# MILLERKNOLL, INC. (MLKN) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MILLERKNOLL, INC.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/66382/000006638222000046/mlhr-20220528.htm
Accession: 0000066382-22-000046
Filing date: 2022-07-26
Report date: 2022-05-28
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MLKN/
All MD&A years: /company/MLKN/mda/
Next year: /company/MLKN/mda/fy2023/ (FY 2023)

Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the issues discussed in Management's Discussion and Analysis in conjunction with the Company's Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Refer also to the information provided under the heading "Forward-Looking Statements" in this Annual Report on Form 10-K.

Executive Overview

MillerKnoll is a collective of dynamic brands that comes together to design the world we live in. From the spaces we make that help us live and work better, to how we manufacture our products, to the ways we solve challenges facing our customers and global community, design is our tool for creating positive impact. Our optimism leads us as we redefine modern for the 21st century, shaping a future that’s more sustainable, caring, and beautiful for all people and our planet.

In July 2021, the Company finalized the acquisition of Knoll, Inc. (“Knoll”) in a cash and stock transaction valued at approximately $1.8 billion. On November 1, 2021, Herman Miller, Inc. changed its name to MillerKnoll, Inc., and the company began trading on the Nasdaq Global Select Market under the symbol MLKN.

MillerKnoll's products are sold internationally through controlled subsidiaries or branches in various countries including the United Kingdom, Denmark, Italy, France, the Netherlands, Canada, Japan, Mexico, Australia, Singapore, China, Hong Kong, India, and Brazil. The Company’s products are sold in over 100 countries primarily through independent contract furniture dealers, direct customer sales, owned and independent retailers, direct-mail catalogs, and the Company’s eCommerce platforms.

The Company is globally positioned in terms of manufacturing operations. In North America, manufacturing operations are in Connecticut, Illinois, Georgia, New York, North Carolina, Michigan, Pennsylvania, Texas, and Wisconsin in the United States, as well as Toronto and Mexico City. In Europe, the Company's manufacturing presence is in the United Kingdom and Italy. Manufacturing operations globally also include facilities located in Brazil, Mexico, China, and India. The Company manufactures products using a system of lean manufacturing techniques collectively referred to as the MillerKnoll Performance System (MKPS). For its contract furniture business, MillerKnoll strives to maintain efficiencies and cost savings by minimizing the amount of inventory on hand. Accordingly, production is order-driven with direct materials and components purchased as needed to meet demand. These factors result in a high rate of inventory turns related to our manufactured inventories.

A key element of the Company's manufacturing strategy is to limit fixed production costs by sourcing component parts from strategic suppliers. This strategy has allowed the Company to increase the variable nature of its cost structure, while retaining proprietary control over those production processes that the Company believes provide a competitive advantage. As a result of this strategy, the Company's manufacturing operations are largely assembly-based .

A key element of the Company's growth strategy is to scale the Global Retail business through the Company's Design Within Reach ("DWR"), HAY, and Herman Miller retail operations. The Global Retail business provides a channel to bring MillerKnoll's iconic and design-centric products to retail customers, along with other proprietary and third-party products, with a focus on modern design. The Company continues to transform its Global Retail business through store expansion & fleet optimization, which will be complemented by continued focus on assortment expansion (including proprietary and exclusive products), the launch of new eCommerce sites and ongoing digital optimization of existing eCommerce sites and marketing programs.

The Company is comprised of various operating segments as defined by generally accepted accounting principles in the United States (U.S. GAAP). The operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. The Company has identified the following segments:

•Americas Contract — Includes the operations associated with the design, manufacture, and sale of furniture and textile products for work-related settings, including office, healthcare, and educational environments, throughout North America and South America. In addition to the Herman Miller brand, naughtone brand, and the DWR Contract business, this segment includes the operations associated with the design, manufacture, and sale of high-craft furniture products and textiles including Geiger wood products, Maharam textiles, and Herman Miller Healthcare.

•International Contract — Includes the operations associated with the design, manufacture, and sale of furniture products, primarily for work-related settings in Europe, the Middle East and Africa ("MEA") and Asia-Pacific including products from Colebrook Bosson Saunders (“CBS”), naughtone, and HAY.

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•Global Retail — Includes the operations associated with the sale of modern design furnishings and accessories direct to consumer sales through eCommerce, DWR stores and outlets, Herman Miller stores, and HAY stores, as well as to third-party retailers.

•Knoll — Includes the global operations associated with the design, manufacture, and sale of furniture products within the legacy Knoll brands, which includes Knoll, Datesweiser, Edelman Leather, Fully, Holly Hunt, KnollTextiles, Muuto, and Spinneybeck|FilzFelt.

The Company also reports a corporate category consisting primarily of unallocated corporate expenses related to general corporate functions, including, but not limited to, certain legal, executive, corporate finance, information technology, administrative, and acquisition-related costs.

Core Strengths

The Company relies on the following core strengths in delivering solutions to customers:

•Portfolio of Leading Brands and Products - MillerKnoll is a collective of globally recognized design brands known for working with some of the most well-known and respected designers in the world. Combined, the Company represents over 100 years of design research and exploration in service of humanity. Within the industries in which the Company operates, Herman Miller and Knoll, along with Colebrook Bosson Saunders, DatesWeiser, Design Within Reach, Edelman Leather, Fully, Geiger, HAY, Holly Hunt, Maars Living Walls, Maharam, Muuto, naughtone, and Spinneybeck|FilzFelt are acknowledged as leading brands that inspire architects and designers to create their best design solutions. This portfolio has enabled MillerKnoll to connect with new audiences, channels, geographies, and product categories. Leveraging the collective brand equity of MillerKnoll across the lines of business is an important element of the Company's business strategy.

•Problem-Solving Design and Innovation - The Company is committed to developing research-based functionality and aesthetically innovative new products and has a history of doing so, in collaboration with a global network of leading independent designers. The Company believes its skills and experience in matching problem-solving design with the workplace needs of customers provide the Company with a competitive advantage in the marketplace. An important component of the Company's business strategy is to actively pursue a program of new product research, design, and development. The Company accomplishes this through the use of an internal research and engineering staff that engages with third party design resources generally compensated on a royalty basis.

•Operational Excellence - The Company was among the first in the industry to embrace the concepts of lean manufacturing. MKPS provides the foundation for all the Company's manufacturing operations. The Company is committed to continuously improving both product quality and production and operational efficiency. The Company believes these concepts hold significant promise for further gains in reliability, quality, and efficiency.

•Omni-ChannelReach - The Company has built a multi-channel distribution capability that it considers unique. Through contract furniture dealers, direct customer sales, retail stores and studios, eCommerce, and independent retailers, the Company serves contract and residential customers across a range of channels and geographies.

•Global Scale - In addition to its global omni-channel distribution capability, the Company has a global network of designers, suppliers, manufacturing operations, and research and development centers that position the Company to serve contract and residential customers globally. The Company believes that leveraging this global scale will be an important enabler to executing its strategy.

Channels of Distribution

The Company's products and services are offered to most of its customers under standard trade credit terms between 30 and 45 days. For all the items below, revenue is recognized when control transfers to the customer. The Company's products and services are sold through the following distribution channels:

•Independent Contract Furniture Dealers - Most of the Company's product sales are made to a network of independently owned and operated contract furniture dealerships doing business in many countries around the world. These dealers purchase the Company's products and distribute them to end customers. Many of these dealers also offer furniture-related services, including product installation.

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•Direct Contract Sales - The Company sells products and services directly to end customers without an intermediary (e.g., sales to the U.S. federal government). In most of these instances, the Company contracts separately with a dealer or third-party installation company to provide sales-related services.

•eCommerce - The Company sells products in its portfolio of brands across the globe, through localized Herman Miller, Knoll, DWR, HAY and Fully websites. These sites complement the Company’s existing methods of distribution and extend the Company's brands' reach for new and existing customers and clients.

•Wholesale – Through both the Global Retail and Knoll segments, certain of the Company's products are sold on a wholesale basis to third-party retailers located in various markets around the world.

•Retail Locations - As of May 28, 2022, the Company operated 70 retail studios (including 35 operating under the DWR brand, 7 under the HAY brand, 22 Herman Miller stores, 2 Muuto stores, 3 Knoll stores and a multi-brand Chicago store). The business also operates 3 outlet studios.

Challenges Ahead

Like all businesses, the Company is faced with a host of challenges and risks. The Company believes its core strengths and values, which provide the foundation for its strategic direction, have prepared the Company to respond to the inevitable challenges it will face in the future. While the Company is confident in its direction, it acknowledges the risks specific to our business and industry. Refer to Item 1A for discussion of certain of these risk factors and Item 7A for disclosures of market risk.

Areas of Strategic Focus

Our strategy is designed to harness the full potential of MillerKnoll while driving growth across all business segments, geographies, and customer groups and creating value for all our stakeholders. We will capitalize on global trends including hybrid and flexible work, consumers’ focus on investing in their homes, a focus on health and well-being, and an expectation of corporate social responsibility. Our strategy includes five key focus areas:

Bring MillerKnoll to Life

We are following a detailed and deliberate plan to bring the best of all our brands together to create MillerKnoll, enabling us to achieve our purpose of design for the good of humankind as we remake modern for the 21st century. Our priorities include establishing and building the MillerKnoll culture; delivering on our synergy commitments of $100 million in annual run-rate savings by the end of year two post-acquisition and $120 million in run-rate savings by the end of year three; successfully executing our integration plans and initiatives; cultivating and enabling a strong global dealer network; and establishing worldwide supply chain and manufacturing capabilities to effectively serve our customers across all our channels.

Build a Customer-Centric, Digitally Enabled Business Model

Building a customer-centric and digitally enabled business model is foundational to bringing MillerKnoll to life and encompasses both our internal technology foundation and our digital go-to-market capabilities. Our goals include integrating our MillerKnoll systems and processes, shifting to a simpler systems architecture, serving our customers around the world through global eCommerce capabilities, harnessing data to enable our teams to make effective and timely decisions, and accelerating global automation and manufacturing 4.0 initiatives to improve the employee experience and increase accuracy, quality, and performance. With the launch of our MillerKnoll dealer network in North America, we expanded access to our proprietary end-to-end digital solution that makes it easier for our dealers to respond to customer requests faster with differentiated solutions, and we’re looking forward to bringing this to our international cross-selling dealers later this year.

Accelerate Profitable Growth

We believe there is opportunity for meaningful growth in each of our business segments and MillerKnoll is uniquely positioned to capitalize on these opportunities given the breadth of our Contract and Global Retail businesses and product portfolios, global reach, and omni-channel distribution and fulfillment capabilities. To capitalize on the opportunity ahead, we will seek to lead the industry in product innovation and design excellence; fortify the flagship Knoll and Herman Miller brands while nurturing and growing each of the brands within MillerKnoll; position the Americas Contract business to lead; drive outsized growth in International Contract; and continue transforming our Global Retail business.

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Attract, Develop, and Retain World-Class Talent

In creating MillerKnoll, we created the most talented team in the industry. We are committed to nurturing this distinct competitive advantage and will create a premiere employee experience while continuing to invest in our people so they can do their best work every day. Our priorities include enabling a seamless MillerKnoll employee experience via a global Human Resources technology platform; delivering an externally competitive and internally equitable compensation and benefits program; growing internal capabilities through development opportunities for all career levels; and investing to make MillerKnoll an employer of choice around the world.

Reinforce Our Commitment to Our People, Our Planet, and Our Communities

Our legacy of corporate social responsibility is deeply ingrained in our culture and is shared across all our brands. We will continue to reinforce our commitment to our people, planet, and communities in integrated and deliberate ways. We intend to hold ourselves accountable for forward progress against our diversity, equity, and inclusion initiatives, building on the foundation of the 10 DEI actions we announced in 2020; progress on our 2030 sustainability goals, which we introduced in April 2022; be a force for good in our communities worldwide; and elevate our Better World commitments by developing common metrics and regularly sharing our progress internally and externally.

The Company believes its strategy continues to respond well to current and future realities in its markets. The Company's strategic priorities are aimed at creating a sustainable and diverse revenue model that puts the customer at the center of everything we do and leverages enabling digital capabilities to fully realize that vision.

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Business Overview

The following is a summary of the significant events and items impacting the Company's operations for the year ended May 28, 2022:

•On July 19, 2021, the Company completed the acquisition of Knoll, Inc. (“Knoll"), a leader in the design, manufacture, marketing, and sale of high-end furniture products and accessories for workplace and residential markets. The acquisition date fair value of the consideration transferred for Knoll was approximately $1,887.3 million, which was comprised of cash of $1,176.6 million and $710.7 million of Knoll stock that was converted into Company awards. The Company funded the acquisition through cash on-hand and debt proceeds. The Company ended the fiscal year with total debt of $1,427.9 million. The Company has included the financial results of Knoll in the consolidated financial statements from the date of acquisition.

•Net sales were $3,946.0 million, representing an increase of 60.1% when compared to the prior year. The increase in net sales was driven primarily by the consolidation of Knoll results from the date of acquisition of July 19, 2021, as well as from growth in the Americas Contract, Global Retail and International Contract segments. On an organic basis, net sales were $2,799.3 million(*), representing an increase of 13.6% when compared to the prior year.

•Gross margin was 34.3% as compared to 38.6% in the prior year. The change in gross margin was primarily driven by inflationary pressures on commodities, freight, and production costs; increased labor costs; and charges related to the purchase accounting effects of the Company's acquisition of Knoll. The decrease in margin was offset in part by price increases implemented at various points throughout the fiscal year.

•Operating expenses increased by $594.3 million or 82.7% as compared to the prior year. Operating expenses in fiscal year 2022 included $125 million of transaction and integration related costs associated with the Knoll acquisition and $51 million of charges related to the amortization of purchased intangible assets in the acquisition. After excluding the impact of purchase accounting amortization and the transaction and integration related costs, the addition of Knoll increased operating expenses by $348.4 million.

•The integration of the Knoll acquisition continues to progress as planned. We made good progress implementing cost synergies throughout the fiscal year, having achieved total annualized run-rate savings of $66 million by the end of the fourth quarter. This has us on track to deliver against our stated goal of achieving annualized cost synergies of $120 million within three years of closing.

•The effective tax rate was (130.1)% for fiscal 2022 compared to 21.2% for the prior year.

•Diluted earnings per share for the full year totaled a loss per share of $0.37 compared to an earnings per share of $2.94 last year. On an adjusted basis(*), diluted earnings per share totaled $1.92 in fiscal 2022 compared to $3.07 in fiscal 2021.

•The Company declared cash dividends of $0.75 per share compared to $0.56 per share in the prior year.

The following summary includes the Company's view on the economic environment in which it operates:

•The Company's Global Retail segment supports a range of furniture categories aimed at the home environment. Several of these categories, including Seating and Dining, Upholstery, Storage, Gaming, and Accessories saw a ramp-up in sales during fiscal 2022. The workspace category experienced a decline in sales volume within the Global Retail segment, driven by shifting consumer spending patterns.

•While customer demand was strong across segments throughout fiscal 2022, the Company’s results were impacted by global supply chain and labor shortages as well as inflationary pressures, especially steel, freight, fuel costs, and production labor. The Company took a variety of actions to offset the impact of these pressures, including price increases, supplier diversification, shifting production across manufacturing facilities, and hiring and retention initiatives to increase production staffing. These actions have helped mitigate some of the impact of these pressures. As of May 28, 2022 lead times on the majority of new orders have returned to near normal levels and staffing levels have stabilized. The Company is continuing to carefully monitor these macroeconomic indicators and will respond accordingly as circumstances warrant.

•The Company is monitoring the ongoing war in Ukraine. The Company stopped fulfilling orders in Russia and Belarus in compliance with economic sanctions from the United States, European Union, and the United Kingdom.

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•The Company continues to navigate the impact of global tariffs. The Company believes, based upon existing circumstances, that pricing, strategic sourcing actions and profit optimization initiatives have fully offset the current level of tariffs imposed on imports from China.

•The Company's financial performance is sensitive to changes in certain input costs, including steel and steel component parts. The market price of steel in the fourth quarter of fiscal 2022 was higher than the same period of the prior year and negatively impacted consolidated results on a year-over-year basis. The price of steel unfavorably impacted consolidated gross margin in the fourth quarter of fiscal 2022. However, ongoing cost reduction initiatives and price increases are expected to help offset these pressures over time.

The remaining sections of Item 7 include additional analysis of the fiscal year ended May 28, 2022, including discussion of significant variances compared to the prior year period. A detailed review of our fiscal 2021 performance compared to our fiscal 2020 performance is set forth in Part II, Item 7 of our Form 10-K for the fiscal year ended May 29, 2021.

(*) Non-GAAP measurements; see accompanying reconciliations and explanations.

COVID-19 Update

The Company continues to respond to the challenges brought about by the COVID-19 pandemic. Demand for certain of the Company's products and services, particularly in the Contract channel of the business, has been negatively impacted. We believe the investments we’ve made in people, technology, and products have positioned us well to capitalize on emerging opportunities as our customers' needs have changed throughout the COVID-19 pandemic. This has allowed our Retail business to take advantage of companies moving towards hybrid working arrangements as well as "home is my castle" trends as consumers are focusing on and upgrading their broader home environments. Despite this, the duration of the pandemic, supply chain constraints, future demand for our products, and related impacts remain difficult to estimate.

Employee Safety and Health

The health and well-being of our employees remains top of mind. We continue to take a regional approach to restrictions based on active COVID-19 case levels and recommendations from local health authorities. Where needed, we employ a variety of other safety measures including domestic and international travel restrictions, extensive cleaning protocols, temperature and health screenings, personal protective equipment, and visitor safety guidelines that align with current recommendations. We continue to encourage vaccinations with our employees.

Federal Contractor Vaccine Mandate

On September 9, 2021, President Biden signed Executive Order 14042, Ensuring Adequate COVID Safety Protocols for Federal Contractors (Order). The Order directs various executive departments and agencies to contractually obligate federal contractors and their subcontractors to comply with certain workplace safety standards concerning COVID-19. To implement the Order, the Safer Federal Workforce Task Force issued its COVID-19 Workplace Safety Guidance for federal contractors on September 24, 2021. Through a series of subsequent orders and memoranda, the Federal Acquisition Regulation Council and other federal agencies published their own instructions for implementation of the Order by federal contractors and their subcontractors. In December 2021, a federal court in Georgia enjoined requirements of the Order. Since then, other courts have entered similar injunctions. As such, the Order was not in effect as of the end of fiscal 2022.

MillerKnoll is a party to numerous federal government contracts. We took prompt and appropriate steps in preparation for compliance with the Order and are actively monitoring the status of the pending litigation related to the Order, as well as the impact of such challenges on our obligations under the mandate.

Customer Focus

We remain uniquely positioned to serve our customers through multiple channels with a comprehensive portfolio of products. As our customers develop their post-pandemic work plans, there is a notable shift to work being done from a number of places. We are an advocate that work can happen anywhere. The office is not going away; rather, it is a re-imagined purposeful space. We are taking a human-centered, people first approach to space. We are uniquely equipped with the expertise to help customers build healthy and inspirational spaces in their offices and home. We are committed to inclusive design and believe that a hybrid environment can deliver inclusive, flexible experiences.

Our focus and digital investments in our retail business continue to pay off as we meet customers where they are looking to do business with us. We have begun to offer products from MillerKnoll brands across multiple websites. Investments in our retail

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operations and systems are making it easier for customers to do business with us, we are introducing new and enhanced eCommerce sites globally, and social media and email marketing continue to drive conversion.

We also are continuing to invest in brick-and-mortar retail spaces that allow our customers to experience our products firsthand. Our global fleet of stores, studios, and showrooms continues to be a strong customer acquisition tool, bringing new customers to our brands around the world.

Manufacturing and Retail Operations

Current labor and supply chain constraints have put pressure on the ability of our manufacturing operations to increase capacity as order volume has increased; however, we are making strong progress towards returning to previous lead times and reliability across MillerKnoll.

Following new guidance from the CDC, our U.S.-based operations recently lifted all COVID-19 restrictions due to low community levels of spread. We are carefully monitoring and adapting to local guidance from government and health authorities in other regions around the world and will continue to adapt as conditions evolve.

Cost Reductions

In fiscal 2020, in response to the COVID-19 pandemic, the Company implemented a range of actions aimed at temporarily reducing costs and maintaining liquidity. These actions included voluntary and involuntary workforce reductions, a 10% reduction in cash compensation for a majority of the Company's salaried workforce and an additional 15% salary deferral of the Company's executive leadership team. Additionally the Company temporarily suspended the quarterly dividend payout and certain employer-paid retirement contributions, compensation increases and cash incentive bonus programs.

In fiscal 2021, the Company made the decision to move forward with several restorative actions. This included eliminating the 10% reduction in compensation, the introduction of a modified bonus program and re-establishing a quarterly cash dividend program. In addition, the Company reinstated the previously suspended employer-paid retirement plan contributions in the fourth quarter of fiscal 2021, and elected to make a catch-up contribution for the employer-paid retirement plan contributions that were suspended for a majority of fiscal 2021. The Company will continue to evaluate further ways to manage costs in line with business performance.

Change in Accounting Principle

In the fourth quarter of fiscal 2022, we elected to change our method of accounting for the cost of certain inventories within our Americas segment from the last-in, first-out method (“LIFO”) to first-in, first-out method (“FIFO”). With this change there are no longer any inventories accounted for under the LIFO method. We have retrospectively adjusted the Consolidated Financial Statements for all periods presented to reflect this change. See Note 1, Significant Accounting and Reporting Policies for the impact this retrospective change in the method of valuing inventories made on the Consolidated Balance Sheets for the periods presented.

Reconciliation of Non-GAAP Financial Measures

This presentation contains non-GAAP financial measures that are not in accordance with, nor an alternative to, generally accepted accounting principles (GAAP) and may be different from non-GAAP measures presented by other companies. These non-GAAP financial measures are not measurements of our financial performance under GAAP and should not be considered an alternative to the related GAAP measurement. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of non-GAAP measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included within this presentation. The Company believes these non-GAAP measures are useful for investors as they provide financial information on a more comparative basis for the periods presented.

The non-GAAP financial measures referenced within this presentation include: Adjusted Earnings per Share, Adjusted Operating Earnings (Loss), and Organic Growth (Decline).

Adjusted Earnings per Share represents reported diluted earnings per share excluding the impact from amortization of purchased intangibles, acquisition and integration charges, debt extinguishment charges, restructuring expenses, other special charges or gains and the related tax effect of these adjustments. These adjustments are described further below.

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Adjusted Operating Earnings (Loss) represents reported operating earnings plus acquisition and integration charges, amortization of purchased intangibles, restructuring expenses and other special charges or gains. These adjustments are described further below.

Organic Growth represents the change in sales and orders, excluding currency translation effects and the impact of acquisitions and divestitures.

•Amortization of purchased intangibles: Includes expenses associated with the amortization of inventory step-up and amortization of acquisition related intangibles acquired as part of the Knoll acquisition. The revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. We exclude the impact of the amortization of purchased intangibles, including the fair value adjustment to inventory, as such non-cash amounts were significantly impacted by the size of the Knoll acquisition. Furthermore, we believe that this adjustment enables better comparison of our results as Amortization of Purchased Intangibles will not recur in future periods once such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets. Although we exclude the Amortization of Purchased Intangibles in these non-GAAP measures, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

•Acquisition and integration charges: Includes costs related directly to the Knoll acquisition including legal, accounting and other professional fees as well as integration-related costs. Integration-related costs include severance, accelerated stock-based compensation expenses, asset impairment charges, and other cost reduction efforts or reorganization initiatives.

•Debt extinguishment charges: Includes expenses associated with the extinguishment of debt as part of financing the Knoll acquisition. We excluded these items from our non-GAAP measures because they relate to a specific transaction and are not reflective of our ongoing financial performance.

•Gain on sale of dealer: Includes the gain recorded on the divestiture of an owned dealership.

•Legal settlement gain: Includes the gain recorded on the settlement of a legal matter in fiscal 2021.

•Restructuring expenses: Include actions involving facilities consolidation and optimization, targeted workforce reductions, and costs associated with an early retirement program.

•Special charges: Includes certain costs arising as a direct result of the COVID-19 pandemic, and retroactive payments related to reinstated employee benefits made in the prior year. Retroactive payments related to reinstated employee benefits were an adjustment to Operating Earnings and Earnings Per Share in the fourth quarter of fiscal 2021, but not for the full year.

•Tax related items: We excluded the income tax benefit/provision effect of the tax related items from our non-GAAP measures because they are not associated with the tax expense on our ongoing operating results.

Tables below summarize select financial information, for the periods indicated, related to each of the Company’s reportable segments. The Americas Contract segment includes the operations associated with the design, manufacture, and sale of furniture products for work-related settings, including office, education, and healthcare environments, throughout the United States, Canada and Latin America. Americas Contract also includes the operations associated with the design, manufacture, and sale of high-craft furniture products and textiles including Geiger wood products, Maharam textiles, naughtone and Herman Miller Healthcare products. The International Contract segment includes the operations associated with the design, manufacture, and sale of furniture products, primarily for work-related settings, in the European, Middle East and Asia-Pacific geographic regions. The Global Retail segment includes the global operations associated with the sale of modern design furnishings and accessories to third party retail distributors, as well as direct to consumer sales through eCommerce and Design Within Reach, HAY, and Herman Miller retail stores and studios. The Knoll segment includes the global operations associated with the design, manufacture, and sale of furniture products within the Knoll constellation of brands. Corporate costs represent unallocated expenses related to general corporate functions, including, but not limited to, certain legal, executive, corporate finance, information technology, administrative and acquisition-related costs.

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The following table reconciles net sales to organic net sales for the years ended as indicated below (in millions):

[[GREPCENT_TABLE]]
[["","May 28, 2022"],["","Americas Contract","International Contract","Global Retail","Knoll","Intersegment Elimination","Total"],["Net sales, as reported","$","1,444.9","","$","483.2","","$","856.8","","$","1,188.5","","$","(27.4)","","$","3,946.0"],["% change from PY","11.0","%","21.0","%","12.1","%","N/A","N/A","60.1","%"],["Adjustments"],["Acquisitions","\u2014","","\u2014","","\u2014","","(1,188.5)","","27.4","","(1,161.1)"],["Currency Translation Effects (1)","(1.0)","","8.4","","7.0","","\u2014","","\u2014","","14.4"],["Organic net sales","$","1,443.9","","$","491.6","","$","863.8","","$","\u2014","","$","\u2014","","$","2,799.3"],["% change from PY","11.1","%","23.1","%","13.0","%","N/A","N/A","13.6","%"],["","May 29, 2021"],["","Americas Contract","International Contract","Global Retail","Knoll","Intersegment Elimination","Total"],["Net sales, as reported","$","1,301.3","","$","399.5","","$","764.3","","$","\u2014","","$","\u2014","","$","2,465.1"],["Adjustments"],["Acquisitions","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["Dealer Divestitures","(1.9)","","\u2014","","\u2014","","\u2014","","\u2014","","(1.9)"],["Organic net sales","$","1,299.4","","$","399.5","","$","764.3","","$","\u2014","","$","\u2014","","$","2,463.2"]]
[[/GREPCENT_TABLE]]

(1) Currency translation effects represent the estimated net impact of translating current period sales using the average exchange rates applicable to the comparable prior year period

The following table reconciles EPS to Adjusted EPS for the years ended as of indicated below:

[[GREPCENT_TABLE]]
[["","May 28, 2022","May 29, 2021"],["(Loss) Earnings per Share - Diluted","$","(0.37)","","$","2.94"],["Add: Amortization of purchased intangibles","0.87","","\u2014"],["Add: Acquisition and integration charges","1.71","","0.17"],["Add: Special Charges","(0.01)","","0.02"],["Add: Restructuring Charges","\u2014","","0.03"],["Add: Debt extinguishment","0.18","","\u2014"],["Less: Gain on legal settlement","\u2014","","(0.08)"],["Less: Gain on sale of dealer","(0.03)","","\u2014"],["Tax impact on adjustments","(0.43)","","(0.01)"],["Adjusted Earnings per Share - Diluted","$","1.92","","$","3.07"],["Weighted Average Shares Outstanding (used for Calculating Adjusted Earnings per Share) \u2013 Diluted","73,160,212","","59,389,598"]]
[[/GREPCENT_TABLE]]

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Financial Results

The following is a comparison of our annual results of operations and year-over-year percentage changes for the periods indicated:

[[GREPCENT_TABLE]]
[["(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","\u2014","","","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)","%"]]
[[/GREPCENT_TABLE]]

The following table presents, for the periods indicated, the components of the Company's Consolidated Statements of Comprehensive Income as a percentage of Net sales:

[[GREPCENT_TABLE]]
[["","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","\u2014","","","\u2014"],["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"]]
[[/GREPCENT_TABLE]]

                                         31

Net Sales

The following chart presents graphically the primary drivers of the year-over-year change in Net sales. The amounts presented in the bar graph are expressed in millions and have been rounded.

Net sales increased $1,480.9 million or 60.1% compared to the prior year fiscal period. The following items primarily contributed to the change:

•Increase of $1,161.1 million due to the acquisition of Knoll.

•List price increases, net of incremental discounting, of approximately $55 million.

•Increased sales volume within the Americas Contract segment of approximately $101 million, driven by continued improvement in the demand environment as organizations accelerated their return to the workplace.

•Increased sales volume within the International Contract segment of approximately $100 million, which was driven by growth from both local customers and global corporate accounts.

•Increased sales volume within the Global Retail segment of approximately $78 million, driven by investments made to strengthen operational foundations, efforts to drive new customer acquisition, and actions to increase sales channels, brands, price points, and overall assortment available for customers.

•Foreign currency translation had a negative impact on Net sales of approximately $14 million.

Gross Margin

Gross margin was 34.3% for fiscal 2022 as compared to 38.6% for fiscal 2021. The following factors summarize the major drivers of the year-over-year change in gross margin percentage:

•Cost pressures from commodities, freight, and product distribution costs had a negative impact on gross margin of approximately 330 basis points.

•Increased labor costs, including the impact of benefits reinstated at the end of the last fiscal year, had a negative impact on margin of approximately 70 basis points.

•Amortization of purchased intangibles related to the Knoll acquisition had a negative impact on gross margin of approximately 30 basis points.

•Price increases offset by discounting helped offset some of these pressures by approximately 90 basis points.

                                         32

•Unfavorable channel and product mix contributed to the remaining decrease in gross margin. In the prior year, our business benefited from a relatively high mix of office seating sales as individuals purchased products for home office use during the pandemic. While we continue to realize strong demand for these products in our Retail segment, the mix of these products sold in the current fiscal year was not as high as in the comparable period.

                                         33

Operating Expenses

The following chart presents graphically the primary drivers of the year-over-year change in Operating expenses. The amounts presented in the bar graph are expressed in millions and have been rounded.

Operating expenses increased by $594.3 million or 82.7% compared to the prior year fiscal period. The following factors contributed to the change:

•The acquisition of Knoll during the year had the following impact on operating expenses as compared to the prior year.

◦$125 million of acquisition and integration related charges, which include severance and related charges for employee separations, asset impairment charges and professional fees, and other incremental third-party expenses directly related to the transaction and subsequent integration.

◦$51 million of expenses related to the amortization of purchased intangibles from the Knoll acquisition.

◦Knoll operating expenses, excluding integration related costs incurred by Knoll and amortization of purchased intangibles, contributed $349 million to the increase as compared to the prior year.

•Compensation and benefit costs increased approximately $26 million as compared to the prior year due primarily to the return of certain employee benefits and compensation that were temporarily suspended during portions of the prior year to mitigate the financial impacts of the COVID-19 pandemic as well as from increases in variable-based compensation.

•An increase of $18 million related to the expansion of physical store locations within the Global Retail segment.

•Increased spending in technology and digital tools across the segments, representing an increase of $15 million.

•Increased marketing and selling costs of approximately $10 million, driven by both the Global Retail and Americas segments.

Other Income/Expense

Net other expenses for fiscal 2022 were $48.4 million compared to $4.2 million in fiscal 2021. Other income/expense in the twelve months ended May 28, 2022 included a loss on extinguishment of debt of approximately $13.4 million, which represented the premium on early debt redemption as well as an increase in interest expense of $23.8 million, related to higher levels of debt required to finance the acquisition of Knoll. The impact of net foreign currency transaction losses resulted in an increase in expense of $4.1 million. Each of these items contributed to the increased expense as compared to the same period in the prior year.

                                         34

Income Taxes

See Note 11 of the Consolidated Financial Statements for additional information.

                                             35

Operating Segments Results

The business is comprised of various operating segments as defined by U.S. GAAP. These operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. The segments identified by the Company include Americas Contract, International Contract, Global Retail, and Knoll. The Company also reports a “Corporate” category consisting primarily of unallocated expenses related to general corporate functions, including, but not limited to, certain legal, executive, corporate finance, information technology, administrative and acquisition-related costs. Effective as of May 30, 2021, the beginning of fiscal year 2022, the Company implemented an organizational change that resulted in a change in the reportable segments. The Company has recast historical results to reflect this change. For descriptions of each segment, refer to Note 14 of the Consolidated Financial Statements.

The charts below present the relative mix of net sales and operating earnings across each of the Company's segments. This is followed by a discussion of the Company's results, by segment.

                                             36

Americas Contract ("Americas")

[[GREPCENT_TABLE]]
[["(Dollars in millions)","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)","%"]]
[[/GREPCENT_TABLE]]

Net sales increased 11.0%, or 11.1%(*) on an organic basis, over the prior year due to:

•Increased sales volume of approximately $101 million, due primarily to increased demand as customers implemented return to workplace plans after reduced order volume during the COVID-19 pandemic; and

•The favorable impact of price increases, net of incremental discounting, of approximately $42 million and the favorable impact of foreign currency translation which increased sales by approximately $1 million.

Operating earnings decreased $49.1 million, or 52.5%, over the prior year due to:

•Decreased gross margin of $28.1 million due to a decrease in gross margin percentage of 540 basis points, offset in part by increased sales volumes. The decrease in gross margin percentage was due primarily to the impact of higher commodity, labor, freight, and product distribution costs; and

•Increased operating expenses of $21.0 million driven primarily by increased marketing and selling expenses of approximately $2 million, increased product development expenses of approximately $5 million, increased compensation and benefit expenses of $7 million, and increased expense from digital and technology programs of approximately $9 million.

International Contract ("International")

[[GREPCENT_TABLE]]
[["(Dollars in millions)","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","%"]]
[[/GREPCENT_TABLE]]

Net sales increased 21.0%, or 23.1%(*) on an organic basis, over the prior year due to:

•Increased sales volume of approximately $100 million, driven by growth across all geographies within the segment; partially offset by

•Incremental discounting, which reduced sales by $8 million, and the impact of foreign currency translation, which reduced sales by approximately $8 million. The impact of discounting was driven by larger than average project sizes across the business, as well as increased sales volume, as a percentage of total mix, from geographies with generally higher levels of discounting.

Operating earnings increased $10.8 million, or 22.3%, compared to the prior year due to:

•Increased gross margin of $21.6 million due to the increase in sales explained above, offset in part by decreased gross margin percentage of 140 basis points due primarily to increased material, freight and distribution costs, increased levels of discounting, and the unfavorable impact from foreign currency translation; offset by

•Increased operating expenses of $10.8 million driven primarily by increased compensation and benefit costs as well as increased costs associated with product development.

                                             37

Global Retail

[[GREPCENT_TABLE]]
[["(Dollars in millions)","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)","%"]]
[[/GREPCENT_TABLE]]

Net sales increased 12.1% as reported and 13.0%(*) on an organic basis, over the prior year due to:

•Increased sales volumes of approximately $78 million which were driven primarily by broad growth across the brands and geographies within the segment; and

•Incremental price increases, net of discounting, of approximately $21 million; offset in part by

•The unfavorable impact of foreign currency translation, which decreased sales by approximately $7 million.

Operating earnings decreased $46.8 million over the prior year due to:

•Increased operating expenses of $53.2 million driven primarily by increased studio costs associated with the opening of new locations, increased compensation and benefit costs as certain compensation and benefits suspended in the prior year were returned and higher IT costs driven by increased investments within the Company's digital and eCommerce platforms; offset in part by

•Increased gross margin of $6.4 million due to the increase in sales explained above, offset in part by a decreased gross margin percentage of 450 basis points due primarily to the unfavorable impact of increased freight and product distribution costs, pressure from increased product material costs and unfavorable changes in product mix.

Knoll

[[GREPCENT_TABLE]]
[["(Dollars in millions)","Fiscal 2022","","Fiscal 2021","","Change"],["Net sales","$","1,188.5","","","$","\u2014","","","$","1,188.5"],["Gross margin","401.7","","","\u2014","","","401.7"],["Gross margin %","33.8","%","","N/A","","N/A"],["Operating (loss) earnings","(57.6)","","","\u2014","","","(57.6)"],["Operating earnings %","(4.8)","%","","N/A","","N/A"]]
[[/GREPCENT_TABLE]]

The Company acquired Knoll on July 19, 2021 and has consolidated the financial results of Knoll from the acquisition date through the period ended May 28, 2022. Knoll contributed $1,161.1 million (net of intersegment elimination) in sales for the year and $401.7 million of gross margin.

Knoll operating loss of $57.6 million for the fiscal year includes the following items:

•$63.4 million related to the impact of amortization of acquisition-related intangible assets; and

•$60.3 million related to integration related costs, which include severance and related charges for employee separations and asset impairment charges.

Corporate

Corporate unallocated expenses totaled $102.6 million for fiscal 2022, an increase of $50.0 million from fiscal 2021. The increase was driven primarily by $57.6 million of integration and transaction costs related to the Knoll acquisition, compared to $11.0 million of integration and transaction costs recorded in the prior year.

(*) Non-GAAP measurements; see accompanying reconciliations and explanations.

                                             38

Liquidity and Capital Resources

The table below summarizes the net change in cash and cash equivalents for the fiscal years indicated.

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["(In millions)","2022","","2021"],["Cash (used in) provided by:"],["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)"]]
[[/GREPCENT_TABLE]]

Cash Flow — Operating Activities

Cash used in operating activities in fiscal 2022 was $11.9 million, as compared to cash provided of $332.3 million in the prior year. The change in cash from operating activities as compared to the prior year, was primarily due to:

•A decrease in net earnings of $201.7 million largely driven by acquisition and integration related charges of $124.5 million as well as cost pressures from commodities, labor, and freight and product distribution resulting in a lower gross margin percentage; and

•An increase in current assets primarily driven by an increase in accounts receivable of $92.4 million in fiscal 2022 compared to an increase of $14.8 million in fiscal 2021. The increase in accounts receivable is primarily due to timing and increase in sales at the end of fiscal 2022 compared to fiscal 2021;

•An increase of inventory of $166.4 million in fiscal 2022 compared to an increase of $10.4 million in fiscal 2021 due to increased order volumes from the end of fiscal 2021 as well as higher investments in retail inventories made in the current year due to extended supplier and delivery lead times;

•An increase in prepaid taxes of $21.6 million in fiscal 2022 driven by an expected tax benefit for the current year; and

•An increase in accounts payable of $51.5 million in fiscal 2022 compared to an increase of $43.2 million in fiscal 2021 which was a result of timing and increased inventory purchases in fiscal 2022 compared to fiscal 2021.

The increases above were offset by an increase of depreciation and amortization in fiscal 2022 of $40.0 million and $63.4 million, respectively, primarily related to assets purchased as part of the Knoll acquisition as well as an increase in stock based compensation of $22.4 million. The increase in stock based compensation included the impact of accelerated vesting for employee separations associated with the Knoll acquisition.

Cash Flow — Investing Activities

Cash used in investing activities in fiscal 2022 totaled $1,172.4 million compared to $59.9 million in the prior year. The increase in cash outflow in the current year, compared to the prior year, was primarily a result of the following:

•The acquisition of Knoll, which drove a cash outflow, net of cash acquired, of $1,088.5 million; and

•Capital expenditures for the current year were $94.7 million as compared to $59.8 million in the prior year.

These increases were offset by a cash inflow of $7.7 million from the liquidation of previously held short-term investments, as well as proceeds of $2.8 million from the sale of an owned dealership during fiscal year 2022.

At the end of the fiscal 2022, there were outstanding commitments for capital purchases of $53.6 million. The Company plans to fund these commitments with cash on hand and/or cash generated from operations. The Company expects capital spending in fiscal 2023 to be between $150 million and $160 million, which will be primarily related to investments in the Company's facilities and equipment, investments to achieve costs synergies related to the Knoll acquisition, and investments associated with achieving the Company's sustainability goals.

Cash Flow — Financing Activities

Cash provided from financing activities was $1,039.9 million in fiscal 2022 as compared to cash used in financing activities of $347.7 million in fiscal 2021. The increase in cash provided in the current year, compared to the prior year, was primarily due

                                             39

to net borrowings of $1,007.0 million from the credit agreement the Company entered into during Q1 and proceeds of $1,026.5 million on the Company's credit facility.

These increases were offset by:

•Payments of $63.4 million related to the extinguishment of the Company's former debt agreement;

•Payments of $13.1 million related to the Company's term loans;

•Payments of $838.5 million on the Company's credit facility compared to $265.0 million in the prior year;

•Dividends paid of $54.5 million in the current year compared to $34.5 million in the prior year; and

•Common stock repurchased of $16.2 million compared to $0.9 million in the prior year.

Sources of Liquidity

In addition to steps taken to protect its workforce and manage business operations, the Company has taken actions to safeguard its capital position in the current environment. The Company is closely managing spending levels, capital investments, and working capital.

In the fourth quarter of fiscal 2020, we temporarily suspended open market share repurchase activity as part of managing cash flows associated with uncertainty caused by the pandemic. Going forward, we are re-establishing our open market share repurchase program under our existing share repurchase authorization and may repurchase shares from time to time based on management’s evaluation of market conditions, share price and other factors.

At the end of fiscal 2022, the Company has access to liquidity through credit facilities, cash and cash equivalents and short-term investments. These sources have been summarized below. For additional information, refer to Note 6 to the Consolidated Financial Statements.

[[GREPCENT_TABLE]]
[["(In millions)","May 28, 2022","","May 29, 2021"],["Cash and cash equivalents","$","230.3","","","$","396.4"],["Marketable securities","\u2014","","","7.7"],["Availability under revolving lines of credit","296.6","","","265.2"]]
[[/GREPCENT_TABLE]]

Of the cash and cash equivalents noted above at the end of fiscal 2022, the Company had $218.5 million of cash and cash equivalents held outside the United States.

The Company’s revolving line of credit, which matures in July, 2026, provides the Company with up to $725 million in revolving variable interest borrowing capacity and allows the Company to borrow incremental amounts, at its option, subject to negotiated terms as outlined in the agreement. Outstanding borrowings bear interest at rates based on the prime rate, federal funds rate, London Interbank Offered Rate ("LIBOR"), or negotiated terms as outlined in the agreement. See Note 6 for information on the replacement of LIBOR with the Secured Overnight Financing Rate ("SOFR") in our credit agreement.

As of May 28, 2022, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $413.0 million with available borrowings against this facility of $296.6 million.

The Company intends to repatriate $111.1 million in cash held in certain foreign jurisdictions and as such has recorded a deferred tax liability related to foreign withholding taxes on these future dividends received in the U.S. from foreign subsidiaries of $8.3 million. A significant portion of this cash was previously taxed under the U.S. Tax Cut and Jobs Act (TCJA) one-time U.S. tax liability on undistributed foreign earnings. The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside the U.S., which was $331.3 million on May 28, 2022.

The Company believes that its financial resources will allow it to manage the impact of COVID-19 on business operations for the foreseeable future which could include materially reduced revenue and profits. The Company will continue to evaluate its financial position in light of future developments, particularly those relating to COVID-19.

Contingencies

The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation currently pending will not materially affect the Company's Consolidated Financial Statements. Refer to Note 13 of the Consolidated Financial Statements for more information relating to contingencies.

                                             40

Basis of Presentation

The Company's fiscal year ends on the Saturday closest to May 31. The fiscal years ended May 28, 2022, May 29, 2021 and May 30, 2020 contained 52 weeks.

Contractual Obligations

Contractual obligations associated with our ongoing business and financing activities will result in cash payments in future periods. The following table summarizes the amounts and estimated timing of these future cash payments. Further information regarding debt obligations can be found in Note 6 of the Consolidated Financial Statements. Additional information related to operating leases can be found in Note 7 of the Consolidated Financial Statements.

[[GREPCENT_TABLE]]
[["","Payments due by fiscal year"],["(In millions)","Total","","2023","","2024-2025","","2026-2027","","Thereafter"],["Short-term borrowings and long-term debt (1)","$","1,427.9","","","$","29.4","","","$","72.5","","","$","735.5","","","$","590.5"],["Estimated interest on debt obligations (1)","130.8","","","26.4","","","52.8","","","46.7","","","4.9"],["Operating leases","535.3","","","95.8","","","166.7","","","112.4","","","160.4"],["Purchase obligations","99.6","","","77.6","","","21.9","","","0.1","","","\u2014"],["Pension and other post employment benefit plans funding (2)","12.6","","","12.0","","","0.2","","","0.1","","","0.3"],["Stockholder dividends (3)","14.8","","","14.8","","","\u2014","","","\u2014","","","\u2014"],["Other (4)","7.5","","","0.8","","","1.5","","","1.3","","","3.9"],["Total","$","2,228.5","","","$","256.8","","","$","315.6","","","$","896.1","","","$","760.0"]]
[[/GREPCENT_TABLE]]

(1) Includes the current portion of long-term debt. Contractual cash payments on long-term debt obligations are disclosed herein based on the amounts borrowed as of May 28, 2022 and the maturity date of the underlying debt. Estimated future interest payments on our outstanding interest-bearing debt obligations are based on interest rates as of May 28, 2022. Actual cash outflows may differ significantly due to changes in borrowings or interest rates.

(2) Pension plan funding commitments are known for a 12-month period for those plans that are funded; unfunded pension and post-retirement plan funding amounts are equal to the estimated benefit payments. As of May 28, 2022, the total projected benefit obligation for our domestic and international employee pension benefit plans was $257.1 million.

(3) Represents the dividend payable as of May 28, 2022. Future dividend payments are not considered contractual obligations until declared.

(4) Other contractual obligations primarily represent long-term commitments related to deferred and supplemental employee compensation benefits, and other post-employment benefits.

Critical Accounting Policies and Estimates

Our goal is to report financial results clearly and understandably. We follow accounting principles generally accepted in the United States in preparing our Consolidated Financial Statements, which require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. These policies and disclosures are reviewed at least annually with the Audit Committee of the Board of Directors.

We believe that of our significant accounting policies, which are described in Note 1 of our consolidated financial statements, the following accounting policies and specific estimates involve a greater degree of judgment and complexity.

Business Combinations

Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.

We allocate the fair value of purchase consideration to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates are reviewed with our advisors and can include, but are not limited to:

•future expected cash flows from acquired customer relationships and trade names,

•assumed royalty rates that could be payable if we did not own the trademarks, and

                                             41

•discount rates

Our estimates of fair value are based upon reasonable assumptions but are inherently uncertain and unpredictable, and as a result, actual results may differ from these estimates. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. During fiscal 2022 and fiscal 2020, management considered the acquisition of Knoll and HAY material acquisitions, respectively. There were no material acquisitions during fiscal 2021. See Note 3 to the Consolidated Financial Statements for more information.

Goodwill and Indefinite-lived Intangibles

We perform our annual impairment assessment for goodwill and other indefinite-lived intangible assets each year as of March 31 or more frequently if events or changes in circumstances indicate an impairment might be possible. We may consider qualitative factors to assess if it is more likely than not that the fair value for goodwill or indefinite-lived intangible assets is below the carrying amount. We may also elect to bypass the qualitative assessment and perform a quantitative assessment.

When the Company performs a quantitative assessment, the Company makes estimates about fair value by using a weighting of the income and the market approach. The income approach is based on projected discounted cash flows using a market participant discount rate. The market approach is based on financial multiples of companies comparable to each reporting unit and applies a control premium. We corroborate the fair value through a market capitalization reconciliation to determine if the implied control premium is reasonable based on the qualitative considerations, such as recent market transactions.

The Company believes its assumptions for assessing the impairment of its long-lived assets, goodwill and indefinite-lived trade names are reasonable, but future changes in the underlying assumptions could occur due to the inherent uncertainty in making such estimates.

Further declines in the Company’s operating results due to challenging economic conditions, an unfavorable industry or macroeconomic development or other adverse changes in market conditions could change one of the key assumptions the Company uses to calculate the fair value of its long-lived assets, goodwill and indefinite-lived trade names, which could result in a further decline in fair value and require the Company to record an impairment charge in future periods.

Goodwill

Certain business acquisitions have resulted in the recording of goodwill. At May 28, 2022 and May 29, 2021, we had goodwill recorded within the Consolidated Balance Sheets of $1,226.2 million and $364.2 million, respectively.

Each of the reporting units were reviewed for impairment using a qualitative assessment as of March 31, 2022. The Company elected to test each reporting unit qualitatively, as is permitted under ASU 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment, as the Company concluded it to be more likely than not that their estimated fair values are greater than their respective carrying values. In fiscal 2020, the Company recorded $125.5 million in goodwill impairment charges related to both the Global Retail and Maharam reporting units. No impairment charges were recorded in fiscal 2021 or 2022.

In years where a quantitative assessment is performed, the Company utilizes a weighting of the income approach and the market method to estimate the fair value of each reporting unit. These approaches are based on a discounted cash flow analysis and observable comparable company information that use several inputs, including:

•actual and forecasted revenue growth rates and operating margins,

•discount rates based on the reporting unit's weighted average cost of capital, and

•revenue and EBITDA of comparable companies

The Company corroborates the reasonableness of the inputs and outcomes of our discounted cash flow analysis through a market capitalization reconciliation to determine whether the implied control premium is reasonable.

Generally, changes in estimates of expected future cash flows would have a similar effect on the estimated fair value of the reporting unit. For example, a 1.0% decrease in estimated annual future cash flows would decrease the estimated fair value of the reporting unit by approximately 1.0%. The estimated long-term growth rate can have a significant impact on the estimated future cash flows, and therefore, the fair value of each reporting unit. Of the other key assumptions that impact the estimated fair values, most reporting units have the greatest sensitivity to changes in the estimated discount rate.

                                             42

Indefinite-lived Intangible Assets

Certain business acquisitions have resulted in the recording of trade names as indefinite-lived intangible assets, which are not amortized. At May 28, 2022 and May 29, 2021, we had trade name assets with a carrying value of $501.0 million and $97.6 million, respectively.

The Company evaluates indefinite-lived trade name intangible assets for impairment annually. The Company also tests for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date. During fiscal 2020, the Company adjusted the carrying value of all its trade names to fair value, and as a result recognized $53.3 million in non-cash impairment charges on its indefinite-lived trade names. No impairment charges were recorded in fiscal 2021 or 2022.

In fiscal 2022, the Company performed a qualitative assessment to test indefinite-lived intangible assets for impairment for all trade names with the exception of the Company's HAY trade name. A quantitative assessment was performed for the HAY trade name to test the indefinite-lived intangible asset for impairment. Through the performance of this assessment management determined that the fair value of the HAY indefinite-lived trade name was 41% above its carrying value. In performing this quantitative assessment, we estimate the fair value of this intangible asset using the relief-from-royalty method which requires assumptions related to:

•forecasted revenue growth rates,

•assumed royalty rates that could be payable if we did not own the trademark, and

•a market participant discount rate based on a weighted-average cost of capital.

The assumptions above reflect management’s best estimate; however, actual results could differ from our estimates. If the estimated fair value of the indefinite-lived intangible asset is less than its carrying value, we would recognize an impairment charge.

Long-lived Assets

The Company evaluates other long-lived assets and acquired business units for indicators of impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. If such indicators are present, the future undiscounted cash flows attributable to the asset group are compared to the carrying value of the asset or asset group. The judgments regarding the existence of impairment are based on market conditions, operational performance, and estimated future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded to adjust the asset to its estimated fair value. In fiscal 2022 the Company recorded a non-cash impairment charge of $15.5 million related to the discontinued use of a long-lived asset that was a direct result of integration activities associated with the Knoll acquisition. No impairment charges were recorded in fiscal 2021 for long-lived assets. During fiscal 2020, the Company adjusted the carrying value of certain right of use assets and other long-lived assets and recognized a non-cash impairment charge of $19.6 million.

The Company believes its assumptions for assessing the impairment of its long-lived assets, goodwill and indefinite-lived trade names are reasonable, but if actual results are not consistent with management's estimates and assumptions, a material impairment charge could occur, which could have a material adverse effect on our consolidated financial statements.

New Accounting Standards

Refer to Note 1 of the Consolidated Financial Statements for information related to new accounting standards.

Forward Looking Statements

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to future events and anticipated results of operations, business strategies, the anticipated benefits of our 2021 acquisition of Knoll, the anticipated impact of the acquisition on the combined Company’s business and future financial and operating results, the expected amount and timing of synergies from the acquisition, and other aspects of our operations or operating results. These forward-looking statements generally can be identified by phrases such as “will,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations and financial condition of

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MillerKnoll or the price of MillerKnoll’s stock. These forward-looking statements involve certain risks and uncertainties, many of which are beyond MillerKnoll’s control, that could cause actual results to differ materially from those indicated in such forward-looking statements, including but not limited to: the impact of public health crises, such as pandemics (including COVID-19) and epidemics, and any related company or government policies and actions to protect the health and safety of individuals or government policies or actions to maintain the functioning of national or global economies and markets; challenges related to supply chain disruptions and fluctuations in the cost of raw materials, labor, and other production inputs; risks related to the additional debt incurred in connection with our acquisition of Knoll and our ability to comply with our debt covenants and obligations; the risk that the anticipated benefits of the acquisition will be more costly to realize than expected; the effect of the announcement of the acquisition on the ability of MillerKnoll to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom MillerKnoll does business, or on MillerKnoll’s operating results and business generally; the ability to successfully integrate Knoll’s operations; the ability of MillerKnoll to implement its plans, forecasts and other expectations with respect to MillerKnoll’s business after the completion of the acquisition and realize expected synergies; business disruption following the acquisition; general economic conditions; the availability and pricing of raw materials; the financial strength of our dealers and the financial strength of our customers; the success of newly-introduced products; the pace and level of government procurement; and the outcome of pending litigation or governmental audits or investigations. For additional information about other factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to MillerKnoll’s periodic reports and other filings with the SEC, including the risk factors identified in this report. The forward-looking statements included in this report are made only as of the date hereof. MillerKnoll does not undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances, except as required by law.

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