Company Quick10K Filing
Quick10K
Kimball
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$14.86 37 $546
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-02-04 Earnings, Regulation FD, Exhibits
8-K 2018-11-02 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-10-30 Officers, Amend Bylaw, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-10-25 Officers, Regulation FD, Exhibits
8-K 2018-08-01 Earnings, Regulation FD, Exhibits
8-K 2018-07-06 Regulation FD, Exhibits
8-K 2018-07-02 Officers, Exhibits
8-K 2018-05-07 Officers, Exhibits
8-K 2018-05-01 Earnings, Regulation FD, Exhibits
8-K 2018-01-31 Earnings, Regulation FD, Exhibits
8-K 2018-01-22 Officers, Exhibits
JT Jianpu Technology 842
BY Byline Bancorp 691
DS Drive Shack 335
GNTY Guaranty Bancshares 326
SLDB Solid Biosciences 316
TRIB Trinity Biotech 59
TEHG Technovative Group 0
AITB AIT Therapeutics 0
APOL Apollo Education 0
RAS RAIT Financial Trust 0
KBAL 2018-12-31
Part I. Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Recent Accounting Pronouncements and Supplemental Information
Note 3. Acquisition
Note 4. Revenue
Note 5. Income Taxes
Note 6. Inventories
Note 7. Accumulated Other Comprehensive Income
Note 8. Commitments and Contingent Liabilities
Note 9. Earnings per Share
Note 10. Fair Value
Note 11. Investments
Note 12. Derivative Instruments
Note 13. Postemployment Benefits
Note 14. Stock Compensation
Note 15. Variable Interest Entities
Note 16. Credit Quality and Allowance for Credit Losses of Notes Receivable
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 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.A exhibit10a12312018q2.htm
EX-31.1 exhibit31112312018q2.htm
EX-31.2 exhibit31212312018q2.htm
EX-32.1 exhibit32112312018q2.htm
EX-32.2 exhibit32212312018q2.htm

Kimball Earnings 2018-12-31

KBAL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 kbal10q12312018q2.htm KIMBALL INTERNATIONAL, INC. FORM 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2018
OR
o 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    0-3279
kimballlogonobrand.jpg
KIMBALL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Indiana
 
35-0514506
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
1600 Royal Street, Jasper, Indiana
 
47549-1001
(Address of principal executive offices)
 
(Zip Code)
(812) 482-1600
Registrant’s telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last report

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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  o                                                                                       Accelerated filer  x 
Non-accelerated filer  o                                      Smaller reporting company  o
Emerging growth company  o
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 Exchange Act). 
Yes  o    No  x

The number of shares outstanding of the Registrant’s common stock as of January 23, 2019 was:
Class A Common Stock - 257,079 shares
Class B Common Stock - 36,454,633 shares




KIMBALL INTERNATIONAL, INC.
FORM 10-Q
INDEX
 
Page No.
 
 
 
 
PART I    FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II    OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
 
(Unaudited)
 
 

 
December 31,
2018
 
June 30,
2018
ASSETS
 

 
 

Current Assets:
 

 
 

Cash and cash equivalents
$
38,993

 
$
52,663

Short-term investments
42,076

 
34,607

Receivables, net of allowances of $1,362 and $1,317, respectively
64,085

 
62,276

Inventories
48,994

 
39,509

Prepaid expenses and other current assets
15,331

 
18,523

Assets held for sale
281

 
281

Total current assets
209,760

 
207,859

Property and Equipment, net of accumulated depreciation of $181,743 and $180,059, respectively
88,433

 
84,487

Goodwill
11,161

 
8,824

Other Intangible Assets, net of accumulated amortization of $37,688 and $36,757, respectively
12,022

 
12,607

Deferred Tax Assets
6,828

 
4,916

Other Assets
12,090

 
12,767

Total Assets
$
340,294

 
$
331,460

 
 
 
 
LIABILITIES AND SHAREOWNERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Current maturities of long-term debt
$
25

 
$
23

Accounts payable
52,236

 
48,214

Customer deposits
26,849

 
21,253

Dividends payable
3,044

 
2,662

Accrued expenses
42,491

 
50,586

Total current liabilities
124,645

 
122,738

Other Liabilities:
 
 
 
Long-term debt, less current maturities
136

 
161

Other
14,642

 
15,537

Total other liabilities
14,778

 
15,698

Shareowners’ Equity:
 
 
 
Common stock-par value $0.05 per share:
 
 
 
Class A - Shares authorized: 50,000,000
               Shares issued: 257,000 and 264,000, respectively
13

 
13

Class B - Shares authorized: 100,000,000
               Shares issued: 42,768,000 and 42,761,000, respectively
2,138

 
2,138

Additional paid-in capital
2,607

 
1,881

Retained earnings
264,267

 
249,945

Accumulated other comprehensive income
1,861

 
1,816

Less: Treasury stock, at cost, 6,324,000 shares and 5,901,000 shares, respectively
(70,015
)
 
(62,769
)
Total Shareowners’ Equity
200,871

 
193,024

Total Liabilities and Shareowners’ Equity
$
340,294

 
$
331,460


3



KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
 
(Unaudited)
 
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
December 31
 
December 31
 
2018
 
2017
 
2018
 
2017
Net Sales
$
201,008

 
$
178,614

 
$
395,131

 
$
353,974

Cost of Sales
136,019

 
121,194

 
264,269

 
232,547

Gross Profit
64,989

 
57,420

 
130,862

 
121,427

Selling and Administrative Expenses
51,491

 
45,415

 
103,670

 
93,465

Operating Income
13,498

 
12,005

 
27,192

 
27,962

Other Income (Expense):
 
 
 
 
 
 
 
Interest income
428

 
234

 
847

 
468

Interest expense
(56
)
 
(74
)
 
(106
)
 
(105
)
Non-operating income (expense), net
(1,226
)
 
263

 
(899
)
 
549

Other income (expense), net
(854
)
 
423

 
(158
)
 
912

Income Before Taxes on Income
12,644

 
12,428

 
27,034

 
28,874

Provision for Income Taxes
3,239

 
5,050

 
6,753

 
10,539

Net Income
$
9,405

 
$
7,378

 
$
20,281

 
$
18,335

 
 
 
 
 
 
 
 
Earnings Per Share of Common Stock:
 

 
 

 
 
 
 
Basic Earnings Per Share
$
0.26

 
$
0.20

 
$
0.55

 
$
0.49

Diluted Earnings Per Share
$
0.25

 
$
0.20

 
$
0.54

 
$
0.49

 
 
 
 
 
 
 
 
Dividends Per Share of Common Stock
$
0.08

 
$
0.07

 
$
0.16

 
$
0.14

 
 
 
 
 
 
 
 
Class A and B Common Stock:
 
 
 
 
 
 
 
Average Number of Shares Outstanding - Basic
36,793

 
37,476

 
36,951

 
37,452

Average Number of Shares Outstanding - Diluted
37,088

 
37,736

 
37,347

 
37,775



4



KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
 
(Unaudited)
 
(Unaudited)
 
Three Months Ended
 
Three Months Ended
 
December 31, 2018
 
December 31, 2017
(Unaudited)
Pre-tax
 
Tax
 
Net of Tax
 
Pre-tax
 
Tax
 
Net of Tax
Net income
 
 
 
 
$
9,405

 
 
 
 
 
$
7,378

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
$
41

 
$
(11
)
 
$
30

 
$
(44
)
 
$
17

 
$
(27
)
Postemployment severance actuarial change
158

 
(41
)
 
117

 
239

 
(84
)
 
155

Derivative gain (loss)
(2
)
 

 
(2
)
 

 

 

Reclassification to (earnings) loss:
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities

 

 

 
3

 
(1
)
 
2

Amortization of actuarial change
(103
)
 
27

 
(76
)
 
(66
)
 
17

 
(49
)
Derivatives
5

 
(1
)
 
4

 

 

 

Other comprehensive income (loss)
$
99

 
$
(26
)
 
$
73

 
$
132

 
$
(51
)
 
$
81

Total comprehensive income
 
 
 
 
$
9,478

 
 
 
 
 
$
7,459

 
(Unaudited)
 
(Unaudited)
 
Six Months Ended
 
Six Months Ended
 
December 31, 2018
 
December 31, 2017
(Unaudited)
Pre-tax
 
Tax
 
Net of Tax
 
Pre-tax
 
Tax
 
Net of Tax
Net income
 
 
 
 
$
20,281

 
 
 
 
 
$
18,335

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
$
15

 
$
(4
)
 
$
11

 
$
(30
)
 
$
12

 
$
(18
)
Postemployment severance actuarial change
238

 
(61
)
 
177

 
506

 
(188
)
 
318

Derivative gain (loss)
(11
)
 
2

 
(9
)
 

 

 

Reclassification to (earnings) loss:
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities

 

 

 
3

 
(1
)
 
2

Amortization of actuarial change
(202
)
 
52

 
(150
)
 
(133
)
 
43

 
(90
)
Derivatives
21

 
(5
)
 
16

 

 

 

Other comprehensive income (loss)
$
61

 
$
(16
)
 
$
45

 
$
346

 
$
(134
)
 
$
212

Total comprehensive income
 
 
 
 
$
20,326

 
 
 
 
 
$
18,547



5



KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
 
(Unaudited)
 
Six Months Ended
 
December 31
 
2018
 
2017
Cash Flows From Operating Activities:
 
 
 
Net income
$
20,281

 
$
18,335

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
8,320

 
7,542

Gain on sales of assets
(1,164
)
 
(2,153
)
Deferred income tax and other deferred charges
(1,907
)
 
5,369

Stock-based compensation
3,628

 
2,511

Other, net
(1,166
)
 
729

Change in operating assets and liabilities:
 
 
 
Receivables
(1,486
)
 
2,203

Inventories
(6,745
)
 
656

Prepaid expenses and other current assets
2,795

 
(8,892
)
Accounts payable
3,292

 
(1,938
)
Customer deposits
5,596

 
4,529

Accrued expenses
(7,536
)
 
(13,509
)
Net cash provided by operating activities
23,908

 
15,382

Cash Flows From Investing Activities:
 
 
 
Capital expenditures
(10,346
)
 
(11,722
)
Proceeds from sales of assets
1,269

 
5,630

Cash paid for acquisitions
(4,850
)
 
(17,800
)
Purchases of capitalized software
(374
)
 
(423
)
Purchases of available-for-sale securities
(26,196
)
 
(18,902
)
Maturities of available-for-sale securities
18,618

 
16,477

Other, net
30

 
(133
)
Net cash used for investing activities
(21,849
)
 
(26,873
)
Cash Flows From Financing Activities:
 
 
 
Net change in capital leases and long-term debt
(23
)
 
(26
)
Dividends paid to shareowners
(5,562
)
 
(4,857
)
Repurchases of Common Stock
(9,130
)
 
(1,781
)
Repurchase of employee shares for tax withholding
(1,035
)
 
(2,426
)
Net cash used for financing activities
(15,750
)
 
(9,090
)
Net Decrease in Cash, Cash Equivalents, and Restricted Cash (1)
(13,691
)
 
(20,581
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period (1)
53,321

 
63,088

Cash, Cash Equivalents, and Restricted Cash at End of Period (1)
$
39,630

 
$
42,507

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
Income taxes
$
2,641

 
$
13,139

Interest expense
$
69

 
$
105


(1) The following table reconciles cash, cash equivalents, and restricted cash per the statements of cash flows to the balance sheets. The restricted cash included in other assets on the balance sheet represents amounts pledged as collateral for a long-term financing arrangement as contractually required by a lender. The restriction will lapse when the related long-term debt is paid off. Beginning in the second quarter of fiscal year 2018, restricted cash also included customer deposits held due to a foreign entity being classified as a restricted entity by a government agency subsequent to our receipt of the deposit.
(Amounts in Thousands)
December 31,
2018
 
June 30,
2018
 
December 31,
2017
 
June 30,
2017
Cash and Cash Equivalents
$
38,993

 
$
52,663

 
$
41,852

 
$
62,882

Restricted cash included in Other Assets
637

 
658

 
655

 
206

Total Cash, Cash Equivalents, and Restricted Cash at end of period
$
39,630

 
$
53,321

 
$
42,507

 
$
63,088


6



KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREOWNERS’ EQUITY
(Amounts in Thousands, Except for Share and Per Share Data)
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury Stock
 
Total Shareowners’ Equity
Three months ended December 31, 2018 (Unaudited)
Class A
 
Class B
 
Amounts at September 30, 2018
$
13

 
$
2,138

 
$
1,431

 
$
257,825

 
$
1,788

 
$
(64,511
)
 
$
198,684

Net income
 
 
 
 
 
 
9,405

 
 
 
 
 
9,405

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
73

 
 
 
73

Issuance of non-restricted stock (9,000 shares)
 
 
 
 
(125
)
 
 
 
 
 
125

 

Conversion of Class A to Class B common stock (7,000 shares)

 

 
 
 
 
 
 
 
 
 

Compensation expense related to stock incentive plans
 
 
 
 
1,683

 
 
 
 
 
 
 
1,683

Restricted share units issuance (15,000 shares)
 
 
 
 
(382
)
 
 
 
 
 
201

 
(181
)
Repurchase of Common Stock (371,000 shares)
 
 
 
 
 
 
 
 
 
 
(5,830
)
 
(5,830
)
Dividends declared ($0.08 per share)
 
 
 
 
 
 
(2,963
)
 
 
 
 
 
(2,963
)
Amounts at December 31, 2018
$
13

 
$
2,138

 
$
2,607

 
$
264,267

 
$
1,861

 
$
(70,015
)
 
$
200,871

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended December 31, 2017 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts at September 30, 2017
$
14

 
$
2,137

 
$
712

 
$
234,616

 
$
1,246

 
$
(56,710
)
 
$
182,015

Net income
 
 
 
 
 
 
7,378

 
 
 
 
 
7,378

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
81

 
 
 
81

Issuance of non-restricted stock (9,000 shares)
 
 
 
 
(121
)
 
 
 
 
 
120

 
(1
)
Conversion of Class A to Class B common stock (1,000 shares)

 

 
 
 
 
 
 
 
 
 

Compensation expense related to stock incentive plans
 
 
 
 
975

 
 
 
 
 
 
 
975

Performance share issuance
 
 
 
 
 
 
1

 
 
 
 
 
1

Repurchase of Common Stock (2,000 shares)
 
 
 
 
 
 
 
 
 
 
(35
)
 
(35
)
Dividends declared ($0.07 per share)
 
 
 
 
 
 
(2,641
)
 
 
 
 
 
(2,641
)
Amounts at December 31, 2017
$
14

 
$
2,137

 
$
1,566

 
$
239,354

 
$
1,327

 
$
(56,625
)
 
$
187,773

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended December 31, 2018 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts at June 30, 2018
$
13

 
$
2,138

 
$
1,881

 
$
249,945

 
$
1,816

 
$
(62,769
)
 
$
193,024

Net income
 
 
 
 
 
 
20,281

 
 
 
 
 
20,281

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
45

 
 
 
45

Issuance of non-restricted stock (21,000 shares)
 
 
 
 
(288
)
 
 
 
 
 
276

 
(12
)
Conversion of Class A to Class B common stock (7,000 shares)

 

 
 
 
 
 
 
 
 
 

Compensation expense related to stock incentive plans
 
 
 
 
3,628

 
 
 
 
 
 
 
3,628

Performance share issuance (81,000 shares)
 
 
 
 
(1,709
)
 
 
 
 
 
1,057

 
(652
)
Restricted share units issuance (15,000 shares)
 
 
 
 
(382
)
 
 
 
 
 
201

 
(181
)
Relative total shareholder return performance units issuance (27,000 shares)
 
 
 
 
(523
)
 
 
 
 
 
350

 
(173
)
Repurchase of Common Stock (567,000 shares)
 
 
 
 
 
 
 
 
 
 
(9,130
)
 
(9,130
)
Dividends declared ($0.16 per share)
 
 
 
 
 
 
(5,959
)
 
 
 
 
 
(5,959
)
Amounts at December 31, 2018
$
13

 
$
2,138

 
$
2,607

 
$
264,267

 
$
1,861

 
$
(70,015
)
 
$
200,871

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended December 31, 2017 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts at June 30, 2017
$
14

 
$
2,137

 
$
2,971

 
$
230,763

 
$
1,115

 
$
(60,796
)
 
$
176,204

Net income
 
 
 
 
 
 
18,335

 
 
 
 
 
18,335

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
212

 
 
 
212

Issuance of non-restricted stock (19,000 shares)
 
 
 
 
(372
)
 
 
 
 
 
373

 
1

Conversion of Class A to Class B common stock (1,000 shares)

 

 
 
 
 
 
 
 
 
 

Compensation expense related to stock incentive plans
 
 
 
 
2,511

 
 
 
 
 
 
 
2,511

Performance share issuance (226,000 shares)
 
 
 
 
(2,261
)
 
(4,462
)
 
 
 
4,622

 
(2,101
)
Relative total shareholder return performance units issuance (38,000 shares)
 
 
 
 
(1,283
)
 
 
 
 
 
957

 
(326
)
Repurchase of Common Stock (107,000 shares)
 
 
 
 
 
 
 
 
 
 
(1,781
)
 
(1,781
)
Dividends declared ($0.14 per share)
 
 
 
 
 
 
(5,282
)
 
 
 
 
 
(5,282
)
Amounts at December 31, 2017
$
14

 
$
2,137

 
$
1,566

 
$
239,354

 
$
1,327

 
$
(56,625
)
 
$
187,773


7



KIMBALL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Kimball International, Inc. (the “Company,” “Kimball International,” “we,” “us,” or “our”) have been prepared in accordance with the instructions to Form 10-Q. As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although we believe that the disclosures are adequate to make the information presented not misleading. Intercompany transactions and balances have been eliminated. Management believes the financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly the financial statements for the interim periods. The results of operations for the interim periods shown in this report are not necessarily indicative of results for any future interim period or for the entire fiscal year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in our latest annual report on Form 10-K.
Prior Period Reclassifications
Our prior period financial statements were recast for the full retrospective adoption of guidance on the recognition of revenue from contracts with customers. Certain prior period amounts on the Condensed Consolidated Statements of Cash Flows have also been recast to incorporate restricted cash flows and restricted cash balances, as a result of the retrospective adoption of new accounting guidance.
Note 2. Recent Accounting Pronouncements and Supplemental Information
Recently Adopted Accounting Pronouncements:
In August 2018, the Securities and Exchange Commission adopted disclosure and simplification amendments which update certain disclosure requirements that were redundant, duplicative, overlapping, outdated, or superseded. The amendments require a shareowners’ equity statement provided in interim financial statements or in a note. The adoption resulted in the addition of an interim Condensed Consolidated Statements of Shareowners’ Equity.
In June 2018, the Financial Accounting Standards Board (“FASB”) issued guidance to improve the accounting for and to reduce the cost and complexity of share-based payments to nonemployees for goods and services. The guidance is effective for our first quarter of fiscal year 2020 with early adoption permitted, but it may not be adopted earlier than our adoption of the new revenue standard. We early adopted the guidance in our first quarter of fiscal year 2019 in advance of the October 2018 retirement of our Chief Executive Officer and Chairman of the Board of Directors, who will have stock compensation awards vesting after his retirement. The adoption did not have a material effect on our condensed consolidated financial statements.
In May 2017, the FASB issued guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The guidance was adopted during our first quarter of fiscal year 2019 and was applied prospectively to awards modified on or after the adoption date. The adoption of the guidance did not have a material effect on our condensed consolidated financial statements.
In March 2017, the FASB issued guidance that requires employers that present a measure of operating income in their statement of income to include only the service cost component of net periodic benefit cost in operating expenses, which will impact the presentation of our postemployment benefit plan. Employers are required to present all other components of Net periodic benefit cost separate from the service costs and disclose the line item in which the components of Net periodic benefit cost other than the service cost are included. Due to the immaterial amounts in prior periods we did not apply the rule retrospectively. The guidance was adopted during our first quarter of fiscal year 2019 and did not have a material effect on our condensed consolidated financial statements.
In February 2017, the FASB issued guidance that clarifies the scope of guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. This new guidance is meant to clarify the scope of the original guidance that was issued in connection with the guidance relating to the recognition of revenue from contracts with customers, as defined below, which addresses recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. The guidance was adopted during our first quarter of fiscal year 2019 concurrently with the adoption of the guidance on recognition of revenue from contracts with customers. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

8



In November 2016, the FASB issued guidance which requires an entity to include in their cash and cash equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. The guidance was adopted during our first quarter of fiscal year 2019 and was applied retrospectively to each prior reporting period. The guidance resulted in certain prior period amounts being reclassified to conform with the current period presentation, including the addition of restricted cash to cash and cash equivalents on the Condensed Consolidated Statements of Cash Flows.
In January 2016, the FASB issued guidance which is intended to improve the recognition and measurement of financial instruments. The guidance revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with the fair value of financial instruments. The guidance was adopted during our first quarter of fiscal year 2019 and did not have a material effect on our condensed consolidated financial statements.
In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. To achieve this core principle, the guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance addresses several areas including transfer of control, contracts with multiple performance obligations, and costs to obtain and fulfill contracts. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB decided to defer the effective date for this new revenue standard by one year, which made the guidance effective for our first quarter of fiscal year 2019 financial statements using either of two acceptable adoption methods: (i) full retrospective adoption to each prior reporting period presented with the option to elect certain practical expedients; or (ii) adoption with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures. In March 2016, the FASB issued additional guidance which further clarified assessing whether an entity is a principal or an agent in a revenue transaction, and impacted whether an entity reports revenue on a gross or net basis; in April 2016, the FASB issued additional guidance that addressed identifying performance obligations and implementing licensing guidance; and in May 2016, the FASB issued additional guidance that clarified collectability, noncash consideration, and other transition issues. The amendments had the same effective date and transition requirements as the new revenue standard. We adopted the standard at the beginning of fiscal year 2019 using the full retrospective approach which required that we recast prior year comparative periods to provide comparable financial reporting for all reported fiscal years. All changes required by the new standard, including accounting policies, controls, and disclosures, have been identified and implemented as of the beginning of fiscal 2019. We applied the transition practical expedient related to remaining performance obligations for reporting periods presented before the date of initial application. See Note 4 - Revenue in the Notes to Condensed Consolidated Financial Statements for more information on revenue recognition.
Recently Issued Accounting Pronouncements Not Yet Adopted:
In August 2018, the FASB issued guidance on a customer’s accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor. Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The guidance is effective for our first quarter of fiscal year 2021 with early adoption permitted. Entities can choose to adopt the guidance prospectively to eligible costs incurred on or after the date this guidance is first applied or retrospectively. We have not yet determined the effect of this guidance on our condensed consolidated financial statements.
In August 2018, the FASB issued guidance to add, remove, and clarify disclosure requirements related to defined pension benefit and other postretirement plans. The guidance is effective for our first quarter of fiscal year 2021 with early adoption permitted and should be applied retrospectively. We have not yet determined the effect of this guidance on our condensed consolidated financial statements.
In August 2018, the FASB issued guidance which changes the fair value measurement disclosure requirements. The guidance modifies and removes certain disclosures related to the fair value hierarchy, and adds new disclosure requirements such as disclosing the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for our first quarter of fiscal year 2021 with early adoption permitted and should be applied retrospectively except for certain disclosures. We have not yet determined the effect of this guidance on our condensed consolidated financial statements.

9



In March 2017, the FASB issued guidance that will shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. This guidance does not require an accounting change for securities held at a discount. This guidance is to be applied on a modified retrospective basis, with a cumulative-effect adjustment recorded directly to retained earnings as of the beginning of the period of adoption. The guidance is effective for our first quarter of fiscal year 2020 with early adoption permitted. We have not yet determined the effect of this guidance on our condensed consolidated financial statements.
In June 2016, the FASB issued guidance on the measurement of credit losses on financial instruments. Under the guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The guidance is also intended to reduce the complexity by decreasing the number of credit impairment models that entities use to account for debt instruments. The guidance is effective for our first quarter of fiscal year 2021 with early adoption in our fiscal year 2020 permitted. We have not yet determined the effect of this guidance on our condensed consolidated financial statements.
In February 2016, the FASB issued guidance that revises the accounting for leases. The guidance is intended to improve financial reporting of leasing transactions by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Leases will continue to be classified as either operating or finance leases, with the classification affecting the pattern of expense recognition in the statement of income. The guidance will also require additional disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. In January 2018, the FASB issued additional guidance for land easements which permits entities to forgo the evaluation of existing land easement arrangements to determine if they contain a lease. New land easement arrangements, or modifications to existing arrangements, after the adoption of the lease standard will be evaluated to determine if they meet the definition of a lease. In July 2018, the FASB amended the new standard to clarify certain aspects of the guidance, and they also issued another new standard in July 2018 that allows the option to apply the transition provisions at the adoption date instead of at the earliest comparative period in the condensed consolidated financial statements. The guidance is effective for our first quarter of fiscal year 2020 with early adoption permitted. We have assessed our portfolio of leases and compiled a central repository of active leases. We are also evaluating key policy elections under the standard which we will use to develop an internal policy to address the new standard requirements. While we continue to assess the impact on our accounting policies, internal control processes, and related disclosures required under the new guidance, we will be required to record a right-of-use asset and a lease liability for all leases with a lease term of greater than twelve months. We do not expect this standard to materially affect our consolidated net income. These conclusions could change as we continue to evaluate the new standard or if our lease portfolio changes. We anticipate electing certain of the available practical expedients, including the transition option, upon adoption on July 1, 2019.
Goodwill and Other Intangible Assets:
Goodwill represents the difference between the purchase price and the related underlying tangible and intangible net asset fair values resulting from business acquisitions. Goodwill is assigned to and the fair value is tested at the reporting unit level. Annually, or if conditions indicate an earlier review is necessary, we may assess qualitative factors to determine if it is more likely than not that the fair value is less than its carrying amount. We also have the option to bypass the qualitative assessment and proceed directly to performing the quantitative goodwill impairment test which compares the carrying value of the reporting unit to the reporting unit’s fair value to identify impairment. Under the quantitative assessment, if the fair value of the reporting unit is less than the carrying value, goodwill is written down to its fair value. The fair value is established primarily using a discounted cash flow analysis and secondarily a market approach utilizing current industry information. The calculation of the fair value of the reporting unit considers current market conditions existing at the assessment date. During the quarter ended December 31, 2018, we assessed goodwill for impairment, and no goodwill impairment was recognized.
During fiscal year 2019, we recorded $2.1 million in goodwill from the acquisition of David Edward. During fiscal year 2018, we recorded $8.8 million and $10.7 million, respectively, in goodwill and other intangible assets from the acquisition of D’style, Inc. We recorded an additional $0.2 million of goodwill during fiscal year 2019 as a result of a working capital adjustment related to the acquisition of D’style. See Note 3 - Acquisition in the Notes to Condensed Consolidated Financial Statements for more information on this acquisition.

10



Other Intangible Assets reported on the Condensed Consolidated Balance Sheets consist of capitalized software, product rights, customer relationships, trade names, and non-compete agreements. Intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets. A summary of intangible assets subject to amortization is as follows:
 
December 31, 2018
 
June 30, 2018
(Amounts in Thousands)
Cost
 
Accumulated
Amortization
 
Net Value
 
Cost
 
Accumulated
Amortization
 
Net Value
Capitalized Software
$
38,828

 
$
36,360

 
$
2,468

 
$
38,482

 
$
35,922

 
$
2,560

Product Rights
162

 
162

 

 
162

 
162

 

Customer Relationships
7,050

 
726

 
6,324

 
7,050

 
422

 
6,628

Trade Names
3,570

 
417

 
3,153

 
3,570

 
238

 
3,332

Non-Compete Agreements
100

 
23

 
77

 
100

 
13

 
87

Other Intangible Assets
$
49,710

 
$
37,688

 
$
12,022

 
$
49,364

 
$
36,757

 
$
12,607

Amortization expense related to intangible assets was, in thousands, $484 and $959 during the quarter and year-to-date period ended December 31, 2018, and was, in thousands, $451 and $746 during the quarter and year-to-date period ended December 31, 2017. Amortization expense in future periods is expected to be, in thousands, $981 for the remainder of fiscal year 2019, and $2,047, $1,664, $1,295, and $1,052 in the four years ending June 30, 2023, and $4,983 thereafter. The estimated useful life of capitalized software ranges from 3 to 10 years. The amortization period for customer relationship intangible assets is 20 years. The estimated useful life of trade names is 10 years. The estimated useful life of non-compete agreements is 5 years.
Capitalized software is stated at cost less accumulated amortization and is amortized using the straight-line method. During the software application development stage, capitalized costs include external consulting costs, cost of software licenses, and internal payroll and payroll-related costs for employees who are directly associated with a software project. Upgrades and enhancements are capitalized if they result in added functionality which enable the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion, and business process re-engineering costs are expensed in the period in which they are incurred. 
Trade names and non-compete agreements are amortized on a straight-line basis over their estimated useful lives. Capitalized customer relationships are amortized based on estimated attrition rates of customers. We have no intangible assets with indefinite useful lives which are not subject to amortization.
Notes Receivable and Trade Accounts Receivable:
Notes receivable and trade accounts receivable are recorded per the terms of the agreement or sale, and accrued interest is recognized when earned. We determine on a case-by-case basis the cessation of accruing interest, the resumption of accruing interest, the method of recording payments received on nonaccrual receivables, and the delinquency status for our limited number of notes receivable.
Our policy for estimating the allowance for credit losses on trade accounts receivable and notes receivable includes analysis of such items as aging, credit worthiness, payment history, and historical bad debt experience. Management uses these specific analyses in conjunction with an evaluation of the general economic and market conditions to determine the final allowance for credit losses on the trade accounts receivable and notes receivable. Trade accounts receivable and notes receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. Our limited amount of notes receivable allows management to monitor the risks, credit quality indicators, collectability, and probability of impairment on an individual basis. Adjustments to the allowance for credit losses are recorded in selling and administrative expenses. Customary terms require payment within 30 days, with terms beyond 30 days being considered extended.
Non-operating Income (Expense), net:
The non-operating income (expense), net line item includes the impact of such items as fair value adjustments on Supplemental Employee Retirement Plan (“SERP”) investments, amortization of actuarial income, foreign currency rate movements, investment gain or loss, bank charges, and other miscellaneous non-operating income and expense items that are not directly related to operations. The gain or loss on SERP investments is offset by a change in the SERP liability that is recognized in selling and administrative expenses.

11



Components of the Non-operating income (expense), net line, were:
 
Three Months Ended
 
Six Months Ended
 
December 31
 
December 31
(Amounts in Thousands)
2018
 
2017
 
2018
 
2017
Gain (Loss) on SERP Investments
$
(1,097
)
 
$
413

 
$
(726
)
 
$
764

Other
(129
)
 
(150
)
 
(173
)
 
(215
)
Non-operating income (expense), net
$
(1,226
)
 
$
263

 
$
(899
)
 
$
549


Note 3. Acquisition
David Edward
On October 26, 2018, we acquired substantially all the assets and assumed certain specified limited liabilities of David Edward headquartered in Baltimore, Maryland. David Edward is a premier designer and manufacturer of contract furniture, sold in the healthcare, corporate, education, and premium hospitality markets. David Edward sells primarily in the North American and Middle Eastern markets. David Edward’s products are generally specified by architects and designers, represented through a network of independent representatives, and sold through authorized furniture dealerships. The David Edward product portfolio consists of classic and contemporary designs, focused primarily in the seating, tables, and ancillary furniture categories. In conjunction with the asset acquisition, we leased the two existing David Edward production facilities in Baltimore, Maryland and Red Lion, Pennsylvania. The acquisition purchase price totaled $4.9 million. The purchase price is subject to certain post-closing working capital adjustments.
A summary of the preliminary purchase price allocation is as follows:
Purchase Price Allocation
 
 
(Amounts in Thousands)
 
 
Assets:
 
 
Receivables
 
$
359

Inventories
 
2,740

Prepaid expenses and other current assets
 
284

Net property and equipment
 
796

Goodwill
 
2,111

 
 
$
6,290

Liabilities:
 
 
Accounts payable
 
$
1,321

Accrued expenses
 
119

 
 
$
1,440

 
 
$
4,850

The operating results of this acquisition are included in our condensed consolidated financial statements beginning on October 26, 2018. For both the quarter and year-to-date periods ended December 31, 2018, net sales and net loss related to David Edward were $2.6 million and $0.4 million, respectively. Direct costs of the acquisition during the quarter and year-to-date periods ended December 31, 2018, of approximately $0.3 million and $0.5 million, respectively, were expensed as incurred and were included on the Selling and Administrative Expenses line of our Condensed Consolidated Statements of Income.

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Goodwill is primarily attributable to the anticipated revenue and supply chain synergies expected from the operations of the combined company. For tax purposes, goodwill is tax deductible over 15 years. See Note 2 - Recent Accounting Pronouncements and Supplemental Information in the Notes to Condensed Consolidated Financial Statements for more information on goodwill. The following summarizes our goodwill activity:
Goodwill related to David Edward Acquisition
 
 
(Amounts in Thousands)
 
 
Goodwill - June 30, 2018
 
$

Goodwill - at acquisition date
 
1,960

Adjustments to purchase price allocation
 
151

Goodwill - December 31, 2018
 
$
2,111

The purchase price allocation is provisional pending final valuations and purchase accounting adjustments, which were not final as of December 31, 2018. We utilized management estimates to assist in the valuation process.
D’style
On November 6, 2017, we acquired certain assets of D’style, Inc. (“D’style”) and all of the capital stock of Diseños de Estilo S.A. de C.V. headquartered in Tijuana, Mexico, a member of the D’style group which manufactures exclusively for D’style, strengthening our North American manufacturing footprint. The purchase price allocation was adjusted during the second quarter of fiscal year 2019 and included an increase of $0.2 million in goodwill and a decrease of $0.2 million in receivables and is final as of December 31, 2018. The portion of the earn-out related to fiscal year 2018 performance totaling $0.4 million was paid during our quarter ended September 30, 2018 which reduced the fair value earn-out liability from $1.1 million as of June 30, 2018 to $0.7 million as of September 30, 2018. During the quarter ended December 31, 2018, the fair value of the contingent earn-out liability was adjusted to $0.4 million relating to an adjustment of the contingent earn-out liability that is based upon fiscal year 2019 D’style, Inc. operating income compared to a predetermined target.
Note 4. Revenue
At the beginning of fiscal year 2019, we adopted new accounting guidance on the recognition of revenue from contracts with customers using the full retrospective approach and adjusted fiscal year 2018 to provide comparable financial reporting for all reported fiscal years. The primary impact of the new revenue standard was a reclassification of certain items on the statement of income. For contracts involving products that are sold directly to end customers, fees paid to dealer agents for facilitating the sale and performing certain services are recognized as either cost of sales or selling expense rather than being netted against revenue. In addition, any commissions or fees paid to third-party purchasing organizations are recognized as a selling expense rather than being netted against revenue. The result of these changes was increases in net sales, cost of sales, and selling expenses. On a net basis these changes had no impact to operating income dollars but did reduce operating income as a percent of net sales. The new standard also required several less significant changes including classifying the reserve for returns and allowance as a liability rather than a contra-receivable, recognizing a recovery asset for potential product returns, and capitalizing costs to obtain sales contracts. There was no cumulative effect of adopting the standard at the date of initial application in retained earnings.

13



The following tables present the effects of the adoption of the new standard on prior period financial statements:
Impact to Condensed Consolidated Statements of Income
 
Three Months Ended December 31, 2017
(Amounts in Thousands)
As Originally Reported
 
Adoption of New Revenue Standard
 
As Adjusted
Net Sales
$
173,674

 
$
4,940

 
$
178,614

Cost of Sales
119,738

 
1,456

 
121,194

Gross Profit
53,936

 
3,484

 
57,420

Selling and Administrative Expenses
41,931

 
3,484

 
45,415

Operating Income
12,005

 

 
12,005

Operating Income as of Percent of Net Sales
6.9
%
 
 
 
6.7
%
 
 
 
 
 
 
 
Six Months Ended December 31, 2017
(Amounts in Thousands)
As Originally Reported
 
Adoption of New Revenue Standard
 
As Adjusted
Net Sales
$
343,191

 
$
10,783

 
$
353,974

Cost of Sales
229,666

 
2,881

 
232,547

Gross Profit
113,525

 
7,902

 
121,427

Selling and Administrative Expenses
85,563

 
7,902

 
93,465

Operating Income
27,962

 

 
27,962

Operating Income as of Percent of Net Sales
8.1
%
 
 
 
7.9
%
Impact to Condensed Consolidated Balance Sheet
 
As of June 30, 2018
(Amounts in Thousands)
As Originally Reported
 
Adoption of New Revenue Standard
 
As Adjusted
Receivables, net of allowances
$
60,984

 
$
1,292

 
$
62,276

Accrued Expenses
49,294

 
1,292

 
50,586

Performance Obligations
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring distinct goods or providing services to customers. Our revenue consists substantially of product sales, and is reported net of sales discounts, rebates, incentives, returns, and other allowances offered to customers. We recognize revenue when performance obligations under the terms of contracts with our customers are satisfied, which occurs when control passes to a customer to enable them to direct the use of and obtain benefit from a product. This typically occurs when a customer obtains legal title, obtains the risks and rewards of ownership, has received the goods according to the contractual shipping terms either at the shipping point or destination, and is obligated to pay for the product. Customary terms require payment within 30 days, and for certain customers, deposits may be required in advance of shipment.
We sell products both to independent dealers and directly to end customers. Sales to independent dealers typically include products only, as the independent dealer provides additional value-added services to end customers. Direct sales to end customers include products and may include related services such as installation and design services. These services are distinct from the delivered products within the context of the contract, and therefore revenue is recognized for products, installation, and design on a discrete basis. The performance of services may be outsourced to independent dealers or other third parties, but we typically retain the primary responsibility for performance of the services when selling directly to end customers. For services, revenue is recognized when the service is performed and we have an enforceable right to payment. Service revenue does not represent a significant portion of our total sales.

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We provide an assurance-type warranty that guarantees our product complies with agreed-upon specifications. This warranty is not sold separately and does not convey any additional services to the customer; therefore, our warranty is not considered a separate performance obligation. We estimate the costs that may be incurred under warranties and record a liability at the time product revenue is recognized. See Note 8 - Commitments and Contingent Liabilities in the Notes to Condensed Consolidated Financial Statements for additional information on warranty obligations.
Disaggregation of Revenue
The following table provides information about revenue by vertical market:
 
 
Three Months Ended
 
Six Months Ended
 
 
December 31
 
December 31
(Amounts in Millions)
 
2018

2017
 
2018
 
2017
Commercial
 
$
63.6

 
$
49.3

 
$
120.2

 
$
101.6

Education
 
18.1

 
17.4

 
52.7

 
49.1

Finance
 
18.1

 
17.9

 
36.3

 
31.1

Government
 
18.8

 
23.8

 
35.9

 
51.3

Healthcare
 
28.5

 
23.8

 
52.9

 
44.2

Hospitality
 
53.9

 
46.4

 
97.1

 
76.7

Total Net Sales
 
$
201.0

 
$
178.6

 
$
395.1

 
$
354.0

We report revenue under a single aggregated reportable segment consisting of three operating segments which have similar products and services in nature, utilize similar production and distribution processes, and share similar long-term economic characteristics.
Contract Balances
Receivables in the Condensed Consolidated Balance Sheets represent the amount of consideration to which we are entitled in exchange for the goods or services sold to our customers, net of allowances for doubtful accounts. Receivables are recorded when the right to consideration from the customer becomes unconditional, which is generally upon billing or upon satisfaction of a performance obligation, whichever is earlier. During the three and six months ended December 31, 2018, impairment losses on doubtful accounts receivable were $0.0 million and $0.5 million, respectively. During the three and six months ended December 31, 2017, impairment losses (income) on doubtful accounts receivable were $(0.2) million and $0.0 million, respectively.
We also receive deposits from certain customers before revenue is recognized, resulting in the recognition of a contract liability reported as Customer Deposits in the Condensed Consolidated Balance Sheets. Changes in the customer deposits during the six months ended December 31, 2018 are as follows:
(Amounts in Millions)
Customer Deposits
Balance as of June 30, 2018
$
21.3

Increases due to deposits received, net of other adjustments
62.5

Revenue recognized
(57.0
)
Balance as of December 31, 2018
$
26.8

Customer deposits are typically utilized within a year of the receipt of the deposit. The amount of revenue recognized during the three and six months ended December 31, 2018 that was included in the June 30, 2018 customer deposit balance was $4.2 million and $20.9 million, respectively. The amount of revenue recognized during the three and six months ended December 31, 2017 that was included in the June 30, 2017 customer deposit balance was $4.2 million and $19.2 million, respectively.
Additionally, funds paid to certain independent dealers in exchange for their multi-year commitment to market and sell our product represent costs of obtaining contracts. These incremental costs of obtaining contracts are capitalized to the extent we expect to recover them, with $0.3 million reported in Prepaid Expenses and Other Current Assets and $0.3 million reported in Other Assets in the Condensed Consolidated Balance Sheets as of both December 31, 2018 and June 30, 2018. The capitalized costs are amortized over the term of the contract. Amortization expense recognized in Selling and Administrative Expenses was

15



$0.0 million and $0.1 million for the three and six months ended December 31, 2018, and $0.1 million and $0.2 million for the three and six months ended December 31, 2017.
Significant Judgments
We use significant judgment in estimating the reduction in net sales driven by customer rebate and incentive programs. Judgments primarily include an estimate of the most likely sales levels to be achieved and the corresponding rebate and incentive amounts expected to be earned by dealers and salespersons. In the three and six months ended December 31, 2018 and 2017, we had an immaterial amount of adjustments to estimates for cumulative growth rebates and incentives that related to the preceding fiscal years. We also use judgment in estimating a reserve for returns and allowances recorded at the time of the sale, resulting in a reduction of revenue, based on estimated product returns and price concessions.
Accounting Policies and Practical Expedients Elected
For shipping and handling activities, we are applying an accounting policy election which allows an entity to account for shipping and handling activities as fulfillment activities rather than a promised good or service when the activities are performed, even if those activities are performed after the control of the good has been transferred to the customer. Therefore, we expense shipping and handling costs at the time revenue is recognized. We classify shipping and handling expenses in Cost of Sales in the Condensed Consolidated Statements of Income.
We are also applying an accounting policy election which allows an entity to exclude from revenue any amounts collected from customers on behalf of third parties, such as sales taxes and other similar taxes we collect concurrent with revenue-producing activities. Therefore, we present revenue net of sales taxes and similar revenue-based taxes.
For incremental costs of obtaining a contract, we elected a practical expedient which permits an entity to recognize incremental costs to obtain a contract as an expense when incurred if the amortization period is less than one year. This election had an immaterial effect on our condensed consolidated financial statements.
For significant financing components, we elected a practical expedient which allows an entity to recognize the promised amount of consideration without adjusting for the time value of money if the contract has a duration of one year or less, or if the reason the contract extended beyond one year is because the timing of delivery of the product is at the customer’s discretion. As our contracts typically are less than one year in length and do not have significant financing components, we have not presented revenue on a present value basis.
Note 5. Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act reduced federal corporate income tax rates effective January 1, 2018 and changed numerous other provisions. Because Kimball International has a June 30 fiscal year-end, the lower corporate federal income tax rate was phased in, resulting in a blended U.S. federal statutory tax rate of 28.1% for our fiscal year ended June 30, 2018, and 21% for fiscal year 2019. Prior to the effective date of the Tax Act, the U.S. federal statutory tax rate was 35%.
In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate which is based on expected annual income, statutory tax rates, and available tax planning opportunities in the various jurisdictions in which we operate. Unusual or infrequently occurring items are separately recognized in the quarter in which they occur. Our effective tax rate was 25.6% and 25.0%, respectively, for the three and six and months ended December 31, 2018, which approximated the combined federal and state statutory tax rate. Our effective tax rate was 40.6% and 36.5%, respectively, for the three and six months ended December 31, 2017, impacted by a one-time discrete $2.0 million unfavorable impact from applying lower federal income tax rates under the Tax Act to net deferred tax assets which was partially offset by a reduction of income tax expense of approximately $1.6 million year-to-date to reflect the new rates under the Tax Act.

16



Note 6. Inventories
Inventory components were as follows:
(Amounts in Thousands)
December 31, 2018
 
June 30,
2018
Finished products
$
28,817

 
$
23,756

Work-in-process
2,663

 
1,378

Raw materials
32,949

 
29,158

Total FIFO inventory
64,429

 
54,292

LIFO reserve, net
(15,435
)
 
(14,783
)
Total inventory
$
48,994

 
$
39,509

For interim reporting, LIFO inventories are computed based on quantities as of the end of the quarter and interim changes in price levels. Changes in quantities and price levels are reflected in the interim financial statements in the period in which they occur, except in cases where LIFO inventory liquidations are expected to be reinstated by fiscal year end. The earnings impact of LIFO inventory liquidations during the three and six month periods ended December 31, 2018 and 2017 was immaterial. Our FIFO inventory increased from June 30, 2018 to December 31, 2018 in part as a result of the David Edward acquisition and also due to increased inventory in transit.
Note 7. Accumulated Other Comprehensive Income
During the three months ended December 31, 2018 and 2017, the changes in the balances of each component of Accumulated Other Comprehensive Income, net of tax, were as follows:
Accumulated Other Comprehensive Income
 
 
 
 
 
 
(Amounts in Thousands)
 
Unrealized Investment Gain (Loss)
 
Postemployment Benefits Net Actuarial Gain (Loss)
 
Derivative Gain (Loss)
 
Accumulated Other Comprehensive Income
Balance at September 30, 2018
 
$
(50
)
 
$
1,840

 
$
(2
)
 
$
1,788

Other comprehensive income (loss) before reclassifications
 
30

 
117

 
(2
)
 
145

Reclassification to (earnings) loss
 

 
(76
)
 
4

 
(72
)
Net current-period other comprehensive income (loss)
 
30

 
41

 
2

 
73

Balance at December 31, 2018
 
$
(20
)
 
$
1,881

 
$

 
$
1,861

 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
 
$
(12
)
 
$
1,258

 
$

 
$
1,246

Other comprehensive income (loss) before reclassifications
 
(27
)
 
155

 

 
128

Reclassification to (earnings) loss
 
2

 
(49
)
 

 
(47
)
Net current-period other comprehensive income (loss)
 
(25
)
 
106

 

 
81

Balance at December 31, 2017
 
$
(37
)
 
$
1,364

 
$

 
$
1,327


17



During the six months ended December 31, 2018 and 2017, the changes in the balances of each component of Accumulated Other Comprehensive Income, net of tax, were as follows:
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Income
 
 
 
 
 
 
(Amounts in Thousands)
 
Unrealized Investment Gain (Loss)
 
Postemployment Benefits Net Actuarial Gain (Loss)
 
Derivative Gain (Loss)
 
Accumulated Other Comprehensive Income
Balance at June 30, 2018
 
$
(31
)
 
$
1,854

 
$
(7
)
 
$
1,816

Other comprehensive income (loss) before reclassifications
 
11

 
177

 
(9
)
 
179

Reclassification to (earnings) loss
 

 
(150
)
 
16

 
(134
)
Net current-period other comprehensive income (loss)
 
11

 
27

 
7

 
45

Balance at December 31, 2018
 
$
(20
)
 
$
1,881

 
$

 
$
1,861

 
 
 
 
 
 
 
 
 
Balance at June 30, 2017
 
$
(21
)
 
$
1,136

 
$

 
$
1,115

Other comprehensive income (loss) before reclassifications
 
(18
)
 
318

 

 
300

Reclassification to (earnings) loss
 
2

 
(90
)
 

 
(88
)
Net current-period other comprehensive income (loss)
 
(16
)
 
228

 

 
212

Balance at December 31, 2017
 
$
(37
)
 
$
1,364

 
$

 
$
1,327


18



The following reclassifications were made from Accumulated Other Comprehensive Income to the Condensed Consolidated Statements of Income:
Reclassifications from Accumulated Other Comprehensive Income
 
Three Months Ended
 
Six Months Ended
 
Affected Line Item in the Condensed Consolidated Statements of Income
 
December 31,
 
December 31,
 
(Amounts in Thousands)
 
2018
 
2017
 
2018
 
2017
 
Realized Investment Gain (Loss) on available-for-sale securities (1)
 
$

 
$
(3
)
 
$

 
$
(3
)
 
Non-operating income (expense), net
 
 

 
1

 

 
1

 
Benefit (Provision) for Income Taxes
 
 
$

 
$
(2
)
 
$

 
$
(2
)
 
Net Income
 
 
 
 
 
 
 
 
 
 
 
Postemployment Benefits amortization of actuarial gain (2)
 
$

 
$
43

 
$

 
$
87

 
Cost of Sales
 
 

 
23

 

 
46

 
Selling and Administrative Expenses
 
 
103

 

 
202

 

 
Non-operating income (expense), net
 
 
(27
)
 
(17
)
 
(52
)
 
(43
)
 
Benefit (Provision) for Income Taxes
 
 
$
76

 
$
49

 
$
150

 
$
90

 
Net Income
 
 
 
 
 
 
 
 
 
 
 
Derivative Gain (Loss) (3)
 
$
(5
)
 
$

 
$
(21
)
 
$

 
Non-operating income (expense), net
 
 
1

 

 
5

 

 
Benefit (Provision) for Income Taxes
 
 
$
(4
)
 
$

 
$
(16
)
 
$

 
Net Income
 
 
 
 
 
 
 
 
 
 
 
Total Reclassifications for the Period
 
$
72

 
$
47

 
$
134

 
$
88

 
Net Income
Amounts in parentheses indicate reductions to income.
(1) See Note 11 - Investments in the Notes to Condensed Consolidated Financial Statements for further information on available-for-sale securities.
(2) See Note 13 - Postemployment Benefits in the Notes to Condensed Consolidated Financial Statements for further information on postemployment benefit plans.
(3) See Note 12 - Derivative Instruments in the Notes to Condensed Consolidated Financial Statements for further information on derivative instruments.

Note 8. Commitments and Contingent Liabilities
Guarantees:
Standby letters of credit were issued to lessors and insurance institutions and can only be drawn upon in the event of our failure to pay our obligations to a beneficiary. As of December 31, 2018, we had a maximum financial exposure from unused standby letters of credit totaling $1.4 million. We are not aware of circumstances that would require us to perform under these arrangements and believe that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect our condensed consolidated financial statements. Accordingly, no liability has been recorded as of December 31, 2018 with respect to the standby letters of credit. We also enter into commercial letters of credit to facilitate payments to vendors and from customers.
Product Warranties:
We provide an assurance-type warranty that guarantees our product complies with agreed-upon specifications. This warranty is not sold separately and does not convey any additional services to the customer. We estimate product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction with the length of the warranty offered. Management refines the warranty liability periodically based on changes in historical cost trends and in certain cases where specific warranty issues become known.

19



Changes in the product warranty accrual for the six months ended December 31, 2018 and 2017 were as follows:
 
Six Months Ended
 
December 31
(Amounts in Thousands)
2018
 
2017
Product Warranty Liability at the beginning of the period
$
2,294

 
$
1,992

Additions to warranty accrual (including changes in estimates)
354

 
839

Settlements made (in cash or in kind)
(606
)
 
(478
)
Product Warranty Liability at the end of the period
$
2,042

 
$
2,353


Note 9. Earnings Per Share
Basic earnings per share are based on the weighted average number of shares outstanding during the period. Diluted earnings per share are based on the weighted average number of shares outstanding plus the assumed issuance of common shares for all potentially dilutive securities.
 
Three Months Ended
 
Six Months Ended
 
December 31
 
December 31
(Amounts in Thousands, Except for Per Share Data)
2018
 
2017
 
2018
 
2017
Net Income
$
9,405

 
$
7,378

 
$
20,281

 
$
18,335

 
 
 
 
 
 
 
 
Average Shares Outstanding for Basic EPS Calculation
36,793

 
37,476

 
36,951

 
37,452

Dilutive Effect of Average Outstanding Compensation Awards
295

 
260

 
396

 
323

Average Shares Outstanding for Diluted EPS Calculation
37,088

 
37,736

 
37,347

 
37,775

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
0.26

 
$
0.20

 
$
0.55

 
$
0.49

Diluted Earnings Per Share
$
0.25

 
$
0.20

 
$
0.54

 
$
0.49



Note 10. Fair Value
We categorize assets and liabilities measured at fair value into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
Our policy is to recognize transfers between these levels as of the end of each quarterly reporting period. There were no transfers between these levels during the six months ended December 31, 2018. There were also no changes in the inputs or valuation techniques used to measure fair values compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.
We hold a total investment of $2.0 million in a privately-held company, consisting of $0.5 million in equity securities without readily determinable fair value and $1.5 million in stock warrants. The investment in equity securities without readily determinable fair value is classified as a Level 3 financial asset, as explained in the Financial Instruments Not Carried At Fair Value section below. The investment in stock warrants is also classified as a Level 3 financial asset and is accounted for as a derivative instrument valued on a recurring basis, as explained in the Financial Instruments Recognized at Fair Value section

20



below. See Note 11 - Investments in the Notes to Condensed Consolidated Financial Statements for further information regarding the investment in equity securities without readily determinable fair value, and Note 12 - Derivative Instruments in the Notes to Condensed Consolidated Financial Statements for further information regarding the investment in stock warrants. No purchases or sales of Level 3 assets occurred during the six months ended December 31, 2018.
Related to the prior year acquisition of D'style, we determine the fair value of our long-lived and intangible assets on a non-recurring basis in connection with our periodic evaluations of such assets for potential impairment and record impairment charges when such fair value estimates are lower than the carrying values of the assets. The fair value of the contingent earn-out liability as of June 30, 2018 of $1.1 million was reduced to $0.7 million as of September 30, 2018 due to payment of $0.4 million for the earn-out relating to fiscal year 2018. During the quarter ended December 31, 2018, the fair value of the contingent earn-out liability was adjusted to $0.4 million, and we recognized $0.2 million of income within Selling and Administrative Expense which was partially offset by Interest Expense. The adjustment was attributable to fiscal year 2019 D’style, Inc. operating income compared to a predetermined target for the fiscal year.

Financial Instruments Recognized at Fair Value:
The following methods and assumptions were used to measure fair value:
Financial Instrument
 
Level
 
Valuation Technique/Inputs Used
Cash Equivalents: Money market funds
 
1
 
Market - Quoted market prices
Cash Equivalents: Commercial paper
 
2
 
Market - Based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information.
Available-for-sale securities: Secondary market certificates of deposit
 
2
 
Market - Based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information.
Available-for-sale securities: Municipal bonds
 
2
 
Market - Based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information.
Available-for-sale securities: U.S. Treasury and federal agencies
 
2
 
Market - Based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information.
Trading securities: Mutual funds held in nonqualified SERP
 
1
 
Market - Quoted market prices
Derivative Assets: Stock warrants
 
3
 
Market - The privately-held company is currently in an early stage of start-up. The pricing of recent purchases or sales of the investment are considered, if any, as well as positive and negative qualitative evidence, in the assessment of fair value.
Derivative Liability: Foreign exchange contracts
 
2
 
Market - Based on observable market inputs using standard calculations, such as time value, forward interest rate yield curves, and current spot rates adjusted for Kimball International's non-performance risk.
Contingent earn-out liability
 
3
 
Income - Based on a valuation model that measures the present value of the probable cash payments based upon the forecasted operating performance of the acquisition and a discount rate that captures the risk associated with the liability.


21



Recurring Fair Value Measurements:
As of December 31, 2018 and June 30, 2018, the fair values of financial assets that are measured at fair value on a recurring basis using the market approach are categorized as follows:
(Amounts in Thousands)
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents: Money market funds
$
13,249

 
$

 
$

 
$
13,249

Cash equivalents: Commercial paper

 
22,007

 

 
22,007

Available-for-sale securities: Secondary market certificates of deposit

 
12,637

 

 
12,637

Available-for-sale securities: Municipal bonds

 
6,003

 

 
6,003

Available-for-sale securities: U.S. Treasury and federal agencies

 
23,436

 

 
23,436

Trading Securities: Mutual funds in nonqualified SERP
11,425

 

 

 
11,425