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Fair Value | 12 Months Ended
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May 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value | Fair Value The Company's financial instruments consist of cash equivalents, marketable securities, accounts and notes receivable, deferred compensation plan, accounts payable, debt, interest rate swaps, foreign currency exchange contracts, redeemable noncontrolling interests, indefinite-lived intangible assets and right of use assets. The Company's financial instruments, other than long-term debt, are recorded at fair value. 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) |  | May 30, 2020 |  | June 1, 2019
Carrying value |  | $ | 591.3 |  |  | $ | 285.0 |
Fair value |  | $ | 594.0 |  |  | $ | 287.8 |
The following describes the methods the Company uses to estimate the fair value of financial assets and liabilities recorded in net earnings, which have not significantly changed in the current period: Cash and 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 ("NAV"). Mutual Funds-equity — 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. Deferred compensation plan — 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. 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 market-based current activity. These forward contracts are not designated as hedging instruments. 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 May 30, 2020 and June 1, 2019:
(In millions) | May 30, 2020 |  | June 1, 2019
Financial Assets | NAV |  | Quoted Prices With Other Observable Inputs (Level 2) |  | NAV |  | Quoted Prices With Other Observable Inputs (Level 2)
Cash equivalents: |  |  |  |  |  |  |  |
Money market funds | $ | 283.7 |  |  | $ | — |  |  | $ | 69.5 |  |  | $ | — |
Mutual funds - equity | — |  |  | 0.7 |  |  | — |  |  | 0.9 |
Foreign currency forward contracts | — |  |  | 1.1 |  |  | — |  |  | — |
Deferred compensation plan | — |  |  | 13.2 |  |  | — |  |  | 12.5 |
Total | $ | 283.7 |  |  | $ | 15.0 |  |  | $ | 69.5 |  |  | $ | 13.4 |
Financial Liabilities |  |  |  |  |  |  |
Foreign currency forward contracts | $ | — |  |  | $ | 0.8 |  |  | $ | — |  |  | $ | 1.4 |
Total | $ | — |  |  | $ | 0.8 |  |  | $ | — |  |  | $ | 1.4 |
The following describes the methods the Company uses to estimate the fair value of financial assets and liabilities recorded in other comprehensive income, which have not significantly changed in the current period: Mutual funds-fixed income — The Company's fixed-income securities primarily include fixed income mutual funds and government obligations. These investments are recorded at fair value using quoted prices for similar securities. Interest rate swap agreements — The value of the Company's interest rate swap agreements is determined using a market approach based on rates obtained from active markets. The interest rate swap agreements are designated as cash flow hedging instruments. 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 May 30, 2020 and June 1, 2019.
(In millions) | May 30, 2020 |  | June 1, 2019
Financial Assets | Quoted Prices with Other Observable Inputs (Level 2) |  | Quoted Prices with Other Observable Inputs (Level 2)
Mutual funds - fixed income | $ | 6.3 |  |  | $ | 7.9 |
Interest rate swap agreement | — |  |  | 1.0 |
Total | $ | 6.3 |  |  | $ | 8.9 |
Financial Liabilities |  |  |
Interest rate swap agreement | $ | 25.0 |  |  | $ | 2.2 |
Total | $ | 25.0 |  |  | $ | 2.2 |
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:
| May 30, 2020 |  | June 1, 2019
(In millions) | Cost |  | Unrealized Gain/(Loss) |  | Market Value |  | Cost |  | Unrealized Gain/(Loss) |  | Market Value
Mutual funds - fixed income | $ | 6.2 |  |  | $ | 0.1 |  |  | $ | 6.3 |  |  | $ | 7.9 |  |  | $ | — |  |  | $ | 7.9 |
Mutual funds - equity | 0.6 |  |  | 0.1 |  |  | 0.7 |  |  | 0.8 |  |  | 0.1 |  |  | 0.9 |
Total | $ | 6.8 |  |  | $ | 0.2 |  |  | $ | 7.0 |  |  | $ | 8.7 |  |  | $ | 0.1 |  |  | $ | 8.8 |
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 expense (income), 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. 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 expense (income), 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 $52.6 million and $38.1 million as of May 30, 2020 and June 1, 2019, 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 £27.5 million and £19.2 million as of May 30, 2020 and June 1, 2019, 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. 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 the facts and circumstances of the hedged relationship remains consistent with the initial quantitative effectiveness assessment in that the hedged instruments remain an effective accounting hedge as of May 30, 2020. Since a designated derivative meets hedge accounting criteria, the fair value of the hedge is recorded in the Consolidated Statements 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 $25.0 million and $1.2 million as of May 30, 2020 and June 1, 2019, respectively. The liability and asset fair value were recorded within "Other liabilities" and "Other noncurrent 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 $17.2 million and $12.8 million for the fiscal years ended May 30, 2020 and June 1, 2019, respectively. For fiscal 2020, 2019 and 2018, 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 2020 and 2019 (amounts presented exclude any income tax effects):
(In millions) | Balance Sheet Location |  | May 30, 2020 |  | June 1, 2019
Designated derivatives: |  |  |  |  |
Interest rate swap | Long-term assets: Other noncurrent assets |  | $ | — |  |  | $ | 1.0 |
Interest rate swap | Long-term liabilities: Other liabilities |  | $ | 25.0 |  |  | $ | 2.2 |
Non-designated derivatives: |  |  |  |  |
Foreign currency forward contracts | Current assets: Other current assets |  | $ | 1.1 |  |  | $ | — |
Foreign currency forward contracts | Current liabilities: Other accrued liabilities |  | $ | 0.8 |  |  | $ | 1.4 |
|  |  | Fiscal Year
(In millions) | Statement of Comprehensive Income Location |  | May 30, 2020 |  | June 1, 2019 |  | June 2, 2018
(Loss) gain recognized on foreign currency forward contracts | Other expense (income), net |  | $ | (1.1 | ) |  | $ | 0.3 |  |  | $ | 0.4 |
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) | May 30, 2020 |  | June 1, 2019 |  | June 2, 2018
Interest rate swap | $ | (17.2 | ) |  | $ | (12.8 | ) |  | $ | 7.5 |
Reclassified from Accumulated other comprehensive loss into earnings within "Interest expense" for the fiscal years ended 2020, 2019, and 2018 were gains of $0.8 million and losses of $0.5 million, and $0.3 million, respectively. Pre-tax gains expected to be reclassified from Accumulated other comprehensive loss into earnings during the next twelve months are $4.3 million. The amount of gain, net of tax, expected to be reclassified out of Accumulated other comprehensive loss into earnings during the next twelve months is $3.2 million. 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, 2020. The gain was the result of an observable price change for a similar investment in the same entity. There were no similar gains in fiscal 2020. Redeemable Noncontrolling Interests Redeemable noncontrolling interests are reported on the Condensed Consolidated Balance Sheets in mezzanine equity in “Redeemable noncontrolling interests.” These financial instruments represent a level 3 fair value measurement. As of June 1, 2019, the outstanding redeemable noncontrolling interests in the Company's subsidiary, Herman Miller Consumer Holdings, Inc. ("HMCH") were $20.6 million, and represented an approximate 5% minority ownership. During August 2019, the Company acquired all of the remaining redeemable noncontrolling equity interests. HMCH redeemed certain HMCH stock for cash and then, in August 2019, HMCH merged with and into the Company, with the remaining minority HMCH shareholders receiving a cash payment. Total cash paid of $20.4 million for the redemptions and for merger consideration was at fair market value based on an independent appraisal. This compares to purchases of $10.1 million during the twelve month period ended June 1, 2019. Changes in the Company's redeemable noncontrolling interest in HMCH for the years ended May 30, 2020 and June 1, 2019 are as follows:
(In millions) | May 30, 2020 |  | June 1, 2019
Beginning Balance | $ | 20.6 |  |  | $ | 30.5 |
Purchase of HMCH redeemable noncontrolling interests | (20.4 | ) |  | (10.1 | )
Redemption value adjustment | (0.2 | ) |  | — |
Exercised options | — |  |  | 0.2 |
Ending Balance | $ | — |  |  | $ | 20.6 |
On December 2, 2019, the Company purchased an additional 34% equity voting interest in HAY. Upon increasing its ownership to 67%, the Company obtained a controlling financial interest and consolidated the financial results of HAY. Additionally, the Company is a party to options, that if exercised, would require it to purchase the remaining 33% of the equity in HAY, at fair market value. This remaining redeemable noncontrolling interest in HAY is classified outside permanent equity in the Consolidated Balance Sheets and is carried at the current estimated redemption amount. The Company recognizes changes to the redemption value of redeemable noncontrolling interests as they occur and adjusts the carrying value to equal the redemption value at the end of each reporting period. The redemption amounts have been estimated based on the fair value of the subsidiary, determined using discounted cash flow methods. This represents a level 3 fair value measurement. Changes in the Company's redeemable noncontrolling interest in HAY for the year ended May 30, 2020 are as follows:
(In millions) | May 30, 2020
Beginning Balance | $ | — |
Increase due to HAY acquisition | 72.4 |
Redemption value adjustment | (17.6 | )
Net income attributable to redeemable noncontrolling interests | (5.1 | )
Foreign currency translation adjustments | $ | 0.7 |
Ending Balance | $ | 50.4 |
Other The following table summarizes the valuation of our assets measured at fair value on a non-recurring basis as of May 30, 2020:
(In millions) | May 30, 2020
Assets: | Level 3
Indefinite-lived intangible assets | $ | 92.8 |
DWR right of use assets | 110.9 |
Not included in the above is goodwill related to the Retail and Maharam reporting units, as these were fully written down with a resulting impairment charge of $125.5 million in the fourth quarter of fiscal 2020. The relief-from-royalty method for the quantitative impairment assessment for indefinite-lived intangible assets utilized discount rates ranging from 12.75% to 17.25% and royalty rates ranging from 1.00% to 3.00%. Based on the quantitative impairment assessment performed, the carrying value these assets exceeded their fair value, resulting in an impairment charge of $53.3 million in fiscal 2020. See Note 1 and Note 7 to the Consolidated Financial Statements for additional information.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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