MILLERKNOLL, INC. 10-Q

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions, except share data) The following is management's discussion and analysis of certain significant factors that affected the Company's financial condition, earnings and cash flows during the periods included in the accompanying Condensed Consolidated Financial Statements and should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended June 3, 2023. References to “Notes” are to the footnotes included in the accompanying Condensed Consolidated Financial Statements. Business Overview 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 sales through independent retailers. The following is a summary of results for the three months ended September 2, 2023: • Net sales were $917.7 million and orders were $913.7 million, representing a decrease of 14.9% and 9.8%, respectively, when compared to the same quarter of the prior year. On an organic basis, which excludes the impact of foreign currency translation, an additional week in the prior year and the impact of the closure of the Fully business, Net sales were $912.3 million (*) and orders were $906.4 million (*) , representing an organic decrease of 6.9% and 1.3%, respectively, when compared to the same quarter of the prior year. • Gross margin was 39.0% as compared to 34.5% for the same quarter of the prior year. The increase in Gross margin was driven primarily by the impact of price increase actions, reduced costs associated with commodities, inventory handling and freight costs, as well as from the realization of synergies associated with the Knoll integration. • Operating expenses decreased by $3.0 million or 0.9% as compared to the same quarter of the prior year. The decrease was driven primarily by the impact of the additional week in the prior year, reduced spending on product development costs and the realization of cost synergies as a result of optimization of our organizational structure. These cost reductions were offset in part by increased compensation and benefit costs and an increase in restructuring costs as compared to the prior year. • As of the end of the first quarter, the Company has captured $142 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 on integration plans and now expects total run-rate cost synergies to equal $160 million per year by July 2024 (three years following the acquisition closing date). • The effective tax rate was 24.4% compared to 18.8% for the same quarter of the prior year. The prior year tax rate benefited from the recapture of a foreign tax credit benefit which significantly outpaced the current year benefit. Additionally, the current quarter tax rate was hampered by a larger unfavorable tax adjustment related to stock compensation than the prior year. • Diluted earnings per share was $0.22 as compared to earnings per share of $0.34 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 $0.37 (*) , a 15.9% (*) decrease as compared to prior year adjusted diluted earnings per share. (*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures." 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 first quarter financial results reflect how our diversified business model, with brands across multiple channels, customer segments and geographies, provides risk diversification, and opportunities for long-term future growth. 23 • The Americas Contract segment in the first quarter reported Net sales totaling $490.4 million, down 8.7% compared to the prior year period on a reported basis and down 1.7% (*) organically. Americas Contract had new orders of $487.3 million, which was a decrease of 4.7% from the prior year, and up 2.1% (*) on an organic basis. • The International Contract & Specialty segment delivered Net sales in the first quarter of $228.3 million, a decrease of 16.2% from the year-ago period on a reported basis and a decrease of 10.9% (*) organically. New orders in this segment totaled $227.9 million, representing a year-over-year decrease of 9.7% on a reported basis and a decrease of 3.6% (*) organically. • Net sales in the first quarter for the Global Retail segment totaled $199.0 million, a decrease of 26.0% over the same quarter last year on a reported basis and a decrease of 13.6% (*) organically. Orders in the quarter totaled $198.5 million, down 20.4% compared to the same period last year on a reported basis and down 6.4% (*) organically. The decline in year over year orders reflect the impact of a slowdown in the North American housing market and general economic uncertainty. (*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures." The Company's fiscal year is the 52 or 53 week period ending on the Saturday closest to May 31. The fiscal year ending June 1, 2024 contains 52 weeks, while fiscal year ended June 3, 2023 ("fiscal 2023") contained 53 week. The first quarter of fiscal 2024 contained 13 weeks and the first quarter of fiscal 2023 contained 14 weeks. This is a factor that should be considered when comparing the Company's year to date financial results to the prior year period. The remaining sections within Item 2 include additional analysis of the three months ended September 2, 2023, including discussion of significant variances compared to the prior year periods. Reconciliation of Non-GAAP Financial Measures This report contains non-GAAP financial measures that are not in accordance with, nor an alternative to, generally accepted accounting principles (GAAP) and may be different from non-GAAP measures presented by other companies. These non-GAAP financial measures are not measurements of our financial performance under GAAP and should not be considered an alternative to the related GAAP measurement. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of non-GAAP measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included within this report. The Company believes these non-GAAP measures are useful for investors as they provide financial information on a more comparative basis for the periods presented. The non-GAAP financial measures referenced within this report include: Adjusted Earnings per Share and Organic Growth (Decline). Adjusted Earnings per Share represents reported diluted earnings per share excluding the impact from amortization of Knoll purchased intangibles, integration charges, restructuring expenses, and the related tax effect of these adjustments. These adjustments are described further below. 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 the closure of the Fully business. The adjustments made to arrive at these non-GAAP financial measures are as follows: • Amortization of Knoll Purchased Intangibles: Includes expenses associated with the amortization of acquisition related intangibles acquired as part of the Knoll acquisition. 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 Knoll purchased intangibles 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 Knoll 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. Although we exclude the Amortization of Knoll Purchased Intangibles in these non-GAAP measures, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation. 24 • Integration Charges: Knoll integration-related costs include severance, accelerated stock-based compensation expenses, asset impairment charges, and expenses related to synergy realization efforts and reorganization initiatives. • Restructuring charges: Includes actions involving targeted workforce reductions. • Tax related items: 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 reconciles Net sales to Net sales, organic for the periods ended as indicated below: Three Months Ended September 2, 2023 Americas International & Specialty Retail Total Net sales, as reported $ 490.4 $ 228.3 $ 199.0 $ 917.7 % change from PY (8.7) % (16.2) % (26.0) % (14.9) % Adjustments Currency translation effects (1) (0.4) (3.0) (2.0) (5.4) Net sales, organic $ 490.0 $ 225.3 $ 197.0 $ 912.3 % change from PY (1.7) % (10.9) % (13.6) % (6.9) % Three Months Ended September 3, 2022 Americas International & Specialty Retail Total Net sales, as reported $ 537.4 $ 272.5 $ 268.9 $ 1,078.8 Adjustments Fully closure — — (22.8) (22.8) Impact of Extra Week in FY23 (38.7) (19.6) (18.2) (76.5) Net sales, organic $ 498.7 $ 252.9 $ 227.9 $ 979.5 (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 25 The following tables reconcile orders as reported to organic orders for the periods ended as indicated below: Three Months Ended September 2, 2023 Americas International and Specialty Retail Total Orders, as reported $ 487.3 $ 227.9 $ 198.5 $ 913.7 % change from PY (4.7) % (9.7) % (20.4) % (9.8) % Adjustments Currency translation effects (1) (2.3) (2.9) (2.1) (7.3) Orders, organic $ 485.0 $ 225.0 $ 196.4 $ 906.4 % change from PY 2.1 % (3.6) % (6.4) % (1.3) % Three Months Ended September 3, 2022 Americas International and Specialty Retail Total Orders, as reported $ 511.3 $ 252.4 $ 249.4 $ 1,013.1 Adjustments Fully closure — — (23.0) (23.0) Impact of Extra Week in FY23 (36.2) (18.9) (16.6) (71.7) Orders, organic $ 475.1 $ 233.5 $ 209.8 $ 918.4 (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. The following table reconciles earnings per share - diluted to adjusted earnings per share - diluted for the periods ended as indicated below: Three Months Ended September 2, 2023 September 3, 2022 Earnings per share - diluted $ 0.22 $ 0.34 Add: Amortization of Knoll purchased intangibles 0.08 0.08 Add: Integration charges 0.07 0.06 Add: Restructuring charges 0.05 0.01 Tax impact on adjustments (0.05) (0.05) Adjusted earnings per share - diluted $ 0.37 $ 0.44 Weighted average shares outstanding (used for calculating adjusted earnings per share) – diluted 75,707,536 76,266,966 26 Key Highlights The following table presents certain key highlights from the results of operations for the three months ended: Three Months Ended (In millions, except share data) September 2, 2023 September 3, 2022 % Change Net sales $ 917.7 $ 1,078.8 (14.9) % Cost of sales 559.6 706.7 (20.8) % Gross margin 358.1 372.1 (3.8) % Operating expenses 317.8 321.3 (1.1) % Operating earnings 40.3 50.8 (20.7) % Other expenses, net 19.2 17.1 12.3 % Earnings before income taxes and equity income 21.1 33.7 (37.4) % Income tax expense 5.1 6.3 (19.0) % Equity income from nonconsolidated affiliates, net of tax 0.1 — — % Net earnings 16.1 27.4 (41.2) % Net (loss) earnings attributable to redeemable noncontrolling interests (0.6) 1.6 n/a Net earnings (loss) attributable to MillerKnoll, Inc. $ 16.7 $ 25.8 (35.3) % Earnings per share - basic $ 0.22 $ 0.34 (35.3) % Orders $ 913.7 $ 1,013.1 (9.8) % Backlog $ 694.0 $ 868.6 (20.1) % The following table presents select components of the Company's Condensed Consolidated Statements of Comprehensive (Loss) Income as a percentage of Net sales, for the three months ended: Three Months Ended September 2, 2023 September 3, 2022 Net sales 100.0 % 100.0 % Cost of sales 61.0 65.5 Gross margin 39.0 34.5 Operating expenses 34.6 29.8 Operating earnings 4.4 4.7 Other expenses, net 2.1 1.6 Earnings before income taxes and equity income 2.3 3.1 Income tax expense 0.6 0.6 Equity income from nonconsolidated affiliates, net of tax — — Net earnings 1.8 2.5 Net (loss) earnings attributable to redeemable noncontrolling interests (0.1) 0.1 Net earnings (loss) attributable to MillerKnoll, Inc. 1.8 2.4 27 Net Sales The following chart presents graphically the primary drivers of the year-over-year change in Net sales for the three months ended September 2, 2023. The amounts presented in the graph are expressed in millions and have been rounded. Net sales decreased $161 million or 14.9% in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The following items contributed to the change: • The additional week during the first quarter of the prior year contributed to approximately $77 million of the net sales decrease. • Decreased sales volume within the Global Retail, International & Specialty, and Americas segments of approximately $24 million, $34 million and $46 million, respectively. • Decrease of $24 million related to the closure of the Fully business that occurred in the prior year. Offset in part by: • Incremental price increases, net of incremental price discounting, which drove an increase in Net sales of approximately $39 million. • Foreign currency translation increased Net sales by approximately $5 million. Gross Margin Gross margin was 39.0% in the first quarter of fiscal 2024 as compared to 34.5% in the first quarter of fiscal 2023. 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 280 basis points. • Reduction in costs from commodities, storage and handling costs, freight and product distribution costs, as compared to the same period of the prior year which increased gross margin by approximately 220 basis points. • Savings from the realization of incremental synergies associated with the Knoll acquisition as compared to the same period in the prior year. • Loss of leverage on lower sales volumes offset the favorable drivers above by approximately 100 basis points. 28 Operating Expenses The following chart presents graphically the primary drivers of the year-over-year change in Operating expenses for the three months ended September 2, 2023. The amounts presented in the graphs are expressed in millions and have been rounded. Operating expenses decreased by $3 million or 1.1% in the first quarter of fiscal 2024 compared to the prior year period. The following factors contributed to the change: • The impact of an extra week in the first quarter of fiscal 2023 decreased operating expenses by approximately $10 million in the current period. • Product development costs decreased approximately $4 million, primarily in the Americas and Retail segments; and • Variable selling costs decreased by approximately $3 million. These decreases were offset in part by: • Compensation and benefit costs, which increased approximately $8 million, driven by changes in variable-based compensation and incentives; • Restructuring charges related to reductions in the Company's workforce contributed to an increase in Operating expenses of approximately $5 million; and • Favorable foreign currency translation of approximately $1 million. Other Income/Expense During the three months ended September 2, 2023, net Other expense was $19.2 million, representing an increase of $2.1 million compared to the same period in the prior year, driven primarily by increased interest expense as compared to the same period of the prior year. Income Taxes See Note 10 of the Condensed Consolidated Financial Statements for additional information. 29 Operating Segment Results The business is comprised of various operating segments as defined by generally accepted accounting principles in the United States. These operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. The segments identified by the Company are Americas Contract, International Contract & Specialty, and Global Retail. Unallocated expenses are reported within the Corporate category. For descriptions of each segment, refer to Note 15 of the Condensed Consolidated Financial Statements. The charts below present the relative mix of Net sales and Operating earnings across each of the Company's segments during the three month period ended September 2, 2023. This is followed by a discussion of the Company's results, by reportable segment. The amounts presented in the charts are in millions and have been rounded. 30 Americas Contract Three Months Ended (Dollars in millions) September 2, 2023 September 3, 2022 Change Net sales $ 490.4 $ 537.4 $ (47.0) Gross margin 174.8 144.2 30.6 Gross margin % 35.6 % 26.8 % 8.8 % Operating earnings 41.4 20.4 21.0 Operating earnings % 8.4 % 3.8 % 4.6 % For the three month comparative period, Net sales decreased 8.7%, or 1.7% (*) on an organic basis, over the prior year period due to: • Decreased sales volumes within the segment of approximately $46 million, driven by the impact of a challenging macro-economic environment; as well as • The impact of an additional week in the same period of the prior year, which reduced sales approximately $39 million; offset by • Price increases, net of incremental discounting of $38 million. (*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures." For the three month comparative period, operating earnings increased $21.0 million, or 102.9%, over the prior year period due to: • Increased Gross margin of $31 million due to the increased gross margin percentage of 880 basis points, which more than offset the decrease in net sales discussed above. The increase in gross margin percentage was due primarily to: ◦ The impact of incremental list price increases, net of contract price discounting which provided an approximately 500 basis point improvement over the prior year; and ◦ Decreased commodity costs which provided an improvement of approximately 300 basis points; as well as ◦ The favorable impact of realization of synergies associated with the Knoll acquisition. Partially offset by; • Increased Operating expenses of $10 million driven primarily by an increase in variable compensation costs, offset in part by a reduction in costs as compared to the prior year associated with the additional week in the prior year period. International Contract & Specialty Three Months Ended (Dollars in millions) September 2, 2023 September 3, 2022 Change Net sales $ 228.3 $ 272.5 $ (44.2) Gross margin 96.9 113.4 (16.5) Gross margin % 42.4 % 41.6 % 0.8 % Operating earnings 11.4 27.9 (16.5) Operating earnings % 5.0 % 10.2 % (5.2) % For the three month comparative period, Net sales decreased 16.2%, or 10.9% (*) on an organic basis, over the prior year period due to: • Decline in sales volume of approximately $34 million driven mainly by challenging macroeconomic conditions in Europe and China. • Impact of the extra week in the prior year period, which drove a decrease of $20 million; offset by • Price increases, net of incremental discounting of $7 million. • Favorable foreign currency translation of approximately $3 million. 31 (*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures." For the three month comparative period, operating earnings decreased $16.5 million, or 59.1%, over the prior year period due to: • Decreased Gross margin of $17 million due to the decrease in net sales discussed above, which more than offset an increase in gross margin percentage of 80 basis points due primarily to the benefit from price increase actions. • Operating expenses decreased approximately $4 million due to the additional week in the prior year which was largely offset by an increase in variable compensation costs in the current year. As a result, operating expenses were flat as compared to the same period of the prior year and did not contribute to the decrease in operating earnings. Global Retail Three Months Ended (Dollars in millions) September 2, 2023 September 3, 2022 Change Net sales $ 199.0 $ 268.9 $ (69.9) Gross margin 86.4 114.5 (28.1) Gross margin % 43.4 % 42.6 % 0.8 % Operating earnings 2.2 17.8 (15.6) Operating earnings % 1.1 % 6.6 % (5.5) % For the three month comparative period, Net sales decreased 26.0%, and decreased 13.6% (*) on an organic basis, over the prior year period due to: • A decrease in sales volume of approximately $24 million, driven by a slowdown in the North American housing market and a continuation of general economic uncertainty; and • Decrease of $24 million related to the closure of the Fully business that occurred in the prior year; and • The additional week during the first quarter of the prior year contributed to approximately $18 million of the net sales decrease; and • Incremental discounting, net of price increases which decreased sales by $6 million; offset by: • Favorable foreign currency translation of approximately $2 million. (*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures." For the three month comparative period, Operating earnings decreased $16 million or 87.6% over the prior year period due to: • Decreased Gross margin of $28 million due to the decrease in sales explained above, which more than offset an increased gross margin percentage of 80 basis points attributable to the favorable impact of reduced costs as compared to the prior year associated with product distribution and inventory handling; offset in part by • Decreased Operating expenses of $13 million driven primarily by decreased variable selling costs and decreased product development costs as well as the additional week in the prior year period . Corporate Corporate unallocated expenses totaled $15 million for the first quarter of fiscal 2024, a decrease of $0.6 million from the first quarter of fiscal 2023. The decrease was driven primarily by a reduction in integration costs as compared to the same period of the prior year. Liquidity and Capital Resources The table below summarizes the net change in Cash and cash equivalents for the three months ended as indicated. 32 (In millions) September 2, 2023 September 3, 2022 Cash provided by (used in): Operating activities $ 130.9 $ (64.8) Investing activities (26.3) (10.2) Financing activities (111.1) 77.0 Effect of exchange rate changes 0.5 (16.5) Net change in Cash and cash equivalents $ (6.0) $ (14.5) Cash Flows - Operating Activities 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 provided by operating activities for the three months ended September 2, 2023 totaled $130.9 million, as compared to cash used of $64.8 million in the same period of the prior year. The increase in cash inflow is due primarily to a reduction in working capital. Our working capital consists primarily of receivables from customers, inventory, prepaid expenses, accounts payable, accrued compensation, and accrued other expenses. The following all affected these account balances: •The timing of collection of our receivables; •Effective inventory management resulting in reduced inventory levels; and •Increased variable compensation in the current quarter. Cash Flows - Investing Activities Cash used in investing activities for the three months ended September 2, 2023 was $26.3 million, as compared to $10.2 million in the same period of the prior year. The increase in cash outflow in the current year, compared to the prior year, was primarily due to the advancement of $13.5 million of cash against the value of company owned life insurance policies received in the three months ended September 3, 2022. This is reflected as cash proceeds from investing activities in the Consolidated Statement of Cash Flows. At the end of the first quarter of fiscal 2024, there were outstanding commitments for capital purchases of $14.0 million. The Company plans to fund these commitments through a combination of cash on hand and cash flows from operations. The Company expects full-year capital purchases to be between $80 million and $100 million, which will be primarily related to investments in the Company's facilities and equipment. This compares to full-year capital spending of $83.3 million in fiscal 2023. Capital expenditures for the first three months of fiscal 2023 of $19.9 million were $2.6 million more than the same period of the prior year. Cash Flows - Financing Activities Cash used in financing activities for the three months ended September 2, 2023 was $111.1 million, as compared to cash provided by financing activities of $77.0 million in the same period of the prior year. The increase in cash used in the current year, compared to the prior year, was primarily due to net payments on the credit agreement of $59.4 million in the current year compared to net borrowings of $110.9 million in the same period of the prior year. During the three months ended September 2, 2023 we repurchased 1.7 million shares at a cost of $31.7 million, compared to share repurchases totaling $14.2 million in the same period of the prior year. Sources of Liquidity The Company has taken actions to safeguard its cash flow and liquidity position in the current environment. The Company is closely managing spending levels, capital investments, and working capital. 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 first quarter of fiscal 2024, 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. These sources have been summarized below. For additional information, refer to Note 13 to the Condensed Consolidated Financial Statements. 33 (In millions) September 2, 2023 June 3, 2023 Cash and cash equivalents $ 217.5 $ 223.5 Availability under syndicated revolving line of credit 343.8 284.2 Total liquidity $ 561.3 $ 507.7 Of the Cash and cash equivalents noted above at the end of the first quarter of fiscal 2024, the Company had $205.3 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, SOFR or negotiated terms as outlined in the agreement. As of September 2, 2023, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $367.3 million with available borrowings against this facility of $343.8 million. The Company intends to repatriate $142.8 million of undistributed foreign earnings all of which is held in cash in certain foreign jurisdictions with the remainder recorded in working capital. The Company has recorded a $5.8 million deferred tax liability related to foreign withholding taxes on these future dividends received in the U.S. from foreign subsidiaries. A significant portion of the $142.8 million of undistributed foreign earnings was previously taxed under the U.S. Tax Cut and Jobs Act (TCJA). The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside the U.S. which is estimated to be approximately $282.2 million on September 2, 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. Contractual Obligations Contractual obligations associated with ongoing business and financing activities will require cash payments in future periods. A table summarizing the amounts and estimated timing of these future cash payments as of June 3, 2023 was provided in the Company's Annual Report on Form 10-K for the year ended June 3, 2023. There have been no material changes in such obligations since that date. Guarantees See Note 12 to the Condensed Consolidated Financial Statements. Variable Interest Entities See Note 17 to the Condensed Consolidated Financial Statements. Contingencies See Note 12 to the Condensed Consolidated Financial Statements. Critical Accounting Policies The Company strives to report financial results clearly and understandably. The Company follows accounting principles generally accepted in the United States in preparing its consolidated financial statements, which require certain estimates and judgments that affect the financial position and results of operations for the Company. 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 June 3, 2023. New Accounting Standards See Note 2 to the Condensed Consolidated Financial Statements. 34 Cautionary Note Regarding Forward-Looking Statements This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to future events and anticipated results of operations, business strategies, the anticipated benefits of our 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. It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations and financial condition of MillerKnoll or the price of MillerKnoll’s stock. These forward-looking statements involve certain risks and uncertainties, many of which are beyond MillerKnoll’s control, that could cause actual results to differ materially from those indicated in such forward-looking statements, including but not limited to: general economic conditions; the impact of any government policies and actions to protect the health and safety of individuals or to maintain the functioning of national or global economies, and the Company's response to any such policies and actions; the impact of public health crises, such as pandemics and epidemics; risks related to the additional debt incurred in connection with the Knoll acquisition; MillerKnoll’s ability to comply with its debt covenants and obligations; the risk that the anticipated benefits of the Knoll acquisition will be more costly to realize than expected; the effect of the announcement of the Knoll acquisition on the ability of MillerKnoll to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom MillerKnoll does business, or on MillerKnoll’s operating results and business generally; the ability to successfully integrate Knoll’s operations; the ability of MillerKnoll to implement its plans, forecasts and other expectations with respect to MillerKnoll’s business after the completion of the Knoll acquisition and realize expected synergies; business disruption following the Knoll acquisition; the availability and pricing of raw materials; the financial strength of our dealers and the financial strength of our customers; the success of newly-introduced products; the pace and level of government procurement; and the outcome of pending litigation or governmental audits or investigations. For additional information about other factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to MillerKnoll’s periodic reports and other filings with the SEC, including the risk factors identified in our Annual Report on Form 10-K for the year ended June 3, 2023 . The forward-looking statements included in this report are made only as of the date hereof. MillerKnoll does not undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances, except as required by law.