Restructuring

Transformation Restructuring Plan:

In June 2019, we announced a transformation restructuring plan that is expected to optimize resources for future growth, improve efficiency, and build capabilities across our organization. We believe the transformation restructuring plan will establish a more cost-efficient structure to better align our operations with our long-term strategic goals. The transformation restructuring plan includes the following:

•

Our overall manufacturing facility footprint is being reviewed to reduce excess capacity and gain efficiencies by centralizing manufacturing operations. We plan to exit a leased seating manufacturing facility in Martinsville, Virginia as well as a David Edward production facility in Red Lion, Pennsylvania in the second half of fiscal year 2020 and are evaluating our production capabilities and capacity across our organization to identify additional opportunities.


•	The creation of center-led functions for finance, human resources, information technology and legal functions is expected to result in the standardization of processes and the elimination of duplication. In addition, we are centralizing our supply chain efforts to maximize supplier value and plan to drive more efficient practices and operations within our logistics function.


•	Kimball brand selling resources were reallocated to higher-growth markets. We also ceased use of four leased furniture showrooms across our brands during the first quarter of fiscal year 2020 and recognized impairment of the leases and associated leasehold improvements.

The efforts are expected to generate annualized pre-tax savings of approximately $10.0 million when the transformation restructuring plan is fully implemented. We estimate that pre-tax restructuring charges incurred through the end of fiscal year 2020 will be approximately $9.0 million to $10.0 million. The restructuring charges are expected to consist of approximately $3.7 million to $4.0 million for severance and other employee-related costs, $2.5 million to $3.0 million for facility exit and other costs, and $2.8 million to $3.0 million for asset impairment. Approximately 65% of the total cost estimate is expected to be cash expense.

A summary of the charges recorded in connection with the Transformation Restructuring Plan is as follows:



	Three Months Ended			Six Months Ended		Charges incurred to date
(Amounts in Thousands)	December 31, 2019			December 31, 2019		Charges incurred to date
Cash-related restructuring charges:
Severance and other employee related costs	$	785		$	1,991	$	2,654
Facility exit costs and other cash charges	523			992		1,195
Total cash-related restructuring charges	$	1,308		$	2,983	$	3,849
Non-cash charges:
Transition stock compensation	184			654		725
Impairment (recovery) of assets	(147		)	2,058		2,058
Other non-cash charges	51			51		51
Total non-cash charges	$	88		$	2,763	$	2,834
Total charges	$	1,396		$	5,746	$	6,683

A summary of the current period activity in accrued restructuring related to the Transformation Restructuring Plan is as follows:



(Amounts in Thousands)	Severance and other employee related costs			Facility exit and other costs			Total
Balance at June 30, 2019	$	619		$	203		$	822
Additions charged to expense	2,322			379			2,701
Cash payments charged against reserve	(1,617		)	(582		)	(2,199		)
Non-cash adjustments	(150		)	—			(150		)
Balance at December 31, 2019	$	1,174		$	—		$	1,174

To date, we have recognized $6.7 million of restructuring costs related to the Transformation Restructuring Plan. We expect this restructuring plan to be complete by June 30, 2020. It is currently estimated that this plan will incur an additional $2.3 million to $3.3 million of future restructuring charges.

We utilized available market prices and management estimates to determine the fair value of impaired assets. Restructuring is included in the Restructuring Expense line item on our Condensed Consolidated Statements of Income.