs related to the Knoll acquisition, which were $107.1 million in the prior period compared to $32.2 million in the second quarter of fiscal 2023.

Liquidity and Capital Resources

The table below summarizes the net change in cash and cash equivalents for the three months ended as indicated.

(In millions) September 3, 2022 August 28, 2021

The table below summarizes the net change in cash and cash equivalents for the six months ended as indicated.

(In millions) December 3, 2022 November 27, 2021

Cash (used in) provided by:

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The principal source of our operating cash flow is net earnings, meaning cash receipts from the sale of our products, net of costs to manufacture, distribute, and market our products.

Net cash used in our operating activities for the three months ended September 3, 2022 totaled $64.8 million, as compared to cash used of $51.7 million in the same period of the prior year.

The increase is due primarily to changes in incentive compensation as well as inventory levels which have risen as market conditions have eroded demand in key parts of our business in recent months, and as the Company has taken a higher inventory position to mitigate against further supply chain challenges.

Net cash used in operating activities for the six months ended December 3, 2022 totaled $5.3 million, as compared to cash used of $57.6 million in the same period of the prior year.

The decrease in cash outflow is due primarily to an increase in earnings in the current quarter compared to the same period of the prior year.

Cash Flows - Investing Activities

Cash used in investing activities for the three months ended September 3, 2022 was $10.2 million, as compared to $1,104.7 million in the same period of the prior year.

Cash used in investing activities for the six months ended December 3, 2022 was $32.0 million, as compared to $1,133.8 million in the same period of the prior year.

The decrease in cash outflow in the current year, compared to the prior year, was primarily due to the acquisition of Knoll, which drove a cash outflow, net of cash acquired, of $1,088.5 million in the prior year period.

In the three months ended September 3, 2022, we were advanced $13.5 million of cash against the value of company owned life insurance policies.

In the six months ended December 3, 2022, we were advanced $13.5 million of cash against the value of company owned life insurance policies.

This is reflected as cash proceeds from investing activities in the Consolidated Statement of Cash Flows.

At the end of the first quarter of fiscal 2023, there were outstanding commitments for capital purchases of $22.9 million.

At the end of the second quarter of fiscal 2023, there were outstanding commitments for capital purchases of $17.9 million.

The Company plans to fund these commitments through a combination of cash on hand and cash flows from operations.

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This compares to full-year capital spending of $94.7 million in fiscal 2022.

Capital expenditures through for the first six months of fiscal 2023 of $40.3 million are $6.0 million less than the same period of the prior year.

Cash Flows - Financing Activities

Cash provided from financing activities for the three months ended September 3, 2022 was $77.0 million, as compared to cash provided by financing activities of $1,001.6 million in the same period of the prior year.

Cash provided from financing activities for the six months ended December 3, 2022 was $11.6 million, as compared to cash provided by financing activities of $1,035.5 million in the same period of the prior year.

The decrease in cash provided in the current year, compared to the prior year, was primarily due to net borrowings of $1,007.0 million from the credit agreement the Company entered into during the prior year.

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The Company is closely managing spending levels, capital investments, and working capital.

In the fourth quarter of fiscal 2020, we temporarily suspended open market share repurchase activity as part of managing cash flows associated with uncertainty caused by the pandemic.

Going forward, we are re-establishing our open market share repurchase program under our existing share repurchase authorization and may repurchase shares from time to time based on management’s evaluation of market conditions, share price and other factors.

At the end of the first quarter of fiscal 2023, the Company had a well-positioned balance sheet and liquidity profile.

The Company maintains an open market share repurchase program under our existing share repurchase authorization and may repurchase shares from time to time based on management’s evaluation of market conditions, share price and other factors.

At the end of the second quarter of fiscal 2023, the Company had a well-positioned balance sheet and liquidity profile.

The Company has access to liquidity through credit facilities, cash and cash equivalents, and short-term investments.

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For additional information, refer to Note 13 to the Condensed Consolidated Financial Statements.

(In millions) September 3, 2022 May 28, 2022

(In millions) December 3, 2022 May 28, 2022

Cash and cash equivalents $ 197.5 $ 230.3

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Total liquidity $ 428.4 $ 526.9

Of the cash and cash equivalents noted above at the end of the first quarter of fiscal 2023, the Company had $201.9 million of cash and cash equivalents held outside the United States.

Of the cash and cash equivalents noted above at the end of the second quarter of fiscal 2023, the Company had $181.6 million of cash and cash equivalents held outside the United States.

The Company’s syndicated revolving line of credit, which matures in July, 2026, provides the Company with up to $725 million in revolving variable interest borrowing capacity and allows the Company to borrow incremental amounts, at its option, subject to negotiated terms as outlined in the agreement.

Outstanding borrowings bear interest at rates based on the prime rate, federal funds rate, LIBOR or negotiated terms as outlined in the agreement.

As of September 3, 2022, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $523.9 million with available borrowings against this facility of $186.6 million.

The Company intends to repatriate $100.0 million in cash held in certain foreign jurisdictions and as such has recorded a deferred tax liability related to foreign withholding taxes on these future dividends received in the U.S.

from foreign subsidiaries of $7.5 million.

A significant portion of this cash was previously taxed under the U.S.

Tax Cut and Jobs Act (TCJA) one-time U.S.

tax liability on undistributed foreign earnings.

The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside the U.S., which was $331.3 million on September 3, 2022.

As of December 3, 2022, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $480.0 million with available borrowings against this facility of $230.9 million.

The Company intends to repatriate $185.0 million of undistributed foreign earnings of which $104.9 million is held in cash in certain foreign jurisdictions with the remainder recorded in working capital.

The Company has recorded a $6.3 million deferred tax liability related to foreign withholding taxes on these future dividends received in the U.S.

from foreign subsidiaries.

A significant portion of the $185.0 million of undistributed foreign earnings was previously taxed under the U.S.

Tax Cut and Jobs Act (TCJA).

The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside the U.S.

which is estimated to be approximately $250.2 million on December 3, 2022.

The Company believes cash on hand, cash generated from operations, and borrowing capacity will provide adequate liquidity to fund near term and foreseeable future business operations, capital needs, future dividends and share repurchases, subject to financing availability in the marketplace.

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See Note 2 to the Condensed Consolidated Financial Statements.

Safe Harbor Provisions

Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Forward-looking statements relate to future events and anticipated results of operations, business strategies, the anticipated benefits of our 2021 acquisition of Knoll, the anticipated impact of the acquisition on the combined Company’s business and future financial and operating results, the expected amount and timing of synergies from the acquisition, and other aspects of our operations or operating results.

Forward-looking statements relate to future events and anticipated results of operations, business strategies, the anticipated benefits of our acquisition of Knoll, the anticipated impact of the acquisition on the combined company’s business and future financial and operating results, the expected amount and timing of synergies from the Knoll acquisition, and other aspects of our operations or operating results.

These forward-looking statements generally can be identified by phrases such as “will,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import.

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general economic conditions;

the impact of and any related company or government policies and actions to protect the health and safety of individuals or government policies or actions to maintain the functioning of national or global economies and market of public health crises, such as pandemics and epidemics;

risks related to the additional debt incurred in connection with the merger;

the impact of any company or government policies and actions to protect the health and safety of individuals or government policies or actions to maintain the functioning of national or global economies and market of public health crises, such as pandemics and epidemics;

risks related to the additional debt incurred in connection with the Knoll acquisition;

MillerKnoll’s ability to comply with its debt covenants and obligations;

the risk that the anticipated benefits of the merger will be more costly to realize than expected;

the effect of the announcement of the merger on the ability of MillerKnoll to retain and hire key personnel and maintain relationships with

customers, suppliers and others with whom MillerKnoll does business, or on MillerKnoll’s operating results and business generally;

the risk that the anticipated benefits of the Knoll acquisition will be more costly to realize than expected;

the effect of the announcement of the Knoll acquisition on the ability of MillerKnoll to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom MillerKnoll does business, or on MillerKnoll’s operating results and business generally;

the ability to successfully integrate Knoll’s operations;

the ability of MillerKnoll to implement its plans, forecasts and other expectations with respect to MillerKnoll’s business after the completion of the transaction and realize expected synergies;

business disruption following the merger;

the ability of MillerKnoll to implement its plans, forecasts and other expectations with respect to MillerKnoll’s business after the completion of the Knoll acquisition and realize expected synergies;

business disruption following the Knoll acquisition;

the availability and pricing of raw materials;

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and the outcome of pending litigation or governmental audits or investigations.

For additional information about other factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to MillerKnoll’s periodic reports and other filings with the SEC, including the risk factors identified in this report.

The forward-looking statements included in this report are made only as of the date hereof.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis