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 DecemberMarch 31, 20152016
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
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'sRegistrant’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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o                                                                                       Accelerated filer  x 
Non-accelerated filer  o (Do not check if a smaller reporting company)            Smaller reporting company  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'sRegistrant’s common stock as of January 22,April 20, 2016 was:
Class A Common Stock - 297,799 shares
Class B Common Stock - 37,141,35037,154,654 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)  
(Unaudited)  
December 31,
2015
 June 30,
2015
March 31,
2016
 June 30,
2015
ASSETS 
  
 
  
Current Assets: 
  
 
  
Cash and cash equivalents$26,090
 $34,661
$43,848
 $34,661
Receivables, net of allowances of $1,330 and $1,522, respectively48,734
 55,710
Receivables, net of allowances of $1,408 and $1,522, respectively41,570
 55,710
Inventories46,693
 37,634
40,717
 37,634
Prepaid expenses and other current assets19,479
 23,548
24,143
 23,548
Total current assets140,996
 151,553
150,278
 151,553
Property and Equipment, net of accumulated depreciation of $200,387 and $197,500, respectively96,577
 97,163
Intangible Assets, net of accumulated amortization of $35,778 and $35,447, respectively2,984
 2,669
Property and Equipment, net of accumulated depreciation of $200,086 and $197,500, respectively96,234
 97,163
Intangible Assets, net of accumulated amortization of $35,968 and $35,447, respectively3,014
 2,669
Other Assets14,956
 14,744
15,679
 14,744
Total Assets$255,513
 $266,129
$265,205
 $266,129
      
LIABILITIES AND SHARE OWNERS' EQUITY   
LIABILITIES AND SHARE OWNERS’ EQUITY   
Current Liabilities:      
Current maturities of long-term debt$29
 $27
$29
 $27
Accounts payable37,473
 41,170
35,158
 41,170
Customer deposits15,919
 18,618
19,734
 18,618
Dividends payable2,102
 1,921
2,116
 1,921
Accrued expenses40,360
 45,425
46,681
 45,425
Total current liabilities95,883
 107,161
103,718
 107,161
Other Liabilities:      
Long-term debt, less current maturities217
 241
214
 241
Other16,892
 17,222
16,784
 17,222
Total other liabilities17,109
 17,463
16,998
 17,463
Share Owners' Equity:   
Share Owners’ Equity:   
Common stock-par value $0.05 per share:      
Class A - Shares authorized: 50,000,000
Shares issued: 299,000 and 386,000, respectively
15
 19
Class B - Shares authorized: 100,000,000
Shares issued: 42,726,000 and 42,639,000, respectively
2,136
 2,132
Class A - Shares authorized: 50,000,000
Shares issued: 298,000 and 386,000, respectively
15
 19
Class B - Shares authorized: 100,000,000
Shares issued: 42,727,000 and 42,639,000, respectively
2,136
 2,132
Additional paid-in capital2,610
 3,445
3,545
 3,445
Retained earnings200,217
 194,372
200,903
 194,372
Accumulated other comprehensive income1,268
 1,229
1,312
 1,229
Less: Treasury stock, at cost, 5,601,000 shares and 5,111,000 shares, respectively(63,725) (59,692)
Total Share Owners' Equity142,521
 141,505
Total Liabilities and Share Owners' Equity$255,513
 $266,129
Less: Treasury stock, at cost, 5,586,000 shares and 5,111,000 shares, respectively(63,422) (59,692)
Total Share Owners’ Equity144,489
 141,505
Total Liabilities and Share Owners’ Equity$265,205
 $266,129
See Notes to Condensed Consolidated Financial Statements

3




KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
(Unaudited) (Unaudited)(Unaudited) (Unaudited)
Three Months Ended Six Months EndedThree Months Ended Nine Months Ended
December 31 December 31March 31 March 31
2015 2014 2015 20142016 2015 2016 2015
Net Sales$163,819
 $151,418
 $320,388
 $295,864
$150,038
 $145,943
 $470,426
 $441,807
Cost of Sales110,551
 104,822
 216,038
 202,085
104,219
 101,936
 320,257
 304,021
Gross Profit53,268
 46,596
 104,350
 93,779
45,819
 44,007
 150,169
 137,786
Selling and Administrative Expenses41,236
 43,422
 81,407
 86,927
38,763
 38,508
 120,170
 125,435
Restructuring Expense2,014
 3,335
 3,200
 3,335
2,761
 388
 5,961
 3,723
Operating Income (Loss)10,018
 (161) 19,743
 3,517
Operating Income4,295
 5,111
 24,038
 8,628
Other Income (Expense):              
Interest income45
 50
 116
 91
104
 61
 220
 151
Interest expense(5) (6) (11) (12)(6) (6) (17) (18)
Non-operating income (expense), net201
 183
 (488) (150)51
 290
 (437) 140
Other income (expense), net241
 227
 (383) (71)149
 345
 (234) 273
Income from Continuing Operations Before Taxes on Income10,259
 66
 19,360
 3,446
4,444
 5,456
 23,804
 8,901
Provision for Income Taxes3,757
 67
 7,236
 1,930
1,687
 574
 8,923
 2,503
Income (Loss) from Continuing Operations$6,502
 $(1) $12,124
 $1,516
Income from Continuing Operations$2,757
 $4,882
 $14,881
 $6,398
Income from Discontinued Operations, Net of Tax
 2,678
 
 9,157

 
 
 9,157
Net Income$6,502
 $2,677
 $12,124
 $10,673
$2,757
 $4,882
 $14,881
 $15,555
              
Earnings Per Share of Common Stock: 
  
     
  
    
Basic Earnings (Loss) Per Share from Continuing Operations:$0.17
  
 $0.32
  
Basic Earnings Per Share from Continuing Operations:$0.07
  
 $0.40
  
Class A  $(0.02)   $0.02
  $0.12
   $0.14
Class B  $0.00
   $0.04
  $0.13
   $0.17
Diluted Earnings (Loss) Per Share from Continuing Operations:$0.17
   $0.32
  
Diluted Earnings Per Share from Continuing Operations:$0.07
   $0.39
  
Class A  $(0.02)   $0.02
  $0.12
   $0.14
Class B  $0.00
   $0.04
  $0.13
   $0.17
Basic Earnings Per Share:$0.17
  
 $0.32
  $0.07
  
 $0.40
  
Class A  $0.05
   $0.26
  $0.12
   $0.38
Class B  $0.07
   $0.28
  $0.13
   $0.40
Diluted Earnings Per Share:$0.17
   $0.32
  $0.07
   $0.39
  
Class A  $0.05
   $0.26
  $0.12
   $0.37
Class B  $0.07
   $0.28
  $0.13
   $0.40
              
Dividends Per Share of Common Stock:$0.055
   $0.110
  $0.055
   $0.165
  
Class A  $0.050
   $0.095
  $0.050
   $0.145
Class B  $0.050
   $0.100
  $0.050
   $0.150
              
Average Number of Shares Outstanding:              
Class A and B Common Stock:              
Basic37,421
 38,862
 37,468
 38,786
37,439
 38,747
 37,458
 38,773
Diluted37,617
 38,862
 37,848
 38,892
37,707
 39,115
 37,869
 39,102
See Notes to Condensed Consolidated Financial Statements
See Exhibit 11 Computation of Earnings Per Share for explanatory notes.

4




KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Three Months Ended Three Months EndedThree Months Ended Three Months Ended
December 31, 2015 December 31, 2014March 31, 2016 March 31, 2015
(Unaudited)Pre-tax Tax Net of Tax Pre-tax Tax Net of TaxPre-tax Tax Net of Tax Pre-tax Tax Net of Tax
Net income    $6,502
     $2,677
    $2,757
     $4,882
Other comprehensive income (loss):                      
Foreign currency translation adjustments$
 $
 $
 $(484) $
 $(484)
Postemployment severance actuarial change49
 (19) 30
 305
 (122) 183
$185
 $(73) $112
 $45
 $(17) $28
Derivative gain
 
 
 282
 (68) 214
Reclassification to (earnings) loss:                      
Derivatives
 
 
 (130) 16
 (114)
Amortization of prior service costs
 
 
 65
 (26) 39

 
 
 41
 (16) 25
Amortization of actuarial change(105) 41
 (64) (97) 39
 (58)(112) 44
 (68) (69) 27
 (42)
Other comprehensive income (loss)$(56) $22
 $(34) $(59) $(161) $(220)$73
 $(29) $44
 $17
 $(6) $11
Total comprehensive income    $6,468
     $2,457
    $2,801
     $4,893
                      
Six Months Ended Six Months EndedNine Months Ended Nine Months Ended
December 31, 2015 December 31, 2014March 31, 2016 March 31, 2015
(Unaudited)Pre-tax Tax Net of Tax Pre-tax Tax Net of TaxPre-tax Tax Net of Tax Pre-tax Tax Net of Tax
Net income    $12,124
     $10,673
    $14,881
     $15,555
Other comprehensive income (loss):                      
Foreign currency translation adjustments$
 $
 $
 $(6,070) $
 $(6,070)$
 $
 $
 $(6,070) $
 $(6,070)
Postemployment severance actuarial change283
 (110) 173
 653
 (260) 393
468
 (183) 285
 698
 (277) 421
Derivative gain
 
 
 2,513
 (416) 2,097

 
 
 2,513
 (416) 2,097
Reclassification to (earnings) loss:                      
Derivatives
 
 
 (1,484) 291
 (1,193)
 
 
 (1,484) 291
 (1,193)
Amortization of prior service costs
 
 
 136
 (54) 82

 
 
 177
 (70) 107
Amortization of actuarial change(219) 85
 (134) (77) 31
 (46)(331) 129
 (202) (146) 58
 (88)
Other comprehensive income (loss)$64
 $(25) $39
 $(4,329) $(408) $(4,737)$137
 $(54) $83
 $(4,312) $(414) $(4,726)
Total comprehensive income    $12,163
     $5,936
    $14,964
     $10,829
See Notes to Condensed Consolidated Financial Statements


5




KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)(Unaudited)
Six Months EndedNine Months Ended
December 31March 31
2015 20142016 2015
Cash Flows From Operating Activities:      
Net income$12,124
 $10,673
$14,881
 $15,555
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:  Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization7,398
 13,071
11,149
 16,527
Loss on sales of assets105
 646
121
 916
Restructuring and asset impairment charges52
 1,132
99
 930
Deferred income tax and other deferred charges491
 634
1,434
 (1,434)
Stock-based compensation2,939
 4,506
4,177
 5,217
Excess tax benefits from stock-based compensation(301) (1,157)(301) (1,157)
Other, net(37) 2,668
65
 1,220
Change in operating assets and liabilities:      
Receivables7,068
 (10,259)14,286
 (4,292)
Inventories(9,059) (17,954)(3,083) (18,969)
Prepaid expenses and other current assets2,560
 (8,515)(3,588) (6,122)
Accounts payable(1,142) 10,604
(2,709) 5,566
Customer deposits(2,699) 3,001
1,116
 2,883
Accrued expenses(4,242) (7,283)2,134
 (4,819)
Net cash provided by operating activities15,257
 1,767
39,781
 12,021
Cash Flows From Investing Activities:      
Capital expenditures(8,191) (18,504)(12,232) (24,095)
Proceeds from sales of assets59
 624
138
 2,302
Purchases of capitalized software(704) (865)(924) (1,178)
Other, net(158) 71
(681) (176)
Net cash used for investing activities(8,994) (18,674)(13,699) (23,147)
Cash Flows From Financing Activities:      
Transfer of cash and cash equivalents to Kimball Electronics, Inc.
 (63,006)
 (63,006)
Net change in capital leases and long-term debt(22) (20)(25) (22)
Dividends paid to Share Owners(3,961) (3,786)(6,019) (5,729)
Repurchases of common stock(9,665) 
(9,665) (2,828)
Excess tax benefits from stock-based compensation301
 1,157
301
 1,157
Repurchase of employee shares for tax withholding(1,487) (3,823)(1,487) (3,842)
Net cash used for financing activities(14,834) (69,478)(16,895) (74,270)
Effect of Exchange Rate Change on Cash and Cash Equivalents
 (1,246)
 (1,260)
Net Decrease in Cash and Cash Equivalents(8,571) (87,631)
Net Increase (Decrease) in Cash and Cash Equivalents9,187
 (86,656)
Cash and Cash Equivalents at Beginning of Period34,661
 136,624
34,661
 136,624
Cash and Cash Equivalents at End of Period$26,090
 $48,993
$43,848
 $49,968
Supplemental Disclosure of Cash Flow Information      
Cash paid during the period for:      
Income taxes$3,738
 $10,661
$6,505
 $11,908
Interest expense$11
 $30
$17
 $30
See Notes to Condensed Consolidated Financial Statements

6




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,” “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.

Note 2. Spin-Off Transaction
On October 31, 2014 (“Distribution Date”), we completed the spin-off of our Electronic Manufacturing Services (“EMS”) segment by distributing the related shares of Kimball Electronics, Inc. (“Kimball Electronics”), on a pro rata basis, to the Company'sCompany’s Share Owners of record as of October 22, 2014. After the Distribution Date, the Company does not beneficially own any Kimball Electronics shares and Kimball Electronics is an independent publicly traded company. Kimball International, Inc. trades on the NASDAQ under the ticker symbol “KBAL” and Kimball Electronics, Inc. trades on the NASDAQ under the ticker symbol “KE”.
The EMS segment was reclassified to discontinued operations in the Condensed Consolidated Statements of Income. FinancialThe following table summarizes the results of the discontinued operations were as follows:for the nine months ended March 31, 2015. Discontinued operations did not have an impact on the financial results of fiscal year 2016 or the three months ended March 31, 2015.
Three Months Ended Six Months EndedNine Months Ended
December 31 December 31March 31
(Amounts in Thousands, Except Per Share Data)2015 2014 2015 20142015
Net Sales$
 $71,748
 $
 $275,551
$275,551
Income Before Taxes on Income$
 $3,599
 $
 $13,098
$13,098
Provision for Income Taxes$
 $921
 $
 $3,941
$3,941
Income from Discontinued Operations, Net of Tax$
 $2,678
 $
 $9,157
$9,157
Income From Discontinued Operations per Diluted Share$
 $0.07
 $
 $0.24
$0.23

Note 3. Recent Accounting Pronouncements and Supplemental Information
Recent Accounting Pronouncements:
In JanuaryMarch 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on simplifying the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification on the statement of cash flows. The guidance is effective for our first quarter of fiscal year 2018 with early adoption permitted. We have not yet selected a transition method nor determined the effect of this guidance on our 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. The


guidance is effective for our first quarter of fiscal year 2020 with early adoption permitted, and is required to be applied using a modified retrospective approach to each prior reporting period. We have not yet determined the effect of this guidance on our consolidated financial statements.
In January 2016, the FASB issued guidance which is intended to improve the recognition and measurement of financial instruments. The guidance revises an entity'sentity’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 is effective prospectively for our first quarter of fiscal year 2019 financial statements with early adoption allowed on certain provisions. We have not yet selected a transition method nor determined the effect of this guidance on our consolidated financial statements.
In November 2015, the FASB issued guidance on simplifying the balance sheet classification of deferred taxes. The guidance requires the classification of deferred tax assets and liabilities as noncurrent in a classified balance sheet. The current requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not affected by this update. The guidance is effective for our first quarter of fiscal year 2018 financial statements with early adoption

7



permitted, and allows for the use of either a prospective or retrospective transition method. We plan to early adopt using the prospective transition method for our fiscal year ending June 30, 2016, and will reclassify any current deferred tax assets or liabilities to noncurrent in our consolidated financial position.
In July 2015, the FASB issued guidance on simplifying the measurement of inventory which applies to inventory that is measured using first-in, first-out (“FIFO”) or average cost. Inventory within the scope of this update is required to be measured at the lower of cost or net realizable value, which is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. The guidance does not impact inventory measured on a last-in, first-out (“LIFO”) basis. The standards update is effective prospectively for our first quarter fiscal year 2018 financial statements with early adoption permitted. We do not expect the adoption to have a material effect on our consolidated financial statements.
In April 2015, the FASB issued guidance that requires debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability and further clarification guidance allows the cost of securing a revolving line of credit to be recorded as a deferred asset regardless of whether a balance is outstanding. This guidance is effective for our first quarter fiscal year 2017 financial statements. We currently comply with this method therefore the adoption will not have a material effect on our consolidated financial statements.
In April 2015, the FASB issued guidance on customer’s accounting for cloud computing fees and provided criteria for customers in a cloud computing arrangement to use to determine whether the arrangement includes a license of software.  The guidance clarifies that a software license included in a cloud computing arrangement should be accounted for consistent with the acquisition of other software licenses, whereas a cloud computing arrangement that does not include a software license should be accounted for as a service contract. The guidance is effective for our first quarter of fiscal year 2017 financial statements, and allows for the use of either a prospective or retrospective transition method. We have not yet selected aplan to adopt using the prospective transition method nor determinedfor our first quarter of fiscal year 2017, and we do not expect the adoption to have a material effect of this guidance on our consolidated financial statements.
In June 2014, the FASB provided explicit guidance on how to account for share-based payments granted to employees in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The guidance will be applied prospectively for our first quarter fiscal year 2017 financial statements.  We do not expect the adoption to have a material effect on our 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 will make the guidance effective for our first quarter fiscal year 2019 financial statements using either of two acceptable adoption methods: (i) 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 clarifies assessing whether an entity is a principal or an agent in a revenue transaction, and impacts whether an entity reports revenue on a gross or net basis. In April 2016, the FASB issued additional guidance that addresses identifying performance obligations and implementing licensing guidance. The amendments have the same effective date and transition requirements as the new revenue standard. We have not yet selected a transition method nor determined the effect of this guidance on our consolidated financial statements.
In April 2014, the FASB issued guidance on reporting discontinued operations and disclosures of disposals of components of an entity. Under the new guidance, a disposal that represents a strategic shift that has or will have a major effect on an entity'sentity’s operations and financial results is a discontinued operation. The new guidance requires expanded disclosures that will provide more information about the assets, liabilities, income, and expenses of discontinued operations, and also requires disclosures of significant disposals that do not qualify for discontinued operations reporting. The guidance was effective prospectively for disposals or components of our business classified as held for sale beginning in our first quarter of fiscal year 2016. The adoption did not have a material effect on our consolidated financial statements.
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.

8



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.
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.
Our 36.6%38.0% effective tax rate for the secondthird quarter of fiscal year 2016 did not include any material unusual items. The secondthird quarter fiscal year 2015 effective tax rate of 101.5%10.5% was primarily drivenfavorably impacted by a lower combined state$1.1 million of releases of income tax rate post spin-off, requiring areserves upon the expiration of statutes of limitation and $0.4 million unfavorable adjustment to deferred taxes. This impact had a large effect on the effectiveof tax rate due to the relatively low level of pre-tax income in the second quarter of fiscal year 2015.accrual adjustments.
Our effective tax rate for the first halfnine months of fiscal year 2016 of 37.4%37.5% did not include any material unusual items. Our effective tax rate for the first halfnine months of fiscal year 2015 of 56.0%28.1% was unfavorablyfavorably impacted as our combined stateby $1.1 million of releases of income tax rate was lower post spin-off, requiringreserves upon the expiration of statutes of limitation and $0.4 million of tax accrual adjustments, which were partially offset by a $0.4 million adjustment to deferred taxes in the second quarter of fiscal year 2015 which increasedas our fiscal 2015 year-to-datecombined state tax expense and effective tax rate. In addition, a portion of our spin-off expenses which are nondeductible also unfavorably impacted the fiscal 2015 year-to-date tax rate.rate is lower post spin-off.
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, foreign currency rate movements, non-production rent income, 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 the Non-operating income (expense), net line, from continuing operations were:
Three Months Ended Six Months EndedThree Months Ended Nine Months Ended
December 31 December 31March 31 March 31
(Amounts in Thousands)2015 2014 2015 20142016 2015 2016 2015
Foreign Currency Loss$(17) $(17) $(40) $(42)
Foreign Currency Gain (Loss)$28
 $2
 $(12) $(40)
Gain (Loss) on Supplemental Employee Retirement Plan Investments297
 352
 (278) 166
108
 353
 (170) 519
Other(79) (152) (170) (274)(85) (65) (255) (339)
Non-operating income (expense), net$201
 $183
 $(488) $(150)$51
 $290
 $(437) $140


9



Note 4. Inventories
Inventory components were as follows:
(Amounts in Thousands)December 31, 2015 June 30,
2015
March 31, 2016 June 30,
2015
Finished products$33,217
 $26,634
$27,480
 $26,634
Work-in-process2,546
 1,952
1,486
 1,952
Raw materials24,531
 23,201
25,117
 23,201
Total FIFO inventory60,294
 51,787
54,083
 51,787
LIFO reserve(13,601) (14,153)(13,366) (14,153)
Total inventory$46,693
 $37,634
$40,717
 $37,634
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-monthnine-month periods ended DecemberMarch 31, 20152016 and 20142015 was immaterial.



Note 5. Accumulated Other Comprehensive Income (Loss)
During the three months ended DecemberMarch 31, 20152016 and 2014,2015 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)    Postemployment Benefits  
Accumulated Other Comprehensive IncomePostemployment Benefits  
(Amounts in Thousands)Foreign Currency Translation Adjustments Derivative Gain (Loss) Prior Service Costs Net Actuarial Gain (Loss) Accumulated Other Comprehensive Income (Loss)Prior Service Costs Net Actuarial Gain (Loss) Accumulated Other Comprehensive Income
Balance at September 30, 2015$
 $
 $
 $1,302
 $1,302
Balance at December 31, 2015$
 $1,268
 $1,268
Other comprehensive income (loss) before reclassifications
 
 
 30
 30

 112
 112
Reclassification to (earnings) loss
 
 
 (64) (64)
 (68) (68)
Net current-period other comprehensive income (loss)
 
 
 (34) (34)
 44
 44
Balance at December 31, 2015$
 $
 $
 $1,268
 $1,268
Balance at March 31, 2016$
 $1,312
 $1,312
              
Balance at September 30, 2014$(677) $(2,607) $(77) $1,284
 $(2,077)
Balance at December 31, 2014$(30) $1,212
 $1,182
Other comprehensive income (loss) before reclassifications(484) 214
 
 183
 (87)
 28
 28
Reclassification to (earnings) loss
 (114) 39
 (58) (133)25
 (42) (17)
Distribution of Kimball Electronics, Inc.1,161
 2,507
 8
 (197) 3,479
Net current-period other comprehensive income (loss)677
 2,607
 47
 (72) 3,259
25
 (14) 11
Balance at December 31, 2014$
 $
 $(30) $1,212
 $1,182
Balance at March 31, 2015$(5) $1,198
 $1,193

10



During the sixnine months ended DecemberMarch 31, 20152016 and 2014,2015, 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)    Postemployment Benefits  
Accumulated Other Comprehensive Income    Postemployment Benefits  
(Amounts in Thousands)Foreign Currency Translation Adjustments Derivative Gain (Loss) Prior Service Costs Net Actuarial Gain (Loss) Accumulated Other Comprehensive Income (Loss)Foreign Currency Translation Adjustments Derivative Gain (Loss) Prior Service Costs Net Actuarial Gain (Loss) Accumulated Other Comprehensive Income
Balance at June 30, 2015$
 $
 $
 $1,229
 $1,229
$
 $
 $
 $1,229
 $1,229
Other comprehensive income (loss) before reclassifications
 
 
 173
 173

 
 
 285
 285
Reclassification to (earnings) loss
 
 
 (134) (134)
 
 
 (202) (202)
Net current-period other comprehensive income (loss)
 
 
 39
 39

 
 
 83
 83
Balance at December 31, 2015$
 $
 $
 $1,268
 $1,268
Balance at March 31, 2016$
 $
 $
 $1,312
 $1,312
                  
Balance at June 30, 2014$4,909
 $(3,411) $(120) $1,062
 $2,440
$4,909
 $(3,411) $(120) $1,062
 $2,440
Other comprehensive income (loss) before reclassifications(6,070) 2,097
 
 393
 (3,580)(6,070) 2,097
 
 421
 (3,552)
Reclassification to (earnings) loss
 (1,193) 82
 (46) (1,157)
 (1,193) 107
 (88) (1,174)
Distribution of Kimball Electronics, Inc.1,161
 2,507
 8
 (197) 3,479
1,161
 2,507
 8
 (197) 3,479
Net current-period other comprehensive income (loss)(4,909) 3,411
 90
 150
 (1,258)(4,909) 3,411
 115
 136
 (1,247)
Balance at December 31, 2014$
 $
 $(30) $1,212
 $1,182
Balance at March 31, 2015$
 $
 $(5) $1,198
 $1,193

11




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 Six Months Ended Affected Line Item in the Condensed Consolidated Statements of Income
December 31, December 31, 
Reclassifications from Accumulated Other Comprehensive Income Three Months Ended Nine Months Ended Affected Line Item in the Condensed Consolidated Statements of Income
March 31, March 31, 
(Amounts in Thousands) 2015 2014 2015 2014 Affected Line Item in the Condensed Consolidated Statements of Income 2016 2015 2016 2015 
Derivative Gain (Loss) (1)
 $
 $114
 $
 $1,193
 
Derivative Gain (1)
 $
 $
 $
 $1,193
 Income (Loss) from Discontinued Operations, Net of Tax
                  
Postemployment Benefits:                  
Amortization of Prior Service Costs (2)
 $
 $(40) $
 $(79) Cost of Sales $
 $(26) $
 $(106) Cost of Sales
 
 (21) 
 (43) Selling and Administrative Expenses 
 (15) 
 (58) Selling and Administrative Expenses
 
 24
 
 48
 Provision for Income Taxes 
 16
 
 65
 Benefit (Provision) for Income Taxes
 
 (37) 
 (74) Income (Loss) from Continuing Operations 
 (25) 
 (99) Income (Loss) from Continuing Operations
 $
 $(2) $
 $(8) Income from Discontinued Operations, Net of Tax $
 $
 $
 $(8) Income (Loss) from Discontinued Operations, Net of Tax
                  
Amortization of Actuarial Gain (Loss) (2)
 $66
 $48
 $143
 $30
 Cost of Sales
Amortization of Actuarial Gain (2)
 $71
 $38
 $214
 $68
 Cost of Sales
 39
 38
 76
 34
 Selling and Administrative Expenses 41
 31
 117
 65
 Selling and Administrative Expenses
 (41) (34) (85) (25) Provision for Income Taxes (44) (27) (129) (52) Benefit (Provision) for Income Taxes
 64
 52
 134
 39
 Income (Loss) from Continuing Operations 68
 42
 202
 81
 Income (Loss) from Continuing Operations
 $
 $6
 $
 $7
 Income from Discontinued Operations, Net of Tax $
 $
 $
 $7
 Income (Loss) from Discontinued Operations, Net of Tax
                  
Total Reclassifications for the Period $64
 $15
 $134
 $(35) Income (Loss) from Continuing Operations $68
 $17
 $202
 $(18) Income (Loss) from Continuing Operations
 
 118
 
 1,192
 Income from Discontinued Operations, Net of Tax 
 
 
 1,192
 Income (Loss) from Discontinued Operations, Net of Tax
 $64
 $133
 $134
 $1,157
 Net Income $68
 $17
 $202
 $1,174
 Net Income (Loss)
Amounts in parentheses indicate reductions to income.
(1) See Note 9 - Derivative Instruments of Notes to Condensed Consolidated Financial Statements for further information on derivative instruments.
(2) See Note 11 - Postemployment Benefits of Notes to Condensed Consolidated Financial Statements for further information on postemployment benefit plans.

Note 6. Commitments and Contingent Liabilities
Standby letters of credit are issued to third-party suppliers, lessors, and insurance institutions and can only be drawn upon in the event of Kimball'sKimball’s failure to pay its obligations to a beneficiary. As of DecemberMarch 31, 2015,2016, we had a maximum financial exposure from unused standby letters of credit totaling $1.0 million. We are not aware of circumstances 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 consolidated financial statements. Accordingly, no liability has been recorded as

12



of DecemberMarch 31, 20152016 with respect to the standby letters of credit. Kimball also enters into commercial letters of credit to facilitate payments to vendors and from customers.
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 in cases where specific warranty issues become known.
Changes in the product warranty accrual for the sixnine months ended DecemberMarch 31, 20152016 and 20142015 were as follows:
Six Months EndedNine Months Ended
December 31March 31
(Amounts in Thousands)2015 20142016 2015
Product Warranty Liability at the beginning of the period$2,264
 $3,221
$2,264
 $3,221
Additions to warranty accrual (including changes in estimates)717
 475
982
 625
Settlements made (in cash or in kind)(514) (374)(785) (564)
Distribution of Kimball Electronics, Inc.
 (910)
 (910)
Product Warranty Liability at the end of the period$2,467
 $2,412
$2,461
 $2,372

Note 7. Restructuring Expense
We recognized pre-tax restructuring expense of $2.0$2.8 million and $3.2$6.0 million in the three and sixnine months ended DecemberMarch 31, 2015,2016, respectively, and recognized $3.3$0.4 million and $3.7 million of restructuring expense in both the three and sixnine months ended DecemberMarch 31, 2014.2015. We utilize available market prices and management estimates to determine the fair value of impaired fixed assets. Restructuring charges are included in the Restructuring Expense line item on the Company'sCompany’s Condensed Consolidated Statements of Income.
Capacity Utilization Restructuring Plan:
In November 2014, we announced a capacity utilization restructuring plan which includes the consolidation of our metal fabrication production from an operation located in Post Falls, Idaho, into existing production facilities in Indiana, and the reduction of our Company plane fleet from two jets to one.
Key factorsAs of March 31, 2016, we are in the decision to consolidatefinal stages of consolidating the Idaho operation into the Indiana facilities include the improvement of customer delivery, supply chain dynamics, and transportation costs.facilities. The transfer of work involveshas involved the start-up of metal fabrication capabilities in a Company-owned facility, along with the transfer of certain assembly operations into two additional company-ownedCompany-owned facilities, all located in southern Indiana. The manufacturing capacity realignment is beinghas been carefully managed to mitigate customer disruptions. The consolidation activities began immediately after the announcement in November 2014, and we are actively marketing for sale the Post Falls, Idaho facility. We expect to incur approximately $1.6$0.8 million for future capital investments to supportas we finalize the transfer of production to Indiana. We anticipate pre-tax savings of approximately $5 million per year after the planrestructuring activities. The Post Falls, Idaho facility is fully implemented by June 2016, which is three months earlier than the original plan. A majority of the savings will not be realized until the plan is complete.being prepared for sale.
The reduction of our plane fleet from two jets to one reduced our cost structure while aligning the plane fleet size with our needs following the spin-off of Kimball Electronics on October 31, 2014. Previously, one of our jets was used primarily for the successful strategy of transporting customers to visit our showrooms, offices, research and development center, and manufacturing locations, while the remaining jet was used primarily for management travel. The plane used primarily for management travel was sold in the third quarter of fiscal year 2015. The sale of the plane resulted in a $0.2 million pre-tax gain in the third quarter of fiscal year 2015 which partially offset the impairment charge of $1.1 million recorded in the second quarter of fiscal year 2015. As a result of the aircraft fleet reduction, we began realizing the annual pre-tax savings of $0.8 million. In regards to the remaining jet, we believe that our location in rural Jasper, Indiana and the location of our manufacturing locations in small towns away from major metropolitan areas necessitates the need for the remaining jet to efficiently transport customers.
We will continue to incur ongoing building maintenance costs such as property taxes, insurance, and utilities until the facility is sold. Exclusive of these ongoing building maintenance costs, we currently estimate that the pre-tax restructuring charges will be approximately $10.3$11.7 million with $8.5$11.3 million recorded since the plan was announced with the remainder expected to be incurred over the remaining anticipated transition period. The restructuring charges are expected to consist of approximately $4.1$4.8 million of transition and other employee costs, $5.2$5.8 million of plant closure and other exit costs, and $1.0$1.1 million of non-cash asset impairment. Approximately 90%91% of the total cost estimate is expected to be cash expense.

13




Summary of Restructuring Plan:Summary of Restructuring Plan:             Summary of Restructuring Plan:             
Accrued
June 30,
2015
 Six Months Ended December 31, 2015   
Total Charges
Incurred Since
Plan Announcement
 
Total Expected
Plan Costs
Accrued
June 30,
2015
 Nine Months Ended March 31, 2016   
Total Charges
Incurred Since
Plan Announcement
 
Total Expected
Plan Costs(2)
(Amounts in Thousands) 
Amounts
Charged Cash
 
Amounts
Charged 
Non-cash
 
Amounts Utilized/
Cash Paid
 
Accrued
December 31,
2015 (1)
  
Amounts
Charged Cash
 
Amounts
Charged 
Non-cash
 
Amounts Utilized/
Cash Paid
 
Accrued
March 31,
2016 (1)
 
Capacity Realignment and Post Falls, Idaho Exit       
  
  
  
       
  
  
  
Transition and Other Employee Costs$2,613
 $715
 $
 $(525) $2,803
 $3,372
 $3,864
$2,613
 $1,934
 $
 $(1,086) $3,461
 $4,591
 $4,615
Asset Write-downs
 
 52
 (52) 
 183
 209

 
 99
 (99) 
 230
 230
Plant Closure and Other Exit Costs
 2,433
 
 (2,353) 80
 3,889
 5,215

 3,928
 
 (3,683) 245
 5,384
 5,815
Total$2,613
 $3,148
 $52
 $(2,930) $2,883
 $7,444
 $9,288
$2,613
 $5,862
 $99
 $(4,868) $3,706
 $10,205
 $10,660
Plane Fleet Reduction                          
Transition and Other Employee Costs$
 $
 $
 $
 $
 $224
 $224
$
 $
 $
 $
 $
 $224
 $224
Asset Write-downs
 
 
 
 
 822
 822

 
 
 
 
 822
 822
Total$
 $
 $
 $
 $
 $1,046
 $1,046
$
 $
 $
 $
 $
 $1,046
 $1,046
Total Restructuring Plan$2,613
 $3,148
 $52
 $(2,930) $2,883
 $8,490
 $10,334
$2,613
 $5,862
 $99
 $(4,868) $3,706
 $11,251
 $11,706

(1)The accrued restructuring balance at DecemberMarch 31, 20152016 is recorded in current liabilities.
(2)Excludes ongoing building maintenance costs such as property taxes, insurance, and utilities that will be incurred until the facility is sold. These costs will be included in the Restructuring line on the Condensed Consolidated Statements of Income as they are incurred.

Note 8. 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:
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'smanagement’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 sixnine months ended DecemberMarch 31, 2015.2016. 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, 2015.
We invested $0.5 million in non-marketable equity securities of a privately-held company during the quarter ended March 31, 2016. This investment is classified as a level 3 financial asset, as explained in the Financial Instruments Not Carried At Fair Value section below. No other purchases or sales of level 3 assets occurred during the three and nine months ended March 31, 2016.


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 1 Market - Quoted market prices
Trading securities: Mutual funds held in nonqualified SERP 1 Market - Quoted market prices


14



Recurring Fair Value Measurements:
As of DecemberMarch 31, 20152016 and June 30, 2015, the fair values of level 1 financial assets that are measured at fair value on a recurring basis using the market approach were as follows:
(Amounts in Thousands)December 31, 2015 June 30, 2015
Cash equivalents$24,127
 $23,414
Trading Securities: Mutual funds in nonqualified SERP9,895
 10,353
Total assets at fair value$34,022
 $33,767
We had no purchases or sales of level 3 assets during the three and six months ended December 31, 2015.
(Amounts in Thousands)March 31, 2016 June 30, 2015
Cash equivalents$38,848
 $23,414
Trading Securities: Mutual funds in nonqualified SERP10,025
 10,353
Total assets at fair value$48,873
 $33,767
The nonqualified supplemental employee retirement plan (“SERP”) assets consist primarily of equity funds, balanced funds, target date funds, a bond fund, and a money market fund. The SERP investment assets are offset by a SERP liability which represents Kimball'sKimball’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 the following:
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'scustomer’s non-performance risk
Non-marketable equity securities (cost-method investments, which carry shares at cost except in the event of impairment)3Cost 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'sKimball’s non-performance risk
Investments in non-marketable equity securities are accounted for using the cost method because 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 were to occur and was deemed to be other-than-temporary, the fair value of the investment would be estimated, and the amount by which the carrying value of the cost-method investment exceeds its fair value would be recorded as an impairment loss.
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.



Note 9. Derivative Instruments
Foreign Exchange Contracts:
Our former EMS segment, classified as discontinued operations, operated internationally and was therefore exposed to foreign currency exchange rate fluctuations in the normal course of business. The primary means of managing this exposure was to utilize natural hedges, such as aligning currencies used in the supply chain with the sale currency. To the extent natural hedging techniques did not fully offset currency risk, derivative instruments were used 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 included the materiality of the risk, the volatility of the market, the duration of the hedge, the degree to which the underlying exposure was committed to, and the availability, effectiveness, and cost of derivative instruments. Derivative instruments were only utilized for risk management purposes and were not used for speculative or trading purposes.
Forward contracts designated as cash flow hedges were used to protect against foreign currency exchange rate risks inherent in forecasted transactions denominated in a foreign currency. Foreign exchange contracts were also used to hedge against foreign currency exchange rate risks related to intercompany balances denominated in currencies other than the functional currencies. In limited cases due to unexpected changes in forecasted transactions, cash flow hedges may have ceased to meet the criteria to be designated as cash flow hedges. Depending on the type of exposure hedged, either a derivative contract in the opposite position of the undesignated hedge may have been purchased or the hedge may have been retained until it matured if the hedge had continued to provide an adequate offset in earnings against the currency revaluation impact of foreign currency denominated liabilities.

15



When derivatives were settled with the counterparty, the derivative asset or liability was relieved and cash flow was impacted for the net settlement. For derivative instruments that met the criteria of hedging instruments under FASB guidance, the effective portions of the gain or loss on the derivative instrument were initially recorded net of related tax effect in Accumulated Other Comprehensive Income, a component of Share Owners'Owners’ Equity, and were subsequently reclassified into earnings in the period or periods during which the hedged transaction was recognized in earnings. The gain or loss associated with derivative instruments that were not designated as hedging instruments or that ceased to meet the criteria for hedging under FASB guidance was recognized in earnings.
After the spin-off of the EMS segment on October 31, 2014, we held no derivative instruments. See the Condensed Consolidated Statements of Comprehensive Income for the changes in deferred derivative gains and losses. Information on the location and amounts of derivative gains and losses in the Condensed Consolidated Statements of Income are presented below.
The Effect of Derivative Instruments on Other Comprehensive Income (Loss)
   Three Months Ended Six Months Ended   Three Months Ended Nine Months Ended
 December 31 December 31 March 31 March 31
(Amounts in Thousands)   2015 2014 2015 2014   2016 2015 2016 2015
Amount of Pre-Tax Gain Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion):Amount of Pre-Tax Gain Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion):        Amount of Pre-Tax Gain Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion):        
Foreign exchange contracts   $
 $282
 $
 $2,513
   $
 $
 $
 $2,513



The Effect of Derivative Instruments on Condensed Consolidated Statements of Income
   Three Months Ended Six Months Ended   Three Months Ended Nine Months Ended
(Amounts in Thousands) December 31 December 31 March 31 March 31
Derivatives in Cash Flow Hedging Relationships Location of Gain or (Loss)  2015 2014 2015 2014 Location of Gain or (Loss)  2016 2015 2016 2015
Amount of Pre-Tax Gain Reclassified from Accumulated OCI into Income (Effective Portion):Amount of Pre-Tax Gain Reclassified from Accumulated OCI into Income (Effective Portion):        Amount of Pre-Tax Gain Reclassified from Accumulated OCI into Income (Effective Portion):        
Foreign exchange contracts Income from Discontinued Operations, Net of Tax $
 $130
 $
 $1,484
 Income from Discontinued Operations, Net of Tax $
 $
 $
 $1,484
                
Derivatives Not Designated as Hedging Instruments    
  
        
  
    
Amount of Pre-Tax Gain (Loss) Recognized in Income on Derivatives:        
Amount of Pre-Tax Gain Recognized in Income on Derivatives:Amount of Pre-Tax Gain Recognized in Income on Derivatives:        
Foreign exchange contracts Income from Discontinued Operations, Net of Tax $
 $(184) $
 $740
 Income from Discontinued Operations, Net of Tax $
 $
 $
 $740
    
  
        
  
    
Total Derivative Pre-Tax Gain (Loss) Recognized in Income $
 $(54) $
 $2,224
Total Derivative Pre-Tax Gain Recognized in IncomeTotal Derivative Pre-Tax Gain Recognized in Income $
 $
 $
 $2,224

Note 10. Investments
Supplemental Employee Retirement Plan Investments:
Kimball maintains a self-directed supplemental employee retirement plan (“SERP”) in which executive employees are eligible to participate. The SERP utilizes a rabbi trust, and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy. Kimball recognizes SERP investment assets on the Condensed Consolidated Balance Sheets at current fair value. A SERP liability of the same amount is recorded on the Condensed Consolidated Balance Sheets 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. Net unrealized holding losses from continuing operations for the sixnine months ended DecemberMarch 31, 20152016 and 20142015 were, in thousands, $648$550 and $389,$121, respectively.

16



SERP asset and liability balances were as follows:
(Amounts in Thousands)December 31,
2015
 June 30,
2015
March 31,
2016
 June 30,
2015
SERP investments - current asset$708
 $1,276
$634
 $1,276
SERP investments - other long-term asset9,187
 9,077
9,391
 9,077
Total SERP investments$9,895
 $10,353
$10,025
 $10,353
      
SERP obligation - current liability$708
 $1,276
$634
 $1,276
SERP obligation - other long-term liability9,187
 9,077
9,391
 9,077
Total SERP obligation$9,895
 $10,353
$10,025
 $10,353

Non-marketable equity securities:
We invested $0.5 million in non-marketable equity securities of a privately-held company during the quarter ended March 31, 2016. The securities were valued at $0.5 million at March 31, 2016, and are included in the Other Assets line of the Condensed Consolidated Balance Sheets. See Note 8 - Fair Value of Notes to Condensed Consolidated Financial Statements for more information on the valuation of these securities. The investment does not rise to the level of a material variable interest or a controlling interest in the privately-held company which would require consolidation.



Note 11. Postemployment Benefits
Kimball'sKimball’s domestic employees participate in severance plans. These plans cover domestic employees and provide severance benefits to eligible employees meeting the plans'plans’ qualifications, primarily involuntary termination without cause. In connection with the spin-off, the Company transferred the post-employment obligation for EMS employees to Kimball Electronics.
The components of net periodic postemployment benefit cost applicable to our severance plans were as follows:
Three Months Ended Six Months EndedThree Months Ended Nine Months Ended
December 31 December 31March 31 March 31
(Amounts in Thousands)2015 2014 2015 20142016 2015 2016 2015
Service cost$124
 $159
 $244
 $390
$122
 $131
 $366
 $521
Interest cost20
 26
 39
 56
19
 21
 58
 77
Amortization of prior service costs
 65
 
 136

 41
 
 177
Amortization of actuarial income(105) (97) (219) (77)(112) (69) (331) (146)
Net periodic benefit cost — Total cost$39
 $153
 $64
 $505
$29
 $124
 $93
 $629
Less: Discontinued operations
 11
 
 81

 
 
 81
Net periodic benefit cost — Continuing operations$39
 $142
 $64
 $424
$29
 $124
 $93
 $548
The benefit cost in the above table includes only normal recurring levels of severance activity, as estimated using an actuarial method. 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 Plan
During fiscal year 2016, the following stock compensation was awarded to officers, key employees, and members of the Board of Directors. All awards were granted under the Amended and Restated 2003 Stock Option and Incentive Plan. For more information on stock compensation awards, refer to our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

17



Type of Award Quarter Awarded Shares or Units 
Grant Date Fair Value (5)
 Quarter Awarded Shares or Units 
Grant Date Fair Value (5)
Annual Performance Shares (1)
 1st Quarter 111,695
 
$12.12
 1st Quarter 111,695
 
$12.12
Relative Total Shareholder Return Awards (2)
 1st Quarter 36,093
 
$15.10
 1st Quarter 36,093
 
$15.10
Restricted Share Units (3)
 1st Quarter 93,232
 $11.58 - $12.32
 1st Quarter 93,232
 $11.58 - $12.32
Unrestricted Shares (4)
 1st Quarter 5,304
 
$11.31
 1st Quarter 5,304
 
$11.31
Unrestricted Shares (4)
 2nd Quarter 2,443
 
$12.29
 2nd Quarter 2,443
 
$12.29
Unrestricted Shares (Director Compensation) (4)
 2nd Quarter 6,587
 
$12.04
 2nd Quarter 6,587
 
$12.04
Unrestricted Shares (Director Compensation) (4)
 3rd Quarter 15,248
 
$9.65
(1) Annual performance shares were awarded to officers and other key employees. The number of annual performance shares to be issued will be dependent upon operating income performance, with a percentage payout up to a maximum of 200% of the target number set forth above. Annual performance shares vest after one year.
(2) Performance units were awarded to key officers under the Company'sCompany’s Relative Total Shareholder Return program. Vesting occurs at June 30, 2018. Participants will earn from 0% to 200% of the target award depending upon how the compound annual growth rate of Kimball International common stock ranks within the peer group at the end of the performance period.
(3) Restricted share units were awarded to officers and key employees. Vesting occurs at June 30, 2016, June 30, 2017, and June 30, 2018. Upon vesting, the outstanding number of restricted share units and the value of dividends accumulated over the vesting period are converted to shares of common stock.
(4) Unrestricted shares were awarded to key employees as consideration for service to the Company. Other unrestricted shares were awarded to non-employee members of the Board of Directors as compensation for director'sdirector’s fees which are expensed over the period that directors earn the compensation. Unrestricted shares do not have vesting periods, holding periods, restrictions on sale, or other restrictions.


(5) The grant date fair value of annual performance shares is based on the stock price at the date of the award, reduced by the present value of dividends normally paid over the vesting period which are not payable on outstanding annual performance share awards. The grant date fair value of the Relative Total Shareholder Return awards was calculated using a Monte Carlo simulation. This valuation technique includes estimating the movement of stock prices and the effects of volatility, interest rates, and dividends. The grant date fair value of the restricted share units and unrestricted shares was based on the stock price at the date of the award.

Note 13. Variable Interest Entities
Kimball'sKimball’s involvement with a variable interest entityentities (“VIE”VIEs”) is limited to a situationsituations in which we are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the VIE'sVIE’s economic performance. Thus, consolidation is not required.
Our involvement with VIEs consists of an investment in non-marketable equity securities of a privately-held company during the VIE is limited tothird quarter of fiscal year 2016 and a note receivable related to the sale of an Indiana facility.
The non-marketable equity securities were valued at $0.5 million at March 31, 2016, and are included in the Other Assets line of the Condensed Consolidated Balance Sheets. For more information related to our investment in the privately-held company, see Note 8 - Fair Value of Notes to Condensed Consolidated Financial Statements.
The carrying value of the note receivable related to the sale of an Indiana facility, net of a $0.5 million allowance, was $0.8 million as of DecemberMarch 31, 2015.2016. As of June 30, 2015, the carrying value of the note receivable, net of a $0.5 million allowance, was $0.9 million. For both periods, the short-term portion of the carrying value was included on the Receivables line and the long-term portion of the carrying value was included on the Other Assets line of our Condensed Consolidated Balance Sheets.
We have no obligation to provide additional funding to the VIE,VIEs, and thus our exposure and risk of loss related to the VIEVIEs is limited to the carrying value of the investment and notes receivable. Financial support provided by Kimball did not provide additional financial support to the VIEVIEs was limited to the items discussed above during the quarter ended DecemberMarch 31, 2015.2016.


18



Note 14. Credit Quality and Allowance for Credit Losses of Notes Receivable
Kimball monitors credit quality and associated risks of notes receivable on an individual basis based on criteria such as financial stability of the party and collection experience in conjunction with general economic and market conditions. We hold collateral for the note receivable from the sale of an Indiana facility thereby mitigating the risk of loss. As of DecemberMarch 31, 20152016 and June 30, 2015, Kimball had no material past due outstanding notes receivable.
As of December 31, 2015 As of June 30, 2015As of March 31, 2016 As of June 30, 2015
(Amounts in Thousands)Unpaid Balance Related Allowance Receivable Net of Allowance Unpaid Balance Related Allowance Receivable Net of AllowanceUnpaid Balance Related Allowance Receivable Net of Allowance Unpaid Balance Related Allowance Receivable Net of Allowance
Note Receivable from Sale of Indiana Facility$1,324
 $489
 $835
 $1,347
 $489
 $858
$1,313
 $489
 $824
 $1,347
 $489
 $858
Other Notes Receivable391
 144
 247
 439
 149
 290
373
 140
 233
 439
 149
 290
Total$1,715
 $633
 $1,082
 $1,786
 $638
 $1,148
$1,686
 $629
 $1,057
 $1,786
 $638
 $1,148

Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Kimball International, Inc. (the “Company,” “Kimball,” “we,” “us,” or “our”) is a leading manufacturer ofcreates design driven, technology savvy, high qualityinnovative furnishings sold under the Company’sthrough our family of brands: National, Kimball Office, National Office Furniture, and Kimball Hospitality. Our diverse portfolio providesoffers solutions for the workplace, learning, healing, and hospitality environments.  Customers can accessDedicated to our products globally through a variety of distribution channels.  Recognized with a reputation for excellenceGuiding Principles, our values and integrity are evidenced by public recognition as a trustworthyhighly trusted company and recognizedan employer of choice. “We Build Success” by establishing long-term relationships with customers, employees, suppliers, share owners and the Great Place to Work® designation, Kimball International is committed to a high performance culture with a foundation of sound ethics, continuous improvement, and social responsibility.communities in which we operate.
Current global economic uncertainties including the slowing in China's economy, distressed oil prices, and volatility in financial markets may pose a threat to our future growth if companies reduce capital spending in response to the uncertainty. We continue to closely monitor key indicators for the markets in which we compete.
In relation to the office furniture industry, the Business and Institutional Furniture Manufacturer Association (“BIFMA”) forecast (by IHS as of November 2015)February 2016) projects a year-over-year


increase of 7.1%3.9% for calendar year 2016. The forecast for two of the leading indicators for the hospitality furniture market (January 2016 PwC Hospitality Directions U.S. report) include an increase in occupancy rates of less than 1% and an increase in RevPAR (Revenue Per Available Room) of 5.5% for calendar year 2016.
We expect to continue to invest in capital expenditures prudently, particularly for projects, including potential acquisitions, that would enhance our capabilities and diversification while providing an opportunity for growth and improved profitability. We have a strong focus on cost control and closely monitor market changes and our liquidity in order to proactively adjust our operating costs, discretionary capital spending, and dividend levels as needed. Managing working capital in conjunction with fluctuating demand levels is likewise key. In addition, a long-standing component of our profit sharing incentive bonus plan is that it is linked to our worldwide and business unit performance which is designed to adjust compensation expense as profits change.
We continue to maintain a strong balance sheet. Our short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facility, was $55.1$72.8 million at DecemberMarch 31, 2015.2016.
In addition to the above discussion, management currently considers the following events, trends, and uncertainties to be most important to understanding our financial condition and operating performance:
Successful execution of the Company'sCompany’s restructuring plan is critical to the Company'sCompany’s future performance. The success of the restructuring initiatives is dependent on accomplishing the plan in a timely and effective manner. A critical component of the restructuring initiatives is the transfer of production among facilities which will result in some manufacturing inefficiencies and excess working capital during the transition period. The Company'sCompany’s restructuring plan is discussed below.
We continue to focus on mitigating the impact of select raw material commodity pricing pressures.

19



Due to the contract and project nature of the furniture markets, fluctuation in the demand for our products and variation in the gross margin on those projects is inherent to our business. Effective management of our manufacturing capacity is and will continue to be critical to our success. See below for further details regarding current sales and open order trends.
WhileWe continue to see volatility in order rates in both the hospitality and office furniture markets are currently expanding, we continue to see volatility in order rates which in turn can impact our operating results.
Globalization continues to reshape not only the markets in which we operate but also our key customers and competitors. In addition, demand is increasing for shorter lead times on a portion of our hospitality furniture manufacturedorders allows us to utilize available manufacturing capacity in the U.S., and we are shifting focuscontinue to reduce lead times with the remainder of underutilized manufacturing capacityour supply base in order to fill this need.achieve our customers’ requests. We also continually evaluate the optimal location of production facilities and suppliers, particularly for hospitality furniture, in order to provide products to our customers most efficiently and at the lowest cost.
Current global economic uncertainties including the challenges in China’s economy, distressed oil prices, and volatility in financial markets may pose a threat to our future growth if companies reduce capital spending in response to the sustained volatility and uncertainty.
Employees throughout our business operations are an integral part of our ability to compete successfully, and the stability of the management team is critical to long-term Share Owner value. Our career development and succession planning processes help to maintain stability in management.
Spin-Off of Kimball Electronics reported as Discontinued Operations
On October 31, 2014 (“Distribution Date”), we completed the previously announced spin-off of our Electronic Manufacturing Services (“EMS”) segment by distributing the related shares of Kimball Electronics, Inc. (“Kimball Electronics”), on a pro rata basis, to the Company'sCompany’s Share Owners of record as of October 22, 2014. After the Distribution Date, the Company does not beneficially own any Kimball Electronics shares and Kimball Electronics is an independent publicly traded company. Kimball International, Inc. trades on the NASDAQ under the ticker symbol “KBAL” and Kimball Electronics, Inc. trades on the NASDAQ under the ticker symbol “KE”.


The EMS business was reclassified to discontinued operations. Discontinued operations did not have an impact on the financial results of fiscal year-to-date 2016 or the third quarter of fiscal year 2015. Financial results of the discontinued operations for the fiscal year 2015 year-to-date period were as follows:
Three Months Ended Six Months EndedNine Months Ended
December 31 December 31March 31
(Amounts in Thousands, Except Per Share Data)2015 2014 2015 20142015
Net Sales of Discontinued Operations$
 $71,748
 $
 $275,551
$275,551
Income from Discontinued Operations, Net of Tax$
 $2,678
 $
 $9,157
$9,157
Income From Discontinued Operations per Diluted Share$
 $0.07
 $
 $0.24
$0.23
As a result of the October 30, 2014 stock unification, all distinctions between Class A common stock and Class B common stock were eliminated so that all shares of Class B common stock are equivalent to shares of Class A common stock with respect to all matters, including without limitation, dividend payments and voting rights. Therefore, beginning in fiscal year 2016 the earnings per share calculation includes all common stock in a single calculation. Unless the context otherwise indicates, reference to earnings per share for periods prior to fiscal year 2016 reflects the earnings per Class B diluted share as has historically been reported.

20



Financial Overview
At or for the
Three Months Ended
   For the
Six Months Ended
  
At or for the
Three Months Ended
   For the
Nine Months Ended
  
December 31   December 31  March 31   March 31  
(Amounts in Millions)2015 2014 % Change 2015 2014 % Change2016 2015 % Change 2016 2015 % Change
Net Sales$163.8
 $151.4
 8% $320.4
 $295.9
 8%$150.0
 $145.9
 3% $470.4
 $441.8
 6%
Gross Profit53.3
 46.6
 14% 104.4
 93.8
 11%45.8
 44.0
 4% 150.2
 137.8
 9%
Selling and Administrative Expenses41.2
 43.4
 (5%) 81.4
 86.9
 (6%)38.8
 38.5
 1% 120.2
 125.4
 (4%)
Restructuring Expense2.0
 3.3
 

 3.2
 3.3
  2.8
 0.4
 

 6.0
 3.7
  
Operating Income (Loss)10.0
 (0.2) 

 19.7
 3.5
 

Operating Income (Loss) %6.1% (0.1%) 

 6.2% 1.2% 

Operating Income4.3
 5.1
 (16%) 24.0
 8.6
 179%
Operating Income %2.9% 3.5% 

 5.1% 2.0% 

Adjusted Operating Income *12.0
 4.9
 145% 22.9
 9.7
 136%$7.1
 $5.7
 23% $30.0
 $15.4
 94%
Adjusted Operating Income % *7.3% 3.2 %   7.2% 3.3%  4.7% 3.9%   6.4% 3.5%  
Income (Loss) from Continuing Operations6.5
 
 

 12.1
 1.5
 

Income from Continuing Operations$2.8
 $4.9
 (44%) $14.9
 $6.4
 133%
Adjusted Income from Continuing Operations *$7.7
 $3.8
   $14.1
 $6.5
  4.4
 5.3
 (16%) 18.5
 11.8
 58%
Diluted Earnings (Loss) Per Share from Continuing Operations$0.17
 $0.00
   $0.32
 $0.04
  
Diluted Earnings Per Share from Continuing Operations$0.07
 $0.13
   $0.39
 $0.17
  
Adjusted Diluted Earnings Per Share from Continuing Operations *$0.21
 $0.10
   $0.37
 $0.17
  $0.12
 $0.14
   $0.49
 $0.30
  
Open Orders$125.3
 $119.5
 5%      $121.3
 $104.5
 16%      
* Items indicated represent Non-GAAP measurements. See “Reconciliation of Non-GAAP Financial Measures” below.


Net Sales by End Market Vertical                      
Three Months Ended
 
Six Months Ended
 Three Months Ended
 
Nine Months Ended
 
December 31
 
December 31
 March 31
 
March 31
 
(Amounts in Millions)2015
2014
% Change
2015
2014
% Change2016
2015
% Change
2016
2015
% Change
Commercial$54.4
 $52.5
 4% $103.8
 $101.8
 2%$50.2
 $49.8
 1% $154.0
 $151.6
 2%
Education9.4

7.8

21%
23.0

20.6

12%7.6

7.9

(4%)
30.6

28.5

7%
Finance18.4

13.6

35%
34.4

28.9

19%14.0

13.1

7%
48.4

42.0

15%
Government24.0

27.3

(12%)
52.3

54.5

(4%)22.1

18.6

19%
74.4

73.1

2%
Healthcare19.4

14.8

31%
34.9

29.4

19%23.2

14.5

60%
58.1

43.9

32%
Hospitality38.2

35.4

8%
72.0

60.7

19%32.9

42.0

(22%)
104.9

102.7

2%
Total Net Sales$163.8

$151.4

8%
$320.4

$295.9

8%$150.0

$145.9

3%
$470.4

$441.8

6%
The following operating results discussions are based on income from continuing operations and therefore exclude all income statement activity of the discontinued operations.
SecondThird quarter fiscal year 2016 consolidated net sales were $163.8$150.0 million compared to secondthird quarter fiscal year 2015 net sales of $151.4$145.9 million, or an 8%a 3% increase. The positive impact of price increases and to a lesser extent increased volume drove the net sales increase. Our healthcare vertical market sales benefited from strengthening relationships with purchasing organizations and product solutions specific to healthcare settings. The increase in sales to the government vertical market was primarily driven by several federal government projects. Variability in sales of our hospitality vertical market products is typical due to sporadic timing of sizable projects. Our third quarter of fiscal year 2016 includes fewer sizable custom hospitality projects than the third quarter of fiscal year 2015.
Net sales for the six-monthnine-month period ended DecemberMarch 31, 20152016 of $320.4$470.4 million also increased 8%6% from net sales of $295.9$441.8 million for the same period of the prior fiscal year. Theyear on increased sales increases for both the second fiscal quarterin each one of our vertical markets. Our healthcare vertical market sales benefited from strengthening relationships with purchasing organizations and year-to-date periods were driven by sales increases in all vertical markets except the government vertical market. Increased volume andproduct solutions specific to a lesser extent the positive impact of price increases drove the net sales increase.healthcare settings. Our finance vertical market sales increase was the result of our investment in building product solutions applicable specifically to the needs of the changing workplace environment within financial institutions. Our healthcare vertical market sales benefited from strengthening relationships with purchasing organizations and product solutions specific to healthcare settings. Our hospitality

21



vertical market sales increase was driven by increased new construction as well as renovations. Our education vertical market sales increased as we increase our focusare more aggressively pursuing opportunities in this area. The decline in sales to the governmentEach of our vertical market was driven by lower sales to the federal government. Vertical market sales levels can fluctuate depending on the mix of projects in a given period.
Open orders at March 31, 2016 increased 16% when compared to the open order level as of March 31, 2015 as demand for both office furniture and hospitality furniture remained strong. Open orders at a point in time may not be indicative of future sales trends.
In the secondthird quarter of fiscal year 2016 we recorded income from continuing operations of $6.5$2.8 million and diluted earnings per share of $0.17,$0.07, inclusive of $1.2$1.7 million, or $0.04$0.05 per diluted share, of after-tax restructuring charges. In the secondthird quarter of fiscal year 2015 we recorded approximate break-even income from continuing operations of $4.9 million and earnings per diluted share of $0.13, inclusive of $2.0$0.2 million, or $0.05$0.01 per diluted share, of after-tax restructuring charges, and $1.8$0.2 million, or $0.05less than $0.01 cent per diluted share, of incremental after-tax costs related to the spin-off of our EMS segment. Excluding these nonrecurring costs, our adjusted income from continuing operations for the secondthird quarter of fiscal year 2016 improved to $7.7was $4.4 million, or $0.21$0.12 per diluted share, compared to adjusted income from continuing operations for the secondthird quarter of fiscal year 2015 of $3.8$5.3 million, or $0.10$0.14 per diluted share.
In the first halfnine months of fiscal year 2016 we recorded income from continuing operations of $12.1$14.9 million and diluted earnings per share of $0.32,$0.39, inclusive of $2.0$3.6 million, or $0.05$0.10 per diluted share, of after-tax restructuring charges. In the first halfnine months of fiscal year 2015 we recorded income from continuing operations of $1.5$6.4 million and diluted earnings per diluted share of $0.04,$0.17, inclusive of $2.0$2.3 million, or $0.05 per diluted share, of after-tax restructuring charges, and $2.9$3.1 million, or $0.08 per diluted share, of incremental after-tax costs related to the spin-off of our EMS segment. Excluding these nonrecurring costs, our adjusted income from continuing operations for the first halfnine months of fiscal year 2016 improved to $14.1$18.5 million, or $0.37$0.49 per diluted share, compared to adjusted income from continuing operations for the first halfnine months of fiscal year 2015 of $6.5$11.8 million, or $0.17$0.30 per diluted share.
Open orders at December 31,The aforementioned income from continuing operations figures for both the third quarter and year to date fiscal 2015 increased 5% when compared toperiods were favorably impacted by $1.1 million of releases of income tax reserves upon the open order level asexpiration of December 31, 2014 as increased open orders for office furniture more than offset a declinestatutes of limitation which did not repeat in open orders for hospitality furniture. Open orders at a point in time may not be indicative of future sales trends.fiscal year 2016.


Gross profit as a percent of net sales increased 1.70.3 of a percentage pointspoint in the secondthird quarter of fiscal year 2016 compared to the secondthird quarter of fiscal year 20152015. The favorable impact of price increases, a favorable shift in sales mix to higher margin product, the benefit of leverage gained on higher sales volumes, and lower outbound freight were partially offset by increased 0.9labor and overhead costs. The increased labor and overhead costs were partially driven by higher employee healthcare expenses during the third quarter of fiscal year 2016 and inefficiencies related to the transfer of production from the Idaho manufacturing facility to our other manufacturing facilities.
Gross profit as a percent of net sales increased 0.7 of a percentage point in the first sixnine months of fiscal year 2016 compared to the first sixnine months of fiscal year 2015. The favorable impact of price increases and lower discounting, lower outbound freight, material cost savings, and the benefit of leverage gained on higher sales volumes, were partially offset by an unfavorablea favorable shift in sales mix to lower margin product, lower outbound freight, and higher warehousing and handling expenses related to higher inventory levels. In addition, labor productivity improvements at select units were more than offset by labor inefficiencies related to the transfer of production from the Idaho manufacturing facility to our other manufacturing facilities.facilities and higher employee healthcare expenses.
As a percent of net sales, selling and administrative expenses in the secondthird quarter and first sixnine months of fiscal year 2016 compared to the secondthird quarter and first sixnine months of fiscal year 2015 decreased 3.50.6 of a percentage pointspoint and 4.02.9 percentage points, respectively, due to the increased sales volumes coupled with lower costs.volumes. In absolute dollars, selling and administrative expenses in the secondthird quarter of fiscal year 2016 compared to the third quarter of fiscal year 2015 increased 0.7%. In absolute dollars, selling and administrative expenses in the first sixnine months of fiscal year 2016 compared to the same periodsperiod of fiscal year 2015 decreased 5.0% and 6.4%$5.3 million or 4.2% primarily due to spin-off expenses of $1.7 million and $2.9$3.1 million incurred in the prior year second quarter and year-to-date period respectively. In addition, selling and administrative expenses declined due to the retirement of key executives as of the spin-off date. Partially offsetting the favorable variances, incentive compensation expense excluding the retirement of key executives increased in both the second quarter and first six months of fiscal year 2016 compared to the same periods of the prior year.
In November 2014, we approved a capacity utilization restructuring plan which includes the consolidation of our metal fabrication production from an operation located in Post Falls, Idaho, into existing production facilities in Indiana, and the reduction of our Company plane fleet from two jets to one. The jet was sold in the third quarter of fiscal year 2015, and as a result of the aircraft fleet reduction, we began realizing the expected pre-tax annual savings of $0.8 million. The remaining jet is primarily used for transporting customers to visit our showrooms, offices, research and development center, and manufacturing locations. The consolidation of our metal fabrication production is underwayexpected to be complete by June 30, 2016, and after the consolidation is complete, we anticipate annualthe improvement of customer delivery, supply chain dynamics, and reduction of transportation costs to generate pre-tax savings of approximately $5 million per year thereafter. We recognized pre-tax restructuring expense related to continuing operations of $2.0$2.8 million and $3.2$6.0 million in the three and sixnine months ended DecemberMarch 31, 2015,2016, respectively, and recognized $3.3$0.4 million and $3.7 million pre-tax restructuring expense in both the three and sixnine months ended DecemberMarch 31, 2014.2015, respectively. See Note 7 - Restructuring Expense of Notes to Condensed Consolidated Financial Statements for further information on restructuring.

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Other Income (Expense) consisted of the following:
Three Months Ended Six Months EndedThree Months Ended Nine Months Ended
December 31 December 31March 31 March 31
(Amounts in Thousands)2015 2014 2015 20142016 2015 2016 2015
Interest Income$45
 $50
 $116
 $91
$104
 $61
 $220
 $151
Interest Expense(5) (6) (11) (12)(6) (6) (17) (18)
Foreign Currency Loss(17) (17) (40) (42)
Foreign Currency Gain (Loss)28
 2
 (12) (40)
Gain (Loss) on Supplemental Employee Retirement Plan Investments297
 352
 (278) 166
108
 353
 (170) 519
Other(79) (152) (170) (274)(85) (65) (255) (339)
Other Income (Expense), net$241
 $227
 $(383) $(71)$149
 $345
 $(234) $273
Our effective tax rate for the first halfnine months of fiscal year 2016 was 37.4%37.5% and did not include any material unusual items. Our effective tax rate for the first halfnine months of fiscal year 2015 of 56.0%28.1% was unfavorablyfavorably impacted by a lower combined state$1.1 million of releases of income tax rate post spin-off, requiring areserves upon the expiration of statutes of limitation and $0.4 million unfavorable adjustment to deferred taxesof tax accrual adjustments which increasedboth decreased our fiscal 2015 year-to-date tax expense and effective tax rate. In addition,rate and were partially offset by a portion of$0.4 million adjustment to deferred taxes as our spin-off expenses which were nondeductible also unfavorably impacted the fiscal 2015 effective tax rate. The impact to our effectivecombined state tax rate is magnified in periods when our pre-tax income is lower.lower post spin-off.
Comparing the balance sheet as of DecemberMarch 31, 20152016 to June 30, 2015, inventory levels increased to support the manufacturing consolidation plan, higher sales levels, and select hospitality customer lead time requirements. Ourour accounts receivable balance decline was driven by lower sales volumes and variation in shipment levels shortly before Decemberin the months prior to March 31, 20152016 and June 30, 2015.



Liquidity and Capital Resources
Our cash and cash equivalents position declinedincreased to $26.1$43.8 million at DecemberMarch 31, 20152016 from $34.7 million at June 30, 2015, primarily due to share repurchases and capital expenditurespositive cash flows from operations as discussed below.
Working capital at DecemberMarch 31, 20152016 was $45.1$46.6 million compared to working capital of $44.4 million at June 30, 2015. The current ratio was 1.51.4 at Decemberboth March 31, 20152016 and 1.4 at June 30, 2015.
Kimball'sKimball’s short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facility, totaled $55.1$72.8 million at DecemberMarch 31, 2015.2016. We had no short-term borrowings outstanding as of DecemberMarch 31, 20152016 or June 30, 2015.
Cash Flows
Cash management was centralized prior to the spin-off, thus cash flows prior to the October 31, 2014 spin-off date include Kimball Electronics cash flows. Cash flows from discontinued operations are combined with cash flows from continuing operations within each cash flow statement category on the Company’s Condensed Consolidated Statements of Cash Flows.
The following table reflects the major categories of cash flows for the first halfnine months of fiscal years 2016 and 2015.
 Six Months Ended Nine Months Ended
 December 31 March 31
(Amounts in millions) 2015 2014 2016 2015
Net cash provided by operating activities $15,257
 $1,767
 $39,781
 $12,021
Net cash used for investing activities $(8,994) $(18,674) $(13,699) $(23,147)
Net cash used for financing activities $(14,834) $(69,478) $(16,895) $(74,270)
Cash Flows from Operating Activities
For the first halfnine months of fiscal year 2016 net cash provided by operating activities was $15.3$39.8 million and for the first halfnine months of fiscal year 2015 net cash provided by operating activities was $1.8$12.0 million. Changes in working capital balances used $7.5provided $8.2 million of cash in the first halfnine months of fiscal year 2016 and $30.4used $25.8 million in the first halfnine months of fiscal year 2015.

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The $7.5$8.2 million of cash provided by changes in working capital balances in the first nine months of fiscal year 2016 was primarily driven by a decline in our accounts receivable balance due to lower sales volumes and variation in shipment levels in the months prior to March 31, 2016 and June 30, 2015. The $25.8 million usage of cash from changes in working capital balances in the first half of fiscal year 2016 was primarily driven by fluctuations in our inventory balances. Inventory levels increased $9.1 million primarily to support the manufacturing consolidation plan, higher sales levels, and customer lead time requirements. The $30.4 million usage of cash from changes in working capital balances in the first halfnine months of fiscal year 2015 was primarily driven by increases in our inventory and accounts receivable balances.balance. Approximately half of the $18.0$19.0 million usage of cash for inventory was driven by increased inventory levels in our furniture operations while the remainder was related to inventory fluctuations of the discontinued EMS business prior to the spin date. The $10.3 million usage of cash from an increase in accounts receivable balance was primarily driven by the discontinued EMS business prior to spin date.
Our measure of accounts receivable performance, also referred to as Days Sales Outstanding (“DSO”), for the six-monthnine-month periods ended DecemberMarch 31, 2016 and March 31, 2015 and December 31, 2014 was approximately 2928 days and approximately 30 days, respectively. For the pre-spin periods the amount is estimated on a continuing operations basis. We define DSO as the average of monthly trade accounts and notes receivable divided by an average day'sday’s net sales. Our Production Days Supply on Hand (“PDSOH”) of inventory measure for the six-monthnine-month period ended DecemberMarch 31, 20152016 increased to approximately 53 days from approximately 4244 days from the six-monthnine-month period ended DecemberMarch 31, 2014.2015. The PDSOH increase was driven by increased inventory levels throughout the nine months ended March 31, 2016 to support growth, customer lead time requirements, and the manufacturing consolidation plan. For the pre-spin periods the amount is estimated on a continuing operations basis. We define PDSOH as the average of the monthly gross inventory divided by an average day'sday’s cost of sales.
Cash Flows from Investing Activities
During the first halfnine months of fiscal years 2016 and 2015, we reinvested $8.9$13.2 million and $19.4$25.3 million, respectively, into capital investments for the future. The capital investments during the first halfnine months of the current year were primarily for manufacturing equipment such as an automated finish technology upgrade and equipment related to the transition of metal fabrication capabilities to Indiana facilities and various facility improvements and manufacturing equipment.improvements. The capital investments during the first halfnine months of the prior year were primarily for improvements to a sales and marketing facility which showcases product in a working environment, improvements to showrooms and manufacturing facilities, and manufacturing equipment in our continuing furniture business and to a lesser extent for manufacturing equipment in our discontinued EMS business and facility improvements.prior to spin-off.


Cash Flows from Financing Activities
Kimball paid dividends of $4.0$6.0 million and $3.8$5.7 million in the six-monthnine-month periods ended DecemberMarch 31, 20152016 and DecemberMarch 31, 2014,2015, respectively. Consistent with our historical dividend policy, the Company'sCompany’s Board of Directors evaluates the appropriate dividend payment on a quarterly basis. During the first halfnine months of fiscal year 2016, we repurchased shares pursuant to a previously announced stock repurchase program which drove cash outflow of $9.7 million. During the first halfnine months of fiscal year 2015, Kimball transferred $63.0 million of cash to Kimball Electronics in conjunction with the spin-off.
Credit Facility
We maintain a $30 million credit facility with a maturity date of October 2019 that allows for both issuances of letters of credit and cash borrowings. This facility provides an option to increase the amount available for borrowing to $55 million at our request, subject to the consent of the participating banks. At both DecemberMarch 31, 20152016 and June 30, 2015, we had no short-term borrowings outstanding. At DecemberMarch 31, 2015,2016, we had $1.0 million in letters of credit outstanding, which reduced our borrowing capacity on the credit facility.
The credit facility requires us to comply with certain debt covenants, the most significant of which are the adjusted leverage ratio and the fixed charge coverage ratio. The adjusted leverage ratio is defined as (a) consolidated total indebtedness minus unencumbered U.S. cash on hand in the U.S. in excess of $15,000,000 to (b) 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. The fixed charge coverage ratio is defined as (a) the sum of (i) consolidated EBITDA, minus (ii) 50% of depreciation expense, minus (iii) taxes paid, minus (iv) dividends and distributions paid, to (b) the sum of (i) scheduled principal payments on indebtedness due and/or paid, plus (ii) interest expense, calculated on a consolidated basis in accordance with GAAP, determined as of the end of each of its fiscal quarters for the trailing four fiscal quarters then ending, to not be less than 1.10 to 1.00.
We were in compliance with all debt covenants of the credit facility during the six-monthnine-month period ended DecemberMarch 31, 2015.2016.

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The table below compares the adjusted leverage ratio and fixed charge coverage ratio with the limits specified in the credit agreement.
 At or For the Period Ended Limit As Specified in   At or For the Period Ended Limit As Specified in  
Covenant December 31, 2015 Credit Agreement Excess March 31, 2016 Credit Agreement Excess
Adjusted Leverage Ratio (0.18) 3.00
 3.18
 (0.50) 3.00
 3.50
Fixed Charge Coverage Ratio 1,159.43
 1.10
 1,158.33
 1,214.73
 1.10
 1,213.63
Future Liquidity
We believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under our credit facility will be sufficient to fund future dividends and meet our working capital and other operating needs for at least the next 12 months. We may continue to repurchase shares if conditions are favorable. We also expect to continue to invest in capital expenditures prudently, particularly for projects, including potential acquisitions, that would enhance our capabilities and diversification while providing an opportunity for growth and improved profitability.
Our ability to generate cash from operations to meet our liquidity obligations could be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw material components in the supply chain, a decline in demand for our services, loss of key contract customers, and other unforeseen circumstances. In particular, should demand for our products decrease significantly over the next 12 months, the available cash provided by operations could be adversely impacted.

Non-GAAP Financial Measures
This item contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company'scompany’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States in the statement of income, statement of comprehensive income, balance sheet, or statement of cash flows of the Company. The non-GAAP financial measures used within this item include (1) operating income excluding spin-off expenses and restructuring charges; (2) income from continuing operations excluding spin-off expenses and restructuring charges; and (3) diluted earnings per share from continuing operations excluding spin-off expenses and restructuring charges. Reconciliations of the reported GAAP numbers to


these non-GAAP financial measures are included in the table below. Management believes it is useful for investors to understand how its core operations performed without spin-off expenses and costs incurred in executing its restructuring plans. Excluding these amounts allows investors to meaningfully trend, analyze, and benchmark the performance of the Company'sCompany’s core operations. Many of the Company'sCompany’s internal performance measures that management uses to make certain operating decisions exclude these charges to enable meaningful trending of core operating metrics.

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Reconciliation of Non-GAAP Financial MeasuresReconciliation of Non-GAAP Financial Measures    Reconciliation of Non-GAAP Financial Measures    
(Amounts in Thousands, Except for Per Share Data)          
Three Months Ended Six Months EndedThree Months Ended Nine Months Ended
December 31 December 31March 31 March 31
2015 2014 2015 20142016 2015 2016 2015
Operating Income (Loss)$10,018
 $(161) $19,743
 $3,517
Operating Income$4,295
 $5,111
 $24,038
 $8,628
Add: Pre-tax Spin-off Expenses
 1,735 
 2,870
 226 
 3,096
Add: Pre-tax Restructuring Charges2,014 3,335 3,200 3,3352,761 388 5,961 3,723
Adjusted Operating Income$12,032
 $4,909
 $22,943
 $9,722
$7,056
 $5,725
 $29,999
 $15,447
              
Income (Loss) from Continuing Operations$6,502
 $(1) $12,124
 $1,516
Income from Continuing Operations$2,757
 $4,882
 $14,881
 $6,398
Add: After-tax Spin-off Expenses
 1,809
 
 2,931

 155
 
 3,086
Add: After-tax Restructuring Charges1,230
 2,039
 1,955
 2,039
1,688
 236
 3,643
 2,275
Adjusted Income from Continuing Operations$7,732
 $3,847
 $14,079
 $6,486
$4,445
 $5,273
 $18,524
 $11,759
              
Diluted Earnings (Loss) Per Share from Continuing Operations$0.17
 $0.00
 $0.32
 $0.04
Diluted Earnings Per Share from Continuing Operations$0.07
 $0.13
 $0.39
 $0.17
Add: Impact of Spin-off Expenses0.00
 0.05
 0.00
 0.08
0.00
 0.00
 0.00
 0.08
Add: Impact of Restructuring Charges0.04
 0.05
 0.05
 0.05
0.05
 0.01
 0.10
 0.05
Adjusted Diluted Earnings Per Share from Continuing Operations$0.21
 $0.10
 $0.37
 $0.17
$0.12
 $0.14
 $0.49
 $0.30

Fair Value
During the secondthird quarter of fiscal year 2016, no financial instruments were affected by a lack of market liquidity. Our financial instruments are categorized asFor level 1 financial assets, and are valued using readily available market pricing.pricing was used to value the financial instruments. Kimball also holds non-marketable equity securities of a privately-held company, classified as a level 3 financial asset. The investment in non-marketable equity securities is accounted for as a cost-method investment which carries the securities at cost, except in the event of impairment.
See Note 8 - Fair Value of Notes to Condensed Consolidated Financial Statements for additional information.
Contractual Obligations
There have been no material changes outside the ordinary course of business to Kimball'sKimball’s summary of contractual obligations under the caption, “Contractual Obligations” in Item 7 “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.


Off-Balance Sheet Arrangements
Our off-balance sheet arrangements are limited to standby letters of credit, atwo performance bond,bonds, and operating leases entered into in the normal course of business. These arrangements do not have a material current effect and are not reasonably likely to have a material future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. See Note 6 - Commitments and Contingent Liabilities of Notes to Condensed Consolidated Financial Statements for more information on standby letters of credit. We do not have material exposures to trading activities of non-exchange traded contracts.
The preceding statements are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Certain factors could cause actual results to differ materially from forward-looking statements.
Critical Accounting Policies
Kimball'sKimball’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the condensed consolidated financial statements and related notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in the assumptions used to value these estimates, which are based

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on current facts and circumstances, prior experience, and other assumptions that are believed to be reasonable. Management believes the following critical accounting policies reflect the more significant judgments and estimates used in preparation of our condensed consolidated financial statements and are the policies that are most critical in the portrayal of our financial position and results of operations. Management has discussed these critical accounting policies and estimates with the Audit Committee of the Company'sCompany’s Board of Directors and with the Company'sCompany’s independent registered public accounting firm.
Revenue recognition — We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the title and the risk of loss passes to the customer according to the terms of the contract. Title and risk of loss are transferred upon shipment to or receipt at our customers’ locations, or in limited circumstances, as determined by other specific sales terms of the transaction. Shipping and handling fees billed to customers are recorded as sales while the related shipping and handling costs are included in cost of goods sold. We recognize sales net of applicable sales tax.
Sales returns and allowances — Based on estimated product returns and price concessions, a reserve for returns and allowances is recorded at the time of the sales, resulting in a reduction of revenue. These estimates may change over time causing the provisions to be adjusted accordingly. At both DecemberMarch 31, 20152016 and June 30, 2015, the reserve for returns and allowances was $0.8 million. The returns and allowances reserve approximated 1% to 2% of gross trade receivables during the two-year period preceding DecemberMarch 31, 2015.2016.
Allowance for doubtful accounts — Our estimate for 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. The allowance for doubtful accounts at DecemberMarch 31, 20152016 and June 30, 2015 was $1.1 million and $1.0 million, respectively. During the two-year period preceding DecemberMarch 31, 2015,2016, this reserve approximated 1% of gross trade accounts receivable prior to the spin-off, and approximated 2% to 4% of post-spin gross trade accounts receivable.
Self-insurance reserves — We are self-insured up to certain limits for auto and general liability, workers'workers’ compensation, and certain employee health benefits such as medical, short-term disability, and dental with the related liabilities included in the accompanying financial statements. Our policy is to estimate reserves based upon a number of factors including known claims, estimated incurred but not reported claims, and other analyses, which are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as increased medical costs and changes in actual experience could cause these estimates to change and reserve levels to be adjusted accordingly. At DecemberMarch 31, 20152016 and June 30, 2015, our accrued liabilities for self-insurance exposure were $3.4$3.1 million and $2.8 million, respectively.
Taxes — Deferred income tax assets and liabilities 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 our 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'smanagement’s assessment.
We operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. However, we believe we have made adequate provision for income and other taxes for all years that are subject to audit. As tax positions are effectively settled, the tax provision will be adjusted accordingly. The liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions, was $2.9 million at both DecemberMarch 31, 20152016 and June 30, 2015.
New Accounting Standards
See Note 3 - Recent Accounting Pronouncements and Supplemental Information of Notes to Condensed Consolidated Financial Statements for information regarding New Accounting Standards.

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Forward-Looking Statements
Certain statements contained within this document are considered forward-looking under the Private Securities Litigation Reform Act of 1995. The statements may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “seeks,” “likely,” “future,” “may,” “might,” “should,” “would,” “will,” and similar expressions. These forward-looking statements are subject to risks and uncertainties including, but not limited to, the successful completion of the restructuring plan, adverse changes in the global economic conditions, increased global competition, significant reduction in customer order patterns, loss of key customers or suppliers, financial stability of key customers and suppliers, relationships with strategic customers and product distributors, availability or cost of raw materials and components, increased competitive pricing pressures reflecting excess industry capacities, changes in the regulatory environment, or similar unforeseen events. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of Kimball are contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to market risks from the information disclosed in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.
Item 4. Controls and Procedures
(a)Evaluation of disclosure controls and procedures.
Kimball maintains controls and procedures designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of those controls and procedures performed as of DecemberMarch 31, 20152016, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective.
(b)Changes in internal control over financial reporting.
There have been no changes in Kimball'sKimball’s internal control over financial reporting that occurred during the quarter ended DecemberMarch 31, 20152016 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
A share repurchase program authorized by the Board of Directors was announced on October 16, 2007. The program allows for the repurchase of up to two million shares of common stock and will remain in effect until all shares authorized have been repurchased. On August 11, 2015 an additional two million shares of common stock were authorized by the Board of Directors for repurchase. Kimball did not repurchase any shares under the repurchase program during the secondthird quarter of fiscal year 2016. At DecemberMarch 31, 2015,2016, 2.3 million shares remained available under the repurchase program.
         


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Item 6. Exhibits
Exhibits (numbered in accordance with Item 601 of Regulation S-K)
3(a)Amended and restated Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3(a) to the Company'sCompany’s Form 10-K for the fiscal year ended June 30, 2012)
3(b)Restated By-laws of the Company
10(a)*Summary of Director and Named Executive Officer Compensation (Incorporated by reference to Exhibit 3(b) to the Company’s Form 8-K dated April 26, 2016)
11Computation of Earnings Per Share
31.1Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1Certification furnished by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

*Constitutes management contract or compensatory arrangement.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  KIMBALL INTERNATIONAL, INC.
   
 By:/s/ ROBERT F. SCHNEIDER
  
Robert F. Schneider
Chief Executive Officer
  February 3,May 4, 2016
   
   
 By:/s/ MICHELLE R. SCHROEDER
  
Michelle R. Schroeder
Vice President,
Chief Financial Officer
  February 3,May 4, 2016

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Kimball International, Inc.
Exhibit Index
Exhibit No. Description
3(a) Amended and restated Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3(a) to the Company'sCompany’s Form 10-K for the fiscal year ended June 30, 2012)
3(b) Restated By-laws of the Company
10(a)*Summary of Director and Named Executive Officer Compensation (Incorporated by reference to Exhibit 3(b) to the Company’s Form 8-K dated April 26, 2016)
11 Computation of Earnings Per Share
31.1 Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification furnished by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
*Constitutes management contract or compensatory arrangement.

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