MLKN US Equity☆

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 withColebrook 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):

Adjustments

Currency Translation Effects (1) (1.0) 8.4 7.0 — — 14.4

Adjustments

Acquisitions — — — — — —

Dealer Divestitures (1.9) — — — — (1.9)

(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:

(Loss) Earnings per Share - Diluted $ (0.37) $ 2.94

Add: Amortization of purchased intangibles 0.87 —

Add: Acquisition and integration charges 1.71 0.17

Add: Special Charges (0.01) 0.02

Add: Restructuring Charges — 0.03

Add: Debt extinguishment 0.18 —

Less: Gain on legal settlement — (0.08)

Less: Gain on sale of dealer (0.03) —

Tax impact on adjustments (0.43) (0.01)

Adjusted Earnings per Share - Diluted $ 1.92 $ 3.07

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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:

(Dollars in millions) Fiscal 2022 Fiscal 2021 % Change

(Loss) earnings before income taxes and equity income (8.6) 228.3 (103.8) %

Equity income from nonconsolidated affiliates, net of tax — 0.3 (100.0) %

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) %

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:

Operating earnings 1.0 9.4

Other expenses, net 1.2 0.2

(Loss) earnings before income taxes and equity income (0.2) 9.3

Income tax expense 0.3 2.0

Equity income from nonconsolidated affiliates, net of tax — —

Net (loss) earnings (0.5) 7.3

Net earnings attributable to redeemable noncontrolling interests 0.2 0.2

Net (loss) earnings attributable to MillerKnoll, Inc. (0.7) 7.1

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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.

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•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.

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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.

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Income Taxes

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

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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.

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Americas Contract ("Americas")

(Dollars in millions) Fiscal 2022 Fiscal 2021 Change

Operating earnings % 3.1 % 7.2 % (4.1) %

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")

(Dollars in millions) Fiscal 2022 Fiscal 2021 Change

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.

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Global Retail

(Dollars in millions) Fiscal 2022 Fiscal 2021 Change

Operating earnings % 11.2 % 18.7 % (7.5) %

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

(Dollars in millions) Fiscal 2022 Fiscal 2021 Change

Gross margin % 33.8 % N/A N/A

Operating (loss) earnings (57.6) — (57.6)

Operating earnings % (4.8) % N/A N/A

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.

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Liquidity and Capital Resources

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

Fiscal Year Ended

Cash (used in) provided by:

Operating activities $ (11.9) $ 332.3

Effect of exchange rate changes (21.7) 17.7

Net change in cash and cash equivalents $ (166.1) $ (57.6)

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

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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.

Cash and cash equivalents $ 230.3 $ 396.4

Marketable securities — 7.7

Availability under revolving lines of credit 296.6 265.2

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.

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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.

Payments due by fiscal year

Stockholder dividends (3) 14.8 14.8 — — —

(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

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•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.

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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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Item 7A Quantitative and Qualitative Disclosures About Market Risk

The Company manufactures, markets, and sells its products throughout the world and, as a result, is subject to changing economic conditions, which could reduce the demand for its products.

Direct Material Costs

The Company is exposed to risks arising from price changes for certain direct materials and assembly components used in its operations. The largest of such costs incurred by the Company are for steel, plastics, textiles, wood particleboard and aluminum components. The impact from changes in all commodity prices increased the Company's costs by approximately $55.3 million during fiscal 2022 compared to the prior year. The impact from changes in commodity prices lowered the Company's costs by approximately $0.9 million during fiscal 2021 as compared to fiscal 2020. Note that these changes include the impact of Chinese tariffs on the Company's direct material costs.

The market prices for commodities will fluctuate over time and the Company acknowledges that such changes are likely to impact its costs for key direct materials and assembly components. Consequently, it views the prospect of such changes as an outlook risk to the business.

Shortages and disruption in the steel industry as a result of the COVID-19 pandemic negatively impacted the availability of steel. While this reduction in availability has not had a significant impact on our ability to produce and deliver products to our customers, it has negatively impacted the cost of procuring steel. Significant increases in raw materials can be difficult to offset with price increases due to existing contractual agreements with customers as well as difficulty finding effective financial instruments to hedge these changes. In the short term, our gross margin has been and is expected to be negatively impacted by significant increases in these costs. Our profitability could be negatively impacted in the long term if we are not able to pass along these higher raw material costs to our customers.

Foreign Exchange Risk

The Company primarily manufactures its products in the United States, United Kingdom, Canada, China, Italy, India, Mexico and Brazil. It also sources completed products and product components from outside the United States. The Company's completed products are sold in numerous countries around the world. Sales in foreign countries as well as certain expenses related to those sales are transacted in currencies other than the Company's reporting currency, the U.S. dollar. Accordingly, production costs and profit margins related to these sales are affected by the currency exchange relationship between the countries where the sales take place and the countries where the products are sourced or manufactured. These currency exchange relationships can also impact the Company's competitive positions within these markets.

In the normal course of business, the Company enters into contracts denominated in foreign currencies. The principal foreign currencies in which the Company conducts its business are the British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, Hong Kong dollar, Chinese renminbi, and the Danish krone. As of May 28, 2022, the Company had outstanding 22 forward currency instruments designed to offset either net asset or net liability exposure that is denominated in non-functional currencies.

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(In millions, except number of forward contracts)

Net Asset Exposure

Currency Number of Forward Contracts Net Exposure

Net Liability Exposure

Currency Number of Forward Contracts Net Exposure

As of May 29, 2021, the Company had outstanding, 16 forward currency instruments designed to offset either net asset or net liability exposure that is denominated in non-functional currencies.

(In millions, except number of forward contracts)

Net Asset Exposure

Currency Number of Forward Contracts Net Exposure

Net Liability Exposure

Currency Number of Forward Contracts Net Exposure

The cost of the foreign currency hedges and remeasuring all foreign currency transactions into the appropriate functional currency resulted in a net gain of $3.3 million in fiscal 2022 in contrast to net gain of $0.8 million in fiscal 2021 included in net earnings. These amounts are included in Other expense (income), net in the Consolidated Statements of Comprehensive Income. Additionally, the cumulative effect of translating the balance sheet and income statement accounts from the functional currency into the United States dollar decreased the accumulated comprehensive loss component of total stockholders' equity by $90.0 million compared to an increase of $52.1 million as of the end of fiscal 2022 and 2021, respectively.

Interest Rate Risk

The Company enters into interest rate swap agreements to manage its exposure to interest rate changes and its overall cost of borrowing. The Company's interest rate swap agreements were entered into to exchange variable rate interest payments for fixed rate payments over the life of the agreement without the exchange of the underlying notional amounts. The notional amount of the interest rate swap agreements is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense.

These interest rate swap derivative instruments are held and used by the Company as a tool for managing interest rate risk. They are not used for trading or speculative purposes. The counterparties to the swap instruments are large financial institutions that the Company believes are of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by these counterparties, such losses are not anticipated.

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In September 2016, the Company entered into an interest rate swap agreement. The interest rate swap is for an aggregate notional amount of $150.0 million with a forward start date of January 3, 2018 and a termination date of January 3, 2028. As a result of the transaction, the Company effectively converted indebtedness anticipated to be borrowed on the Company’s revolving line of credit up to the notional amount from a LIBOR-based floating interest rate plus applicable margin to a 1.949% fixed interest rate plus applicable margin under the agreement as of the forward start date. See Note 6 for information on the replacement of LIBOR with SOFR in our credit agreement.

In June 2017, the Company entered into an additional interest rate swap agreement. The interest rate swap is for an aggregate notional amount of $75.0 million with a forward start date of January 3, 2018 and a termination date of January 3, 2028. As a result of the transaction, the Company effectively converted its revolving line of credit up to the notional amount from a LIBOR-based floating interest rate plus applicable margin to a 2.387% fixed interest rate plus applicable margin under the agreement as of the forward start date.

In January, 2022, the Company entered into a third interest rate swap agreement. The interest rate swap is for an aggregate notional amount of $575.0 million with a forward start date of January 31, 2022 and a maturity date of January 29, 2027. The interest rate swap locked in the Company’s interest rate on forecasted outstanding borrowings of the Company. The Company effectively will convert LIBOR-based floating interest rate plus applicable margin indebtedness to a 1.689% fixed interest rate plus applicable margin under the agreement as of the forward start date.

The fair market value of the effective interest rate swap instruments was a net asset of $31.9 million at May 28, 2022 compared to a net liability of $14.4 million at May 29, 2021. All cash flows related to the Company's interest rate swap instruments are denominated in U.S. Dollars. For further information, refer to Note 6 and Note 12 of the Consolidated Financial Statements.

Expected cash outflows (notional amounts) over the next five years and thereafter related to debt instruments are as follows.

Long-Term Debt Instruments:

Interest rate 2.387%(2) $ — $ — $ — $ — $ 75.0 $ — $ 75.0

(1) Amount does not include the recorded fair value of the swap instruments.

(2) The Company's revolving credit facility and Term Loans have a variable interest rate, but due to the interest rate swaps, the rate on $150.0 million, $75.0 million and $575.0 million will be fixed at 1.689%, 1.949% and 2.387%, respectively.

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Item 8 Financial Statements and Supplementary Data

MillerKnoll, Inc.

Consolidated Statements of Comprehensive Income

Year Ended

Operating expenses:

Impairment charges — — 205.4

Restructuring expenses — 2.7 26.4

Gain on consolidation of equity method investments — — 36.2

Interest and other investment income (1.6) (2.1) (2.3)

Other expense (income), net 12.2 (7.6) 1.0

(Loss) earnings before income taxes and equity income (8.6) 228.3 (12.9)

Equity earnings from nonconsolidated affiliates, net of tax — 0.3 5.0

Net (loss) earnings attributable to MillerKnoll, Inc. $ (27.1) $ 174.6 $ (8.7)

(Loss) earnings per share — basic $ (0.37) $ 2.96 $ (0.15)

(Loss) earnings per share — diluted (0.37) 2.94 (0.15)

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustments (90.0) 52.1 (7.7)

Pension and post-retirement liability adjustments 13.5 8.8 (14.2)

Unrealized gains (losses) on interest rate swap agreement 34.5 8.1 (18.0)

Unrealized holding (losses) gains on securities — (0.1) 0.1

Total other comprehensive (loss) income, net of tax (42.0) 68.9 (39.8)

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MillerKnoll, Inc.

Consolidated Balance Sheets

(In millions, except share and per share data) May 28, 2022 May 29, 2021

ASSETS

Current Assets:

Cash and cash equivalents $ 230.3 $ 396.4

Short-term investments — 7.7

Accounts receivable, net of allowances of $12.2 and $5.5 348.9 204.7

Unbilled accounts receivable 32.0 16.4

Other current assets 7.3 7.6

Indefinite-lived intangibles 501.0 97.6

Other noncurrent assets 99.2 61.4

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term borrowings and current portion of long-term debt 29.3 2.2

Accrued compensation and benefits 128.6 90.2

Short-term lease liability 79.9 44.8

Pension and post-retirement benefits 25.0 34.5

Redeemable noncontrolling interests 106.9 77.0

Stockholders' Equity:

Preferred stock, no par value (10,000,000 shares authorized, none issued) — —

Additional paid-in capital 825.7 94.7

Accumulated other comprehensive loss (107.1) (65.1)

Deferred compensation plan — (0.2)

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MillerKnoll, Inc.

Consolidated Statements of Stockholders' Equity

(In millions, except share and per share data) Shares Amount

Net loss — — — (8.7) — — (8.7)

Other comprehensive loss — — — — (39.8) — (39.8)

Stock-based compensation expense — — 2.7 — — — 2.7

Restricted and performance stock units released 138,590 — 0.2 — — — 0.2

Employee stock purchase plan issuances 70,145 — 2.1 — — — 2.1

Repurchase and retirement of common stock (641,192) (0.1) (26.5) — — — (26.6)

Deferred compensation plan — — (0.3) — — 0.5 0.2

Dividends declared ($0.63 per share) — — — (37.5) — — (37.5)

Cumulative effect of accounting changes — — — 17.8 — — 17.8

Other comprehensive income — — — — 68.9 — 68.9

Stock-based compensation expense — — 9.0 — — — 9.0

Exercise of stock options 86,238 — 2.6 — — — 2.6

Restricted and performance stock units released 114,103 — 0.2 — — — 0.2

Employee stock purchase plan issuances 71,468 — 2.1 — — — 2.1

Repurchase and retirement of common stock (38,932) — (0.9) — — — (0.9)

Deferred compensation plan — — — — — 0.1 0.1

Dividends declared ($0.56 per share) — — — (33.4) — — (33.4)

Redemption value adjustment — — — (15.0) — — (15.0)

Other — — — (0.2) — — (0.2)

Net loss — — — (27.1) — — (27.1)

Other comprehensive loss — — — — (42.0) — (42.0)

Stock-based compensation expense — — 31.4 — — — 31.4

Restricted stock issuance 611,452 0.1 (0.1) — — — —

Restricted and performance stock units released 503,687 0.1 (0.1) — — — —

Employee stock purchase plan issuances 87,562 — 2.8 — — — 2.8

Repurchase and retirement of common stock (390,979) (0.1) (16.1) — — — (16.2)

Directors' fees direct issuance 23,255 — 0.9 — — — 0.9

Director's fees deferred restricted stock units — — 0.6 — — — 0.6

Deferred compensation plan — — — — — 0.2 0.2

Pre-combination expense from Knoll rollover — — 22.4 — — — 22.4

NCI Adjustment — — 0.5 — — — 0.5

NCI Valuation — — — (41.6) — — (41.6)

Restricted stock units dividend reinvestment — — 0.3 (0.3) — — —

Dividends declared ($0.75 per share) — — — (57.0) — — (57.0)

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MillerKnoll, Inc.

Consolidated Statements of Cash Flows

Year Ended

Cash Flows from Operating Activities:

Gain on consolidation of equity method investments — — (36.2)

(Gain) loss on sales of property and dealers (1.0) — —

Pension contributions (5.0) (5.4) (0.9)

Pension and post-retirement expenses (4.1) 3.0 1.6

Loss on extinguishment of debt 13.4 — —

Restructuring expenses — 2.7 26.4

Stock-based compensation 31.4 9.0 2.7

Decrease (increase) in long-term assets (1.6) 1.2 (4.7)

Increase in long-term liabilities (2.1) 16.0 5.8

Changes in current assets and liabilities:

Decrease (increase) in inventories (166.4) (10.4) 5.5

Increase in prepaid expenses and other (39.6) (3.9) (2.2)

Increase (decrease) in accounts payable 51.5 43.2 (59.5)

Increase (decrease) in accrued liabilities 47.2 15.1 (32.0)

Net Cash (Used in) Provided by Operating Activities (11.9) 332.3 221.8

Cash Flows from Investing Activities:

Marketable securities purchases — (5.9) (3.1)

Marketable securities sales 7.7 5.3 5.0

Proceeds from sales of property and dealers 2.8 14.0 0.2

Acquisitions, net of cash received (1,088.5) — (111.2)

Equity investment in non-controlled entities — — (3.3)

Net Cash Used in Investing Activities (1,172.4) (59.9) (168.1)

Cash Flows from Financing Activities:

Proceeds from issuance of debt, net of discounts 1,007.0 — 50.0

Payments of deferred financing costs (9.3) — —

Repayments of long-term debt (63.1) (50.0) —

Repayments of credit facility (838.5) (265.0) —

Payment of make whole premium on debt (13.4) — —

Common stock repurchased and retired (16.2) (0.9) (26.6)

Distribution to noncontrolling interest (6.8) — —

Purchase of redeemable noncontrolling interests — — (20.3)

Net Cash Provided by (Used in) Financing Activities 1,039.9 (347.7) 244.0

Effect of exchange rate changes on cash and cash equivalents (21.7) 17.7 (2.9)

Net (Decrease) Increase In Cash and Cash Equivalents (166.1) (57.6) 294.8

Cash and cash equivalents, Beginning of Year 396.4 454.0 159.2

Cash and Cash Equivalents, End of Year $ 230.3 $ 396.4 $ 454.0

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Other Cash Flow Information

Income taxes paid, net of cash received $ 36.9 $ 15.8 $ 39.6

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Notes to the Consolidated Financial Statements

Note 1 Significant Accounting and Reporting Policies 54

Note 2 Revenue from Contracts with Customers 64

Note 3 Acquisitions and Divestitures 67

Note 4 Inventories 71

Note 5 Investments in Nonconsolidated Affiliates 71

Note 6 Short-Term Borrowings and Long-Term Debt 72

Note 7 Leases 74

Note 8 Employee Benefit Plans 75

Note 9 Common Stock and Per Share Information 79

Note 10 Stock-Based Compensation 79

Note 11 Income Taxes 84

Note 12 Fair Value 88

Note 13 Commitments and Contingencies 94

Note 14 Operating Segments 95

Note 15 Accumulated Other Comprehensive Loss 99

Note 16 Restructuring Expenses 99

Note 17 Variable Interest Entities 102

Note 18 Quarterly Financial Data (Unaudited) 102

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1. Significant Accounting and Reporting Policies

The following is a summary of significant accounting and reporting policies not reflected elsewhere in the accompanying financial statements.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of MillerKnoll, Inc. and its controlled domestic and foreign subsidiaries. The consolidated entities are collectively referred to as “the Company.” All intercompany accounts and transactions have been eliminated in the Consolidated Financial Statements.

Description of Business

The Company researches, designs, manufactures, sells and distributes interior furnishings for use in various environments including office, healthcare, educational and residential settings and provides related services that support companies all over the world. The Company's products are sold primarily through independent contract office furniture dealers, retail studios, the Company's eCommerce platforms, direct-mail catalogs, as well as direct customer sales and independent retailers.

On July 19, 2021 the Company acquired Knoll, Inc. ("Knoll") (See Note 3. "Acquisitions and Divestitures"). Knoll is a leading global manufacturer of commercial and residential furniture, accessories, lighting, and coverings. The Company has included the financial results of Knoll in the consolidated financial statements from the date of acquisition. On October 11, 2021, the Company's shareholders approved an amendment to our Restated Articles of Incorporation to change our corporate name from Herman Miller, Inc. to MillerKnoll, Inc. On November 1, 2021, the change in corporate name and ticker symbol to MLKN became effective.

MillerKnoll is a collective of dynamic brands that comes together to design the world we live in. A global leader in design, MillerKnoll includes Herman Miller® and Knoll®, as well as Colebrook Bosson Saunders®, DatesWeiser®, Design Within Reach®, Edelman® Leather, Fully®, Geiger®, HAY®, Holly Hunt®, KnollTextiles®, Maars® Living Walls, Maharam®, Muuto®, naughtone®, and Spinneybeck®|FilzFelt®. Combined, MillerKnoll represents over 100 years of design research and exploration in service of humanity. The Company is united by a belief in design as a tool to create positive impact and shape a more sustainable, caring, and beautiful future for all people and the planet.

Fiscal Year

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.

Foreign Currency Translation

The functional currency for most of the foreign subsidiaries is their local currency. The cumulative effects of translating the balance sheet accounts from the functional currency into the United States dollar using fiscal year-end exchange rates and translating revenue and expense accounts using average exchange rates for the period are reflected as a component of Accumulated other comprehensive loss in the Consolidated Balance Sheets.

The financial statement impact of gains and losses resulting from remeasuring foreign currency transactions into the appropriate functional currency resulted in a net loss of $3.3 million, net gain of $0.8 million, and a net loss of $1.1 million for the fiscal years ended May 28, 2022, May 29, 2021, and May 30, 2020, respectively. These amounts are included in Other expense (income), net in the Consolidated Statements of Comprehensive Income.

Cash Equivalents

The Company holds cash equivalents as part of its cash management function. Cash equivalents include money market funds and time deposit investments with original maturities of less than three months. The carrying value of cash equivalents, which approximates fair value, totaled $43.1 million and $229.8 million as of May 28, 2022 and May 29, 2021, respectively. All cash equivalents are high-credit quality financial instruments and the amount of credit exposure to any one financial institution or instrument is limited.

Marketable Securities

The Company previously maintained a portfolio of marketable securities primarily comprised of mutual funds. These investments were liquidated during the year resulting in a cash in-flow of approximately $7.7 million.

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Allowances for Credit Losses

Allowances for credit losses related to accounts are managed at a level considered by management to be adequate to absorb an estimate of probable future losses existing at the balance sheet date.

In estimating probable losses, we review accounts based on known customer exposures, historical credit experience, and specific identification of other potentially uncollectible accounts. An accounts receivable balance is considered past due when payment is not received within the stated terms. Accounts that are considered to have higher credit risk are reviewed using information available about the debtor, such as financial statements, news reports and published credit ratings. General information regarding industry trends, the economic environment is also used.

We arrive at an estimated loss for specific concerns and estimate an additional amount for the remainder of trade balances based on historical trends and other factors previously referenced. Balances are written off against the reserve once the Company determines the probability of collection to be remote. The Company generally does not require collateral or other security on trade accounts receivable. Subsequent recoveries, if any, are credited to bad debt expense when received.

Concentrations of Credit Risk

The Company's trade receivables are primarily due from independent dealers who, in turn, carry receivables from their customers. The Company monitors and manages the credit risk associated with individual dealers and direct customers where applicable. Dealers are responsible for assessing and assuming credit risk of their customers and may require their customers to provide deposits, letters of credit or other credit enhancement measures. Some sales contracts are structured such that the customer payment or obligation is direct to the Company. In those cases, the Company may assume the credit risk. Whether from dealers or customers, the Company's trade credit exposures are not concentrated with any particular entity.

Inventories

Prior to the fourth quarter of 2022, certain inventories within the United States were recorded at cost (not in excess of net realizable value) as determined by the last-in, first-out method (“LIFO”). Inventory valued under the LIFO method represented approximately 9% of consolidated inventories. During the fourth quarter of 2022, we changed our method of costing for these inventories from LIFO to the first-in, first-out (“FIFO”) method. This change in accounting principle is preferable because FIFO more closely resembles the physical flow of inventory being used in production and the change conforms all of the Company's consolidated inventory to be on either the FIFO or weighted average methods of accounting, including the newly acquired Knoll, Inc. inventory. The cumulative effect of the change was recorded in the opening June 1, 2019 retained earnings, which resulted in a net increase to total stockholders’ equity of $9.0 million. It also increased May 29, 2021 inventories, tax payable and deferred tax liabilities by $15.0 million, $1.1 million, and $3.0 million, respectively. The impact of this change in accounting principle on the Consolidated Financial Statements for each period presented is further explained in the Change in Accounting Principle section below.

Inventories are valued at the lower of cost or net realizable value and include material, labor and overhead. The Company establishes reserves for excess and obsolete inventory based on prevailing circumstances and judgment for consideration of current events, such as economic conditions, that may affect inventory. The reserve required to record inventory at lower of cost or net realizable value may be adjusted in response to changing conditions, however inventory cannot be subsequently written back up, since the reserve establishes a new (lower) cost basis. Further information on the Company's recorded inventory balances can be found in Note 4 of the Consolidated Financial Statements.

Goodwill and Indefinite-lived Intangible Assets

The changes in the carrying amount of goodwill, by reporting segment, are as follows:

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(In millions) Americas Contract International Contract Global Retail Knoll Total

Foreign currency translation adjustments — (0.7) (0.2) — (0.9)

Foreign currency translation adjustments 5.7 6.8 5.7 — 18.2

Accumulated impairment losses (36.7) — (88.8) — (125.5)

Sale of owned dealer (0.3) — — — (0.3)

Foreign currency translation adjustments (5.2) (8.8) (7.3) (19.9) (41.2)

Accumulated impairment losses (36.7) — (88.8) — (125.5)

Other indefinite-lived assets included in the Consolidated Balance Sheets consist of the following:

(In millions) Indefinite-lived Intangible Assets

Foreign currency translation adjustments 4.8

Foreign currency translation adjustments (14.6)

Acquisition of Knoll 418.0

Goodwill is tested for impairment at the reporting unit level annually, or more frequently, when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. When testing goodwill for impairment, the Company may first assess qualitative factors. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The Company may also elect to bypass the qualitative testing and proceed directly to the quantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value.

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.

The test for impairment requires the Company to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. We estimated the fair value of the reporting units using a discounted cash flow analysis and reconciled the sum of the fair values of the reporting units to total market capitalization of the Company, plus a control premium. The control premium represents an estimate associated with obtaining control of the Company in an acquisition. The discounted cash flow analysis used the present value of projected cash flows and a residual value.

The Company employs a market-based approach in selecting the discount rates used in our analysis. The discount rates selected represent market rates of return equal to what the Company believes a reasonable investor would expect to achieve on investments of similar size to the Company's reporting units. The Company believes the discount rates selected in the

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quantitative assessment are appropriate in that, in all cases, they meet or exceed the estimated weighted average cost of capital for our business as a whole. The results of the impairment test are sensitive to changes in the discount rates and changes in the discount rate may result in future impairment.

Intangible assets with indefinite useful lives are not subject to amortization and are evaluated annually for impairment, or more frequently, when events or changes in circumstances indicate that the fair value of an intangible asset may not be recoverable. The Company utilizes the relief from royalty methodology to test for impairment. The primary assumptions for the relief from royalty method include forecasted revenue growth rates, royalty rates and discount rates. The Company measures and records an impairment loss for the excess of the carrying value of the asset over its fair value.

In fiscal 2022, the Company performed qualitative assessments in testing indefinite-lived intangible assets for impairment for all assets except the HAY trade name for which a quantitative assessment was performed. The carrying value of the Company's HAY trade name indefinite-lived intangible asset was $38.9 million as of March 31, 2022. The calculated fair value of the HAY trade name was $54.8 million which represents an excess fair value of $15.9 million or 41.0%. Based on the assessments performed, the Company concluded it to be more likely than not that that the estimated fair values for indefinite-lived intangibles are greater than their respective carrying values.

In completing our annual indefinite-lived trade name impairment test, the HAY fair value was estimated using a relief-from-royalty approach, applying market participant discount rate of 16.5% developed using a weighted average cost of capital analysis, a royalty rate of 2.5% and a long-term growth rate of 3.0%.

The table below summarizes the carrying values as of May 28, 2022, for each of the Company’s indefinite-lived trade names:

(In millions)

Trade name Carrying Value

naughtone 5.8

Knoll Channel 99.0

Spinneybeck 23.0

During fiscal 2020, the Company recognized $205.4 million of impairment charges related to goodwill, indefinite-lived intangible assets and long-lived assets. These charges are included in "Impairment charges" within the Consolidated Statements of Comprehensive Income.

Property, Equipment and Depreciation

Property and equipment are stated at cost. The cost is depreciated over the estimated useful lives of the assets using the straight-line method. Estimated useful lives range from 3 to 10 years for machinery and equipment and do not exceed 40 years for buildings. Leasehold improvements are depreciated over the lesser of the lease term or the useful life of the asset. The Company capitalizes certain costs incurred in connection with the development, testing and installation of software for internal use and cloud computing arrangements. Software for internal use is included in property and equipment and is depreciated over an estimated useful life not exceeding 10 years. Depreciation and amortization expense is included in the Consolidated Statements of Comprehensive Income in the Cost of sales, Selling, general and administrative and Design and research line items.

The following table summarizes our property as of the dates indicated:

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Land and improvements $ 54.4 $ 25.2

Construction in progress 51.1 27.6

Property and equipment, net $ 581.5 $ 327.2

As of the end of fiscal 2022, outstanding commitments for future capital purchases approximated $53.6 million.

Other Long-Lived Assets

The Company reviews the carrying value of long–lived assets for 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 or asset group are compared to the carrying value of the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value.

Amortizable intangible assets within Other amortizable intangibles, net in the Consolidated Balance Sheets consist primarily of patents, trademarks and customer relationships. The customer relationships intangible asset is comprised of relationships with customers, specifiers, networks, dealers and distributors. Refer to the following table for the combined gross carrying value and accumulated amortization for these amortizable intangibles.

The Company amortizes these assets over their remaining useful lives using the straight-line method over periods ranging from less than 1 year to 20 years, or on an accelerated basis, to reflect the expected realization of the economic benefits. It is estimated that the weighted-average remaining useful life of the patents and trademarks is approximately 6.7 and the weighted-average remaining useful life of the customer relationships is 10.5 years.

Estimated amortization expense on existing amortizable intangible assets as of May 28, 2022, for each of the succeeding five fiscal years, is as follows:

(In millions)

Self-Insurance

The Company is partially self-insured for general liability, workers' compensation and certain employee health and dental benefits under insurance arrangements that provide for third-party coverage of claims exceeding the Company's loss retention levels. The Company's health benefit and auto liability retention levels do not include an aggregate stop loss policy. The Company's retention levels designated within significant insurance arrangements as ofMay 28, 2022, are as follows:

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(In millions) Retention Level (per occurrence)

General liability $ 1.00

Auto liability $ 1.00

Workers' compensation $ 0.75

Health benefit $ 0.50

The Company accrues for its self-insurance arrangements, as well as reserves for health, prescription drugs, and dental benefit exposures based on actuarial estimates, which are recorded in Other liabilities in the Consolidated Balance Sheets. The value of the liability as of May 28, 2022 and May 29, 2021 was $14.7 million and $12.3 million, respectively. The actuarial valuations are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as legal actions, medical costs, payment lag times and changes in actual experience could cause these estimates to change. The general, auto, and workers' compensation liabilities are managed through the Company's wholly-owned insurance captive.

Research, Development and Other Related Costs

Research, development, pre-production and start-up costs are expensed as incurred. Research and development ("R&D") costs consist of expenditures incurred during the course of planned research and investigation aimed at discovery of new knowledge useful in developing new products or processes. R&D costs also include the enhancement of existing products or production processes and the implementation of such through design, testing of product alternatives or construction of prototypes. R&D costs included in Design and research expense in the accompanying Consolidated Statements of Comprehensive Income are $71.1 million, $50.8 million and $54.3 million, in fiscal 2022, 2021, and 2020, respectively.

Royalty payments made to designers of the Company's products as the products are sold are variable costs based on product sales. These expenses totaled $37.6 million, $21.3 million and $19.7 million in fiscal years 2022, 2021 and 2020 respectively. They are included in Design and research expense in the accompanying Consolidated Statements of Comprehensive Income.

Customer Payments and Incentives

We offer various sales incentive programs to our customers, such as rebates and discounts. Programs such as rebates and discounts are adjustments to the selling price and are therefore characterized as a reduction to net sales.

Revenue Recognition

The Company recognizes revenue when performance obligations, based on the terms of customer contracts, are satisfied. This happens when control of goods and services based on the contract have been conveyed to the customer. Revenue for the sale of products is recognized at the point in time when control transfers, generally upon transfer of title and risk of loss to the customer. Revenue for services is recognized over time as the services are provided. The method of revenue recognition may vary, depending on the type of contract with the customer, as noted in the section "Disaggregated Revenue" in Note 2 of the Consolidated Financial Statements.

The Company's contracts with customers include master agreements and certain other forms of contracts, which do not reach the level of a performance obligation until a purchase order is received from a customer. At the point in time that a purchase order under a contract is received by the Company, the collective group of documents represent an enforceable contract between the Company and the customer. While certain customer contracts may have a duration of greater than a year, all purchase orders are less than a year in duration. As of May 28, 2022, all unfulfilled performance obligations are expected to be fulfilled in the next twelve months.

Variable consideration exists within certain contracts that the Company has with customers. When variable consideration is present in a contract with a customer, the Company estimates the amount that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. These estimates are primarily related to rebate programs which involve estimating future sales amounts and rebate percentages to use in the determination of transaction price. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Adjustments to net sales from changes in variable consideration related to performance obligations completed in previous periods are not material to the Company's financial statements. Also, the Company has no contracts with significant financing components.

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The Company accounts for shipping and handling activities as fulfillment activities and these costs are accrued within Cost of sales at the same time revenue is recognized. The Company does not record revenue for sales tax, value added tax or other taxes that are collected on behalf of government entities. The Company’s revenue is recorded net of these taxes as they are passed through to the relevant government entities. The Company has recognized incremental costs to obtain a contract as an expense when incurred as the amortization period is less than one year. The Company has not adjusted the amount of consideration to be received for any significant financing components as the Company’s contracts have a duration of one year or less.

Leases

The Company accounts for leases in accordance with ASC Topic 842, Leases, (“ASC 842”). For any new or modified lease, the Company, at the inception of the contract, determines whether a contract is or contains a lease. A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company records right-of use ("ROU") assets and lease obligations for its finance and operating leases, which are initially recognized based on the discounted future lease payments over the term of the lease. As the rate implicit in the Company's leases is not easily determinable, the Company’s applicable incremental borrowing rate is used in calculating the present value of the sum of the lease payments.