Note 7. Fair Value | 9 Months Ended |
Mar. 31, 2014 |
Fair Value [Abstract] | ' |
Fair Value Disclosures | ' |
Fair Value |
Kimball 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: |
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• | Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities. | | | | | | | | | | | | | | |
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• | 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. | | | | | | | | | | | | | | |
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• | 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 nine months ended March 31, 2014. 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, 2013. |
Financial Instruments Recognized at Fair Value: |
The following methods and assumptions were used to measure fair value: |
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Financial Instrument | | Level | | Valuation Technique/Inputs Used | | | | | | | | | | | |
Cash Equivalents | | 1 | | Market - Quoted market prices | | | | | | | | | | | |
Derivative Assets: 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, considering counterparty credit risk. | | | | | | | | | | | |
Derivative Assets: Stock warrants | | 3 | | Market - Based on a probability-weighted Black-Scholes option pricing model with the following inputs (level 3 input values indicated in parenthesis): risk-free interest rate (0.07%), historical stock price volatility (82.7%) and weighted average expected term (6 months). Enterprise value was estimated using a discounted cash flow calculation. | | | | | | | | | | | |
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Stock warrants are revalued and analyzed for reasonableness on a quarterly basis. The level 3 inputs used are the standard inputs used in the Black-Scholes model. Input values are based on publicly available information (Federal Reserve interest rates) and internally-developed information (historical stock price volatility of comparable investments) and remaining expected term of warrants. | | | | | | | | | | | |
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Significant increases (decreases) in the historical stock price volatility, expected life, and enterprise value in isolation would result in a significantly higher (lower) fair value measurement. The inputs do not have any interrelationships. | | | | | | | | | | | |
Trading securities: Mutual funds held by nonqualified supplemental employee retirement plan | | 1 | | Market - Quoted market prices | | | | | | | | | | | |
Derivative Liabilities: 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's non-performance risk. | | | | | | | | | | | |
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Recurring Fair Value Measurements: |
As of March 31, 2014 and June 30, 2013, 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: |
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| March 31, 2014 |
(Amounts in Thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Cash equivalents | $ | 97,386 | | | $ | — | | | $ | — | | | $ | 97,386 | |
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Derivatives: Foreign exchange contracts | — | | | 583 | | | — | | | 583 | |
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Derivatives: Stock warrants | — | | | — | | | 20 | | | 20 | |
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Trading Securities: Mutual funds held by nonqualified supplemental employee retirement plan | 22,135 | | | — | | | — | | | 22,135 | |
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Total assets at fair value | $ | 119,521 | | | $ | 583 | | | $ | 20 | | | $ | 120,124 | |
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Liabilities | | | | | | | | | | | |
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Derivatives: Foreign exchange contracts | $ | — | | | $ | 1,293 | | | $ | — | | | $ | 1,293 | |
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Total liabilities at fair value | $ | — | | | $ | 1,293 | | | $ | — | | | $ | 1,293 | |
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| June 30, 2013 |
(Amounts in Thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Cash equivalents | $ | 83,516 | | | $ | — | | | $ | — | | | $ | 83,516 | |
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Derivatives: Foreign exchange contracts | — | | | 273 | | | — | | | 273 | |
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Derivatives: Stock warrants | — | | | — | | | 25 | | | 25 | |
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Trading Securities: Mutual funds held by nonqualified supplemental employee retirement plan | 19,600 | | | — | | | — | | | 19,600 | |
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Total assets at fair value | $ | 103,116 | | | $ | 273 | | | $ | 25 | | | $ | 103,414 | |
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Liabilities | | | | | | | | | | | |
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Derivatives: Foreign exchange contracts | $ | — | | | $ | 1,662 | | | $ | — | | | $ | 1,662 | |
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Total liabilities at fair value | $ | — | | | $ | 1,662 | | | $ | — | | | $ | 1,662 | |
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The change in fair value of Level 3 investment assets during the nine months ended March 31, 2014 was immaterial, and no purchases or sales of Level 3 assets occurred during the period. |
The nonqualified supplemental employee retirement plan (SERP) assets consist primarily of equity funds, balanced funds, a bond fund, and a money market fund. The SERP investment assets are offset by a SERP liability which represents Kimball's obligation to distribute SERP funds to participants. See Note 9 - Investments of Notes to Condensed Consolidated Financial Statements for further information regarding the SERP. |
Non-Recurring Fair Value Measurements: |
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments when events or circumstances indicate a significant adverse effect on the fair value of the asset. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs. |
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Non-recurring fair value adjustment | | Level | | Valuation Technique/Inputs Used | | | | | | | | | | | |
Impairment of long-lived assets (property & equipment) | | 3 | | Market - Estimated potential net selling price. | | | | | | | | | | | |
During the three months ended March 31, 2014, we had no fair value adjustments applicable to items that are subject to non-recurring fair value measurement after the initial measurement date. During the nine months ended March 31, 2014, we classified an aircraft as held for sale and accordingly recognized pre-tax impairment of $1.2 million due to a significant downward shift in the market for private aviation aircraft. The aircraft was sold during the second quarter of fiscal year 2014. |
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 the following: |
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Financial Instrument | | Level | | Valuation Technique/Inputs Used | | | | | | | | | | | |
Notes receivable | | 2 | | Market - Price approximated based on the assumed collection of receivables in the normal course of business, taking into account the customer's non-performance risk | | | | | | | | | | | |
Non-marketable equity securities (cost-method investments, which carry shares at cost except in the event of impairment) | | 3 | | Cost Method, with Impairment Recognized Using a Market-Based Valuation Technique - See the explanation below the table regarding the method used to periodically estimate the fair value of cost-method investments. | | | | | | | | | | | |
Long-term debt (carried at amortized cost) | | 3 | | Income - Price estimated using a discounted cash flow analysis based on quoted long-term debt market rates, taking into account Kimball's non-performance risk | | | | | | | | | | | |
Investments in non-marketable equity securities are accounted for using the cost method if Kimball does not have the ability to exercise significant influence over the operating and financial policies of the investee. On a periodic basis, but no less frequently than quarterly, these investments are assessed for impairment when there are events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. If a significant adverse effect on the fair value of the investment has occurred and is deemed to be other-than-temporary, the fair value of the investment is estimated, and the amount by which the carrying value of the cost-method investment exceeds its fair value is recorded as an impairment. |
The carrying value of our cash deposit accounts, trade accounts receivable, trade accounts payable, and dividends payable approximates fair value due to the relatively short maturity and immaterial non-performance risk. |