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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-15141
__________________________________________
logomarknormalsred.jpg
HERMAN MILLER, INC.
(Exact name of registrant as specified in its charter)
__________________________________________
Michigan
 
38-0837640
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
855 East Main Avenue
Zeeland, MI 49464
(Address of principal executive offices and zip code)
(616) 654-3000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
MLHR
NASDAQ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer  
o
Smaller reporting company
Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes    No  x

As of October 3, 2019, Herman Miller, Inc. had 59,058,295 shares of common stock outstanding.





Herman Miller, Inc. Form 10-Q
Table of Contents
 
 
Page No.
Part I — Financial Information
 
 
Item 1 Financial Statements (Unaudited)
 
 
Condensed Consolidated Statements of Comprehensive Income — Three Months Ended August 31, 2019 and September 1, 2018
 
Condensed Consolidated Balance Sheets — August 31, 2019 and June 1, 2019
 
Condensed Consolidated Statements of Cash Flows — Three Months Ended August 31, 2019 and September 1, 2018
 
Condensed Consolidated Statements of Stockholders' Equity — Three Months Ended August 31, 2019 and September 1, 2018
 
Notes to Condensed Consolidated Financial Statements
 
 
 
 
 
Note 4 - Leases
 
Note 5 - Acquisitions
 
 
 
 
 
 
Note 11 - Income Taxes
 
 
 
Note 14 - Debt
 
 
 
 
 
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3 Quantitative and Qualitative Disclosures about Market Risk
 
Item 4 Controls and Procedures
Part II — Other Information
 
 
Item 1   Legal Proceedings
 
Item 1A Risk Factors
 
Item 2   Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3   Defaults upon Senior Securities
 
Item 4   Mine Safety Disclosures
 
Item 5   Other Information
 
Item 6   Exhibits
 
Signatures
 

2



PART I - FINANCIAL INFORMATION

Item 1: Financial Statements

Herman Miller, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Dollars in millions, except share data)
(Unaudited)
 
Three Months Ended
 
August 31, 2019
 
September 1, 2018
Net sales
$
670.9

 
$
624.6

Cost of sales
424.8

 
399.5

Gross margin
246.1

 
225.1

Operating expenses:
 
 
 
Selling, general and administrative
165.0

 
159.5

Restructuring expense
1.8

 
1.1

Design and research
19.2

 
18.5

Total operating expenses
186.0

 
179.1

Operating earnings
60.1

 
46.0

Other expenses (income):
 
 
 
Interest expense
3.0

 
2.9

Other, net
(0.9
)
 
(1.0
)
Earnings before income taxes and equity income
58.0

 
44.1

Income tax expense
12.2

 
8.9

Equity income from nonconsolidated affiliates, net of tax
2.2

 
0.7

Net earnings
48.0

 
35.9

Net (loss) earnings attributable to noncontrolling interests
(0.2
)
 
0.1

Net earnings attributable to Herman Miller, Inc.
$
48.2

 
$
35.8

 
 
 
 
Earnings per share — basic
$
0.82

 
$
0.60

Earnings per share — diluted
$
0.81

 
$
0.60

 
 
 
 
Other comprehensive income (loss), net of tax
 
 
 
Foreign currency translation adjustments
$
(9.3
)
 
$
(7.9
)
Pension and other post-retirement plans
0.7

 
0.7

Interest rate swaps
(8.8
)
 
(0.5
)
Unrealized holding loss

 
(0.1
)
Other comprehensive loss, net of tax
(17.4
)
 
(7.8
)
Comprehensive income
30.6

 
28.1

Comprehensive (loss) income attributable to noncontrolling interests
(0.2
)
 
0.1

Comprehensive income attributable to Herman Miller, Inc.
$
30.8

 
$
28.0


See accompanying notes to Condensed Consolidated Financial Statements.


3



Herman Miller, Inc.
Condensed Consolidated Balance Sheets
(Dollars in millions, except per share data)
(Unaudited)
 
August 31, 2019
 
June 1, 2019
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
159.5

 
$
159.2

Short-term investments
9.0

 
8.8

Accounts and notes receivable, net
218.3

 
218.0

Unbilled accounts receivable
33.8

 
34.3

Inventories, net
181.2

 
184.2

Prepaid expenses and other
51.8

 
56.8

Total current assets
653.6

 
661.3

Property and equipment, at cost
1,087.1

 
1,084.7

Less — accumulated depreciation
(749.6
)
 
(736.1
)
Net property and equipment
337.5

 
348.6

Right of use assets
233.3

 

Goodwill
303.6

 
303.8

Indefinite-lived intangibles
78.1

 
78.1

Other amortizable intangibles, net
39.7

 
41.1

Other noncurrent assets
139.0

 
136.4

Total Assets
$
1,784.8

 
$
1,569.3

 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
178.5

 
$
177.7

Accrued compensation and benefits
70.0

 
85.5

Accrued warranty
53.3

 
53.1

Customer deposits
32.4

 
30.7

Other accrued liabilities
150.7

 
99.1

Total current liabilities
484.9

 
446.1

Long-term debt
275.0

 
281.9

Pension and post-retirement benefits
23.5

 
24.5

Lease liabilities
200.2

 

Other liabilities
56.0

 
77.0

Total Liabilities
1,039.6

 
829.5

Redeemable noncontrolling interests

 
20.6

Stockholders' Equity:
 
 
 
Preferred stock, no par value (10,000,000 shares authorized, none issued)

 

Common stock, $0.20 par value (240,000,000 shares authorized, 59,063,900 and 58,794,148 shares issued and outstanding in 2020 and 2019, respectively)
11.8

 
11.7

Additional paid-in capital
97.4

 
89.8

Retained earnings
748.2

 
712.7

Accumulated other comprehensive loss
(111.6
)
 
(94.2
)
Deferred compensation plan
(0.6
)
 
(0.8
)
Total Stockholders' Equity
745.2

 
719.2

Total Liabilities, Redeemable Noncontrolling Interests, and Stockholders' Equity
$
1,784.8

 
$
1,569.3


See accompanying notes to Condensed Consolidated Financial Statements.

4



Herman Miller, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
(Unaudited)

Three Months Ended
August 31, 2019

September 1, 2018
Cash Flows from Operating Activities:



Net earnings
$
48.0

 
$
35.9

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
19.3

 
19.0

Stock-based compensation
2.6

 
2.5

Earnings from nonconsolidated affiliates net of dividends received
(2.1
)
 
(0.7
)
Restructuring expenses
1.8

 
1.1

Decrease (increase) in current assets
1.4

 
(7.6
)
Decrease in current liabilities
(18.9
)
 
(18.3
)
Increase in non-current liabilities

 
0.6

Other, net
2.6

 
0.4

Net Cash Provided by Operating Activities
54.7

 
32.9

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Equity investment in non-controlled entities
(3.1
)
 
(71.6
)
Capital expenditures
(20.6
)
 
(22.0
)
Purchase of HAY licensing agreement

 
(4.8
)
Other, net
(0.3
)
 
(1.3
)
Net Cash Used in Investing Activities
(24.0
)
 
(99.7
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Dividends paid
(11.6
)
 
(10.7
)
Common stock issued
12.7

 
8.5

Common stock repurchased and retired
(7.6
)
 
(20.8
)
Purchase of redeemable noncontrolling interests
(19.8
)
 
(10.0
)
Other, net
(1.6
)
 

Net Cash Used in Financing Activities
(27.9
)
 
(33.0
)
 
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(2.5
)
 
(2.4
)
Net Increase (Decrease) in Cash and Cash Equivalents
0.3

 
(102.2
)
 
 
 
 
Cash and Cash Equivalents, Beginning of Period
159.2

 
203.9

Cash and Cash Equivalents, End of Period
$
159.5

 
$
101.7


See accompanying notes to Condensed Consolidated Financial Statements.

5



Herman Miller, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Dollars in millions, except share data)
(Unaudited)

 
Three Months Ended August 31, 2019
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Deferred Compensation Plan
 
Herman Miller, Inc. Stockholders' Equity
 
Noncontrolling Interests
 
Total
Stockholders' Equity
 
Shares
 
Amount
 
 
 
 
 
 
 
June 1, 2019
58,794,148

 
$
11.7

 
$
89.8

 
$
712.7

 
$
(94.2
)
 
$
(0.8
)
 
$
719.2

 
$

 
$
719.2

Net earnings

 

 

 
48.2

 

 

 
48.2

 
(0.2
)
 
48.0

Other comprehensive loss, net of tax

 

 

 

 
(17.4
)
 

 
(17.4
)
 

 
(17.4
)
Stock-based compensation expense

 

 
2.6

 

 

 

 
2.6

 

 
2.6

Exercise of stock options
382,898

 
0.1

 
12.1

 

 

 

 
12.2

 

 
12.2

Restricted and performance stock units released
45,105

 

 

 

 

 

 

 

 

Employee stock purchase plan issuances
14,750

 

 
0.5

 

 

 

 
0.5

 

 
0.5

Repurchase and retirement of common stock
(173,001
)
 

 
(7.6
)
 

 

 

 
(7.6
)
 

 
(7.6
)
Deferred compensation plan

 

 

 

 

 
0.2

 
0.2

 

 
0.2

Dividends declared ($0.21 per share)

 

 

 
(12.5
)
 

 

 
(12.5
)
 

 
(12.5
)
Redemption value adjustment

 

 

 
(0.2
)
 

 

 
(0.2
)
 
0.2

 

August 31, 2019
59,063,900

 
$
11.8

 
$
97.4

 
$
748.2

 
$
(111.6
)
 
$
(0.6
)
 
$
745.2

 
$

 
$
745.2


 
Three Months Ended September 1, 2018
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Deferred Compensation Plan
 
Herman Miller, Inc. Stockholders' Equity
 
Noncontrolling Interests
 
Total Stockholders' Equity
 
Shares
 
Amount
 
 
 
 
 
 
 
June 2, 2018
59,230,974

 
$
11.7

 
$
116.6

 
$
598.3

 
$
(61.3
)
 
$
(0.7
)
 
$
664.6

 
$
0.2

 
$
664.8

Net earnings

 

 

 
35.8

 

 

 
35.8

 

 
35.8

Other comprehensive loss

 

 

 

 
(7.8
)
 

 
(7.8
)
 

 
(7.8
)
Stock-based compensation expense

 

 
2.2

 

 

 

 
2.2

 

 
2.2

Exercise of stock options
265,739

 
0.2

 
7.9

 

 

 

 
8.1

 

 
8.1

Restricted and performance stock units released
335,266

 
0.1

 

 

 

 

 
0.1

 

 
0.1

Employee stock purchase plan issuances
16,805

 

 
0.5

 

 

 

 
0.5

 

 
0.5

Repurchase and retirement of common stock
(545,866
)
 
(0.1
)
 
(20.7
)
 

 

 

 
(20.8
)
 

 
(20.8
)
Dividends declared ($0.1975 per share)

 

 

 
(11.6
)
 

 

 
(11.6
)
 

 
(11.6
)
Cumulative effect of accounting changes

 

 

 
2.0

 
(0.1
)
 

 
1.9

 

 
1.9

September 1, 2018
59,302,918

 
$
11.9

 
$
106.5

 
$
624.5

 
$
(69.2
)
 
$
(0.7
)
 
$
673.0

 
$
0.2

 
$
673.2


See accompanying notes to Condensed Consolidated Financial Statements.


6



Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share data)
(unaudited)

1. Basis of Presentation


The Condensed Consolidated Financial Statements have been prepared by Herman Miller, Inc. (“the Company”) in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Management believes the disclosures made in this document are adequate with respect to interim reporting requirements. Unless otherwise noted or indicated by the context, all references to "Herman Miller," "we," "our," "Company" and similar references are to Herman Miller, Inc., its predecessors, and controlled subsidiaries. 

The accompanying unaudited Condensed Consolidated Financial Statements, taken as a whole, contain all adjustments that are of a normal recurring nature necessary to present fairly the financial position of the Company as of August 31, 2019. Operating results for the three months ended August 31, 2019 are not necessarily indicative of the results that may be expected for the year ending May 30, 2020. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 1, 2019. All intercompany transactions have been eliminated in the Condensed Consolidated Financial Statements. The financial statements of equity method investments are not consolidated.

2. Recently Issued Accounting Standards

Recently Adopted Accounting Standards

On June 2, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)" using the modified retrospective method. Under the updated standard a lessee's rights and obligations under most leases, including existing and new arrangements, are recognized as assets and liabilities, respectively, on the balance sheet. Refer to Note 4 to the Condensed Consolidated Financial Statements for further information regarding the adoption of the standard.

On June 2, 2019, the Company adopted ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" using the prospective method. This update amends the hedge accounting recognition and presentation with the objectives of improving the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities and simplifying the application of hedge accounting. The update expands the strategies eligible for hedge accounting, relaxes the timing requirements of hedge documentation and effectiveness assessments and permits the use of qualitative assessments on an ongoing basis to assess hedge effectiveness. The new guidance also requires new disclosures and presentation. The adoption did not have a material impact on the Company's financial statements. Refer to Note 12 to the Condensed Consolidated Financial Statements for further information.

Recently Issued Accounting Standards Not Yet Adopted

The Company is currently evaluating the impact of adopting the following relevant standards issued by the FASB:
Standard
 
Description
 
Effective Date
 
 
 
 
 
 
2016-13
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
 
This guidance replaces the existing incurred loss impairment model with an expected loss model and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
 
May 31, 2020
2018-13
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
 
This update eliminates, adds and modifies certain disclosure requirements for fair value measurements. Early adoption is permitted.
 
May 31, 2020
2018-14
Compensation - Retirement Benefits - Defined Benefits Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
 
This update eliminates, adds and clarifies certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Early adoption is permitted.
 
May 30, 2021

All other issued and not yet effective accounting standards are not relevant to the Company.

7



3. Revenue from Contracts with Customers


Disaggregated Revenue

Revenue disaggregated by contract type has been provided in the table below:
 
Three Months Ended
(In millions)
August 31, 2019
 
September 1, 2018
Net Sales:
 
 
 
Single performance obligation
 
 
 
Product revenue
$
566.2

 
$
535.2

Multiple performance obligations
 
 
 
Product revenue
99.9

 
84.8

Service revenue
2.3

 
2.7

Other
2.5

 
1.9

Total
$
670.9

 
$
624.6


Revenue disaggregated by product type and reportable segment has been provided in the table below:
 
Three Months Ended
(In millions)
August 31, 2019
 
September 1, 2018
North America Contract:
 
 
 
Systems
$
147.3

 
$
146.1

Seating
130.2

 
125.6

Freestanding and storage
112.3

 
87.6

Textiles
29.8

 
28.8

Other
38.8

 
32.9

Total North America Contract
$
458.4

 
$
421.0

 
 
 
 
International Contract:
 
 
 
Systems
$
24.0

 
$
22.8

Seating
61.2

 
68.7

Freestanding and storage
14.7

 
10.4

Other
14.0

 
13.5

Total International Contract
$
113.9

 
$
115.4

 
 
 
 
Retail:
 
 
 
Seating
$
60.7

 
$
53.7

Freestanding and storage
17.0

 
17.2

Other
20.9

 
17.3

Total Retail
$
98.6

 
$
88.2

 
 
 
 
Total
$
670.9

 
$
624.6



Refer to Note 16 of the Condensed Consolidated Financial Statements for further information related to our reportable segments.

Contract Assets and Contract Liabilities
The Company records contract assets and contract liabilities related to its revenue generating activities. Contract assets include certain receivables from customers that are unconditional as all performance obligations with respect to the contract with the customer have been completed. These amounts represent trade receivables and they are recorded within the caption “Accounts and notes receivable, net” in the Condensed Consolidated Balance Sheets.

8



Contract assets also include amounts that are conditional because certain performance obligations in the contract with the customer are incomplete as of the balance sheet date. These contract assets generally arise due to contracts with the customer that include multiple performance obligations, both the product that is shipped to the customer by the Company, as well as installation services provided by independent third-party dealers. For these contracts, the Company recognizes revenue upon satisfaction of the product performance obligation. These contract assets are included in the caption "Unbilled accounts receivable" in the Condensed Consolidated Balance Sheets until all performance obligations in the contract with the customer have been satisfied.

Contract liabilities represent deposits made by customers before the satisfaction of performance obligation and recognition of revenue. Upon completion of the performance obligation(s) that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue is recognized. These customer deposits are included within the caption “Customer deposits” in the Condensed Consolidated Balance Sheets. During the three months ended August 31, 2019, the Company recognized Net sales of $19.2 million related to customer deposits that were included in the balance sheet as of June 1, 2019.

4. Leases

Impact of Adoption

The Company adopted ASC 842 - Leases at the beginning of fiscal year 2020. The new standard required the Company to recognize most leases on the balance sheet as right of use (ROU) assets with corresponding lease liabilities. All necessary changes required by the new standard, including those to the Company’s accounting policies, business processes, systems, controls, and disclosures, were implemented as of the first quarter of fiscal year 2020.

As part of the implementation process the Company made the following elections:

The Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases.
The Company elected to make the accounting policy election for short-term leases resulting in lease costs being recorded as an expense on a straight-line basis over the lease term.
The Company elected to not separate lease and non-lease components, for all leases.
The Company did not elect the hindsight practical expedient in determining the lease term and in assessing the likelihood that a lessee purchase option will be exercised, for all leases.
The Company did not elect the land easement practical expedient in determining whether land easements that were not previously accounted for as leases are or contain a lease.

Upon adoption, the cumulative effect of initially applying this new standard resulted in the addition of approximately $245 million of ROU assets, as well as corresponding short-term and long-term lease liabilities of approximately $275 million. Additionally, as a result of adoption, the Company derecognized its construction-type lease asset and financing liability and there was no related cumulative adjustment to retained earnings.

Accounting Policies

The Company primarily has leases for retail studios, showrooms, manufacturing facilities, warehouses, and vehicles, which expire at various dates through 2031. Certain lease agreements include contingent rental payments based on per unit usage over contractual levels and others include rental payments adjusted periodically for inflationary indexes.

Variable lease costs associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease costs are presented as operating expenses in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income in the same line item as expense arising from fixed lease payments for operating leases.

Additionally, certain leases include renewal or termination options, which can be exercised at the Company’s discretion. Lease terms include the noncancelable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods. The Company’s leases do not contain any residual value guarantees or material restrictive covenants.

The Company determines if an arrangement is a lease at contract inception. Arrangements that are leases with an initial term of 12 months or less are not recorded in the Consolidated Condensed Balance Sheets and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. If leased assets have leasehold improvements, the depreciable life of those leasehold improvements are limited by the expected lease term.


9



As none of the Company’s leases provide an implicit discount rate, the Company uses an estimated incremental borrowing rate at the lease commencement date in determining the present value of the lease payments. Relevant information used in determining the Company’s incremental borrowing rate includes the duration of the lease, location of the lease, and the Company’s credit risk relative to risk-free market rates.

Leases

During the three months ended August 31, 2019, lease expense was $15.5 million. The components of lease expense are as follows:
(In millions)
 
Operating lease costs
$
12.7

Short-term lease costs
0.6

Variable lease costs*
2.2

Total
$
15.5

*Not included in the table above are variable lease costs of $21.9 million for raw material purchases under certain supply arrangements that the Company has determined to meet the definition of a lease.

At August 31, 2019, the Company has no financing leases. The undiscounted annual future minimum lease payments related to the Company's right-of-use assets are summarized by fiscal year in the following table:
(In millions)
 
2020
$
36.0

2021
44.8

2022
42.0

2023
38.0

2024
32.3

Thereafter
100.9

Total lease payments*
294.0

Less interest
31.3

Present value of lease liabilities
$
262.7

*Lease payments exclude $26.6 million of legally binding minimum lease payments for leases signed but not yet commenced, primarily related to a new Chicago showroom expected to open in fiscal 2021.

The long-term portion of the lease liabilities included in the amounts above is $200.2 million and the remainder of the lease liabilities are included in other current liabilities in the Consolidated Condensed Balance Sheets.

The following table summarizes future minimum rental payments required under operating leases that have non-cancelable lease terms as of June 1, 2019, prior to the adoption of ASC 842:

(In millions)
 
2020
$
51.7

2021
46.8

2022
42.9

2023
39.0

2024
33.5

Thereafter
101.9

Total
$
315.8



At August 31, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases were 7 years and 3.1%, respectively.
During the three months ended August 31, 2019, the cash paid for leases included in the measurement of the liabilities and the operating cash flows was $12.5 million and the right of use assets obtained in exchange for new liabilities was $4.6 million.


10



5. Acquisitions


Maars Holding B.V.

On August 31, 2018, Herman Miller Holdings Limited, a wholly owned subsidiary of the Company, acquired 48.2% of the outstanding equity of Global Holdings Netherlands B.V., which owns 100% of Maars Holding B.V. ("Maars”), a Harderwijk, Netherlands-based worldwide leader in the design and manufacturing of interior wall solutions. The Company acquired its 48.2% ownership interest in Maars for approximately $6.1 million in cash. The entity is accounted for using the equity method of accounting as the Company has significant influence, but not control, over the entity.

For the Maars equity method investment, the fair values assigned to the assets acquired were based on best estimates and assumptions as of August 31, 2018 and the valuation analysis was completed in the fourth quarter of fiscal 2019.

Nine United Denmark A/S

On June 7, 2018, Herman Miller Holdings Limited, a wholly owned subsidiary of the Company, acquired 33% of the outstanding equity of Nine United Denmark A/S, d/b/a HAY and subsequently renamed to HAY A/S ("HAY”), a Copenhagen, Denmark-based, design leader in furniture and ancillary furnishings for residential and contract markets in Europe and Asia. The Company acquired its 33% ownership interest in HAY for approximately $65.5 million in cash. The entity is accounted for using the equity method of accounting as the Company has significant influence, but not control, over the entity.

The Company also acquired the rights to the HAY brand in North America under a long-term license agreement for approximately $4.8 million in cash. This licensing agreement is recorded as a definite life intangible asset and is being amortized over its 15-year useful life. This asset is recorded within Other amortizable intangibles, net within the Condensed Consolidated Balance Sheets.

For the Hay equity method investment, the fair values assigned to the assets acquired were based on best estimates and assumptions as of June 7, 2018 and the valuation analysis was completed in the third quarter of fiscal 2019 with no differences noted from the preliminary valuation.

Herman Miller Holdings Limited is a party to options, that if exercised, would require Herman Miller Holdings Limited to purchase an additional 33% of the equity in HAY at fair market value.

On October 8, 2019, Herman Miller Holdings Limited entered into a Share Purchase Agreement with Nine United A/S to acquire an additional 34% of the outstanding equity of HAY for approximately $78 million in cash, subject to the terms and conditions of the purchase agreement. Herman Miller Holdings Limited currently expects the acquisition to close on December 2, 2019, subject to the satisfaction or waiver of certain customary closing conditions, as set forth in the purchase agreement. The entity was previously accounted for using the equity method of accounting and as a result of the increased investment will be consolidated in the Company's financial statements in the third quarter of fiscal 2020.

6. Inventories, net


(In millions)
August 31, 2019
 
June 1, 2019
Finished goods
$
137.2

 
$
139.1

Raw materials
44.0

 
45.1

Total
$
181.2

 
$
184.2


Inventories are valued at the lower of cost or market and include material, labor, and overhead. Certain inventories within our North America Contract manufacturing operations are valued using the last-in, first-out (LIFO) method, whereas inventories of other operations are valued using the first-in, first-out (FIFO) method.


11



7. Goodwill and Indefinite-Lived Intangibles


Goodwill and other indefinite-lived intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following as of August 31, 2019 and June 1, 2019:
(In millions)
Goodwill
 
Indefinite-lived Intangible Assets
 
Total Goodwill and Indefinite-lived Intangible Assets
June 1, 2019
$
303.8

 
$
78.1

 
$
381.9

Foreign currency translation adjustments
(0.2
)
 

 
(0.2
)
August 31, 2019
$
303.6

 
$
78.1

 
$
381.7



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. A reporting unit is defined as an operating segment or one level below an operating segment. The Company completed the required annual goodwill impairment test in the fourth quarter of fiscal 2019, as of March 31, 2019, performing a quantitative and qualitative impairment test for all goodwill reporting units and other indefinite-lived intangible assets. The carrying value of the Company's Retail reporting unit was $249.9 million as of June 1, 2019. The calculated fair value of the reporting unit was $282.6 million, which represents an excess fair value of $32.7 million or 13.0%. Due to the level that the reporting unit fair values exceeded the carrying amounts and the results of the sensitivity analysis, the Company may need to record an impairment charge if the operating results of its Retail reporting unit were to decline in future periods.

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 carrying value of the Company's DWR trade name indefinite-lived intangible asset was $55.1 million as of June 1, 2019. The calculated fair value of the DWR trade name was $63.2 million which represents an excess fair value of $8.1 million or 14.6%. If the residual cash flows related to the Company's DWR trade name were to decline in future periods, the Company may need to record an impairment charge.

During the three months ended August 31, 2019, there were no identified indicators of impairment that required the Company to complete an interim quantitative impairment assessment related to any of the Company's reporting units or indefinitely-lived intangible assets.

8. Employee Benefit Plans

The following table summarizes the components of net periodic benefit cost for the Company's International defined benefit pension plan for the three months ended:
(In millions)
August 31, 2019
 
September 1, 2018
Interest cost
$
0.5

 
$
0.7

Expected return on plan assets
(1.0
)
 
(1.2
)
Net amortization loss
0.8

 
0.8

Net periodic benefit cost
$
0.3

 
$
0.3




12



9. Earnings Per Share


The following table reconciles the numerators and denominators used in the calculations of basic and diluted earnings per share (EPS) for the
three months ended:
 
August 31, 2019
 
September 1, 2018
Numerators:
 
 
 
Numerator for both basic and diluted EPS, Net earnings attributable to Herman Miller, Inc. - in millions
$
48.2

 
$
35.8

 
 
 
 
Denominators:
 
 
 
Denominator for basic EPS, weighted-average common shares outstanding
58,909,001

 
59,370,160

Potentially dilutive shares resulting from stock plans
322,727

 
498,954

Denominator for diluted EPS
59,231,728

 
59,869,114

Antidilutive equity awards not included in weighted-average common shares - diluted
123,088

 
161,457



10. Stock-Based Compensation

The following table summarizes the stock-based compensation expense and related income tax effect for the three months ended:
(In millions)
August 31, 2019
 
September 1, 2018
Stock-based compensation expense
$
2.6

 
$
2.5

Related income tax effect
0.6

 
0.6



Certain of the Company's equity-based compensation awards contain provisions that allow for continued vesting into retirement. Stock-based awards are considered fully vested for expense attribution purposes when the employee's retention of the award is no longer contingent on providing subsequent service.

11. Income Taxes


The Company recognizes interest and penalties related to uncertain tax benefits through income tax expense in its Condensed Consolidated Statement of Comprehensive Income. Interest and penalties recognized in the Company's Condensed Consolidated Statement of Comprehensive Income were negligible for the three months ended August 31, 2019 and September 1, 2018.

The Company's recorded liability for potential interest and penalties related to uncertain tax benefits was:
(In millions)
August 31, 2019
 
June 1, 2019
Liability for interest and penalties
$
0.8

 
$
0.7

Liability for uncertain tax positions, current
$
2.0

 
$
1.9



In determining the provision for income taxes for the three months ended August 31, 2019, the Company used an estimated annual effective tax rate which was based on expected annual income and statutory tax rates across the various jurisdictions in which it operates. The effective tax rates were 21.0% and 20.0%, respectively, for the three month periods ended August 31, 2019 and September 1, 2018. The year over year increase in the effective tax rate for the three months ended August 31, 2019 resulted from a decrease in the current quarter tax deduction for certain stock based compensation awards as compared to the same quarter in the prior year. The effective tax rate for the three months ended August 31, 2019 is the same as the United States federal statutory rate. The effective tax rate for the three months ended September 1, 2018 is lower than the United States federal statutory rate due to a tax deduction for the vesting of certain stock-based compensation awards.

The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next twelve months because of the audits. Tax payments related to these audits, if any, are not expected to be material to the Company's Condensed Consolidated Statements of Comprehensive Income.

For the majority of tax jurisdictions, the Company is no longer subject to state, local, or non-United States income tax examinations by tax authorities for fiscal years before 2016.

13



12. Fair Value Measurements


The Company's financial instruments consist of cash equivalents, marketable securities, accounts and notes receivable, deferred compensation plan, accounts payable, debt, interest rate swaps and foreign currency exchange contracts. 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)
August 31, 2019
 
June 1, 2019
Carrying value
$
278.3

 
$
285.0

Fair value
$
280.8

 
$
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 and recorded in net earnings and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy as of August 31, 2019 and June 1, 2019.
(In millions)
August 31, 2019
 
June 1, 2019


Financial Assets
NAV
 
Quoted Prices with
Other Observable Inputs (Level 2)
 
Management Estimate (Level 3)
 
NAV
 
Quoted Prices with
Other Observable Inputs (Level 2)
 
Management Estimate (Level 3)
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
60.6

 
$

 
$

 
$
69.5

 
$

 
$

Mutual funds - equity

 
0.9

 

 

 
0.9

 

Deferred compensation plan

 
13.5

 

 

 
12.5

 

Total
$
60.6

 
$
14.4

 
$

 
$
69.5

 
$
13.4

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Financial Liabilities
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
$

 
$
0.1

 
$

 
$

 
$
1.4

 
$

Total
$

 
$
0.1

 
$

 
$

 
$
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 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.

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.


14



The following table sets forth financial assets and liabilities measured at fair value and recorded in other comprehensive income and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy as of August 31, 2019 and June 1, 2019.
(In millions)
August 31, 2019
 
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
$
8.1

 
$
7.9

Interest rate swap agreement

 
1.0

Total
$
8.1

 
$
8.9

 
 
 
 
Financial Liabilities
 
 
 
Interest rate swap agreement
$
12.7

 
$
2.2

Total
$
12.7

 
$
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 respective dates:
 
August 31, 2019
 
June 1, 2019
(In millions)
Cost
 
Unrealized
Gain/(Loss)
 
Market
Value
 
Cost
 
Unrealized
Gain/(Loss)
 
Market
Value
Mutual funds - fixed income
$
8.0

 
$
0.1

 
$
8.1

 
$
7.9

 
$

 
$
7.9

Mutual funds - equity
0.7

 
0.2

 
0.9

 
0.8

 
0.1

 
0.9

Total
$
8.7

 
$
0.3

 
$
9.0

 
$
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 Condensed 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 Condensed 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 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 expenses (income): Other, net, for both realized and unrealized gains and losses.


15



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 August 31, 2019. 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% fixed interest rate plus applicable margin under the agreement as of the forward start date.

On June 12, 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% fixed interest rate plus applicable margin under the agreement as of the forward start date.

As of August 31, 2019, the fair value of the Company’s two outstanding interest rate swap agreements, which are designated cash flow hedges, was a liability of 12.7 million. The liability fair value was recorded within Other liabilities within the Condensed 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 $8.8 million and $0.5 million for the three months ended August 31, 2019 and September 1, 2018, respectively.

There were no gains or losses recognized in earnings for hedge ineffectiveness for the three month periods ended August 31, 2019 and September 1, 2018, respectively. The gains reclassified from Accumulated other comprehensive loss into earnings were $0.2 million and zero for the three month periods ended August 31, 2019 and September 1, 2018, respectively. Losses expected to be reclassified from Accumulated other comprehensive loss into earnings during the next twelve months are $0.6 million. The amount of loss, net of tax, expected to be reclassified out of Accumulated other comprehensive loss into earnings during the next twelve months is $0.5 million.

Redeemable Noncontrolling Interests

Redeemable noncontrolling interests are reported on the Consolidated Balance Sheets in mezzanine equity in “Redeemable noncontrolling interests.” As of June 1, 2019, the outstanding redeemable noncontrolling interests were $20.6 million, and represented an approximate 5% minority ownership in the Company's subsidiary, Herman Miller Consumer Holdings, Inc. ("HMCH"). During the three month period ended August 31, 2019, the Company acquired all of the remaining redeemable noncontrolling equity interests. HMCH redeemed certain HMCH stock for cash and then, on August 23, 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. Cash paid for these interests during the three month period ended August 31, 2019 was $19.8 million, with the remaining payments completed during the second quarter of fiscal 2020. This compares to purchases of $10.0 million during the three month period ended September 1, 2018.

16



13. Commitments and Contingencies


Product Warranties

The Company provides coverage to the end-user for parts and labor on products sold under its warranty policy and for other product-related matters. The standard length of warranty is 12 years for the majority of products sold; however, this varies depending on the product classification. The Company does not sell or otherwise issue warranties or warranty extensions as stand-alone products. Reserves have been established for the various costs associated with the Company's warranty program and are included in the Condensed Consolidated Balance Sheets under “Accrued warranty.” General warranty reserves are based on historical claims experience and other currently available information. These reserves are adjusted if required and the actual cost of correction becomes known or can be estimated. The Company provides an assurance-type warranty that ensures that products will function as intended. As such, the Company's estimated warranty obligation is accounted for as a liability.
 
Three Months Ended
(In millions)
August 31, 2019
 
September 1, 2018
Accrual Balance — beginning
$
53.1

 
$
51.5

Accrual for product-related matters
5.3

 
5.6

Settlements and adjustments
(5.1
)
 
(5.0
)
Accrual Balance — ending
$
53.3

 
$
52.1



Guarantees

The Company is periodically required to provide performance bonds to do business with certain customers. These arrangements are common in the industry and generally have terms ranging between one and three years. The bonds are required to provide assurance to customers that the products and services they have purchased will be installed and/or provided properly and without damage to their facilities. The bonds are provided by various bonding agencies. However, the Company is ultimately liable for claims that may occur against them. As of August 31, 2019, the Company had a maximum financial exposure related to performance bonds totaling approximately $4.6 million. The Company has no history of claims, nor is it aware of circumstances that would require it to pay, under any of these arrangements. The Company also believes that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect the Company's consolidated financial statements. Accordingly, no liability has been recorded in respect to these bonds as of either August 31, 2019 or June 1, 2019.

The Company has entered into standby letter of credit arrangements for purposes of protecting various insurance companies and lessors against default on insurance premium and lease payments. As of August 31, 2019, the Company had a maximum financial exposure from these standby letters of credit totaling approximately $9.8 million, all of which is considered usage against the Company's revolving line of credit. The Company has no history of claims, nor is it aware of circumstances that would require it to perform under any of these arrangements and believes that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect the Company's consolidated financial statements. Accordingly, no liability has been recorded in respect to these arrangements as of August 31, 2019 and June 1, 2019.

Contingencies

The Company is also 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.


17



14. Debt


Long-term debt as of August 31, 2019 and June 1, 2019 consisted of the following obligations:
(In millions)
August 31, 2019
 
June 1, 2019
Debt securities, due March 1, 2021
$
50.0

 
$
50.0

Syndicated revolving line of credit, due September 2021
225.0

 
225.0

Construction-Type Lease

 
6.9

Supplier financing program
3.3

 
3.1

Total debt
$
278.3

 
$
285.0

Less: Current debt
(3.3
)
 
(3.1
)
Long-term debt
$
275.0

 
$
281.9



As of June 1, 2019, the Company's syndicated revolving line of credit provided the Company with up to $400 million in revolving variable interest borrowing capacity and included an "accordion feature" allowing the Company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing capacity of the facility by up to $200 million. On August 28, 2019, the Company entered into an amendment and restatement of its existing unsecured credit facility (the "Agreement"). The Agreement, which expires on August 28, 2024, provides the Company with up to $500 million in revolving variable interest borrowing capacity and includes an "accordion feature" allowing the Company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing capacity of the facility by up to $250 million. Outstanding borrowings bear interest at rates based on the prime rate, federal funds rate, LIBOR or negotiated rates as outlined in the agreement. Interest is payable periodically throughout the period if borrowings are outstanding.

As of August 31, 2019, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $225.0 million. Available borrowings against this facility were $265.2 million due to $9.8 million related to outstanding letters of credit. As of June 1, 2019, total debt outstanding related to borrowings under the syndicated revolving line of credit was $225.0 million and available borrowings were $165.0 million due to $10.0 million of outstanding letters of credit.

Supplier Financing Program

The Company has an agreement with a third-party financial institution that allows certain participating suppliers the ability to finance payment obligations from the Company. Under this program, participating suppliers may finance payment obligations of the Company, prior to their scheduled due dates, at a discounted price to the third-party financial institution.

The Company has lengthened the payment terms for certain suppliers that have chosen to participate in the program. As a result, certain amounts due to suppliers have payment terms that are longer than standard industry practice and as such, these amounts have been excluded from the caption “Accounts payable” in the Condensed Consolidated Balance Sheets as the amounts have been accounted for by the Company as a current debt obligation. Accordingly, $3.3 million and $3.1 million have been recorded within the caption “Other accrued liabilities” for the periods ended August 31, 2019 and June 1, 2019, respectively.

Construction-Type Lease

During fiscal 2015, the Company entered into a lease agreement for the occupancy of a new studio facility in Palo Alto, California which runs through fiscal 2026. In fiscal 2017, the Company became the deemed owner of the leased building for accounting purposes as a result of the Company's involvement during the construction phase of the project. The lease was therefore accounted for as a financing lease and the building and related financing liability were initially recorded at fair value in the Consolidated Balance Sheets within Construction in progress and Other accrued liabilities. During the first quarter of fiscal 2019, the construction was substantially completed, and the property was placed in service. As a result, the Company began depreciating the assets over their estimated useful lives. The Company also reclassified the related financing liability to Long-term debt. The carrying value of the building and the related financing liability were both $6.9 million at June 1, 2019. As a result of the adoption of ASC 842, the Company derecognized its construction-type lease asset and financing liability and there was no related cumulative adjustment to retained earnings.



18



15. Accumulated Other Comprehensive Loss

The following table provides an analysis of the changes in accumulated other comprehensive loss for the three months ended August 31, 2019 and September 1, 2018:
(In millions)
Cumulative Translation Adjustments
 
Pension and Other Post-retirement Benefit Plans
 
Unrealized
Gains on Available-for-sale Securities
 
Interest Rate Swap Agreement
 
Accumulated Other Comprehensive Loss
Balance at June 1, 2019
$
(48.3
)
 
$
(