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Fair Value of Financial Instruments | 12 Months Ended
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Jun. 01, 2019
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company's financial instruments consist of cash equivalents, marketable securities, interest rate swaps, accounts and notes receivable, deferred compensation plan, accounts payable, debt, redeemable noncontrolling interests and foreign currency exchange contracts. The Company's financial instruments, other than long-term debt, are recorded at fair value. The fair value of fixed rate debt was based on third-party quotes (Level 2). The carrying value and fair value of the Company's long-term debt, including current maturities, is as follows for the periods indicated:
(In millions) |  | June 1, 2019 |  | June 2, 2018
Carrying value |  | $ | 285.0 |  |  | $ | 285.8 |
Fair value |  | $ | 287.8 |  |  | $ | 288.6 |
The following describes the methods the Company uses to estimate the fair value of financial assets and liabilities, which have not significantly changed in the current period: Cash equivalents — The Company invests excess cash in short term investments in the form of commercial paper and money market funds. Commercial paper is valued at amortized costs while money market funds are valued using net asset value. Equity securities — The Company's equity securities primarily include equity mutual funds. The equity mutual fund investments are recorded at fair value using quoted prices for similar securities. Available-for-sale securities — The Company's available-for-sale marketable securities primarily include fixed income mutual funds and government obligations. These investments are recorded at fair value using quoted prices for similar securities. Foreign currency exchange contracts — The Company's foreign currency exchange contracts are valued using an approach based on foreign currency exchange rates obtained from active markets. The estimated fair value of forward currency exchange contracts is based on month-end spot rates as adjusted by current market-based activity. These forward contracts are not designated as hedging instruments. Interest rate swap agreements — The Company's interest rate swap agreements value is determined using a market approach based on rates obtained from active markets. The interest rate swap agreements are designated as a cash flow hedging instrument. Deferred compensation plan assets — The Company's deferred compensation plan primarily includes various domestic and international mutual funds that are recorded at fair value using quoted prices for similar securities. Other — The Company's contingent consideration liabilities and redeemable noncontrolling interests are deemed to be level 3 fair value measurements. Refer to Note 16 for further information regarding redeemable noncontrolling interests. The following table sets forth financial assets and liabilities measured at fair value through net income and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy as of June 1, 2019 and June 2, 2018:
| Fair Value Measurements
| June 1, 2019 |  | June 2, 2018
(In millions) Financial Assets | NAV | Quoted Prices With Other Observable Inputs (Level 2) | Management Estimates (Level 3) |  | NAV | Quoted Prices With Other Observable Inputs (Level 2) | Management Estimates (Level 3)
Cash equivalents: |  |  |  |  |  |  |
Money market funds | $ | 69.5 |  | $ | — |  | $ | — |  |  | $ | 121.0 |  | $ | — |  | $ | — |
Mutual funds - equity | — |  | 0.9 |  | — |  |  | — |  | 0.9 |  | — |
Foreign currency forward contracts | — |  | — |  | — |  |  | — |  | 0.4 |  | — |
Deferred compensation plan | — |  | 12.5 |  | — |  |  | — |  | 15.1 |  | — |
Total | $ | 69.5 |  | $ | 13.4 |  | $ | — |  |  | $ | 121.0 |  | $ | 16.4 |  | $ | — |
Financial Liabilities |  |  |  |  |  |  |
Foreign currency forward contracts | $ | — |  | $ | 1.4 |  | $ | — |  |  | $ | — |  | $ | 0.3 |  | $ | — |
Contingent consideration | — |  | — |  | 0.2 |  |  | — |  | — |  | 0.5 |
Total | $ | — |  | $ | 1.4 |  | $ | 0.2 |  |  | $ | — |  | $ | 0.3 |  | $ | 0.5 |
The following table sets forth financial assets and liabilities measured at fair value through other comprehensive income and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy as of June 1, 2019 and June 2, 2018.
(In millions) | June 1, 2019 |  | June 2, 2018
Financial Assets | Quoted Prices with Other Observable Inputs (Level 2) |  | Management Estimate (Level 3) |  | Quoted Prices with Other Observable Inputs (Level 2) |  | Management Estimate (Level 3)
Mutual funds - fixed income | $ | 7.9 |  |  | $ | — |  |  | $ | 7.7 |  |  | $ | — |
Interest rate swap agreement | 1.0 |  |  | — |  |  | 15.0 |  |  | — |
Total | $ | 8.9 |  |  | $ | — |  |  | $ | 22.7 |  |  | $ | — |
Financial Liabilities |  |  |  |  |  |  |
Interest rate swap agreement | $ | 2.2 |  |  | — |  |  | — |  |  | $ | — |
Total | $ | 2.2 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The table below presents a reconciliation for liabilities measured at fair value using significant unobservable inputs (Level 3):
(In millions) |  |  |
Contingent Consideration | June 1, 2019 |  | June 2, 2018
Beginning balance | $ | 0.5 |  |  | $ | 0.5 |
Net realized (gains) losses | (0.2 | ) |  | 0.1 |
Settlements | (0.1 | ) |  | (0.1 | )
Ending balance | $ | 0.2 |  |  | $ | 0.5 |
The contingent consideration liabilities represent future payment obligations that relate to business and product line acquisitions. These payments are based on the future performance of the acquired businesses. The contingent consideration liabilities are valued using estimates based on discount rates that reflect the risk involved and the projected sales and earnings of the acquired businesses. The estimates are updated and the liabilities are adjusted to fair value on a quarterly basis. The following is a summary of the carrying and market values of the Company's fixed income mutual funds and equity mutual funds as of the dates indicated:
| June 1, 2019 |  | June 2, 2018
(In millions) | Cost |  | Unrealized Gain/(Loss) |  | Market Value |  | Cost |  | Unrealized Gain/(Loss) |  | Market Value
Mutual funds - fixed income | $ | 7.9 |  |  | $ | — |  |  | $ | 7.9 |  |  | $ | 7.8 |  |  | $ | (0.1 | ) |  | $ | 7.7 |
Mutual funds - equity | 0.8 |  |  | 0.1 |  |  | 0.9 |  |  | 0.7 |  |  | 0.2 |  |  | 0.9 |
Total | $ | 8.7 |  |  | $ | 0.1 |  |  | $ | 8.8 |  |  | $ | 8.5 |  |  | $ | 0.1 |  |  | $ | 8.6 |
The cost of securities sold is based on the specific identification method; realized gains and losses resulting from such sales are included in the Consolidated Statements of Comprehensive Income within "Other, net". The Company reviews its investment portfolio for any unrealized losses that would be deemed other-than-temporary and requires the recognition of an impairment loss in earnings. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than its cost, the Company's intent to hold the investment, and whether it is more likely than not that the Company will be required to sell the investment before recovery of the cost basis. The Company also considers the type of security, related industry and sector performance, and published investment ratings. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. If conditions within individual markets, industry segments, or macro-economic environments deteriorate, the Company could incur future impairments. The Company views its equity and fixed income mutual funds as available for use in its current operations. Accordingly, the investments are recorded within Current Assets within the Consolidated Balance Sheets. On June 3, 2018, as a result of the adoption of ASU 2016-01 - Financial Instruments, the Company reclassified net gains on mutual fund equity securities, that were formerly classified as available for sale securities before the adoption of the new standard, from Accumulated other comprehensive loss to Retained earnings. The impact of adoption was $0.1 million which is not material to the Company's financial statements. Derivative Instruments and Hedging Activities Foreign Currency Forward Contracts The Company transacts business in various foreign currencies and has established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. Under this program, the Company's strategy is to have increases or decreases in our foreign currency exposures offset by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign currency transaction gains or losses. These foreign currency exposures typically arise from net liability or asset exposures in non-functional currencies on the balance sheets of our foreign subsidiaries. These foreign currency forward contracts generally settle within 30 days and are not used for trading purposes. These forward contracts are not designated as hedging instruments. Accordingly, we record the fair value of these contracts as of the end of the reporting period in the Consolidated Balance Sheets with changes in fair value recorded within the Consolidated Statements of Comprehensive Income. The balance sheet classification for the fair values of these forward contracts is to Other current assets for unrealized gains and to Other accrued liabilities for unrealized losses. The Consolidated Statements of Comprehensive Income classification for the fair values of these forward contracts is to Other expenses (income): Other, net, for both realized and unrealized gains and losses. The notional amounts of the forward contracts held to purchase and sell U.S. dollars in exchange for other major international currencies were $38.1 million and $37.3 million as of June 1, 2019 and June 2, 2018, respectively. The notional amounts of the foreign currency forward contracts held to purchase and sell British pound sterling in exchange for other major international currencies were £19.2 million and £19.9 million as of June 1, 2019 and June 2, 2018, respectively. The Company also has other forward contracts related to other currency pairs at varying notional amounts. Interest Rate Swaps 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. The interest rate swaps were designated cash flow hedges at inception and remain an effective accounting hedge as of June 1, 2019. Since a designated derivative meets hedge accounting criteria, the fair value of the hedge is recorded in the Consolidated Statement of Stockholders’ Equity as a component of Accumulated other comprehensive loss, net of tax. The ineffective portion of the change in fair value of the derivatives is immediately recognized in earnings. The interest rate swap agreements are assessed for hedge effectiveness on a quarterly basis. 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 percent fixed interest rate plus applicable margin under the agreement as of the forward start date. In June 2017, the Company entered into an 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 the Company’s revolving line of credit up to the notional amount from a LIBOR-based floating interest rate plus applicable margin to a 2.387 percent fixed interest rate plus applicable margin under the agreement as of the forward start date. The fair value of the Company’s two outstanding interest rate swap agreements was a net liability of $1.2 million (comprised of a $1.0 million asset position and a $2.2 million liability position) and an asset of $15.0 million as of June 1, 2019 and June 2, 2018, respectively. The liability and asset fair value were recorded within Other Liabilities and Other Assets within the Consolidated Balance Sheets. Recorded within Other comprehensive loss, net of tax, for the effective portion of the Company's designated cash flow hedges was a net unrealized loss of $12.8 million and a net unrealized gain of $7.5 million for the fiscal years ended June 1, 2019 and June 2, 2018, respectively. For fiscal 2019, 2018 and 2017, there were no gains or losses recognized against earnings for hedge ineffectiveness. Effects of Derivatives on the Financial Statements The effects of derivatives on the consolidated financial statements were as follows for the fiscal years ended 2019 and 2018 (amounts presented exclude any income tax effects):
(In millions) | Balance Sheet Location |  | June 1, 2019 |  | June 2, 2018
Designated derivatives: |  |  |  |  |
Interest rate swap | Long-term assets: Other assets |  | $ | 1.0 |  |  | $ | 15.0 |
Interest rate swap | Long-term liabilities: Other liabilities |  | $ | 2.2 |  |  | $ | — |
Non-designated derivatives: |  |  |  |  |
Foreign currency forward contracts | Current assets: Other |  | $ | — |  |  | $ | 0.4 |
Foreign currency forward contracts | Current liabilities: Other accrued liabilities |  | $ | 1.4 |  |  | $ | 0.3 |
|  |  | Fiscal Year
(In millions) | Statement of Comprehensive Income Location |  | June 1, 2019 |  | June 2, 2018 |  | June 3, 2017
Gain (loss) recognized on foreign currency forward contracts | Other expenses (income): Other, net |  | $ | 0.3 |  |  | $ | 0.4 |  |  | $ | (1.2 | )
The gain/(loss) recorded, net of income taxes, in Other comprehensive loss for the effective portion of designated derivatives was as follows for the periods presented below:
| Fiscal Year
(In millions) | June 1, 2019 |  | June 2, 2018 |  | June 3, 2017
Interest rate swap | $ | (12.8 | ) |  | $ | 7.5 |  |  | $ | 2.1 |
Losses reclassified from Accumulated other comprehensive loss into earnings were $0.5 million and $0.3 million for the fiscal years ended 2019 and 2018, respectively. There were no reclassifications required in fiscal 2017. The net of tax amount expected to be reclassified out of Accumulated other comprehensive loss into earnings during the next twelve months is a $0.3 million gain. Investments in Equity Securities Without a Readily Determinable Fair Value In the fourth quarter of fiscal 2019, the Company recorded a gain from a $2.1 million fair value adjustment in an investment in a technology partner, which increased the total carrying value of the investment to $3.6 million as of June 1, 2019. The gain was the result of an observable price change for a similar investment in the same entity.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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