What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-01-10 compared with 2023-10-11 · 182 added, 92 removed, 255 unchanged (52% of the section changed)

4 unchanged sentences

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:

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

The Company's products are sold primarily through independent contract office 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 2, 2023:

• Net sales were $949.5 million and orders were $944.0 million, representing a decrease of 11.0% and 6.8%, 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.

On an organic basis, which excludes the impact of foreign currency translation and the impact of the closure of the Fully business, Net sales were $941.6 million (*) and orders were $934.0 million (*) , representing an organic decrease of 10.1% and 6.0%, respectively, when compared to the same quarter of the prior year.

• Gross margin in the second quarter was 39.2% 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, as well as the continued realization of synergies associated with the Knoll integration.

• Operating expenses decreased by $17.3 million or 5.3% 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 decrease was driven primarily by the realization of cost synergies as a result of optimization of our organizational structure, a reduction in restructuring costs as compared to the same prior of the prior year as well as lower variable costs due to decreased sales.

• As of the end of the second quarter, the Company has captured $147 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 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 21.4% compared to 19.8% 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.

The prior year tax rate benefited from favorable tax credit benefits which outpaced the current year benefit.

• Diluted earnings per share was $0.45 as compared to earnings per share of $0.21 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.

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 $0.59 (*) , a 28.3% (*) increase as compared to prior year adjusted diluted earnings per share.

(*) Non-GAAP measurements;

1 unchanged sentence

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.

• 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.

• During the second quarter, demand levels for the Company's products continued to be impacted by general economic uncertainty around the world driven by geopolitical concerns, persistent inflationary affects, and elevated market interest rates.

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 long-term future growth.

• The Americas Contract segment in the second quarter reported Net sales totaling $476.1 million, down 10.1% compared to the prior year period on a reported basis and down 10.3% (*) organically.

Americas Contract had new orders of $437.4 million, which was a decrease of 7.7% from the prior year, and down 8.1% (*) on an organic basis.

• The International Contract & Specialty segment delivered Net sales in the second quarter of $241.2 million, a decrease of 8.9% from the year-ago period on a reported basis and a decrease of 10.4% (*) organically.

New orders in this segment totaled $233.9 million, representing a year-over-year decrease of 3.2% on a reported basis and a decrease of 5.1% (*) 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.

• Net sales in the second quarter for the Global Retail segment totaled $232.2 million, a decrease of 14.7% over the same quarter last year on a reported basis and a decrease of 9.4% (*) organically.

Orders in the quarter totaled $272.7 million, down 8.4% compared to the same period last year on a reported basis and down 3.0% (*) 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;

1 unchanged sentence

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 fiscal year ending June 1, 2024 contains 52 weeks, while fiscal year ended June 3, 2023 ("fiscal 2023") contained 53 weeks.

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.

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

Reconciliation of Non-GAAP Financial Measures

27 unchanged sentences

Three Months Ended

September 2, 2023

Americas International & Specialty Retail Total

December 2, 2023

Americas Contract International Contract & Specialty Global Retail Total

Net sales, as reported $ 476.1 $ 241.2 $ 232.2 $ 949.5

5 unchanged sentences

Three Months Ended

September 3, 2022

Americas International & Specialty Retail Total

December 3, 2022

Americas Contract International Contract & Specialty Global Retail Total

Net sales, as reported $ 529.7 $ 264.9 $ 272.3 $ 1,066.9

Fully closure — — (19.5) (19.5)

Net sales, organic $ 529.7 $ 264.9 $ 252.8 $ 1,047.4

(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

Six Months Ended

December 2, 2023

Americas Contract International Contract & Specialty Global Retail Total

Net sales, as reported $ 966.5 $ 469.5 $ 431.2 $ 1,867.2

% change from PY (9.4) % (12.6) % (20.3) % (13.0) %

Currency translation effects (1)

(1.2) (6.9) (5.2) (13.3)

Net sales, organic $ 965.3 $ 462.6 $ 426.0 $ 1,853.9

% change from PY (6.1) % (10.7) % (11.4) % (8.5) %

Six Months Ended

December 3, 2022

Americas Contract International Contract & Specialty Global Retail Total

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

Fully closure — — (42.3) (42.3)

Impact of extra week in FY23 (38.7) (19.6) (18.2) (76.5)

3 unchanged sentences

Three Months Ended

September 2, 2023

Americas International and Specialty Retail Total

December 2, 2023

Americas Contract International Contract & Specialty Global Retail Total

Orders, as reported $ 437.4 $ 233.9 $ 272.7 $ 944.0

5 unchanged sentences

Three Months Ended

September 3, 2022

Americas International and Specialty Retail Total

December 3, 2022

Americas Contract International Contract & Specialty Global Retail Total

Orders, as reported $ 474.1 $ 241.7 $ 297.6 $ 1,013.4

Fully closure — — (20.3) (20.3)

Orders, organic $ 474.1 $ 241.7 $ 277.3 $ 993.1

(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 2, 2023

Americas Contract International Contract & Specialty Global Retail Total

Orders, as reported $ 924.7 $ 461.8 $ 471.2 $ 1,857.7

% change from PY (6.2) % (6.5) % (13.9) % (8.3) %

Currency translation effects (1)

(4.2) (7.4) (5.7) (17.3)

Orders, organic $ 920.5 $ 454.4 $ 465.5 $ 1,840.4

% change from PY (3.0) % (4.4) % (4.4) % (3.7) %

Six Months Ended

December 3, 2022

Americas Contract International Contract & Specialty Global Retail Total

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

Impact of extra week in FY23 (36.2) (18.9) (16.6) (71.7)

Fully closure — — (43.3) (43.3)

Orders, organic $ 949.2 $ 475.2 $ 487.1 $ 1,911.5

1 unchanged sentence

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

Three Months Ended Six Months Ended

December 2, 2023 December 3, 2022 December 2, 2023 December 3, 2022

Earnings per share - diluted $ 0.45 $ 0.21 $ 0.67 $ 0.55

6 unchanged sentences

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

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 2, 2023 December 3, 2022 % Change December 2, 2023 December 3, 2022 % Change

Net sales $ 949.5 $ 1,066.9 (11.0) % $ 1,867.2 $ 2,145.7 (13.0) %

6 unchanged sentences

Income tax expense 9.5 4.3 120.9 % 14.6 10.6 37.7 %

Equity income from nonconsolidated affiliates, net of tax 0.1 — — %

Equity (loss) income from nonconsolidated affiliates, net of tax (0.4) 0.2 (300.0) % (0.3) 0.2 (250.0) %

Net earnings 34.4 17.5 96.6 % 50.5 44.9 12.5 %

Net (loss) earnings attributable to redeemable noncontrolling interests (0.6) 1.6 n/a

Net earnings (loss) attributable to MillerKnoll, Inc.

Net earnings attributable to redeemable noncontrolling interests 0.9 1.5 n/a 0.3 3.1 n/a

Net earnings attributable to MillerKnoll, Inc.

$ 33.5 $ 16.0 109.4 % $ 50.2 $ 41.8 20.1 %

2 unchanged sentences

Backlog $ 688.5 $ 815.4 (15.6) %

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

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 2, 2023 December 3, 2022 December 2, 2023 December 3, 2022

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

6 unchanged sentences

Income tax expense 1.0 0.4 0.8 0.5

Equity income from nonconsolidated affiliates, net of tax — —

Equity (loss) income from nonconsolidated affiliates, net of tax — — — —

Net earnings 3.6 1.6 2.7 2.1

Net (loss) earnings attributable to redeemable noncontrolling interests (0.1) 0.1

Net earnings (loss) attributable to MillerKnoll, Inc.

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.

Net earnings attributable to redeemable noncontrolling interests 0.1 0.1 — 0.1

Net earnings attributable to MillerKnoll, Inc.

3.5 1.5 2.7 1.9

The following chart presents graphically the primary drivers of the year-over-year change in Net sales for the three and six months ended December 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.

Net sales decreased $117 million or 11.0% in the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023.

The following items contributed to the change:

• Decreased sales volume within the Global Retail, International Contract & Specialty, and Americas Contract segments of approximately $11 million, $29 million and $77 million, respectively.

• Decrease of $20 million related to the closure of the Fully business that occurred in the prior year.

Offset in part by:

• Price increases, net of incremental discounting, which drove an increase in Net sales of approximately $12 million.

• Foreign currency translation increased Net sales by approximately $8 million.

Net sales decreased $279 million or 13.0% in the first six months of fiscal 2024 compared to the first six months 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 $42 million related to the closure of the Fully business that occurred in the prior year.

• Decreased sales volume within the Global Retail, International Contract & Specialty, and Americas Contract segments of approximately $37 million, $63 million and $124 million, respectively.

Offset in part by:

• Incremental price increases, net of incremental price discounting, which drove an increase in Net sales of approximately $39 million.

• Price increases, net of incremental discounting, which drove an increase in Net sales of approximately $51 million.

• Foreign currency translation increased Net sales by approximately $13 million.

Gross margin was 39.0% in the first quarter of fiscal 2024 as compared to 34.5% in the first quarter of fiscal 2023.

Gross margin was 39.2% in the second quarter of fiscal 2024 as compared to 34.5% in the second quarter of fiscal 2023.

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

2 unchanged sentences

• 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.

These factors were offset in part by;

• Loss of leverage on lower sales volumes, which negatively impacted margin by approximately 120 basis points.

Gross margin was 39.1% in the six months ended December 2, 2023 as compared to 34.5% 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:

• Price increases, net of incremental discounting, contributed to margin improvement of approximately 180 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 370 basis points.

• Savings from the realization of incremental synergies associated with the Knoll acquisition as compared to the same period in the prior year.

These factors were offset in part by;

• Loss of leverage on lower sales volumes and unfavorable channel and product mix, which negatively impacted gross margin by approximately 110 basis points.

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 following chart presents graphically the primary drivers of the year-over-year change in Operating expenses for the three and six months ended December 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.

Operating expenses decreased by $17 million or 5.3% in the second quarter of fiscal 2024 compared to the prior year period.

The following factors contributed to the change:

• Variable selling and marketing costs decreased by approximately $10 million, due in part to the closure of the Fully business that occurred in the prior year;

• Restructuring charges related to reductions in the Company's workforce as well as acquisition related integration costs contributed to a decrease in Operating expenses as compared to the same period of the prior year of approximately $10 million;

• Other costs, primarily product development costs decreased approximately $5 million, primarily in the Americas Contract and Global Retail segments.

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;

Operating expenses decreased by $21 million or 3.2% in the first six months of fiscal 2024 compared to the first six months of fiscal 2023.

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;

• Variable selling costs decreased by approximately $3 million.

• Variable selling and marketing costs decreased by approximately $9 million, due in part to the closure of the Fully business that occurred in the prior year;

• Restructuring charges related to reductions in the Company's workforce contributed to a decrease in Operating expenses of approximately $8 million;

• Product development costs decreased approximately $8 million, primarily in the Americas Contract and Global Retail segments;

• Savings from the realization of incremental synergies associated with the Knoll acquisition as compared to the same period in the prior year.

These decreases were offset in part by:

• Compensation and benefit costs, which increased approximately $16 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;

• 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.

During the three months ended December 2, 2023, net Other expense was $16.1 million, representing a decrease of $1.0 million compared to the same period in the prior year, driven primarily by increased interest income as well as higher foreign currency gains recorded in the current fiscal year, offset in part by increased interest expense as compared to the same period of the prior year.

During the six months ended December 2, 2023, net Other expense was $35.3 million, representing an increase of $1.1 million compared to the same period in the prior year.

This change is driven primarily by increased interest expense as compared to the same period of the prior year, offset in part by increased interest income in the current year.

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

5 unchanged sentences

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.

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 2, 2023.

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

1 unchanged sentence

Americas Contract

Three Months Ended

(Dollars in millions) September 2, 2023 September 3, 2022 Change

Three Months Ended Six Months Ended

(Dollars in millions) December 2, 2023 December 3, 2022 Change December 2, 2023 December 3, 2022 Change

Net sales $ 476.1 $ 529.7 $ (53.6) $ 966.5 $ 1,067.1 $ (100.6)

5 unchanged sentences

• Decreased sales volumes within the segment of approximately $77 million, driven by the impact of a challenging macro-economic environment;

• Price increases, net of incremental discounting of $23 million.

For the six month comparative period, Net sales decreased 9.4%, or 6.1% (*) on an organic basis, over the prior year period due to:

• Decreased volumes within the segment of approximately $124 million, which was driven by the impact of a challenging macro-economic environment compounded by pandemic-driven pent-up demand last year;

• The impact of an additional week in the same period of the prior year, which reduced sales approximately $39 million;

• Price increases, net of incremental discounting of $61 million;

• Favorable foreign currency translation of approximately $1 million.

(*) Non-GAAP measurements;

5 unchanged sentences

◦ Decreased commodity costs which provided an improvement of approximately 300 basis points.

These increases were offset in part by i ncreased labor costs as well as loss of labor and overhead leverage due to reduced production volumes which had a negative impact on margin of 250 basis points.;

◦ The favorable impact of realization of synergies associated with the Knoll acquisition.

• Decreased Operating expenses of $8 million driven primarily by decreased restructuring charges related to reductions in the Company's workforce of approximately $13 million offset in part by an increase in variable compensation costs of approximately $4 million.

For the six month comparative period, operating earnings increased $30.8 million, or 67.4%, over the prior year period due to:

• Increased Gross margin of $32.9 million due to the increased gross margin percentage of 630 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 430 basis points;

◦ Decreased commodity and product distribution costs that increased gross margin percentage by 380 basis points.

These increases were offset in part by i ncreased labor costs as well as loss of labor and overhead leverage due to reduced production volumes as well as unfavorable product mix which had a negative impact on margin of 180 basis points.

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.

• Increased Operating expenses of $2 million.

The following factors contributed to the change:

◦ An increase in variable based compensation of approximately $10 million and increased acquisition related costs costs of $6 million;

◦ A decrease of approximately $5 million due to the additional week in the prior year as well as decreased restructuring charges related to reductions in the Company's workforce of approximately $9 million compared to the prior year.

International Contract & Specialty

Three Months Ended

(Dollars in millions) September 2, 2023 September 3, 2022 Change

Three Months Ended Six Months Ended

(Dollars in millions) December 2, 2023 December 3, 2022 Change December 2, 2023 December 3, 2022 Change

Net sales $ 241.2 $ 264.9 $ (23.7) $ 469.5 $ 537.4 $ (67.9)

5 unchanged sentences

• Decline in sales volume of approximately $29 million driven mainly by challenging macroeconomic conditions in Europe and China;

offset in part by

• Favorable foreign currency translation of approximately $4 million;

• Price increases, net of incremental discounting of $1 million.

For the six month comparative period, Net sales decreased 12.6%, or 10.7% (*) on an organic basis, over the prior year period due to:

• Impact of the extra week in the prior year period, which drove a decrease of $20 million;

• Decreased sales volume of approximately $63 million;

offset in part by

• Price increases, net of incremental discounting of $8 million;

3 unchanged sentences

For the three month comparative period, operating earnings decreased $4.5 million, or 15.9%, 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.

• Decreased Gross margin of $3 million due to the decrease in net sales discussed above, which more than offset an increase in gross margin percentage of 280 basis points due primarily to favorable product mix.

• Operating expenses increased approximately $2 million which was largely due to an increase in variable compensation costs in the current year.

For the six month comparative period, operating earnings decreased $21.0 million, or 37.4%, over the prior year period due to:

• Decreased Gross margin of $20 million due to the decrease in sales explained above, which more than offset an increase in gross margin percentage of 180 basis points due primarily to favorable product mix and th e impact of incremental list price increases, net of contract price discounting

• Increased Operating expenses of $2 million which was largely due to an increase in variable compensation costs in the current year of $8 million offset by a decrease of $4 million due to the additional week in the prior year and a decrease of $2 million of variable selling costs.

Global Retail

Three Months Ended

(Dollars in millions) September 2, 2023 September 3, 2022 Change

Three Months Ended Six Months Ended

(Dollars in millions) December 2, 2023 December 3, 2022 Change December 2, 2023 December 3, 2022 Change

Net sales $ 232.2 $ 272.3 $ (40.1) $ 431.2 $ 541.2 $ (110.0)

4 unchanged sentences

For the three month comparative period, Net sales decreased 14.7%, and decreased 9.4% (*) 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;

• Decrease of $20 million related to the closure of the Fully business that occurred in the prior year;

• Incremental discounting, net of price increases which decreased sales by $12 million;

• A decrease in sales volume of approximately $11 million, driven by a slowdown in our wholesale sales internationally due to high rates impacting customer demand and the continued softness in the North American housing market;

• Favorable foreign currency translation of approximately $3 million.

For the six month comparative period, Net sales decreased 20.3%, and decreased 11.4% (*) on an organic basis, over the prior year period due to:

• Decrease of $42 million related to the closure of the Fully business that occurred in the prior year;

• A decrease in sales volume of approximately $37 million, driven by a slowdown in the North American housing market and a continuation of general economic uncertainty;

• The additional week during the first quarter of the prior year contributed to approximately $18 million of the net sales decrease;

3 unchanged sentences

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 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.

For the three month comparative period, Operating earnings increased $13 million or 635.0% over the prior year period due to:

• Increased Gross margin of $5 million due to the gross margin percentage increase of 850 basis points attributable to the favorable impact of reduced costs as compared to the prior year associated with product distribution and inventory handling;

• Decreased Operating expenses of $8 million driven primarily by decreased variable selling costs, decreased product development costs, as well as a decrease due to to the closure of the Fully business that occurred in the prior year.

For the six month comparative period, Operating earnings decreased $2.9 million, or 14.6%, over the prior year period due to:

• Decreased Gross margin of $23 million primarily due to decreased sales explained above, offset by an increase in gross margin percentage of 480 basis points attributable to the favorable impact of reduced costs as compared to the prior year associated with product distribution and inventory handling;

• Decreased Operating expenses of $20 million driven primarily by decreased variable selling and marketing costs of $11 million, a decrease of $4 million due to the additional week in the prior year, decreased product development of $3 million, as well as a decrease due to to the closure of the Fully business that occurred in the prior year.

Corporate unallocated expenses totaled $13.2 million for the second quarter of fiscal 2024, a decrease of $3.7 million from the second 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.

Corporate unallocated expenses totaled $27.9 million for the first six months of fiscal 2024, a decrease of $4.3 million from the same period 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.

(In millions) September 2, 2023 September 3, 2022

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

(In millions) December 2, 2023 December 3, 2022

Cash provided by (used in):

5 unchanged sentences

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.

The principal source of our operating cash flow is net earnings.

Net cash provided by operating activities for the six months ended December 2, 2023 totaled $213.4 million, as compared to cash used of $5.3 million in the same period of the prior year.

The increase in cash inflow is due primarily to higher net income and 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.

4 unchanged sentences

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.

Cash used in investing activities for the six months ended December 2, 2023 was $41.3 million, as compared to $32.0 million in the same period of the prior year.

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.

In the six months ended December 2, 2023 the Company received $3.5 million of proceeds related to the sale of its investment in Maars.

At the end of the second quarter of fiscal 2024, there were outstanding commitments for capital purchases of $14.4 million.

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

1 unchanged sentence

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.

Capital expenditures for the first six months of fiscal 2024 of $39.9 million were comparable to 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.

Cash used in financing activities for the six months ended December 2, 2023 was $170.8 million, as compared to cash provided by financing activities of $11.6 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 $71.7 million in the current year compared to net borrowings of $67.0 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.

During the six months ended December 2, 2023 we repurchased 3.1 million shares at a cost of 60.0 million, compared to share repurchases totaling $14.3 million in the same period of 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 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.

At the end of the second quarter of fiscal 2024, the Company had a well-positioned balance sheet and liquidity profile.

The Company has access to liquidity through credit facilities as well as cash and cash equivalents.

These sources have been summarized below.

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

(In millions) September 2, 2023 June 3, 2023

(In millions) December 2, 2023 June 3, 2023

Cash and cash equivalents $ 225.8 $ 223.5

1 unchanged sentence

Total liquidity $ 583.1 $ 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.

Of the Cash and cash equivalents noted above at the end of the second quarter of fiscal 2024, the Company had $211.9 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, 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.

As of December 2, 2023, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $355.0 million with available borrowings against this facility of $357.3 million.

The Company intends to repatriate $106.5 million of undistributed foreign earnings all of which is held in cash in certain foreign jurisdictions with the remainder of undistributed earnings outside the U.S.

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.

3 unchanged sentences

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.

which is estimated to be approximately $282.2 million on December 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.

35 unchanged sentences

the pace and level of government procurement;

regional and global geopolitical events;

foreign currency exchange fluctuations;

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

3 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