What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-12 compared with 2023-01-11 · 176 added, 157 removed, 298 unchanged (53% of the section changed)

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Business Overview

The Company researches, designs, manufactures, sells, and distributes furnishings and accessories for use in various environments including office, healthcare, educational, and residential settings, and provides related services that support companies all over the world.

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 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.

The Company researches, designs, manufactures, sells, and distributes interior furnishings for use in various environments including office, healthcare, educational, and residential settings and provides related services that support companies all over the world.

The Company's products are sold through independent contract office furniture dealers, retail studios, the Company’s eCommerce platforms, direct mail catalogs, as well as direct customer sales and independent retailers.

The following is a summary of results for the three months ended March 4, 2023:

• Net sales were $984.7 million and orders were $885.4 million, representing an decrease of 4.4% and a decrease of 19.2%, 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 $1,000.6 million (*) and orders were $899.7 million, representing an decrease of 2.7% and decrease of 17.6%, respectively, when compared to the same quarter of the prior year.

• Gross margin was 34.1% as compared to 33.0% for the same quarter of the prior year.

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 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 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 increase in Gross margin was driven primarily by the impact of recently implemented price increase actions and the realization of synergies associated with the Knoll integration.

These benefits more than offset impairment costs recorded as part of a decision to cease operating Fully as a stand-alone brand as well as higher commodity, transportation and logistics costs as compared to the prior year.

• Operating expenses increased by $4.1 million or 1.3% as compared to the same quarter of the prior year.

The increase was driven primarily by impairment expenses recorded in the third quarter of the current year related to the decision to cease operating Fully as a stand-alone brand, offset in part by lower variable compensation, and the realization of cost synergies as a result of optimization of our organizational structure.

• As of the end of the third quarter, the Company has captured $123 million in annualized run rate synergies following the close of the Knoll acquisition in the first quarter of Fiscal 2022.

The Company continues to make further progress towards our target of $140 million in synergies by the end of the third year following the acquisition.

• The effective tax rate was 31.2% compared to 15.6% for the same quarter of the prior year.

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.

The year over year change in the effective tax rate for the three months ended March 4, 2023 resulted from an unfavorable tax adjustment in the current quarter related to stock compensation.

Additionally, the effective tax rate in the prior year third quarter was reduced by favorable tax adjustments related to the acquisition of Knoll and restructuring activities, which did not re-occur in the third quarter ended March 4, 2023.

• Diluted earnings per share was $0.01 as compared to earnings per share of $0.19 in the prior year.

Excluding integration related costs, restructuring costs, impairments related to the Fully decision and the amortization of intangible assets purchased as part of the Knoll acquisition, adjusted diluted earnings per share was $0.54 (*) , a 74.2% (*) increase as compared to prior year adjusted diluted earnings per share.

(*) Non-GAAP measurements;

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The following summary includes the Company's view of the economic environment in which it operates:

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

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

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.

• The Americas Contract segment in the third quarter reported Net sales totaling $484.6 million, down 4.9% compared to the prior year period on a reported basis and down 4.5% organically.

Americas Contract had new orders of $461.6 million, which was a decrease of 12.6% from the prior year, and down 11.8% 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 decline in orders year-over-year reflect the impact of a challenging macro-economic environment compounded by pandemic-driven pent-up demand in the same period of the prior year.

• The International Contract & Specialty segment delivered Net sales in the third quarter of $242.5 million, an increase of 0.6% from the year-ago period on a reported basis and up 4.3% organically.

New orders in this segment totaled $210.1 million, representing a year-over-year decrease of 27.2% on a reported basis and a decrease of 24.5% organically.

The year over year decline in orders as driven primarily by the cycling of record post-pandemic activity in the same quarter of the prior year.

• Net sales in the third quarter for the Global Retail segment totaled $257.6 million, a decrease of 7.7% over the same quarter last year on a reported basis and a decrease of 5.5% organically.

Orders in the quarter totaled $213.7 million, down 23.5% compared to the same period last year on a reported basis and down 21.3% organically.

The decline in year over year orders reflect the impact of a slowdown in the North American housing market and general economic uncertainty.

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

The first nine months of fiscal 2022 contained 39 weeks, and the first nine months of fiscal 2023 contained 40 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.

The remaining sections within Item 2 include additional analysis of the three and nine months ended March 4, 2023, including discussion of significant variances compared to the prior year periods.

Reconciliation of Non-GAAP Financial Measures

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Adjusted Earnings per Share and Organic Growth (Decline).

Adjusted Earnings per Share represents reported diluted earnings per share excluding the impact from amortization of purchased intangibles, acquisition and integration charges, debt extinguishment charges, restructuring charges, other special charges or gains and the related tax effect of those adjustments.

Adjusted Earnings per Share represents reported diluted earnings per share excluding the impact from amortization of purchased intangibles, acquisition and integration charges, debt extinguishment charges, restructuring charges, impairment charges, other special charges or gains and the related tax effect of those adjustments.

These adjustments are described further below.

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

Organic Growth (Decline) represents the change in sales and orders, excluding currency translation effects, the impact of an additional week in the fiscal 2023 and the impact of acquisitions and divestitures.

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

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The revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure.

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.

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.

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

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Includes actions involving targeted workforce reductions.

• Impairment charges:

Includes non-cash, pre-tax charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand.

• Special charges:

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We excluded the income tax benefit/provision effect of the tax related items from our non-GAAP measures because they are not associated with the tax expense on our ongoing operating results.

The following tables reconcile net sales to organic net sales for the periods ended as indicated below:

The following tables reconciles Net sales to Net sales, organic for the periods ended as indicated below:

Three Months Ended

December 3, 2022

March 4, 2023

Americas International & Specialty Retail Total

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Three Months Ended

November 27, 2021

February 26, 2022

Americas International & Specialty Retail Total

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(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

Nine Months Ended

March 4, 2023

Americas International & Specialty Retail Total

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% change from PY 5.0 % 15.0 % (2.6) % 5.2 %

Six Months Ended

November 27, 2021

Nine Months Ended

February 26, 2022

Americas International & Specialty Retail Total

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Three Months Ended

December 3, 2022

March 4, 2023

Americas International and Specialty Retail Total

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Three Months Ended

November 27, 2021

February 26, 2022

Americas International and Specialty Retail Total

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(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

Nine Months Ended

March 4, 2023

Americas International and Specialty Retail Total

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% change from PY (15.1) % (9.3) % (11.0) % (12.6) %

Six Months Ended

November 27, 2021

Nine Months Ended

February 26, 2022

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 Six Months Ended

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

Three Months Ended Nine Months Ended

March 4, 2023 February 26, 2022 March 4, 2023 February 26, 2022

Earnings (loss) per share - diluted $ 0.01 $ 0.19 $ 0.56 $ (0.66)

Non-comparable items:

Amortization of purchased intangibles 0.09 0.11 0.26 0.78

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Restructuring charges 0.06 — 0.29 —

Impairment charges 0.48 — 0.48 —

Special charges — — — (0.01)

Debt extinguishment — — — 0.19

Gain on sale of dealer — (0.03) — (0.03)

Tax impact on adjustments (0.15) (0.05) (0.29) (0.55)

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Weighted average shares outstanding (used for calculating adjusted earnings per share) – diluted 76,066,215 76,511,434 76,036,144 72,356,143

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

Analysis of Results for Three and Nine Months

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

Three Months Ended Nine Months Ended

(In millions, except share data) March 4, 2023 February 26, 2022 % Change March 4, 2023 February 26, 2022 % Change

Net sales $ 984.7 $ 1,029.5 (4.4) % $ 3,130.4 $ 2,845.5 10.0 %

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Backlog $ 732.3 $ 1,020.6 (28.2) %

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

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 nine months ended:

Three Months Ended Nine Months Ended

March 4, 2023 February 26, 2022 March 4, 2023 February 26, 2022

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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— 1.4 1.3 (1.7)

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 following charts present graphically the primary drivers of the year-over-year change in Net sales for the three and nine months ended March 4, 2023.

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

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

Net sales decreased $45 million or 4.4% in the third quarter of fiscal 2023 compared to the third 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.

• Decreased sales volume within the Global Retail and Americas segments of approximately $23 million and $81 million, respectively.

• Foreign currency translation decreased Net sales by approximately $16 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.

Offset in part by:

• Incremental price increases, net of price discounting, which drove an increase in Net sales of approximately $74 million.

• Increased sales volumes within the International Contract & Specialty segment contributed to sales growth in the quarter by approximately $1 million.

Net sales increased $285 million or 10.0% in the first nine months of fiscal 2023 compared to the first nine 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.

• Incremental price increases, net of price discounting drove an increase in Net sales of approximately $204 million.

• Increased sales volumes within the International Contract & Specialty segment contributed to sales growth in the quarter by approximately $78 million.

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• 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.

• Decreased sales volume within the Global Retail and Americas segments partially offset these increases by approximately $53 million and $87 million, respectively.

• Foreign currency translation decreased Net sales by approximately $72 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.

Gross margin was 34.1% in the third quarter of fiscal 2023 as compared to 33.0% in the third quarter of fiscal 2022.

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

• Price increases, net of incremental discounting, contributed to margin improvement of approximately 450 basis points.

• Reductions in variable compensation compared to the prior year had a favorable impact on margin of approximately 70 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 20 basis points.

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• Cost pressures from commodities, storage and handling costs, freight and product distribution costs, which decreased gross margin by approximately 170 basis points.

• Charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand contributed to a decrease in gross margin of approximately 100 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.

Gross margin was 34.4% in the nine months ended March 4, 2023 as compared to 34.1% 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.

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 370 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 decreased gross margin by approximately 250 basis points.

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

• Charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand contributed to a decrease in gross margin of approximately 10 basis points.

Operating Expenses

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 following charts present graphically the primary drivers of the year-over-year change in Operating expenses for the three and nine months ended March 4, 2023.

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

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

Operating expenses increased by $4 million or 1.3% in the third 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.

• Restructuring charges related to voluntary and involuntary reductions in the Company's workforce and charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand contributed to an increase in Operating expenses of approximately $26 million;

• Warranty costs increased by approximately $4 million in the quarter driven primarily by a favorable adjustment to the general accrual in the prior year that did not re-occur in the current period and increased warranty expenses in the current year within the Americas segment;

• Studio costs increased by approximately $1 million related to the expansion of physical store locations within the Global Retail segment.

These increases were offset in part by:

• Compensation and benefit costs, which decreased approximately $16 million, driven by changes in variable-based compensation and incentives and reduction in costs associated with optimization of our organizational structure;

• Acquisition related integration costs, which decreased by approximately $3 million;

• Favorable foreign currency translation, which reduced Operating expenses by approximately $2 million;

as well as decreased marketing costs.

Operating expenses decreased by $22 million or 2.3% in the first nine months of fiscal 2023 compared to the first nine 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.

• Acquisition related integration and amortization expense decreased $134 million from the prior year period;

• Favorable foreign currency translation of approximately $10 million;

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

• Compensation and benefit cost, which decreased approximately $7 million, driven primarily by a decrease in variable-based compensation.

These factors were offset in part by;

• The consolidation of Knoll results for the entirety of the first quarter of fiscal 2023, which increased Operating expenses by $50 million;

• The impact of an extra week in the first quarter of fiscal 2023, which increased Operating expenses by approximately $13 million;

• Studio costs, which increased by approximately $7 million, related to the expansion of physical store locations within the Global Retail segment;

• Warranty costs, which increased by approximately $7 million in the quarter driven by favorable adjustments to the general warranty accrual recorded in the same period of the prior year, as well as increased warranty expenses in the current year.

• The remaining change was primarily related to a decrease in marketing related program costs.

Other Income/Expense

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.

During the three months ended March 4, 2023, net Other expense was $19.6 million, representing an unfavorable change of $10.2 million compared to the same period in the prior year.

Other income/expense in the three months ended March 4, 2023 included $8.9 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 nine months ended March 4, 2023, net Other expense was $53.8 million, representing an unfavorable change of $18.2 million compared to the same period in the prior year.

Other income/expense in the nine months ended March 4, 2023 included a loss on extinguishment of debt of approximately $13.4 million, which represented the premium on early debt redemption.

Interest expense was $29.2 million higher during the current year resulting from higher levels of debt as well as higher foreign currency losses recorded in the current fiscal year compared to the prior fiscal year.

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 and six month periods ended December 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 nine month periods ended March 4, 2023.

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

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Americas Contract

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

(Dollars in millions) March 4, 2023 February 26, 2022 Change March 4, 2023 February 26, 2022 Change

Net sales $ 484.6 $ 509.4 $ (24.8) $ 1,551.7 $ 1,390.0 $ 161.7

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Gross margin % 30.9 % 23.7 % 7.2 % 29.2 % 25.6 % 3.6 %

Operating earnings 25.3 (10.9) 36.2 45.7 (21.5) 67.2

Operating earnings (loss) 32.5 (8.6) 41.1 78.2 (30.1) 108.3

Operating earnings % 6.7 % (1.7) % 8.4 % 5.0 % (2.2) % 7.2 %

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:

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

offset in part by

• 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;

For the three month comparative period, Net sales decreased 4.9%, or 4.5% (*) on an organic basis, over the prior year period due to:

• Decreased sales volumes within the segment of approximately $81 million, driven by the impact of a challenging macro-economic environment compounded by pandemic-driven pent-up demand in the prior year;

as well as unfavorable foreign currency translation of approximately $1 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:

offset in part by

• Price increases, net of incremental discounting of $57 million

For the nine month comparative period, Net sales increased 11.6%, or 5.0% (*) on an organic basis, over the prior year period due to:

• Price increases, net of incremental discounting of $151 million;

• 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;

• Decreased sales volumes within the segment of approximately $87 million, which was driven by the impact of a challenging macro-economic environment compounded by pandemic-driven pent-up demand last year;

as well as unfavorable foreign currency translation of approximately $5 million.

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For the three month comparative period, operating earnings increased $41.1 million, or 477.9%, 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.

• Increased Gross margin of $29 million due to the increased gross margin percentage of 720 basis points.

The increase in gross margin percentage was due primarily to the impact of incremental list price increases, net of contract price discounting, that increased gross margin percentage by 1110 basis points 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.

These increases were offset in part by higher commodity and labor costs that decreased gross margin percentage by approximately 300 basis points.

• Decreased Operating expenses of $12 million driven primarily by a decrease in variable based compensation costs of $10 million and a decrease in digital and technology program costs.

These decreases in Operating expenses were offset in part by increases in restructuring and warranty expenses.

For the nine month comparative period, operating earnings increased $108.3 million, or 359.8%, over the prior year period due to:

• Increased Gross margin of $97.0 million due to the increased gross margin percentage of 360 basis points.

The increase in gross margin percentage was due primarily to the impact of incremental list price increases, net of contract price discounting, that increased gross margin percentage by 820 basis points 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.

These increases were offset in part by higher commodity and labor costs that decreased gross margin percentage by 440 basis points.

• Decreased Operating expenses of $11 million.

The following factors contributed to the change:

◦ A decrease in variable based compensation of $10 million.

◦ Operating expenses also decreased due to lower amortization and integration charges of $36 million.

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

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◦ Increased restructuring expenses of approximately $18 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.

These increases in Operating expenses were offset by lower technology spend.

International Contract & Specialty

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

(Dollars in millions) March 4, 2023 February 26, 2022 Change March 4, 2023 February 26, 2022 Change

Net sales $ 242.5 $ 241.0 $ 1.5 $ 779.9 $ 655.1 $ 124.8

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For the three month comparative period, Net sales increased 0.6%, or 4.3% (*) 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 $9 million.

• Increased sales volume of approximately $1 million;

offset in part by

• Unfavorable foreign currency translation of approximately $9 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:

For the nine month comparative period, Net sales increased 19.1%, or 15.0% (*) on an organic basis, over the prior year period due to:

• Increased sales volume of approximately $78 million;

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For the three month comparative period, operating earnings increased $8.3 million, or 48.8%, 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.

• Increased Gross margin of $7 million due to the increase in sales explained above, as well as the increased gross margin percentage of 250 basis points due primarily to the leverage of fixed costs on higher sales volume, lower freight costs as compared to the same period of the prior year and favorable mix;

• Decreased Operating expenses of approximately $2 million driven primarily by decreased variable based compensation.

For the nine month comparative period, operating earnings increased $43.1 million, or 112.2%, over the prior year period due to:

• Increased Gross margin of $63 million due to the increase in sales explained above, and increased gross margin percentage of 180 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;

offset in part by

• Increased Operating expenses of $20 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, partially offset by the impact of foreign currency translation and lower amortization and acquisition related integration charges as compared to the same period of the prior year.

Global Retail

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

(Dollars in millions) March 4, 2023 February 26, 2022 Change March 4, 2023 February 26, 2022 Change

Net sales $ 257.6 $ 279.1 $ (21.5) $ 798.8 $ 800.4 $ (1.6)

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Gross margin % 33.2 % 44.7 % (11.5) % 37.5 % 44.4 % (6.9) %

Operating earnings 2.0 34.4 (32.4) 19.8 60.8 (41.0)

Operating (loss) earnings (24.5) 36.3 (60.8) (4.7) 97.1 (101.8)

Operating earnings % (9.5) % 13.0 % (22.5) % (0.6) % 12.1 % (12.7) %

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:

For the three month comparative period, Net sales decreased 7.7%, and decreased 5.5% (*) on an organic basis, over the prior year period due to:

• A decrease in sales volume of approximately $23 million, driven by a slowdown in the North American housing market and a general increase in economic uncertainty;

• Unfavorable foreign currency translation of approximately $6 million;

partially offset by

• Price increases, net of incremental discounting, which increased sales by $8 million.

more than offset by

For the nine month comparative period, Net sales decreased 0.2%, and decreased 2.6% (*) on an organic basis, over the prior year period due to:

• A decrease in sales volume of approximately $53 million, driven by changes in customer spending trends;

• Unfavorable foreign currency translation of approximately $25 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:

offset in part by

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

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

offset in part by

• 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;

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For the three month comparative period, Operating earnings decreased $61 million or 167.5% 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.

• Decreased Gross margin of $39 million due to the decrease in sales explained above, and decreased gross margin percentage of 1,150 basis points attributable to the impact of impairment of inventory associated with the decision to cease operating Fully as a stand-alone brand, unfavorable changes in product mix, partially offset in part by the favorable impact of pricing;

• Increased Operating expenses of $22 million driven primarily charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand, offset in part by lower variable compensation.

For the nine month comparative period, Operating earnings decreased $102 million, or 104.8%, over the prior year period due to:

• Decreased Gross margin of $55 million primarily due to decreased gross margin percentage of 690 basis points attributable to Impairment charges from Fully described above as well as 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 $47 million primarily due to consolidating Knoll results for the entirety of the first quarter of fiscal 2023, charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand, the impact of the additional week in the current period as compared to the prior year, increased

costs associated with retail studio locations and digital and technology program costs.

These expenses were offset in part by reduced costs associated with variable based compensation.

Corporate unallocated expenses totaled $12 million for the third quarter of fiscal 2023, a decrease of $3.4 million from the third quarter of fiscal 2022.

The decrease was driven by a reduction of integration and transaction costs related to the Knoll acquisition, which were $4 million in the prior period compared to $1 million in the third quarter of fiscal 2023.

Corporate unallocated expenses totaled $44.3 million for the first nine months of fiscal 2023, a decrease of $78.3 million from the same period of fiscal 2022.

The decrease was driven primarily by a reduction of integration and transaction costs related to the Knoll acquisition, which were $89.5 million in the prior period compared to $4.3 million in the third quarter of fiscal 2023.

Liquidity and Capital Resources

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:

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

(In millions) March 4, 2023 February 26, 2022

Cash provided by (used in):

Operating activities $ 70.4 $ (57.9)

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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 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.

Net cash provided by operating activities for the nine months ended March 4, 2023 totaled $70.4 million, as compared to cash used of $57.9 million in the same period of the prior year.

The increase in cash inflow is due primarily to an increase in earnings in the current nine month period compared to the same period of the prior year as well as a reduction in working capital.

Our working capital consists primarily of receivables from customers, prepaid expenses, accounts payable, accrued compensation, and accrued other expenses.

The timing of collection of our receivables, and the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued compensation and related benefits, all affect these account balances.

Cash Flows - Investing Activities

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.

Cash used in investing activities for the nine months ended March 4, 2023 was $53.2 million, as compared to $1,145.0 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 six months ended December 3, 2022, we were advanced $13.5 million of cash against the value of company owned life insurance policies.

In the nine months ended March 4, 2023, 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 second quarter of fiscal 2023, there were outstanding commitments for capital purchases of $17.9 million.

At the end of the third quarter of fiscal 2023, there were outstanding commitments for capital purchases of $19.7 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.

Capital expenditures through for the first nine months of fiscal 2023 of $60.6 million are $5.2 million less than the same period of the prior year.

Cash Flows - Financing Activities

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.

Cash used in financing activities for the nine months ended March 4, 2023 was $22.1 million, as compared to cash provided by financing activities of $1,061.4 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 under the credit agreement the Company entered into during the prior year.

Sources of Liquidity

2 unchanged sentences

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.

At the end of the third 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.

1 unchanged sentence

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

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

(In millions) March 4, 2023 May 28, 2022

Cash and cash equivalents $ 217.1 $ 230.3

1 unchanged sentence

Total liquidity $ 459.5 $ 526.9

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.

Of the Cash and cash equivalents noted above at the end of the third quarter of fiscal 2023, the Company had $200.9 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 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.

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

As of March 4, 2023, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $468.5 million with available borrowings against this facility of $242.4 million.

The Company intends to repatriate $185.0 million of undistributed foreign earnings of which $104.0 million is held in cash in certain foreign jurisdictions with the remainder recorded in working capital.

4 unchanged sentences

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.

which is estimated to be approximately $250.2 million on March 4, 2023.

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.

12 unchanged sentences

The Company continually reviews the accounting policies and financial information disclosures.

A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Company's Annual Report on Form 10-K for the year ended May 28, 2022.

A summary of the more significant accounting policies that require

the use of estimates and judgments in preparing the financial statements is provided in the Company's Annual Report on Form 10-K for the year ended May 28, 2022.

New Accounting Standards

2 unchanged sentences

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 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.

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 Knoll 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.

2 unchanged sentences

general economic conditions;

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;

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 the impact of public health crises, such as pandemics and epidemics;

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

14 unchanged sentences

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