What changed in this filing

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Item 1A. Risk Factors

2023-07-26 compared with 2022-07-26 · 55 added, 75 removed, 172 unchanged (43% of the section changed)

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The risks and uncertainties described below are not the only ones we face;

others, either unforeseen or currently deemed not material, may

also have a negative impact on our Company.

others, either unforeseen or currently deemed not material, may also have a negative impact on our Company.

If any of the following occurs, our business, operating results, cash flows, and financial condition could be materially adversely affected.

Business and Knoll Acquisition Related Risks

Business Related Risks

We may not be successful in implementing and managing our growth strategy.

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These investments, if available, may not perform according to plan and may involve the assumption of business, operational, or other risks that are new to our business.

Future efforts to expand our business within developbtability may impact our ability to compete for business.

Future efforts to expand our business may impact our ability to compete for business.

It may also put the availability and/or value of our capital investments within these regions at risk.

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There is no assurance that we can identify or otherwise develop these channels of distribution.

We may be unable to successfully integrate Knoll into our business and realize the anticipated benefits of the acquisition of Knoll.

The success of the acquisition of Knoll will depend, in part, on our ability to successfully combine and integrate the businesses of Herman Miller and Knoll, and realize the anticipated benefits, including synergies, cost savings, innovation opportunities and operational efficiencies from the acquisition.

The success of the acquisition also will depend on the Company doing so in a manner that does not materially disrupt existing customer, payer, dealer, supplier, employee and other stakeholder relations nor result in decreased revenues due to losses of, or decreases in orders by, customers and payers.

If we are unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully, or at all, or may take longer to realize than expected, and the value of our common stock may decline.

The integration of the two companies may result in material challenges, including, without limitation:

• the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the transaction and related integration work;

• managing a larger and more complex combined business;

• maintaining employee morale, retaining key management and other employees and the possibility that the integration process and potential organizational changes may adversely impact the ability to maintain employee relationships;

• retaining existing business and operational relationships, including customers, dealers, suppliers, employees and other counterparties, as may be impacted by contracts containing consent and/or other provisions that may be triggered by the transaction, and attracting new business and operational relationships;

• the integration process not proceeding as expected, including due to a possibility of faulty assumptions or expectations regarding the integration process or Herman Miller’s or Knoll’s operations;

• consolidating corporate, administrative and compliance infrastructures and eliminating duplicative operations;

• coordinating geographically separate organizations, including in international markets with differing business, legal and regulatory climates;

• unanticipated issues in integrating information technology, communications and other systems;

• unforeseen expenses, costs, liabilities or delays associated with the acquisition or the integration.

Many of these factors will be outside of our control, and any one of them could result in delays, increased costs, decreases in the amount of expected revenues or synergies and diversion of management’s time and energy, which could materially affect MillerKnoll’s financial position, results of operations and cash flows.

The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized on a timely basis, if at all.

In connection with the acquisition of Knoll, we incurred significant additional indebtedness, which has increased our interest expense and could adversely affect us, including by decreasing our business flexibility.

The consolidated long-term debt of MillerKnoll as of May 28, 2022 was $1.38 billion.

In connection with the July 2021 acquisition of Knoll, we incurred significant additional indebtedness, which has increased our interest expense and could adversely affect us, including by decreasing our business flexibility.

The consolidated long-term debt of MillerKnoll as of June 3, 2023 was $1.37 billion.

As a result of our acquisition of Knoll, we substantially increased our indebtedness, which has increased our interest expense and could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions.

We have also incurred various costs and expenses associated with such indebtedness.

The amount of cash required to pay interest on our increased indebtedness levels and thus the demands on our cash resources will be greater than the amount of cash flows previously required to service our indebtedness.

The increased levels of indebtedness could also reduce funds available for working capital, capital expenditures, acquisitions, and other general corporate purposes and may create competitive disadvantages for MillerKnoll relative to other companies with lower debt levels.

The amount of cash required to pay interest on our increased indebtedness levels and thus the demands on our cash resources are greater than the amount of cash flows previously required to service our indebtedness.

The increased levels of indebtedness will also reduce funds available for working capital, capital expenditures, acquisitions, and other general corporate purposes and may create competitive disadvantages for MillerKnoll relative to other companies with lower debt levels.

If we do not achieve the expected benefits and cost savings from the acquisition, or if the financial performance of the combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.

The indebtedness incurred in connection with the acquisition of Knoll contains various covenants that impose restrictions on us that may affect our ability to operate our business.

These include both affirmative and negative covenants that, subject to certain significant exceptions, restrict the ability of us and certain of our subsidiaries to, among other things, incur liens on our property, incur additional indebtedness, enter into sale and lease-back transactions, make loans, advances, or other investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to equity interests, and/or merge or consolidate with any other person or sell or convey certain assets to any one person.

In addition, the definitive documentation governing such indebtedness contains a financial maintenance covenant that will require us to maintain a certain leverage ratio at the end of each fiscal quarter.

These include both affirmative and negative covenants that, subject to certain significant exceptions, restrict the ability of us and certain of our subsidiaries to, among other things, incur liens on our property, incur additional indebtedness, enter into sale and lease-back transactions, make loans, advances, or other investments, make non-ordinary course asset sales, declare or pay dividends, engage in share repurchases or make other distributions with respect to equity interests, and/or merge or consolidate with any other person or sell or convey certain assets to any one person.

In addition, the definitive documentation governing such indebtedness contains a financial maintenance covenant that requires us to maintain a certain leverage ratio at the end of each fiscal quarter.

Our ability to comply with these provisions may be affected by events beyond our control.

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There is no assurance we will be able to obtain such additional financing on terms acceptable to us or at all.

Uncertainties associated with the acquisition of Knoll may cause a loss of management personnel and other key employees.

MillerKnoll is dependent on the experience and industry knowledge of its officers and other key employees to execute its business plans.

Our success will depend in part upon our ability to retain certain key management personnel and employees, including those who joined us as part of the Knoll acquisition.

Our employees may experience uncertainty about their roles in light of the acquisition and our strategic plan, which may have an adverse effect on our ability to attract or retain key management and other key personnel.

We have incurred and may continue to incur significant costs in connection with the integration of Knoll, which may be in excess of those we anticipate.

We have incurred and expect to continue to incur a number of non-recurring fees and costs associated with combining the operations of Herman Miller and Knoll and achieving desired synergies.

These costs and expenses include those related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs.

These costs and expenses include those related to

formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs.

Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

Macroeconomic and Workplace Trends Related Risks

Adverse economic and industry conditions could have a negative impact on our business, results of operations and financial condition.

Customer demand within the contract office furniture and retail furnishings industries is affected by various macroeconomic factors with general corporate profitability, service sector employment levels, new office construction rates, and existing office vacancy rates being among the most influential factors.

History has shown that declines in these measures can have an adverse effect on overall office furniture demand.

Adverse economic and industry conditions have had a negative impact on our business, results of operations and financial condition.

Customer demand within the contract furniture and retail furnishings industries is affected by various macroeconomic factors with general corporate profitability, service sector employment levels, new office construction rates, and existing office vacancy rates being among the most influential factors.

Declines in these measures have had an adverse effect on overall furniture demand.

Additionally, factors and changes specific to our industry, such as developments in technology, governmental standards and regulations, and health and safety issues, can influence demand.

The markets in which we operate are highly competitive and we may not be successful in winning new business.

We are one of several companies competing for new business within the office furniture industry.

Many of our competitors offer similar categories of products, including office seating, systems and freestanding office furniture, casegoods, storage products, as well as residential, education and healthcare furniture solutions.

We are one of several companies competing for new business within the furniture industry.

Many of our competitors offer similar categories of products, including office seating, systems and freestanding furniture, casegoods, storage products, as well as residential, education and healthcare furniture solutions.

Although we believe that our innovative product design, functionality, quality, depth of knowledge, and strong network of distribution partners differentiate us in the marketplace, increased market pricing pressure and other factors could make it difficult for us to win new business with certain customers and within certain market segments at acceptable profit margins.

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Our business presence outside the United States exposes us to certain risks that could negatively affect our results of operations and financial condition.

We have significant manufacturing and sales operations in the United Kingdom, which represents our largest marketplace outside the United States.

The transitional exit of the U.K.

from European Union membership (commonly known as “Brexit”) could disrupt and create uncertainty with respect to our business in that region, including by affecting our relationships with current and future customers, suppliers, employees, and other of our business relationships.

Furthermore, concerns exist relating to potential tariffs and customs regulations and the potential for short term logistics disruption as any such changes are implemented.

We have significant manufacturing and sales operations in the United Kingdom, which represents our largest single marketplace outside the United States.

Concerns exist relating to potential tariffs and customs regulations and the potential for short term logistics disruption as any such changes are implemented.

This will impact both our suppliers and customers, including distributors, and could result in product delays and inventory issues.

Further uncertainty in the marketplace also brings risk to accounts receivable and could result in delays in collection and greater bad debt expense.

There also remains a risk for the value of the British Pound and/or the Euro to further deteriorate, reducing the purchasing power of customers in these regions and potentially undermining the financial health of the Company's suppliers and customers in other parts of the world.

There also remains a risk for the value of the British Pound, Danish Krone, and/or the Euro to further deteriorate, reducing the purchasing power of customers in these regions and potentially undermining the financial health of the Company's suppliers and customers in other parts of the world.

We also have manufacturing operations in China, India, Italy, Canada, Mexico and Brazil.

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Fluctuations in the rate of exchange between these currencies could negatively impact our business and our financial performance.

Additionally, tariff and import regulations, international tax policies and rates, and changes in U.S.

Additionally, tariff and import

regulations, international tax policies and rates, and changes in U.S.

and international monetary policies may have an adverse impact on results of operations and financial condition.

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MillerKnoll is not fulfilling any existing orders or accepting new orders from Russia or Belarus at this time.

As a safety measure, we have also stopped taking new

orders and fulfilling orders in Ukraine.

This region represents a small portion of our International Contract business, and we do not rely on any material goods from suppliers in these regions.

As a safety measure, we have also stopped taking new orders and fulfilling orders in Ukraine.

This region represents a small portion of our International Contract and Specialty business, and we do not rely on any material goods from suppliers in these regions.

While we do not have manufacturing facilities or offices in the region, we have historically sold products to two dealers in Ukraine, two in Russia, and two in Belarus.

Fiscal year 2023 and 2022 annualized revenues from these countries were approximately $0.2 million and $6.4 million, respectively.

None of the revenue recognized in fiscal year 2023 was from dealers located in countries under sanction.

Further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which could adversely affect our business and/or our supply chain, business partners or customers in the broader region.

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Although we believe none of these covenants is currently restrictive to our operations, our ability to meet the financial covenants can be affected by events beyond our control.

Disease outbreaks, such as the COVID-19 pandemic, could have an adverse impact on the Company's operations and financial results.

From time to time, various disease outbreaks may adversely impact our business, consolidated results of operations and financial condition, such as the ongoing COVID-19 pandemic, which has had such an adverse impact.

The Company has global manufacturing facilities, suppliers, dealers and customers.

Therefore, COVID-19, as well as measures taken by governmental authorities and other organizations and individuals to limit the spread of this virus, may continue to interfere to varying degrees with the ability of our employees, suppliers and other business providers to carry out their assigned tasks or supply materials at ordinary levels of performance relative to the conduct of our business.

In addition, the COVID-19 pandemic has caused a significant percentage of the traditional office workforce to work away from their office location and the extent to which this will become a more permanent trend is uncertain.

It is reasonable to assume, at least in the near-term, that this will have an adverse impact on the demand for office furniture and related products.

This has in the past caused, and may continue to cause, us to materially curtail certain of our business operations, and has had and could continue to have, a material adverse effect on our results of operations and cash flow.

Recent events affecting the financial services industry could have an adverse impact on the Company's business operations, financial condition, and results of operations.

The 2023 closures of certain banks have created bank-specific and broader financial institution liquidity risk and concerns.

Future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access working capital needs, and create additional market and economic uncertainty.

Although the Company does not have any deposits with any of the banks that have been placed into receivership to date, some of our customers may have deposits with them, which may expose us to potential risks that could impact our financial position and operations.

This could include an adverse impact on the ability of our customers to pay amounts they owe to the Company.

In addition, if any of our vendors have relationships with any of the banks that have been closed, it could negatively impact their ability to deliver goods and services to the Company.

More generally, these events have resulted in market disruption and volatility and could lead to greater instability in the credit and financial markets and a deterioration in confidence in economic conditions.

Our operations may be adversely affected by any such economic downturn, liquidity shortages, volatile business environments, or unpredictable market conditions.

These events could also make any necessary debt or equity financing more difficult and/or costly.

The future effect of these events on the financial services industry and broader economy are unknown and difficult to predict but could include failures of other financial institutions to which we or our customers, vendors, or other counterparties face direct or more significant exposure.

Any such developments could adversely impact our results of operation and financial position.

There may be other risks we have not yet identified.

We are working to identify any potential impact of these events on our business in order to minimize any disruptions to our operations.

However, we cannot guarantee we will be able to avoid any negative consequences relating to these recent developments or any future related developments.

Manufacturing, Supply Chain and Distribution Related Risks

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Accordingly, these tariffs and the possibility of broader trade conflicts stemming from the tariffs could negatively impact our business in the future.

The tariffs on imports, most notably imports from China, has impacted the cost of steel, a key commodity that we consume in producing products.

The tariffs on imports, most notably imports from China, have impacted the cost of steel, a key commodity that we consume in producing products.

Given the significance of steel costs to our direct materials costs, we closely monitor trade tensions between the U.S.

The potential impact to our direct material costs due to tariffs on Chinese imports is somewhat limited, however, as purchases of direct materials (mainly component parts and products manufactured by third parties) from China represented an estimated 3% of our consolidated cost of sales for fiscal 2023.

forward, continued or increased tariffs could negatively impact our gross margin and operating performance.

Going forward, continued or increased tariffs could negatively impact our gross margin and operating performance.

These factors also have the potential to significantly impact global trade and economic conditions in many of the regions where we do business.

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Also, dealers may experience financial difficulties, creating the need for outside financial support, which may not be easily obtained.

In the past, we have, on occasion, agreed to provide direct financial assistance through term loans, lines of credit, and/or loan guarantees to certain dealers.

The company has, on occasion, agreed to provide direct financial assistance through term loans, lines of credit, and/or loan guarantees to certain dealers.

Those activities increase our financial exposure.

A continued shortage of qualified labor could negatively affect our business and materially reduce earnings.

We have experienced shortages of qualified labor across our operations.

Outside suppliers that we rely on have also experienced shortages of qualified labor.

The future success of our operations depends on our ability, and the ability of third parties on which we rely, to identify, recruit, develop and retain qualified and talented individuals in order to supply and deliver our products.

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however, we retain the insurable risk at an aggregate level.

Therefore unforeseen or catastrophic losses in excess of our insured limits could have a material adverse

effect on the Company’s financial condition and operating results.

Therefore unforeseen or catastrophic losses in excess of our insured limits could have a material adverse effect on the Company’s financial condition and operating results.

See Note 1 of the Consolidated Financial Statements for information regarding the Company’s retention level.

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For these sales channels to function and develop successfully, we and other parties involved in processing customer transactions must be able to transmit confidential information, including credit card information and other personal information regarding our customers, securely over public and private networks.

Third parties may have or develop the technology or knowledge to breach, disable, disrupt or interfere with our systems or processes or those of our vendors.

Third parties may have or develop the technology or knowledge to breach, disable, disrupt or interfere

with our systems or processes or those of our vendors.

While we believe we take reasonable steps to protect the security and confidentiality of the information we collect, we cannot guarantee that our security measures will effectively prevent others from obtaining unauthorized access to our information and our customers’ information.

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(1) an adverse impact on future financial results due to theft, destruction, loss misappropriation, or release of confidential data or intellectual property;

(2) operational or business delays resulting from

the disruption of IT systems, and subsequent clean-up and mitigation activities;

(2) operational or business delays resulting from the disruption of IT systems, and subsequent clean-up and mitigation activities;

and (3) negative publicity resulting in reputation or brand damage with customers, partners or industry peers.

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The operations of our Global Retail segment are sensitive to a number of factors that influence consumer spending, including general economic conditions, consumer disposable income, unemployment, inclement weather, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, sales tax rates and rate increases, inflation, and consumer confidence in future economic conditions.

Adverse changes in these factors may reduce consumer demand for our products, resulting in reduced sales and profitability.

Adverse changes in these factors have reduced, and in the future may further reduce consumer demand for our products, resulting in reduced sales and profitability.

A number of factors that affect our ability to successfully implement our retail studio strategy, including opening new locations and closing existing studios, are beyond our control.

These factors may harm our ability to increase the sales and profitability of our retail operations.

Approximately 33% of the sales within our Global Retail segment are transacted within our retail studios.

Additionally, we believe our retail studios have a direct influence on the volume of business transacted through other channels, including our consumer eCommerce and direct-mail catalog platforms, as many customers utilize these physical spaces to view and experience products prior to placing an order online or through the catalog call center.

Our ability to open additional studios or close existing studios successfully will depend upon a number of factors beyond our control, including, without limitation:

Approximately 28% of the sales within our Global Retail segment are transacted within our retail stores.

Additionally, we believe our retail stores have a direct influence on the volume of business transacted through other channels, including our consumer eCommerce and direct-mail catalog platforms, as many customers utilize these physical spaces to view and experience products prior to placing an order online or through the catalog call center.

Our ability to open additional stores or close existing stores successfully will depend upon a number of factors beyond our control, including, without limitation:

• general economic conditions;

• identification and availability of suitable studio locations;

• identification and availability of suitable locations;

• success in negotiating new leases and amending or terminating existing leases on acceptable terms;

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We may incur significant increased costs and become subject to additional potential liabilities under environmental and other laws and regulations aimed at combating climate change.

We expect to incur significant costs as we work to implement our recently-announced 2030 sustainability goals, which include efforts to reduce our carbon footprint, design out waste, and source better materials.

We also believe it is likely that the increased focus by the U.S.

and other governmental authorities on climate change and other environmental matters will lead to enhanced regulation in these areas, which could also result in increased compliance costs and subject us to additional potential liabilities.

The extent of these costs and risks is difficult to predict and will depend in large part on the extent of new regulations and the ways in which those regulations are enforced.

We expect to incur significant costs as we work to implement the 2030 sustainability goals we announced in 2022, which include efforts to reduce our carbon footprint, design out waste, and source better materials.

Also, increased focus by the U.S.

and other governmental authorities on climate change and other environmental matters has led to enhanced regulation in these areas, which is expected to result in increased compliance costs and could subject us to additional potential liabilities.

The extent of these costs and risks is difficult to predict and will depend in large part on the extent of final regulations and the ways in which those regulations are enforced.

We operate and have manufacturing facilities in multiple regions across the globe, and the impact of additional regulations in this area is likely to vary by region.

It is possible the costs we incur to comply with any such new regulations and implement our own sustainability goals could be material.

Increasing competition for highly skilled and talented workers could adversely affect our business.

The successful implementation of our business strategy depends on our ability to attract and retain a skilled workforce.

The increasing competition for highly skilled and talented employees could result in higher compensation costs, difficulties in maintaining a capable workforce, and leadership succession planning challenges.

It is expected the costs we incur to comply with any such final regulations and implement our own sustainability goals could be material.

Government and other regulations could adversely affect our business.

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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-K

Item 1A. Risk Factors