MillerKnoll(MLKN) - 2025 Q4 - Annual Report

Part I Business Overview MillerKnoll, Inc. is a global leader in designing, manufacturing, and distributing interior furnishings for various environments, operating through three reportable segments - MillerKnoll operates through three reportable segments: North America Contract, International Contract, and Global Retail, with a corporate category for unallocated expenses[12] - The company's principal business involves research, design, manufacture, selling, and distribution of seating products, furniture systems, other freestanding furniture, textiles, leather, felt, home furnishings, and related services[13] - Approximately 53.7% of the Company's sales in fiscal year ended May 31, 2025, were made directly through independent dealers, with the remainder through direct sales to end-users, retail channels, or independent retailers[16] Research, Design and Development Expenses (Fiscal Years 2023-2025) | Fiscal Year | Expense (Millions USD) | | :---------- | :--------------------- | | 2025 | $60.7 | | 2024 | $62.0 | | 2023 | $67.6 | - The company had approximately 10,382 employees as of May 31, 2025, with about 2% covered by collective bargaining agreements, primarily in the United Kingdom, Italy, and Brazil[32][31] Risk Factors The company faces various risks including challenges in implementing its growth strategy, increased indebtedness from the Knoll acquisition, and adverse macroeconomic conditions affecting customer demand - The company's consolidated long-term debt was $1.31 billion as of May 31, 2025, primarily due to the Knoll acquisition in July 2021, increasing interest expense and potentially reducing business flexibility[47] - Sales to the U.S. federal government represented approximately 4% of total Company net sales in fiscal year 2025, making the business susceptible to changes in government spending policies[60] - Purchases of direct materials from China represented an estimated 3% of consolidated cost of sales for fiscal 2025, limiting the direct impact of tariffs on Chinese imports but steel costs remain sensitive to trade tensions[63] - The company recognized a total non-cash impairment charge of $30.1 million and $62.2 million in its Global Retail and Holly Hunt reporting units, respectively, during the third quarter of fiscal year 2025, primarily due to reduced sales and profitability projections and an increased discount rate[223] - During the third quarter of fiscal year 2025, the company recognized $37.7 million in non-cash impairment charges related to the Knoll and Muuto trade names due to indicators of impairment[232] Unresolved Staff Comments There are no unresolved staff comments to report Cybersecurity MillerKnoll employs a comprehensive cybersecurity risk management program, overseen by its Board of Directors, CTO, and CISO - The Board of Directors, Chief Technology Officer (CTO), and Chief Information Security Officer (CISO) are actively involved in the oversight of MillerKnoll's cybersecurity risk management program[91] - The company identifies and assesses cybersecurity risks through monitoring threat environments, analyzing threat reports, conducting scans, and utilizing internal and external audits and vulnerability assessments[92] - Key mitigation measures include incident detection and response, vulnerability management, disaster recovery plans, data encryption, network security controls, access controls, physical security, asset management, systems monitoring, vendor risk management, and employee training[97] - To date, no risks from cybersecurity threats have materially affected the Company, and management does not believe any such material effect is reasonably likely[94] Properties MillerKnoll owns or leases numerous facilities globally for manufacturing, warehousing, offices, and retail, which are considered adequate for current and future operational needs Significant Owned Locations (May 31, 2025) | Location | Square Footage (in Thousands) | Use | | :------------------------ | :---------------------------- | :------------------------- | | Zeeland, Michigan | 771 | Manufacturing, Warehouse, Office | | East Greenville, Pennsylvania | 735 | Manufacturing, Warehouse, Office | | Spring Lake, Michigan | 615 | Manufacturing, Warehouse, Office | | North York, Canada | 386 | Manufacturing, Warehouse, Office | | Muskegon, Michigan | 367 | Manufacturing, Office | | Holland, Michigan | 357 | Warehouse | | Holland, Michigan | 293 | Manufacturing, Office | | Foligno, Italy | 260 | Manufacturing, Warehouse, Office | | Holland, Michigan | 242 | Office, Design | | Melksham, United Kingdom | 170 | Manufacturing, Warehouse, Office | | Graffignana, Italy | 108 | Manufacturing, Warehouse, Office | Significant Leased Locations (May 31, 2025) | Location | Square Footage (in Thousands) | Use | | :------------------------ | :---------------------------- | :-------- | | Alburtis, Pennsylvania | 718 | Warehouse | | Batavia, Ohio | 618 | Warehouse | | Dongguan, China | 423 | Manufacturing, Office | | Ringsted, Denmark | 274 | Warehouse | | La Grange Highlands, Illinois | 210 | Warehouse | | Atlanta, Georgia | 180 | Manufacturing | | Buffalo, New York | 128 | Manufacturing | | New York City, New York | 112 | Showroom | - As of May 31, 2025, the Company operated 75 retail stores (including 38 DWR, 1 HAY, 30 Herman Miller, 3 Muuto, 2 Knoll, and a multi-brand Chicago store) totaling approximately 506,811 square feet of selling space, plus 3 retail outlet stores[99] Legal Proceedings MillerKnoll is involved in routine legal proceedings and litigation, but management believes the outcomes will not materially affect the company's consolidated operations, cash flows, or financial condition - Management believes the outcome of current legal proceedings and litigation will not materially affect the Company's consolidated operations, cash flows, or financial condition[101] Additional Item: Executive Officers of the Registrant This section lists the executive officers of MillerKnoll, Inc. as of May 31, 2025, including their positions and ages Executive Officers of MillerKnoll, Inc. (May 31, 2025) | Name | Position | Age | | :---------------- | :---------------------------------------- | :-- | | Andrea R. Owen | President and Chief Executive Officer | 60 | | Jeffrey M. Stutz | Chief Financial Officer | 54 | | Chris Baldwin | Group President, MillerKnoll | 52 | | Megan Lyon | Chief Strategy and Technology Officer | 45 | | John Michael | President, North America Contract | 63 | | Debbie Propst | President, Global Retail | 44 | | Jacqueline H. Rice| Chief Legal Officer and Corporate Secretary | 53 | | B. Ben Watson | Chief Creative and Product Officer | 60 | Mine Safety Disclosures This item is not applicable to MillerKnoll, Inc Part II Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities MillerKnoll's common stock trades on the Nasdaq Global Select Market (MLKN), with approximately 32,000 shareholders, and the company maintains a quarterly cash dividend and a share repurchase plan - MillerKnoll's common stock is traded on the Nasdaq Global Select Market System under the symbol MLKN[107] - As of July 18, 2025, there were approximately 32,000 shareholders of record for the Company's common stock[107] - The Board of Directors approved a quarterly cash dividend of $0.1875 per share on April 15, 2025, paid on July 15, 2025[108] Share Repurchase Activity (Fiscal Quarter Ended May 31, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------- | :------------------------------- | :--------------------------- | | 3/2/25-3/29/25 | 2,948 | $21.50 | | 3/30/25-4/26/25 | 2,198 | $18.03 | | 4/27/25-5/31/25 | — | $— | | Total | 5,146 | | - As of May 31, 2025, $181.4 million remained available for purchase under the share repurchase plan, which was increased by an additional $200.0 million on July 16, 2024[110][111] - Fiscal year 2025 share repurchases in excess of issuances are subject to a 1% excise tax under the Inflation Reduction Act of 2022[114] Reserved This item is reserved and not applicable Management's Discussion and Analysis of Financial Condition and Results of Operations MillerKnoll's fiscal year 2025 saw a slight increase in net sales, driven by contract segments and pricing actions, despite declines in Global Retail and unfavorable currency impacts Key Financial Highlights (Fiscal 2025 vs. 2024) | Metric | Fiscal 2025 (Millions USD) | Fiscal 2024 (Millions USD) | % Change | | :------------------------- | :------------------------- | :------------------------- | :------- | | Net sales | $3,669.9 | $3,628.4 | 1.1% | | Gross margin | $1,422.6 | $1,419.5 | 0.2% | | Gross margin % | 38.8% | 39.1% | (0.3)% | | Operating expenses | $1,372.1 | $1,252.3 | 9.6% | | Operating earnings | $50.5 | $167.2 | (69.8)% | | Diluted (Loss) Earnings per Share | $(0.54) | $1.11 | (148.6)% | | Adjusted Diluted Earnings per Share | $1.95 | $2.08 | (6.3)% | - Net sales increased by $42 million (1.1%) in fiscal 2025, primarily driven by increased sales volume in North America Contract and International Contract segments, and net price increases, partially offset by the closure of the HAY eCommerce channel and decreased Global Retail sales volume[157] - Gross margin declined by 30 basis points to 38.8% in fiscal 2025, mainly due to increased material costs (including tariffs) and unfavorable channel/product mix, partially offset by effective pricing strategies[157] - Operating expenses increased by $120 million (9.6%) in fiscal 2025, primarily due to a $113 million increase in non-cash intangible impairment charges[161] Segment Net Sales and Operating Earnings (Fiscal 2025 vs. 2024) | Segment | Net Sales 2025 (Millions USD) | Net Sales 2024 (Millions USD) | % Change | Operating Earnings 2025 (Millions USD) | Operating Earnings 2024 (Millions USD) | % Change | | :----------------------- | :---------------------------- | :---------------------------- | :------- | :------------------------------------- | :------------------------------------- | :------- | | North America Contract | $1,965.2 | $1,922.3 | 2.2% | $120.9 | $106.7 | 13.3% | | International Contract | $660.0 | $645.6 | 2.2% | $63.3 | $61.6 | 2.8% | | Global Retail | $1,044.7 | $1,060.5 | (1.5)% | $(66.0) | $51.0 | (229.4)% | | Corporate | N/A | N/A | N/A | $(67.7) | $(52.1) | 30.0% | Executive Overview MillerKnoll is a global design collective creating interior furnishings for various environments, emphasizing lean manufacturing and a multi-channel distribution strategy, with a focus on scaling its Global Retail business - MillerKnoll is a collective of dynamic design brands focused on creating positive impact through interior furnishings for residential, office, healthcare, and educational settings globally[121][122] - The company's manufacturing strategy emphasizes lean manufacturing (MillerKnoll Performance System - MKPS) and limiting fixed production costs by sourcing component parts from strategic suppliers, resulting in assembly-based operations and high inventory turns[123][124] - A key growth strategy is to scale the Global Retail business through Herman Miller and Design Within Reach (DWR) channels, offering iconic and design-centric products from various brands to retail customers[125] - The company's reportable segments are North America Contract, International Contract, and Global Retail, with a corporate category for unallocated expenses[126][127] Core Strengths MillerKnoll's core strengths include a diverse product portfolio, design leadership, a unique multi-channel business model, global scale, and a highly engaged workforce - Product Portfolio and Brand Collective: MillerKnoll encompasses globally recognized design brands like Herman Miller and Knoll, leveraging over 100 years of design research to connect with new audiences and categories[128] - Design Leadership: Commitment to research-based functionality and aesthetically innovative new products, collaborating with a global network of independent designers[128] - Unique Business Model: Multi-channel distribution capability (contract furniture dealers, direct sales, retail stores, eCommerce) and lean manufacturing (MKPS) for efficiency and quality[128] - Global Scale and Reach: Global network of designers, suppliers, manufacturing operations, and R&D centers to serve contract and residential customers worldwide[128] - Extraordinary People: Focus on identifying, hiring, developing, motivating, and retaining employees as a critical success factor[128] Channels of Distribution MillerKnoll distributes products through independent contract furniture dealers, direct sales, eCommerce, wholesale, and owned retail locations, including 75 retail studios - Independent Contract Furniture Dealers: Most product sales are made to a global network of independently owned and operated dealerships, which also offer furniture-related services[128] - Direct Contract Sales: Products and services are sold directly to end customers (e.g., U.S. federal government) without an intermediary, often contracting separately for installation services[128] - eCommerce: Global sales through localized Herman Miller, Knoll, and DWR websites, complementing existing distribution and extending brand reach[129] - Wholesale: Certain products are sold on a wholesale basis to independent retailers globally through the Global Retail segment[129] - Retail Locations: As of May 31, 2025, the Company operated 75 retail studios (DWR, HAY, Herman Miller, Muuto, Knoll, multi-brand Chicago store) and 3 outlet studios[129] Challenges Ahead The company acknowledges specific business and industry risks, referring to Item 1A for detailed 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[130] Areas of Strategic Focus MillerKnoll's strategic focus areas include driving customer demand through showroom expansion and online tools, fostering engaged associates, and delivering shareholder value by capitalizing on growth opportunities and product innovation - Drive Customer Demand and Order Growth: Prioritizing world-class client experiences, investing in MillerKnoll showrooms in key markets (Atlanta, Chicago, Dallas, London, Los Angeles, New York, Toronto, San Francisco), expanding DWR studios and Herman Miller stores in North America, and launching new online tools for trade customers[131][132][133] - Foster a Culture of Highly Engaged Associates: Nurturing talent through a global HR technology platform, competitive compensation and benefits, development opportunities, and investing to be an employer of choice[134][135] - Deliver Value to our Associates and Shareholders: Capitalizing on growth opportunities across business segments, leveraging global operations, leading in product innovation, design excellence, and sustainability, fortifying flagship brands, driving growth in North America and International Contract, and transforming Global Retail[136][137][138] Business Overview Fiscal 2025 saw slight net sales growth for MillerKnoll amidst macroeconomic challenges, with contract segments performing better than Global Retail, and the company focusing on cost management and strategic investments Fiscal Year 2025 Financial Summary | Metric | Fiscal 2025 (Millions USD) | Fiscal 2024 (Millions USD) | % Change | | :----------------------------------- | :------------------------- | :------------------------- | :------- | | Net sales | $3,669.9 | $3,628.4 | 1.1% | | Gross margin | 38.8% | 39.1% | (0.3)% | | Operating expenses | $1,372.1 | $1,252.3 | 9.6% | | Effective tax rate | (53.1)% | 14.8% | (458.8)% | | Diluted loss per share | $(0.54) | $1.11 | (148.6)% | | Adjusted diluted earnings per share | $1.95 | $2.08 | (6.3)% | | Cash dividends per share | $0.75 | $0.75 | 0.0% | - The global macroeconomic environment, characterized by higher interest rates, tepid housing demand, low confidence levels, and geopolitical uncertainty, continues to challenge the industry[141] - The company is focused on prudent cost management and investment in targeted growth opportunities, including Global Retail expansion and product design/innovation in contract segments[141] - Changes in trade policies and commodity costs (tariffs) have increased cost pressures, which the company aims to offset with pricing actions and mitigation strategies[141] Segment Performance Highlights (Fiscal 2025 vs. 2024) | Segment | Net Sales Change (YoY) | Organic Sales Change (YoY) | Operating Margin Change (YoY) | Adjusted Operating Margin Change (YoY) | | :----------------------- | :--------------------- | :------------------------- | :---------------------------- | :------------------------------------- | | North America Contract | +2.2% | +2.4% | +60 bps | +50 bps | | International Contract | +2.2% | +2.7% | +10 bps | -10 bps | | Global Retail | -1.5% | -0.3% | -1,110 bps | -110 bps | Reconciliation of Non-GAAP Financial Measures MillerKnoll uses non-GAAP measures like Adjusted EPS and Organic Growth to provide a clearer view of financial performance by excluding non-recurring or non-operational items - Non-GAAP financial measures, such as Adjusted Earnings per Share, Adjusted Operating Earnings (Loss), Adjusted Operating Margin, and Organic Growth (Decline), are used to provide a more comparative basis for financial performance, excluding specific non-recurring or non-operational items[142][143] - Adjusted Earnings per Share: Excludes amortization of Knoll purchased intangibles, integration charges, restructuring expenses, impairment charges, Knoll pension plan termination charges, and related tax effects[144] - Adjusted Operating Earnings (Loss): Adds back integration charges, amortization of Knoll purchased intangibles, restructuring expenses, impairment charges, and Knoll pension plan termination charges to reported operating earnings[145][146] - Organic Growth (Decline): Represents changes in sales and orders, excluding currency translation effects and the impact of the closure of the North America HAY eCommerce channel[147] Adjusted Operating Earnings by Segment (Fiscal 2025 vs. 2024) | Segment | Adjusted Operating Earnings 2025 (Millions USD) | Adjusted Operating Earnings 2024 (Millions USD) | | :----------------------- | :-------------------------------------------- | :-------------------------------------------- | | North America Contract | $191.0 | $177.2 | | International Contract | $73.5 | $72.4 | | Global Retail | $51.9 | $64.6 | | Corporate | $(67.7) | $(52.0) | | MillerKnoll, Inc. Total | $248.7 | $262.2 | Organic Net Sales by Segment (Fiscal 2025 vs. 2024) | Segment | Net Sales 2025 (Millions USD) | Organic Net Sales 2025 (Millions USD) | % Change from PY (Organic) | | :----------------------- | :---------------------------- | :------------------------------------ | :------------------------- | | North America Contract | $1,965.2 | $1,967.6 | 2.4% | | International Contract | $660.0 | $663.1 | 2.7% | | Global Retail | $1,044.7 | $1,045.4 | (0.3)% | | Total | $3,669.9 | $3,676.1 | 1.6% | Organic Orders by Segment (Fiscal 2025 vs. 2024) | Segment | Orders 2025 (Millions USD) | Organic Orders 2025 (Millions USD) | % Change from PY (Organic) | | :----------------------- | :------------------------- | :--------------------------------- | :------------------------- | | North America Contract | $2,021.0 | $2,023.3 | 6.3% | | International Contract | $665.9 | $671.4 | 0.6% | | Global Retail | $1,060.8 | $1,061.9 | 2.2% | | Total | $3,747.7 | $3,756.6 | 4.1% | EPS to Adjusted EPS Reconciliation (Fiscal 2025 vs. 2024) | Metric | Fiscal 2025 | Fiscal 2024 | | :------------------------------------------------------------------ | :---------- | :---------- | | (Loss) Earnings per Share - Diluted | $(0.54) | $1.11 | | Add: Amortization of Knoll purchased intangibles | $0.35 | $0.32 | | Add: Integration charges | $0.41 | $0.31 | | Add: Restructuring charges | $0.22 | $0.42 | | Add: Impairment charges | $1.88 | $0.24 | | Add: Knoll pension plan termination charges | $0.01 | — | | Tax impact on adjustments | $(0.38) | $(0.32) | | Adjusted earnings per share - diluted | $1.95 | $2.08 | Financial Results MillerKnoll's fiscal 2025 saw a slight net sales increase but a significant decline in operating earnings and net earnings, primarily due to higher operating expenses from intangible impairment charges and increased other expenses Consolidated Statements of Comprehensive Income Summary (Fiscal 2025 vs. 2024) | (Dollars in millions) | Fiscal 2025 | Fiscal 2024 | % Change | | :-------------------------------------------------- | :---------- | :---------- | :------- | | Net sales | $3,669.9 | $3,628.4 | 1.1% | | Cost of sales | $2,247.3 | $2,208.9 | 1.7% | | Gross margin | $1,422.6 | $1,419.5 | 0.2% | | Operating expenses | $1,372.1 | $1,252.3 | 9.6% | | Operating earnings | $50.5 | $167.2 | (69.8)% | | Other expenses, net | $72.4 | $67.5 | 7.3% | | Earnings before income taxes and equity income | $(21.9) | $99.7 | (122.0)% | | Income tax expense | $11.6 | $14.7 | (21.1)% | | Equity income (loss) from nonconsolidated affiliates, net of tax | $0.3 | $(0.4) | (175.0)% | | Net earnings | $(33.2) | $84.6 | (139.2)% | | Net earnings attributable to MillerKnoll, Inc. | $(36.9) | $82.3 | (144.8)% | - Net sales increased by $42 million (1.1%) in fiscal 2025, driven by increased sales volume in International Contract ($28 million) and North America Contract ($25 million), and net price increases ($14 million)[157] - Offsetting factors included a $12 million reduction from the HAY eCommerce channel closure, a $7 million decrease in Global Retail sales volume, and an unfavorable foreign currency impact of $6 million[157] - Gross margin declined by 30 basis points to 38.8% in fiscal 2025, primarily due to tariff-related costs (30 bps) and unfavorable channel/product mix (30 bps), partially offset by effective pricing strategies (30 bps)[157] - Operating expenses increased by $120 million (9.6%), mainly due to a $113 million increase in non-cash intangible impairment charges, $10 million higher selling and marketing expenses in Global Retail, and $7 million higher variable selling costs. This was partially offset by a $16 million reduction in restructuring charges[161] - Net other expenses increased by $4.9 million to $72.4 million, primarily due to a $2.3 million reduction in net periodic benefit income from the Knoll pension plan termination and a $3.1 million increase in foreign currency losses[162] Operating Segments Results MillerKnoll reorganized into three segments: North America Contract and International Contract showed sales and operating earnings growth, while Global Retail experienced sales decline and a significant operating loss due to impairment charges - Effective March 1, 2025, the company implemented an organizational change, resulting in three reportable segments: North America Contract, International Contract, and Global Retail. Historical results have been recast to reflect this change[164][165][166][167] - The Chief Executive Officer (CODM) uses Adjusted Operating Earnings (Loss) as the key metric to measure segment profit or loss, evaluate performance, analyze variances, and allocate resources[479][480] North America Contract Segment Performance (Fiscal 2025 vs. 2024) | Metric | Fiscal 2025 (Millions USD) | Fiscal 2024 (Millions USD) | Change (Millions USD) | | :----------------- | :------------------------- | :------------------------- | :-------------------- | | Net sales | $1,965.2 | $1,922.3 | $42.9 | | Gross margin | $702.3 | $697.8 | $4.5 | | Gross margin % | 35.7% | 36.3% | (0.6)% | | Operating earnings | $120.9 | $106.7 | $14.2 | | Operating earnings % | 6.2% | 5.6% | 0.6% | - North America Contract net sales increased 2.2% (2.4% organic) due to increased sales volume ($25 million) and price increases ($20 million), partially offset by unfavorable foreign currency translation ($2 million)[173] - Operating earnings increased $14.2 million (13.3%), driven by decreased operating expenses ($9.7 million, mainly from reduced restructuring charges and incentive compensation) and higher gross margin ($4.5 million)[174] - Gross margin percentage declined by 60 basis points due to unfavorable product mix (40 bps), higher tariff-related costs (30 bps), and increased commodity/distribution costs (30 bps), partially offset by incremental list price increases (70 bps)[174] International Contract Segment Performance (Fiscal 2025 vs. 2024) | Metric | Fiscal 2025 (Millions USD) | Fiscal 2024 (Millions USD) | Change (Millions USD) | | :----------------- | :------------------------- | :------------------------- | :-------------------- | | Net sales | $660.0 | $645.6 | $14.4 | | Gross margin | $240.8 | $233.1 | $7.7 | | Gross margin % | 36.5% | 36.1% | 0.4% | | Operating earnings | $63.3 | $61.6 | $1.7 | | Operating earnings % | 9.6% | 9.5% | 0.1% | - International Contract net sales increased 2.2% (2.7% organic) due to increased sales volume ($28 million), partially offset by incremental discounting ($11 million) and unfavorable foreign currency translation ($3 million)[176] - Operating earnings increased $1.7 million (2.8%), driven by increased gross margin ($7.7 million) due to higher sales volume and a 40 basis point increase in gross margin percentage[180] - Gross margin percentage improved due to leverage on fixed costs (70 bps) and favorable product/business mix (60 bps), partially offset by incremental discounting (90 bps). Increased operating expenses ($6 million) partially offset the gross margin increase[180] Global Retail Segment Performance (Fiscal 2025 vs. 2024) | Metric | Fiscal 2025 (Millions USD) | Fiscal 2024 (Millions USD) | Change (Millions USD) | | :----------------- | :------------------------- | :------------------------- | :-------------------- | | Net sales | $1,044.7 | $1,060.5 | $(15.8) |\ | Gross margin | $479.5 | $488.6 | $(9.1) |\ | Gross margin % | 45.9% | 46.1% | (0.2)% |\ | Operating (loss) earnings | $(66.0) | $51.0 | $(117.0) |\ | Operating (loss) earnings % | (6.3)% | 4.8% | (11.1)% | - Global Retail net sales decreased 1.5% (0.3% organic) due to the closure of the HAY eCommerce channel ($12 million), decreased sales volumes ($7 million), and unfavorable foreign currency translation ($1 million), partially offset by price increases ($4 million)[178] - Operating earnings decreased $117.0 million (229.4%), primarily due to a $9.1 million decrease in gross margin and a $108 million increase in operating expenses[181] - The gross margin percentage declined by 20 basis points, mainly due to increased inventory costs (110 bps) and loss of fixed cost leverage (30 bps), partially offset by reduced freight/distribution costs and favorable product mix (100 bps) and incremental price increases (20 bps)[181] - Increased operating expenses were driven by a $105 million increase in non-cash intangible impairment charges and higher selling and marketing costs[181] - Corporate unallocated expenses increased by $15.6 million to $67.7 million in fiscal 2025, primarily due to higher stock-based compensation expense[183] Liquidity and Capital Resources MillerKnoll's net cash from operating activities decreased in fiscal 2025, while investing activities increased due to higher capital expenditures, and financing activities saw fewer share repurchases and debt refinancing Net Change in Cash and Cash Equivalents (Fiscal 2025 vs. 2024) | (In millions) | Fiscal Year Ended 2025 | Fiscal Year Ended 2024 | | :---------------------------- | :--------------------- | :--------------------- | | Operating activities | $209.3 | $352.3 | | Investing activities | $(100.9) | $(86.3) | | Financing activities | $(150.3) | $(258.8) | | Effect of exchange rate changes | $5.2 | $(0.3) | | Net change | $(36.7) | $6.9 | - Net cash provided by operating activities decreased to $209.3 million in fiscal 2025 from $352.3 million in fiscal 2024, primarily due to a net increase in working capital[186] - Cash used in investing activities increased to $100.9 million in fiscal 2025 from $86.3 million in fiscal 2024, mainly due to increased capital expenditures, partially offset by proceeds from the sale of a manufacturing facility and a decrease in notes receivable advances[187] - Capital expenditures for fiscal 2025 were $107.6 million, up from $78.4 million in fiscal 2024. Expected capital spending for fiscal 2026 is $120 million to $130 million[189] - Cash used in financing activities decreased to $150.3 million in fiscal 2025 from $258.8 million in fiscal 2024, primarily due to fewer share repurchases and the refinancing of Term Loan A, partially offset by higher net payments on the credit agreement[190] - Total liquidity as of May 31, 2025, was $575.9 million, comprising $193.7 million in cash and cash equivalents and $382.2 million in available revolving lines of credit[193] Contingencies MillerKnoll is involved in routine legal proceedings, but management anticipates no material impact on the company's consolidated financial statements - The Company is involved in legal proceedings and litigation arising in the ordinary course of business, but management believes the outcome will not materially affect the Consolidated Financial Statements[201] Basis of Presentation MillerKnoll's fiscal year ends on the Saturday closest to May 31, with fiscal years 2025 and 2024 having 52 weeks, and fiscal year 2023 having 53 weeks - The Company's fiscal year ends on the Saturday closest to May 31. Fiscal years 2025 and 2024 both contained 52 weeks, while fiscal year 2023 contained 53 weeks[202] Contractual Obligations As of May 31, 2025, MillerKnoll's total contractual obligations amounted to $2.25 billion, primarily consisting of short-term borrowings, long-term debt, estimated interest, and operating lease payments Summary of Contractual Obligations (as of May 31, 2025) | (In millions) | Total | 2026 | 2027-2028 | 2029-2030 | Thereafter | | :---------------------------------- | :-------- | :----- | :-------- | :-------- | :--------- | | Short-term borrowings and long-term debt | $1,337.0 | $16.0 | $50.7 | $1,270.3 | $— | | Estimated interest on debt obligations | $242.3 | $59.7 | $125.3 | $57.3 | $— | | Operating leases | $597.5 | $88.0 | $183.4 | $146.4 | $179.7 | | Purchase obligations | $52.8 | $52.8 | $— | $— | $— | | Pension and other post employment benefit plans funding | $5.8 | $1.8 | $1.1 | $1.0 | $1.9 | | Stockholder dividends | $12.7 | $12.7 | $— | $— | $— | | Other | $4.6 | $0.5 | $0.9 | $0.8 | $2.4 | | Total | $2,252.7| $231.5| $361.4 | $1,475.8| $184.0 | Critical Accounting Policies and Estimates MillerKnoll's critical accounting policies involve significant estimates for business combinations, particularly fair value allocation and useful lives, and annual impairment assessments for goodwill and indefinite-lived intangibles, which are sensitive to market conditions and financial performance - Business Combinations: Requires significant estimates and assumptions at acquisition date for fair values of tangible and intangible assets, liabilities, and useful lives of acquired intangibles. Allocation of purchase consideration involves judgment, especially for intangible assets, and actual results may differ from estimates[209][210][211][212] - Goodwill and Indefinite-lived Intangibles: Annual impairment assessment (March 31) or more frequent if indicators arise. Fair value determinations are sensitive to uncertainties and changes in estimates for revenue growth, operating margins, discount rates, and royalty rates. Declines in market conditions or financial performance could lead to impairment charges[214][215] Goodwill and Indefinite-lived Intangibles MillerKnoll's goodwill and indefinite-lived intangibles balances decreased in fiscal 2025 due to significant non-cash impairment charges in Global Retail, Holly Hunt, Knoll, and Muuto, driven by revised projections and increased discount rates - Goodwill balance was $1,152.4 million as of May 31, 2025, down from $1,226.3 million at June 1, 2024[216] - During Q3 fiscal 2025, the company recognized non-cash goodwill impairment charges of $30.1 million in Global Retail and $62.2 million in Holly Hunt reporting units, primarily due to reduced sales/profitability projections and an increased discount rate[223] - Indefinite-lived intangible assets (trade names) had a carrying value of $432.5 million at May 31, 2025, down from $465.5 million at June 1, 2024[230] - During Q3 fiscal 2025, the company recognized $37.7 million in non-cash impairment charges related to the Knoll and Muuto trade names[232] - Sensitivity analysis for the Knoll trade name indicates that a 10% decrease in forecasted sales would result in $12.0 million of additional pre-tax impairment charges, a 25 basis point decrease in royalty rate would result in $15.0 million, and a 100 basis point increase in discount rate would result in $11.0 million[234] Long-lived Assets MillerKnoll evaluates long-lived assets for impairment when carrying amounts may not be recoverable, recording charges if carrying value exceeds fair value, as seen with right-of-use assets and the Fully asset group - The company evaluates long-lived assets for impairment when events or changes indicate that the carrying amount may not be recoverable. An impairment charge is recorded if the carrying value exceeds the estimated fair value[240] - In Q1 fiscal 2025, impairment charges of $17.4 million were recorded related to right-of-use assets for ceased leased locations[241] - In fiscal 2023, impairment of $21.5 million was recorded for certain long-lived assets within the Fully asset group due to the decision to cease operating Fully as a stand-alone brand[242] New Accounting Standards MillerKnoll adopted ASU 2023-07 retrospectively for fiscal 2025, modifying segment disclosures without material financial impact, and anticipates similar non-material impacts from other upcoming ASUs - The company adopted ASU 2023-07, Segment Reporting, retrospectively for fiscal year ended May 31, 2025, which modified annual disclosures but did not materially affect financial position, results of operations, or cash flows[351] - ASU 2023-09 (Income Taxes) and ASU 2024-03 (Income Statement Expenses) are issued but not yet adopted, expected to modify disclosures but not materially impact financial position, results of operations, or cash flows[352][353] Forward Looking Statements Forward-looking statements are subject to risks including trade policies, growth strategy challenges, economic conditions, cybersecurity, debt, raw material costs, and litigation, which could cause actual results to differ materially - Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially[245] - Key risks include changes to U.S. and international trade policies (tariffs), challenges in growth strategy implementation, consumer spending levels, global economic conditions (inflation, interest rates, geopolitical tensions), cybersecurity threats, public health crises, risks related to increased debt from the Knoll acquisition, raw material availability and pricing, financial strength of dealers/customers, government procurement pace, and litigation outcomes[245] Quantitative and Qualitative Disclosures about Market Risk MillerKnoll manages market risks from commodity prices, foreign exchange rates, and interest rates through hedging strategies, including foreign currency forward contracts and interest rate swap agreements - Changes in commodity prices decreased the Company's direct material costs by approximately $5.7 million during fiscal 2025 compared to the prior year, primarily due to decreased steel and aluminum costs, partially offset by increased plastic costs[248] - The company uses foreign currency forward contracts to offset risks from foreign currency exposures, with 21 outstanding contracts as of May 31, 2025. These contracts are not designated as hedging instruments[252][253] - Foreign currency hedges and remeasurement resulted in a net gain of $6.1 million in fiscal 2025, compared to $3.0 million in fiscal 2024[255] - The company uses interest rate swap agreements to manage interest rate risk, converting variable interest payments to fixed rates. As of May 31, 2025, the fair market value of these instruments was a net asset of $26.1 million[256][262] Interest Rate Swap Agreements (as of May 31, 2025) | Notional Amount (Millions USD) | Forward Start Date | Termination Date | Effective Fixed Interest Rate | | :----------------------------- | :----------------- | :--------------- | :---------------------------- | | $150.0 | January 3, 2018 | January 3, 2028 | 1.910% | | $75.0 | January 3, 2018 | January 3, 2028 | 2.348% | | $575.0 | January 31, 2022 | January 29, 2027 | 1.650% | | $150.0 | March 3, 2023 | January 3, 2029 | 3.950% | Financial Statements and Supplementary Data This section presents MillerKnoll's audited consolidated financial statements for fiscal years 2023-2025, including comprehensive income, balance sheets, cash flows, and detailed notes, reflecting a net loss of $(36.9) million in fiscal 2025 Consolidated Statements of Comprehensive Income (Fiscal 2025 vs. 2024) | (In millions, except per share data) | May 31, 2025 | June 1, 2024 | | :----------------------------------- | :----------- | :----------- | | Net sales | $3,669.9 | $3,628.4 | | Gross margin | $1,422.6 | $1,419.5 | | Operating earnings | $50.5 | $167.2 | | Net (loss) earnings attributable to MillerKnoll, Inc. | $(36.9) | $82.3 | | (Loss) earnings per share - diluted | $(0.54) | $1.11 | Consolidated Balance Sheets (May 31, 2025 vs. June 1, 2024) | (In millions) | May 31, 2025 | June 1, 2024 | | :-------------------------------- | :----------- | :----------- | | Total current assets | $1,108.7 | $1,069.6 | | Property and equipment, net | $496.1 | $492.0 | | Goodwill | $1,152.4 | $1,226.3 | | Indefinite-lived intangibles | $432.5 | $465.5 | | Total Assets | $3,950.2 | $4,043.6 | | Total current liabilities | $703.8 | $697.7 | | Long-term debt | $1,310.6 | $1,291.7 | | Total Liabilities | $2,615.1 | $2,584.6 | | Total Stockholders' Equity | $1,275.8 | $1,385.1 | Consolidated Statements of Cash Flows (Fiscal 2025 vs. 2024) | (In millions) | May 31, 2025 | June 1, 2024 | | :-------------------------------- | :----------- | :----------- | | Net Cash Provided by Operating Activities | $209.3 | $352.3 | | Net Cash (Used in) Investing Activities | $(100.9) | $(86.3) |\ | Net Cash (Used in) Financing Activities | $(150.3) | $(258.8) |\ | Net (Decrease) Increase In Cash and Cash Equivalents | $(36.7) | $6.9 | | Cash and Cash Equivalents, End of Year | $193.7 | $230.4 | Note 1 Significant Accounting and Reporting Policies This note details MillerKnoll's fiscal year end, foreign currency transaction impacts, and changes in goodwill and indefinite-lived intangible assets due to impairment charges, along with R&D and royalty expenses - The Company's fiscal year ends on the Saturday closest to May 31. Fiscal years 2025 and 2024 both contained 52 weeks, while fiscal year 2023 contained 53 weeks[274] - The financial statement impact of gains and losses from remeasuring foreign currency transactions resulted in a net loss of $6.1 million in fiscal 2025, compared to $3.0 million in fiscal 2024[276] - Goodwill balance decreased to $1,152.4 million at May 31, 2025, from $1,226.3 million at June 1, 2024, primarily due to impairment charges of $92.3 million in fiscal 2025[285] - Indefinite-lived intangible assets (trade names) decreased to $432.5 million at May 31, 2025, from $465.5 million at June 1, 2024, due to impairment charges of $37.7 million in fiscal 2025[286] - R&D costs included in Design and research expense were $60.7 million in fiscal 2025, $62.0 million in fiscal 2024, and $67.6 million in fiscal 2023[321] - Royalty payments to designers totaled $33.1 million in fiscal 2025, $30.6 million in fiscal 2024, and $38.1 million in fiscal 2023[322] Note 2 Revenue from Contracts with Customers Revenue is recognized upon transfer of control for goods and services, with disaggregated revenue showing product sales as the primary component, and the largest customer accounting for 5% of net sales in fiscal 2025 - Revenue is recognized when performance obligations are satisfied, typically upon transfer of control of goods and services to the customer. This includes single performance obligations (product sales) and multiple performance obligations (products plus installation services)[324][355][356] Disaggregated Revenue by Contract Type (Fiscal 2025 vs. 2024) | (In millions) | May 31, 2025 | June 1, 2024 | | :------------------------ | :----------- | :----------- | | Single performance obligation: Product revenue | $3,377.3 | $3,362.6 | | Multiple performance obligations: Product revenue | $277.9 | $251.9 | | Multiple performance obligations: Service revenue | $4.3 | $3.6 | | Other | $10.4 | $10.3 | | Total Net sales | $3,669.9 | $3,628.4 | Revenue by Product Type and Segment (Fiscal 2025) | Segment | Workplace (Millions USD) | Performance Seating (Millions USD) | Lifestyle (Millions USD) | Other (Millions USD) | Total (Millions USD) | | :----------------------- | :----------------------- | :--------------------------------- | :----------------------- | :------------------- | :------------------- | | North America Contract | $1,181.7 | $378.4 | $218.5 | $186.6 | $1,965.2 | | International Contract | $171.6 | $295.2 | $164.8 | $28.4 | $660.0 | | Global Retail | $9.5 | $203.3 | $830.4 | $1.5 | $1,044.7 | | Total | $1,362.8 | $876.9 | $1,213.7 | $216.5 | $3,669.9 | - The largest single end-user customer accounted for $197.4 million (5%) of net sales in fiscal 2025, while the ten largest customers accounted for approximately 18% of net sales[363] - During fiscal 2025, the Company recognized net sales of $87.9 million related to customer deposits from the prior year[366] Note 3 Inventories MillerKnoll's inventories, primarily finished goods and work in process, are valued using the FIFO method at the lower of cost or net realizable value, totaling $447.5 million as of May 31, 2025 Inventories (May 31, 2025 vs. June 1, 2024) | (In millions) | May 31, 2025 | June 1, 2024 | | :---------------------------- | :----------- | :----------- | | Finished goods and work in process | $329.5 | $314.3 | | Raw materials | $118.0 | $114.3 | | Total | $447.5 | $428.6 | - Inventories are primarily valued using the first-in first-out (FIFO) method at the lower of cost or net realizable value[284][367] Note 4 Investments in Nonconsolidated Affiliates MillerKnoll holds a 50% equity method investment in Kvadrat Maharam Pty Limited, with an investment balance of $2.5 million and equity earnings of $0.3 million for fiscal 2025, following the sale of its Maars Holding B.V. investment in fiscal 2024 - The Company holds an investment in Kvadrat Maharam Pty Limited, a distribution entity, with a 50.0% ownership interest, accounted for using the equity method[369][371] - The investment balance in nonconsolidated affiliates was $2.5 million at May 31, 2025, and equity earnings were $0.3 million for fiscal 2025[369] - The Company sold its 48.2% investment in Maars Holding B.V. on October 30, 2023, for $5.9 million, resulting in a loss of $0.4 million in fiscal 2024[373] Note 5 Short-Term Borrowings and Long-Term Debt MillerKnoll's total debt was $1.34 billion as of May 31, 2025, primarily from syndicated revolving credit and term loans, with the Credit Agreement amended in April 2025 to extend maturities and increase Term Loan A Long-Term Debt Obligations (May 31, 2025 vs. June 1, 2024) | (In millions) | May 31, 2025 | June 1, 2024 | | :------------------------------------------ | :----------- | :----------- | | Syndicated revolving line of credit | $330.8 | $390.0 | | Term Loan A, 6.0768%, due April 2030 | $400.0 | $345.0 | | Term Loan B, 6.4413%, due July 2028 | $603.1 | $609.4 | | Supplier financing program | $2.0 | $2.0 | | Finance lease liability | $1.1 | $1.4 | | Total debt | $1,337.0 | $1,347.8 | | Less: Unamortized discount and issuance costs | $(10.4) | $(12.6) | | Less: Current debt | $(16.0) | $(43.5) | | Long-term debt | $1,310.6 | $1,291.7 | - In April 2025, the Credit Agreement was amended to extend the maturity of the Revolver and Term Loan A to April 2030 and increase Term Loan A to $400.0 million[378] - Available borrowings under the syndicated revolving line of credit were $382.2 million as of May 31, 2025[379] - The company was in compliance with all debt covenants and restrictions as of May 31, 2025[379] Annual Maturities of Debt (Subsequent to May 31, 2025) | Fiscal Year | Amount (Millions USD) | | :---------- | :-------------------- | | 2026 | $16.0 | | 2027 | $24.1 | | 2028 | $26.6 | | 2029 | $612.0 | | 2030 | $658.3 | | Thereafter | $— | | Total | $1,337.0 | Note 6 Leases MillerKnoll leases various facilities with terms through 2042, incurring total lease costs of $112.6 million in fiscal 2025, and has total undiscounted future minimum lease payments of $597.5 million - The Company leases retail stores, showrooms, manufacturing facilities, warehouses, and vehicles, with terms expiring through 2042[384] Lease Costs (Fiscal 2025 vs. 2024) | (In millions) | May 31, 2025 | June 1, 2024 | | :------------------ | :----------- | :----------- | | Operating lease costs | $90.7 | $94.1 | | Short-term lease costs | $5.2 | $7.1 | | Variable lease costs | $16.7 | $15.9 | | Total | $112.6 | $117.1 | Undiscounted Annual Future Minimum Lease Payments (as of May 31, 2025) | Fiscal Year | Amount (Millions USD) | | :---------- | :-------------------- | | 2026 | $88.0 | | 2027 | $95.4 | | 2028 | $88.0 | | 2029 | $78.6 | | 2030 | $67.8 | | Thereafter | $179.7 | | Total lease payments | $597.5 | - The weighted-average remaining lease term for operating leases was 6.6 years, and the weighted-average discount rate for operating leases was 3.6% as of May 31, 2025[386] Note 7 Employee Benefit Plans MillerKnoll terminated Knoll's domestic defined-benefit pension plan in fiscal 2025, settling obligations and recognizing a termination gain, while continuing to contribute to other pension and 401(k) plans - The Knoll subsidiary's domestic defined-benefit pension plan was terminated in Q2 fiscal 2025, with obligations settled through lump-sum payments ($39.9 million) and an annuity purchase contract ($84.7 million), resulting in a $1.5 million termination gain[388] Pension Plan Funded Status (May 31, 2025) | (In millions) | Domestic | International | | :------------ | :------- | :------------ | | Benefit obligation at end of year | $— | $77.9 | | Fair value of plan assets at end of year | $— | $87.3 | | Funded status (Over) under funded | $— | $9.4 | Net Periodic Benefit Cost (Fiscal 2025) | (In millions) | Domestic | International | | :------------------------ | :------- | :------------ | | Service cost | $0.9 | $— | | Interest cost | $2.7 | $4.3 | | Expected return on plan assets | $(2.0) | $(5.7) | | Pension plan termination gain | $(1.5) | $— | | Amortization of prior service cost | $— | $0.1 | | Amortization of net (gain) loss | $— | $0.6 | | Net periodic benefit (income) cost | $0.1 | $(0.7) | - The Company expects to contribute approximately $0.9 million to its pension plan in fiscal 2026[399] - Expense for the Company's 401(k) matching and other discretionary contributions was $23.1 million in fiscal 2025, $22.0 million in fiscal 2024, and $32.4 million in fiscal 2023[402] Note 8 Common Stock and Per Share Information MillerKnoll reported a diluted loss per share of $(0.54) in fiscal 2025, with 2.77 million anti-dilutive shares excluded, and repurchased 3.29 million shares under a plan increased by $200.0 million EPS Calculation (Fiscal 2025 vs. 2024) | (In millions, except shares) | 2025 | 2024 | | :--------------------------------------------------------------- | :----------- | :----------- | | Numerator for both basic and diluted EPS, Net (loss) earnings attributable to MillerKnoll, Inc. | $(36.9) | $82.3 | | Denominator for basic EPS, weighted-average common shares outstanding | 68,977,267 | 73,291,939 | | Potentially dilutive shares resulting from stock plans | — | 662,817 | | Denominator for diluted EPS | 68,977,267 | 73,954,756 | - Equity awards of 2,773,092 shares were excluded from diluted EPS calculation for fiscal 2025 because they were anti-dilutive[403] - The share repurchase plan was increased by $200.0 million on July 16, 2024, with $181.4 million available as of May 31, 2025. Shares repurchased totaled 3,291,176 in fiscal 2025[404] Note 9 Stock-Based Compensation MillerKnoll has 1.45 million shares available for ESPP and 4.88 million for LTIP, with total pre-tax stock-based compensation expense of $31.8 million in fiscal 2025, and $15.3 million in unrecognized costs - As of May 31, 2025, 1,451,373 shares remain available for future purchases under the Employee Stock Purchase Plan (ESPP), and 4,875,202 shares are available for issuance under the Long-Term Incentive Plan (LTIP)[406] Pre-Tax Stock-Based Compensation Expense (Fiscal 2025 vs. 2024) | (In millions) | May 31, 2025 | June 1, 2024 | | :------------------------ | :----------- | :----------- | | Employee stock purchase program | $0.5 | $0.5 | | Stock options | $3.5 | $7.7 | | Restricted stock units | $22.6 | $8.7 | | Performance share units | $5.2 | $3.4 | | Restricted stock awards | $— | $0.3 | | Total | $31.8 | $20.6 | | Tax benefit | $7.7 | $5.0 | - Total pre-tax stock-based