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Fair Value Measurements

9 Months Ended

Mar. 04, 2023

The Company's financial instruments consist of cash equivalents, accounts and notes receivable, a 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)	March 4, 2023		May 28, 2022
Carrying value	$	1,462.8	$	1,427.9
Fair value	$	1,393.0	$	1,364.7

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 money market funds, which are valued using net asset value ("NAV").

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 March 4, 2023 and May 28, 2022.


(In millions)	March 4, 2023				May 28, 2022
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	$	16.4	$	—	$	31.8	$	—

Foreign currency forward contracts	—		1.1		—		0.4
Deferred compensation plan	—		15.4		—		15.0
Total	$	16.4	$	16.5	$	31.8	$	15.4

Financial Liabilities
Foreign currency forward contracts	—		0.7		—		1.0

Total	$	—	$	0.7	$	—	$	1.0

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:

Interest rate swap agreements — The value of the Company's interest rate swap agreements are 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 March 4, 2023 and May 28, 2022.


(In millions)		March 4, 2023		May 28, 2022
Financial Assets	Balance Sheet Location	Quoted Prices with Other Observable Inputs (Level 2)		Quoted Prices with Other Observable Inputs (Level 2)

Interest rate swap agreement	Other noncurrent assets	$	74.4	$	31.9
Total		$	74.4	$	31.9

Financial Liabilities
Interest rate swap agreement	Other liabilities	$	0.2	$	—

Total		$	0.2	$	—

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 reduce 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. Foreign currency exposures typically arise from net liability or asset exposures in non-functional currencies on the balance sheets of our foreign subsidiaries. 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 (income) expense, net", for both realized and unrealized gains and losses.

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 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.

In February 2023, the Company entered into an additional interest rate swap agreement. The interest rate swap is for an aggregate notional amount of $150.0 million with a forward start date of March 3, 2023 and a termination date of January 3, 2029. As a result of the transaction, under the terms of the agreement the Company effectively will convert one month Spread Adjusted Term SOFR floating interest rate plus applicable margin to 3.95% fixed interest rate and adjustment % plus applicable margin as of the forward start date. "Spread adjusted Term SOFR" means Term SOFR plus an adjustment % that varies with tenor. The Company typically selects a one month tenor and that is calculated as the one month Term SOFR rate plus 0.11448%.

The interest rate swaps were designated as cash flow hedges at inception and the facts and circumstances of the hedged relationships remain consistent with the initial quantitative effectiveness assessment in that the hedged instruments remain an effective accounting hedge as of March 4, 2023. 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 millions)	Notional Amount		Forward Start Date	Termination Date	Effective Fixed Interest Rate
September 2016 Interest Rate Swap	$	150.0	January 3, 2018	January 3, 2028	1.910	%
June 2017 Interest Rate Swap	$	75.0	January 3, 2018	January 3, 2028	2.348	%
January 2022 Interest Rate Swap	$	575.0	January 31, 2022	January 29, 2027	1.650	%
March 2023 Interest Rate Swap	$	150.0	March 3, 2023	January 3, 2029	3.950	%

The swaps above effectively converted indebtedness up to the notional amounts from a SOFR-based floating interest rate plus applicable margin of 0.11448% to an effective fixed rate plus 0.11448% plus applicable margin under the agreements as of the forward start date.

The following table summarizes the effects of the interest rate swap agreements for the three and nine months ended:


	Three Months Ended				Nine Months Ended
(In millions)	March 4, 2023		February 26, 2022		March 4, 2023		February 26, 2022
Gain recognized in Other comprehensive loss (effective portion)	$	10.3	$	10.2	$	31.8	$	13.2
Gain (Loss) reclassified from Accumulated other comprehensive loss into earnings	$	4.9	$	(1.1)	$	6.9	$	(3.1)

There were no gains or losses recognized in earnings for hedge ineffectiveness for the three and nine month periods ended March 4, 2023 and February 26, 2022. The amount of loss expected to be reclassified from Accumulated other comprehensive loss into earnings during the next twelve months is $28.3 million, net of tax is $21.2 million.

Redeemable Noncontrolling Interests

Changes in the Company's redeemable noncontrolling interest in HAY for the nine months ended March 4, 2023 and February 26, 2022 are as follows:


(In millions)	March 4, 2023		February 26, 2022
Beginning Balance	$	106.9	$	77.0

Net income attributable to redeemable noncontrolling interests	3.8		5.7

Dividend attributable to redeemable noncontrolling interests	(3.2)		(6.6)
Cumulative translation adjustments attributable to redeemable noncontrolling interests	—		(2.0)
Foreign currency translation adjustments	(0.9)		(6.0)
Ending Balance	$	106.6	$	68.1

- 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.

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