UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~March 31, ~~2019~~2020

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						47546-2256
(Address of principal executive offices)						(Zip Code)



(812) 482-1600
Registrant’s telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:



Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Class B Common Stock, par value $0.05 per share	KBAL	The ~~NASDAQ~~Nasdaq Stock Market LLC

~~Securities registered pursuant to Section 12(g) of the Act: None~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x

Non-accelerated filer o Smaller reporting company o

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares outstanding of the Registrant’s common stock as of ~~January 27,~~April 30, 2020 was:

Class A Common Stock - ~~194,762~~193,162 shares

Class B Common Stock - ~~36,608,177~~36,641,799 shares

KIMBALL INTERNATIONAL, INC.

FORM 10-Q

INDEX



			Page No.

PART I FINANCIAL INFORMATION

	Item 1. Financial Statements
	Condensed Consolidated Balance Sheets - ~~December~~March 31, ~~2019~~20 20 (Unaudited) and June 30, 2019	3
	Condensed Consolidated Statements of Income (Unaudited) - Three and ~~Six~~Nine Months Ended ~~December~~March 31, ~~2019~~2020 and ~~2018~~2019	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Three and ~~Six~~Nine Months Ended ~~December~~March 31, ~~2019~~2020 and ~~2018~~2019	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) - ~~Six~~Nine Months Ended ~~December~~March 31, ~~2019~~20 20 and ~~2018~~201 9	6
	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) - Three and ~~Six~~Nine Months Ended ~~December~~March 31, ~~2019~~20 20 and ~~2018~~201 9	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	3635
	Item 4. Controls and Procedures	3736

PART II OTHER INFORMATION

	Item 1A. Risk Factors	37
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3837
	Item 6. Exhibits	3938

SIGNATURES			4039

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)
	March 31, 2020		June 30, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	76,636	$	73,196
Short-term investments	13,658		33,071
Receivables, net of allowances of $2,531 and $1,321, respectively	68,934		63,120
Inventories	50,710		46,812
Prepaid expenses and other current assets	13,855		13,105
Assets held for sale	215		281
Total current assets	224,008		229,585
Property and Equipment, net of accumulated depreciation of $192,134 and $185,865, respectively	93,344		90,671
Right-of-use operating Lease Assets	18,219		—
Goodwill	11,160		11,160
Other Intangible Assets, net of accumulated amortization of $39,998 and $38,320, respectively	13,339		12,108
Deferred Tax Assets	9,188		8,722
Other Assets	12,184		12,420
Total Assets	$	381,442	$	364,666

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	27	$	25
Accounts payable	38,675		47,916
Customer deposits	27,377		24,611
Current portion of operating lease liability	4,820		—
Dividends payable	3,493		3,038
Accrued expenses	36,912		57,494
Total current liabilities	111,304		133,084
Other Liabilities:
Long-term debt, less current maturities	109		136
Long-term operating lease liability	17,203		—
Other	14,576		14,956
Total other liabilities	31,888		15,092
Shareholders’ Equity:
Common stock-par value $0.05 per share:
Class A - Shares authorized: 50,000,000 Shares issued: 193,000 and 251,000, respectively	10		12
Class B - Shares authorized: 100,000,000 Shares issued: 42,830,000 and 42,773,000, respectively	2,141		2,139
Additional paid-in capital	4,311		3,570
Retained earnings	299,194		277,391
Accumulated other comprehensive income	2,150		1,937
Less: Treasury stock, at cost, 6,205,000 shares and 6,212,000 shares, respectively	(69,556)		(68,559)
Total Shareholders’ Equity	238,250		216,490
Total Liabilities and Shareholders’ Equity	$	381,442	$	364,666

(Unaudited)
December 31,
2019 June 30,
2019
ASSETS

Current Assets:

Cash and cash equivalents $ 71,430
$ 73,196
Short-term investments 25,648
33,071
Receivables, net of allowances of $1,691 and $1,321, respectively 62,344
63,120
Inventories 49,743
46,812
Prepaid expenses and other current assets 15,511
13,105
Assets held for sale 281
281
Total current assets 224,957
229,585
Property and Equipment, net of accumulated depreciation of $189,827 and $185,865, respectively 93,205
90,671
Right-of-use Lease Assets 17,092
—
Goodwill 11,160
11,160
Other Intangible Assets, net of accumulated amortization of $39,371 and $38,320, respectively 12,510
12,108
Deferred Tax Assets 9,663
8,722
Other Assets 14,092
12,420
Total Assets $ 382,679
$ 364,666

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt $ 27
$ 25
Accounts payable 39,621
47,916
Customer deposits 32,494
24,611
Current portion of lease liability 4,443
—
Dividends payable 3,477
3,038
Accrued expenses 37,775
57,494
Total current liabilities 117,837
133,084
Other Liabilities:
Long-term debt, less current maturities 109
136
Long-term lease liability 16,570
—
Other 15,574
14,956
Total other liabilities 32,253
15,092
Shareholders’ Equity:
Common stock-par value $0.05 per share:
Class A - Shares authorized: 50,000,000
Shares issued: 195,000 and 251,000, respectively
10
12
Class B - Shares authorized: 100,000,000
Shares issued: 42,830,000 and 42,773,000, respectively
2,141
2,139
Additional paid-in capital 3,423
3,570
Retained earnings 293,089
277,391
Accumulated other comprehensive income 2,120
1,937
Less: Treasury stock, at cost, 6,147,000 shares and 6,212,000 shares, respectively (68,194 ) (68,559 )
Total Shareholders’ Equity 232,589
216,490
Total Liabilities and Shareholders’ Equity $ 382,679
$ 364,666

See Notes to Condensed Consolidated Financial Statements

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except for Per Share Data)


	(Unaudited)						(Unaudited)
	Three Months Ended						Nine Months Ended
	March 31						March 31
	2020		2019		2020		2019
Net Sales	$	178,174	$	177,369	$	571,790	$	572,500
Cost of Sales	117,680		120,808		375,585		385,077
Gross Profit	60,494		56,561		196,205		187,423
Selling and Administrative Expenses	45,606		47,508		146,239		151,178

Restructuring Expense	818		—		6,564		—
Operating Income	14,070		9,053		43,402		36,245
Other Income (Expense):
Interest income	386		492		1,482		1,339
Interest expense	(21)		(40)		(65)		(146)
Non-operating income (expense), net	(2,078)		970		(1,360)		71
Other income (expense), net	(1,713)		1,422		57		1,264
Income Before Taxes on Income	12,357		10,475		43,459		37,509
Provision for Income Taxes	2,906		2,521		11,585		9,274
Net Income	$	9,451	$	7,954	$	31,874	$	28,235

Earnings Per Share of Common Stock:
Basic Earnings Per Share	$	0.26	$	0.22	$	0.86	$	0.77
Diluted Earnings Per Share	$	0.25	$	0.22	$	0.86	$	0.76

Class A and B Common Stock:
Average Number of Shares Outstanding - Basic	36,813		36,712		36,890		36,871
Average Number of Shares Outstanding - Diluted	37,089		36,909		37,234		37,260

(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
2019 2018 2019 2018
Net Sales $ 192,164
$ 201,008
$ 393,616
$ 395,131
Cost of Sales 126,823
136,019
257,905
264,269
Gross Profit 65,341
64,989
135,711
130,862
Selling and Administrative Expenses 49,719
51,491
100,633
103,670
Restructuring Expense 1,396
—
5,746
—
Operating Income 14,226
13,498
29,332
27,192
Other Income (Expense):
Interest income 489
428
1,096
847
Interest expense (21 ) (56 ) (44 ) (106 )
Non-operating income (expense), net 717
(1,226 ) 718
(899 )
Other income (expense), net 1,185
(854 ) 1,770
(158 )
Income Before Taxes on Income 15,411
12,644
31,102
27,034
Provision for Income Taxes 4,372
3,239
8,679
6,753
Net Income $ 11,039
$ 9,405
$ 22,423
$ 20,281

Earnings Per Share of Common Stock:

Basic Earnings Per Share $ 0.30
$ 0.26
$ 0.61
$ 0.55
Diluted Earnings Per Share $ 0.30
$ 0.25
$ 0.60
$ 0.54

Dividends Per Share of Common Stock $ 0.09
$ 0.08
$ 0.18
$ 0.16

Class A and B Common Stock:
Average Number of Shares Outstanding - Basic 36,921
36,793
36,929
36,951
Average Number of Shares Outstanding - Diluted 37,221
37,088
37,274
37,347

See Notes to Condensed Consolidated Financial Statements

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)


	(Unaudited)										(Unaudited)
	Three Months Ended										Three Months Ended
	March 31, 2020										March 31, 2019
(Unaudited)	Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax
Net income					$	9,451					$	7,954
Other comprehensive income (loss):
Available-for-sale securities	$	3	$	(1)	$	2	$	27	$	(7)	$	20
Postemployment severance actuarial change	120		(31)		89		100		(26)		74

Reclassification to (earnings) loss:



Amortization of actuarial change	(82)		21		(61)		(100)		26		(74)

Other comprehensive income (loss)	$	41	$	(11)	$	30	$	27	$	(7)	$	20
Total comprehensive income					$	9,481					$	7,974

(Unaudited) (Unaudited)
Three Months Ended Three Months Ended
December 31, 2019 December 31, 2018
(Unaudited) Pre-tax Tax Net of Tax Pre-tax Tax Net of Tax
Net income $ 11,039
$ 9,405
Other comprehensive income (loss):
Available-for-sale securities $ (12 ) $ 3
$ (9 ) $ 41
$ (11 ) $ 30
Postemployment severance actuarial change 296
(76 ) 220
158
(41 ) 117
Derivative gain (loss) —
—
—
(2 ) —
(2 )
Reclassification to (earnings) loss:
Amortization of actuarial change (90 ) 23
(67 ) (103 ) 27
(76 )
Derivatives —
—
—
5
(1 ) 4
Other comprehensive income (loss) $ 194
$ (50 ) $ 144
$ 99
$ (26 ) $ 73
Total comprehensive income $ 11,183
$ 9,478



	(Unaudited)										(Unaudited)
	Nine Months Ended										Nine Months Ended
	March 31, 2020										March 31, 2019
(Unaudited)	Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax
Net income					$	31,874					$	28,235
Other comprehensive income (loss):
Available-for-sale securities	$	(17)	$	4	$	(13)	$	42	$	(11)	$	31
Postemployment severance actuarial change	565		(146)		419		338		(87)		251
Derivative gain (loss)	—		—		—		(11)		2		(9)
Reclassification to (earnings) loss:



Amortization of actuarial change	(260)		67		(193)		(302)		78		(224)
Derivatives	—		—		—		21		(5)		16
Other comprehensive income (loss)	$	288	$	(75)	$	213	$	88	$	(23)	$	65
Total comprehensive income					$	32,087					$	28,300

(Unaudited) (Unaudited)
Six Months Ended Six Months Ended
December 31, 2019 December 31, 2018
(Unaudited) Pre-tax Tax Net of Tax Pre-tax Tax Net of Tax
Net income $ 22,423
$ 20,281
Other comprehensive income (loss):
Available-for-sale securities $ (20 ) $ 5
$ (15 ) $ 15
$ (4 ) $ 11
Postemployment severance actuarial change 445
(115 ) 330
238
(61 ) 177
Derivative gain (loss) —
—
—
(11 ) 2
(9 )
Reclassification to (earnings) loss:
Amortization of actuarial change (178 ) 46
(132 ) (202 ) 52
(150 )
Derivatives —
—
—
21
(5 ) 16
Other comprehensive income (loss) $ 247
$ (64 ) $ 183
$ 61
$ (16 ) $ 45
Total comprehensive income $ 22,606
$ 20,326

See Notes to Condensed Consolidated Financial Statements

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)


	(Unaudited)
	Nine Months Ended
	March 31
	2020		2019
Cash Flows From Operating Activities:
Net income	$	31,874	$	28,235
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	11,337		11,077
Amortization	1,707		1,455
Loss (Gain) on sales of assets	75		(1,140)
Restructuring and asset impairment charges	2,954		—
Deferred income tax and other deferred charges	(500)		(4,571)
Stock-based compensation	3,850		4,749
Other, net	3,043		(1,319)
Change in operating assets and liabilities:
Receivables	(5,815)		6,848
Inventories	(3,898)		(2,863)
Prepaid expenses and other current assets	(960)		5,769
Accounts payable	(7,929)		(7,534)
Customer deposits	2,766		6,371
Accrued expenses	(21,136)		(4,397)
Net cash provided by operating activities	17,368		42,680
Cash Flows From Investing Activities:
Capital expenditures	(16,132)		(15,577)
Proceeds from sales of assets	138		1,277
Cash paid for acquisition	—		(4,850)
Purchases of capitalized software	(3,011)		(805)
Purchases of available-for-sale securities	(24,977)		(39,778)
Maturities of available-for-sale securities	44,488		32,550
Other, net	(818)		(3)
Net cash used for investing activities	(312)		(27,186)
Cash Flows From Financing Activities:


Change in long-term debt	(25)		(23)

Dividends paid to shareholders	(9,607)		(8,498)
Repurchases of Common Stock	(3,004)		(9,132)
Repurchase of employee shares for tax withholding	(976)		(1,035)
Net cash used for financing activities	(13,612)		(18,688)

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash ⁽¹⁾	3,444		(3,194)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period ⁽¹⁾	73,837		53,321
Cash, Cash Equivalents, and Restricted Cash at End of Period ⁽¹⁾	$	77,281	$	50,127
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes	$	10,406	$	6,758
Interest expense	$	15	$	82

(Unaudited)
Six Months Ended
December 31
2019 2018
Cash Flows From Operating Activities:
Net income $ 22,423
$ 20,281
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 7,476
7,361
Amortization 1,068
959
Loss (Gain) on sales of assets 59
(1,164 )
Restructuring and asset impairment charges 2,763
—
Deferred income tax and other deferred charges (979 ) (1,907 )
Stock-based compensation 2,729
3,628
Other, net 2,220
(1,166 )
Change in operating assets and liabilities:
Receivables 825
(1,486 )
Inventories (2,931 ) (6,745 )
Prepaid expenses and other current assets (2,343 ) 2,795
Accounts payable (7,057 ) 3,292
Customer deposits 7,883
5,596
Accrued expenses (20,734 ) (7,536 )
Net cash provided by operating activities 13,402
23,908
Cash Flows From Investing Activities:
Capital expenditures (12,038 ) (10,346 )
Proceeds from sales of assets 102
1,269
Cash paid for acquisition —
(4,850 )
Purchases of capitalized software (1,471 ) (374 )
Purchases of available-for-sale securities (13,975 ) (26,196 )
Maturities of available-for-sale securities 21,488
18,618
Other, net (853 ) 30
Net cash used for investing activities (6,747 ) (21,849 )
Cash Flows From Financing Activities:
Change in long-term debt (25 ) (23 )
Dividends paid to shareholders (6,286 ) (5,562 )
Repurchases of Common Stock (1,266 ) (9,130 )
Repurchase of employee shares for tax withholding (842 ) (1,035 )
Net cash used for financing activities (8,419 ) (15,750 )
Net Decrease in Cash, Cash Equivalents, and Restricted Cash ⁽¹⁾
(1,764 ) (13,691 )
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period ⁽¹⁾
73,837
53,321
Cash, Cash Equivalents, and Restricted Cash at End of Period ⁽¹⁾
$ 72,073
$ 39,630
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes $ 9,063
$ 2,641
Interest expense $ 14
$ 69

(1) The following table reconciles cash and cash equivalents in the balance sheets to cash, cash equivalents, and restricted cash per the statements of cash flows. The restricted cash included in other assets on the balance sheet represents amounts pledged as collateral for a long-term financing arrangement as contractually required by a lender. The restriction will lapse when the related long-term debt is paid off. Restricted cash also included customer deposits held due to a foreign entity being classified as a restricted entity by a government agency subsequent to our receipt of the deposit.


(Amounts in Thousands)	March 31, 2020		June 30, 2019		March 31, 2019		June 30, 2018
Cash and Cash Equivalents	$	76,636	$	73,196	$	49,489	$	52,663
Restricted cash included in Other Assets	645		641		638		658
Total Cash, Cash Equivalents, and Restricted Cash at end of period	$	77,281	$	73,837	$	50,127	$	53,321

(Amounts in Thousands) December 31,
2019 June 30,
2019 December 31,
2018 June 30,
2018
Cash and Cash Equivalents $ 71,430
$ 73,196
$ 38,993
$ 52,663
Restricted cash included in Other Assets 643
641
637
658
Total Cash, Cash Equivalents, and Restricted Cash at end of period $ 72,073
$ 73,837
$ 39,630
$ 53,321

See Notes to Condensed Consolidated Financial Statements

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in Thousands, Except for Share and Per Share Data)


	Common Stock						Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Shareholders’ Equity
Three months ended March 31, 2020 (Unaudited)	Class A		Class B
Amounts at December 31, 2019	$	10	$	2,141	$	3,423	$	293,089	$	2,120	$	(68,194)	$	232,589
Net income							9,451						9,451
Other comprehensive income (loss)									30				30
Issuance of non-restricted stock (6,000 shares)					(79)						79		—
Conversion of Class A to Class B common stock (1,000 shares)	—		—		(21)						21		—
Compensation expense related to stock compensation plans					1,315								1,315

Restricted share units issuance (15,000 shares)					(327)						202		(125)


Repurchase of Common Stock (81,000 shares)											(1,664)		(1,664)
Dividends declared ($0.09 per share)							(3,346)						(3,346)
Amounts at March 31, 2020	$	10	$	2,141	$	4,311	$	299,194	$	2,150	$	(69,556)	$	238,250

Three months ended March 31, 2019 (Unaudited)
Amounts at December 31, 2018	$	13	$	2,138	$	2,607	$	264,267	$	1,861	$	(70,015)	$	200,871
Net income							7,954						7,954
Other comprehensive income (loss)									20				20
Issuance of non-restricted stock (11,000 shares)					(138)						138		—

Compensation expense related to stock compensation plans					1,121								1,121




Repurchase of Common Stock (100 shares)											(2)		(2)
Dividends declared ($0.08 per share)							(2,967)						(2,967)
Amounts at March 31, 2019	$	13	$	2,138	$	3,590	$	269,254	$	1,881	$	(69,879)	$	206,997

Nine months ended March 31, 2020 (Unaudited)
Amounts at June 30, 2019	$	12	$	2,139	$	3,570	$	277,391	$	1,937	$	(68,559)	$	216,490
Net income							31,874						31,874
Other comprehensive income (loss)									213				213
Issuance of non-restricted stock (21,000 shares)					(281)						281		—
Conversion of Class A to Class B common stock (58,000 shares)	(2)		2		(21)						21		—
Compensation expense related to stock incentive plans					4,395								4,395
Performance share issuance (67,000 shares)					(1,391)						879		(512)
Restricted share units issuance (15,000 shares)					(327)						202		(125)
Relative total shareholder return performance units issuance (48,000 shares)					(954)						624		(330)
Reclassification of equity-classified awards					(680)								(680)
Repurchase of Common Stock (146,000 shares)											(3,004)		(3,004)
Dividends declared ($0.27 per share)							(10,071)						(10,071)
Amounts at March 31, 2020	$	10	$	2,141	$	4,311	$	299,194	$	2,150	$	(69,556)	$	238,250

Nine months ended March 31, 2019 (Unaudited)
Amounts at June 30, 2018	$	13	$	2,138	$	1,881	$	249,945	$	1,816	$	(62,769)	$	193,024
Net income							28,235						28,235
Other comprehensive income (loss)									65				65
Issuance of non-restricted stock (32,000 shares)					(426)						414		(12)
Conversion of Class A to Class B common stock (7,000 shares)	—		—										—
Compensation expense related to stock incentive plans					4,749								4,749
Performance share issuance (81,000 shares)					(1,709)						1,057		(652)
Restricted share units issuance (15,000 shares)					(382)						201		(181)
Relative total shareholder return performance units issuance (27,000 shares)					(523)						350		(173)

Repurchase of Common Stock (567,000 shares)											(9,132)		(9,132)
Dividends declared ($0.24 per share)							(8,926)						(8,926)
Amounts at March 31, 2019	$	13	$	2,138	$	3,590	$	269,254	$	1,881	$	(69,879)	$	206,997

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders’ Equity
Three months ended December 31, 2019 (Unaudited) Class A Class B
Amounts at September 30, 2019 $ 12
$ 2,139
$ 2,438
$ 285,405
$ 1,976
$ (66,938 ) $ 225,032
Net income 11,039
11,039
Other comprehensive income (loss) 144
144
Issuance of non-restricted stock (6,000 shares) (84 ) 84
—
Conversion of Class A to Class B common stock (55,000 shares) (2 ) 2
—
Compensation expense related to stock compensation plans 1,069
1,069
Repurchase of Common Stock (65,000 shares) (1,340 ) (1,340 )
Dividends declared ($0.09 per share) (3,355 ) (3,355 )
Amounts at December 31, 2019 $ 10
$ 2,141
$ 3,423
$ 293,089
$ 2,120
$ (68,194 ) $ 232,589

Three months ended December 31, 2018 (Unaudited)
Amounts at September 30, 2018 $ 13
$ 2,138
$ 1,431
$ 257,825
$ 1,788
$ (64,511 ) $ 198,684
Net income 9,405
9,405
Other comprehensive income (loss) 73
73
Issuance of non-restricted stock (9,000 shares) (125 ) 125
—
Conversion of Class A to Class B common stock (7,000 shares) —
—
—
Compensation expense related to stock compensation plans 1,683
1,683
Restricted share units issuance (15,000 shares) (382 ) 201
(181 )
Repurchase of Common Stock (371,000 shares) (5,830 ) (5,830 )
Dividends declared ($0.08 per share) (2,963 ) (2,963 )
Amounts at December 31, 2018 $ 13
$ 2,138
$ 2,607
$ 264,267
$ 1,861
$ (70,015 ) $ 200,871

Six months ended December 31, 2019 (Unaudited)
Amounts at June 30, 2019 $ 12
$ 2,139
$ 3,570
$ 277,391
$ 1,937
$ (68,559 ) $ 216,490
Net income 22,423
22,423
Other comprehensive income (loss) 183
183
Issuance of non-restricted stock (15,000 shares) (202 ) 202
—
Conversion of Class A to Class B common stock (57,000 shares) (2 ) 2
—
Compensation expense related to stock incentive plans 3,080
3,080
Performance share issuance (67,000 shares) (1,391 ) 879
(512 )
Relative total shareholder return performance units issuance (48,000 shares) (954 ) 624
(330 )
Reclassification of equity-classified awards (680 ) (680 )
Repurchase of Common Stock (65,000 shares) (1,340 ) (1,340 )
Dividends declared ($0.18 per share) (6,725 ) (6,725 )
Amounts at December 31, 2019 $ 10
$ 2,141
$ 3,423
$ 293,089
$ 2,120
$ (68,194 ) $ 232,589

Six months ended December 31, 2018 (Unaudited)
Amounts at June 30, 2018 $ 13
$ 2,138
$ 1,881
$ 249,945
$ 1,816
$ (62,769 ) $ 193,024
Net income 20,281
20,281
Other comprehensive income (loss) 45
45
Issuance of non-restricted stock (21,000 shares) (288 ) 276
(12 )
Conversion of Class A to Class B common stock (7,000 shares) —
—
—
Compensation expense related to stock incentive plans 3,628
3,628
Performance share issuance (81,000 shares) (1,709 ) —
1,057
(652 )
Restricted share units issuance (15,000 shares) (382 ) 201
(181 )
Relative total shareholder return performance units issuance (27,000 shares) (523 ) 350
(173 )
Repurchase of Common Stock (567,000 shares) (9,130 ) (9,130 )
Dividends declared ($0.16 per share) (5,959 ) (5,959 )
Amounts at December 31, 2018 $ 13
$ 2,138
$ 2,607
$ 264,267
$ 1,861
$ (70,015 ) $ 200,871

See Notes to Condensed Consolidated Financial Statements

KIMBALL INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Kimball International, Inc. (the “Company,” “Kimball International,” “we,” “us,” or “our”) have been prepared in accordance with the instructions to Form 10-Q. As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although we believe that the disclosures are adequate to make the information presented not misleading. Intercompany transactions and balances have been eliminated. Management believes the financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly the financial statements for the interim periods. The results of operations for the interim periods shown in this report are not necessarily indicative of results for any future interim period or for the entire fiscal year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in our latest annual report on Form 10-K. Additionally, based on the duration and severity of the current global situation involving the COVID-19 pandemic, including but not limited to the length of the various government orders requiring temporary suspension of non-essential business operations, duration of limits on travel, and the speed of the recovery of economic conditions globally, the extent to which COVID-19 will impact our business and our consolidated financial results will depend on future developments, which are highly uncertain and cannot be predicted.

Note 2. Recent Accounting Pronouncements and Supplemental Information

Recently Adopted Accounting Pronouncements:

In March 2017, the Financial Accounting Standards Board (“FASB”) issued guidance that will shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. This guidance does not require an accounting change for securities held at a discount. The guidance was effective for our first quarter of fiscal year 2020. The adoption did not have a material effect on our condensed consolidated financial statements.

In February 2016, the FASB issued guidance that revises the accounting for leases. The guidance is intended to improve financial reporting of leasing transactions by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Leases will continue to be classified as either operating or finance leases, with the classification affecting the pattern of expense recognition in the statement of income. The guidance also requires additional disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. In January 2018, the FASB issued additional guidance for land easements which permits entities to forgo the evaluation of existing land easement arrangements to determine if they contain a lease. New land easement arrangements, or modifications to existing arrangements, after the adoption of the lease standard will be evaluated to determine if they meet the definition of a lease. In July 2018, the FASB amended the new standard to clarify certain aspects of the guidance, and they also issued another new standard in July 2018 that allows the option to apply the transition provisions at the adoption date instead of at the earliest comparative period in the condensed consolidated financial statements. In March 2019, the FASB issued clarifying guidance regarding interim transition disclosures. We adopted this lease guidance as of the beginning of our fiscal year 2020. We have assessed our portfolio of leases and compiled a central repository of leases, recording a right-of-use asset and a lease liability for all leases with a lease term of greater than twelve months. All changes required by the new standard, including accounting policies, controls, and disclosures, have been identified and implemented. See Note 6 - Leases in the Notes to Condensed Consolidated Financial Statements for additional information.

Recently Issued Accounting Pronouncements Not Yet Adopted:

In August 2018, the FASB issued guidance on a customer’s accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor. Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The guidance is effective for our first quarter of fiscal year 2021 with early adoption permitted. Entities can choose to adopt the guidance prospectively to eligible costs incurred on or after the date this guidance is first applied or retrospectively. We do not expect the adoption to have ~~not yet determined the~~a material effect ~~of this guidance~~ on our condensed consolidated financial statements.

In August 2018, the FASB issued guidance which changes the fair value measurement disclosure requirements. The guidance modifies and removes certain disclosures related to the fair value hierarchy, and adds new disclosure requirements such as disclosing the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value

measurements and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for our first quarter of fiscal year 2021 with early adoption permitted and should

be applied retrospectively except for certain disclosures. We have not yet determined the effect of this guidance on our condensed consolidated financial statements.

In June 2016, the FASB issued guidance on the measurement of credit losses on financial instruments. Under the guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The guidance is also intended to reduce the complexity by decreasing the number of credit impairment models that entities use to account for debt instruments. In May 2019, the FASB amended the new standard to allow entities to elect the fair value option on certain financial instruments that were previously recorded at amortized cost. In November 2019, the FASB amended the new standard to extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis. The guidance is effective for our first quarter of fiscal year 2021 with early adoption in our fiscal year 2020 permitted. We have not yet determined the effect of this guidance on our condensed consolidated financial statements.

Goodwill and Other Intangible Assets:

Our most recently completed goodwill impairment analyses, which was completed during our second quarter of fiscal year 2020, indicated significant excess fair values over carrying values across the different reporting units. We do not currently consider the COVID-19 pandemic to be a triggering event to accelerate our annual goodwill impairment analysis. During the quarter and year-to-date period ended March 31, 2020, 0 goodwill or intangible asset impairment was recognized.

Goodwill represents the difference between the purchase price and the related underlying tangible and intangible net asset fair values resulting from business acquisitions. Goodwill is assigned to and the fair value is tested at the reporting unit level. Annually, or if conditions indicate an earlier review is necessary, we may assess qualitative factors to determine if it is more likely than not that the fair value is less than its carrying amount. We also have the option to bypass the qualitative assessment and proceed directly to performing the quantitative goodwill impairment test which compares the carrying value of the reporting unit to the reporting unit’s fair value to identify impairment. Under the quantitative assessment, if the fair value of the reporting unit is less than the carrying value, goodwill is written down to its fair value. The fair value is established primarily using a discounted cash flow analysis and secondarily a market approach utilizing current industry information. The calculation of the fair value of the reporting unit considers current market conditions existing at the assessment date. As of ~~December~~March 31, ~~2019~~2020and June 30, 2019 our goodwill totaled $11.2 million. ~~During the quarter ended December 31, 2019, we assessed goodwill for impairment, and no goodwill impairment was recognized.~~

Other Intangible Assets reported on the Condensed Consolidated Balance Sheets consist of capitalized software, customer relationships, trade names, and non-compete agreements. Intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets. A summary of intangible assets subject to amortization is as follows:


	December 31, 2019						June 30, 2019							March 31, 2020										June 30, 2019
(Amounts in Thousands)	Cost		Accumulated Amortization		Net Value		Cost		Accumulated Amortization		Net Value		(Amounts in Thousands)	Cost		Accumulated Amortization		Net Value		Cost		Accumulated Amortization		Net Value
Capitalized Software	$	41,161	$	37,104	$	4,057	$	39,708	$	36,662	$	3,046	Capitalized Software	$	42,617	$	37,426	$	5,191	$	39,708	$	36,662	$	3,046

Customer Relationships	7,050		1,450		5,600		7,050		1,030		6,020		Customer Relationships	7,050		1,661		5,389		7,050		1,030		6,020
Trade Names	3,570		774		2,796		3,570		595		2,975		Trade Names	3,570		863		2,707		3,570		595		2,975
Non-Compete Agreements	100		43		57		100		33		67		Non-Compete Agreements	100		48		52		100		33		67
Other Intangible Assets	$	51,881	$	39,371	$	12,510	$	50,428	$	38,320	$	12,108	Other Intangible Assets	$	53,337	$	39,998	$	13,339	$	50,428	$	38,320	$	12,108

Amortization expense related to intangible assets was, in thousands, ~~$547~~$639 and ~~$1,068~~$1,707 during the quarter and year-to-date period ended ~~December~~March 31, ~~2019,~~2020, and ~~$484~~$496 and ~~$959~~$1,455 during the quarter and year-to-date period ended ~~December~~March 31, ~~2018.~~2019. Amortization expense in future periods is expected to be, in thousands, ~~$1,143~~$680 for the remainder of fiscal year 2020, and ~~$1,955, $1,616, $1,373,~~$2,506, $2,039, $1,637, and ~~$1,201~~$1,404 in the four years ending June 30, 2024, and ~~$5,222~~$5,073 thereafter. The estimated useful life of capitalized software ranges from 32 to 10 years. The amortization period for customer relationship intangible assets is 20 years. The estimated useful life of trade names is 10 years. The estimated useful life of non-compete agreements is 5 years.

Capitalized software is stated at cost less accumulated amortization and is amortized using the straight-line method. During the software application development stage, capitalized costs include external consulting costs, cost of software licenses, and internal payroll and payroll-related costs for employees who are directly associated with a software project. Upgrades and enhancements

are capitalized if they result in added functionality which enable the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion, and business process re-engineering costs are expensed in the period in which they are incurred.

Trade names and non-compete agreements are amortized on a straight-line basis over their estimated useful lives. Capitalized customer relationships are amortized based on estimated attrition rates of customers. We have no0 intangible assets with indefinite useful lives which are not subject to amortization.

Notes Receivable and Trade Accounts Receivable:

Notes receivable and trade accounts receivable are recorded per the terms of the agreement or sale, and accrued interest is recognized when earned. We determine on a case-by-case basis the cessation of accruing interest, the resumption of accruing interest, the method of recording payments received on ~~nonaccrual~~non accrual receivables, and the delinquency status for our limited number of notes receivable.

Our policy for estimating the allowance for credit losses on trade accounts receivable and notes receivable includes analysis of such items as aging, credit worthiness, payment history, and historical bad debt experience. Management uses these specific analyses in conjunction with an evaluation of the general economic and market conditions to determine the final allowance for credit losses on the trade accounts receivable and notes receivable. Trade accounts receivable and notes receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. Our limited amount of notes receivable allows management to monitor the risks, credit quality indicators, collectability, and probability of impairment on an individual basis. Adjustments to the allowance for credit losses are recorded in selling and administrative expenses. Customary terms require payment within 30 days, with terms beyond 30 days being considered extended.

Non-operating Income (Expense), net:

The non-operating income (expense), net line item includes the impact of such items as fair value adjustments on Supplemental Employee Retirement Plan (“SERP”) investments, amortization of actuarial income, bank charges, and other miscellaneous non-operating income and expense items that are not directly related to operations. The gain or loss on SERP investments is offset by a change in the SERP liability that is recognized in selling and administrative expenses.

Components of the Non-operating income (expense), net line, were:


	Three Months Ended						Nine Months Ended
	March 31						March 31
(Amounts in Thousands)	2020		2019		2020		2019

Gain (Loss) on SERP Investments	$	(1,784)	$	1,032	$	(1,010)	$	306


Other	(294)		(62)		(350)		(235)
Non-operating income (expense), net	$	(2,078)	$	970	$	(1,360)	$	71

Three Months Ended Six Months Ended
December 31 December 31
(Amounts in Thousands) 2019 2018 2019 2018
Gain (Loss) on SERP Investments $ 716
$ (1,097 ) $ 774
$ (726 )
Other 1
(129 ) (56 ) (173 )
Non-operating income (expense), net $ 717
$ (1,226 ) $ 718
$ (899 )

Note 3. Restructuring

Transformation Restructuring Plan:

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

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

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

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

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

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


	Three Months Ended		Nine Months Ended		Charges incurred to date
(Amounts in Thousands)	March 31, 2020		March 31, 2020
Cash-related restructuring charges:
Severance and other employee related costs	$	203	$	2,194	$	2,857
Facility exit costs and other cash charges	424		1,416		1,619
Total cash-related restructuring charges	$	627	$	3,610	$	4,476
Non-cash charges:
Transition stock compensation	9		663		734
Impairment of assets	132		2,190		2,190
Other non-cash charges	50		101		101

Total non-cash charges	$	191	$	2,954	$	3,025
Total charges	$	818	$	6,564	$	7,501

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

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


(Amounts in Thousands)	Severance and other employee related costs			Facility exit and other costs			Total			(Amounts in Thousands)	Severance and other employee related costs		Facility exit and other costs		Total
Balance at June 30, 2019	$	619		$	203		$	822		Balance at June 30, 2019	$	619	$	203	$	822
Additions charged to expense	2,322			379			2,701			Additions charged to expense	2,535		379		2,914
Cash payments charged against reserve	(1,617		)	(582		)	(2,199		)	Cash payments charged against reserve	(2,683)		(582)		(3,265)
Non-cash adjustments	(150		)	—			(150		)	Non-cash adjustments	(160)		—		(160)
Balance at December 31, 2019	$	1,174		$	—		$	1,174
Balance at March 31, 2020										Balance at March 31, 2020	$	311	$	—	$	311

To date, we have recognized ~~$6.7~~$7.5 million of restructuring costs related to the Transformation Restructuring Plan. We expect this restructuring plan to be complete by June 30, ~~2020.~~2020, but this timing may be impacted by the COVID-19 pandemic. It is currently estimated that this plan will incur an additional ~~$2.3~~$1.5 million to ~~$3.3~~$2.5 million of future restructuring charges.

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

Note 4. Acquisition

On October 26, 2018, we acquired substantially all the assets and assumed certain specified limited liabilities of David Edward headquartered in Baltimore, Maryland. David Edward is a premier designer and manufacturer of contract furniture, sold in the healthcare, corporate, education, and premium hospitality markets. The David Edward product portfolio consists of classic and contemporary designs, focused primarily in the seating, tables, and ancillary furniture categories. In conjunction with the asset acquisition, we leased two existing David Edward production facilities in Baltimore, Maryland and Red Lion, Pennsylvania. The purchase price allocation did not change from the amounts disclosed in our Annual Report on Form 10-K for 2019 and is final.

We will be consolidating the David Edward production facility in Red Lion, Pennsylvania into our Baltimore, Maryland facility near the end of our fiscal year 2020 as part of our Transformation Restructuring Plan.

Note 5. Revenue

Disaggregation of Revenue

The following table provides information about revenue by ~~vertical~~ market:


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
(Amounts in Millions)	2020		2019		2020		2019
Institutional	$	63.5	$	61.3	$	215.7	$	202.8
Commercial	71.0		67.8		216.0		224.3
Hospitality	43.7		48.3		140.1		145.4
Total Net Sales	$	178.2	$	177.4	$	571.8	$	572.5

Three Months Ended Six Months Ended
December 31 December 31
(Amounts in Millions) 2019
2018 2019 2018
Commercial $ 55.8
$ 63.6
$ 111.0
$ 120.2
Education 20.1
18.1
54.8
52.7
Finance 16.8
18.1
34.0
36.3
Government 21.7
18.8
40.3
35.9
Healthcare 28.2
28.5
57.1
52.9
Hospitality 49.6
53.9
96.4
97.1
Total Net Sales $ 192.2
$ 201.0
$ 393.6
$ 395.1
Our Institutional market includes sales to the healthcare, education and government verticals. Our Commercial market includes sales to the commercial and financial verticals.

We report revenue under a single aggregated reportable segment consisting of three operating segments which have similar products and services in nature, utilize similar production and distribution processes, and share similar long-term economic characteristics.

Contract Balances

Receivables in the Condensed Consolidated Balance Sheets represent the amount of consideration to which we are entitled in exchange for the goods or services sold to our customers, net of allowances for doubtful accounts. Receivables are recorded when the right to consideration from the customer becomes unconditional, which is generally upon billing or upon satisfaction of a performance obligation, whichever is earlier.

We also receive deposits from certain customers before revenue is recognized, resulting in the recognition of a contract liability reported as Customer Deposits in the Condensed Consolidated Balance Sheets. Customer deposits are typically utilized within a year of the receipt of the deposit. The amount of revenue recognized during the ~~six~~nine months ended ~~December~~March 31, ~~2019~~2020 that was included in the June 30, 2019 customer deposit balance was ~~$24.0~~$24.5 million.

Note 6. Leases

At the beginning of our fiscal year 2020, we adopted new accounting guidance (“ASC 842”) regarding leases on a prospective basis. This guidance requires lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The effects of the initial application did not result in a cumulative adjustment to retained earnings. We recognize lease liabilities at the lease commencement date based upon the present value of the remaining lease payments. Right-of-use assets are based on the lease liability adjusted for prepaid rent, deferred rent, and tenant allowances received. Lease liabilities are amortized based upon the effective interest method, while right-of-use assets are amortized based upon the straight line expense less interest on the lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term, except for impaired leases for which the lease expense is recognized on a declining basis over the remaining lease term. Variable lease expense associated with our leases is dependent upon the occurrence of events, activities, or circumstances in lease agreements, such as warehouse square footage utilized, property taxes assessed, and other non-lease component charges. Variable lease expense is presented as operating expense in our Condensed Consolidated Statements of Income and Comprehensive Income in the same line item as expense arising from fixed lease payments for operating leases.

We have operating leases for showrooms, manufacturing facilities, warehouses, certain offices, and other facilities to support our operations in addition to select equipment that expire at various dates through 2028. We have no0 financing leases. Certain operating lease agreements include rental payments adjusted periodically for inflationary indexes. Additionally, some leases include options to renew or terminate the leases which can be exercised at our discretion. Lease terms include the noncancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods. Our leases do not contain residual value guarantees or material restrictive covenants. As the rate implicit in our lease contracts cannot

be readily determined, we use an estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The estimated incremental borrowing rate represents

the estimated rate of interest we would have to pay to borrow an amount equal to the lease payments for a similar period of time on a collateralized basis.

The components of our lease expenses are as follows:


	Three Months Ended		Six Months Ended			Three Months Ended		Nine Months Ended
(Amounts in Millions)	December 31, 2019		December 31, 2019		(Amounts in Millions)	March 31, 2020		March 31, 2020
Operating lease expense	$	0.8	$	1.6	Operating lease expense	$	0.9	$	2.5

Variable lease expense	0.6		1.3		Variable lease expense	0.6		1.8
Total lease expense	$	1.4	$	2.9	Total lease expense	$	1.5	$	4.3

Right-of-use assets for operating leases are tested for impairment in the same manner as long-lived assets used in operations. During the first quarter of fiscal year 2020, we recorded $2.2 million of right-of-use asset and associated leasehold improvement impairment resulting from ceasing use of four furniture showrooms after the implementation of ASC 842 as part of our transformation restructuring plan. The impairment is included in the Restructuring Expense line item on our Condensed Consolidated Statements of Income.

Supplemental cash flow and other information related to leases are as follows:


	Nine Months Ended
(Amounts in Millions)	March 31, 2020
Cash flow information:
Operating lease payments impacting lease liability	$	3.6
Leased assets obtained in exchange for operating lease liabilities	$	2.1


	As of
(Amounts in Millions)	March 31, 2020
Other information:
Weighted-average remaining term (in years)	6.1
Weighted-average discount rate	4.7		%

Six Months Ended
(Amounts in Millions) December 31, 2019
Cash flow information:
Operating lease payments impacting lease liability $ 2.4
Leased assets obtained in exchange for operating lease liabilities $ 0.1

As of
(Amounts in Millions) December 31, 2019
Other information:
Weighted-average remaining term (in years) 6.0
Weighted-average discount rate 4.6 %

The following table summarizes the future minimum lease payments as of ~~December~~March 31, ~~2019:~~2020:


	Fiscal Year Ended			Fiscal Year Ended
(Amounts in Millions)	June 30⁽¹⁾		(Amounts in Millions)	June 30⁽¹⁾
2020	$	2.2	2020	$	1.1
2021	4.5		2021	4.9
2022	4.3		2022	4.7
2023	3.8		2023	4.1
2024	3.1		2024	3.4
Thereafter	6.2		Thereafter	7.0
Total lease payments	$	24.1	Total lease payments	$	25.2
Less interest	$	3.1	Less interest	3.2
Present value of lease liabilities	$	21.0	Present value of lease liabilities	$	22.0

(1) Lease payments include options to extend lease terms that are reasonably certain of being exercised. The payments exclude legally binding minimum lease payments for leases signed but not yet commenced. At December 31, 2019, we have an additional operating lease that has not yet commenced for which we will record a right-of-use asset and lease liability of $1.6 million. The lease will commence in our third quarter of fiscal year 2020 with a lease term of approximately 7 years.

The following table summarizes the future minimum lease payments as of June 30, 2019 before adoption of ASC 842:


	Fiscal Year Ended
(Amounts in Millions)	June 30
2020	$	4.6
2021	4.2
2022	4.1
2023	3.6
2024	2.5
Thereafter	3.8
Total lease payments	$	22.8

Practical Expedients Elected

We elected the following practical expedients as a result of adopting ASC 842:

•We elected not to separate non-lease components of a contract from the lease components to which they relate for all classes of lease assets.

•We elected the package of practical expedients available for transition which allowed us not to reassess (1) whether any expired or existing contracts contain leases, (2) the classification of the leases as operating or finance and (3) the amount of initial direct costs associated with the leases.

•We elected that our date of initial application be the beginning of our period of adoption which was July 1, 2019.

•We elected not to recognize a right-of-use asset or lease liability for short-term leases that have a lease term of twelve months or less.

•We elected not to assess whether land easements that were not previously accounted for as leases are or contain a lease.

•We did not elect to use hindsight in determining the lease term and in assessing the likelihood that a lessee purchase option will be exercised.

Note 7. Earnings Per Share

Basic earnings per share are based on the weighted average number of shares outstanding during the period. Diluted earnings per share are based on the weighted average number of shares outstanding plus the assumed issuance of common shares for all potentially dilutive securities.


	Three Months Ended						Nine Months Ended
	March 31						March 31
(Amounts in Thousands, Except for Per Share Data)	2020		2019		2020		2019
Net Income	$	9,451	$	7,954	$	31,874	$	28,235

Average Shares Outstanding for Basic EPS Calculation	36,813		36,712		36,890		36,871
Dilutive Effect of Average Outstanding Compensation Awards	276		197		344		389
Average Shares Outstanding for Diluted EPS Calculation	37,089		36,909		37,234		37,260

Basic Earnings Per Share	$	0.26	$	0.22	$	0.86	$	0.77
Diluted Earnings Per Share	$	0.25	$	0.22	$	0.86	$	0.76

Three Months Ended Six Months Ended
December 31 December 31
(Amounts in Thousands, Except for Per Share Data) 2019 2018 2019 2018
Net Income $ 11,039
$ 9,405
$ 22,423
$ 20,281

Average Shares Outstanding for Basic EPS Calculation 36,921
36,793
36,929
36,951
Dilutive Effect of Average Outstanding Compensation Awards 300
295
345
396
Average Shares Outstanding for Diluted EPS Calculation 37,221
37,088
37,274
37,347

Basic Earnings Per Share $ 0.30
$ 0.26
$ 0.61
$ 0.55
Diluted Earnings Per Share $ 0.30
$ 0.25
$ 0.60
$ 0.54

Note 8. 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 effective tax rate was ~~28.4% and 27.9%, respectively,~~23.5% for the three ~~and six~~ months ended ~~December~~March 31, ~~2019,~~2020, which was less than the combined federal and ~~was higher than~~state statutory ~~rates~~tax rate primarily due to ~~nondeductible expenses and a prior year state~~the R&D tax ~~provision adjustment that impacted the first quarter of fiscal year 2020.~~credit. Our effective tax rate was ~~25.6% and 25.0%, respectively,~~26.7% for the ~~three and six~~nine months ended ~~December~~March 31, ~~2018,~~2020, which approximated the combined federal and state statutory rate. Our effective tax rate was 24.1% and 24.7%, respectively, for the three and nine months ended March 31, 2019, which was less than the combined federal and state statutory rate in part due to the R&D tax credit.

Note 9. Inventories

Inventory components were as follows:


(Amounts in Thousands)	December 31, 2019			June 30, 2019			(Amounts in Thousands)	March 31, 2020		June 30, 2019
Finished products	$	29,534		$	26,304		Finished products	$	28,160	$	26,304
Work-in-process	1,961			2,455			Work-in-process	1,875		2,455
Raw materials	34,718			34,335			Raw materials	37,007		34,335
Total FIFO inventory	66,213			63,094			Total FIFO inventory	67,042		63,094
LIFO reserve, net	(16,470		)	(16,282		)	LIFO reserve, net	(16,332)		(16,282)
Total inventory	$	49,743		$	46,812		Total inventory	$	50,710	$	46,812

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~~nine month periods ended ~~December~~March 31, ~~2019~~2020 and ~~2018~~2019 was immaterial.

Note 10. Accumulated Other Comprehensive Income

During the three months ended ~~December~~March 31, ~~2019~~2020 and ~~2018, the changes in the balances of each component of Accumulated Other Comprehensive Income, net of tax, were as follows:~~

Accumulated Other Comprehensive Income
(Amounts in Thousands) Unrealized Investment Gain (Loss) Postemployment Benefits Net Actuarial Gain (Loss) Derivative Gain (Loss) Accumulated Other Comprehensive Income
Balance at September 30, 2019 $ 17
$ 1,959
$ —
$ 1,976
Other comprehensive income (loss) before reclassifications (9 ) 220
—
211
Reclassification to (earnings) loss —
(67 ) —
(67 )
Net current-period other comprehensive income (loss) (9 ) 153
—
144
Balance at December 31, 2019 $ 8
$ 2,112
$ —
$ 2,120

Balance at September 30, 2018 $ (50 ) $ 1,840
$ (2 ) $ 1,788
Other comprehensive income (loss) before reclassifications 30
117
(2 ) 145
Reclassification to (earnings) loss —
(76 ) 4
(72 )
Net current-period other comprehensive income (loss) 30
41
2
73
Balance at December 31, 2018 $ (20 ) $ 1,881
$ —
$ 1,861

~~During the six months ended December 31,~~ 2019, ~~and 2018,~~ the changes in the balances of each component of Accumulated Other Comprehensive Income, net of tax, were as follows:


Accumulated Other Comprehensive Income
(Amounts in Thousands)	Unrealized Investment Gain (Loss)		Postemployment Benefits Net Actuarial Gain (Loss)		Derivative Gain (Loss)		Accumulated Other Comprehensive Income
Balance at December 31, 2019	$	8	$	2,112	$	—	$	2,120
Other comprehensive income (loss) before reclassifications	2		89		—		91
Reclassification to (earnings) loss	—		(61)		—		(61)
Net current-period other comprehensive income (loss)	2		28		—		30
Balance at March 31, 2020	$	10	$	2,140	$	—	$	2,150

Balance at December 31, 2018	$	(20)	$	1,881	$	—	$	1,861
Other comprehensive income (loss) before reclassifications	20		74		—		94
Reclassification to (earnings) loss	—		(74)		—		(74)
Net current-period other comprehensive income (loss)	20		—		—		20
Balance at March 31, 2019	$	—	$	1,881	$	—	$	1,881

During the nine months ended March 31, 2020 and 2019, the changes in the balances of each component of Accumulated Other Comprehensive Income, net of tax, were as follows:


Accumulated Other Comprehensive Income
(Amounts in Thousands)	Unrealized Investment Gain (Loss)		Postemployment Benefits Net Actuarial Gain (Loss)		Derivative Gain (Loss)		Accumulated Other Comprehensive Income
Balance at June 30, 2019	$	23	$	1,914	$	—	$	1,937
Other comprehensive income (loss) before reclassifications	(13)		419		—		406
Reclassification to (earnings) loss	—		(193)		—		(193)
Net current-period other comprehensive income (loss)	(13)		226		—		213
Balance at March 31, 2020	$	10	$	2,140	$	—	$	2,150

Balance at June 30, 2018	$	(31)	$	1,854	$	(7)	$	1,816
Other comprehensive income (loss) before reclassifications	31		251		(9)		273
Reclassification to (earnings) loss	—		(224)		16		(208)
Net current-period other comprehensive income (loss)	31		27		7		65
Balance at March 31, 2019	$	—	$	1,881	$	—	$	1,881

Accumulated Other Comprehensive Income
(Amounts in Thousands) Unrealized Investment Gain (Loss) Postemployment Benefits Net Actuarial Gain (Loss) Derivative Gain (Loss) Accumulated Other Comprehensive Income
Balance at June 30, 2019 $ 23
$ 1,914
$ —
$ 1,937
Other comprehensive income (loss) before reclassifications (15 ) 330
—
315
Reclassification to (earnings) loss —
(132 ) —
(132 )
Net current-period other comprehensive income (loss) (15 ) 198
—
183
Balance at December 31, 2019 $ 8
$ 2,112
$ —
$ 2,120

Balance at June 30, 2018 $ (31 ) $ 1,854
$ (7 ) $ 1,816
Other comprehensive income (loss) before reclassifications 11
177
(9 ) 179
Reclassification to (earnings) loss —
(150 ) 16
(134 )
Net current-period other comprehensive income (loss) 11
27
7
45
Balance at December 31, 2018 $ (20 ) $ 1,881
$ —
$ 1,861

The following reclassifications were made from Accumulated Other Comprehensive Income to the Condensed Consolidated Statements of Income:


Reclassifications from Accumulated Other Comprehensive Income	Three Months Ended						Six Months Ended						Affected Line Item in the Condensed Consolidated Statements of Income	Reclassifications from Accumulated Other Comprehensive Income	Three Months Ended							Nine Months Ended					Affected Line Item in the Condensed Consolidated Statements of Income
	December 31,						December 31,										March 31,							March 31,
(Amounts in Thousands)	2019			2018			2019			2018				(Amounts in Thousands)	2020			2019		2020		2019				Affected Line Item in the Condensed Consolidated Statements of Income

Postemployment Benefits Amortization of Actuarial Gain ⁽¹⁾	$	90		$	103		$	178		$	202		Non-operating income (expense), net	Postemployment Benefits Amortization of Actuarial Gain ⁽¹⁾	$	82		$	100	$	260	$	302		Non-operating income (expense), net
	(23		)	(27		)	(46		)	(52		)	Benefit (Provision) for Income Taxes		(21)			(26)		(67)		(78)			Benefit (Provision) for Income Taxes
	$	67		$	76		$	132		$	150		Net Income		$	61		$	74	$	193	$	224		Net Income

Derivative Gain (Loss)	$	—		$	(5	)	$	—		$	(21	)	Non-operating income (expense), net	Derivative Gain (Loss)	$	—		$	—	$	—	$	(21)		Non-operating income (expense), net
	—			1			—			5			Benefit (Provision) for Income Taxes		—			—		—		5			Benefit (Provision) for Income Taxes
	$	—		$	(4	)	$	—		$	(16	)	Net Income		$	—		$	—	$	—	$	(16)		Net Income

Total Reclassifications for the Period	$	67		$	72		$	132		$	134		Net Income	Total Reclassifications for the Period	$	61		$	74	$	193	$	208		Net Income

Amounts in parentheses indicate reductions to income.

(1) See Note 15 - Postemployment Benefits in the Notes to Condensed Consolidated Financial Statements for further information on postemployment benefit plans.

Note 11. Commitments and Contingent Liabilities

Guarantees:

Standby letters of credit were issued to lessors and insurance institutions and can only be drawn upon in the event of our failure to pay our obligations to a beneficiary. As of ~~December~~March 31, ~~2019,~~2020, we had a maximum financial exposure from unused standby letters of credit totaling ~~$1.5~~$1.6 million.

We are periodically required to provide performance bonds in order to conduct business with certain customers. The bonds are required to provide assurances to customers that the products and services they have purchased will be installed and/or provided properly and without damage to their facilities. We are ultimately liable for claims that may occur against the performance bonds. We had a maximum financial exposure from performance bonds totaling $5.4 million as of ~~December~~March 31, ~~2019.~~2020.

We are not aware of circumstances that would require us to perform under these arrangements and believe that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect our condensed consolidated financial statements. Accordingly, no0 liability has been recorded as of ~~December~~March 31, ~~2019~~2020 with respect to the standby letters of credit. We also enter into commercial letters of credit to facilitate payments to vendors and from customers.

Product Warranties:

We provide an assurance-type warranty that guarantees our product complies with agreed-upon specifications. This warranty is not sold separately and does not convey any additional services to the customer. We estimate product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction with the length of the warranty offered. Management refines the warranty liability periodically based on changes in historical cost trends and in certain cases where specific warranty issues become known.

Changes in the product warranty accrual for the ~~six~~nine months ended ~~December~~March 31, ~~2019~~2020 and ~~2018~~2019 were as follows:


	Nine Months Ended
	March 31
(Amounts in Thousands)	2020		2019
Product Warranty Liability at the beginning of the period	$	2,238	$	2,294
Additions to warranty accrual (including changes in estimates)	3,318		420
Settlements made (in cash or in kind)	(2,356)		(797)
Product Warranty Liability at the end of the period	$	3,200	$	1,917

Six Months Ended
December 31
(Amounts in Thousands) 2019 2018
Product Warranty Liability at the beginning of the period $ 2,238
$ 2,294
Additions to warranty accrual (including changes in estimates) 285
354
Settlements made (in cash or in kind) (422 ) (606 )
Product Warranty Liability at the end of the period $ 2,101
$ 2,042

Note 12. Fair Value

We categorize assets and liabilities measured at fair value into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

•Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

•Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

•Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

Our policy is to recognize transfers between these levels as of the end of each quarterly reporting period. There were no0 transfers between these levels during the ~~six~~nine months ended ~~December~~March 31, ~~2019.~~2020. 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, 2019.

We hold a total investment of $2.0 million in a privately-held company, consisting of $0.5 million in equity securities without readily determinable fair value and $1.5 million in stock warrants. The investment in equity securities without readily determinable fair value is classified as a Level 3 financial asset, as explained in the Financial Instruments Not Carried At Fair Value section below. The investment in stock warrants is also classified as a Level 3 financial asset and is accounted for as a derivative instrument valued on a recurring basis, as explained in the Financial Instruments Recognized at Fair Value section below. See Note 13 - Investments in the Notes to Condensed Consolidated Financial Statements for further information regarding the investment in equity securities without readily determinable fair value, and Note 14 - Derivative Instruments in the Notes to Condensed Consolidated Financial Statements for further information regarding the investment in stock warrants. NoNaN purchases or sales of Level 3 assets occurred during the ~~six~~nine months ended ~~December~~March 31, ~~2019.~~2020.

Financial Instruments Recognized at Fair Value:

The following methods and assumptions were used to measure fair value:

Financial Instrument

Level

Valuation Technique/Inputs Used

Cash Equivalents: Money market funds

Market - Quoted market prices

Cash Equivalents: Commercial paper

Market - Based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information.

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

Market - Based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information.

Available-for-sale securities: Municipal bonds

Market - Based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information.

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

Market - Based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information.

Trading securities: Mutual funds held in nonqualified SERP

Market - Quoted market prices

Derivative Assets: Stock warrants

Market - The privately-held company is in a start-up phase. The pricing of recent purchases or sales of the investment are considered, if any, as well as positive and negative qualitative evidence, in the assessment of fair value.

Contingent earn-out liability

Income - Based on a valuation model that measures the present value of the probable cash payments based upon the forecasted operating performance of the acquisition and a discount rate that captures the risk associated with the liability.

Recurring Fair Value Measurements:

As of ~~December~~March 31, ~~2019~~2020 and June 30, 2019, the fair values of financial assets that are measured at fair value on a recurring basis using the market or income approach are categorized as follows:


										March 31, 2020
(Amounts in Thousands)									(Amounts in Thousands)	Level 1		Level 2		Level 3		Total
Assets									Assets
Cash equivalents: Money market funds									Cash equivalents: Money market funds	$	69,027	$	—	$	—	$	69,027
Cash equivalents: Commercial paper									Cash equivalents: Commercial paper	—		7,192		—		7,192

Available-for-sale securities: Secondary market certificates of deposit									Available-for-sale securities: Secondary market certificates of deposit	—		6,220		—		6,220

Available-for-sale securities: U.S. Treasury and federal agencies									Available-for-sale securities: U.S. Treasury and federal agencies	—		7,438		—		7,438
Trading Securities: Mutual funds in nonqualified SERP									Trading Securities: Mutual funds in nonqualified SERP	10,591		—		—		10,591
Derivatives: Stock warrants									Derivatives: Stock warrants	—		—		1,500		1,500
Total assets at fair value									Total assets at fair value	$	79,618	$	20,850	$	1,500	$	101,968



	December 31, 2019									June 30, 2019
(Amounts in Thousands)	Level 1		Level 2		Level 3		Total		(Amounts in Thousands)	Level 1		Level 2		Level 3		Total
Assets									Assets
Cash equivalents: Money market funds	$	38,147	$	—	$	—	$	38,147	Cash equivalents: Money market funds	$	40,016	$	—	$	—	$	40,016
Cash equivalents: Commercial paper	—		31,655		—		31,655		Cash equivalents: Commercial paper	—		29,408		—		29,408
Available-for-sale securities: Secondary market certificates of deposit	—		5,970		—		5,970
Available-for-sale securities: Municipal bonds	—		875		—		875
Available-for-sale securities: U.S. Treasury and federal agencies	—		18,803		—		18,803
Trading Securities: Mutual funds in nonqualified SERP	12,690		—		—		12,690
Derivatives: Stock warrants	—		—		1,500		1,500
Total assets at fair value	$	50,837	$	57,303	$	1,500	$	109,640

	June 30, 2019
(Amounts in Thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents: Money market funds	$	40,016	$	—	$	—	$	40,016
Cash equivalents: Commercial paper	—		29,408		—		29,408
Available-for-sale securities: Secondary market certificates of deposit	—		11,230		—		11,230		Available-for-sale securities: Secondary market certificates of deposit	—		11,230		—		11,230
Available-for-sale securities: Municipal bonds	—		1,922		—		1,922		Available-for-sale securities: Municipal bonds	—		1,922		—		1,922
Available-for-sale securities: U.S. Treasury and federal agencies	—		19,919		—		19,919		Available-for-sale securities: U.S. Treasury and federal agencies	—		19,919		—		19,919
Trading Securities: Mutual funds in nonqualified SERP	11,774		—		—		11,774		Trading Securities: Mutual funds in nonqualified SERP	11,774		—		—		11,774
Derivatives: Stock warrants	—		—		1,500		1,500		Derivatives: Stock warrants	—		—		1,500		1,500
Total assets at fair value	$	51,790	$	62,479	$	1,500	$	115,769	Total assets at fair value	$	51,790	$	62,479	$	1,500	$	115,769
Liabilities									Liabilities

Contingent earn-out liability	—		—		360		360		Contingent earn-out liability	—		—		360		360
Total liabilities at fair value	$	—	$	—	$	360	$	360	Total liabilities at fair value	$	—	$	—	$	360	$	360

The fair value of the contingent earn-out liability as of June 30, 2019 of $0.4 million was paid out during the quarter ended September 30, 2019, relating to fiscal year 2019 performance of D’style, an acquired business.

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 our obligation to distribute SERP funds to participants. See Note 13 - Investments in the Notes to Condensed Consolidated Financial Statements for further information regarding the SERP.

Non-Recurring Fair Value Measurements:

Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments when events or circumstances indicate a significant adverse effect on the fair value of the asset. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.

Non-recurring Fair Value Adjustment

Level

Valuation Technique/Inputs Used

Impairment of Leases

Income - Based on a valuation model that measures the present value of remaining lease payments less estimated sublease income at a discount rate that captures the risk associated with the future cash flows.

During the first quarter of fiscal year 2020, due to ceasing use of four showrooms related to the Transformation Restructuring Plan, we recognized an impairment loss of $2.2 million to reduce the related asset groups to fair value. The impairment loss is included as a component of the Restructuring Expense line item on our Condensed Consolidated Statements of Income. The asset groups used to calculate impairment included the right-of-use lease assets, leasehold improvements, and lease liabilities.

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

Market - Price approximated based on the assumed collection of receivables in the normal course of business, taking into account the customer’s non-performance risk.

Equity securities without readily determinable fair value

Cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Impairment is assessed qualitatively.

On a periodic basis, but no less frequently than quarterly, the investment in equity securities without readily determinable fair value is qualitatively 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 investment exceeds its fair value would be recorded as an impairment loss. See Note 13 - Investments in the Notes to Condensed Consolidated Financial Statements for the carrying amount of this investment.

The carrying value of our cash deposit accounts, trade accounts receivable, trade accounts payable, customer deposits, and dividends payable approximates fair value due to the relatively short maturity and immaterial non-performance risk.

Note 13. Investments

Investment Portfolio:

Our investment portfolio ~~consists~~has consisted of municipal bonds, certificates of deposit purchased in the secondary market, and U.S. Treasury and federal agency securities. Municipal bonds include general obligation bonds and revenue bonds, some of which are pre-refunded. U.S. Treasury securities represent Treasury Bills and Notes of the U.S. government. Federal agency securities represent debt securities of a U.S. government sponsored agency, and certain of these securities are callable. Our investment policy dictates that municipal bonds, U.S. Treasury and federal agency securities must be investment grade quality. Our secondary market certificates of deposit are classified as investment securities, being purchased in the secondary market through a broker and available to be sold in the secondary market. All certificates of deposit are FDIC insured.

Our investment portfolio is available for use in current operations; therefore, investments are recorded within Current Assets in the Condensed Consolidated Balance Sheets. The contractual maturities of our investment portfolio were as follows (maturity dates for ~~municipal bonds are based on pre-refunded dates and maturity dates for~~ government agency securities are based on the first available call date, if applicable):


	March 31, 2020
(Amounts in Thousands)	Certificates of Deposit		Municipal Bonds		U.S. Treasury and Federal Agencies
Within one year	$	5,720	$	—	$	7,438
After one year through two years	500		—		—
Total Fair Value	$	6,220	$	—	$	7,438

December 31, 2019
(Amounts in Thousands) Certificates of Deposit Municipal Bonds U.S. Treasury and Federal Agencies
Within one year $ 5,220
$ 875
$ 18,803
After one year through two years 750
—
—
Total Fair Value $ 5,970
$ 875
$ 18,803

All investments are classified as available-for-sale securities which are recorded at fair value. See Note 12 - Fair Value in the Notes to Condensed Consolidated Financial Statements for more information on the fair value of available-for-sale securities. The amortized cost basis reflects the original purchase price, with discounts and premiums amortized over the life of the available-for-sale securities. Unrealized losses on available-for-sale securities are recognized in earnings when there is intent to sell or it is likely to be required to sell before recovery of the loss, or when the available-for-sale securities have incurred a credit loss. Otherwise, unrealized gains and losses are recorded net of the tax-related effect as a component of Shareholders’ Equity.


	March 31, 2020
(Amounts in Thousands)	Certificates of Deposit		Municipal Bonds		U.S. Treasury and Federal Agencies
Amortized cost basis	$	6,220	$	—	$	7,423
Unrealized holding gains	—		—		15
Unrealized holding losses	—		—		—
Fair Value	$	6,220	$	—	$	7,438

	June 30, 2019
(Amounts in Thousands)	Certificates of Deposit		Municipal Bonds		U.S. Treasury and Federal Agencies
Amortized cost basis	$	11,230	$	1,921	$	19,888
Unrealized holding gains	—		1		31
Unrealized holding losses	—		—		—
Fair Value	$	11,230	$	1,922	$	19,919

December 31, 2019
(Amounts in Thousands) Certificates of Deposit Municipal Bonds U.S. Treasury and Federal Agencies
Amortized cost basis $ 5,970
$ 875
$ 18,791
Unrealized holding gains —
—
12
Unrealized holding losses —
—
—
Fair Value $ 5,970
$ 875
$ 18,803

June 30, 2019
(Amounts in Thousands) Certificates of Deposit Municipal Bonds U.S. Treasury and Federal Agencies
Amortized cost basis $ 11,230
$ 1,921
$ 19,888
Unrealized holding gains —
1
31
Unrealized holding losses —
—
—
Fair Value $ 11,230
$ 1,922
$ 19,919

NoNaN investments were in a continuous unrealized loss position for greater than twelve months as of ~~December~~March 31, ~~2019.~~2020. There were no0 realized gains or losses as a result of sales in the three and ~~six~~nine months ended ~~December~~March 31, ~~2019~~2020 and ~~December~~March 31, ~~2018.~~2019.

Supplemental Employee Retirement Plan Investments:

We maintain a self-directed ~~supplemental employee retirement plan (“SERP”)~~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. We recognize 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 the Other Income (Expense) section of the Condensed Consolidated Statements of Income. Adjustments made to revalue the SERP liability are also recognized in income or expense as selling and administrative expenses and offset valuation adjustments on SERP investment assets. Net unrealized holding ~~gains (losses)~~losses for the ~~six~~nine months ended ~~December~~March 31, ~~2019~~2020 and ~~2018~~2019 were, in thousands, ~~$418~~$1,569 and ~~$(1,089),~~$104, respectively.

SERP asset and liability balances were as follows:


(Amounts in Thousands)	December 31, 2019		June 30, 2019		(Amounts in Thousands)	March 31, 2020		June 30, 2019
SERP investments - current asset	$	3,151	$	3,087	SERP investments - current asset	$	2,878	$	3,087
SERP investments - other long-term asset	9,539		8,687		SERP investments - other long-term asset	7,713		8,687
Total SERP investments	$	12,690	$	11,774	Total SERP investments	$	10,591	$	11,774

SERP obligation - current liability	$	3,151	$	3,087	SERP obligation - current liability	$	2,878	$	3,087
SERP obligation - other long-term liability	9,539		8,687		SERP obligation - other long-term liability	7,713		8,687
Total SERP obligation	$	12,690	$	11,774	Total SERP obligation	$	10,591	$	11,774

Equity securities without readily determinable fair value:

We hold a total investment of $2.0 million in a privately-held company, including $0.5 million in equity securities without readily determinable fair value. The investment in equity securities without readily determinable fair value is included in the Other Assets line of the Condensed Consolidated Balance Sheets. See Note 12 - Fair Value in the Notes to Condensed Consolidated Financial Statements for more information on the valuation of these securities. We do not hold a majority voting interest and are not the variable interest primary beneficiary of the privately-held company, thus consolidation is not required.

Note 14. Derivative Instruments

We hold a total investment of $2.0 million in a privately-held company, including $1.5 million in stock warrants. The investment in stock warrants is accounted for as a derivative instrument and is included in the Other Assets line of the Condensed Consolidated Balance Sheets. The stock warrants are convertible into equity shares of the privately-held company upon achieving certain milestones. The value of the stock warrants will fluctuate primarily in relation to the value of the privately-held company's underlying securities, either providing an appreciation in value or potentially expiring with no value. During the quarter ended ~~December~~March 31, ~~2019,~~2020, the change in fair value of the stock warrants was not significant. See Note 12 - Fair Value in the Notes to Condensed Consolidated Financial Statements for more information on the valuation of these securities.

Note 15. Postemployment Benefits

Our domestic employees participate in severance plans which provide severance benefits to eligible employees meeting the plans’ qualifications, primarily for involuntary termination without cause.

The components of net periodic postemployment benefit cost applicable to our severance plans were as follows:


	Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
	December 31						December 31							March 31						March 31
(Amounts in Thousands)	2019			2018			2019			2018			(Amounts in Thousands)	2020		2019		2020		2019
Service cost	$	119		$	126		$	245		$	253		Service cost	$	120	$	126	$	365	$	379
Interest cost	18			24			37			47			Interest cost	19		23		56		70

Amortization of actuarial income	(90		)	(103		)	(178		)	(202		)	Amortization of actuarial income	(82)		(100)		(260)		(302)
Net periodic benefit cost	$	47		$	47		$	104		$	98		Net periodic benefit cost	$	57	$	49	$	161	$	147

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, such as restructuring actions, are not estimable using actuarial methods and are expensed in accordance with the applicable U.S. GAAP.

Note 16. Stock Compensation

Stock-based compensation expense during the quarter and year-to-date period ended ~~December~~March 31, ~~2019~~2020 was ~~$1.1~~$1.3 million and ~~$3.2~~$4.5 million, respectively, and during the quarter and year-to-date period ended ~~December~~March 31, ~~2018,~~2019, was ~~$1.7~~$1.1 million and ~~$3.6~~$4.7 million, respectively. The total income tax benefit for stock compensation arrangements during the quarter and year-to-date period ended ~~December~~

March 31, ~~2019,~~2020, was ~~$0.3~~$0.4 million and ~~$0.8~~$1.2 million, respectively, and during the quarter and year-to-date period ended ~~December~~March 31, ~~2018,~~2019, was ~~$0.4~~$0.3 million and ~~$0.9~~$1.2 million, respectively.

During fiscal year 2020, the following stock compensation was awarded to officers and other key employees and to members of the Board of Directors who are not employees. All awards were granted under the 2017 Stock 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, 2019.


Type of Award	Quarter Awarded	Targeted Shares or Units	Grant Date Fair Value ⁽⁵⁾			Type of Award	Quarter Awarded	Targeted Shares or Units	Grant Date Fair Value ⁽⁵⁾
Annual Performance Shares⁽¹⁾	1st Quarter	34,305	$16.85	-	$16.93	Annual Performance Shares⁽¹⁾	1st Quarter	34,305	$16.85	-	$16.93

Annual Performance Shares⁽¹⁾						Annual Performance Shares⁽¹⁾	3rd Quarter	1,085	$18.43	-	$20.28
Relative Total Shareholder Return Performance Units ⁽²⁾	1st Quarter	28,080	$21.25			Relative Total Shareholder Return Performance Units ⁽²⁾	1st Quarter	28,080	$21.25
Relative Total Shareholder Return Performance Units⁽²⁾						Relative Total Shareholder Return Performance Units⁽²⁾	3rd Quarter	7,190	$18.08	-	$19.76
Restricted Stock Units ⁽³⁾						Restricted Stock Units ⁽³⁾	1st Quarter	188,588	$16.85	-	$17.24
Restricted Stock Units ⁽³⁾	1st Quarter	188,588	$16.85	-	$17.24	Restricted Stock Units ⁽³⁾	2nd Quarter	2,500	$20.46
Restricted Stock Units ⁽³⁾	2nd Quarter	2,500	$20.46			Restricted Stock Units ⁽³⁾	3rd Quarter	22,933	$18.78	-	$20.63
Unrestricted Shares ⁽⁴⁾	1st Quarter	9,091	$17.19			Unrestricted Shares ⁽⁴⁾	1st Quarter	9,091	$17.19
Unrestricted Shares ⁽⁴⁾	2nd Quarter	6,321	$19.18			Unrestricted Shares ⁽⁴⁾	2nd Quarter	6,321	$19.18
Unrestricted Shares ⁽⁴⁾						Unrestricted Shares ⁽⁴⁾	3rd Quarter	5,985	$20.66

(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 the Company’s return on invested capital during fiscal year 2020, with a percentage payout ranging from 0% to 200% of the target number set forth above. The maximum number of shares that can be issued under these awards is ~~68,610.~~70,780. Annual performance shares vest on June 30, 2020.

(2) Performance units were awarded to key officers under the Company’s Relative Total Shareholder Return program. Vesting occurs at June 30, 2021 and June 30, 2022. 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. The maximum number of units that can be issued under these awards is ~~56,160.~~70,540.

(3) Restricted stock units were awarded to officers and employees. Also, in connection with the redesign of the Company’s annual cash incentive plan certain employees were awarded time-based retention and performance-based transition units. The number of performance-based transition units to be issued will be dependent upon the Company’s EBITDA during fiscal year 2020, with a percentage payout ranging from 0% to 100% of the target. The maximum number of units that can be issued under the performance-based transition awards is 35,598. The Company also awarded performance-based transformation units that will earn from 0% to 100% of the target award depending upon the Company’s reduction of operating costs and EBITDA during fiscal year 2020. The maximum number of units that can be issued under the performance-based transformation award is 2,165. Vesting occurs at June 30, 2020, June 30, 2021, and June 30, 2022. Dividends accumulate over the vesting period for all awards except the time-based retention and performance-based transition awards.

(4) Unrestricted shares were awarded to non-employee members of the Board of Directors as consideration for service to Kimball International and do not have vesting periods, holding periods, restrictions on sale, or other restrictions.

(5) The grant date fair value of annual performance shares and restricted stock units that do not receive dividends was 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 or certain restricted stock unit 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 stock units that receive dividends and unrestricted shares was based on the stock price at the date of the award.

Note 17. Variable Interest Entities

Our involvement with variable interest entities (“VIEs”) is limited to situations in which we are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the VIE’s economic performance. Thus, consolidation is not required. Our involvement with VIEs consists of an investment in a privately-held company consisting of equity securities without readily determinable fair value and stock warrants and notes receivable related to independent dealership financing.

The equity securities without readily determinable fair value and stock warrants were valued at $0.5 million and $1.5 million, respectively, at both ~~December~~March 31, ~~2019~~2020 and June 30, 2019 and were 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 12 - Fair Value in the Notes to Condensed Consolidated Financial Statements.

The carrying value of the notes receivable for independent dealership financing were $0.9 million at March 31, 2020 and $1.0 million at ~~both December 31, 2019 and~~ June 30, 2019 and was included on the Receivables and Other Assets lines of our Condensed Consolidated Balance Sheets.

We have no0 obligation to provide additional funding to the VIEs, and thus our exposure and risk of loss related to the VIEs is limited to the carrying value of the investment and notes receivable. Financial support provided by Kimball International to the VIEs was limited to the items discussed above during the quarter ended ~~December~~March 31, ~~2019.~~2020.

Note 18. Credit Quality and Allowance for Credit Losses of Notes Receivable

We monitor 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. As of ~~December~~March 31, ~~2019~~2020 and June 30, 2019, we had no0 material past due outstanding notes receivable.


	As of March 31, 2020										As of June 30, 2019
(Amounts in Thousands)	Unpaid Balance		Related Allowance		Receivable Net of Allowance		Unpaid Balance		Related Allowance		Receivable Net of Allowance
Independent Dealership Financing	$	923	$	—	$	923	$	1,010	$	—	$	1,010
Other Notes Receivable	363		363		—		122		122		—
Total	$	1,286	$	363	$	923	$	1,132	$	122	$	1,010

Note 19. Subsequent Event

As of December 31, 2019 As of June 30, 2019
(Amounts in Thousands) Unpaid Balance Related Allowance Receivable Net of Allowance Unpaid Balance Related Allowance Receivable Net of Allowance
Independent Dealership Financing $ 1,022
$ —
$ 1,022
$ 1,010
$ —
$ 1,010
Other Notes Receivable 370
370
—
122
122
—
Total $ 1,392
$ 370
$ 1,022
$ 1,132
$ 122
$ 1,010
Impacts of COVID-19 Pandemic

Subsequent to March 31, 2020, the COVID-19 pandemic has escalated and is adversely impacting our financial performance thus far for the quarter ended June 30, 2020 and is expected to continue to have an adverse impact as we navigate through this crisis. In addition, the market price of our Class B Common Stock has experienced a significant decline in connection with overall stock market trends related to the global economic impact of the COVID-19 pandemic. The potential impacts from COVID-19 and the decline in our stock price could be considered triggering events that may require us to perform impairment assessments of leases, goodwill and other intangible assets. We will evaluate these considerations in our fourth quarter ending June 30, 2020.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

For ~~over 65~~70 years, Kimball International, Inc. (the “Company,” “Kimball International,” “we,” “us,” or “our”) has created design- driven ~~innovative~~ furnishings that have helped our customers shape spaces into places, ~~that bring~~bringing possibility to life by enabling collaboration, discovery, wellness and relaxation. We go to market through our family of brands: Kimball, National, Kimball Hospitality, ~~David Edward,~~ and D’style by Kimball Hospitality. Our values and integrity are demonstrated daily by ~~embracing~~living our purpose and guiding principles ~~while fostering a culture of caring~~ that ~~establishes~~establish us as an employer of choice. We build success by ~~nurturing~~growing long-term relationships with customers, employees, suppliers, shareholders and the communities in which we operate.

We closely monitor key indicators for the markets in which we compete. As reported by the Business and Institutional Furniture Manufacturer Association (“BIFMA”), the forecast by IHS Markit, a global information provider, as of December 2019 for the U.S. office furniture market, projects a year-over-year increase of 2.2% for calendar year 2020. The forecast for two of the leading indicators for the hospitality furniture market in the January 2020 PwC Hospitality Directions U.S. report includes a projected increase in RevPAR (Revenue Per Available Room) of 0.7% for calendar year 2020, while the occupancy level for calendar year 2020 continues to hover at peak levels.

Management currently considers the following events, trends, and uncertainties to be most important to understanding our financial condition and operating performance:

•COVID-19 -The COVID-19 pandemic adversely impacted our financial performance for the quarter ended March 31, 2020, and is expected to have a continuing adverse impact beyond our fiscal year 2020 as we navigate through this crisis. The duration and severity of the impact of COVID-19 cannot be estimated at this time. While we cannot determine the precise impact of the COVID-19 outbreak on our third quarter results, we estimate that the delays in shipments of our products due to temporary production halts and delivery push-outs totaled approximately $18 million. Our dealers and suppliers are also

experiencing similar negative impacts from the COVID-19 pandemic. Additional impacts to our business resulting from the COVID-19 outbreak include, but are not limited to, the following:

•We initially responded in late March to shelter-in-place and similar government orders as mandated by temporarily closing non-essential manufacturing, distribution, and showroom locations and implementing a remote working program for professional staff, including video conferencing capabilities. As we serve the healthcare industry and the federal government, four of our ten facilities continued to operate to provide these essential products. We prioritized healthcare products by launching a family of quickship products for facilities serving the COVID-19 crisis. As government mandates lifted in late April and early May, we increased the number of facilities in operation to eight out of the ten that comprise our U.S. manufacturing footprint, which has reduced our lead-times on incoming orders and provides us with the ability to accommodate additional volumes and to also serve our commercial and other institutional markets.

��Order rates in the third quarter increased at a mid-single digit rate, led by our Institutional and Hospitality markets, but by the second half of March, we began to see a significant number of COVID-19-related order and shipment push-outs requested by our customers in our Hospitality vertical, which represents approximately 25% of our revenue. This trend has continued, along with a slowdown in order flow in all three markets, thus far in our fourth quarter of fiscal 2020.

•The safety and health of our employees is most important, thus we have implemented new safety measures, such as domestic and international travel restrictions, work-from-home practices for professional staff, extensive cleaning protocols, social distancing on the manufacturing floor, and utilization of personal protective equipment for employees who are unable to work remotely.

•In response to the decline in revenue, we are focusing on cost control and are closely monitoring market changes and our liquidity in order to proactively adjust our operating costs. In order to preserve cash during this time, we have also reduced spending on discretionary expenditures and strategic initiatives. Managing working capital in conjunction with fluctuating demand levels is likewise key. While the impact of COVID-19 is anticipated to impact our future sales levels, we believe our principal sources of liquidity from available funds on hand and short-term investments, cash generated from operations, and the availability of borrowing under our credit facility will be sufficient to meet our working capital and other operating needs for at least the next 12 months.

•‘Kimball International Connect’ Strategy - In May 2019, Kimball International introduced a comprehensive strategy to connect our purpose, our people, and our brands to drive growth and unlock the Company’s full potential. Kimball International Connect seeks to enable the power of our people and position our organization to engage at higher levels of collaboration and interdependence. We believe this strategy will result in enhanced shareholder value over the long term. Our Kimball International Connect Strategy is comprised of four pillars:

•Inspire Our People: Leveraging our legacy of a bold and entrepreneurial spirit, we are working to cultivate a high-performance, caring culture. We unveiled our new purpose to our employees on May 9, 2019 and are investing in our training, technology and systems to remain an employer of choice and a great place to work.

•Build Our Capabilities: We created center-led functions, including finance, human resources, information technology and legal and centralized supply chain leadership to reduce duplication, deliver efficiencies, and drive consistency. We are also adopting ways of working to ensure the use of common best practices and approaches. To achieve our goals, we established a Program Management Office to oversee execution.

•Fuel Our Future: We are driving lean throughout the organization, removing duplication at the business level, and infusing capital to accelerate efficiencies. Related to this, we are employing a more metrics-based approach and driving toward more formal standardized operating practices.

•Accelerate Our Growth: We are continuing to advance new product development across our brands, selectively expanding our verticals and channels, including healthcare and e-commerce, and driving commercial excellence. We believe by being our customers’ first choice for shaping places that bring collaboration, discovery, wellness and relaxation to life, we will capture greater market share.

•Transformation Restructuring Plan - In June 2019, we announced a transformation restructuring plan that is expected to optimize resources for future growth, improve efficiency, and build capabilities across our organization. We believe the transformation restructuring plan will establish a more cost-efficient structure to better align our operations with our long-term strategic goals. The efforts are expected to generate annualized pre-tax savings of approximately $10.0 million when the transformation restructuring plan is fully implemented. We estimate pre-tax restructuring charges incurred through the end of

fiscal year 2020 will be approximately $9.0 million to $10.0 million. The transformation restructuring plan includes the following:

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

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

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

•On October 26, 2018, we acquired substantially all of the assets and assumed certain specified limited liabilities of David Edward Furniture, Inc. (“David Edward”), which is headquartered in Baltimore, Maryland. David Edward is a premier designer and manufacturer of contract furniture, sold in the healthcare, corporate, education, and premium hospitality markets. David Edward products are generally specified by architects and sold primarily in the North American market. ~~David Edward’s products are generally specified by architects and designers, represented through a network of independent representatives, and sold through authorized furniture dealerships.~~ The David Edward product portfolio consists of classic and contemporary designs, focused primarily in the seating, tables, and ancillary furniture categories. In conjunction with the asset acquisition, we leased two existing David Edward production facilities in Baltimore, Maryland and Red Lion, Pennsylvania. As part of our transformation restructuring plan we will be consolidating the David Edward production facility in Red Lion, Pennsylvania ~~production facility~~ into the Baltimore, Maryland facility. Our focus is on investing in new equipment and a redesigned layout in Baltimore that will

allow us to substantially increase capacity, improve efficiency, reduce lead times, ~~and~~ deliver on the high design, high quality products, and expand our Kimball Health ~~Portfolio, and accelerate our expansion of Kimball Hospitality Seating. See~~ ~~Note 4 - Acquisition~~Portfolio.

•With the current decline in the ~~Notes to Condensed Consolidated Financial Statements for additional information.~~

Weeconomy, we expect commodity prices to remain moderate, ~~but~~and we will continue to be exposed to fluctuations in transportation costs, which vary based upon freight carrier capacity and fuel prices. We utilize both steel and aluminum in our products, most of which is sourced domestically. The U.S. originally imposed tariffs of 25% on steel and 10% on aluminum imported from several countries effective June 2018. The government expanded its list of products subject to tariffs to include furniture products, parts, and components at a 10% rate effective September 2018, increasing to a 25% rate effective June 2019. We ~~are actively striving~~worked to offset increases in the cost of these materials through supplier negotiations, global sourcing initiatives, product re-engineering and parts standardization, and price increases on our products.

•Due to the contract and project nature of furniture markets, fluctuation in the demand for our products and variation in the gross margin on those projects is inherent to our business, which in turn impacts our operating results. 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 backlog trends.

•We expect to continue to invest in capital expenditures prudently, ~~including potential acquisitions,~~albeit at a reduced level than we had planned, particularly for projects that ~~would~~will 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.

•We continue to maintain a strong balance sheet. Our short-term liquidity available, represented as cash, cash equivalents, and short-term investments plus the unused amount of our credit facility, was ~~$170.6~~$163.7 million at ~~December~~March 31, ~~2019.~~

2020.

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)	2019			2018			% Change		2019			2018			% Change		(Amounts in Millions)	2020			2019			% Change		2020			2019			% Change
Net Sales	$	192.2		$	201.0		(4	%)	$	393.6		$	395.1		—	%	Net Sales	$	178.2		$	177.4		0.5	%	$	571.8		$	572.5		(0.1	%)
Organic Net Sales*	192.2			201.0			(4	%)	389.6			395.1			(1	%)	Organic Net Sales*	178.2			177.4			0.5	%	567.8			572.5			(0.8	%)
Gross Profit	65.3			65.0			1	%	135.7			130.9			4	%	Gross Profit	60.5			56.6			7	%	196.2			187.4			5	%
Selling and Administrative Expenses	49.7			51.5			(3	%)	100.6			103.7			(3	%)	Selling and Administrative Expenses	45.6			47.5			(4	%)	146.2			151.2			(3	%)
Restructuring Expense	1.4			—					5.7			—					Restructuring Expense	0.8			—					6.6			—
Operating Income	14.2			13.5			5	%	29.3			27.2			8	%	Operating Income	14.1			9.1			55	%	43.4			36.2			20	%
Operating Income %	7.4		%	6.7		%			7.5		%	6.9		%			Operating Income %	7.9		%	5.1		%			7.6		%	6.3		%
Adjusted Operating Income *	$	16.5		$	12.9		28	%	$	36.2		$	28.0		29	%	Adjusted Operating Income *	$	13.3		$	10.3		28	%	$	49.5		$	38.4		29	%
Adjusted Operating Income % *	8.6		%	6.4		%			9.2		%	7.1		%			Adjusted Operating Income % *	7.5		%	5.8		%			8.7		%	6.7		%
Net Income	$	11.0		$	9.4		17	%	$	22.4		$	20.3		11	%	Net Income	$	9.5		$	8.0		19	%	$	31.9		$	28.2		13	%
Net Income as a Percentage of Net Sales	5.7		%	4.7		%			5.7		%	5.1		%			Net Income as a Percentage of Net Sales	5.3		%	4.5		%			5.6		%	4.9		%
Adjusted Net Income *	12.2			9.8			25	%	27.0			21.4			26	%	Adjusted Net Income *	$	10.2		$	8.1		25	%	$	37.1		$	29.6		26	%
Diluted Earnings Per Share	$	0.30		$	0.25				$	0.60		$	0.54				Diluted Earnings Per Share	$	0.25		$	0.22				$	0.86		$	0.76
Adjusted Diluted Earnings Per Share *	$	0.33		$	0.26				$	0.72		$	0.57				Adjusted Diluted Earnings Per Share *	$	0.27		$	0.22				$	1.00		$	0.79
Return on Invested Capital **	38.4		%	33.6		%			43.6		%	38.3		%			Return on Invested Capital **	29.4		%	27.7		%			38.5		%	35.8		%
Adjusted EBITDA *	$	20.9		$	17.0		23	%	$	44.7		$	36.2		24	%	Adjusted EBITDA *	$	17.5		$	14.5		21	%	$	62.2		$	50.7		23	%
Adjusted EBITDA as a Percentage of Net Sales *	10.9		%	8.5		%			11.4		%	9.2		%			Adjusted EBITDA as a Percentage of Net Sales *	9.8		%	8.2		%			10.9		%	8.8		%
Open Orders **	$	173.2		$	144.2		20	%
Order Backlog **																	Order Backlog **	$	187.0		$	149.2		25	%

* Items indicated represent Non-GAAP (Generally Accepted Accounting Principles) measurements.

** Items indicated represent Key Performance Indicators.

See the “Non-GAAP Financial Measures and Other Key Performance Indicators” section below.


Net Sales by End Market
	Three Months Ended								Nine Months Ended
	March 31								March 31
(Amounts in Millions)	2020		2019		% Change		2020		2019		% Change
Institutional	$	63.5	$	61.3	4	%	$	215.7	$	202.8	6	%
Commercial	71.0		67.8		5	%	216.0		224.3		(4	%)
Hospitality	43.7		48.3		(10	%)	140.1		145.4		(4	%)
Total Net Sales	$	178.2	$	177.4	0.5	%	$	571.8	$	572.5	(0.1	%)

Net Sales by End Vertical Market
Three Months Ended

Six Months Ended

December 31

December 31

(Amounts in Millions) 2019 2018
% Change
2019 2018
% Change
Commercial $ 55.8
$ 63.6
(12 %) $ 111.0
$ 120.2
(8 %)
Education 20.1

18.1

11 %
54.8

52.7

4 %
Finance 16.8

18.1

(7 %)
34.0

36.3

(6 %)
Government 21.7

18.8

15 %
40.3

35.9

12 %
Healthcare 28.2

28.5

(1 %)
57.1

52.9

8 %
Hospitality 49.6

53.9

(8 %)
96.4

97.1

(1 %)
Total Net Sales $ 192.2

$ 201.0

(4 %)
$ 393.6

$ 395.1

— %
Our Institutional end market includes sales to the healthcare, education and government vertical markets. Our Commercial end market includes sales to the commercial and financial vertical markets.

~~Second~~Third quarter fiscal year 2020 consolidated net sales ~~were $192.2~~of $178.2 million increased 0.5% compared to ~~second~~third quarter fiscal year 2019 net sales of ~~$201.0~~$177.4 million, ~~or a 4% decrease,~~ as lower volume in our commercial, hospitality, and finance vertical markets more than offset price increases. Net sales for the six-month period ended December 31, 2019 of $393.6 million were approximately flat with net sales of $395.1 million for the six-month period ended December 31, 2018. Organic net sales decreased $5.5 million, or

~~1% primarily due to volume declines in our commercial and finance vertical markets which were partially offset by~~ price increases across all three markets and higher volume in our ~~government,~~commercial market and the healthcare and education ~~vertical markets.~~

~~Key explanatory comments for~~verticals in our institutional market offset lower sales in our hospitality market. The higher volume in our commercial market was due to sales to several large financial institutions driven by ~~vertical market for the second quarter and year-to-date period of fiscal year 2020 compared~~our capability to ~~the second quarter and year-to-date period of fiscal year 2019 follow:~~

~~While our~~deliver custom solutions that enhance their brand experience. The healthcare vertical ~~market sales were flat in the second quarter, our year-to-date~~ sales increase was driven by our continued strategic focus ~~in this marketplace~~ which included aligning resources, building relationships, and introducing new healthcare ~~products. The healthcare~~products in this market which continues to show stability and growth.

~~When compared~~ Our increased sales to the ~~strong prior year sales levels, the~~ education vertical were driven by multiple larger university projects. The

hospitality vertical ~~market~~ experienced decreased sales of both custom and non-custom products as hospitality projects were ~~temporarily delayed~~deferred in response to ~~tariff announcements.~~the COVID-19 pandemic. We estimate that delays in shipments of our products due to temporary production halts and delivery push-outs totaled approximately $18 million during our third quarter of fiscal 2020.

~~Government vertical~~Net sales for the nine-month period ended March 31, 2020 of $571.8 million were approximately flat with net sales of $572.5 million for the nine-month period ended March 31, 2019. For the year-to-date period, organic net sales decreased $4.7 million, or 0.8% primarily due to volume declines in our commercial and hospitality markets, which were partially offset by higher volume in all verticals within our institutional market ~~sales increased on higher state~~ and ~~local government sales as these entities continue to have discretionary spend dollars available for furniture purchases.~~

~~Our increased sales to the education vertical market were driven by multiple larger university projects.~~

~~Our sales to the finance vertical market decreased compared to strong prior year sales levels.~~

~~Our sales decline~~price increases in the commercial vertical market resulted from an intense continuous improvement approach to improve margins within the systems category that caused a temporary distraction to our revenue growth in this vertical market.all three markets.

Each of our vertical market sales levels can fluctuate depending on the mix of projects in a given period.

~~Open orders~~Order backlog at ~~December~~March 31, ~~2019~~2020 increased ~~20%~~25%, when compared to the ~~open order~~backlog level as of ~~December~~March 31, ~~2018~~2019 with increases in each of our ~~vertical~~three markets. ~~Open orders~~Our backlog increase was largely driven by shipment date delays by our customers and product availability delays, both driven by the COVID-19 pandemic impact. Backlog at a point in time may not be indicative of future sales trends.

Gross profit as a percent of net sales increased ~~170~~210 basis points and ~~140~~160 basis points in the ~~second~~third quarter and year-to-date periods of fiscal year 2020 compared to the ~~second~~third quarter and year-to-date periods of fiscal year 2019. Both the ~~second~~third quarter and year-to-date periods were positively impacted by increased product pricing and the savings realized from our transformation plan which were partially offset by ~~the loss of leverage on lower sales volumes~~tariff expenses and higher employee healthcare expenses.

Selling and administrative expenses in the ~~second~~third quarter of fiscal year 2020 compared to the ~~second~~third quarter of fiscal year 2019 decreased 3%4% in absolute dollars, and as a percent of net sales ~~increased 30~~decreased 120 basis points. The decrease in selling and administrative expenses was driven by the savings benefit related to the transformation plan, ~~and~~ lower sales commissions, and lower Supplemental Employee Retirement Plan (“SERP”) expense which were partially offset by ~~Supplemental Employee Retirement Plan~~higher salary expense to support growth and ~~higher employee healthcare expenses.~~bad debt expense. For the ~~six~~nine months ended ~~December~~March 31, ~~2019~~2020 compared to the same period of the prior year, selling and administrative expenses decreased 3% in absolute dollars and as a percent of net sales decreased 7080 basis points. The reduction in selling and administrative expenses was driven by the savings benefit related to the transformation plan, lower SERP expense, lower commissions, and lower CEO transition ~~costs~~expense which were partially offset by ~~Supplemental Employee Retirement Plan expense,~~ higher employee healthcare expenses, and a prior year gain on the sale of assets which did not repeat in the current year.

The ~~increased~~decreased SERP expense in the ~~second~~third quarter and year-to-date period ended ~~December~~March 31, ~~2019~~2020 resulted from the normal revaluation to fair value of our SERP liability. The impact from the change in the SERP liability that was recognized in selling and administrative expenses was offset with the change in fair value of the SERP investments which was recorded in Other Income (Expense), and thus there was no effect on net income.

Also included in our second quarter and year-to-date fiscal year 2020 selling and administrative expenses are growth investments which are expected to increase throughout fiscal year 2020 and partially offset the savings we expect to achieve from the transformation plan in future quarters.

In June 2019, we announced a transformation restructuring plan ~~that is expected~~ to optimize resources for future growth, improve efficiency, and build capabilities across our organization. ~~We believe the~~The transformation restructuring plan ~~will establish~~has established a more cost-efficient structure to better align our operations with our long-term strategic goals. We recognized pre-tax restructuring expense of ~~$1.4~~$0.8 million and ~~$5.7~~$6.6 million in the ~~second~~third quarter and year-to-date period of fiscal year 2020, respectively, related to our transformation restructuring plan. See Note 3 - Restructuring in the Notes to Condensed Consolidated Financial Statements for additional information.

Other Income (Expense) consisted of the following:


	Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
	December 31						December 31							March 31						March 31
(Amounts in Thousands)	2019			2018			2019			2018			(Amounts in Thousands)	2020		2019		2020		2019
Interest Income	$	489		$	428		$	1,096		$	847		Interest Income	$	386	$	492	$	1,482	$	1,339
Interest Expense	(21		)	(56		)	(44		)	(106		)	Interest Expense	(21)		(40)		(65)		(146)

Gain (Loss) on Supplemental Employee Retirement Plan Investments	716			(1,097		)	774			(726		)	Gain (Loss) on Supplemental Employee Retirement Plan Investments	(1,784)		1,032		(1,010)		306

Other	1			(129		)	(56		)	(173		)	Other	(294)		(62)		(350)		(235)
Other Income (Expense), net	$	1,185		$	(854	)	$	1,770		$	(158	)	Other Income (Expense), net	$	(1,713)	$	1,422	$	57	$	1,264

Our effective tax rate was ~~28.4% and 27.9%, respectively,~~23.5% for the three ~~and six~~ months ended ~~December~~March 31, ~~2019~~2020 and was ~~higher~~lower than the combined federal and state statutory tax rate primarily due to ~~nondeductible expenses and a prior year state~~the R&D tax ~~provision adjustment that impacted our first quarter of fiscal year 2020.~~credit. Our effective tax rate was ~~25.6%~~26.7% for the nine months ended March 31, 2020, which approximated the combined federal and ~~25.0%~~state statutory rate. Our effective tax rate was 24.1% and 24.7%, respectively, for the three and ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 which ~~approximated our~~was less than the combined federal and state statutory ~~rate.~~rate in part due to the R&D tax credit.

Comparing the balance sheet as of ~~December~~March 31, ~~2019~~2020 to June 30, 2019, ~~customer deposits balance increased as we received deposits for several large projects and~~ our accounts payable balance declined as we processed payments on the last day of ~~December.~~March. Our accrued expenses line decreased asin part due to the pay out of our company retirement contribution and accrued cash incentive compensation related to our fiscal year 2019 ~~performance were paid out.~~performance. The right-of-use operating lease assets and current and long-term operating lease liabilities lines are the result of implementing ASC 842 as of the beginning of our fiscal year 2020. See Note 6 - Leases in the Notes to Condensed Consolidated Financial Statements for additional information.

Liquidity and Capital Resources

Our total cash, cash equivalents, and short-term investments, was ~~$97.1~~$90.3 million at ~~December~~March 31, ~~2019~~2020 and $106.3 million at June 30, 2019. Cash flows from operations of ~~$13.4~~$17.4 million were more than offset by capital expenditures, including capitalized software, of ~~$13.5~~$19.1 million and the return of capital to shareholders in the form of dividends totaling ~~$6.3~~$9.6 million and stock repurchases of ~~$1.3~~$3.0 million during the first ~~six~~nine months of fiscal year 2020.

Working capital at ~~December~~March 31, ~~2019~~2020 and June 30, 2019 was ~~$107.1~~$112.7 million and $96.5 million, respectively. The current ratio was ~~1.9~~2.0 and 1.7 at ~~December~~March 31, ~~2019~~2020 and June 30, 2019, respectively.

Our short-term liquidity available, represented as cash, cash equivalents, and short-term investments plus the unused amount of our credit facility, totaled ~~$170.6~~$163.7 million at ~~December~~March 31, ~~2019.~~2020. At ~~December~~March 31, ~~2019,~~2020, we had ~~$1.5~~$1.6 million in letters of credit outstanding, which reduced our borrowing capacity on the credit facility. We had no credit facility borrowings outstanding as of ~~December~~March 31, ~~2019~~2020 or June 30, 2019.

Cash Flows

The following table reflects the major categories of cash flows for the first ~~six~~nine months of fiscal years 2020 and 2019.


	Six Months Ended							Nine Months Ended
	December 31							March 31
(Amounts in Thousands)	2019			2018			(Amounts in Thousands)	2020		2019
Net cash provided by operating activities	$	13,402		$	23,908		Net cash provided by operating activities	$	17,368	$	42,680
Net cash used for investing activities	$	(6,747	)	$	(21,849	)	Net cash used for investing activities	$	(312)	$	(27,186)
Net cash used for financing activities	$	(8,419	)	$	(15,750	)	Net cash used for financing activities	$	(13,612)	$	(18,688)

Cash Flows from Operating Activities

For the first ~~six~~nine months of fiscal year 2020 net cash provided by operating activities was ~~$13.4~~$17.4 million fueled by ~~$22.4~~$31.9 million of net income while the first ~~six~~nine months of fiscal year 2019 net cash provided by operating activities was ~~$23.9~~$42.7 million inclusive of ~~$20.3~~$28.2 million of net income. Changes in working capital balances used ~~$24.4~~$37.0 million of cash in the first ~~six~~nine months of fiscal year 2020 and ~~used $4.1~~provided $4.2 million of cash in the first ~~six~~nine months of fiscal year 2019.

The ~~$24.4~~$37.0 million usage of cash from changes in working capital balances in the first ~~six~~nine months of fiscal year 2020 was ~~primarily due to~~driven by a reduction in our accrued expenses balance as the cash incentive compensation and retirement profit sharing contribution ~~and cash incentive compensation~~

which were both related to our fiscal year 2019 performance were paid out during the ~~first half~~year to date period of fiscal year ~~2020.~~2020 and a reduction in accrued customer incentives as programs were altered due to COVID-19. In addition, ~~increased customer deposits we received for several large projects were offset by a decline in~~ accounts payable declined as we processed payments on the last day of ~~December.~~March.

Changes in working capital balances used $4.1 million of cash in the first six months of fiscal year 2019 and included a reduction in our accrued expenses balance as our total accrued cash incentive compensation and the retirement profit sharing contribution which were both related to our fiscal year 2018 performance were paid out. In addition, increased inventory levels driven by higher inventory in transit was partially offset by an increase in customer deposits.

Our measure of accounts receivable performance, also referred to as Days Sales Outstanding (“DSO”), for the ~~six-month~~nine-month periods ended ~~December~~March 31, ~~2019~~2020 and ~~December~~March 31, ~~2018~~2019were 2931 and 28 days, respectively. Our accounts receivables increase was driven by a change in our customer standard discount terms which resulted in delayed receipt of payments and by slower payments from our government vertical. We define DSO as the average of monthly accounts and notes receivable divided by an average day’s net sales. Our Production Days Supply on Hand (“PDSOH”) of inventory measure for the ~~six-month~~nine-month periods ended ~~December~~March 31, 2020 and March 31, 2019 were 47 and ~~December 31, 2018 were 45 and 42~~44 days, respectively. The inventory increase was ~~primarily driven by an intentional increase~~in support of ~~outsourced high demand products.~~new product launches and raw material inventory increases in conjunction with our production slowdown in the latter portion of our third quarter of fiscal year 2020 related to the COVID-19 pandemic. We define PDSOH as the average of the monthly net inventory divided by an average day’s cost of sales.

Cash Flows from Investing Activities

During the first ~~six~~nine months of fiscal year 2020, we invested ~~$14.0~~$25.0 million in available-for-sale securities, and ~~$21.5~~$44.5 million matured. During the first ~~six~~nine months of fiscal year 2019, we invested ~~$26.2~~$39.8 million in available-for-sale securities, and ~~$18.6~~$32.6 million matured. Our short-term investments included municipal bonds, certificates of deposit purchased in the secondary market, and U.S. Treasury and federal agency securities. During the first ~~six~~nine months of fiscal years 2020 and 2019, we reinvested ~~$13.5~~$19.1 million and ~~$10.7~~$16.4 million, respectively, into capital investments for the future. The capital investments in both the current and prior year were primarily for facility improvements such as renovations to our corporate headquarters, and various manufacturing equipment upgrades to increase automation in production facilities which is expected to yield future benefits. During the first ~~six~~nine months of fiscal year 2019 we had a cash outflow of $4.9 million for the David Edward acquisition and we received proceeds from the sale of assets net of selling expenses of $1.3 million of which the majority relates to the sale of Internet protocol addresses.

Cash Flows from Financing Activities

We paid dividends of ~~$6.3~~$9.6 million and ~~$5.6~~$8.5 million in the ~~six-month~~nine-month periods ended ~~December~~March 31, ~~2019~~2020 and ~~December~~March 31, ~~2018,~~2019, respectively. Consistent with our historical dividend policy, our Board of Directors evaluates the appropriate dividend payment on a quarterly basis. During the first ~~six~~nine months of fiscal years 2020 and 2019, we repurchased shares pursuant to a previously announced stock repurchase program which drove cash outflow of ~~$1.3~~$3.0 million and $9.1 million, respectively.

Credit Facility

We maintain a $75 million credit facility with a maturity date of October 2024 that allows for both issuances of letters of credit and cash borrowings. We also have an option to request an increase of the amount available for borrowing to $150 million, subject to participating banks’ consent. The revolving loans under the Credit Agreement may consist of, at our election, advances in U.S. dollars or advances in any other currency that is agreed to by the lenders. The proceeds of the revolving loans are to be used for general corporate purposes including acquisitions. A portion of the credit facility, not to exceed $10 million of the principal amount, will be available for the issuance of letters of credit. At ~~December~~March 31, ~~2019,~~2020, we had ~~$1.5~~$1.6 million in letters of credit outstanding, which reduced our borrowing capacity on the credit facility. At both ~~December~~March 31, ~~2019~~2020 and June 30, 2019, we had no borrowings outstanding.

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 equivalents on hand in excess of $15,000,000 provided that the maximum subtraction shall not exceed $35,000,000 to (b) adjusted consolidated EBITDA, determined as of the end of each of our fiscal quarters for the then most recently ended four fiscal quarters, and may 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, minus if the Adjusted Leverage Ratio is greater than 1.00 to 1.00 for the then most recently ended four fiscal quarter period, repurchase of Equity Interests 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 U.S. GAAP, determined as of the end of each of our fiscal quarters for the trailing four fiscal quarters then ending, and may not be less than 1.10 to 1.00. We were in compliance with all debt covenants of the credit facility during the ~~six-month~~nine-month period ended ~~December~~March 31, ~~2019.~~

2020.

The table below compares the adjusted leverage ratio and the 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, 2019		Credit Agreement	Excess	Covenant	March 31, 2020	Credit Agreement	Excess
Adjusted Leverage Ratio	(0.38	)	3.00	3.38	Adjusted Leverage Ratio	(0.13)	3.00	3.13
Fixed Charge Coverage Ratio	463.68		1.10	462.58	Fixed Charge Coverage Ratio	556.67	1.10	555.57

Future Liquidity

WeWhile we expect the impact of COVID-19 will impact our future sales levels, we believe our principal sources of liquidity from available funds on hand and short-term investments, 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. During the ~~second~~third quarter of fiscal year 2020, our Board of Directors declared a quarterly dividend of $0.09 per share, to be paid during our ~~third~~fourth quarter of fiscal year 2020. ~~We will continue~~Future cash dividends are subject to ~~evaluate~~approval by our Board of Directors and may be adjusted as

business needs or market conditions ~~in determining future~~change. We have suspended our share ~~repurchases. At December~~repurchase activity, which had at March 31, ~~2019, 2.6~~2020, 2.5 million shares ~~remained~~ available ~~under the repurchase program.~~for repurchase. During the remainder of fiscal year 2020 we expect to continue investments in capital expenditures, albeit at a reduced level than we had planned, particularly for projects such as ~~showroom renovations,~~ machinery and equipment upgrades and automation, and 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, including reduced revenues from the COVID-19 pandemic, the impact of changes in tariffs, lack of availability of raw material components in the supply chain, 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 and Other Key Performance Indicators

This Management’s Discussion and Analysis (“MD&A”) contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company’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 U.S. GAAP in the statements of income, statements of comprehensive income, balance sheets, statements of cash flows, or statements of shareholders’ equity of the company. The non-GAAP financial measures used within this MD&A include (1) organic net sales, defined as net sales excluding the acquisition-related net sales during the periods for which there were no sales related to such acquisition in the comparable period; (2) adjusted operating income, defined as operating income excluding restructuring expenses, CEO transition costs, and market value adjustments related to our ~~Supplemental Employee Retirement Plan (“SERP”)~~SERP liability; (3) adjusted operating income percentage, defined as adjusted operating income as a percentage of net sales; (4) adjusted net income, defined as net income excluding restructuring expenses and CEO transition costs; (5) adjusted diluted earnings per share, defined as diluted earnings per share excluding restructuring expenses and CEO transition costs; (6) adjusted EBITDA, defined as earnings before interest, taxes, depreciation, and amortization and excluding restructuring expenses and CEO transition costs; and (7) adjusted EBITDA percentage, defined as adjusted EBITDA as a percentage of net sales. 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 and to be able to meaningfully trend, analyze and benchmark how our core operations performed without market value adjustments related to our SERP liability or expenses incurred in executing our transformation restructuring plan or our CEO transition. Many of our internal performance measures that management uses to make certain operating decisions exclude these expenses to enable meaningful trending of core operating metrics. These non-GAAP financial measures should not be viewed as an alternative to the GAAP measures and are presented as supplemental information.


Reconciliation of Non-GAAP Financial Measures and Other Key Performance Indicators
(Amounts in Thousands, Except for Per Share Data)

Organic Net Sales Compared to the Prior Year	Nine Months Ended
	March 31,
	2020
Net Sales, as reported	$	571,790
Less: David Edward acquisition net sales⁽¹⁾	3,980
Organic Net Sales	$	567,810

(1) Represents David Edward net sales for our fiscal year 2020 first quarter as the acquisition date was October 26, 2018 thus, we did not own David Edward during our first quarter of fiscal year 2019.

Reconciliation of Non-GAAP Financial Measures and Other Key Performance Indicators
(Amounts in Thousands, Except for Per Share Data)

Organic Net Sales Compared to the Prior Year Six Months Ended
December 31,
2019
Net Sales, as reported $ 393,616
Less: David Edward acquisition net sales⁽¹⁾
3,980
Organic Net Sales $ 389,636

(1) Represents David Edward net sales for our fiscal year 2020 first quarter as the acquisition date was October 26, 2018 thus, we did not own David Edward during our first quarter of fiscal year 2019.


Adjusted Operating Income	Three Months Ended									Nine Months Ended
	March 31									March 31
	2020			2019			2020			2019
Operating Income, as reported	$	14,070		$	9,053		$	43,402		$	36,245
Add: Pre-tax Restructuring Expense	818			—			6,564			—
Add: Pre-tax Expense Adjustment to SERP Liability	(1,784)			1,032			(1,010)			306
Add: Pre-tax CEO Transition Costs	175			252			525			1,809
Adjusted Operating Income	$	13,279		$	10,337		$	49,481		$	38,360
Net Sales	$	178,174		$	177,369		$	571,790		$	572,500
Adjusted Operating Income %	7.5		%	5.8		%	8.7		%	6.7		%


Adjusted Net Income	Three Months Ended									Nine Months Ended
	March 31									March 31
	2020			2019			2020			2019
Net Income, as reported	$	9,451		$	7,954		$	31,874		$	28,235
Pre-tax CEO Transition Costs	175			252			525			1,809
Tax on CEO Transition Costs	(45)			(65)			(135)			(466)
Add: After-tax CEO Transition Costs	130			187			390			1,343
Pre-tax Restructuring Expense	818			—			6,564			—
Tax on Restructuring Expense	(211)			—			(1,690)			—
Add: After-tax Restructuring Expense	607			—			4,874			—
Adjusted Net Income	$	10,188		$	8,141		$	37,138		$	29,578


Adjusted Diluted Earnings Per Share	Three Months Ended									Nine Months Ended
	March 31									March 31
	2020			2019			2020			2019
Diluted Earnings Per Share, as reported	$	0.25		$	0.22		$	0.86		$	0.76
Add: After-tax CEO Transition Costs	—			—			0.01			0.03
Add: After-tax Restructuring Expense	0.02			—			0.13			—
Adjusted Diluted Earnings Per Share	$	0.27		$	0.22		$	1.00		$	0.79

Adjusted Operating Income Three Months Ended Six Months Ended
December 31 December 31
2019 2018 2019 2018
Operating Income, as reported $ 14,226
$ 13,498
$ 29,332
$ 27,192
Add: Pre-tax Restructuring Expense 1,396
—
5,746
—
Add: Pre-tax Expense Adjustment to SERP Liability 716
(1,097 ) 774
(726 )
Add: Pre-tax CEO Transition Costs 175
502
350
1,557
Adjusted Operating Income $ 16,513
$ 12,903
$ 36,202
$ 28,023
Net Sales $ 192,164
$ 201,008
$ 393,616
$ 395,131
Adjusted Operating Income % 8.6 % 6.4 % 9.2 % 7.1 %

Adjusted Net Income Three Months Ended Six Months Ended
December 31 December 31
2019 2018 2019 2018
Net Income, as reported $ 11,039
$ 9,405
$ 22,423
$ 20,281
Pre-tax CEO Transition Costs 175
502
350
1,557
Tax on CEO Transition Costs (45 ) (130 ) (90 ) (401 )
Add: After-tax CEO Transition Costs 130
372
260
1,156
Pre-tax Restructuring Expense 1,396
—
5,746
—
Tax on Restructuring Expense (359 ) —
(1,479 ) —
Add: After-tax Restructuring Expense 1,037
—
4,267
—
Adjusted Net Income $ 12,206
$ 9,777
$ 26,950
$ 21,437

Adjusted Diluted Earnings Per Share Three Months Ended Six Months Ended
December 31 December 31
2019 2018 2019 2018
Diluted Earnings Per Share, as reported $ 0.30
$ 0.25
$ 0.60
$ 0.54
Add: After-tax CEO Transition Costs —
0.01
0.01
0.03
Add: After-tax Restructuring Expense 0.03
—
0.11
—
Adjusted Diluted Earnings Per Share $ 0.33
$ 0.26
$ 0.72
$ 0.57


Earnings Before Interest, Taxes, Depreciation, and Amortization excluding Restructuring Expense and CEO Transition Costs (“Adjusted EBITDA”)													Earnings Before Interest, Taxes, Depreciation, and Amortization excluding Restructuring Expense and CEO Transition Costs (“Adjusted EBITDA”)
	Three Months Ended						Six Months Ended							Three Months Ended									Nine Months Ended
	December 31,						December 31,							March 31,									March 31,
	2019			2018			2019			2018				2020			2019			2020			2019
Net Income	$	11,039		$	9,405		$	22,423		$	20,281		Net Income	$	9,451		$	7,954		$	31,874		$	28,235
Provision for Income Taxes	4,372			3,239			8,679			6,753			Provision for Income Taxes	2,906			2,521			11,585			9,274
Income Before Taxes on Income	15,411			12,644			31,102			27,034			Income Before Taxes on Income	12,357			10,475			43,459			37,509

Interest Expense	21			56			44			106			Interest Expense	21			40			65			146
Interest Income	(489		)	(428		)	(1,096		)	(847		)	Interest Income	(386)			(492)			(1,482)			(1,339)
Depreciation	3,866			3,729			7,476			7,361			Depreciation	3,861			3,716			11,337			11,077
Amortization	547			484			1,068			959			Amortization	639			496			1,707			1,455
Pre-tax CEO Transition Costs	175			502			350			1,557			Pre-tax CEO Transition Costs	175			252			525			1,809
Pre-tax Restructuring Expense	1,396			—			5,746			—			Pre-tax Restructuring Expense	818			—			6,564			—
Adjusted EBITDA	$	20,927		$	16,987		$	44,690		$	36,170		Adjusted EBITDA	$	17,485		$	14,487		$	62,175		$	50,657
Net Sales	$	192,164		$	201,008		$	393,616		$	395,131		Net Sales	$	178,174		$	177,369		$	571,790		$	572,500
Net Income as a Percentage of Net Sales	5.7		%	4.7		%	5.7		%	5.1		%	Net Income as a Percentage of Net Sales	5.3		%	4.5		%	5.6		%	4.9		%
Adjusted EBITDA as a Percentage of Net Sales	10.9		%	8.5		%	11.4		%	9.2		%	Adjusted EBITDA as a Percentage of Net Sales	9.8		%	8.2		%	10.9		%	8.8		%

The ~~open orders~~order backlog metric is a key performance indicator representing firm orders placed by our customers which have not yet been fulfilled and are expected to be recognized as revenue during future quarters. The timing of shipments can vary, but generally ~~open~~the backlog of orders ~~are~~is expected to ship within a twelve-month period.

Return on Invested Capital is a key performance indicator calculated as: [(Earnings Before Interest, Taxes, Amortization, Restructuring Expense, and CEO Transition Costs) multiplied by (1 minus Effective Tax Rate)] divided by (Total Shareholders’ Equity plus Net Debt). Net Debt is defined as current maturities of long-term debt plus long-term debt less cash, cash equivalents, and short-term investments.

Fair Value

Financial assets classified as level 1 assets were valued using readily available market pricing. For commercial paper and available-for-sale securities classified as level 2 assets, the fair values are determined based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information. We evaluated the inputs used to value the instruments and validated the accuracy of the instrument fair values based on historical evidence. The investment in stock warrants and equity securities without readily determinable fair value of a privately-held company are classified as level 3 financial assets. The stock warrants are accounted for as a derivative instrument valued on a recurring basis considering the pricing of recent purchases or sales of the investment as well as positive and negative qualitative evidence, while the equity securities without readily determinable fair value are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

See Note 12 - Fair Value in the Notes to Condensed Consolidated Financial Statements for additional information.

Contractual Obligations

There have been no material changes outside the ordinary course of business to our summary of contractual obligations under the caption, “Contractual Obligations” in Item 7 “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, 2019.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements are limited to standby letters of credit and performance bonds. 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 11 - Commitments and Contingent Liabilities in the Notes to Condensed Consolidated Financial Statements for more information on the 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

Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. 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 continually reviews the accounting policies and financial information disclosures. A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019. During the first ~~six~~nine months of fiscal year 2020, there were no material changes in the accounting policies and assumptions previously disclosed.

New Accounting Standards

See Note 2 - Recent Accounting Pronouncements and Supplemental Information in the Notes to Condensed Consolidated Financial Statements for information regarding New Accounting Standards.

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~~generally can be identified by the use of words ~~such as “believes,~~or phrases, including, but not limited to “intend,” ~~“anticipates,~~“anticipate,” ~~“expects,~~“believe,” ~~“intends,~~“estimate,” ~~“plans,~~“project,” ~~“projects,~~“target,” ~~“estimates,~~“plan,” ~~“forecasts,~~“expect,” ~~“seeks,~~“setting up,” ~~“likely,~~“beginning to,” ~~“future,” “may,” “might,~~“will,” “should,” “would,” ~~“will,~~“resume,” ~~and~~or similar expressions. ~~These~~We caution that forward-looking statements are subject to known and unknown risks and uncertainties that may cause the Company’s actual future results and performance to differ materially from expected results, including, but not limited to, the impact of COVID-19 on our business, disruptions in our supply chain including any impact of COVID-19 on cost and availability, adverse changes in global economic conditions, the impact of changes in tariffs, successful execution of our transformation restructuring plan, ~~adverse changes in global economic conditions, global health concerns,~~ the impact of changes in the regulatory environment, ~~the loss of key suppliers,~~ the loss of or significant volume reductions from key contract customers, the financial stability of key customers and suppliers, ~~the availability or cost of raw materials, components, or services,~~ or similar unforeseen events. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of Kimball International are contained in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2019.~~2019 and in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk with respect to commodity price fluctuations for components used in the manufacture of our products, primarily related to wood and wood-related components, steel, aluminum, and plastics. These components are impacted by global pricing pressures and general economic conditions. The U.S. originally imposed tariffs of 25% on steel and 10% on aluminum imported from several countries effective June 2018. The government expanded its list of products subject to tariffs to include furniture products, parts, and components at a 10% rate effective September 2018, increasing to a 25% rate effective June 2019. We ~~are actively striving~~worked to partially offset increases in the cost of these materials through supplier negotiations, global sourcing initiatives, product re-engineering and parts standardization, and price increases on our products. We are also exposed to fluctuation in transportation costs which vary based upon freight carrier capacity and fuel prices. Transportation costs are managed by optimizing logistics and supply chain planning and increasing prices on our products.

There have been no material changes to other market risks, including interest rate and foreign exchange rate 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, 2019.

Item 4. Controls and Procedures

(a)Evaluation of disclosure controls and procedures.

We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit 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 our management, including our 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 ~~December~~March 31, ~~2019,~~2020, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

(b)Changes in internal control over financial reporting.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended ~~December~~March 31, ~~2019~~2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes in the Company's risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended June 30, 2019, except for the following additional risk factor, which supplements, and should be considered in conjunction with, the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2019:

The COVID-19 pandemic has had, and is expected to continue to have, an adverse effect on our business.

The COVID-19 pandemic and the actions taken by various governments and third parties to combat the spread of COVID-19 (including, in some cases, mandatory quarantines and other suspensions of non-essential business operations) have led to significant disruptions in our manufacturing and distribution operations and could also disrupt our supply chains, including temporary reductions or pauses in operations at many of our and our suppliers’ manufacturing and distribution locations around the world. In addition, some of our customers have been unable to receive product shipments and, thus, have delayed delivery dates on existing orders. New order rates have also slowed in all three markets. We estimate that the delays in shipments of our products due to temporary production halts and delivery push-outs totaled approximately $18 million during our third quarter of fiscal year 2020, and we expect that our revenues and cash balances will continue to be negatively impacted while the impact of COVID-19 continues. Our dealers and suppliers are also experiencing similar negative impacts from the COVID-19 pandemic. In order to preserve cash during this period of time, we have reduced spending on discretionary expenditures and strategic initiatives, which may have a material impact on our growth strategies in the future.

The economic impacts of the COVID-19 pandemic have had, or are likely to have, a negative impact on many of our customers, particularly those in the hospitality market and, thus, may negatively affect our future revenues and increase credit risk. The severity of the impact on our business will depend in part on the length of the various government orders requiring temporary suspension of non-essential business operations, duration of limits on travel, and the speed of the recovery of economic conditions globally, all of which are highly uncertain and out of our control. The duration and severity of the impact on our business, our industry and the global economy are not yet known and could have an adverse impact on our financial condition, results of operations, or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

A share repurchase program authorized by the Board of Directors was announced on August 11, 2015. 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 February 7, 2019 an additional two million shares of common stock were authorized by the Board of Directors for repurchase. At ~~December~~March 31, ~~2019,~~2020, approximately ~~2.6~~2.5 million shares remained available under the repurchase ~~program.~~program, but we have temporarily suspended share repurchases as a result of the COVID-19 pandemic.



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1 (January 1-January 31, 2020)	81,028	$	20.53	81,028	2,508,185
Month #2 (February 1-February 29, 2020)	—	$	—	—	2,508,185
Month #3 (March 1-March 31, 2020)	—	$	—	—	2,508,185
Total	81,028	$	20.53	81,028

Period
Total Number
of Shares
Purchased
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1 (October 1-October 31, 2019) —
$ —
—
2,654,314
Month #2 (November 1-November 30, 2019) —
$ —
—
2,654,314
Month #3 (December 1-December 31, 2019) 65,101
$ 20.58
65,101
2,589,213
Total 65,101
$ 20.58
65,101

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’s Form 10-Q filed November 2, 2017)~~


~~3(b)~~	~~Restated By-laws of the Company (Incorporated by reference to Exhibit 3(b) to the Company’s Form 8-K filed October 30, 2018)~~


~~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~~

3(a) Amended and Restated Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3(a) to the Company’s Form 10-Q filed November 2, 2017)

3(b) Restated By-laws of the Company

(Incorporated by reference to Exhibit 3(b) to the Company’s Form 8-K filed April 30, 20 20 )

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 S ection 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 Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, formatted in Inline XBRL and contained in Exhibit 101

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/ KRISTINE L. JUSTER
						Kristine L. Juster Chief Executive Officer
						~~February 5,~~May 11, 2020


			By:			/s/ MICHELLE R. SCHROEDER
						Michelle R. Schroeder Executive Vice President, Chief Financial Officer
						~~February 5,~~May 11, 2020



	As of December 31, 2019						As of June 30, 2019
(Amounts in Thousands)	Unpaid Balance		Related Allowance		Receivable Net of Allowance		Unpaid Balance		Related Allowance		Receivable Net of Allowance
Independent Dealership Financing	$	1,022	$	—	$	1,022	$	1,010	$	—	$	1,010
Other Notes Receivable	370		370		—		122		122		—
Total	$	1,392	$	370	$	1,022	$	1,132	$	122	$	1,010



Net Sales by End Vertical Market
	Three Months Ended						Six Months Ended
	December 31						December 31
(Amounts in Millions)	2019		2018		% Change		2019		2018		% Change
Commercial	$	55.8	$	63.6	(12	%)	$	111.0	$	120.2	(8	%)
Education	20.1		18.1		11	%	54.8		52.7		4	%
Finance	16.8		18.1		(7	%)	34.0		36.3		(6	%)
Government	21.7		18.8		15	%	40.3		35.9		12	%
Healthcare	28.2		28.5		(1	%)	57.1		52.9		8	%
Hospitality	49.6		53.9		(8	%)	96.4		97.1		(1	%)
Total Net Sales	$	192.2	$	201.0	(4	%)	$	393.6	$	395.1	—	%