NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Business Description and Summary of Significant Accounting Policies
Business Description:
Kimball Electronics, Inc. (also referred to herein as “Kimball Electronics,” the “Company,” “we,” “us,” or “our”) is a global, multifaceted manufacturing solutions provider. We provide contract electronics manufacturing services (“EMS”) and diversified manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, industrial, and public safety end markets. We offer a package of value that begins with our core competency of producing “durable electronics” and includes our set of robust processes and procedures that help us ensure that we deliver the highest levels of quality, reliability, and service throughout the entire life cycle of our customers’ products. We further offer diversified contract manufacturing services for non-electronic components, medical disposables, precision molded plastics, and production automation, test, and inspection equipment. We are well recognized by customers and industry trade publications for our excellent quality, reliability, and innovative service.
Basis of Presentation:
The Condensed Consolidated Financial Statements presented herein reflect the consolidated financial position as of September 30, 2019 and June 30, 2019, results of operations for the three months ended September 30, 2019 and 2018, cash flows for the three months ended September 30, 2019 and 2018, and share owners’ equity for the three months ended September 30, 2019 and 2018. The financial data presented herein is unaudited and should be read in conjunction with the annual Consolidated Financial Statements as of and for the year ended June 30, 2019 and related notes thereto included in our Annual Report on Form 10-K. 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.
Revenue Recognition:
Our revenue is generated from contracts with customers primarily for manufacturing services provided for the production of electronic assemblies, components, medical disposables, and automation, test, and inspection equipment all built to customer’s specifications. Our customer agreements are generally not for a definitive term but continue for the relevant product’s life cycle. Typically, our customer agreements do not commit the customer to purchase our services until a purchase order is provided, which is generally short-term in nature. Customer purchase orders primarily have a single performance obligation. Generally, the prices stated in the customer purchase orders are agreed upon prices for the manufactured product and do not vary over the term of the order, and therefore, the majority of our contracts do not contain variable consideration. In limited circumstances, we may enter into a contract where we offer our customer a rebate once specific volume thresholds have been met; in these cases, the rebates are accounted for as variable consideration.
The majority of our revenue is recognized over time as manufacturing services are performed as we manufacture a product to customer specifications with no alternative use and we have an enforceable right to payment for performance completed to date. The remaining revenue for manufacturing services is recognized when the customer obtains control of the product, typically either upon shipment or delivery of the product dependent on the terms of the contract, and the customer is able to direct the use of and obtain substantially all of the remaining benefits from the asset. We generally recognize revenue over time using costs based input methods, in which judgment is required to evaluate assumptions including the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize. Estimated costs include material, direct and indirect labor, and appropriate applied overheads. Costs based input methods are considered a faithful depiction of our efforts and progress toward satisfying our performance obligations for manufacturing services and for which we believe we are entitled to payment for performance completed to date. The cumulative effect of revisions to estimates related to net contract revenues or costs are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.
We have elected to account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated services and products. Accordingly, we record customer payments of shipping and handling costs as a component of net sales and classify such costs as a component of cost of sales. We recognize sales net of applicable sales or value add taxes. Based on estimated product returns and price concessions, a reserve for returns and allowances is recorded at the time revenue is recognized, resulting in a reduction of net revenue.
Direct incremental costs to obtain and fulfill a contract are capitalized as a contract asset only if they are material, expected to be recovered, and are not accounted for in accordance with other guidance. Incidental items that are immaterial in the context of the contract are recognized as expense in the period incurred.
Notes Receivable and Trade Accounts Receivable:
The Company’s 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.
In the ordinary course of business, customers periodically negotiate extended payment terms on trade accounts receivable. Customary terms require payment within 30 to 45 days, with any terms beyond 45 days being considered extended payment terms. We may utilize accounts receivable factoring arrangements with third-party financial institutions in order to extend terms for the customer without negatively impacting our cash flow. These arrangements in all cases do not contain recourse provisions which would obligate us in the event of our customers’ failure to pay. Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors, the purchaser has the right to pledge or exchange the receivables, and we have surrendered control over the transferred receivables. In the three months ended September 30, 2019 and 2018, we sold, without recourse, $76.0 million and $60.7 million of accounts receivable, respectively. Factoring fees were $0.6 million and $0.4 million during the three months ended September 30, 2019 and 2018, respectively, and are primarily recorded in Selling and Administrative Expenses on our Condensed Consolidated Statements of Income.
One of the Company’s China operations, in limited circumstances, may receive banker’s acceptance drafts from customers as payment for their trade accounts receivable. The banker’s acceptance drafts are non-interest bearing and primarily mature within six months from the origination date. The Company has the ability to sell the drafts at a discount or transfer the drafts in settlement of current accounts payable prior to the scheduled maturity date. These drafts, which totaled $2.9 million at September 30, 2019 and $4.2 million at June 30, 2019, are reflected in Receivables on the Condensed Consolidated Balance Sheets until the banker’s drafts are sold at a discount, transferred in settlement of current accounts payable, or cash is received at maturity. Banker’s acceptance drafts sold at a discount or transferred in settlement of current accounts payable during the three months ended September 30, 2019 and 2018 were $0.3 million and $0.7 million, respectively. See Note 6 - Commitments and Contingent Liabilities of Notes to Condensed Consolidated Financial Statements for more information on banker’s acceptance drafts.
Other General Income:
Other General Income in the three months ended September 30, 2018 included $0.1 million of pre-tax income resulting from a payment received related to a class action lawsuit in which Kimball Electronics was a class member. No Other General Income was recorded in the three months ended September 30, 2019.
Non-operating Income (Expense), net:
Non-operating income (expense), net includes the impact of such items as foreign currency rate movements and related derivative gain or loss, fair value adjustments on supplemental employee retirement plan (“SERP”) investments, government subsidies, bank charges, and other miscellaneous non-operating income and expense items that are not directly related to operations. The gain (loss) on SERP investments is offset by a change in the SERP liability that is recognized in Selling and Administrative Expenses.
Components of Non-operating income (expense), net:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 30
|
(Amounts in Thousands)
|
2019
|
|
2018
|
Foreign currency/derivative loss
|
$
|
(1,113
|
)
|
|
$
|
(700
|
)
|
Gain (loss) on supplemental employee retirement plan investments
|
(22
|
)
|
|
119
|
|
Foreign government subsidies
|
—
|
|
|
466
|
|
Other
|
(77
|
)
|
|
(56
|
)
|
Non-operating income (expense), net
|
$
|
(1,212
|
)
|
|
$
|
(171
|
)
|
Income Taxes:
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.
Deferred income tax assets and liabilities, recorded in Other Assets and Other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheets, are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. We evaluate the recoverability of deferred tax assets each quarter by assessing the likelihood of future taxable income and available tax planning strategies that could be implemented to realize our deferred tax assets. If recovery is not likely, we provide a valuation allowance based on our best estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable. Future events could change management’s assessment.
We operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex uncertain tax positions, which may require an extended period of time to resolve. A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. We maintain a liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions. As tax positions are effectively settled, the tax liability is adjusted accordingly. We recognize interest and penalties related to unrecognized tax benefits in Provision for Income Taxes on the Condensed Consolidated Statements of Income.
The U.S. Tax Cuts and Jobs Act (“Tax Reform”) was enacted into law on December 22, 2017. Tax Reform made broad and complex changes to the U.S. tax code, for which complete guidance may have not yet been issued. Tax Reform changes included, but were not limited to, (i) reducing the U.S. corporate statutory tax rate, (ii) requiring a one-time transition tax on certain unremitted earnings of foreign subsidiaries that is payable over an eight-year period, (iii) eliminating U.S. federal income taxes on dividends from foreign subsidiaries, and (iv) bonus depreciation that will allow for full expensing of qualifying property. As of September 30, 2019 and June 30, 2019, the remaining provision recorded for the one-time deemed repatriation tax was $9.8 million recorded in Long-term income taxes payable on the Condensed Consolidated Balance Sheets.
New Accounting Standards:
Adopted in fiscal year 2020:
In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on leases with subsequent amendments to this new guidance in January 2018, July 2018, and December 2018. The new guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by those leases and requires additional qualitative and quantitative disclosures. Under previous guidance, only capital leases were recognized on the balance sheet. We adopted this standard on July 1, 2019, the beginning of our first quarter of fiscal year 2020, under the modified retrospective method. As allowed by the July 2018 amendment, the Company has not recast the comparative periods.
We elected the “package of practical expedients,” which permits us not to reassess under the new standard our prior conclusions about lease identification, classification, and initial direct costs. We also elected the short-term lease recognition exemption, permitting us not to recognize right-of-use assets and lease liabilities for leases with a term of 12 months or less and do not include a purchase option whose exercise is reasonably certain.
Lease assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our estimated incremental borrowing rate, unless the implicit rate is readily determinable. The estimated incremental borrowing rate is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
The adoption resulted in the recognition of $2.6 million of right-of-use assets and lease liabilities on our Condensed Consolidated Balance Sheet, primarily for our real estate operating leases. The adoption did not have a material effect on our results of operations or cash flows. There was no cumulative-effect adjustment to equity. See Note 14 - Leases of Notes to Condensed Consolidated Financial Statements for more information on leases.
In August 2017, the FASB issued guidance on Derivatives and Hedging. The pronouncement expands and refines hedge accounting, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The Company adopted this during the first quarter of fiscal year 2020 with an immaterial effect on our Condensed Consolidated Financial Statements.
Not Yet Adopted:
In August 2018, the FASB issued guidance on Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This new guidance amends the accounting for implementation, setup, and other upfront costs incurred in a cloud computing hosting arrangement. The amendment aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendment also requires companies to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, including options to extend the agreement that is in control of the customer. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The guidance is to be adopted either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
Note 2. Acquisition
On October 1, 2018, the Company completed the acquisition of GES Holdings, Inc., Global Equipment Services and Manufacturing, Inc., and its subsidiaries (collectively referred to as “GES”). The acquisition included purchasing substantially all of the assets and assuming certain liabilities of GES Holdings, Inc., Global Equipment Services and Manufacturing, Inc., GES Infotek Pvt. Ltd., (India), GES Japan KK, Global Equipment Services and Manufacturing (Suzhou) Co., Ltd., (China), Suzhou Global Equipment Services and Trading Co., Ltd. (China), and acquiring 100% of the capital stock of Global Equipment Services & Manufacturing Vietnam Company Limited.
This acquisition supported the Company’s strategy for growth and diversification into a multifaceted manufacturing solutions company. GES specializes in design, production, and servicing of automation, test, and inspection equipment for industrial applications in the semiconductor, electronics, and life sciences industries.
Incremental costs directly related to the acquisition totaled $1.5 million, which were expensed as incurred, including $0.1 million during each of the three months ended September 30, 2019 and 2018 and these costs were recorded in Selling and Administrative Expenses on our Condensed Consolidated Statements of Income. The operating results of this acquisition are included in the Company’s consolidated financial statements beginning on the acquisition date of October 1, 2018.
The GES acquisition was accounted for as a business combination. As of September 30, 2019, the Company has recorded a net adjusted purchase price of $42.4 million which includes a reduction for an estimated net working capital adjustment of $7.6 million. The net working capital adjustment as provided for in the agreement is being disputed by the sellers of GES and is continuing to be resolved through the dispute resolution procedure provided for under the terms of the asset purchase agreement.
Cash paid, net of cash acquired, is $43.9 million, and a net receivable due from the seller has been recognized for $3.8 million. The acquisition was primarily funded with the Company’s primary credit facility. The Company has determined this acquisition is not a significant subsidiary.
The following table summarizes the final purchase price allocation to assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess allocated to goodwill. Measurement period adjustments during the first quarter of fiscal year 2020 included a reduction of $2.0 million to Property and Equipment as a result of additional information obtained related to the valuation of certain equipment as of the acquisition date and a $0.2 million reduction in Other long-term liabilities to adjust deferred tax liabilities on the equipment. These measurement period adjustments to the purchase price allocation in the first quarter of fiscal year 2020 increased Goodwill by $1.8 million. The twelve-month measurement period ended on September 30, 2019. Any subsequent adjustments related to the purchase price allocation, specifically as it relates to an adjustment for the final resolution of the net working capital adjustment, as applicable, will be recorded in earnings during the period of resolution and will not be reflected in goodwill. For tax purposes, $4.5 million of the goodwill recorded is expected to be deductible.
|
|
|
|
|
(Amounts in Thousands)
|
October 1, 2018
|
Cash
|
$
|
2,257
|
|
Receivables
|
15,656
|
|
Inventories
|
6,454
|
|
Prepaid expenses and other current assets
|
1,424
|
|
Property and Equipment
|
7,037
|
|
Other Intangible Assets
|
19,259
|
|
Other Assets
|
498
|
|
Goodwill
|
13,745
|
|
Total assets acquired
|
$
|
66,330
|
|
|
|
Borrowings under Credit Facilities
|
$
|
12,843
|
|
Accounts payable
|
4,113
|
|
Accrued expenses
|
1,340
|
|
Other long-term liabilities
|
5,653
|
|
Total liabilities assumed
|
$
|
23,949
|
|
Net assets acquired
|
$
|
42,381
|
|
Income tax liabilities, indirect tax liabilities, and liabilities for unrecognized tax benefits, including interest and penalties, of $4.2 million have been recorded related to pre-closing tax periods of Global Equipment Services & Manufacturing Vietnam Company Limited of which $3.9 million is in Other long-term liabilities and $0.3 million is included in Accrued expenses. This reflects management’s best assessment of the estimated taxes, interest, and penalties that are more likely than not to be paid, or for indirect taxes the probable amounts due to the tax authorities, including interest and penalties, under the applicable laws in the various jurisdictions. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is significantly different from our current estimate of the tax liabilities. Included in Receivables is a related indemnification asset of $4.2 million for these estimated tax liabilities. The seller has agreed to indemnify the buyer in the purchase agreements for all taxes allocable to all pre-closing tax periods.
Other Intangible Assets include the estimated fair values for finite-lived intangible assets acquired and are listed in the table below along with their estimated useful lives which are being amortized on a straight-line basis.
|
|
|
|
|
|
|
(Amounts in Thousands)
|
Estimated
Fair Value
|
|
Estimated useful life
(years)
|
Software
|
$
|
379
|
|
|
3 to 7
|
Technology
|
5,060
|
|
|
5
|
Trade name
|
6,369
|
|
|
10
|
Customer relationships
|
7,451
|
|
|
15
|
|
$
|
19,259
|
|
|
|
Note 3. Revenue from Contracts with Customers
The following table disaggregates our revenue by end market vertical for the three months ended September 30, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 30
|
(Amounts in Millions)
|
2019
|
|
2018
|
Vertical Markets:
|
|
|
|
Automotive
|
$
|
124.4
|
|
|
$
|
105.9
|
|
Medical
|
101.3
|
|
|
82.2
|
|
Industrial
|
64.7
|
|
|
57.4
|
|
Public Safety
|
17.1
|
|
|
17.1
|
|
Other
|
5.9
|
|
|
3.0
|
|
Total net sales
|
$
|
313.4
|
|
|
$
|
265.6
|
|
For the three months ended September 30, 2019 and 2018, approximately 69% and 73% of our net sales, respectively, were recognized over time as manufacturing services were performed under a customer contract on a product with no alternative use and we have an enforceable right to payment for performance completed to date. The remaining sales revenue was primarily recognized at a point in time when the customer obtained control of the manufactured product.
The timing differences of revenue recognition, billings to our customers, and cash collections from our customers result in billed accounts receivable and unbilled accounts receivable. Contract assets on the Condensed Consolidated Balance Sheets relate to unbilled accounts receivable and occur when revenue is recognized over time as manufacturing services are provided and the billing to the customer has not yet occurred as of the balance sheet date. Contract assets were $60.8 million and $51.9 million as of September 30, 2019 and June 30, 2019, respectively.
In limited circumstances, the Company may receive payments from customers in advance of the satisfaction of performance obligations primarily for tooling or other miscellaneous services or costs. These advance payments are recognized as contract liabilities until the performance obligations are completed and are included in Accrued expenses on the Condensed Consolidated Balance Sheets, which amounted to $5.5 million and $6.3 million as of September 30, 2019 and June 30, 2019, respectively.
Note 4. Inventories
Inventories were valued using the lower of first-in, first-out (“FIFO”) cost and net realizable value. Inventory components were as follows:
|
|
|
|
|
|
|
|
|
(Amounts in Thousands)
|
September 30, 2019
|
|
June 30,
2019
|
Finished products
|
$
|
5,213
|
|
|
$
|
2,708
|
|
Work-in-process
|
1,900
|
|
|
4,119
|
|
Raw materials
|
193,640
|
|
|
197,013
|
|
Total inventory
|
$
|
200,753
|
|
|
$
|
203,840
|
|
Note 5. Accumulated Other Comprehensive Income (Loss)
During the three months ended September 30, 2019 and 2018, the changes in the balances of each component of Accumulated Other Comprehensive Income (Loss), net of tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
(Amounts in Thousands)
|
Foreign Currency Translation Adjustments
|
|
Derivative Gain (Loss)
|
|
Post Employment Benefits
Net Actuarial Gain (Loss)
|
|
Accumulated Other Comprehensive Income (Loss)
|
Balance at June 30, 2019
|
$
|
(6,848
|
)
|
|
$
|
(1,598
|
)
|
|
$
|
818
|
|
|
$
|
(7,628
|
)
|
Other comprehensive income (loss) before reclassifications
|
(3,665
|
)
|
|
243
|
|
|
(113
|
)
|
|
(3,535
|
)
|
Reclassification to (earnings) loss
|
—
|
|
|
(331
|
)
|
|
(78
|
)
|
|
(409
|
)
|
Net current-period other comprehensive income (loss)
|
(3,665
|
)
|
|
(88
|
)
|
|
(191
|
)
|
|
(3,944
|
)
|
Balance at September 30, 2019
|
$
|
(10,513
|
)
|
|
$
|
(1,686
|
)
|
|
$
|
627
|
|
|
$
|
(11,572
|
)
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
$
|
(4,357
|
)
|
|
$
|
(3,379
|
)
|
|
$
|
837
|
|
|
$
|
(6,899
|
)
|
Other comprehensive income (loss) before reclassifications
|
(658
|
)
|
|
1,523
|
|
|
161
|
|
|
1,026
|
|
Reclassification to (earnings) loss
|
—
|
|
|
73
|
|
|
(84
|
)
|
|
(11
|
)
|
Net current-period other comprehensive income (loss)
|
(658
|
)
|
|
1,596
|
|
|
77
|
|
|
1,015
|
|
Balance at September 30, 2018
|
$
|
(5,015
|
)
|
|
$
|
(1,783
|
)
|
|
$
|
914
|
|
|
$
|
(5,884
|
)
|
The following reclassifications were made from Accumulated Other Comprehensive Income (Loss) to the Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
Reclassifications from Accumulated Other Comprehensive Income (Loss)
|
Three Months Ended
|
|
Affected Line Item in the Condensed Consolidated Statements of Income
|
September 30
|
|
(Amounts in Thousands)
|
2019
|
|
2018
|
|
Derivative gain (loss) (1)
|
$
|
411
|
|
|
$
|
(117
|
)
|
|
Cost of Sales
|
|
—
|
|
|
17
|
|
|
Non-operating income (expense), net
|
|
(80
|
)
|
|
27
|
|
|
Benefit (Provision) for Income Taxes
|
|
$
|
331
|
|
|
$
|
(73
|
)
|
|
Net of Tax
|
Postemployment Benefits:
|
|
|
|
|
|
Amortization of actuarial gain (2)
|
102
|
|
|
111
|
|
|
Non-operating income (expense), net
|
|
(24
|
)
|
|
(27
|
)
|
|
Benefit (Provision) for Income Taxes
|
|
$
|
78
|
|
|
$
|
84
|
|
|
Net of Tax
|
Total reclassifications for the period
|
$
|
409
|
|
|
$
|
11
|
|
|
Net of Tax
|
Amounts in parentheses indicate reductions to income.
Note 6. Commitments and Contingent Liabilities
Standby letters of credit may be issued to third-party suppliers and insurance institutions and can only be drawn upon in the event of the Company’s failure to pay its obligations to a beneficiary. As of September 30, 2019, we had a maximum financial exposure from unused standby letters of credit totaling $0.4 million. We don’t expect circumstances to arise that would require us to perform under any of 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 September 30, 2019 with respect to the standby letters of credit. The Company also may enter into commercial letters of credit to facilitate payments to vendors and from customers.
One of the Company’s China operations, in limited circumstances, receives banker’s acceptance drafts from customers as settlement for their trade accounts receivable. We in turn may transfer the acceptance drafts to a supplier of ours in settlement of current accounts payable. These drafts contain certain recourse provisions afforded to the transferee under laws of The People’s Republic of China. If a transferee were to exercise its available recourse rights, the draft would revert back to our China operation and we would be required to satisfy the obligation with the transferee. At September 30, 2019, the drafts transferred and outstanding totaled $0.3 million. No transferee has exercised their recourse rights against us. For additional information on banker’s acceptance drafts, see Note 1 – Business Description and Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.
The Company provides only assurance-type warranties for a limited time period, which cover workmanship and assures the product complies with specifications provided by or agreed upon with the customer. We maintain a provision for limited warranty repair or replacement of products manufactured and sold, which has been established in specific manufacturing contract agreements. 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.
Changes in the product warranty accrual for the three months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 30
|
(Amounts in Thousands)
|
2019
|
|
2018
|
Product warranty liability at the beginning of the period
|
$
|
958
|
|
|
$
|
656
|
|
Additions to warranty accrual (including changes in estimates)
|
24
|
|
|
115
|
|
Settlements made (in cash or in kind)
|
(23
|
)
|
|
(4
|
)
|
Product warranty liability at the end of the period
|
$
|
959
|
|
|
$
|
767
|
|
Note 7. Credit Facilities
Credit facilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused Borrowings at
|
|
Borrowings Outstanding at
|
|
Borrowings Outstanding at
|
(Amounts in Millions, in U.S Dollar Equivalents)
|
September 30, 2019
|
|
September 30, 2019
|
|
June 30, 2019
|
Primary credit facility (1)
|
$
|
44.4
|
|
|
$
|
105.2
|
|
|
$
|
122.8
|
|
Thailand overdraft credit facility (2)
|
2.9
|
|
|
—
|
|
|
—
|
|
China revolving credit facility (2)
|
7.5
|
|
|
—
|
|
|
—
|
|
Netherlands revolving credit facility (2)
|
5.6
|
|
|
4.4
|
|
|
3.4
|
|
Poland revolving credit facility (2)
|
16.4
|
|
|
—
|
|
|
—
|
|
Total credit facilities
|
$
|
76.8
|
|
|
$
|
109.6
|
|
|
$
|
126.2
|
|
Less: current portion
|
|
|
$
|
(18.1
|
)
|
|
$
|
(34.7
|
)
|
Long-term debt under credit facilities, less current portion (3)
|
|
|
|
$
|
91.5
|
|
|
$
|
91.5
|
|
|
|
(1)
|
At September 30, 2019, the Company maintains a U.S. primary credit facility (the “primary facility”) dated as of July 27, 2018 and scheduled to mature in July 2023. The primary facility provides for $150 million in borrowings, with an option to increase the amount available for borrowing to $225 million upon request, subject to the consent of each lender participating in such increase. This facility is maintained for working capital and general corporate purposes of the Company including capital expenditures and potential acquisitions. A commitment fee is payable on the unused portion of the credit facility at a rate that ranges from 20.0 to 25.0 basis points per annum as determined by the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA, as defined in the primary facility. Types of borrowings available on the primary facility include revolving loans, multi-currency term loans, and swingline loans.
|
The interest rate on borrowings is dependent on the type of borrowings and will be one of the two options:
|
|
•
|
the London Interbank Offered Rate (“LIBOR”) in effect two business days prior to the advance (adjusted upwards to reflect bank reserve costs) for such interest period as defined in the agreement, plus the Eurocurrency Loans spread which can range from 125.0 to 175.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA; or
|
|
|
•
|
the Alternate Base Rate (“ABR”), which is defined as the highest of the fluctuating rate per annum equal to the higher of
|
|
|
a.
|
JPMorgan’s prime rate;
|
|
|
b.
|
1% per annum above the Adjusted LIBOR Rate (as defined in the Credit Agreement); or
|
|
|
c.
|
1/2 of 1% per annum above the Federal Funds Effective Rate (as defined in the Credit Agreement);
|
plus the ABR Loans spread which can range from 25.0 to 75.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA.
The Company’s financial covenants under the primary credit facility require:
|
|
•
|
a ratio of consolidated total indebtedness minus unencumbered U.S. cash on hand in the United States in excess of $15 million to adjusted consolidated EBITDA, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be greater than 3.0 to 1.0, and
|
|
|
•
|
a fixed charge coverage ratio, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be less than 1.1 to 1.0.
|
The Company had $0.4 million in letters of credit contingently committed against the credit facility at September 30, 2019.
|
|
(2)
|
At September 30, 2019, the Company also maintains foreign credit facilities in Thailand, China, Poland, and the Netherlands. For more information on these foreign credit facilities, refer to our Annual Report on Form 10-K for the year ended June 30, 2019.
|
|
|
(3)
|
The amount of Long-term debt, less current maturities at September 30, 2019 reflects the borrowings on the primary facility that the Company intends, and has the ability, to refinance for a period longer than twelve months.
|
The weighted-average interest rate on the borrowings outstanding under the credit facilities at September 30, 2019 was 4.1%.
Note 8. Fair Value
The Company categorizes 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.
|
There were no changes in the inputs or valuation techniques used to measure fair values during the three months ended September 30, 2019. For more information on inputs and fair valuation techniques used, refer to our Annual Report on Form 10-K for the year ended June 30, 2019.
Recurring Fair Value Measurements:
As of September 30, 2019 and June 30, 2019, the fair values of financial assets and liabilities that are measured at fair value on a recurring basis using the market approach are categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
(Amounts in Thousands)
|
Level 1
|
|
Level 2
|
|
Total
|
Assets
|
|
|
|
|
|
Cash equivalents
|
$
|
1,129
|
|
|
$
|
—
|
|
|
$
|
1,129
|
|
Derivatives: foreign exchange contracts
|
—
|
|
|
2,777
|
|
|
2,777
|
|
Trading securities: mutual funds held in nonqualified SERP
|
9,472
|
|
|
—
|
|
|
9,472
|
|
Total assets at fair value
|
$
|
10,601
|
|
|
$
|
2,777
|
|
|
$
|
13,378
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives: foreign exchange contracts
|
$
|
—
|
|
|
$
|
597
|
|
|
$
|
597
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
597
|
|
|
$
|
597
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
(Amounts in Thousands)
|
Level 1
|
|
Level 2
|
|
Total
|
Assets
|
|
|
|
|
|
Cash equivalents
|
$
|
1,123
|
|
|
$
|
—
|
|
|
$
|
1,123
|
|
Derivatives: foreign exchange contracts
|
—
|
|
|
1,832
|
|
|
1,832
|
|
Trading securities: mutual funds held in nonqualified SERP
|
9,268
|
|
|
—
|
|
|
9,268
|
|
Total assets at fair value
|
$
|
10,391
|
|
|
$
|
1,832
|
|
|
$
|
12,223
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives: foreign exchange contracts
|
$
|
—
|
|
|
$
|
299
|
|
|
$
|
299
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
299
|
|
|
$
|
299
|
|
We had no level 3 assets or liabilities measured at fair value during the three months ended September 30, 2019.
The nonqualified supplemental employee retirement plan (“SERP”) assets consist primarily of equity funds, balanced funds, bond funds, and a money market fund. The SERP investment assets are offset by a SERP liability which represents the Company’s obligation to distribute SERP funds to participants. See Note 10 - Investments of Notes to Condensed Consolidated Financial Statements for further information regarding the SERP.
Financial Instruments Not Carried At Fair Value:
Financial instruments that are not reflected in the Condensed Consolidated Balance Sheets at fair value that have carrying amounts which approximate fair value include notes receivable and borrowings under credit facilities. There were no changes to the inputs and valuation techniques used to assess the fair value of these financial instruments during the three months ended September 30, 2019. For more information on inputs and fair valuation techniques used, refer to our Annual Report on Form 10-K for the year ended June 30, 2019.
The carrying value of our cash deposit accounts, trade accounts receivable, and trade accounts payable approximates fair value due to the relatively short maturity and immaterial non-performance risk.
Note 9. Derivative Instruments
Foreign Exchange Contracts:
We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of business. Our primary means of managing this exposure is to utilize natural hedges, such as aligning currencies used in the supply chain with the sale currency. To the extent natural hedging techniques do not fully offset currency risk, we use derivative instruments with the objective of reducing the residual exposure to certain foreign currency rate movements. Factors considered in the decision to hedge an underlying market exposure include the materiality of the risk, the volatility of the market, the duration of the hedge, the degree to which the underlying exposure is committed to, and the availability, effectiveness, and cost of derivative instruments. Derivative instruments are only utilized for risk management purposes and are not used for speculative or trading purposes.
We use forward contracts designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in forecasted transactions denominated in a foreign currency. Foreign exchange contracts are also used to hedge against foreign currency exchange rate risks related to intercompany balances denominated in currencies other than the functional currencies. As of September 30, 2019, we had outstanding foreign exchange contracts to hedge currencies against the U.S. dollar in the aggregate notional amount of $32.3 million and to hedge currencies against the Euro in the aggregate notional amount of 77.0 million Euro. The notional amounts are indicators of the volume of derivative activities but may not be indicators of the potential gain or loss on the derivatives.
In limited cases due to unexpected changes in forecasted transactions, cash flow hedges may cease to meet the criteria to be designated as cash flow hedges. Depending on the type of exposure hedged, we may either purchase a derivative contract in the opposite position of the undesignated hedge or may retain the hedge until it matures if the hedge continues to provide an adequate offset in earnings against the currency revaluation impact of foreign currency denominated liabilities.
The fair value of outstanding derivative instruments is recognized on the balance sheet as a derivative asset or liability. When derivatives are settled with the counterparty, the derivative asset or liability is relieved and cash flow is impacted for the net settlement. For derivative instruments that meet the criteria of hedging instruments under FASB guidance, the gain or loss on the derivative instrument are initially recorded net of related tax effect in Accumulated Other Comprehensive Income (Loss), a component of Share Owners’ Equity, and are subsequently reclassified into earnings in the period or periods during which the hedged transaction is recognized in earnings. The gain or loss associated with derivative instruments that are not designated as hedging instruments or that cease to meet the criteria for hedging under FASB guidance is also reported immediately in Non-operating income (expense), net on the Condensed Consolidated Statements of Income.
Based on fair values as of September 30, 2019, we estimate that approximately $0.4 million of pre-tax derivative gain deferred in Accumulated Other Comprehensive Loss will be reclassified into earnings, along with the earnings effects of related forecasted transactions, within the next 12 months. Gains on foreign exchange contracts are generally offset by losses in operating income in the income statement when the underlying hedged transaction is recognized in earnings. Because gains or losses on foreign exchange contracts fluctuate partially based on currency spot rates, the future effect on earnings of the cash flow hedges alone is not determinable, but in conjunction with the underlying hedged transactions, the result is expected to be a decline in currency risk. The maximum length of time we had hedged our exposure to the variability in future cash flows was 12 months as of both September 30, 2019 and June 30, 2019.
See Note 8 - Fair Value of Notes to Condensed Consolidated Financial Statements for further information regarding the fair value of derivative assets and liabilities and the Condensed Consolidated Statements of Comprehensive Income for the changes in deferred derivative gains and losses. Information on the location and amounts of derivative fair values in the Condensed Consolidated Balance Sheets and derivative gains and losses in the Condensed Consolidated Statements of Income are presented below.
Fair Value of Derivative Instruments on the Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
Fair Value As of
|
|
|
|
Fair Value As of
|
(Amounts in Thousands)
|
Balance Sheet Location
|
|
September 30,
2019
|
|
June 30,
2019
|
|
Balance Sheet Location
|
|
September 30,
2019
|
|
June 30,
2019
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
1,139
|
|
|
$
|
1,136
|
|
|
Accrued expenses
|
|
$
|
597
|
|
|
$
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
1,638
|
|
|
696
|
|
|
Accrued expenses
|
|
—
|
|
|
21
|
|
Total derivatives
|
|
|
$
|
2,777
|
|
|
$
|
1,832
|
|
|
|
|
$
|
597
|
|
|
$
|
299
|
|
The Effect of Derivative Instruments on Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30
|
(Amounts in Thousands)
|
|
|
|
2019
|
|
2018
|
Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives:
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
$
|
275
|
|
|
$
|
1,947
|
|
The Effect of Derivative Instruments on Condensed Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(Amounts in Thousands)
|
|
|
|
September 30
|
Derivatives in Cash Flow Hedging Relationships
|
|
Location of Gain or (Loss)
|
|
2019
|
|
2018
|
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income:
|
|
|
|
|
Foreign exchange contracts
|
|
Cost of Sales
|
|
$
|
411
|
|
|
$
|
(117
|
)
|
Foreign exchange contracts
|
|
Non-operating income (expense)
|
|
—
|
|
|
17
|
|
Total
|
|
|
|
$
|
411
|
|
|
$
|
(100
|
)
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives:
|
|
|
|
|
Foreign exchange contracts
|
|
Non-operating income (expense)
|
|
$
|
1,698
|
|
|
$
|
564
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Pre-Tax Gain (Loss) Recognized in Income
|
|
$
|
2,109
|
|
|
$
|
464
|
|
Note 10. Investments
The Company maintains a self-directed supplemental employee retirement plan (“SERP”) for executive and other key employees. The Company SERP utilizes a rabbi trust, and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy. The Company recognizes SERP investment assets on the balance sheet at current fair value. A SERP liability of the same amount is recorded on the balance sheet representing an obligation to distribute SERP funds to participants. The SERP investment assets are classified as trading, and accordingly, realized and unrealized gains and losses are recognized in income in the other income (expense) category. Adjustments made to revalue the SERP liability are also recognized in income as selling and administrative expenses and offset valuation adjustments on SERP investment assets. The (decrease)/increase in net unrealized holding gains for the three months ended September 30, 2019 and 2018 was, in thousands, $(53) and $91, respectively.
SERP asset and liability balances applicable to Kimball Electronics participants were as follows:
|
|
|
|
|
|
|
|
|
(Amounts in Thousands)
|
September 30,
2019
|
|
June 30,
2019
|
SERP investments - current asset
|
$
|
1,760
|
|
|
$
|
1,728
|
|
SERP investments - other long-term asset
|
7,712
|
|
|
7,540
|
|
Total SERP investments
|
$
|
9,472
|
|
|
$
|
9,268
|
|
|
|
|
|
SERP obligation - current liability
|
$
|
1,760
|
|
|
$
|
1,728
|
|
SERP obligation - other long-term liability
|
7,712
|
|
|
7,540
|
|
Total SERP obligation
|
$
|
9,472
|
|
|
$
|
9,268
|
|
Note 11. Postemployment Benefits
The Company maintains severance plans for all domestic employees and other statutory required postemployment plans for certain foreign subsidiaries. The domestic severance plans provide severance benefits to eligible employees meeting the plans’ qualifications, primarily involuntary termination without cause. The foreign postemployment plans include local pension, retirement, or severance plans. There are no statutory requirements for us to contribute to the plans, nor do employees contribute to the plans. The plans hold no assets. Benefits are paid using available cash on hand when eligible employees meet plan qualifications for payment. The net periodic postemployment benefit costs were not material for the three months ended September 30, 2019 and 2018. Unusual or non-recurring severance actions are not estimable using actuarial methods and are expensed in accordance with the applicable U.S. GAAP.
Note 12. Stock Compensation Plans
The Company maintains a stock compensation plan, the Kimball Electronics, Inc. 2014 Stock Option and Incentive Plan (the “Plan”), which allows for the issuance of up to 4.5 million shares and may be awarded in the form of incentive stock options, stock appreciation rights, restricted shares, unrestricted shares, restricted share units, or performance shares and performance units. The Plan is a ten-year plan with no further awards allowed to be made under the Plan after October 1, 2024. The Company also maintains a nonqualified deferred stock compensation plan, the Kimball Electronics, Inc. Non-Employee Directors Stock Compensation Deferral Plan (the “Deferral Plan”), which allows Non-Employee Directors of the Company’s Board of Directors (the “Board”) to elect to defer all, or a portion of, their retainer fees in stock until retirement or termination from the Board or death. The Deferral Plan allows for issuance of up to 1.0 million shares of the Company’s common stock. For more information on the Plan and the Deferral Plan, refer to our Annual Report on Form 10-K for the year ended June 30, 2019.
During the first three months of fiscal year 2020, the following stock compensation was awarded under the Plan. No awards were issued under the Deferral Plan during the period.
|
|
|
|
|
|
|
|
|
|
|
Stock Compensation Awarded
|
|
Quarter Awarded
|
|
Shares/Units
|
|
Grant Date Fair Value (2)
|
Long-Term Performance Shares (1)
|
|
1st Quarter
|
|
252,878
|
|
|
|
$14.39
|
|
|
|
|
|
|
|
|
Unrestricted shares (3)
|
|
1st Quarter
|
|
500
|
|
|
|
$14.39
|
|
(1) Long-term performance shares were awarded to officers and other key employees. Payouts will be based upon a combination of a bonus percentage attainment component calculated under the Company’s profit sharing incentive bonus plan, adjusted to a three-year average bonus percentage, and a growth attainment component, which is the Company’s growth in sales revenue based on comparison of its three-year compounded annual growth rate (“CAGR”) with the Electronics Manufacturing Services Industry’s three-year CAGR. The long-term performance shares awarded are based on three successive annual performance measurement periods, with each annual tranche having a grant date when economic profit tiers are established and approved by the Compensation and Governance Committee of the Board near the beginning of the applicable fiscal year and a vesting date shortly after the end of each annual period. The number of shares issued will be less than the maximum shares issuable if one or both of the above-mentioned incentive metric maximum thresholds are not obtained.
(2) The grant date fair value is based on the stock price at the date of the award and for long-term performance shares is applicable to the first tranche only.
(3) Unrestricted shares were awarded under the Plan to a key employee which were expensed immediately. Unrestricted shares do not have vesting periods, holding periods, restrictions on sales, or other restrictions.
Note 13. Goodwill and Other Intangible Assets
A summary of goodwill is as follows:
|
|
|
|
|
|
(Amounts in Thousands)
|
|
|
Balance as of June 30, 2019
|
|
|
Goodwill
|
|
$
|
30,930
|
|
Accumulated impairment
|
|
(12,826
|
)
|
Goodwill, net
|
|
18,104
|
|
Goodwill, Additions
|
|
1,832
|
|
Balance as of September 30, 2019
|
|
|
Goodwill
|
|
32,762
|
|
Accumulated impairment
|
|
(12,826
|
)
|
Goodwill, net
|
|
$
|
19,936
|
|
During the first three months of fiscal year 2020, we added $1.8 million to goodwill resulting from measurement period adjustments to the purchase price allocation of the GES acquisition. See Note 2 - Acquisition of Notes to Condensed Consolidated Financial Statements for more information on this acquisition.
A summary of other intangible assets subject to amortization is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
(Amounts in Thousands)
|
Cost
|
|
Accumulated
Amortization
|
|
Net Value
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net Value
|
Capitalized Software
|
$
|
32,097
|
|
|
$
|
27,351
|
|
|
$
|
4,746
|
|
|
$
|
32,015
|
|
|
$
|
27,124
|
|
|
$
|
4,891
|
|
Customer Relationships
|
8,618
|
|
|
1,633
|
|
|
6,985
|
|
|
8,618
|
|
|
1,506
|
|
|
7,112
|
|
Technology
|
5,060
|
|
|
1,018
|
|
|
4,042
|
|
|
5,060
|
|
|
766
|
|
|
4,294
|
|
Trade Name
|
6,369
|
|
|
637
|
|
|
5,732
|
|
|
6,369
|
|
|
478
|
|
|
5,891
|
|
Other Intangible Assets
|
$
|
52,144
|
|
|
$
|
30,639
|
|
|
$
|
21,505
|
|
|
$
|
52,062
|
|
|
$
|
29,874
|
|
|
$
|
22,188
|
|
During the three months ended September 30, 2019 and September 30, 2018, amortization expense of other intangible assets was, in millions, $0.8 and $0.2, respectively.
The estimated useful life of internal-use software ranges from 3 years to 10 years. The amortization period for the customer relationships, technology, and trade name intangible assets is 15 years, 5 years, and 10 years, respectively. We have no intangible assets with indefinite useful lives which are not subject to amortization.
Note 14. Leases
The Company determines if a contract is or contains a lease at inception. The Company leases certain office, manufacturing, and warehouse facilities under operating leases, in addition to land on which certain office and manufacturing facilities reside. These operating leases expire from fiscal year 2020 to 2057. The Company has a minimal number of finance leases with an immaterial impact on its condensed consolidated financial statements.
Operating lease costs for the three months ended September 30, 2019 were $0.3 million, including short-term and variable lease costs. Cash payments for operating leases included in the measurement of lease liabilities for the three months ended September 30, 2019 were $0.2 million, which is included in Cash Flows from Operating Activities in the Condensed Consolidated Statement of Cash Flows.
The lease assets and liabilities, which exclude leases with terms of 12 months or less, as of September 30, 2019 were as follows:
|
|
|
|
|
(Amounts in Thousands)
|
|
Operating lease right-of-use assets (included in Other Assets)
|
$
|
2,406
|
|
Operating lease liability, current (included in Accrued expenses)
|
$
|
793
|
|
Operating lease liability, noncurrent (included in Other long-term liabilities)
|
$
|
1,613
|
|
Weighted average remaining lease term - operating leases
|
5.3
|
|
Weighted average discount rate - operating leases
|
3.5
|
%
|
Future lease payments as of September 30, 2019 are as follows:
|
|
|
|
|
(Amounts in Thousands)
|
|
2020 (1)
|
$
|
632
|
|
2021
|
710
|
|
2022
|
575
|
|
2023
|
95
|
|
2024
|
95
|
|
Thereafter
|
475
|
|
Total undiscounted lease payments
|
$
|
2,582
|
|
Less: imputed interest
|
176
|
|
Total lease liabilities
|
$
|
2,406
|
|
(1) Represents estimated lease payments for the remaining nine-month period ending June 30, 2020.
As reported under the previous lease accounting standard, the aggregate future minimum rental payments on our operating leases, as of June 30, 2019, were, in millions, $0.8, $0.7, $0.6, $0.1, and $0.1 for the five years ending June 30, 2024, respectively, and $0.5 thereafter.
Note 15. Share Owners’ Equity
On October 21, 2015, the Board authorized an 18-month stock repurchase plan (the “Stock Repurchase Plan”) allowing a repurchase of up to $20 million worth of common stock. Then, separately on each of September 29, 2016, August 23, 2017, and November 8, 2018, the Board extended and increased the Stock Repurchase Plan to allow the repurchase of up to an additional $20 million worth of common stock with no expiration date, which brought the total authorized stock repurchases under the Plan to $80 million. Purchases may be made under various programs, including in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions, all in accordance with applicable securities laws and regulations. The Stock Repurchase Plan may be suspended or discontinued at any time.
During the three months ended September 30, 2019, the Company repurchased $3.5 million of common stock at an average price of $15.10 which was recorded as Treasury stock, at cost in the Condensed Consolidated Balance Sheets. Since the inception of the Stock Repurchase Plan, the Company has repurchased $71.4 million of common stock under the Stock Repurchase Plan at an average cost of $15.04 per share.
Note 16. Earnings Per Share
Basic and diluted earnings per share were calculated as follows under the two-class method:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 30
|
(Amounts in thousands, except per share data)
|
2019
|
|
2018
|
Basic and Diluted Earnings Per Share:
|
|
|
|
Net Income
|
$
|
6,598
|
|
|
$
|
5,069
|
|
Less: Net Income allocated to participating securities
|
8
|
|
|
2
|
|
Net Income allocated to common Share Owners
|
$
|
6,590
|
|
|
$
|
5,067
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
25,495
|
|
|
26,507
|
|
Dilutive effect of average outstanding performance shares
|
90
|
|
|
111
|
|
Dilutive effect of average outstanding deferred stock units
|
24
|
|
|
10
|
|
Dilutive weighted average shares outstanding
|
25,609
|
|
|
26,628
|
|
|
|
|
|
Earnings Per Share of Common Stock:
|
|
|
|
Basic
|
$
|
0.26
|
|
|
$
|
0.19
|
|
Diluted
|
$
|
0.26
|
|
|
$
|
0.19
|
|