UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________ FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 3, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-15141 __________________________________________ MillerKnoll, Inc. (Exact name of ...

MillerKnoll, Inc. (NASDAQ:MLKN) Q1 2023 Earnings Conference Call September 28, 2022 5:30 PM ET Company Participants Ken Diptee - Vice President of Investor Relations Andrea Owen - President & Chief Executive Officer Jeffrey Stutz - Chief Financial Officer John Michael - President, North Americas Contract Debbie Propst - President, Global Retail Conference Call Participants Budd Bugatch - Water Tower Research Greg Burns - Sidoti & Company Alex Fuhrman - Craig-Hallum Capital Group Operator Ladies and gentleme ...

PART I [Item 1 Business](index=3&type=section&id=Item%201%20Business) MillerKnoll, Inc. is a global leader in designing, manufacturing, and distributing interior furnishings for various environments, having acquired Knoll, Inc. in July 2021 for approximately $1.8 billion - MillerKnoll designs, manufactures, and distributes interior furnishings for residential, office, healthcare, and educational settings globally[10](index=10&type=chunk)[14](index=14&type=chunk) - The company completed the acquisition of Knoll, Inc. in July 2021 for approximately **$1.8 billion**, subsequently changing its name to MillerKnoll, Inc. and its ticker symbol to MLKN[11](index=11&type=chunk)[12](index=12&type=chunk) - MillerKnoll operates through four reportable segments: Americas Contract, International Contract, Global Retail, and Knoll, in addition to a corporate category[13](index=13&type=chunk) - The company's products are sold through independent contract furniture dealers (approximately **58.1% of FY2022 sales**), direct customer sales, owned and independent retailers, direct-mail catalogs, and eCommerce platforms[10](index=10&type=chunk)[16](index=16&type=chunk) Research, Design and Development Expenses | Fiscal Year | Amount (in millions) | | :---------- | :------------------- | | 2022 | $71.1 | | 2021 | $50.8 | | 2020 | $54.3 | Backlog of Unfilled Orders | Date | Backlog (in millions) | | :------------ | :-------------------- | | May 28, 2022 | $932.5 | | May 29, 2021 | $446.9 | - The increase in backlog was primarily due to the Knoll acquisition, which contributed **$293.3 million**, and growth in order volume[25](index=25&type=chunk) - The company had approximately **11,300 employees** as of May 28, 2022, an increase of **3,100** since May 29, 2021, primarily due to the Knoll acquisition[35](index=35&type=chunk) [Item 1A Risk Factors](index=7&type=section&id=Item%201A%20Risk%20Factors) The company faces various risks, including challenges in integrating the Knoll acquisition, macroeconomic factors, intense competition, and supply chain disruptions - The success of the Knoll acquisition depends on successful integration, realizing anticipated benefits (synergies, cost savings), and maintaining existing relationships, with potential challenges including management diversion and unforeseen expenses[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) - The company incurred significant additional indebtedness of **$1.38 billion** as of May 28, 2022, due to the Knoll acquisition, increasing interest expense and potentially reducing business flexibility[53](index=53&type=chunk) - Adverse economic and industry conditions, including declines in corporate profitability, service sector employment, and new office construction, can negatively impact demand for office furniture[59](index=59&type=chunk) - International operations expose the company to risks such as Brexit, tariffs, trade policies, legal/regulatory changes, currency fluctuations, and geopolitical tensions (e.g., Russia-Ukraine war), which could disrupt business and supply chains[62](index=62&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) - Disruptions in the supply of raw materials (e.g., steel, plastics, aluminum) and component parts, exacerbated by events like the COVID-19 pandemic, can increase costs and negatively impact profitability if not offset by price increases[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - The company faces risks related to cybersecurity attacks and data breaches, which could lead to data loss, litigation, regulatory investigations, operational disruption, and reputational damage[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) - Goodwill and indefinite-lived intangible assets are subject to impairment charges, which are sensitive to market conditions, financial performance, and changes in estimates and assumptions[81](index=81&type=chunk) [Item 1B Unresolved Staff Comments](index=14&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[96](index=96&type=chunk) [Item 2 Properties](index=15&type=section&id=Item%202%20Properties) MillerKnoll operates a global network of owned and leased facilities, including manufacturing, warehouses, offices, and 70 retail studios across North America, Europe, and Asia - MillerKnoll owns or leases facilities throughout the United States and several foreign countries for manufacturing, warehousing, and office use[97](index=97&type=chunk) Significant Owned and Leased Facilities (May 28, 2022) | Location | Square Footage (in Thousands) | Use | | :------------------------ | :---------------------------- | :------------------------ | | **Owned Locations** | | | | Zeeland, Michigan | 771 | Manufacturing, Warehouse, Office | | East Greenville, Pennsylvania | 729 | Manufacturing, Warehouse, Office | | Spring Lake, Michigan | 583 | Manufacturing, Warehouse, Office | | Toronto, Canada | 408 | Manufacturing, Warehouse, Office | | Muskegon, Michigan | 400 | Manufacturing, Office | | Holland, Michigan | 357 | Warehouse | | Holland, Michigan | 293 | Manufacturing, Office | | Dongguan, China | 269 | Manufacturing | | Foligno, Italy | 259 | Manufacturing, Warehouse, Office | | Holland, Michigan | 238 | Office, Design | | Sheboygan, Wisconsin | 208 | Manufacturing, Warehouse, Office | | Melksham, United Kingdom | 170 | Manufacturing, Warehouse, Office | | Graffignana, Italy | 112 | Manufacturing, Warehouse, Office | | **Leased Locations** | | | | Alburtis, Pennsylvania | 718 | Warehouse | | Batavia, Ohio | 618 | Warehouse | | Dongguan, China | 429 | Manufacturing, Office | | Ringsted, Denmark | 274 | Warehouse | | Berlin, Germany | 220 | Warehouse | | LeGrange Highlands, Illinois | 210 | Warehouse | | Atlanta, Georgia | 180 | Manufacturing, Warehouse, Office | | Bangalore, India | 105 | Manufacturing, Warehouse | - As of May 28, 2022, the Company operated **70 retail studios** (including DWR, HAY, Herman Miller, Muuto, Knoll, and a multi-brand store) totaling approximately **586,600 square feet** of selling space, plus **3 outlet stores**[99](index=99&type=chunk) [Item 3 Legal Proceedings](index=16&type=section&id=Item%203%20Legal%20Proceedings) MillerKnoll is involved in routine legal proceedings and litigation, but management believes the outcomes will not materially impact the company's consolidated operations, cash flows, or financial condition - The Company is involved in legal proceedings and litigation arising in the ordinary course of business, with management expecting no material effect on consolidated operations, cash flows, and financial condition[100](index=100&type=chunk) [Additional Item: Executive Officers of the Registrant](index=16&type=section&id=Additional%20Item%3A%20Executive%20Officers%20of%20the%20Registrant) This section lists the executive officers of MillerKnoll, Inc. as of May 28, 2022, including their positions, ages, and election dates - Key executive officers as of May 28, 2022, include Andrea R. Owen (President and CEO), Jeffrey M. Stutz (CFO), Chris Baldwin (Group President), Benjamin P.T. Groom (Chief Digital Officer), Jeffrey L. Kurburski (Chief Technology Officer), Megan Lyon (Chief Strategy Officer), John Michael (President, Americas Contract), Jen Nicol (Chief People Officer), Debbie Propst (President, Global Retail), Jacqueline H. Rice (General Counsel and Corporate Secretary), Richard Scott (Chief Manufacturing and Operations Officer), Kartik Shethia (President, International Contract), Tim Straker (Chief Marketing and Communications Officer), Kevin Veltman (Senior Vice President, Integration Lead), and B. Ben Watson (Herman Miller Brand President and Chief Product Officer)[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) - There are no family relationships between or among the named executive officers, nor any arrangements or understandings for their appointments[114](index=114&type=chunk) [Item 4 Mine Safety Disclosures](index=18&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item states that mine safety disclosures are not applicable to MillerKnoll, Inc. - Mine Safety Disclosures are not applicable to the registrant[115](index=115&type=chunk) PART II [Item 5 Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) MillerKnoll's common stock trades on the Nasdaq Global Select Market under the symbol MLKN, with approximately 58,000 shareholders of record as of July 18, 2022 - MillerKnoll, Inc.'s common stock is traded on the Nasdaq Global Select Market System (Symbol: **MLKN**), with approximately **58,000 shareholders** of record as of July 18, 2022[116](index=116&type=chunk) - The Board of Directors approved a quarterly cash dividend of **$0.1875 per share** on April 12, 2022, paid on July 15, 2022[117](index=117&type=chunk) - A share repurchase plan authorized for **$250.0 million** had **$220.5 million** available for purchase as of May 28, 2022[118](index=118&type=chunk) Share Repurchase Activity (Q4 FY2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------- | :------------------------------- | :--------------------------- | | 2/26/22-3/26/22 | 2,782 | $38.77 | | 3/27/22-4/23/22 | 997 | $33.34 | | 4/24/22-5/28/22 | 2,086 | $31.73 | | Total | 5,865 | | Cumulative Total Stockholder Return (May 28, 2017 - May 28, 2022) | Year | MillerKnoll, Inc. | S&P 500 Index | Nasdaq Composite Total Return | | :--- | :---------------- | :------------ | :---------------------------- | | 2017 | $100 | $100 | $100 | | 2018 | $103 | $112 | $121 | | 2019 | $113 | $113 | $121 | | 2020 | $75 | $125 | $155 | | 2021 | $159 | $172 | $227 | | 2022 | $104 | $170 | $201 | [Item 6 Selected Financial Data](index=21&type=section&id=Item%206%20Selected%20Financial%20Data) This section provides a summary of MillerKnoll's selected financial data for fiscal years 2022, 2021, and 2020, highlighting significant sales growth due to the Knoll acquisition but also a net loss and increased debt Selected Financial Data (in millions, except per share data) | Operating Results | 2022 | 2021 | 2020 | | :-------------------------------- | :-------- | :-------- | :-------- | | Net sales | $3,946.0 | $2,465.1 | $2,486.6 | | Gross margin | $1,352.7 | $951.1 | $911.2 | | Selling, general, and administrative | $1,188.7 | $643.8 | $643.3 | | Impairment charges | $15.5 | — | $205.4 | | Design and research | $108.7 | $72.1 | $74.0 | | Operating earnings (loss) | $39.8 | $232.5 | $(37.9) | | Net (loss) earnings | $(19.7) | $180.3 | $(14.0) | | Net cash (used in) provided by operating activities | $(11.9) | $332.3 | $221.8 | | Net cash (used in) provided by investing activities | $(1,172.4)| $(59.9) | $(168.1) | | Net cash provided by (used in) financing activities | $1,039.9 | $(347.7) | $244.0 | | Depreciation and amortization | $190.6 | $87.2 | $79.5 | | Capital expenditures | $(94.7) | $(59.8) | $(69.0) | | Common stock repurchased plus cash dividends paid | $(70.7) | $(35.4) | $(63.0) | | **Key Ratios** | | | | | Sales growth (decline) | 60.1 % | (0.9)% | (3.1)% | | Gross margin % | 34.3 % | 38.6 % | 36.6 % | | Selling, general, and administrative % | 30.1 % | 26.1 % | 25.9 % | | Design and research % | 2.8 % | 2.9 % | 3.0 % | | Operating earnings (loss) % | 1.0 % | 9.4 % | (1.5)% | | Net earnings (decline) growth | (110.9)% | 1,387.9% | (108.7)% | | After-tax return on net sales | (0.5)% | 7.3 % | (0.6)% | | After-tax return on average assets | (0.6)% | 8.7 % | (0.8)% | | After-tax return on average equity | (1.7)% | 23.8 % | (2.0)% | | **Share and Per Share Data** | | | | | Earnings (loss) per share-diluted | $(0.37) | $2.94 | $(0.15) | | Cash dividends declared per share | $0.75 | $0.56 | $0.63 | | Book value per share at year end | $18.83 | $14.58 | $11.10 | | Market price per share at year end | $30.65 | $47.80 | $23.02 | | Weighted average shares outstanding-diluted | 73.2 | 59.4 | 58.9 | | **Financial Condition** | | | | | Total assets | $4,514.0 | $2,076.8 | $2,067.0 |\ | Working capital | $440.5 | $430.0 | $459.9 | | Current ratio | 1.5 | 1.9 | 2.0 | | Interest-bearing debt and related swap agreements | $1,355.5 | $285.7 | $558.8 | | Stockholders' equity | $1,427.1 | $860.5 | $652.4 | | Total capital | $2,782.6 | $1,146.2 | $1,211.2 | [Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's Discussion and Analysis provides an in-depth review of MillerKnoll's financial condition and operational results for the fiscal year ended May 28, 2022, detailing growth, challenges, strategic priorities, and liquidity [Executive Overview](index=24&type=section&id=Executive%20Overview) The Executive Overview highlights MillerKnoll's core business as a global design leader in interior furnishings, emphasizing its purpose to create positive impact through design and its strategic focus on scaling the Global Retail business - MillerKnoll finalized the acquisition of Knoll, Inc. in July 2021 for approximately **$1.8 billion**, leading to a name change and new ticker symbol MLKN[129](index=129&type=chunk) - The company's products are sold in over **100 countries** through independent contract furniture dealers, direct customer sales, owned and independent retailers, direct-mail catalogs, and eCommerce platforms[130](index=130&type=chunk) - MillerKnoll's manufacturing strategy focuses on lean manufacturing (MKPS) and limiting fixed production costs by sourcing component parts from strategic suppliers, resulting in assembly-based operations and high inventory turns[131](index=131&type=chunk)[132](index=132&type=chunk) - A key growth strategy is to scale the Global Retail business through Design Within Reach (DWR), HAY, and Herman Miller retail operations, focusing on store expansion, assortment growth, and digital optimization[133](index=133&type=chunk) - The company's reportable segments are Americas Contract, International Contract, Global Retail, and Knoll, with a separate corporate category for unallocated expenses[134](index=134&type=chunk)[135](index=135&type=chunk) [Core Strengths](index=25&type=section&id=Core%20Strengths) MillerKnoll's core strengths include a diverse portfolio of globally recognized design brands, a commitment to problem-solving design, operational excellence through lean manufacturing, and an omni-channel global distribution network - MillerKnoll possesses a portfolio of leading brands (e.g., Herman Miller, Knoll, DWR, HAY) known for design research and innovation, enabling connection with new audiences and product categories[136](index=136&type=chunk) - The company is committed to problem-solving design and innovation, leveraging internal research and engineering staff alongside a global network of independent designers[136](index=136&type=chunk) - Operational excellence is driven by the MillerKnoll Performance System (MKPS), a lean manufacturing foundation focused on continuous improvement in product quality and efficiency[136](index=136&type=chunk) - MillerKnoll has a unique omni-channel distribution capability, serving contract and residential customers through dealers, direct sales, retail stores, and eCommerce platforms[136](index=136&type=chunk) - The company benefits from global scale, with a worldwide network of designers, suppliers, manufacturing operations, and R&D centers[136](index=136&type=chunk) [Challenges Ahead](index=26&type=section&id=Challenges%20Ahead) MillerKnoll acknowledges various business and industry risks, directing readers to Item 1A for a detailed discussion of specific risk factors and Item 7A for market risk disclosures - The company acknowledges specific business and industry risks, referring to Item 1A for risk factors and Item 7A for market risk disclosures[137](index=137&type=chunk) [Areas of Strategic Focus](index=26&type=section&id=Areas%20of%20Strategic%20Focus) MillerKnoll's strategy centers on integrating brands for synergy, building a customer-centric digital model, accelerating profitable growth, attracting talent, and reinforcing sustainability commitments - Strategic focus areas include bringing MillerKnoll to life by integrating brands, achieving synergy commitments (**$100 million annual run-rate savings by end of year two, $120 million by end of year three**), and cultivating a strong global dealer network[138](index=138&type=chunk)[139](index=139&type=chunk) - The company aims to build a customer-centric, digitally enabled business model through systems integration, global eCommerce capabilities, data utilization for decision-making, and accelerating global automation[140](index=140&type=chunk) - Profitable growth will be accelerated by leading in product innovation, fortifying flagship brands (Knoll, Herman Miller), driving growth in Americas Contract and International Contract, and transforming the Global Retail business[141](index=141&type=chunk) - MillerKnoll is committed to attracting, developing, and retaining world-class talent by creating a premiere employee experience, offering competitive compensation and benefits, and investing in development opportunities[142](index=142&type=chunk) - The company reinforces its commitment to people, planet, and communities through diversity, equity, and inclusion (DEI) initiatives and progress towards its 2030 sustainability goals[143](index=143&type=chunk) [Business Overview](index=28&type=section&id=Business%20Overview) Fiscal year 2022 saw MillerKnoll's net sales increase by 60.1% to $3,946.0 million, largely due to the Knoll acquisition, but faced challenges from inflationary pressures, supply chain disruptions, and increased operating expenses, leading to a net loss - Net sales increased by **60.1%** to **$3,946.0 million** in fiscal 2022, primarily driven by the Knoll acquisition and growth across Americas Contract, Global Retail, and International Contract segments. Organic net sales increased by **13.6%** to **$2,799.3 million**[145](index=145&type=chunk) - Gross margin decreased to **34.3%** in fiscal 2022 from **38.6%** in the prior year, mainly due to inflationary pressures on commodities, freight, production, and labor costs, as well as purchase accounting effects from the Knoll acquisition[145](index=145&type=chunk) - Operating expenses increased by **$594.3 million (82.7%)** in fiscal 2022, including **$125 million** in transaction and integration costs and **$51 million** in amortization of purchased intangibles related to the Knoll acquisition[145](index=145&type=chunk) - The company achieved **$66 million** in annualized run-rate cost synergies from the Knoll integration by the end of the fourth quarter, on track for the **$120 million** goal within three years[145](index=145&type=chunk) - Diluted earnings per share for fiscal 2022 was a **loss of $0.37**, compared to earnings of **$2.94** in the prior year. Adjusted diluted EPS was **$1.92** in fiscal 2022 versus **$3.07** in fiscal 2021[145](index=145&type=chunk) - The company stopped fulfilling orders in Russia and Belarus due to economic sanctions and ceased new orders/fulfillment in Ukraine, representing a small portion of International Contract business (FY2022/2021 annualized revenues approximately **$6.4 million** and **$5.7 million**, respectively)[145](index=145&type=chunk) [COVID-19 Update](index=29&type=section&id=COVID-19%20Update) The COVID-19 pandemic negatively impacted demand in MillerKnoll's Contract channel, but the Retail business benefited from hybrid work trends and increased consumer focus on home environments - Demand for products in the Contract channel was negatively impacted by the COVID-19 pandemic, while the Retail business capitalized on hybrid working arrangements and 'home is my castle' trends[147](index=147&type=chunk) - The company prioritized employee safety and health, implementing regional restrictions, cleaning protocols, health screenings, PPE, and encouraging vaccinations[148](index=148&type=chunk) - The Federal Contractor Vaccine Mandate (Executive Order 14042) was enjoined by federal courts and not in effect as of the end of fiscal 2022[149](index=149&type=chunk)[150](index=150&type=chunk) [Customer Focus](index=29&type=section&id=Customer%20Focus) MillerKnoll is adapting to evolving customer needs in a post-pandemic world, emphasizing human-centered design, successful digital investments in retail, and continued investment in physical retail studios - The company is adapting to the shift towards hybrid working arrangements and re-imagined office spaces, advocating that work can happen anywhere and focusing on human-centered, inclusive design[151](index=151&type=chunk) - Digital investments in the retail business, including new and enhanced eCommerce sites globally and social media marketing, are driving customer engagement and conversion[152](index=152&type=chunk)[153](index=153&type=chunk) - MillerKnoll continues to invest in brick-and-mortar retail spaces (stores, studios, showrooms) as a strong customer acquisition tool[153](index=153&type=chunk) [Manufacturing and Retail Operations](index=30&type=section&id=Manufacturing%20and%20Retail%20Operations) Manufacturing operations faced pressure from labor and supply chain constraints but are making progress towards returning to normal lead times and reliability, with U.S. operations lifting COVID-19 restrictions - Manufacturing operations are making strong progress towards returning to previous lead times and reliability despite current labor and supply chain constraints[154](index=154&type=chunk) - U.S.-based operations have lifted all COVID-19 restrictions following new CDC guidance, with other regions adapting to local health authority recommendations[155](index=155&type=chunk) [Cost Reductions](index=30&type=section&id=Cost%20Reductions) In fiscal 2020, MillerKnoll implemented temporary cost reduction measures in response to COVID-19, including workforce and compensation cuts, which were largely reversed in fiscal 2021 - In fiscal 2020, the company implemented temporary cost reductions, including workforce reductions, a **10% reduction** in salaried workforce cash compensation, a **15% salary deferral** for executive leadership, and temporary suspension of quarterly dividends and certain employer-paid retirement contributions[156](index=156&type=chunk) - In fiscal 2021, the company reversed these actions, eliminating compensation reductions, introducing a modified bonus program, and reinstating quarterly cash dividends and employer-paid retirement plan contributions[157](index=157&type=chunk) [Change in Accounting Principle](index=30&type=section&id=Change%20in%20Accounting%20Principle) In the fourth quarter of fiscal 2022, MillerKnoll retrospectively changed its inventory accounting method for certain Americas segment inventories from LIFO to FIFO, aligning all consolidated inventory with FIFO or weighted average methods - In Q4 fiscal 2022, the company changed its inventory accounting method for certain Americas segment inventories from LIFO to FIFO, retrospectively adjusting all presented periods[158](index=158&type=chunk) - This change is considered preferable as FIFO more closely resembles the physical flow of inventory and aligns all consolidated inventory to either FIFO or weighted average methods[266](index=266&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=30&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section defines and reconciles MillerKnoll's non-GAAP financial measures, including Adjusted Earnings per Share, Adjusted Operating Earnings (Loss), and Organic Growth, which exclude specific items to provide a more comparative view of ongoing financial performance - Non-GAAP financial measures include Adjusted Earnings per Share, Adjusted Operating Earnings (Loss), and Organic Growth (Decline), which are used to provide a more comparative basis for financial performance[160](index=160&type=chunk) - Adjusted Earnings per Share excludes amortization of purchased intangibles, acquisition and integration charges, debt extinguishment charges, restructuring expenses, other special charges or gains, and their related tax effects[161](index=161&type=chunk) - Organic Growth represents the change in sales and orders, excluding currency translation effects and the impact of acquisitions and divestitures[162](index=162&type=chunk) Reconciliation of Net Sales to Organic Net Sales (in millions) | Segment | May 28, 2022 Net Sales (as reported) | Acquisitions | Currency Translation Effects | Organic Net Sales | % change from PY | | :------------------------ | :----------------------------------- | :----------- | :--------------------------- | :---------------- | :--------------- | | Americas Contract | $1,444.9 | — | $8.4 | $1,443.9 | 11.1 % | | International Contract | $483.2 | — | $(1.0) | $491.6 | 23.1 % | | Global Retail | $856.8 | — | $7.0 | $863.8 | 13.0 % | | Knoll | $1,188.5 | $(1,188.5) | — | — | N/A | | Intersegment Elimination | $(27.4) | $27.4 | — | — | N/A | | **Total** | **$3,946.0** | **$(1,161.1)** | **$14.4** | **$2,799.3** | **13.6 %** | Reconciliation of EPS to Adjusted EPS | (Loss) Earnings per Share - Diluted | May 28, 2022 | May 29, 2021 | | :---------------------------------- | :----------- | :----------- | | As reported | $(0.37) | $2.94 | | Add: Amortization of purchased intangibles | $0.87 | — | | Add: Acquisition and integration charges | $1.71 | $0.17 | | Add: Special Charges | $(0.01) | $0.02 | | Add: Restructuring Charges | — | $0.03 | | Add: Debt extinguishment | $0.18 | — | | Less: Gain on legal settlement | — | $(0.08) | | Less: Gain on sale of dealer | $(0.03) | — | | Tax impact on adjustments | $(0.43) | $(0.01) | | **Adjusted Earnings per Share - Diluted** | **$1.92** | **$3.07** | [Financial Results](index=33&type=section&id=Financial%20Results) MillerKnoll's fiscal 2022 financial results show a 60.1% increase in net sales to $3,946.0 million, primarily due to the Knoll acquisition, but a significant decline in operating earnings and a net loss due to decreased gross margin and increased operating expenses Consolidated Statements of Comprehensive Income (in millions) | (Dollars in millions) | Fiscal 2022 | Fiscal 2021 | % Change | | :---------------------------------------- | :---------- | :---------- | :--------- | | Net sales | $3,946.0 | $2,465.1 | 60.1 % | | Cost of sales | $2,593.3 | $1,514.0 | 71.3 % | | Gross margin | $1,352.7 | $951.1 | 42.2 % | | Operating expenses | $1,312.9 | $718.6 | 82.7 % | | Operating earnings | $39.8 | $232.5 | (82.9)% | | Other expenses, net | $48.4 | $4.2 | 1,052.4 % | | (Loss) earnings before income taxes and equity income | $(8.6) | $228.3 | (103.8)% | | Income tax expense | $11.1 | $48.3 | (77.0)% | | Equity income from nonconsolidated affiliates, net of tax | — | $0.3 | (100.0)% | | Net (loss) earnings | $(19.7) | $180.3 | (110.9)% | | Net earnings attributable to redeemable noncontrolling interests | $7.4 | $5.7 | 29.8 % | | Net (loss) earnings attributable to MillerKnoll, Inc. | $(27.1) | $174.6 | (115.5)% | Components of Consolidated Statements of Comprehensive Income as a Percentage of Net Sales | | Fiscal 2022 | Fiscal 2021 | | :------------------------ | :---------- | :---------- | | Net sales | 100.0 % | 100.0 % | | Cost of sales | 65.7 | 61.4 |\ | Gross margin | 34.3 | 38.6 | | Operating expenses | 33.3 | 29.2 | | Operating earnings | 1.0 | 9.4 | | Other expenses, net | 1.2 | 0.2 | | (Loss) earnings before income taxes and equity income | (0.2) | 9.3 | | Income tax expense | 0.3 | 2.0 | | Equity income from nonconsolidated affiliates, net of tax | — | — | | Net (loss) earnings | (0.5) | 7.3 | | Net earnings attributable to redeemable noncontrolling interests | 0.2 | 0.2 | | Net (loss) earnings attributable to MillerKnoll, Inc. | (0.7) | 7.1 | [Net Sales](index=34&type=section&id=Net%20Sales) MillerKnoll's net sales increased by $1,480.9 million, or 60.1%, in fiscal 2022, primarily driven by the $1,161.1 million contribution from the Knoll acquisition and increased sales volumes across segments - Net sales increased by **$1,480.9 million (60.1%)** year-over-year[167](index=167&type=chunk) - The acquisition of Knoll contributed **$1,161.1 million** to the increase in net sales[167](index=167&type=chunk) - Increased sales volume in Americas Contract (**$101 million**), International Contract (**$100 million**), and Global Retail (**$78 million**) segments also drove sales growth[167](index=167&type=chunk) - List price increases, net of incremental discounting, contributed approximately **$55 million** to net sales[167](index=167&type=chunk) - Foreign currency translation had a negative impact of approximately **$14 million** on Net sales[167](index=167&type=chunk) [Gross Margin](index=34&type=section&id=Gross%20Margin) MillerKnoll's gross margin decreased to 34.3% in fiscal 2022 from 38.6% in fiscal 2021, primarily due to significant cost pressures from commodities, freight, and labor, along with amortization of purchased intangibles - Gross margin decreased to **34.3%** in fiscal 2022 from **38.6%** in fiscal 2021[167](index=167&type=chunk) - Cost pressures from commodities, freight, and product distribution negatively impacted gross margin by approximately **330 basis points**[167](index=167&type=chunk) - Increased labor costs, including reinstated benefits, had a negative impact on margin of approximately **70 basis points**[167](index=167&type=chunk) - Amortization of purchased intangibles related to the Knoll acquisition negatively impacted gross margin by approximately **30 basis points**[167](index=167&type=chunk) - Price increases, offset by discounting, helped mitigate these pressures by approximately **90 basis points**[167](index=167&type=chunk) - An unfavorable channel and product mix, with a lower proportion of high-margin office seating sales for home office use compared to the prior year, also contributed to the decrease in gross margin[168](index=168&type=chunk) [Operating Expenses](index=36&type=section&id=Operating%20Expenses) Operating expenses increased significantly by $594.3 million, or 82.7%, in fiscal 2022, primarily driven by the Knoll acquisition's integration charges, amortization, and other operating expenses, alongside rising compensation and expansion costs - Operating expenses increased by **$594.3 million (82.7%)** year-over-year[171](index=171&type=chunk) - The Knoll acquisition contributed **$125 million** in acquisition and integration related charges, **$51 million** in amortization of purchased intangibles, and **$349 million** in other operating expenses[171](index=171&type=chunk) - Compensation and benefit costs increased by approximately **$26 million** due to the return of certain employee benefits and compensation, and increases in variable-based compensation[171](index=171&type=chunk) - Expansion of physical store locations within the Global Retail segment led to an **$18 million** increase in expenses[171](index=171&type=chunk) - Increased spending in technology and digital tools across segments contributed **$15 million**, and increased marketing and selling costs added approximately **$10 million**[171](index=171&type=chunk) [Other Income/Expense](index=36&type=section&id=Other%20Income%2FExpense) Net other expenses for fiscal 2022 significantly increased to $48.4 million from $4.2 million in fiscal 2021, primarily due to a loss on debt extinguishment, higher interest expense from the Knoll acquisition, and increased foreign currency transaction losses - Net other expenses for fiscal 2022 were **$48.4 million**, a significant increase from **$4.2 million** in fiscal 2021[171](index=171&type=chunk) - This increase was primarily due to a **$13.4 million** loss on extinguishment of debt, a **$23.8 million** increase in interest expense related to financing the Knoll acquisition, and a **$4.1 million** increase from net foreign currency transaction losses[171](index=171&type=chunk) [Income Taxes](index=37&type=section&id=Income%20Taxes) This section refers to Note 11 of the Consolidated Financial Statements for detailed information regarding income taxes - Refer to Note 11 of the Consolidated Financial Statements for additional information on income taxes[172](index=172&type=chunk) [Operating Segments Results](index=38&type=section&id=Operating%20Segments%20Results) MillerKnoll's operating segments include Americas Contract, International Contract, Global Retail, and Knoll, with varied performance in fiscal 2022, marked by sales growth in most segments but declining operating earnings in Americas Contract and Global Retail due to cost pressures and acquisition-related expenses - The company's operating segments are Americas Contract, International Contract, Global Retail, and Knoll, along with a Corporate category for unallocated expenses[174](index=174&type=chunk) Americas Contract Segment Performance (in millions) | Metric | Fiscal 2022 | Fiscal 2021 | Change | | :------------------ | :---------- | :---------- | :-------- | | Net sales | $1,444.9 | $1,301.3 | $143.6 | | Gross margin | $420.5 | $448.6 | $(28.1) | | Gross margin % | 29.1 % | 34.5 % | (5.4)% | | Operating earnings (loss) | $44.5 | $93.6 | $(49.1) | | Operating earnings % | 3.1 % | 7.2 % | (4.1)% | - Americas Contract net sales increased **11.0% (11.1% organic)** due to increased demand and price increases, but operating earnings decreased **52.5%** due to lower gross margin percentage (higher commodity, labor, freight costs) and increased operating expenses[177](index=177&type=chunk)[179](index=179&type=chunk) International Contract Segment Performance (in millions) | Metric | Fiscal 2022 | Fiscal 2021 | Change | | :------------------ | :---------- | :---------- | :----- | | Net sales | $483.2 | $399.5 | $83.7 | | Gross margin | $157.5 | $135.9 | $21.6 | | Gross margin % | 32.6 % | 34.0 % | (1.4)% | | Operating earnings | $59.3 | $48.5 | $10.8 | | Operating earnings % | 12.3 % | 12.1 % | 0.2 % | - International Contract net sales increased **21.0% (23.1% organic)** driven by volume growth, and operating earnings increased **22.3%** due to higher gross margin, despite increased operating expenses and a decreased gross margin percentage from higher costs and discounting[178](index=178&type=chunk)[180](index=180&type=chunk) Global Retail Segment Performance (in millions) | Metric | Fiscal 2022 | Fiscal 2021 | Change | | :------------------ | :---------- | :---------- | :-------- | | Net sales | $856.8 | $764.3 | $92.5 | | Gross margin | $373.0 | $366.6 | $6.4 | | Gross margin % | 43.5 % | 48.0 % | (4.5)% | | Operating earnings (loss) | $96.2 | $143.0 | $(46.8) | | Operating earnings % | 11.2 % | 18.7 % | (7.5)% | - Global Retail net sales increased **12.1% (13.0% organic)** due to broad growth and price increases, but operating earnings decreased by **$46.8 million** due to increased operating expenses (studio costs, compensation, IT) and a decreased gross margin percentage (freight, material costs, product mix)[181](index=181&type=chunk)[184](index=184&type=chunk) Knoll Segment Performance (in millions) | Metric | Fiscal 2022 | Fiscal 2021 | Change | | :------------------ | :---------- | :---------- | :-------- | | Net sales | $1,188.5 | — | $1,188.5 | | Gross margin | $401.7 | — | $401.7 | | Gross margin % | 33.8 % | N/A | N/A | | Operating (loss) earnings | $(57.6) | — | $(57.6) | | Operating earnings % | (4.8)% | N/A | N/A | - The Knoll segment, consolidated from July 19, 2021, contributed **$1,161.1 million** in sales and **$401.7 million** in gross margin, but reported an operating loss of **$57.6 million**, primarily due to **$63.4 million** in amortization of acquisition-related intangible assets and **$60.3 million** in integration costs[182](index=182&type=chunk)[185](index=185&type=chunk) - Corporate unallocated expenses totaled **$102.6 million** for fiscal 2022, an increase of **$50.0 million** from fiscal 2021, mainly driven by **$57.6 million** of integration and transaction costs related to the Knoll acquisition[183](index=183&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) MillerKnoll's liquidity and capital resources were significantly impacted in fiscal 2022 by the Knoll acquisition, leading to cash used in operating and investing activities, largely offset by new debt borrowings Net Change in Cash and Cash Equivalents (in millions) | Cash (used in) provided by: | Fiscal Year Ended 2022 | Fiscal Year Ended 2021 | | :-------------------------- | :--------------------- | :--------------------- | | Operating activities | $(11.9) | $332.3 | | Investing activities | $(1,172.4) | $(59.9) | | Financing activities | $1,039.9 | $(347.7) | | Effect of exchange rate changes | $(21.7) | $17.7 | | Net change in cash and cash equivalents | $(166.1) | $(57.6) | - Cash used in operating activities in fiscal 2022 was **$11.9 million**, a decrease from **$332.3 million** provided in the prior year, driven by lower net earnings, increased accounts receivable (**$92.4 million**), increased inventory (**$166.4 million**), and increased prepaid taxes (**$21.6 million**)[188](index=188&type=chunk)[191](index=191&type=chunk) - Cash used in investing activities totaled **$1,172.4 million** in fiscal 2022, primarily due to the Knoll acquisition (**$1,088.5 million** net of cash acquired) and capital expenditures of **$94.7 million**[189](index=189&type=chunk)[192](index=192&type=chunk) - Cash provided from financing activities was **$1,039.9 million** in fiscal 2022, mainly from net borrowings of **$1,007.0 million** and credit facility proceeds of **$1,026.5 million**, offset by debt repayments, dividends (**$54.5 million**), and stock repurchases (**$16.2 million**)[191](index=191&type=chunk)[193](index=193&type=chunk) - The company expects capital spending in fiscal 2023 to be between **$150 million and $160 million**, primarily for facilities, equipment, Knoll synergy, and sustainability goals[190](index=190&type=chunk) Sources of Liquidity (in millions) | Metric | May 28, 2022 | May 29, 2021 | | :-------------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $230.3 | $396.4 | | Marketable securities | — | $7.7 | | Availability under revolving lines of credit | $296.6 | $265.2 | Contractual Obligations (in millions) | (In millions) | Total | 2023 | 2024-2025 | 2026-2027 | Thereafter | | :-------------------------------------- | :-------- | :------ | :-------- | :-------- | :--------- | | Short-term borrowings and long-term debt | $1,427.9 | $29.4 | $72.5 | $735.5 | $590.5 | | Estimated interest on debt obligations | $130.8 | $26.4 | $52.8 | $46.7 | $4.9 | | Operating leases | $535.3 | $95.8 | $166.7 | $112.4 | $160.4 | | Purchase obligations | $99.6 | $77.6 | $21.9 | $0.1 | — | | Pension and other post employment benefit plans funding | $12.6 | $12.0 | $0.2 | $0.1 | $0.3 | | Stockholder dividends | $14.8 | $14.8 | — | — | — | | Other | $7.5 | $0.8 | $1.5 | $1.3 | $3.9 | | **Total** | **$2,228.5**| **$256.8**| **$315.6** | **$896.1** | **$760.0** | [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) MillerKnoll's critical accounting policies involve significant judgment and estimates, particularly in business combinations, goodwill and indefinite-lived intangible asset impairment, and long-lived asset impairment - Accounting for business combinations requires significant estimates and assumptions for fair value of acquired tangible and intangible assets, liabilities, and goodwill allocation[209](index=209&type=chunk)[210](index=210&type=chunk) - Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently, using qualitative or quantitative assessments (discounted cash flow and market approaches)[212](index=212&type=chunk)[213](index=213&type=chunk) - Goodwill recorded on the Consolidated Balance Sheets was **$1,226.2 million** at May 28, 2022, up from **$364.2 million** at May 29, 2021. No impairment charges were recorded in fiscal 2021 or 2022[216](index=216&type=chunk)[217](index=217&type=chunk) - Indefinite-lived intangible assets (primarily trademarks) had a carrying value of **$501.0 million** at May 28, 2022, up from **$97.6 million** at May 29, 2021. No impairment charges were recorded in fiscal 2021 or 2022[220](index=220&type=chunk)[221](index=221&type=chunk) - A non-cash impairment charge of **$15.5 million** was recorded in fiscal 2022 related to the discontinued use of a long-lived asset due to Knoll integration activities[223](index=223&type=chunk) [New Accounting Standards](index=46&type=section&id=New%20Accounting%20Standards) MillerKnoll adopted ASU No. 2018-14 and ASU 2019-12 in fiscal 2021 with no material impact, and is evaluating ASU 2021-10 for government assistance disclosures, effective May 29, 2022 - The company adopted ASU No. 2018-14 (Defined Benefit Plans) and ASU 2019-12 (Income Taxes) on May 30, 2021, with no material effect on consolidated financial statements[313](index=313&type=chunk)[314](index=314&type=chunk) - ASU 2021-10 (Government Assistance), effective May 29, 2022, requires increased disclosures for transactions with governments, and the company is currently evaluating its impact[315](index=315&type=chunk) [Forward Looking Statements](index=46&type=section&id=Forward%20Looking%20Statements) This section contains forward-looking statements regarding future events, business strategies, and financial results, highlighting various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements relate to future events, business strategies, anticipated benefits of the Knoll acquisition, and future financial and operating results[226](index=226&type=chunk) - These statements involve risks and uncertainties, including public health crises (e.g., COVID-19), supply chain disruptions, fluctuations in raw material and labor costs, risks related to increased debt from the Knoll acquisition, integration challenges, general economic conditions, and litigation[227](index=227&type=chunk) - The company does not undertake any obligation to update forward-looking statements, except as required by law[227](index=227&type=chunk) [Item 7A Quantitative and Qualitative Disclosures about Market Risk](index=48&type=section&id=Item%207A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) MillerKnoll is exposed to market risks from direct material costs, foreign currency exchange rates, and interest rates, which it manages through hedging instruments like forward currency contracts and interest rate swaps - The company is exposed to risks from price changes for direct materials like steel, plastics, textiles, wood particleboard, and aluminum components[229](index=229&type=chunk) - Changes in commodity prices increased the company's costs by approximately **$55.3 million** in fiscal 2022, compared to a **$0.9 million** decrease in fiscal 2021[229](index=229&type=chunk) - Foreign exchange risk arises from global manufacturing and sales in various currencies, impacting production costs and profit margins[232](index=232&type=chunk) - The company uses forward currency instruments to offset foreign currency exposures, resulting in a net gain of **$3.3 million** in fiscal 2022 from hedges and remeasurement[233](index=233&type=chunk)[235](index=235&type=chunk) - Interest rate risk is managed through interest rate swap agreements, converting variable interest payments to fixed rates on notional amounts of **$150.0 million (1.949%)**, **$75.0 million (2.387%)**, and **$575.0 million (1.689%)**[236](index=236&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk) - The fair market value of the interest rate swap instruments was a net asset of **$31.9 million** at May 28, 2022, compared to a net liability of **$14.4 million** at May 29, 2021[241](index=241&type=chunk) [Item 8 Financial Statements and Supplementary Data](index=48&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section presents MillerKnoll's audited consolidated financial statements, including the Statements of Comprehensive Income, Balance Sheets, Stockholders' Equity, and Cash Flows, along with extensive notes detailing accounting policies, acquisitions, debt, and segment information Consolidated Statements of Comprehensive Income (in millions, except per share data) | (In millions, except per share data) | May 28, 2022 | May 29, 2021 | May 30, 2020 | | :----------------------------------- | :----------- | :----------- | :----------- | | Net sales | $3,946.0 | $2,465.1 | $2,486.6 | | Gross margin | $1,352.7 | $951.1 | $911.2 | | Operating earnings (loss) | $39.8 | $232.5 | $(37.9) | | Net (loss) earnings | $(19.7) | $180.3 | $(14.0) | | (Loss) earnings per share — diluted | $(0.37) | $2.94 | $(0.15) | Consolidated Balance Sheets (in millions) | (In millions) | May 28, 2022 | May 29, 2021 | | :-------------------------------- | :----------- | :----------- | | Total Assets | $4,514.0 | $2,076.8 | | Total Liabilities | $2,980.0 | $1,139.3 | | Redeemable noncontrolling interests | $106.9 | $77.0 | | Total Stockholders' Equity | $1,427.1 | $860.5 | Consolidated Statements of Cash Flows (in millions) | (In millions) | May 28, 2022 | May 29, 2021 | May 30, 2020 | | :------------------------------------------ | :----------- | :----------- | :----------- | | Net Cash (Used in) Provided by Operating Activities | $(11.9) | $332.3 | $221.8 | | Net Cash Used in Investing Activities | $(1,172.4) | $(59.9) | $(168.1) | | Net Cash Provided by (Used in) Financing Activities | $1,039.9 | $(347.7) | $244.0 | | Net (Decrease) Increase In Cash and Cash Equivalents | $(166.1) | $(57.6) | $294.8 | - Management concluded that the company's internal control over financial reporting was effective as of May 28, 2022[508](index=508&type=chunk) - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[511](index=511&type=chunk) [Note 1 Significant Accounting and Reporting Policies](index=54&type=section&id=Note%201%20Significant%20Accounting%20and%20Reporting%20Policies) This note outlines MillerKnoll's significant accounting policies, including principles of consolidation, business description, fiscal year, foreign currency translation, and details policies for cash equivalents, marketable securities, allowances for credit losses, and inventories, notably the retrospective change from LIFO to FIFO in Q4 fiscal 2022 - The Consolidated Financial Statements include MillerKnoll, Inc. and its controlled domestic and foreign subsidiaries, with all intercompany accounts and transactions eliminated[253](index=253&type=chunk) - In Q4 fiscal 2022, the company retrospectively changed its inventory costing method for certain Americas segment inventories from LIFO to FIFO, which is considered preferable as it aligns with the physical flow of inventory and standardizes accounting across the company[266](index=266&type=chunk)[316](index=316&type=chunk) - Goodwill was **$1,226.2 million** at May 28, 2022, and indefinite-lived intangible assets (trade names) were **$501.0 million**. Both are tested annually for impairment, with no impairment charges recorded in fiscal 2021 or 2022[216](index=216&type=chunk)[217](index=217&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk) - R&D costs, including royalty payments to designers, totaled **$108.7 million** in fiscal 2022, **$72.1 million** in 2021, and **$74.0 million** in 2020[286](index=286&type=chunk)[287](index=287&type=chunk) - Revenue is recognized when performance obligations are satisfied, typically upon transfer of title and risk of loss for products, and over time for services. Variable consideration is estimated and included in the transaction price if a significant future reversal of cumulative revenue is improbable[289](index=289&type=chunk)[291](index=291&type=chunk) - The company accounts for leases under ASC Topic 842, recognizing right-of-use (ROU) assets and lease obligations for finance and operating leases based on discounted future lease payments[293](index=293&type=chunk) - Deferred tax assets and liabilities are recognized for temporary differences, measured using enacted tax rates, with significant judgment required in evaluating tax positions and assessing the recoverability of deferred tax assets[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) [Note 2 Revenue from Contracts with Customers](index=64&type=section&id=Note%202%20Revenue%20from%20Contracts%20with%20Customers) This note disaggregates MillerKnoll's revenue by contract type and product category across its operating segments, detailing recognition methods and contract assets and liabilities - Revenue is disaggregated by contract type: single performance obligations (product sales, recognized at point of control transfer), multiple performance obligations (products and services, product revenue at control transfer, service revenue over time), and other arrangements (e.g., alliance fees)[320](index=320&type=chunk)[321](index=321&type=chunk) Net Sales by Contract Type (in millions) | Net sales: | May 28, 2022 | May 29, 2021 | | :-------------------------- | :----------- | :----------- | | Single performance obligation | | | | Product revenue | $3,660.1 | $2,180.5 | | Multiple performance obligations | | | | Product revenue | $265.3 | $265.8 | | Service revenue | $8.6 | $9.6 | | Other | $12.0 | $9.2 | | **Total** | **$3,946.0** | **$2,465.1** | - Products are categorized as Workplace (functional settings), Performance Seating (ergonomics), Lifestyle (aesthetic and functional home products), and Other (uncategorized products and services)[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk)[327](index=327&type=chunk) Revenue by Product Type and Segment (in millions) | (In millions) | May 28, 2022 | May 29, 2021 | | :------------------------ | :----------- | :----------- | | **Americas Contract:** | | | | Workplace | $797.9 | $738.3 | | Performance Seating | $366.8 | $307.8 | | Lifestyle | $154.8 | $127.2 | | Other | $125.4 | $128.0 | | **Total Americas Contract** | **$1,444.9** | **$1,301.3** | | **International Contract:** | | | | Workplace | $126.2 | $106.3 | | Performance Seating | $238.3 | $204.7 | | Lifestyle | $108.2 | $82.4 | | Other | $10.5 | $6.1 | | **Total International Contract** | **$483.2** | **$399.5** | | **Global Retail:** | | | | Workplace | $13.1 | $10.5 | | Performance Seating | $243.0 | $265.8 | | Lifestyle | $598.8 | $486.6 | | Other | $1.9 | $1.4 | | **Total Global Retail** | **$856.8** | **$764.3** | | **Knoll:** | | | | Workplace | $547.2 | — | | Performance Seating | $94.7 | — | | Lifestyle | $452.2 | — | | Other | $94.4 | — | | **Total Knoll** | **$1,188.5** | **—** | | Intersegment Sales Elimination | $(27.4) | — | | **Total** | **$3,946.0** | **$2,465.1** | - Contract liabilities, primarily customer deposits, were **$125.3 million** at May 28, 2022, with **$89.5 million** of net sales recognized in fiscal 2022 related to deposits from the prior year[331](index=331&type=chunk)[245](index=245&type=chunk) [Note 3 Acquisitions and Divestitures](index=67&type=section&id=Note%203%20Acquisitions%20and%20Divestitures) This note details MillerKnoll's significant acquisition and divestiture activities, primarily the acquisition of Knoll, Inc. in July 2021 for approximately $1.887 billion, which resulted in substantial goodwill and intangible asset recognition - On July 19, 2021, MillerKnoll completed the acquisition of Knoll, Inc. for approximately **$1,887.3 million** in cash and stock, including **$1,176.6 million** in cash and **$710.7 million** in converted Knoll stock/awards[333](index=333&type=chunk)[334](index=334&type=chunk) - The Knoll acquisition resulted in the recognition of **$903.5 million** in goodwill (within the Knoll segment) and **$756.6 million** in identified intangible assets, including indefinite-lived trade names (**$418.0 million**) and customer relationships (**$257.0 million**)[336](index=336&type=chunk)[338](index=338&type=chunk) - Knoll contributed **$1,188.5 million** in total revenue and a net loss of **$53.5 million** to MillerKnoll's consolidated financial statements from the acquisition date through May 28, 2022[338](index=338&type=chunk) - Pro forma net sales for the combined entity were **$4,100.2 million** for the twelve months ended May 28, 2022, and **$3,586.6 million** for May 29, 2021, assuming Knoll was acquired on May 31, 2020[340](index=340&type=chunk) - The company acquired the remaining **47.5% equity** in naughtone in October 2019 for **$45.9 million**, consolidating its operations and recognizing **$57.5 million** in goodwill[341](index=341&type=chunk)[343](index=343&type=chunk) - In December 2019, the company acquired an additional **34% equity** in HAY for **$79.0 million**, gaining a controlling interest and consolidating its operations, recognizing **$111.1 million** in goodwill[346](index=346&type=chunk)[352](index=352&type=chunk) - On January 31, 2022, the company sold a wholly-owned contract furniture dealership in Toronto, Canada, for **$2.8 million**, recognizing a pre-tax gain of **$2.0 million**[353](index=353&type=chunk) [Note 4 Inventories](index=71&type=section&id=Note%204%20Inventories) This note provides a breakdown of MillerKnoll's inventory, totaling $587.3 million at May 28, 2022, primarily valued using the first-in, first-out (FIFO) method after a retrospective change from LIFO Inventories (in millions) | (In millions) | May 28, 2022 | May 29, 2021 | | :-------------------------- | :----------- | :----------- | | Finished goods and work in process | $441.6 | $173.6 | | Raw materials | $145.7 | $55.0 | | **Total** | **$587.3** | **$228.6** | - Inventories are primarily valued using the first-in, first-out (FIFO) method, following a retrospective change from LIFO in the fourth quarter of fiscal 2022[354](index=354&type=chunk) [Note 5 Investments in Nonconsolidated Affiliates](index=71&type=section&id=Note%205%20Investments%20in%20Nonconsolidated%20Affiliates) MillerKnoll holds equity method investments in nonconsolidated affiliates, totaling $9.9 million as of May 28, 2022, including interests in Kvadrat Maharam Pty Limited and Global Holdings Netherlands B.V. (Maars) - The company holds investments in nonconsolidated affiliates, accounted for using the equity method, which are included in Other noncurrent assets[355](index=355&type=chunk) Investments in Nonconsolidated Affiliates (in millions) | (In millions) | May 28, 2022 | May 29, 2021 | | :-------------------------------- | :----------- | :----------- | | Investments in nonconsolidated affiliates | $9.9 | $11.7 | Ownership Interest in Nonconsolidated Affiliates | Ownership Interest | May 28, 2022 | May 29, 2021 | | :-------------------------------- | :----------- | :----------- | | Kvadrat Maharam Pty Limited | 50.0% | 50.0% | | Global Holdings Netherlands B.V. (Maars) | 48.2% | 48.2% | - The company divested its interest in Kvadrat Maharam Arabia DMCC, Kvadrat Maharam Turkey JSC, and Danskina B.V. in fiscal 2020 and 2021[358](index=358&type=chunk) [Note 6 Short-Term Borrowings and Long-Term Debt](index=72&type=section&id=Note%206%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) MillerKnoll's long-term debt significantly increased to $1,427.9 million at May 28, 2022, primarily due to financing the Knoll acquisition through a new credit agreement, and the company remains in compliance with debt covenants Long-Term Debt Obligations (in millions) | (In millions) | May 28, 2022 | May 29, 2021 | | :------------------------------------------ | :----------- | :----------- | | Debt securities, 4.95%, due May 20, 2030 | — | $49.9 | | Syndicated revolving line of credit, due August 2024 | — | $225.0 | | Syndicated revolving line of credit, due July 2026 | $413.0 | — | | Term Loan A, 2.5000%, due July 2026 | $390.0 | — | | Term Loan B, 2.7500% due July 2028 | $621.8 | — | | Supplier financing program | $3.1 | $2.2 | | **Total debt** | **$1,427.9** | **$277.1** | | Less: Unamortized discount and issuance costs | $(19.4) | — | | Less: Current debt | $(29.3) | $(2.2) | | **Long-term debt** | **$1,379.2** | **$274.9** | - In July 2021, the company entered a new credit agreement for the Knoll acquisition, providing a **$725 million** syndicated revolving line of credit, a **$400 million** Term Loan A, and a **$625 million** Term Loan B[363](index=363&type=chunk) - The company repaid **$64 million** of private placement notes, resulting in a **$13.4 million** loss on extinguishment of debt[364](index=364&type=chunk) Available Borrowings Under Syndicated Revolving Line of Credit (in millions) | (In millions) | May 28, 2022 | May 29, 2021 | | :------------------------------------------ | :----------- | :----------- | | Syndicated revolving line of credit borrowing capacity | $725.0 | $500.0 | | Less: Borrowings under the syndicated revolving line of credit | $413.0 | $225.0 | | Less: Outstanding letters of credit | $15.4 | $9.8 | | **Available borrowings under the syndicated revolving line of credit** | **$296.6** | **$265.2** | - As of May 28, 2022, the company was in compliance with all restrictions and financial performance ratios under its senior secured revolving credit facility[366](index=366&type=chunk) Annual Maturities of Debt (in millions) | (In mil

Financial Data and Key Metrics Changes - Consolidated net sales for Q4 2022 reached $1.1 billion, reflecting a 77% increase on a reported basis and a 23% increase organically compared to the prior year [21] - For the full fiscal year, net sales totaled $3.95 billion, a year-over-year increase of 60%, with organic sales increasing by 14% [28] - Gross margin at the consolidated level was 34.8%, down 160 basis points from the same quarter last year, but improved sequentially by 180 basis points [26] - Reported diluted earnings per share were $0.28, while adjusted earnings per share were $0.58, compared to $0.59 a year ago [27] Business Line Data and Key Metrics Changes - The international business achieved record sales of $136 million in Q4, an increase of 28% on a reported basis and up 37% organically [21] - Retail segment orders declined by 12% compared to last year, as consumers shifted spending towards travel and experiences [23] - Despite the decline, new orders for the retail segment were up 63% on a two-year stack basis compared to Q4 of fiscal 2020 [24] Market Data and Key Metrics Changes - The backlog was reported to be 45% higher than last year organically, indicating strong demand [30] - Customer visits and dealer sentiment improved significantly, with many customers actively seeking to redesign their spaces [39][41] Company Strategy and Development Direction - The company aims to deliver $120 million in cost synergies, having captured $66 million in run rate cost synergies by the end of fiscal 2022 [7] - Focus on creating a differentiated omnichannel customer experience and accelerating growth across channels and geographies [17] - The company is expanding its international dealer network to cross-sell its brands, with a pilot including 32 dealers from 17 countries [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macroeconomic uncertainties from a position of strength, emphasizing the unique opportunities available [31] - The company is optimistic about the integration of its brands and expects to see continuous improvement in margins as price increases take effect [105] Other Important Information - The company introduced its 2030 sustainability goals, targeting a 50% reduction in carbon footprint and increased use of recycled materials [15] - The company opened eight new Herman Miller stores in Q4, including three in Japan, and plans to open three more in Q1 of fiscal 2023 [25] Q&A Session Summary Question: Supply chain normalization and lead times - Management noted that while internal lead times have improved, some suppliers still face issues, particularly affecting the retail business [34][36] Question: Customer visits and dealer sentiment - Increased customer visits are attributed to a return to collaborative work environments, with visits being more intentional and project-focused [39][41] Question: Pricing and cost situation - Management confirmed plans for additional price increases to address inflationary pressures, with expectations for margin improvement as these take effect [50][54] Question: Retail business outlook - Management anticipates steady performance in the retail business despite macroeconomic pressures, with ongoing investments in product expansion and technology [92][96] Question: Contract business demand - Demand remains strong, with no indicators of softening, supported by positive metrics like the Architectural Billings Index [118][120]

Financial Performance - Net loss for the nine months ended February 26, 2022, was $46.6 million, a significant decline from net earnings of $169.5 million for the same period in the previous year[12]. - For the nine months ended February 26, 2022, MillerKnoll reported net earnings of $73.0 million, a decrease of 61.5 million compared to the previous period[13]. - For the three months ended February 26, 2022, net earnings attributable to MillerKnoll, Inc. were $12.6 million, a decrease of 69.6% compared to $41.5 million for the same period in 2021[68]. - The total operating earnings for the nine months ended February 26, 2022, were reported at a loss of $22.5 million, a decline from operating earnings of $221.5 million for the same period in the previous year[116]. Revenue and Sales - For the three months ended February 26, 2022, total net sales were $1,029.5 million, a 74.4% increase from $590.5 million for the same period in 2021[31]. - For the nine months ended February 26, 2022, total net sales reached $2,845.5 million, up 54.2% from $1,843.6 million in the prior year[31]. - The Americas Contract segment generated $1,052.0 million in net sales for the nine months ended February 26, 2022, compared to $1,008.0 million in the same period of 2021, reflecting a 4.4% increase[36]. - The Knoll segment contributed $336.9 million in net sales for the three months ended February 26, 2022, with no prior year comparison available due to the acquisition[36]. - The International Contract segment saw net sales increase to $347.4 million for the nine months ended February 26, 2022, up from $293.5 million, marking a growth of 18.3%[116]. - The Global Retail segment achieved net sales of $635.4 million for the nine months ended February 26, 2022, compared to $542.1 million, an increase of 17.2%[116]. Assets and Liabilities - Total assets increased to $4,517.7 million as of February 26, 2022, compared to $2,061.9 million on May 29, 2021, reflecting a growth of approximately 118%[11]. - The company had total liabilities of $2,993.7 million as of February 26, 2022, compared to $1,135.3 million as of May 29, 2021[11]. - The carrying value of the Company's long-term debt as of February 26, 2022, was $1,434.0 million, with a fair value of $1,308.5 million[77]. - The total fair value of cash equivalents as of February 26, 2022, was $28.0 million, down from $162.2 million in May 2021[81]. Equity and Stock - Total stockholders' equity increased to $1,455.9 million from $849.6 million, representing a growth of approximately 71%[11]. - The company declared dividends of $0.1875 per share, totaling $14.3 million for the period[14]. - The company issued common stock worth $6.8 million during the nine months, compared to $3.9 million in the previous year[12]. - The company repurchased and retired common stock totaling $11.0 million during the period[13]. - As of February 26, 2022, the total number of common shares outstanding was 75,798,552[14]. Acquisitions and Integration - MillerKnoll completed the acquisition of Knoll, Inc. on July 19, 2021, which has been included in the financial results since the acquisition date[20]. - The total consideration transferred for the acquisition of Knoll was approximately $1,887.3 million, which included cash consideration of $1,176.6 million and share consideration valued at $688.3 million[45]. - Goodwill recorded from the acquisition of Knoll was $941.4 million, primarily attributed to the assembled workforce and anticipated operational synergies[48]. - Integration costs related to the Knoll merger amounted to $101.7 million for the nine months ended February 26, 2022, including $49.9 million in severance and employee benefit costs[119]. - The company expects total pre-tax costs for the Knoll Integration to not exceed approximately $100 million to $120 million[119]. Cash Flow and Operating Activities - The company reported cash used in operating activities of $57.9 million for the nine months ended February 26, 2022, compared to cash provided of $260.1 million in the prior year[12]. - Cash and cash equivalents decreased to $245.9 million from $396.4 million, representing a decline of approximately 38%[12]. - The company recognized a loss on extinguishment of debt of approximately $13.4 million related to the repayment of private placement notes due May 20, 2030[103]. Inventory and Receivables - Inventories rose significantly to $520.8 million, compared to $213.6 million, marking an increase of approximately 143%[11]. - Accounts receivable increased to $313.8 million, up from $204.7 million, indicating a growth of about 53%[11]. Tax and Compliance - The effective tax rate for the three months ended February 26, 2022, was 15.6%, down from 22.9% for the same period in 2021, primarily due to a pre-tax loss adjustment[71]. - The effective tax rate for the nine months ended February 26, 2022, was 19.8%, a decrease from 22.7% in the same period of 2021, attributed to a pre-tax book loss and non-deductible acquisition costs[72]. - The company recognized a liability for uncertain tax positions of $2.7 million as of February 26, 2022, compared to $2.1 million in May 2021[74]. Other Comprehensive Income - Other comprehensive loss for the period was $93.0 million, reflecting a decrease in accumulated other comprehensive loss[14]. - The company recognized a pre-tax gain of $2.0 million from the sale of a wholly-owned contract furniture dealership in Toronto, Canada, for cash consideration of $2.8 million[55].

MillerKnoll, Inc. (NASDAQ:MLKN) Q3 2022 Earnings Conference Call March 29, 2022 5:30 PM ET CompanyParticipants Kevin Veltman - Vice President of Investor Relations & Treasurer Andrea Owen - President & Chief Executive Officer Jeffrey Stutz - Chief Financial Officer John Michael - President of North America Contract Conference Call Participants Steven Ramsey - Thompson Research Greg Burns - Sidoti & Company Reuben Garner - Benchmark Alex Fuhrman - Craig-Hallum Capital Rudy Yang - Berenberg Operator Good even ...

[Part I — Financial Information](index=5&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) [Item 1: Financial Statements (Unaudited)](index=5&type=section&id=Item%201%3A%20Financial%20Statements%20(Unaudited)) This section presents MillerKnoll, Inc.'s unaudited condensed consolidated financial statements, reflecting the Knoll acquisition [Note 1: Description of Business and Basis of Presentation](index=11&type=section&id=Note%201%3A%20Description%20of%20Business%20and%20Basis%20of%20Presentation) MillerKnoll, Inc. acquired Knoll, Inc. on July 19, 2021, and reorganized its reportable segments - On July 19, 2021, the company acquired Knoll, Inc. and changed its name from Herman Miller, Inc. to MillerKnoll, Inc. on November 1, 2021[17](index=17&type=chunk) - Effective May 30, 2021, the company reorganized its reportable segments into: Global Retail, Americas Contract, International Contract, and Knoll[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) [Note 5: Acquisitions](index=15&type=section&id=Note%205%3A%20Acquisitions) This note details the July 19, 2021 acquisition of Knoll, Inc. for approximately $1.89 billion, resulting in $943.7 million goodwill Preliminary Acquisition Consideration for Knoll, Inc. | Consideration Type | Value (in millions) | | :--- | :--- | | Cash Consideration | $543.9 | | Knoll Preferred Stock | $254.4 | | Settlement of Knoll's debt | $376.9 | | Share Consideration (15,843,921 shares) | $688.3 | | Replacement Share-Based Awards | $22.4 | | **Total Preliminary Fair Value** | **$1,887.3** | Preliminary Fair Value of Net Assets Acquired | (In millions) | Fair Value | | :--- | :--- | | Total assets acquired | $2,634.1 | | Total liabilities assumed | $746.8 | | **Net Assets Acquired** | **$1,887.3** | | Goodwill | $943.7 | - Goodwill of **$943.7 million** was recorded in the Knoll segment and is primarily attributed to the assembled workforce and anticipated operational synergies. It is not expected to be tax-deductible[40](index=40&type=chunk) - From the acquisition date (July 19, 2021) to November 27, 2021, Knoll contributed **$492.7 million** in revenue and a net loss of **$73.3 million** to the consolidated results[42](index=42&type=chunk)[43](index=43&type=chunk) [Note 14: Short-Term Borrowings and Long-Term Debt](index=25&type=section&id=Note%2014%3A%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) The company secured a new credit agreement in July 2021 to finance the Knoll acquisition, significantly increasing total debt - In July 2021, to fund the Knoll acquisition, the company entered into a new credit agreement providing a **$725 million** revolving credit facility, a **$400 million** Term Loan A, and a **$625 million** Term Loan B[90](index=90&type=chunk) Total Debt Comparison | (In millions) | November 27, 2021 | May 29, 2021 | | :--- | :--- | :--- | | **Total debt** | **$1,391.2** | **$277.1** | [Note 16: Operating Segments](index=26&type=section&id=Note%2016%3A%20Operating%20Segments) Effective May 30, 2021, the company reorganized its reportable segments to include Americas Contract, International Contract, Global Retail, and Knoll - The company's reportable segments now consist of Americas Contract, International Contract, Global Retail, and Knoll. Corporate expenses are reported separately[97](index=97&type=chunk)[101](index=101&type=chunk) Segment Net Sales and Operating Earnings (Loss) for Three Months Ended Nov 27, 2021 | (In millions) | Net Sales | Operating Earnings (Loss) | | :--- | :--- | :--- | | Americas Contract | $361.5 | $6.3 | | International Contract | $125.1 | $15.2 | | Global Retail | $210.0 | $23.2 | | Knoll | $336.3 | $(20.6) | | Corporate | - | $(20.3) | | **Total** | **$1,026.3** | **$3.8** | [Note 17: Restructuring and Integration Expense](index=28&type=section&id=Note%2017%3A%20Restructuring%20and%20Integration%20Expense) Following the Knoll merger, the company initiated a multi-year integration program with expected pre-tax costs up to $100 million - The Knoll Integration program is expected to result in pre-tax costs not to exceed approximately **$100 million**[106](index=106&type=chunk) - For the six months ended November 27, 2021, the company incurred **$95.8 million** of costs related to the Knoll Integration. This includes **$46.4 million** in severance, **$15.5 million** in asset impairments, **$13.4 million** in debt-extinguishment costs, and **$20.5 million** in other integration costs[106](index=106&type=chunk) Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights | (Dollars in millions) | Three Months Ended Nov 27, 2021 | Three Months Ended Nov 28, 2020 | Six Months Ended Nov 27, 2021 | Six Months Ended Nov 28, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $1,026.3 | $626.3 | $1,816.0 | $1,253.0 | | **Gross margin** | $350.6 | $244.2 | $628.1 | $494.2 | | **Operating earnings (loss)** | $3.8 | $71.0 | $(49.0) | $166.4 | | **Net earnings (loss) attributable to MillerKnoll, Inc.** | $(3.4) | $51.3 | $(64.9) | $124.2 | | **Diluted earnings (loss) per share** | $(0.05) | $0.87 | $(0.92) | $2.10 | Condensed Consolidated Balance Sheets Highlights | (Dollars in millions) | November 27, 2021 | May 29, 2021 | | :--- | :--- | :--- | | **Total current assets** | $1,214.6 | $891.5 | | **Total Assets** | $4,465.9 | $2,061.9 | | **Total current liabilities** | $857.3 | $500.8 | | **Total Liabilities** | $2,960.1 | $1,135.3 | | **Total Stockholders' Equity** | $1,436.4 | $849.6 | Condensed Consolidated Statements of Cash Flows Highlights | (Dollars in millions) | Six Months Ended Nov 27, 2021 | Six Months Ended Nov 28, 2020 | | :--- | :--- | :--- | | **Net Cash (Used in) Provided by Operating Activities** | $(57.6) | $214.6 | | **Net Cash Used in Investing Activities** | $(1,133.8) | $(24.4) | | **Net Cash Provided by (Used in) Financing Activities** | $1,035.5 | $(276.9) | | **Net Decrease in Cash and Cash Equivalents** | $(169.1) | $(76.1) | [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 FY2022 financial results, highlighting increased sales due to the Knoll acquisition, declining gross margin, and integration costs [Business Overview](index=31&type=section&id=Business%20Overview) Q2 FY2022 net sales increased significantly due to the Knoll acquisition, while gross margin declined due to cost pressures and integration expenses - Net sales increased **63.9%** to **$1,026.3 million**, while organic sales (excluding Knoll and currency effects) grew **11.1%** compared to the prior year's quarter[122](index=122&type=chunk) - Gross margin decreased to **34.2%** from **39.0%** YoY, driven by commodity cost pressures, rising labor and freight expenses, and a **$4.8 million** negative impact from Knoll purchase accounting[122](index=122&type=chunk) Q2 FY2022 Earnings Per Share | Metric | Q2 FY2022 | Q2 FY2021 | % Change | | :--- | :--- | :--- | :--- | | Diluted (Loss) EPS | $(0.05) | $0.87 | (105.7)% | | Adjusted Diluted EPS* | $0.51 | $0.89 | (42.7)% | [Analysis of Results for Three and Six Months](index=35&type=section&id=Analysis%20of%20Results%20for%20Three%20and%20Six%20Months) Q2 FY2022 net sales rose by $400 million, primarily from the Knoll acquisition, while gross margin and operating expenses were impacted by costs - The **$400 million** YoY increase in Q2 net sales was primarily driven by a **$330 million** contribution from the Knoll acquisition, with the remainder from organic growth across other segments[146](index=146&type=chunk) - Q2 gross margin was negatively impacted by approximately **330 basis points** from commodity/freight costs, **70 basis points** from increased labor costs, and **50 basis points** from Knoll purchase accounting amortization[147](index=147&type=chunk)[148](index=148&type=chunk) - The **$173.6 million** increase in Q2 operating expenses included **$99 million** from Knoll's ongoing operations, **$41 million** in acquisition/integration charges, and **$11 million** in amortization of purchased intangibles[150](index=150&type=chunk) [Operating Segment Results](index=40&type=section&id=Operating%20Segment%20Results) Q2 FY2022 segment performance varied, with Americas Contract and Global Retail facing margin pressures, while International Contract showed strong growth, and Knoll reported an operating loss - **Americas Contract:** Q2 organic sales grew **3.9%**, but operating earnings fell from **$39.1 million** to **$6.3 million** due to a **760 basis point** drop in gross margin from cost pressures[158](index=158&type=chunk)[159](index=159&type=chunk) - **International Contract:** Q2 organic sales grew **23.2%**, and operating earnings increased from **$12.9 million** to **$15.2 million**, driven by strong sales volume across all geographies[160](index=160&type=chunk)[161](index=161&type=chunk) - **Global Retail:** Q2 organic sales grew **18.3%**, but operating earnings decreased from **$29.3 million** to **$23.2 million** due to a **420 basis point** drop in gross margin (freight costs) and higher operating expenses[162](index=162&type=chunk)[163](index=163&type=chunk) - **Knoll:** For Q2, the segment recorded **$336.3 million** in sales and an operating loss of **$(20.6) million**, which includes **$27 million** in integration costs and **$16 million** in amortization of acquisition-related intangibles[164](index=164&type=chunk)[165](index=165&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Cash used in operations significantly increased for the six months ended November 27, 2021, primarily due to the Knoll acquisition and working capital changes Total Liquidity Position | (In millions) | November 27, 2021 | May 29, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $227.3 | $396.4 | | Marketable securities | $7.4 | $7.7 | | Availability under syndicated revolving line of credit | $346.5 | $265.2 | | **Total liquidity** | **$581.2** | **$669.3** | - Cash used in investing activities for the six months was **$1,133.8 million**, primarily due to the **$1,088.5 million** net cash outflow for the Knoll acquisition[173](index=173&type=chunk) - Cash provided by financing activities was **$1,035.5 million**, driven by net debt proceeds of **$1,007.0 million** and credit facility proceeds of **$587.5 million** to finance the Knoll acquisition[175](index=175&type=chunk) [Item 3: Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risk disclosures were reported, with key risks remaining interest rates, commodity prices, and foreign exchange rates - There have been no material changes to market risk disclosures since the last Form 10-K. Key risks remain interest rates, commodity prices, and foreign exchange[193](index=193&type=chunk) - The principal foreign currencies in which the Company conducts business include the British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, Hong Kong dollar, Chinese renminbi, and the Danish krone[195](index=195&type=chunk) [Item 4: Controls and Procedures](index=48&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of November 27, 2021, with Knoll's internal controls currently undergoing integration - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of November 27, 2021[196](index=196&type=chunk) - The company is in the process of integrating Knoll's internal controls over financial reporting, which is the only significant change to internal controls during the quarter[197](index=197&type=chunk) [Part II — Other Information](index=49&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) [Item 1: Legal Proceedings](index=49&type=section&id=Item%201%3A%20Legal%20Proceedings) There have been no material changes in legal proceedings since the last Annual Report on Form 10-K - There have been no material changes in legal proceedings since the last Annual Report on Form 10-K[199](index=199&type=chunk) [Item 1A: Risk Factors](index=49&type=section&id=Item%201A%3A%20Risk%20Factors) An updated risk factor highlights the negative impact of a continued shortage of qualified labor on the company's business and earnings - An updated risk factor was added concerning the negative impact of a continued shortage of qualified labor on the company's business, production, and earnings[201](index=201&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 84,106 shares during Q2 FY2022 under its $250 million authorization plan, with $222.3 million remaining Share Repurchase Activity for Q2 FY2022 | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | 8/29/21-9/25/21 | 25,588 | $42.34 | $224.6 | | 9/26/21-10/30/21 | 18,455 | $39.23 | $223.9 | | 10/31/21-11/27/21 | 40,063 | $38.57 | $222.3 | | **Total** | **84,106** | - | - | [Item 6: Exhibits](index=50&type=section&id=Item%206%3A%20Exhibits) This section lists exhibits filed with the Form 10-Q report, including corporate governance documents and Sarbanes-Oxley certifications - Exhibits filed include corporate governance documents (Articles of Incorporation, Bylaws), a compensatory plan, and Sarbanes-Oxley certifications[206](index=206&type=chunk)

Financial Data and Key Metrics Changes - Consolidated net sales were just under $1.03 billion, up 64% on a reported basis and 11% organically compared to last year [24] - Orders for the quarter reached $1.16 billion, an increase of 84% year-over-year, with organic orders at $796 million, reflecting a sequential improvement of 6% and a 26% increase over the prior year [25] - Adjusted gross margin was 34.8%, down from 39% the previous year, primarily due to rising commodity costs and inflationary pressures [27][28] - Adjusted operating margin for the consolidated business was 5.9%, compared to 11.7% in the prior year [31] - The company reported a consolidated net loss per share of $0.05, while adjusted earnings per share were $0.51, excluding special charges related to the integration of Knoll [32] Business Line Data and Key Metrics Changes - Global Retail orders were up almost 21% year-over-year, with sales growth of approximately 18% [25] - The Americas Contract segment saw net sales increase by 4% and new orders improve by 29% year-over-year [26] - The Knoll segment reported year-on-year sales and orders increasing by 5% and 30%, respectively [26] - The International Contract segment experienced orders up 30% and sales up 23% over the same quarter last year, with European orders specifically up 42% [27] Market Data and Key Metrics Changes - Demand in Europe, including the UK, was particularly strong, contributing to the overall growth in the International Contract segment [27] - The company faced challenges such as inflationary pressures, supply chain disruptions, and labor shortages, which impacted its ability to ship orders [11][24] Company Strategy and Development Direction - The integration of Herman Miller and Knoll has created a stronger organization focused on long-term success, with a priority on building the MillerKnoll dealer network [9][16] - The company aims to achieve cost synergies of $100 million within two years of closing the Knoll acquisition, with expectations to increase run rate savings to $120 million by the end of year three [13][14] - The focus is on leveraging the combined portfolio and distribution network to enhance product offerings and customer choice [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic pressures and deliver on cost synergies despite challenges [23] - The company anticipates continued strong demand across all segments, with expectations for order pacing to remain robust [45] - Management highlighted the need to reimagine workplaces to meet the evolving expectations of the post-pandemic workforce [18][19] Other Important Information - The company has launched new e-commerce sites in France and Germany, exceeding early sales expectations [11] - The backlog at the end of the quarter was $967 million, reflecting a $130 million increase from the beginning of the quarter [76] Q&A Session Summary Question: How much of the organic orders increase is pricing-driven versus volume? - Management indicated that order trends were consistent across the quarter, with no significant pull-ahead impact from price increases [35][36] Question: What is the expected impact of price increases on future results? - Management expects that the retail business will benefit from price actions sooner than the contract business, with a gradual improvement in gross margins anticipated [39][42] Question: How is the company managing the backlog situation? - Management noted that while orders continue to outpace shipments, they are focused on improving throughput and managing discounting methodologies to balance demand and production capacity [66][69] Question: Can you elaborate on the international business profitability? - Management highlighted that the international business has been performing well, with less severe inflationary pressures compared to North America, contributing to better profitability [62][63] Question: What are the drivers of retail growth? - The retail segment's growth is primarily driven by assortment expansion and improvements in e-commerce and brick-and-mortar channels [88][90]

[Part I — Financial Information](index=4&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) This section provides unaudited condensed consolidated financial statements, detailed notes, management's discussion and analysis, market risk disclosures, and internal controls information [Item 1 Financial Statements (Unaudited)](index=4&type=section&id=Item%201%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including statements of comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes [Condensed Consolidated Statements of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%E2%80%94%20Three%20Months%20ended%20August%2028%2C%202021%20and%20August%2029%2C%202020) This statement presents the company's net sales, gross margin, operating results, and earnings per share for the three months ended August 28, 2021, and August 29, 2020 | (Dollars in millions, except share data) | August 28, 2021 | August 29, 2020 | | :-------------------------------------- | :-------------- | :-------------- | | Net sales | $789.7 | $626.8 | | Cost of sales | 512.2 | 376.8 | | Gross margin | 277.5 | 250.0 | | Operating (loss) earnings | (52.8) | 95.4 | | Net (loss) earnings | (59.9) | 73.4 | | Net (loss) earnings attributable to Herman Miller, Inc. | $(61.5) | $73.0 | | (Loss) Earnings per share — diluted | $(0.93) | $1.24 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%E2%80%94%20August%2028%2C%202021%20and%20May%2029%2C%202021) This balance sheet details the company's assets, liabilities, and stockholders' equity as of August 28, 2021, and May 29, 2021, reflecting significant changes from the Knoll acquisition | (Dollars in millions, except share data) | August 28, 2021 | May 29, 2021 | | :--------------------------------------- | :-------------- | :----------- | | Total Assets | $4,460.5 | $2,061.9 | | Goodwill | 1,283.9 | 364.2 | | Indefinite-lived intangibles | 493.0 | 97.6 | | Total Liabilities | 2,912.3 | 1,135.3 | | Long-term debt | 1,298.4 | 274.9 | | Total Stockholders' Equity | 1,475.6 | 849.6 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%94%20Three%20Months%20Ended%20August%2028%2C%202021%20and%20August%2029%2C%202020) This statement outlines the net cash flows from operating, investing, and financing activities for the three months ended August 28, 2021, and August 29, 2020 | (Dollars in millions) | August 28, 2021 | August 29, 2020 | | :-------------------- | :-------------- | :-------------- | | Net Cash (Used in) Provided by Operating Activities | $(51.7) | $115.9 | | Net Cash Used in Investing Activities | $(1,104.7) | $(5.1) | | Acquisitions, net of cash received | (1,088.5) | — | | Net Cash Provided by (Used in) Financing Activities | 1,001.6 | (276.5) | | Net Decrease in Cash and Cash Equivalents | (161.3) | (157.4) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%E2%80%94%20Three%20Months%20Ended%20August%2028%2C%202021%20and%20August%2029%2C%202020) This statement presents the changes in total stockholders' equity, including net earnings (loss) and shares issued for the Knoll acquisition, for the periods presented | (Dollars in millions, except share data) | May 29, 2021 | August 28, 2021 | | :--------------------------------------- | :----------- | :-------------- | | Total Stockholders' Equity | $849.6 | $1,475.6 |\ | Net earnings (loss) | — | (61.5) |\ | Shares issued for the acquisition of Knoll | — | 688.3 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes on the company's business, accounting policies, revenue, leases, acquisitions, inventories, goodwill, employee benefits, earnings per share, stock compensation, income taxes, fair value measurements, commitments, debt, comprehensive loss, operating segments, restructuring, and variable interest entities [Note 1 - Description of Business and Basis of Presentation](index=8&type=section&id=Note%201%20-%20Description%20of%20Business%20and%20Basis%20of%20Presentation) Herman Miller, Inc. (to be renamed MillerKnoll, Inc.) designs, manufactures, and distributes interior furnishings globally, with the acquisition of Knoll, Inc. completed on July 19, 2021, and a segment reorganization effective May 30, 2021 - Acquisition of Knoll, Inc. completed on **July 19, 2021**[14](index=14&type=chunk) - Proposed name change to **MillerKnoll, Inc.** (subject to shareholder approval)[14](index=14&type=chunk) - New reportable segments: **Americas Contract, International Contract, Global Retail, and Knoll**, effective **May 30, 2021**[18](index=18&type=chunk)[22](index=22&type=chunk) [Note 2 - Recently Issued Accounting Standards](index=9&type=section&id=Note%202%20-%20Recently%20Issued%20Accounting%20Standards) The company adopted ASU No. 2018-14 and ASU 2019-12 on May 30, 2021, with no material effect on the consolidated financial statements - Adopted **ASU No. 2018-14** (Retirement Benefits) and **ASU 2019-12** (Income Taxes) on **May 30, 2021**[19](index=19&type=chunk)[20](index=20&type=chunk) - No **material impact** on financial statements from adopted ASUs[19](index=19&type=chunk)[20](index=20&type=chunk) [Note 3 - Revenue from Contracts with Customers](index=9&type=section&id=Note%203%20-%20Revenue%20from%20Contracts%20with%20Customers) Total net sales for the three months ended August 28, 2021, increased to $789.7 million, primarily driven by the Knoll acquisition and growth in Global Retail and International Contract segments | (In millions) | August 28, 2021 | August 29, 2020 | | :------------ | :-------------- | :-------------- | | Net Sales | $789.7 | $626.8 | Revenue by Contract Type (Three Months Ended August 28, 2021) | Contract Type | Amount (in millions) | | :------------------------------ | :------------------- | | Product revenue (single performance obligation) | $736.3 | | Product revenue (multiple performance obligations) | $49.6 | | Service revenue | $1.9 | | Other | $1.9 | | Total | $789.7 | Revenue by Segment (Three Months Ended August 28, 2021) | Segment | Amount (in millions) | | :--------------------- | :------------------- | | Americas Contract | $325.3 | | International Contract | $99.0 | | Retail | $212.6 | | Knoll | $156.4 | [Note 4 - Leases](index=11&type=section&id=Note%204%20-%20Leases) Total lease costs increased to $22.0 million for the three months ended August 28, 2021, with total undiscounted future minimum lease payments of $516.2 million for operating leases | (In millions) | August 28, 2021 | August 29, 2020 | | :------------ | :-------------- | :-------------- | | Total Lease Costs | $22.0 | $13.4 | Undiscounted Annual Future Minimum Lease Payments (as of August 28, 2021) | Fiscal Year | Amount (in millions) | | :---------- | :------------------- | | 2022 | $88.5 | | 2023 | $83.5 | | 2024 | $74.3 | | 2025 | $65.8 | | 2026 | $50.3 | | Thereafter | $153.8 | | Total | $516.2 | - Weighted average remaining lease term for operating leases: **7 years** (as of August 28, 2021)[30](index=30&type=chunk) - Weighted average discount rate for operating leases: **2.4%** (as of August 28, 2021)[30](index=30&type=chunk) [Note 5 - Acquisitions](index=11&type=section&id=Note%205%20-%20Acquisitions) Herman Miller acquired Knoll, Inc. on July 19, 2021, for $1,887.3 million, resulting in significant goodwill and intangible assets, with Knoll contributing $156.4 million in revenue and a net loss of $45.9 million - Acquisition of Knoll, Inc. completed on **July 19, 2021**[33](index=33&type=chunk) Preliminary Acquisition Date Fair Value of Consideration Transferred for Knoll | Consideration Type | Amount (in millions) | | :----------------- | :------------------- | | Cash Consideration | $800.7 | | Share Consideration | $688.3 | | Replacement Share-Based Awards | $22.4 | | Consideration for payment to settle Knoll's outstanding debt | $376.9 | | Total | $1,887.3 | Preliminary Fair Value of Assets Acquired and Liabilities Assumed (as of acquisition date) | Item | Fair Value (in millions) | | :-------------------- | :----------------------- | | Total assets acquired | $2,646.4 | | Total liabilities assumed | $759.2 | | Net Assets Acquired | $1,887.2 | | Goodwill | $925.9 | | Intangible assets | $770.4 | - Knoll contributed **$156.4 million** of Revenue and **$45.9 million** of Net Loss to the consolidated statements for the period from acquisition date to August 28, 2021[39](index=39&type=chunk) Pro Forma Results of Operations (Three Months Ended) | (In millions) | August 28, 2021 | August 29, 2020 | | :------------ | :-------------- | :-------------- | | Net sales | $943.9 | $891.8 | | Net earnings attributable to Herman Miller, Inc. | $(30.2) | $30.9 | [Note 6 - Inventories, net](index=14&type=section&id=Note%206%20-%20Inventories%2C%20net) Total inventories significantly increased to $446.2 million as of August 28, 2021, primarily in finished goods, work in process, and raw materials, reflecting the Knoll acquisition | (In millions) | August 28, 2021 | May 29, 2021 | | :------------------------ | :-------------- | :----------- | | Finished goods and work in process | $329.1 | $166.7 | | Raw materials | 117.1 | 46.9 | | Total | $446.2 | $213.6 | [Note 7 - Goodwill and Indefinite-Lived Intangibles](index=14&type=section&id=Note%207%20-%20Goodwill%20and%20Indefinite-Lived%20Intangibles) Goodwill and indefinite-lived intangible assets substantially increased due to the Knoll acquisition, with no impairment identified for reorganized reporting units | (In millions) | Goodwill | Indefinite-lived Intangible Assets | | :-------------------------------- | :------- | :--------------------------------- | | May 29, 2021 | $364.2 | $97.6 | | Acquisition of Knoll | 925.9 | 396.9 | | August 28, 2021 | $1,283.9 | $493.0 | - No identified indicators of impairment for reporting units or indefinitely-lived intangible assets during the three months ended August 28, 2021[49](index=49&type=chunk) [Note 8 - Employee Benefit Plans](index=16&type=section&id=Note%208%20-%20Employee%20Benefit%20Plans) The net periodic benefit cost for defined benefit pension plans varied between domestic and international plans, with a weighted-average expected long-term rate of return on plan assets of 4.98% Net Periodic Benefit Cost (Three Months Ended August 28, 2021) | (In millions) | Domestic Pension Benefits | International Pension Benefits | | :------------ | :------------------------ | :----------------------------- | | Service cost | $0.1 | $— | | Interest cost | $0.5 | $0.8 | | Expected return on plan assets | $(1.0) | $(1.8) | | Net amortization loss | $— | $1.7 | | Net periodic benefit cost | $(0.4) | $0.7 | - Weighted-average expected long-term rate of return on plan assets is **4.98%**[50](index=50&type=chunk) [Note 9 - Earnings Per Share](index=16&type=section&id=Note%209%20-%20Earnings%20Per%20Share) Diluted loss per share for the three months ended August 28, 2021, was $(0.93), a significant decrease from $1.24 in the prior year, based on an increased number of weighted-average common shares outstanding | | August 28, 2021 | August 29, 2020 | | :-------------------------------------------------------------------------------- | :-------------- | :-------------- | | (Loss) Earnings per Share - Diluted | $(0.93) | $1.24 | | Denominator for basic EPS, weighted-average common shares outstanding | 66,302,214 | 58,831,305 | | Denominator for diluted EPS | 66,302,214 | 58,964,268 | [Note 10 - Stock-Based Compensation](index=17&type=section&id=Note%2010%20-%20Stock-Based%20Compensation) Stock-based compensation expense increased significantly to $15.1 million, primarily due to the Knoll acquisition and accelerated expenses from workforce reductions | (In millions) | August 28, 2021 | August 29, 2020 | | :---------------------------- | :-------------- | :-------------- | | Stock-based compensation expense | $15.1 | $1.5 | - Increase in stock-based compensation expense driven by the addition of Knoll's equity-based compensation awards and accelerated expense related to workforce reductions as part of the Knoll integration[53](index=53&type=chunk) [Note 11 - Income Taxes](index=17&type=section&id=Note%2011%20-%20Income%20Taxes) The effective tax rate decreased to 15.3% for the three months ended August 28, 2021, primarily due to a pre-tax book loss and non-deductible acquisition costs related to Knoll | | August 28, 2021 | August 29, 2020 | | :-------------------- | :-------------- | :-------------- | | Effective Tax Rate | 15.3% | 22.0% | - The decrease in the effective tax rate for the three months ended August 28, 2021, resulted from a pre-tax book loss for the quarter coupled with non-deductible discrete compensation and acquisition costs in connection with the Knoll acquisition[55](index=55&type=chunk) [Note 12 - Fair Value Measurements](index=18&type=section&id=Note%2012%20-%20Fair%20Value%20Measurements) The fair value of long-term debt increased to $1,317.2 million due to new debt for the Knoll acquisition, and the company holds various financial instruments measured at fair value Carrying Value and Fair Value of Long-Term Debt (in millions) | | August 28, 2021 | May 29, 2021 | | :------------ | :-------------- | :----------- | | Carrying value | $1,342.9 | $277.1 | | Fair value | $1,317.2 | $284.8 | - Contingent consideration obligation related to Knoll's acquisition of Fully: **$13.5 million** (as of August 28, 2021), classified as a **Level 3 measurement**[65](index=65&type=chunk) - Fair value of interest rate swap agreements (liability): **$15.7 million** (as of August 28, 2021). These are designated as **cash flow hedges**[77](index=77&type=chunk)[75](index=75&type=chunk) - Foreign currency forward contracts are not designated as hedging instruments; changes in fair value are recorded within 'Other (income) expense, net' in the Consolidated Statements of Comprehensive Income[73](index=73&type=chunk) [Note 13 - Commitments and Contingencies](index=22&type=section&id=Note%2013%20-%20Commitments%20and%20Contingencies) The warranty reserve increased to $69.8 million, partly due to the Knoll acquisition, and the company maintains performance bonds and standby letters of credit with no material legal proceedings Changes in Warranty Reserve (in millions) | | August 28, 2021 | August 29, 2020 | | :------------------------------ | :-------------- | :-------------- | | Accrual Balance — beginning | $60.1 | $59.2 | | Accrual for warranty matters | 5.4 | 4.6 | | Settlements and adjustments | (5.8) | (3.5) | | Acquired through business acquisition | 10.1 | — | | Accrual Balance — ending | $69.8 | $60.3 | - Maximum financial exposure related to performance bonds: approximately **$7.3 million** (as of August 28, 2021)[82](index=82&type=chunk) - Maximum financial exposure from standby letters of credit: approximately **$15.4 million** (as of August 28, 2021)[83](index=83&type=chunk) [Note 14 - Short-Term Borrowings and Long-Term Debt](index=24&type=section&id=Note%2014%20-%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) Total debt significantly increased to $1,342.9 million due to new credit agreements for the Knoll acquisition, including a $725 million revolving line of credit, a $400 million Term Loan A, and a $625 million Term Loan B Short-term borrowings and long-term debt (in millions) | | August 28, 2021 | May 29, 2021 | | :-------------------------------------- | :-------------- | :----------- | | Total debt | $1,342.9 | $277.1 | | Long-term debt | $1,298.4 | $274.9 | - In July 2021, the Company entered into a new credit agreement to finance the Knoll acquisition, providing for a **$725 million** syndicated revolving line of credit, a **$400 million** Term Loan A, and a **$625 million** Term Loan B[87](index=87&type=chunk) - A loss on extinguishment of debt of approximately **$13.4 million** was recognized from the repayment of private placement notes[87](index=87&type=chunk) Available borrowings under the syndicated revolving line of credit (in millions) | | August 28, 2021 | May 29, 2021 | | :-------------------------------------- | :-------------- | :----------- | | Syndicated revolving line of credit borrowing capacity | $725.0 | $500.0 | | Available borrowings under the syndicated revolving line of credit | $394.6 | $265.2 | [Note 15 - Accumulated Other Comprehensive Loss](index=26&type=section&id=Note%2015%20-%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss increased to $(80.3) million, primarily driven by cumulative translation adjustments and unrealized losses on interest rate swap agreements Accumulated Other Comprehensive Loss (in millions) | | May 29, 2021 | August 28, 2021 | | :-------------------------------------- | :----------- | :-------------- | | Balance | $(65.1) | $(80.3) | | Net current period other comprehensive (loss) income | — | (15.2) | [Note 16 - Operating Segments](index=26&type=section&id=Note%2016%20-%20Operating%20Segments) Effective May 30, 2021, the company reorganized its reportable segments into Americas Contract, International Contract, Global Retail, and Knoll, with the Knoll segment contributing $156.4 million in net sales but an operating loss of $53.6 million - New reportable segments: **Americas Contract, International Contract, Global Retail, and Knoll**, effective **May 30, 2021**[92](index=92&type=chunk)[93](index=93&type=chunk) Net Sales by Segment (Three Months Ended August 28, 2021) | Segment | Amount (in millions) | | :--------------------- | :------------------- | | Americas Contract | $325.3 | | International Contract | $99.0 | | Global Retail | $212.6 | | Knoll | $156.4 | | Total | $789.7 | Operating Earnings (Loss) by Segment (Three Months Ended August 28, 2021) | Segment | Amount (in millions) | | :--------------------- | :------------------- | | Americas Contract | $10.5 | | International Contract | $11.3 | | Global Retail | $27.8 | | Knoll | $(53.6) | | Corporate | $(48.8) | | Total | $(52.8) | [Note 17 - Restructuring Expense](index=27&type=section&id=Note%2017%20-%20Restructuring%20Expense) The company incurred $55.6 million in Knoll Integration costs for the three months ended August 28, 2021, with total integration costs expected not to exceed $100 million - Knoll Integration costs incurred for the three months ended August 28, 2021: **$55.6 million**[103](index=103&type=chunk) - Knoll Integration costs breakdown: **$30.5 million** for severance and employee benefit costs, **$13.4 million** for non-cash debt extinguishment, and **$11.7 million** for other integration costs[103](index=103&type=chunk) - Total Knoll Integration costs are expected not to exceed approximately **$100 million**[103](index=103&type=chunk) Summary of Integration Expenses by Segment (Three Months Ended August 28, 2021) | Segment | Amount (in millions) | | :--------------------- | :------------------- | | Americas Contract | $1.0 | | Knoll | $29.4 | | Corporate | $25.2 | | Total | $55.6 | [Note 18 - Variable Interest Entities](index=31&type=section&id=Note%2018%20-%20Variable%20Interest%20Entities) A long-term note receivable with a third-party dealer, previously a variable interest in a VIE, was paid in full during the quarter ended August 28, 2021 - A long-term note receivable of **$1.2 million** with a third-party dealer, previously a variable interest in a VIE, was paid in full during the quarter ended August 28, 2021[114](index=114&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company's financial performance for the three months ended August 28, 2021, was significantly impacted by the acquisition of Knoll, leading to a 26.0% increase in net sales to $789.7 million but a 175.0% decrease in diluted EPS to $(0.93) [Business Overview](index=32&type=section&id=Business%20Overview) Herman Miller, Inc. (soon to be MillerKnoll) saw net sales increase by 26.0% to $789.7 million in Q1 fiscal 2022, driven by the Knoll acquisition, but gross margin declined and operating expenses more than doubled due to acquisition-related costs, resulting in a diluted loss per share of $(0.93) Key Financial Highlights (Three Months Ended) | Metric | August 28, 2021 | August 29, 2020 | % Change | | :----- | :-------------- | :-------------- | :------- | | Net sales | $789.7M | $626.8M | 26.0% | | Orders | $916.5M | $556.0M | 64.8% | | Gross margin | 35.1% | 39.9% | -4.8 ppts | | Operating expenses | $330.3M | $154.6M | 113.6% | | Diluted loss per share | $(0.93) | $1.24 | -175.0% | | Adjusted diluted earnings per share | $0.49 | $1.24 | -60.5% | - Organic net sales decreased by **0.4%** to **$629.6 million**, and organic orders decreased by **34.5%** to **$747.9 million**, excluding the impact of acquisitions and foreign currency translation[118](index=118&type=chunk) - Gross margin was negatively impacted by **$6.3 million** in charges related to Knoll acquisition purchase accounting, commodity cost pressures, and rising labor and freight expenses[118](index=118&type=chunk) - Operating expenses included **$69 million** of transaction and integration related costs and **$26.2 million** of charges related to initial purchase accounting effects of the Knoll merger[118](index=118&type=chunk) [COVID-19 Update](index=33&type=section&id=COVID-19%20Update) The company continues to adapt to the COVID-19 pandemic by maintaining employee safety, leveraging digital investments, and capitalizing on emerging work-from-home and office redesign trends - The company's multi-channel go-to-market approach and digital investments (e.g., reimagined websites, Work from Home landing page, Herman Miller Professional) enabled it to pivot quickly and capitalize on new opportunities arising from changing customer purchasing behaviors[120](index=120&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) - Capitalizing on emerging work-from-home and 'home is my castle' trends, as well as the shift to offices as destinations requiring redesigns and provision of healthy home work environments[120](index=120&type=chunk)[126](index=126&type=chunk) - Manufacturing facilities operate at near-normal capacity with enhanced safety precautions, and all retail studios and stores are open at full capacity[127](index=127&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=34&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP financial measures, such as Adjusted Earnings per Share and Organic Sales Growth, to provide a clearer view of ongoing operational performance by excluding specific acquisition, integration, and restructuring charges - Non-GAAP financial measures include **Adjusted Earnings per Share** and **Organic Sales Growth (Decline)**[129](index=129&type=chunk) - Adjustments to GAAP measures exclude: acquisition and integration charges, amortization of purchased intangibles, debt restructuring charges, restructuring expenses, special charges, and related tax effects[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) Organic Net Sales (Three Months Ended August 28, 2021) | Segment | Net Sales, as reported | Adjustments (Acquisitions & Currency) | Net Sales, organic | | :--------------------- | :--------------------- | :------------------------------------ | :----------------- | | Americas Contract | $325.3M | $(0.8)M | $324.5M | | International Contract | $99.0M | $(4.7)M | $94.3M | | Retail | $212.6M | $(1.8)M | $210.8M | | Knoll | $156.4M | $(156.4)M | $— | | Intersegment Elimination | $(3.6)M | $3.6M | $— | | Total | $789.7M | $(152.8)M - $7.3M | $629.6M | Adjusted Earnings per Share - Diluted (Three Months Ended) | | August 28, 2021 | August 29, 2020 | | :-------------------------------------------------------------------------------- | :-------------- | :-------------- | | (Loss) Earnings per Share - Diluted | $(0.93) | $1.24 | | Add: Amortization of purchased intangibles, after tax | 0.37 | — | | Add: Acquisition and integration charges, after tax | 0.90 | — | | Add: Debt extinguishment, after tax | 0.15 | — | | Adjusted Earnings per Share - Diluted | $0.49 | $1.24 | [Analysis of Results for Three Months](index=37&type=section&id=Analysis%20of%20Results%20for%20Three%20Months) For the three months ended August 28, 2021, net sales increased by 26.0% to $789.7 million, primarily due to the Knoll acquisition, while gross margin declined by 4.8 percentage points and operating expenses surged by 113.6% due to acquisition-related costs Key Financial Measures (Three Months Ended) | (In millions, except share data) | August 28, 2021 | August 29, 2020 | % Change | | :------------------------------- | :-------------- | :-------------- | :------- | | Net sales | $789.7 | $626.8 | 26.0 % | | Gross margin | 277.5 | 250.0 | 11.0 % | | Operating (loss) earnings | (52.8) | 95.4 | (155.3)% | | Net (loss) earnings attributable to Herman Miller, Inc. | $(61.5) | $73.0 | (184.2)% | | (Loss) Earnings per share — diluted | $(0.93) | $1.24 | (175.0)% | | Orders | $916.5 | $556.0 | 64.8 % | | Backlog | $835.9 | $400.0 | 109.0 % | - Net sales increase drivers: **$153 million** from Knoll acquisition, **$45 million** from Global Retail sales volumes, **$7 million** from foreign currency translation, offset by **$46 million** decrease in Americas Contract sales volumes[140](index=140&type=chunk) - Gross margin percentage decrease drivers: **360 basis points** from commodity, freight, and product distribution costs; **110 basis points** from increased labor costs; **100 basis points** from amortization of purchased intangibles related to Knoll acquisition. Partially offset by **100 basis points** from favorable channel mix[140](index=140&type=chunk) - Operating expenses increase drivers: **$27 million** transaction costs and **$42 million** integration costs from Knoll acquisition, **$49 million** Knoll operating expenses, **$10 million** increased compensation/benefit costs, **$8 million** increased studio costs, **$6 million** increased marketing/selling costs[141](index=141&type=chunk) - Other expenses, net: **$18.0 million** (Aug 28, 2021) compared to **$1.6 million** (Aug 29, 2020), primarily due to a **$13.4 million** loss on extinguishment of debt and increased interest expense related to Knoll acquisition financing[141](index=141&type=chunk) [Operating Segment Results](index=40&type=section&id=Operating%20Segment%20Results) The company's operating segments experienced varied performance, with Americas Contract sales decreasing, International Contract sales increasing but earnings declining, Global Retail sales surging but earnings decreasing, and the Knoll segment contributing sales but reporting a significant operating loss due to integration costs [Americas Contract ("Americas")](index=41&type=section&id=Americas%20Contract%20(%22Americas%22)) Net sales for Americas Contract decreased by 12.1% to $325.3 million, and operating earnings declined by 81.9% to $10.5 million, primarily due to reduced sales volumes and higher costs Americas Contract Segment Results (Three Months Ended) | (Dollars in millions) | August 28, 2021 | August 29, 2020 | Change | | :-------------------- | :-------------- | :-------------- | :----- | | Net sales | $325.3 | $370.1 | $(44.8) | | Gross margin % | 30.8 % | 37.6 % | (6.8)% | | Operating earnings | 10.5 | 57.9 | (47.4) | | Operating earnings % | 3.2 % | 15.6 % | (12.4)%| - Net sales decreased **12.1%** (**12.3% organic**) due to decreased sales volumes of approximately **$45.3 million**, primarily from COVID-19 impacts, partially offset by **$1 million** from foreign currency translation[147](index=147&type=chunk) - Operating earnings decreased **$47.4 million** due to a **$38.9 million** decrease in gross margin (**680 basis points** drop from higher commodity, labor, freight costs) and an **$8.5 million** increase in operating expenses (compensation, marketing, product development)[147](index=147&type=chunk) [International Contract ("International")](index=42&type=section&id=International%20Contract%20(%22International%22)) International Contract net sales increased by 5.3% to $99.0 million, driven by sales volume growth and foreign currency translation, but operating earnings decreased by 30.2% due to higher operating expenses International Contract Segment Results (Three Months Ended) | (Dollars in millions) | August 28, 2021 | August 29, 2020 | Change | | :-------------------- | :-------------- | :-------------- | :----- | | Net sales | $99.0 | $94.0 | $5.0 | | Gross margin % | 34.0 % | 35.4 % | (1.4)% | | Operating earnings | 11.3 | 16.2 | (4.9) | | Operating earnings % | 11.4 % | 17.2 % | (5.8)% | - Net sales increased **5.3%** (**0.3% organic**) due to approximately **$4 million** in increased sales volume (Europe) and **$5 million** from foreign currency translation, partially offset by **$4 million** reduction from price increases net of discounting[149](index=149&type=chunk) - Operating earnings decreased **$4.9 million** due to increased operating expenses of **$5.3 million**, driven by compensation, benefits, product development, and IT projects[149](index=149&type=chunk) [Global Retail](index=43&type=section&id=Global%20Retail) Global Retail net sales significantly increased by 30.7% to $212.6 million, driven by broad-based demand, but operating earnings decreased by 11.7% due to a decline in gross margin and increased operating expenses Global Retail Segment Results (Three Months Ended) | (Dollars in millions) | August 28, 2021 | August 29, 2020 | Change | | :-------------------- | :-------------- | :-------------- | :----- | | Net sales | $212.6 | $162.7 | $49.9 | | Gross margin % | 43.6 % | 47.8 % | (4.2)% | | Operating earnings | 27.8 | 31.5 | (3.7) | | Operating earnings % | 13.1 % | 19.4 % | (6.3)% | - Net sales increased **30.7%** (**29.6% organic**) due to approximately **$45 million** in increased sales volumes across brands, geographies, and channels, and **$3 million** from incremental list price increases[151](index=151&type=chunk) - Operating earnings decreased **$3.7 million** due to a **420 basis point** decrease in gross margin percentage (production/material costs, freight, unfavorable product mix) and an **$18.7 million** increase in operating expenses (new studio costs, compensation, IT investments)[151](index=151&type=chunk) [Knoll](index=44&type=section&id=Knoll) The newly acquired Knoll segment contributed $156.4 million in net sales but reported an operating loss of $53.6 million, primarily due to integration-related costs and amortization expense of intangible assets Knoll Segment Results (Three Months Ended August 28, 2021) | (Dollars in millions) | Amount | | :-------------------- | :----- | | Net sales | $156.4 | | Gross margin | $51.0 | | Gross margin % | 32.6 % | | Operating (loss) | $(53.6)| | Operating earnings % | (34.3)%| - Knoll's operating loss of **$53.6 million** includes **$29.4 million** related to integration costs (severance and employee separations) and **$32.5 million** related to amortization expense of acquisition-related intangible assets[156](index=156&type=chunk) [Corporate](index=44&type=section&id=Corporate) Corporate unallocated expenses totaled $48.8 million for the first quarter of fiscal 2022, a significant increase primarily driven by $38.5 million in transaction and integration costs related to the Knoll acquisition - Corporate unallocated expenses totaled **$48.8 million** for Q1 fiscal 2022, an increase of **$38.6 million** from Q1 fiscal 2021[153](index=153&type=chunk) - The increase was driven by **$38.5 million** of transaction and integration costs recorded in the quarter related to the Knoll acquisition[153](index=153&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Cash used in operating activities was $51.7 million, investing activities used $1,104.7 million primarily for the Knoll acquisition, and financing activities provided $1,001.6 million through new debt issuance, with total liquidity at $637.7 million Net Change in Cash and Cash Equivalents (Three Months Ended) | (In millions) | August 28, 2021 | August 29, 2020 | | :---------------------------- | :-------------- | :-------------- | | Cash (used in) provided by: | | | | Operating activities | $(51.7) | $115.9 | | Investing activities | (1,104.7) | (5.1) | | Financing activities | 1,001.6 | (276.5) | | Effect of exchange rate changes | (6.5) | 8.3 | | Net change in cash and cash equivalents | $(161.3) | $(157.4) | - Cash used in operating activities was primarily due to a **$133.3 million** decrease in net earnings and a **$65.6 million** increase in current assets (accounts receivable, inventory, prepaid expenses)[156](index=156&type=chunk)[157](index=157&type=chunk) - Cash used in investing activities was primarily due to the **$1,088.5 million** cash outflow for the acquisition of Knoll[158](index=158&type=chunk) - Cash provided from financing activities was primarily due to **$1,007.0 million** net borrowings from a new credit agreement and a **$366.6 million** draw on the credit facility[160](index=160&type=chunk) Total Liquidity (in millions) | | August 28, 2021 | May 29, 2021 | | :-------------------------------------- | :-------------- | :----------- | | Cash and cash equivalents | $235.1 | $396.4 | | Marketable securities | 8.0 | 7.7 | | Availability under syndicated revolving line of credit | 394.6 | 265.2 | | Total liquidity | $637.7 | $669.3 | - Expected full-year capital purchases for fiscal 2022 are between **$150 million** and **$160 million**, significantly higher than **$59.8 million** in fiscal 2021, primarily for facilities, equipment, and Knoll's inclusion[159](index=159&type=chunk) Contractual Obligations (as of August 28, 2021, in millions) | Obligation | Total | 2022 | 2023-2024 | 2025-2026 | Thereafter | | :---------------------------------------- | :-------- | :------ | :-------- | :-------- | :--------- | | Short-term borrowings and long-term debt | $1,265.0 | $103.1 | $57.5 | $87.5 | $1,016.9 | | Estimated interest on debt obligations | 169.7 | 29.2 | 55.4 | 52.8 | 32.3 | | Operating leases | 516.2 | 88.5 | 157.8 | 116.1 | 153.8 | | Pension and other post employment benefit plans funding | 27.0 | 1.9 | 5.1 | 5.4 | 14.6 | | Shareholder dividends | 14.9 | 14.9 | — | — | — | | Other liabilities | 30.0 | 5.1 | 16.6 | 3.9 | 4.4 | | Total | $2,022.8 | $242.7 | $292.4 | $265.7 | $1,222.0 | [Critical Accounting Policies](index=47&type=section&id=Critical%20Accounting%20Policies) The company's financial statements are prepared using U.S. GAAP, which necessitates certain estimates and judgments - Financial statements are prepared in accordance with **U.S. GAAP**, requiring certain estimates and judgments[175](index=175&type=chunk) [New Accounting Standards](index=47&type=section&id=New%20Accounting%20Standards) Information regarding recently issued accounting standards is provided in Note 2 to the Condensed Consolidated Financial Statements - Refer to **Note 2** to the Condensed Consolidated Financial Statements for information on recently issued accounting standards[176](index=176&type=chunk) [Safe Harbor Provisions](index=47&type=section&id=Safe%20Harbor%20Provisions) This report contains forward-looking statements that are subject to various risks and uncertainties, including economic conditions, competitive pressures, and the ability to integrate acquisitions, with actual results potentially differing materially from forecasts - The report contains forward-looking statements that are subject to risks, uncertainties, and assumptions[177](index=177&type=chunk) - Risks include: success of growth strategy, economic conditions, raw material availability, global expansion, changes in tax legislation, ability to integrate acquisitions, competitive-pricing pressures, and public health crises[177](index=177&type=chunk) [Item 3 Quantitative and Qualitative Disclosures about Market Risk](index=48&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There have been no material changes in market risks related to interest rates and commodity prices, but the company faces foreign exchange risk from international operations and uses foreign currency forward contracts to mitigate these risks - No material changes in market risks from interest rates and commodity prices during the first three months of fiscal 2022[179](index=179&type=chunk) - The company is exposed to foreign exchange risk from sales and expenses transacted in foreign currencies (e.g., British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, Hong Kong dollar, Chinese renminbi, Danish krone)[180](index=180&type=chunk)[181](index=181&type=chunk) - Foreign currency forward contracts are utilized to reduce foreign currency exposure risks, with changes in fair value reported in earnings[181](index=181&type=chunk) [Item 4 Controls and Procedures](index=48&type=section&id=Item%204%20Controls%20and%20Procedures) As of August 28, 2021, the company's disclosure controls and procedures were deemed effective, with Knoll's internal controls currently being integrated following its acquisition - Disclosure controls and procedures were evaluated and deemed **effective** as of **August 28, 2021**[182](index=182&type=chunk) - The company is integrating Knoll's internal controls over financial reporting following the **July 19, 2021** acquisition[183](index=183&type=chunk) - No other material changes in internal control over financial reporting occurred during the quarter ended **August 28, 2021**[183](index=183&type=chunk) [Part II — Other Information](index=49&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) This section includes disclosures on legal proceedings, updated risk factors, unregistered equity sales, a list of exhibits, and official signatures [Item 1 Legal Proceedings](index=49&type=section&id=Item%201%20Legal%20Proceedings) There have been no material changes in the company's legal proceedings from those reported in the Annual Report on Form 10-K for the year ended May 29, 2021 - No material changes in the company's legal proceedings from those set forth in the Annual Report on Form 10-K for the year ended **May 29, 2021**[185](index=185&type=chunk) [Item 1A Risk Factors](index=49&type=section&id=Item%201A%20Risk%20Factors) A new risk factor highlights that a continued shortage of qualified labor could negatively affect the business, potentially leading to decreased production, inability to meet demand, and higher labor costs - A new risk factor identifies that a continued shortage of qualified labor could negatively affect the business and materially reduce earnings[187](index=187&type=chunk) - This shortage impacts the company's ability to produce and meet customer demand, and could lead to higher wages and reduced operating results[187](index=187&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has one outstanding share repurchase plan authorized for $250.0 million, under which 259,663 shares were repurchased during the quarter ended August 28, 2021 - The company has one outstanding share repurchase plan with a **$250.0 million** authorization and no specified expiration date[188](index=188&type=chunk) Share Repurchase Activity (Three Months Ended August 28, 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------- | :------------------------------- | :--------------------------- | | 6/27/21-7/24/21 | 26,564 | $37.12 | | 7/25/21-8/28/21 | 233,099 | $43.09 | | Total | 259,663 | ~$40.11 | - As of **August 28, 2021**, approximately **$225.68 million** remained available for repurchase under the plan[189](index=189&type=chunk) [Item 6 Exhibits](index=51&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the 10-Q report, including credit agreements, stock incentive plans, CEO/CFO certifications, and XBRL taxonomy documents - Exhibits filed include Credit Agreements, Knoll, Inc. Stock Incentive Plans, Certificates of the Chief Executive Officer and Chief Financial Officer (pursuant to Sarbanes-Oxley Act), and XBRL Taxonomy documents[193](index=193&type=chunk)[194](index=194&type=chunk) [Signatures](index=53&type=section&id=Signatures) The report is duly signed on October 6, 2021, by Andrea R. Owen, President and Chief Executive Officer, and Jeffrey M. Stutz, Chief Financial Officer, on behalf of Herman Miller, Inc - The report was signed on **October 6, 2021**, by Andrea R. Owen (President and Chief Executive Officer) and Jeffrey M. Stutz (Chief Financial Officer) for Herman Miller, Inc[198](index=198&type=chunk)

Herman Miller, Inc. (MLHR) Q1 2022 Earnings Conference Call September 29, 2021 5:30 PM ET Company Participants Antonella Pilo - Vice President of Investor Relations and FP&A Andrea Owen - President and Chief Executive Officer Jeffrey Stutz - Chief Financial Officer John Michael - President of North America Contract Debbie Propst - President of Retail Kevin Veltman - Vice President of Investor Relations and Treasurer Chris Baldwin - Group President MillerKnoll Conference Call Participants Greg Burns - Sidoti ...