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 ~~March 31,~~September 30, 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

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 ox Accelerated filer xo

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 ~~April 30,~~October 23, 2020 was:

Class A Common Stock - 193,162 shares

Class B Common Stock - ~~36,641,799~~36,784,289 shares

KIMBALL INTERNATIONAL, INC.

FORM 10-Q

INDEX


			Page No.

PART I FINANCIAL INFORMATION

	Item 1. Financial Statements
	Condensed Consolidated Balance Sheets - ~~March~~ ~~31, 20~~20 September 30, 2020 (Unaudited) and June 30, ~~2019~~2020	3
	Condensed Consolidated Statements of Income (Unaudited) - Three ~~and Nine~~ Months Ended ~~March 31,~~September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Three ~~and Nine~~ Months Ended ~~March 31,~~September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) -~~Nine~~ Three Months Ended ~~March~~ ~~31, 20~~20 September 30, 2020 and ~~201~~92019	6
	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) - Three ~~and~~ ~~Nine~~Months Ended ~~March~~ ~~31, 20~~20 September 30, 2020 and ~~201~~92019	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2523
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	3532
	Item 4. Controls and Procedures	3633

PART II OTHER INFORMATION

	~~Item 1A. Risk Factors~~	37
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3734
	Item 6. Exhibits	3835

SIGNATURES			3936

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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


		(Unaudited)					(Unaudited)
		March 31, 2020		June 30, 2019			September 30, 2020		June 30, 2020
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	76,636	$	73,196	Cash and cash equivalents	$	102,931	$	91,798
Short-term investments	Short-term investments	13,658		33,071		Short-term investments	13,519		5,294
Receivables, net of allowances of $2,531 and $1,321, respectively		68,934		63,120
Receivables, net of allowances of $2,490 and $2,574, respectively						Receivables, net of allowances of $2,490 and $2,574, respectively	51,208		68,365
Inventories	Inventories	50,710		46,812		Inventories	42,145		49,857
Prepaid expenses and other current assets	Prepaid expenses and other current assets	13,855		13,105		Prepaid expenses and other current assets	14,772		16,869
Assets held for sale	Assets held for sale	215		281		Assets held for sale	0		215
Total current assets	Total current assets	224,008		229,585		Total current assets	224,575		232,398
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		—
Property and equipment, net of accumulated depreciation of $196,642 and $193,641, respectively						Property and equipment, net of accumulated depreciation of $196,642 and $193,641, respectively	90,341		92,041
Right-of-use operating lease assets						Right-of-use operating lease assets	15,325		16,461
Goodwill	Goodwill	11,160		11,160		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
Other intangible assets, net of accumulated amortization of $36,493 and $40,442, respectively						Other intangible assets, net of accumulated amortization of $36,493 and $40,442, respectively	14,870		13,949
Deferred tax assets						Deferred tax assets	8,454		7,485
Other assets						Other assets	12,998		12,773
Total Assets	Total Assets	$	381,442	$	364,666	Total Assets	$	377,723	$	386,267

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Current maturities of long-term debt	Current maturities of long-term debt	$	27	$	25	Current maturities of long-term debt	$	30	$	27
Accounts payable	Accounts payable	38,675		47,916		Accounts payable	36,553		40,229
Customer deposits	Customer deposits	27,377		24,611		Customer deposits	21,724		19,649
Current portion of operating lease liability	Current portion of operating lease liability	4,820		—		Current portion of operating lease liability	4,873		4,886
Dividends payable	Dividends payable	3,493		3,038		Dividends payable	3,506		3,454
Accrued expenses	Accrued expenses	36,912		57,494		Accrued expenses	32,096		41,076
Total current liabilities	Total current liabilities	111,304		133,084		Total current liabilities	98,782		109,321
Other Liabilities:	Other Liabilities:					Other Liabilities:
Long-term debt, less current maturities	Long-term debt, less current maturities	109		136		Long-term debt, less current maturities	79		109
Long-term operating lease liability	Long-term operating lease liability	17,203		—		Long-term operating lease liability	15,416		16,610
Other	Other	14,576		14,956		Other	15,753		15,431
Total other liabilities	Total other liabilities	31,888		15,092		Total other liabilities	31,248		32,150
Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Common stock-par value $0.05 per share:	Common stock-par value $0.05 per share:					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
Class A - Shares authorized: 50,000,000 Shares issued: 193,000 for both periods						Class A - Shares authorized: 50,000,000 Shares issued: 193,000 for both periods	10		10
Class B - Shares authorized: 100,000,000 Shares issued: 42,830,000 for both periods						Class B - Shares authorized: 100,000,000 Shares issued: 42,830,000 for both periods	2,141		2,141
Additional paid-in capital	Additional paid-in capital	4,311		3,570		Additional paid-in capital	3,681		3,770
Retained earnings	Retained earnings	299,194		277,391		Retained earnings	307,177		305,024
Accumulated other comprehensive income	Accumulated other comprehensive income	2,150		1,937		Accumulated other comprehensive income	2,168		2,137
Less: Treasury stock, at cost, 6,205,000 shares and 6,212,000 shares, respectively		(69,556)		(68,559)
Less: Treasury stock, at cost, 6,050,000 shares and 6,110,000 shares, respectively						Less: Treasury stock, at cost, 6,050,000 shares and 6,110,000 shares, respectively	(67,484)		(68,286)
Total Shareholders’ Equity	Total Shareholders’ Equity	238,250		216,490		Total Shareholders’ Equity	247,693		244,796
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	381,442	$	364,666	Total Liabilities and Shareholders’ Equity	$	377,723	$	386,267

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)							(Unaudited)
		Three Months Ended						Nine Months Ended							Three Months Ended
		March 31						March 31							September 30
		2020		2019		2020		2019			2020		2019
Net Sales	Net Sales	$	178,174	$	177,369	$	571,790	$	572,500	Net Sales	$	147,944	$	201,452
Cost of Sales	Cost of Sales	117,680		120,808		375,585		385,077		Cost of Sales	95,586		131,082
Gross Profit	Gross Profit	60,494		56,561		196,205		187,423		Gross Profit	52,358		70,370
Selling and Administrative Expenses	Selling and Administrative Expenses	45,606		47,508		146,239		151,178		Selling and Administrative Expenses	41,689		50,914

Restructuring Expense	Restructuring Expense	818		—		6,564		—		Restructuring Expense	4,240		4,350
Operating Income	Operating Income	14,070		9,053		43,402		36,245		Operating Income	6,429		15,106
Other Income (Expense):	Other Income (Expense):									Other Income (Expense):
Interest income	Interest income	386		492		1,482		1,339		Interest income	102		607
Interest expense	Interest expense	(21)		(40)		(65)		(146)		Interest expense	(28)		(23)
Non-operating income (expense), net	Non-operating income (expense), net	(2,078)		970		(1,360)		71		Non-operating income (expense), net	743		1
Other income (expense), net	Other income (expense), net	(1,713)		1,422		57		1,264		Other income (expense), net	817		585
Income Before Taxes on Income	Income Before Taxes on Income	12,357		10,475		43,459		37,509		Income Before Taxes on Income	7,246		15,691
Provision for Income Taxes	Provision for Income Taxes	2,906		2,521		11,585		9,274		Provision for Income Taxes	1,860		4,307
Net Income	Net Income	$	9,451	$	7,954	$	31,874	$	28,235	Net Income	$	5,386	$	11,384

Earnings Per Share of Common Stock:	Earnings Per Share of Common Stock:									Earnings Per Share of Common Stock:
Basic Earnings Per Share	Basic Earnings Per Share	$	0.26	$	0.22	$	0.86	$	0.77	Basic Earnings Per Share	$	0.15	$	0.31
Diluted Earnings Per Share	Diluted Earnings Per Share	$	0.25	$	0.22	$	0.86	$	0.76	Diluted Earnings Per Share	$	0.14	$	0.31

Class A and B Common Stock:	Class A and B Common Stock:									Class A and B Common Stock:
Average Number of Shares Outstanding - Basic	Average Number of Shares Outstanding - Basic	36,813		36,712		36,890		36,871		Average Number of Shares Outstanding - Basic	36,974		36,937
Average Number of Shares Outstanding - Diluted	Average Number of Shares Outstanding - Diluted	37,089		36,909		37,234		37,260		Average Number of Shares Outstanding - Diluted	37,220		37,247

See Notes to Condensed Consolidated Financial Statements

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)


		(Unaudited)										(Unaudited)											(Unaudited)				(Unaudited)
		Three Months Ended										Three Months Ended											Three Months Ended				Three Months Ended
		March 31, 2020										March 31, 2019											September 30, 2020				September 30, 2019
(Unaudited)	(Unaudited)	Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax		(Unaudited)	Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax
Net income	Net income					$	9,451					$	7,954	Net income					$	5,386					$	11,384
Other comprehensive income (loss):	Other comprehensive income (loss):													Other comprehensive income (loss):
Available-for-sale securities	Available-for-sale securities	$	3	$	(1)	$	2	$	27	$	(7)	$	20	Available-for-sale securities	$	(25)	$	7	$	(18)	$	(8)	$	2	$	(6)
Postemployment severance actuarial change	Postemployment severance actuarial change	120		(31)		89		100		(26)		74		Postemployment severance actuarial change	178		(46)		132		149		(39)		110

Reclassification to (earnings) loss:	Reclassification to (earnings) loss:													Reclassification to (earnings) loss:

Amortization of actuarial change	Amortization of actuarial change	(82)		21		(61)		(100)		26		(74)		Amortization of actuarial change	(112)		29		(83)		(88)		23		(65)

Other comprehensive income (loss)	Other comprehensive income (loss)	$	41	$	(11)	$	30	$	27	$	(7)	$	20	Other comprehensive income (loss)	$	41	$	(10)	$	31	$	53	$	(14)	$	39
Total comprehensive income	Total comprehensive income					$	9,481					$	7,974	Total comprehensive income					$	5,417					$	11,423

(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

See Notes to Condensed Consolidated Financial Statements

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)


		(Unaudited)							(Unaudited)
		Nine Months Ended							Three Months Ended
		March 31							September 30
		2020		2019			2020		2019
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income	Net income	$	31,874	$	28,235	Net income	$	5,386	$	11,384
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	11,337		11,077		Depreciation	3,592		3,610
Amortization	Amortization	1,707		1,455		Amortization	653		521
Loss (Gain) on sales of assets		75		(1,140)
(Gain) loss on sales of assets						(Gain) loss on sales of assets	(6)		41
Restructuring and asset impairment charges	Restructuring and asset impairment charges	2,954		—		Restructuring and asset impairment charges	830		2,675
Deferred income tax and other deferred charges	Deferred income tax and other deferred charges	(500)		(4,571)		Deferred income tax and other deferred charges	(1,006)		(639)
Stock-based compensation	Stock-based compensation	3,850		4,749		Stock-based compensation	949		1,661
Other, net	Other, net	3,043		(1,319)		Other, net	(138)		2,295
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Receivables	Receivables	(5,815)		6,848		Receivables	17,397		2,521
Inventories	Inventories	(3,898)		(2,863)		Inventories	7,712		(458)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(960)		5,769		Prepaid expenses and other current assets	2,479		1,712
Accounts payable	Accounts payable	(7,929)		(7,534)		Accounts payable	(3,612)		(192)
Customer deposits	Customer deposits	2,766		6,371		Customer deposits	2,075		(631)
Accrued expenses	Accrued expenses	(21,136)		(4,397)		Accrued expenses	(9,352)		(13,444)
Net cash provided by operating activities	Net cash provided by operating activities	17,368		42,680		Net cash provided by operating activities	26,959		11,056
Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Capital expenditures	Capital expenditures	(16,132)		(15,577)		Capital expenditures	(2,823)		(6,873)
Proceeds from sales of assets	Proceeds from sales of assets	138		1,277		Proceeds from sales of assets	7		101
Cash paid for acquisition		—		(4,850)

Purchases of capitalized software	Purchases of capitalized software	(3,011)		(805)		Purchases of capitalized software	(1,161)		(481)
Purchases of available-for-sale securities	Purchases of available-for-sale securities	(24,977)		(39,778)		Purchases of available-for-sale securities	(10,000)		(5,971)
Maturities of available-for-sale securities	Maturities of available-for-sale securities	44,488		32,550		Maturities of available-for-sale securities	1,750		12,667
Other, net	Other, net	(818)		(3)		Other, net	(21)		47
Net cash used for investing activities	Net cash used for investing activities	(312)		(27,186)		Net cash used for investing activities	(12,248)		(510)
Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:

Change in long-term debt	Change in long-term debt	(25)		(23)		Change in long-term debt	(27)		(25)

Dividends paid to shareholders	Dividends paid to shareholders	(9,607)		(8,498)		Dividends paid to shareholders	(3,315)		(2,939)
Repurchases of Common Stock		(3,004)		(9,132)

Repurchase of employee shares for tax withholding	Repurchase of employee shares for tax withholding	(976)		(1,035)		Repurchase of employee shares for tax withholding	(236)		(842)
Net cash used for financing activities	Net cash used for financing activities	(13,612)		(18,688)		Net cash used for financing activities	(3,578)		(3,806)

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash ⁽¹⁾		3,444		(3,194)
Net Increase in Cash, Cash Equivalents, and Restricted Cash (1)						Net Increase in Cash, Cash Equivalents, and Restricted Cash (1)	11,133		6,740
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period ⁽¹⁾	Cash, Cash Equivalents, and Restricted Cash at Beginning of Period ⁽¹⁾	73,837		53,321		Cash, Cash Equivalents, and Restricted Cash at Beginning of Period (1)	92,444		73,837
Cash, Cash Equivalents, and Restricted Cash at End of Period ⁽¹⁾	Cash, Cash Equivalents, and Restricted Cash at End of Period ⁽¹⁾	$	77,281	$	50,127	Cash, Cash Equivalents, and Restricted Cash at End of Period (1)	$	103,577	$	80,577
Supplemental Disclosure of Cash Flow Information	Supplemental Disclosure of Cash Flow Information					Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Income taxes	Income taxes	$	10,406	$	6,758	Income taxes	$	1,864	$	34
Interest expense	Interest expense	$	15	$	82	Interest expense	$	27	$	15

(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)	(Amounts in Thousands)	March 31, 2020		June 30, 2019		March 31, 2019		June 30, 2018		(Amounts in Thousands)	September 30, 2020		June 30, 2020		September 30, 2019		June 30, 2019
Cash and Cash Equivalents	Cash and Cash Equivalents	$	76,636	$	73,196	$	49,489	$	52,663	Cash and Cash Equivalents	$	102,931	$	91,798	$	79,934	$	73,196
Restricted cash included in Other Assets	Restricted cash included in Other Assets	645		641		638		658		Restricted cash included in Other Assets	646		646		643		641
Total Cash, Cash Equivalents, and Restricted Cash at end of period	Total Cash, Cash Equivalents, and Restricted Cash at end of period	$	77,281	$	73,837	$	50,127	$	53,321	Total Cash, Cash Equivalents, and Restricted Cash at end of period	$	103,577	$	92,444	$	80,577	$	73,837

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 September 30, 2020 (Unaudited)	Class A		Class B
Amounts at June 30, 2020	$	10	$	2,141	$	3,770	$	305,024	$	2,137	$	(68,286)	$	244,796
Net income							5,386						5,386
Other comprehensive income (loss)									31				31
Issuance of non-restricted stock (13,000 shares)					(168)						168		0

Compensation expense related to stock compensation plans					949								949

Restricted stock units issuance (15,000 shares)					(284)						204		(80)
Relative total shareholder return performance units issuance (32,000 shares)					(586)						430		(156)
Cumulative effect of change in accounting principle							134						134

Dividends declared ($0.09 per share)							(3,367)						(3,367)
Amounts at September 30, 2020	$	10	$	2,141	$	3,681	$	307,177	$	2,168	$	(67,484)	$	247,693

Three months ended September 30, 2019 (Unaudited)
Amounts at June 30, 2019	$	12	$	2,139	$	3,570	$	277,391	$	1,937	$	(68,559)	$	216,490
Net income							11,384						11,384
Other comprehensive income (loss)									39				39
Issuance of non-restricted stock (9,000 shares)					(118)						118		0
Conversion of Class A to Class B common stock (2,000 shares)	0		0										0
Compensation expense related to stock compensation plans					2,011								2,011
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)

Dividends declared ($0.09 per share)							(3,370)						(3,370)
Amounts at September 30, 2019	$	12	$	2,139	$	2,438	$	285,405	$	1,976	$	(66,938)	$	225,032

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~~prolonged reduction in 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,~~August 2018, 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~~was adopted during our first quarter of fiscal year 2021 ~~with early~~and was applied prospectively. The adoption ~~permitted. Entities can choose to adopt the guidance prospectively to eligible costs incurred on or after the date~~of this guidance ~~is first applied or retrospectively. We do~~did not ~~expect the adoption to~~ have a material effect 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~~was adopted during our first quarter of fiscal year 2021 ~~with early~~and was applied retrospectively. The adoption ~~permitted and should be applied retrospectively except for certain disclosures. We have not yet determined the effect~~ of this guidance did not have a material effect 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~~was adopted during our first quarter of fiscal year 2021 ~~with early adoption in our fiscal year 2020 permitted. We~~and did not have ~~not yet determined the~~a material 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 ~~March 31,~~September 30, 2020 and June 30, ~~2019~~2020 our goodwill totaled $11.2 million. During the quarter ended September 30, 2020, 0 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:


		March 31, 2020										June 30, 2019											September 30, 2020				June 30, 2020
(Amounts in Thousands)	(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	Capitalized Software	$	42,617	$	37,426	$	5,191	$	39,708	$	36,662	$	3,046	Capitalized Software	$	40,643	$	33,340	$	7,303	$	43,671	$	37,566	$	6,105

Customer Relationships	Customer Relationships	7,050		1,661		5,389		7,050		1,030		6,020		Customer Relationships	7,050		2,054		4,996		7,050		1,871		5,179
Trade Names	Trade Names	3,570		863		2,707		3,570		595		2,975		Trade Names	3,570		1,041		2,529		3,570		952		2,618
Non-Compete Agreements	Non-Compete Agreements	100		48		52		100		33		67		Non-Compete Agreements	100		58		42		100		53		47
Other Intangible Assets	Other Intangible Assets	$	53,337	$	39,998	$	13,339	$	50,428	$	38,320	$	12,108	Other Intangible Assets	$	51,363	$	36,493	$	14,870	$	54,391	$	40,442	$	13,949

Amortization expense related to intangible assets was, in thousands, ~~$639 and $1,707~~$653 during the quarter ~~and year-to-date period~~ ended ~~March 31,~~September 30, 2020, and ~~$496 and $1,455~~$521 during the quarter ~~and year-to-date period~~ ended ~~March 31,~~September 30, 2019. Amortization expense in future periods is expected to be, in thousands, ~~$680~~$2,170 for the remainder of fiscal year ~~2020,~~2021, and ~~$2,506, $2,039, $1,637,~~$2,460, $2,068, $1,806, and ~~$1,404~~$1,649 in the four years ending June 30, ~~2024,~~2025, and ~~$5,073~~$4,717 thereafter. The estimated useful life of capitalized software ranges from 2 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 0 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 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~~considers several factors including historical write-off experience, overall customer credit quality in relation to general economic and market conditions, and specific customer account analyses to estimate the collectability of certain accounts. The specific customer account analyses considers 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							Three Months Ended
		March 31						March 31							September 30
(Amounts in Thousands)	(Amounts in Thousands)	2020		2019		2020		2019		(Amounts in Thousands)	2020		2019

Gain (Loss) on SERP Investments		$	(1,784)	$	1,032	$	(1,010)	$	306
Gain on Supplemental Employee Retirement Plan Investments										Gain on Supplemental Employee Retirement Plan Investments	$	758	$	58

Other	Other	(294)		(62)		(350)		(235)		Other	(15)		(57)
Non-operating income (expense), net		$	(2,078)	$	970	$	(1,360)	$	71
Non-operating income, net										Non-operating income, net	$	743	$	1

Note 3. Restructuring

During the first three months of fiscal years 2021 and 2020, we recognized pre-tax restructuring expense of $4.2 million and $4.4 million, respectively.

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.

Transformation Restructuring ~~Plan:~~Plan Phase 1:

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~~phase 1 of our transformation restructuring plan ~~will establish~~has established a more cost-efficient structure to better align our operations with our long-term strategic goals. The transformation restructuring plan includes the following:

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

•The creation of center-led functions for finance, human resources, information technology and legal functions resulted in the standardization of processes and the elimination of duplication. In addition, we 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~~lease and associated leasehold improvements. Additional impairment was recognized in our fourth quarter due to degradation of sublease assumptions resulting from the current economic environment.

~~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 the total pre-tax restructuring charges ~~incurred through~~upon completion of the ~~end of fiscal year 2020~~plan will be approximately ~~$9.0 million to $10.0~~$11.1 million. The restructuring charges are expected to consist of approximately ~~$3.7 million to $4.0~~$3.6 million for severance and other employee-related costs, ~~$2.5 million to $3.0~~$3.5 million for facility exit and other costs, and ~~$2.8 million to $3.0~~$4.0 million for asset impairment. Approximately ~~65%~~55% of the total cost estimate is expected to be cash expense.

A summary of the charges recorded in connection with phase 1 of the transformation restructuring plan is as follows:


	Three Months Ended				Charges Incurred to Date
	September 30
(Amounts in Thousands)	2020		2019
Cash-related restructuring charges:
Severance and other employee related costs	$	62	$	1,206	$	2,884
Facility exit costs and other cash charges	331		469		2,371
Total cash-related restructuring charges	$	393	$	1,675	$	5,255
Non-cash charges:
Transition stock compensation	0		470		725
Impairment of assets	332		2,205		4,022
Other non-cash charges	38		0		187

Total non-cash charges	$	370	$	2,675	$	4,934
Total charges	$	763	$	4,350	$	10,189

A summary of the current period activity in accrued restructuring related to phase 1 of the transformation restructuring plan is as follows:


(Amounts in Thousands)	Severance and other employee related costs		Facility exit and other costs		Total
Balance at June 30, 2020	$	167	$	65	$	232
Additions charged to expense	62		0		62
Cash payments charged against reserve	(212)		(54)		(266)

Balance at September 30, 2020	$	17	$	11	$	28

Transformation Restructuring Plan Phase 2:

In August 2020, we announced the next phase of our transformation restructuring plan that will align our business units to a new market-centric orientation and is expected to yield additional cost savings that will aid us in effectively managing through the downturn caused by the COVID-19 pandemic. Phase 2 of the transformation restructuring plan builds on the initial strategy and the transformation restructuring plan announced in June 2019. The following is a summary of the activities we will be undertaking pursuant to phase 2 of the transformation restructuring plan:

•As part of the previously announced plan to consolidate manufacturing of all brands into one world-class global operations group, we are streamlining our manufacturing facilities by leveraging production capabilities across all facilities, establishing centers of excellence, and setting up processes to facilitate flexing of product between facilities in response to volume fluctuations. We are also reviewing our overall facility footprint to identify opportunities to reduce capacity and gain efficiencies.

•We are streamlining our workforce to align with the new organizational structure and respond to lower volumes created by the COVID-19 pandemic, creating a more efficient organization to deliver on our Connect 2.0 strategy.

Phase 2 of the transformation restructuring plan began in the first quarter of our fiscal year 2021, and we expect a substantial majority of the underlying activities of these aforementioned actions to be completed within two years.

In addition to the savings already generated from phase 1 of the transformation restructuring plan, the efforts of the phase 2 transformation restructuring plan are expected to generate annualized pre-tax savings of approximately $18.0 million when it is fully implemented. We currently estimate the phase 2 transformation restructuring plan will incur total pre-tax restructuring charges of approximately $17.0 million to $18.0 million, with $13.0 million to $14.0 million expected to be recorded in fiscal year 2021, and the remainder in fiscal year 2022. The restructuring charges are expected to consist of approximately $8.0 million to

$8.4 million for severance and other employee-related costs, $4.2 million to $4.4 million for facility costs, and $4.8 million to $5.2 million for lease and other asset impairment. Approximately 75% of the total cost estimate is expected to be cash expense.

A summary of the charges recorded in connection with phase 2 of the ~~Transformation Restructuring Plan~~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
	September 30,
(Amounts in Thousands)	2020
Cash-related restructuring charges:
Severance and other employee related costs	$	2,890
Facility exit costs and other cash charges	127
Total cash-related restructuring charges	$	3,017
Non-cash charges:

Impairment of assets	460



Total charges	$	3,477

A summary of the current period activity in accrued restructuring related to phase 2 of the ~~Transformation Restructuring Plan~~transformation restructuring plan is as follows:

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


(Amounts in Thousands)	Severance and other employee related costs
Balance at June 30, 2020	$	0
Additions charged to expense	2,890
Cash payments charged against reserve	(2,087)

Balance at September 30, 2020	$	803

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

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 end market:


		Three Months Ended						Nine Months Ended							Three Months Ended
		March 31,						March 31,							September 30
(Amounts in Millions)	(Amounts in Millions)	2020		2019		2020		2019		(Amounts in Millions)	2020		2019
Institutional		$	63.5	$	61.3	$	215.7	$	202.8
Commercial		71.0		67.8		216.0		224.3
Workplace										Workplace	$	95.3	$	125.8
Health										Health	20.6		28.9
Hospitality	Hospitality	43.7		48.3		140.1		145.4		Hospitality	32.0		46.8
Total Net Sales	Total Net Sales	$	178.2	$	177.4	$	571.8	$	572.5	Total Net Sales	$	147.9	$	201.5

The Workplace, Health and Hospitality end markets align with the reorganization which occurred at the beginning of fiscal year 2021. Our ~~Institutional market includes sales to the healthcare, education and government verticals. Our Commercial~~Workplace end market includes sales to the commercial, financial, government and ~~financial verticals.~~education vertical markets.

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 ~~nine~~three months ended ~~March 31,~~September 30, 2020 that was included in the June 30, ~~2019~~2020 customer deposit balance was ~~$24.5~~$14.5 million.

Note 6.5. 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 0 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~~

Certain leases ~~do not contain residual value guarantees~~have terms that are dependent upon the occurrence of events, activities, or ~~material restrictive covenants. As the rate implicit~~circumstances in lease agreements and incur variable lease expense driven by warehouse square footage utilized, property taxes assessed, and other non-lease component charges. Variable lease expense is presented as operating expense in our ~~lease contracts cannot~~

~~be readily determined, we use an estimated incremental borrowing rate based on~~Condensed Consolidated Statements of Income and Comprehensive Income in 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 thesame line item as expense arising from fixed lease payments for operating leases. For all classes of assets, we do not separate non-lease components of a ~~similar period~~contract from the lease components to which they relate. We do not recognize a right-of-use asset or lease liability for short-term leases that have a lease term of ~~time on a collateralized basis.~~twelve months or less.

The components of our lease expenses are as follows:


							Three Months Ended
		Three Months Ended		Nine Months Ended			September 30
(Amounts in Millions)	(Amounts in Millions)	March 31, 2020		March 31, 2020		(Amounts in Millions)	2020		2019
Operating lease expense	Operating lease expense	$	0.9	$	2.5	Operating lease expense	$	0.8	$	0.8

Variable lease expense	Variable lease expense	0.6		1.8		Variable lease expense	0.7		0.7
Total lease expense	Total lease expense	$	1.5	$	4.3	Total lease expense	$	1.5	$	1.5

Right-of-use assets for operating leases are tested for impairment in the same manner as long-lived assets used in ~~operations.~~operations as explained in Note 11 - Fair Value of Notes to Condensed Consolidated Financial Statements. During the first quarter of fiscal year 2021, we recorded $0.2 million of right-of-use asset and associated leasehold improvement impairment resulting from consolidating a production facility in Red Lion, Pennsylvania into our Baltimore, Maryland facility as part of our transformation restructuring plan. 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 ischarges are 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~~		%


	Three Months Ended
	September 30
(Amounts in Millions)	2020			2019
Cash flow information:
Operating lease payments impacting lease liability	$	1.2		$	1.2
Leased assets obtained in exchange for operating lease liabilities	$	0		$	0.1

	As of
	September 30
(Amounts in Millions)	2020			2019
Other information:
Weighted-average remaining term (in years)	5.4			6.1
Weighted-average discount rate	4.7		%	4.6		%

The following table summarizes the future minimum lease payments as of ~~March 31,~~September 30, 2020:


		Fiscal Year Ended			Fiscal Year Ended
(Amounts in Millions)	(Amounts in Millions)	June 30⁽¹⁾		(Amounts in Millions)	June 30 (1)
2020		$	1.1
2021	2021	4.9		2021	$	3.8
2022	2022	4.7		2022	4.7
2023	2023	4.1		2023	4.1
2024	2024	3.4		2024	3.4
2025				2025	3.1
Thereafter	Thereafter	7.0		Thereafter	3.9
Total lease payments	Total lease payments	$	25.2	Total lease payments	$	23.0
Less interest	Less interest	3.2		Less interest	2.7
Present value of lease liabilities	Present value of lease liabilities	$	22.0	Present value of lease liabilities	$	20.3

(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.

~~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 7.6. 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							Three Months Ended
		March 31						March 31							September 30
(Amounts in Thousands, Except for Per Share Data)	(Amounts in Thousands, Except for Per Share Data)	2020		2019		2020		2019		(Amounts in Thousands, Except for Per Share Data)	2020		2019
Net Income	Net Income	$	9,451	$	7,954	$	31,874	$	28,235	Net Income	$	5,386	$	11,384

Average Shares Outstanding for Basic EPS Calculation	Average Shares Outstanding for Basic EPS Calculation	36,813		36,712		36,890		36,871		Average Shares Outstanding for Basic EPS Calculation	36,974		36,937
Dilutive Effect of Average Outstanding Compensation Awards	Dilutive Effect of Average Outstanding Compensation Awards	276		197		344		389		Dilutive Effect of Average Outstanding Compensation Awards	246		310
Average Shares Outstanding for Diluted EPS Calculation	Average Shares Outstanding for Diluted EPS Calculation	37,089		36,909		37,234		37,260		Average Shares Outstanding for Diluted EPS Calculation	37,220		37,247

Basic Earnings Per Share	Basic Earnings Per Share	$	0.26	$	0.22	$	0.86	$	0.77	Basic Earnings Per Share	$	0.15	$	0.31
Diluted Earnings Per Share	Diluted Earnings Per Share	$	0.25	$	0.22	$	0.86	$	0.76	Diluted Earnings Per Share	$	0.14	$	0.31

Note 8.7. 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 ~~23.5%~~25.7% for the three months ended ~~March 31,~~September 30, 2020, which was ~~less than~~equal to the combined federal and state statutory tax ~~rate primarily due to the R&D tax credit. Our effective tax rate was 26.7% for the nine months ended March 31, 2020, which approximated the combined federal and state statutory~~ rate. Our effective tax rate was ~~24.1% and 24.7%, respectively,~~27.4% for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2019, which was ~~less~~higher than the combined federal and state statutory rate ~~in part~~primarily due to ~~the R&D~~a prior year tax ~~credit.~~provision adjustment.

Note 9.8. Inventories

Inventory components were as follows:


(Amounts in Thousands)	(Amounts in Thousands)	March 31, 2020		June 30, 2019		(Amounts in Thousands)	September 30, 2020		June 30, 2020
Finished products	Finished products	$	28,160	$	26,304	Finished products	$	25,099	$	29,081
Work-in-process	Work-in-process	1,875		2,455		Work-in-process	1,247		1,648
Raw materials	Raw materials	37,007		34,335		Raw materials	32,119		35,295
Total FIFO inventory	Total FIFO inventory	67,042		63,094		Total FIFO inventory	58,465		66,024
LIFO reserve, net		(16,332)		(16,282)
LIFO reserve						LIFO reserve	(16,320)		(16,167)
Total inventory	Total inventory	$	50,710	$	46,812	Total inventory	$	42,145	$	49,857

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 nine~~ month periods ended ~~March 31,~~September 30, 2020 and 2019 was immaterial.

Note ~~10.~~9. Accumulated Other Comprehensive Income

During the three months ended ~~March 31,~~September 30, 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	Accumulated Other Comprehensive Income										Accumulated Other Comprehensive Income
(Amounts in Thousands)	(Amounts in Thousands)	Unrealized Investment Gain (Loss)		Postemployment Benefits Net Actuarial Gain (Loss)		Derivative Gain (Loss)		Accumulated Other Comprehensive Income		(Amounts in Thousands)		Unrealized Investment Gain (Loss)		Postemployment Benefits Net Actuarial Gain (Loss)		Accumulated Other Comprehensive Income
Balance at December 31, 2019		$	8	$	2,112	$	—	$	2,120
Balance at June 30, 2020										Balance at June 30, 2020		$	32	$	2,105	$	2,137
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	2		89		—		91		Other comprehensive income (loss) before reclassifications		(18)		132		114
Reclassification to (earnings) loss	Reclassification to (earnings) loss	—		(61)		—		(61)		Reclassification to (earnings) loss		0		(83)		(83)
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	2		28		—		30		Net current-period other comprehensive income (loss)		(18)		49		31
Balance at March 31, 2020		$	10	$	2,140	$	—	$	2,150
Balance at September 30, 2020										Balance at September 30, 2020		$	14	$	2,154	$	2,168

Balance at December 31, 2018		$	(20)	$	1,881	$	—	$	1,861
Balance at June 30, 2019										Balance at June 30, 2019		$	23	$	1,914	$	1,937
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	20		74		—		94		Other comprehensive income (loss) before reclassifications		(6)		110		104
Reclassification to (earnings) loss	Reclassification to (earnings) loss	—		(74)		—		(74)		Reclassification to (earnings) loss		0		(65)		(65)
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	20		—		—		20		Net current-period other comprehensive income (loss)		(6)		45		39
Balance at March 31, 2019		$	—	$	1,881	$	—	$	1,881
Balance at September 30, 2019										Balance at September 30, 2019		$	17	$	1,959	$	1,976

~~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

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


Reclassifications from Accumulated Other Comprehensive Income	Reclassifications from Accumulated Other Comprehensive Income	Three Months Ended							Nine Months Ended									Affected Line Item in the Condensed Consolidated Statements of Income		Reclassifications from Accumulated Other Comprehensive Income			Three Months Ended						Affected Line Item in the Condensed Consolidated Statements of Income
				March 31,							March 31,													Reclassifications from Accumulated Other Comprehensive Income	September 30					Affected Line Item in the Condensed Consolidated Statements of Income
(Amounts in Thousands)	(Amounts in Thousands)	2020			2019		2020		2019				Affected Line Item in the Condensed Consolidated Statements of Income	(Amounts in Thousands)			2020				2019					Affected Line Item in the Condensed Consolidated Statements of Income

Postemployment Benefits Amortization of Actuarial Gain ⁽¹⁾	Postemployment Benefits Amortization of Actuarial Gain ⁽¹⁾	$	82		$	100	$	260	$	302		Non-operating income (expense), net		Postemployment Benefits Amortization of Actuarial Gain (1)			$	112			$	88						Non-operating income (expense), net
		(21)			(26)		(67)		(78)			Benefit (Provision) for Income Taxes					(29)				(23)							Benefit (Provision) for Income Taxes
		$	61		$	74	$	193	$	224		Net Income

Derivative Gain (Loss)		$	—		$	—	$	—	$	(21)		Non-operating income (expense), net

		—			—		—		5			Benefit (Provision) for Income Taxes
		$	—		$	—	$	—	$	(16)		Net Income

Total Reclassifications for the Period	Total Reclassifications for the Period	$	61		$	74	$	193	$	208		Net Income	Total Reclassifications for the Period		$	83			$	65							Net Income

Amounts in parentheses indicate reductions to income.

(1) See Note 151 4 - Postemployment Benefits ~~in the~~of Notes to Condensed Consolidated Financial Statements for further information on postemployment benefit plans.

Note ~~11.~~10. 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 ~~March 31,~~September 30, 2020, we had a maximum financial exposure from unused standby letters of credit totaling $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~~$8.7 million as of ~~March 31,~~September 30, 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, 0 liability has been recorded as of ~~March 31,~~September 30, 2020 with respect to the standby letters of ~~credit.~~credit or performance bonds. 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 ~~nine~~three months ended ~~March 31,~~September 30, 2020 and 2019 were as follows:


		Nine Months Ended							Three Months Ended
		March 31							September 30
(Amounts in Thousands)	(Amounts in Thousands)	2020		2019		(Amounts in Thousands)	2020		2019
Product Warranty Liability at the beginning of the period	Product Warranty Liability at the beginning of the period	$	2,238	$	2,294	Product Warranty Liability at the beginning of the period	$	3,190	$	2,238
Additions to warranty accrual (including changes in estimates)	Additions to warranty accrual (including changes in estimates)	3,318		420		Additions to warranty accrual (including changes in estimates)	427		278
Settlements made (in cash or in kind)	Settlements made (in cash or in kind)	(2,356)		(797)		Settlements made (in cash or in kind)	(572)		(370)
Product Warranty Liability at the end of the period	Product Warranty Liability at the end of the period	$	3,200	$	1,917	Product Warranty Liability at the end of the period	$	3,045	$	2,146

Note ~~12.~~11. 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 0 ~~transfers between these levels during the nine months ended March 31, 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.~~2020.

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 131 2 - Investments ~~in the~~of Notes to Condensed Consolidated Financial Statements for further information regarding the investment in equity securities without readily determinable fair value, and Note 141 3 - Derivative Instruments ~~in the~~of Notes to Condensed Consolidated Financial Statements for further information regarding the investment in stock warrants. NaN purchases or sales of Level 3 assets occurred during the ~~nine~~three months ended ~~March 31,~~September 30, 2020.

1817

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~~securities

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

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. The value of the stock warrants fluctuates primarily in relation to the value of the privately-held company's underlying securities.

~~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 ~~March 31,~~September 30, 2020 and June 30, ~~2019,~~2020, 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															September 30, 2020
(Amounts in Thousands)	(Amounts in Thousands)	Level 1		Level 2		Level 3		Total		(Amounts in Thousands)	Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Cash equivalents: Money market funds	Cash equivalents: Money market funds	$	69,027	$	—	$	—	$	69,027	Cash equivalents: Money market funds	$	98,571	$	0	$	0	$	98,571
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: Secondary market certificates of deposit	0		3,519		0		3,519

Available-for-sale securities: U.S. Treasury and federal agencies		—		7,438		—		7,438
Available-for-sale securities: U.S. Treasury securities										Available-for-sale securities: U.S. Treasury securities	10,000		0		0		10,000
Trading Securities: Mutual funds in nonqualified SERP	Trading Securities: Mutual funds in nonqualified SERP	10,591		—		—		10,591		Trading Securities: Mutual funds in nonqualified SERP	12,708		0		0		12,708
Derivatives: Stock warrants	Derivatives: Stock warrants	—		—		1,500		1,500		Derivatives: Stock warrants	0		0		1,500		1,500
Total assets at fair value	Total assets at fair value	$	79,618	$	20,850	$	1,500	$	101,968	Total assets at fair value	$	121,279	$	3,519	$	1,500	$	126,298



		June 30, 2019															June 30, 2020
(Amounts in Thousands)	(Amounts in Thousands)	Level 1		Level 2		Level 3		Total		(Amounts in Thousands)	Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Cash equivalents: Money market funds	Cash equivalents: Money market funds	$	40,016	$	—	$	—	$	40,016	Cash equivalents: Money market funds	$	91,035	$	0	$	0	$	91,035
Cash equivalents: Commercial paper		—		29,408		—		29,408

Available-for-sale securities: Secondary market certificates of deposit	Available-for-sale securities: Secondary market certificates of deposit	—		11,230		—		11,230		Available-for-sale securities: Secondary market certificates of deposit	0		5,294		0		5,294
Available-for-sale securities: Municipal bonds		—		1,922		—		1,922
Available-for-sale securities: U.S. Treasury and federal agencies		—		19,919		—		19,919

Trading Securities: Mutual funds in nonqualified SERP	Trading Securities: Mutual funds in nonqualified SERP	11,774		—		—		11,774		Trading Securities: Mutual funds in nonqualified SERP	11,975		0		0		11,975
Derivatives: Stock warrants	Derivatives: Stock warrants	—		—		1,500		1,500		Derivatives: Stock warrants	0		0		1,500		1,500
Total assets at fair value	Total assets at fair value	$	51,790	$	62,479	$	1,500	$	115,769	Total assets at fair value	$	103,010	$	5,294	$	1,500	$	109,804
Liabilities

Contingent earn-out liability		—		—		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 131 2 - Investments ~~in the~~of Notes to Condensed Consolidated Financial Statements for further information regarding the SERP.

Non-Recurring Fair Value Measurements:

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

Non-recurring Fair Value Adjustment

Level

Valuation Technique/Inputs Used

Impairment of ~~Leases~~Right of Use Lease Assets and Related Asset Groups

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 2021, we recorded $0.2 million of right-of-use asset and associated leasehold improvement impairment resulting from consolidating a production facility in Red Lion, Pennsylvania into our Baltimore, Maryland facility as part of our transformation restructuring plan. 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 131 2 - Investments ~~in the~~of 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.~~12. Investments

Investment Portfolio:

Our investment portfolio ~~has consisted~~consists of ~~municipal bonds,~~U.S. Treasury securities and 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.market. 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.

2119

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 government agency securities are based on the first available call date, if applicable):~~follows:


		March 31, 2020									September 30, 2020
(Amounts in Thousands)	(Amounts in Thousands)	Certificates of Deposit		Municipal Bonds		U.S. Treasury and Federal Agencies		(Amounts in Thousands)	Certificates of Deposit		U.S. Treasury Securities
Within one year	Within one year	$	5,720	$	—	$	7,438	Within one year	$	3,519	$	10,000
After one year through two years	After one year through two years	500		—		—		After one year through two years	0		0
Total Fair Value	Total Fair Value	$	6,220	$	—	$	7,438	Total Fair Value	$	3,519	$	10,000

All investments are classified as available-for-sale securities which are recorded at fair value. See Note 121 1 - Fair Value ~~in the~~of 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									September 30, 2020
(Amounts in Thousands)	(Amounts in Thousands)	Certificates of Deposit		Municipal Bonds		U.S. Treasury and Federal Agencies		(Amounts in Thousands)	Certificates of Deposit		U.S. Treasury Securities
Amortized cost basis	Amortized cost basis	$	6,220	$	—	$	7,423	Amortized cost basis	$	3,500	$	10,000
Unrealized holding gains	Unrealized holding gains	—		—		15		Unrealized holding gains	19		0
Unrealized holding losses	Unrealized holding losses	—		—		—		Unrealized holding losses	0		0
Fair Value	Fair Value	$	6,220	$	—	$	7,438	Fair Value	$	3,519	$	10,000

		June 30, 2019									June 30, 2020
(Amounts in Thousands)	(Amounts in Thousands)	Certificates of Deposit		Municipal Bonds		U.S. Treasury and Federal Agencies		(Amounts in Thousands)	Certificates of Deposit		U.S. Treasury Securities
Amortized cost basis	Amortized cost basis	$	11,230	$	1,921	$	19,888	Amortized cost basis	$	5,250	$	0
Unrealized holding gains	Unrealized holding gains	—		1		31		Unrealized holding gains	44		0
Unrealized holding losses	Unrealized holding losses	—		—		—		Unrealized holding losses	0		0
Fair Value	Fair Value	$	11,230	$	1,922	$	19,919	Fair Value	$	5,294	$	0

NaN investments were in a continuous unrealized loss position for greater than twelve months as of ~~March 31,~~September 30, 2020. There were 0 realized gains or losses as a result of sales in the three ~~and nine~~ months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019.

Supplemental Employee Retirement Plan Investments:

We maintain a self-directed 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 ~~losses~~gains for the ~~nine~~three months ended ~~March 31,~~September 30, 2020 and 2019 were, in thousands, ~~$1,569~~$679 and ~~$104,~~$24, respectively.

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SERP asset and liability balances were as follows:


(Amounts in Thousands)	(Amounts in Thousands)	March 31, 2020		June 30, 2019		(Amounts in Thousands)	September 30, 2020		June 30, 2020
SERP investments - current asset	SERP investments - current asset	$	2,878	$	3,087	SERP investments - current asset	$	3,861	$	3,622
SERP investments - other long-term asset	SERP investments - other long-term asset	7,713		8,687		SERP investments - other long-term asset	8,847		8,353
Total SERP investments	Total SERP investments	$	10,591	$	11,774	Total SERP investments	$	12,708	$	11,975

SERP obligation - current liability	SERP obligation - current liability	$	2,878	$	3,087	SERP obligation - current liability	$	3,861	$	3,622
SERP obligation - other long-term liability	SERP obligation - other long-term liability	7,713		8,687		SERP obligation - other long-term liability	8,847		8,353
Total SERP obligation	Total SERP obligation	$	10,591	$	11,774	Total SERP obligation	$	12,708	$	11,975

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 1211 - Fair Value ~~in the~~of 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.~~13. 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 ~~March 31,~~September 30, 2020, the change in fair value of the stock warrants was not significant. See Note 121 1 - Fair Value ~~in the~~of Notes to Condensed Consolidated Financial Statements for more information on the valuation of these securities.

Note ~~15.~~14. 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						Nine Months Ended							Three Months Ended
		March 31						March 31							September 30
(Amounts in Thousands)	(Amounts in Thousands)	2020		2019		2020		2019		(Amounts in Thousands)	2020		2019
Service cost	Service cost	$	120	$	126	$	365	$	379	Service cost	$	122	$	126
Interest cost	Interest cost	19		23		56		70		Interest cost	11		19

Amortization of actuarial income	Amortization of actuarial income	(82)		(100)		(260)		(302)		Amortization of actuarial income	(112)		(88)
Net periodic benefit cost	Net periodic benefit cost	$	57	$	49	$	161	$	147	Net periodic benefit cost	$	21	$	57

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.~~15. Stock Compensation

Stock-based compensation expense during the ~~quarter~~three months ended September 30, 2020 and ~~year-to-date period ended March 31, 2020~~2019, was ~~$1.3~~$0.9 million and ~~$4.5 million, respectively, and during the quarter and year-to-date period ended March 31, 2019, was $1.1 million and $4.7~~$2.1 million, respectively. The total income tax benefit for stock compensation arrangements was $0.2 million during the ~~quarter~~three months ended September 30, 2020, and ~~year-to-date period~~$0.6 million during the three months ended September 30, 2019.

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

During fiscal year ~~2020,~~2021, 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.~~2020.

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⁾
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⁾
3rd Quarter 7,190 $18.08 - $19.76
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⁾
3rd Quarter 22,933 $18.78 - $20.63
Unrestricted Shares ⁽⁴⁾
1st Quarter 9,091 $17.19
Unrestricted Shares ⁽⁴⁾
2nd Quarter 6,321 $19.18
Unrestricted Shares ⁽⁴⁾
3rd Quarter 5,985 $20.66


Type of Award	Quarter Awarded	Targeted Shares or Units	Grant Date Fair Value (4)



Relative Total Shareholder Return Performance Units (1)	1st Quarter	82,036	$11.35

Restricted Stock Units (2)	1st Quarter	165,529	$10.94	-	$11.28


Unrestricted Shares (3)	1st Quarter	12,592	$11.02

(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 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.~~2023. 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 ~~70,540.~~164,072.

~~(3)~~(2) Restricted stock units were awarded to officers and key 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,~~2021, June 30, ~~2021,~~2022, and June 30, ~~2022. Dividends accumulate~~2023. Upon vesting, the outstanding number of restricted stock units and the value of dividends accumulated over the vesting period ~~for all awards except the time-based retention and performance-based transition awards.~~are converted to shares of common stock.

~~(4)~~(3) 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.(4) 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.~~16. 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 ~~March 31,~~September 30, 2020 and June 30, ~~2019~~2020 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 1211 - Fair Value ~~in the~~of Notes to Condensed Consolidated Financial Statements.

The carrying value of the notes receivable for independent dealership financing were ~~$0.9~~$0.7 million at ~~March 31,~~September 30, 2020 and ~~$1.0~~$0.9 million at June 30, ~~2019~~2020 and ~~was~~were included on the Receivables and Other Assets lines of our Condensed Consolidated Balance Sheets.

We have 0 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 ~~March 31,~~September 30, 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 March 31, 2020 and June 30, 2019, we had 0 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.~~17. Subsequent ~~Event~~Events

~~Impacts~~Merger Agreement

On November 4, 2020, we entered into an Agreement and Plan of ~~COVID-19 Pandemic~~

~~Subsequent~~Merger (“Merger”) with Poppin, Inc. The total consideration 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 declinebe paid in connection with ~~overall stock market trends related to~~ the ~~global economic impact~~Merger is approximately $110 million in cash at the closing of the ~~COVID-19 pandemic.~~Merger, subject to customary purchase price adjustments as provided in the Merger agreement, and a potential earn-out of up to an additional $70 million, subject to meeting certain financial targets as provided in the Merger agreement. The ~~potential impacts from COVID-19 and the decline in~~complete Merger agreement was filed as Exhibit 2.1 to 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,Current Report on Form 8-K filed on November 4, 2020.

Credit Facility

In connection with and to facilitate the Merger, on November 4, 2020, we amended our credit facility to now allow for up to $125 million in borrowings, with an option to increase the amount available for borrowing to $200 million at our request, subject to participating banks’ consent. The amended credit facility maintains a maturity date of October 2024. The complete agreement was filed as Exhibit 10.1 to our Current Report on Form 8-K filed on November 4, 2020.

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

Business Overview

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

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

•COVID-19 ~~-The~~- The COVID-19 pandemic continued to adversely ~~impacted~~impact our financial performance ~~for~~during the first quarter ~~ended March 31, 2020,~~of fiscal year 2021, and is expected to have a continuing adverse impact ~~beyond our fiscal year 2020~~ as we navigate through this crisis. The expected 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~~business is affected by plans to return to the ~~delays~~workplace balanced with working from home and the potential prolonged reduction in ~~shipments of our products due to temporary production halts and delivery push-outs totaled approximately $18 million.~~travel. 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 fourthfirst quarter of fiscal ~~2020.~~

•~~The safety~~year 2021 in our hospitality and health end markets improved from the orders booked in the most recent fourth quarter, but overall orders declined compared to the first quarter 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.

•fiscal year 2020. In response to the decline in orders and 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.~~expenditures. 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 amended credit facility will be sufficient to meet our working capital and other operating needs for at least the next 12twelve months.

•‘Kimball International ~~Connect’~~Connect 2.0’ Strategy - In ~~May 2019,~~August 2020, Kimball International ~~introduced a comprehensive~~announced Connect 2.0, which centers around accelerating our growth. The four pillars of our previously announced strategy ~~to connect our purpose,~~remain constant: inspire our people with a purpose driven and high performance culture, build our ~~brands~~capabilities by expanding our work on innovation, fuel our future through the dedication to ~~drive~~cost savings, and accelerate our growth. Connect 2.0 is designed to accelerate the growth ~~and unlock the Company’s full potential.~~of Kimball International ~~Connect seeks~~and aid us in effectively managing through the current economic downturn, by driving market share gains as well as yielding additional cost savings. The Company has been reorganized into four market centric business units which are Workplace, Health, Hospitality, and eBusiness that will accelerate our ability to ~~enable~~redesign and reimagine the ~~power of~~new workplace, build a new work from home portfolio, continue assembling experts in health, and expand our ~~people and position our organization to engage at higher levels of collaboration and interdependence. We believe this strategy will result~~hospitality business into other commercial direct sales environments. The dedicated eBusiness unit has taken a leadership role 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~~establishing all e-commerce across our brands ~~selectively expanding~~and end markets. Each of these four business units is supported by the agility and efficiency of Global Operations and the streamlined center-led structure that we implemented in year one of our ~~verticals~~strategy 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.the transformation restructuring plan described below.

•Transformation Restructuring Plan Phase 1 - 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~~phase 1 of our transformation restructuring plan ~~will establish~~has established a more cost-efficient structure to better align our operations with our long-term strategic goals. ~~The efforts are expected~~We anticipate remaining restructuring charges of $0.9 million related to ~~generate annualized pre-tax savings~~the leased showrooms which were previously closed but have not been subleased. See Note 3 - Restructuring of ~~approximately $10.0 million when~~Notes to Condensed Consolidated Financial Statements for additional information.

•Transformation Restructuring Plan Phase 2 - In August 2020, we announced the next phase of our transformation restructuring plan that will align our business units to a new market-centric orientation and is ~~fully implemented. We estimate pre-tax restructuring charges incurred~~expected to yield additional cost savings that will aid us in effectively managing through the ~~end~~downturn caused by the COVID-19 pandemic. Phase 2 of the

2623

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

•~~Our overall manufacturing facility footprint is being reviewed to reduce excess capacity~~initial strategy and ~~gain efficiencies by centralizing manufacturing operations. We have ceased operations at a leased seating manufacturing facility~~the transformation restructuring plan announced in ~~Martinsville, Virginia, will be consolidating a David Edward production facility~~June 2019. Phase 2 of the transformation restructuring plan began in ~~Red Lion, Pennsylvania into our Baltimore, Maryland facility near~~ the ~~end~~first quarter of our fiscal year ~~2020,~~2021, and we expect a substantial majority of the underlying activities of these aforementioned actions to be completed within two years. We currently estimate the transformation restructuring plan will incur total pre-tax restructuring charges of approximately $17.0 million to $18.0 million related to the initiatives under phase 2 of the transformation restructuring plan, with $13.0 million to $14.0 million expected to be recorded in fiscal year 2021, and the remainder in fiscal year 2022. The restructuring charges are ~~evaluating~~expected to consist of approximately $8.0 million to $8.4 million for severance and other employee-related costs, $4.2 million to $4.4 million for facility costs, and $4.8 million to $5.2 million for lease and other asset impairment. Approximately 75% of the total cost estimate is expected to be cash expense. The following is a summary of the activities we will be undertaking pursuant to phase 2 of the transformation restructuring plan:

•As part of the previously announced plan to consolidate manufacturing of all brands into one world-class global operations group, we are streamlining our manufacturing facilities by leveraging production capabilities across all facilities, establishing centers of excellence, and ~~capacity across~~setting up processes to facilitate flexing of product between facilities in response to volume fluctuations. We are also reviewing our ~~organization~~overall facility footprint to identify ~~additional opportunities.~~opportunities to reduce capacity and gain efficiencies.

•~~The creation of center-led functions for finance, human resources, information technology~~We are streamlining our workforce to align with the new organizational structure and ~~legal functions is resulting in~~respond to lower volumes created by the ~~standardization of processes and the elimination of duplication. In addition, we centralized our supply chain efforts to maximize supplier value and are driving~~COVID-19 pandemic, creating a more efficient ~~practices and operations within~~organization to deliver on our ~~logistics function.~~Connect 2.0 strategy.

•~~Kimball brand selling resources were realigned to higher-growth markets.~~ We expect pricing pressure on commodities in future quarters, and 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. 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 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, deliver on the high design, high quality products, and expand our Kimball Health Portfolio.

•~~With the current decline in the economy, we~~ expect ~~commodity prices to remain moderate, and we will continue~~ to be exposed to fluctuations in ~~transportation costs, which vary based upon~~both domestic and ocean freight ~~carrier capacity and fuel prices.~~costs. 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 workedare working to offset increases in ~~the cost of~~ these ~~materials~~costs through supplier negotiations, global sourcing initiatives, product re-engineering and parts ~~standardization,~~standardization. Transportation costs are managed by optimizing logistics and ~~price increases on our products.~~supply chain planning.

•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 order backlog trends.

•We expect to continue to invest in capital expenditures prudently, ~~albeit at a reduced level than we had planned,~~ particularly for projects that will enhance our capabilities and diversification while providing an opportunity for growth and improved profitability.

•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 ~~$163.7~~$189.9 million at ~~March 31,~~September 30, 2020.

•Subsequent to the end of our first quarter, we entered into an Agreement and Plan of Merger (“Merger”) with Poppin, Inc. on November 4, 2020. The total consideration to be paid in connection with the Merger is approximately $110 million in cash at the closing of the Merger, subject to customary purchase price adjustments as provided in the Merger agreement, and a potential earn-out of up to an additional $70 million, subject to meeting certain financial targets as provided in the Merger agreement. The complete Merger agreement was filed as Exhibit 2.1 to our Current Report on Form 8-K filed on November 4, 2020.

•In connection with and to facilitate the Merger, on November 4, 2020, we amended our credit facility to now allow for up to $125 million in borrowings, with an option to increase the amount available for borrowing to $200 million at our request, subject to participating banks’ consent. The amended credit facility maintains a maturity date of October 2024. The complete agreement was filed as Exhibit 10.1 to our Current Report on Form 8-K filed on November 4, 2020.

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Financial Overview


		At or for the Three Months Ended											For the Nine Months Ended												At or for the Three Months Ended
		March 31											March 31												September 30
(Amounts in Millions)	(Amounts in Millions)	2020			2019			% Change		2020			2019			% Change		(Amounts in Millions)	2020			2019			% Change
Net Sales	Net Sales	$	178.2		$	177.4		0.5	%	$	571.8		$	572.5		(0.1	%)	Net Sales	$	147.9		$	201.5		(27	%)
Organic Net Sales*		178.2			177.4			0.5	%	567.8			572.5			(0.8	%)

Gross Profit	Gross Profit	60.5			56.6			7	%	196.2			187.4			5	%	Gross Profit	52.4			70.4			(26	%)
Selling and Administrative Expenses	Selling and Administrative Expenses	45.6			47.5			(4	%)	146.2			151.2			(3	%)	Selling and Administrative Expenses	41.7			50.9			(18	%)
Restructuring Expense	Restructuring Expense	0.8			—					6.6			—					Restructuring Expense	4.2			4.4
Operating Income	Operating Income	14.1			9.1			55	%	43.4			36.2			20	%	Operating Income	6.4			15.1			(57	%)
Operating Income %	Operating Income %	7.9		%	5.1		%			7.6		%	6.3		%			Operating Income %	4.3		%	7.5		%
Adjusted Operating Income *	Adjusted Operating Income *	$	13.3		$	10.3		28	%	$	49.5		$	38.4		29	%	Adjusted Operating Income *	$	11.6		$	19.7		(41	%)
Adjusted Operating Income % *	Adjusted Operating Income % *	7.5		%	5.8		%			8.7		%	6.7		%			Adjusted Operating Income % *	7.8		%	9.8		%
Net Income	Net Income	$	9.5		$	8.0		19	%	$	31.9		$	28.2		13	%	Net Income	$	5.4		$	11.4		(53	%)
Net Income as a Percentage of Net Sales	Net Income as a Percentage of Net Sales	5.3		%	4.5		%			5.6		%	4.9		%			Net Income as a Percentage of Net Sales	3.6		%	5.7		%
Adjusted Net Income *	Adjusted Net Income *	$	10.2		$	8.1		25	%	$	37.1		$	29.6		26	%	Adjusted Net Income *	$	8.6		$	14.7		(41	%)
Diluted Earnings Per Share	Diluted Earnings Per Share	$	0.25		$	0.22				$	0.86		$	0.76				Diluted Earnings Per Share	$	0.14		$	0.31		(55	%)
Adjusted Diluted Earnings Per Share *	Adjusted Diluted Earnings Per Share *	$	0.27		$	0.22				$	1.00		$	0.79				Adjusted Diluted Earnings Per Share *	$	0.23		$	0.40		(43	%)
Return on Invested Capital **	Return on Invested Capital **	29.4		%	27.7		%			38.5		%	35.8		%			Return on Invested Capital **	26.0		%	51.0		%
Adjusted EBITDA *	Adjusted EBITDA *	$	17.5		$	14.5		21	%	$	62.2		$	50.7		23	%	Adjusted EBITDA *	$	15.8		$	23.8		(34	%)
Adjusted EBITDA as a Percentage of Net Sales *		9.8		%	8.2		%			10.9		%	8.8		%
Adjusted EBITDA % *																		Adjusted EBITDA % *	10.7		%	11.8		%
Order Backlog **	Order Backlog **	$	187.0		$	149.2		25	%									Order Backlog **	$	139.5		$	150.4		(7	%)

* 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	Net Sales by End Market													Net Sales by End Market
		Three Months Ended								Nine Months Ended									Three Months Ended
		March 31								March 31									September 30
(Amounts in Millions)	(Amounts in Millions)	2020		2019		% Change		2020		2019		% Change		(Amounts in Millions)	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	%)
Workplace														Workplace	$	95.3	$	125.8	(24	%)
Health														Health	20.6		28.9		(29	%)
Hospitality	Hospitality	43.7		48.3		(10	%)	140.1		145.4		(4	%)	Hospitality	32.0		46.8		(32	%)
Total Net Sales	Total Net Sales	$	178.2	$	177.4	0.5	%	$	571.8	$	572.5	(0.1	%)	Total Net Sales	$	147.9	$	201.5	(27	%)

The Workplace, Health and Hospitality end markets align with the reorganization which occurred at the beginning of fiscal year 2021. Our ~~Institutional end market includes sales to the healthcare, education and government vertical markets. Our Commercial~~Workplace end market includes sales to the commercial, financial, government and ~~financial~~education vertical markets.

~~Third~~First quarter fiscal year 2021 consolidated net sales were $147.9 million compared to first quarter fiscal year 2020 ~~consolidated~~ net sales of ~~$178.2 million increased 0.5% compared to third quarter fiscal year 2019~~$201.5 million. The 27% net sales ~~of $177.4 million, as price increases across all three markets and higher~~decrease is due to lower volume in ~~our commercial market~~the workplace, health, and ~~the healthcare and education 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~~end markets driven by our capability to deliver custom solutions that enhance their brand experience. The healthcare vertical sales increase was driven by our continued strategic focus which included aligning resources, building relationships, and introducing new healthcare products in this market which continues to show stability and growth. Our increased sales to the education vertical were driven by multiple larger university projects. The

~~hospitality vertical experienced decreased sales of both custom and non-custom products as hospitality projects were deferred in response to~~ 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.~~

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 and price increases in all three markets.

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

Order backlog at ~~March 31,~~September 30, 2020 ~~increased 25%~~decreased 7%, when compared to the backlog level as of ~~March 31,~~September 30, 2019, ~~with increases in each of our three markets. 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.~~pandemic. Backlog at a point in time may not be indicative of future sales trends.

Gross profit as a percent of net sales increased ~~210 basis points and 160~~50 basis points in the ~~third~~first quarter ~~and year-to-date periods~~ of fiscal year ~~2020~~2021 compared to the ~~third~~first quarter ~~and year-to-date periods~~ of fiscal year ~~2019. Both the third quarter and year-to-date periods were positively impacted by increased product pricing and the savings~~2020. Savings realized from our transformation plan, ~~which were partially~~a shift in sales mix to higher margin products, and a reduction in our healthcare and retirement expenses more than offset ~~by tariff~~the loss of leverage on the lower sales volumes.

Selling and administrative expenses as a percent of net sales in the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020 increased 300 basis points due to the decline in sales volume outpacing our reduction in selling and ~~higher employee healthcare~~administrative expenses.

Selling and administrative expenses in the ~~third~~first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020 ~~compared~~decreased 18% in absolute dollars driven by savings resulting from our transformation restructuring plan, lower incentive compensation resulting from lower earnings, reduced marketing expense, lower retirement expense, lower commissions due to the ~~third~~volume decline, and lower travel and entertainment expenses.

In the first quarter of fiscal ~~year 2019 decreased 4% in absolute dollars,~~years 2021 and as a percent of net sales decreased 120 basis points. The decrease in selling and administrative expenses was driven by the savings benefit related to the transformation plan, lower sales commissions, and lower Supplemental Employee Retirement Plan (“SERP”) expense which were partially offset by higher salary expense to support growth and bad debt expense. For the nine months ended March 31, 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 80 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 expense which were partially offset by higher employee healthcare expenses, and a prior year gain on the sale of assets which did not repeat in the current year.

The decreased SERP expense in the third quarter and year-to-date period ended March 31, 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.

~~In June 2019,~~ we announced a transformation restructuring plan to optimize resources for future growth, improve efficiency, and build capabilities across our organization. The transformation restructuring plan 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 ~~$0.8~~$4.2 million and ~~$6.6~~$4.4 million, ~~in the third quarter and year-to-date period of fiscal year 2020,~~ respectively, related to phase 1 and phase 2 of our transformation restructuring ~~plan.~~plans. See Note 3 - Restructuring ~~in the~~of Notes to Condensed Consolidated Financial Statements for additional information.

Other Income (Expense) consisted of the following:


		Three Months Ended						Nine Months Ended							Three Months Ended
		March 31						March 31							September 30
(Amounts in Thousands)	(Amounts in Thousands)	2020		2019		2020		2019		(Amounts in Thousands)	2020		2019
Interest Income	Interest Income	$	386	$	492	$	1,482	$	1,339	Interest Income	$	102	$	607
Interest Expense	Interest Expense	(21)		(40)		(65)		(146)		Interest Expense	(28)		(23)

Gain (Loss) on Supplemental Employee Retirement Plan Investments		(1,784)		1,032		(1,010)		306
Gain on Supplemental Employee Retirement Plan Investments										Gain on Supplemental Employee Retirement Plan Investments	758		58

Other	Other	(294)		(62)		(350)		(235)		Other	(15)		(57)
Other Income (Expense), net	Other Income (Expense), net	$	(1,713)	$	1,422	$	57	$	1,264	Other Income (Expense), net	$	817	$	585

Our effective tax rate was ~~23.5%~~25.7% for the three months ended ~~March 31, 2020 and was lower than the combined federal and state statutory tax rate primarily due to the R&D tax credit. Our effective tax rate was 26.7% for the nine months ended March 31,~~September 30, 2020, which ~~approximated~~was equal to the combined federal and state statutory rate. Our effective tax rate was ~~24.1% and 24.7%, respectively,~~27.4% for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2019 which was ~~less~~higher than the combined federal and state statutory rate ~~in part~~primarily due to ~~the R&D~~a prior year tax ~~credit.~~provision adjustment.

Comparing the balance sheet as of ~~March 31,~~September 30, 2020 to June 30, ~~2019,~~2020, our accounts ~~payable~~receivable balance declined as a result of our reduced sales volumes. Our inventory balance has declined, but we ~~processed payments on the last day of March.~~have maintained certain minimum inventory thresholds essential to efficiently serving our customers. Our accrued expenses line decreased ~~in part~~ due to ~~the pay out~~payments of our accrued cash incentive compensation and company retirement contribution ~~and accrued cash incentive compensation~~which were both related to our fiscal year ~~2019~~2020 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 ~~$90.3~~$116.5 million at ~~March 31,~~September 30, 2020 and ~~$106.3~~$97.1 million at June 30, ~~2019.~~2020. Cash flows from operations of ~~$17.4~~$27.0 million ~~were~~ more than offset by capital expenditures, including capitalized software, of ~~$19.1~~$4.0 million and the return of capital to shareholders in the form of dividends totaling ~~$9.6 million and stock repurchases of $3.0~~$3.3 million during the first ~~nine~~three months of fiscal year ~~2020.~~2021.

Working capital at ~~March 31,~~September 30, 2020 and June 30, ~~2019~~2020 was ~~$112.7~~$125.8 million and ~~$96.5~~$123.1 million, respectively. The current ratio was ~~2.0~~2.3 and ~~1.7~~2.1 at ~~March 31,~~September 30, 2020 and June 30, ~~2019,~~2020, respectively.

Our short-term liquidity available, represented as cash, cash equivalents, and short-term investments plus the unused amount of our credit facility, totaled ~~$163.7~~$189.9 million at ~~March 31,~~September 30, 2020. At ~~March 31,~~September 30, 2020, we had $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 ~~March 31,~~September 30, 2020 or June 30, ~~2019.~~2020.

Cash Flows

The following table reflects the major categories of cash flows for the first ~~nine~~three months of fiscal years ~~2020~~2021 and ~~2019.~~2020.


		Nine Months Ended							Three Months Ended
		March 31							September 30
(Amounts in Thousands)	(Amounts in Thousands)	2020		2019		(Amounts in Thousands)	2020		2019
Net cash provided by operating activities	Net cash provided by operating activities	$	17,368	$	42,680	Net cash provided by operating activities	$	26,959	$	11,056
Net cash used for investing activities	Net cash used for investing activities	$	(312)	$	(27,186)	Net cash used for investing activities	$	(12,248)	$	(510)
Net cash used for financing activities	Net cash used for financing activities	$	(13,612)	$	(18,688)	Net cash used for financing activities	$	(3,578)	$	(3,806)

Cash Flows from Operating Activities

For the first ~~nine~~three months of fiscal year 2021 net cash provided by operating activities was $27.0 million inclusive of $5.4 million of net income while the first three months of fiscal year 2020 net cash provided by operating activities was ~~$17.4 million fueled by $31.9 million of net income while the first nine months of fiscal year 2019 net cash provided by operating activities was $42.7~~$11.1 million inclusive of ~~$28.2~~$11.4 million of net income. Changes in working capital balances ~~used $37.0~~provided $16.7 million of cash in the first ~~nine~~three months of fiscal year ~~2020~~2021 and ~~provided $4.2~~used $10.5 million of cash in the first ~~nine~~three months of fiscal year ~~2019.~~2020.

The ~~$37.0~~$16.7 million of cash provided by changes in working capital balances in the first three months of fiscal year 2021 was driven by a $17.4 million reduction in our accounts receivable balance due to the reduction in our sales volume and a $7.7 million reduction in our inventory balance. Partially offsetting the decrease in working capital was a reduction in our accrued expenses balance as our accrued cash incentive compensation and retirement profit sharing contribution, which together totaled $9.5 million and were related to our fiscal year 2020 performance, were paid out during our first quarter of fiscal year 2021.

The $10.5 million usage of cash from changes in working capital balances in the first ~~nine~~three months of fiscal year 2020 was ~~driven by~~primarily due to a reduction in our accrued expenses balance as the ~~cash incentive compensation and~~ retirement profit sharing contribution and approximately half of our accrued cash incentive compensation which were both related to our fiscal year 2019 performance were paid out during ~~the year to date period~~our first quarter of fiscal year ~~2020 and a reduction in accrued customer incentives as programs were altered due to COVID-19. In addition, accounts payable declined as we processed payments on the last day of March.~~2020.

Our measure of accounts receivable performance, also referred to as Days Sales Outstanding (“DSO”), for the ~~nine-month~~three-month periods ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019 were 3135 and 2829 days, respectively. ~~Our accounts receivables~~The DSO increase was largely driven by ~~a change in our~~the impacts of COVID-19 and customer ~~standard discount terms which resulted in delayed receipt of payments and by slower payments from our government vertical.~~payment patterns. 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 ~~nine-month~~three-month periods ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019 were 4756 and 44 days, respectively. ~~The~~While inventory has declined since last year, there are certain minimum inventory thresholds essential to efficiently serving our customers causing an increase ~~was~~ in ~~support of new product launches and raw material~~our 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.~~days on hand. 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 ~~nine~~three months of fiscal year 2021, we invested $10.0 million in available-for-sale securities, and $1.8 million matured. During the first three months of fiscal year 2020, we invested ~~$25.0~~$6.0 million in available-for-sale securities, and ~~$44.5~~$12.7 million matured. During the current year first ~~nine months of fiscal year 2019, we invested $39.8 million in available-for-sale securities, and $32.6 million matured. Our~~quarter, 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 ~~nine~~three months of fiscal years ~~2020~~2021 and ~~2019,~~2020, we reinvested ~~$19.1~~$4.0 million and ~~$16.4~~$7.4 million, respectively, into capital investments for the future. The current year capital investments were primarily for various manufacturing equipment upgrades to increase automation in ~~both the current~~production facilities, configuration design software, and facility improvements. The prior year capital investments 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 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.upgrades.

Cash Flows from Financing Activities

We paid dividends of ~~$9.6~~$3.3 million and ~~$8.5~~$2.9 million in the ~~nine-month~~three-month periods ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019, respectively. Consistent with our historical dividend policy, our Board of Directors evaluates the appropriate dividend payment on a quarterly basis. During the first nine months of fiscal years 2020 and 2019, we repurchased shares pursuant to a previously announced stock repurchase program which drove cash outflow of $3.0 million and $9.1 million, respectively.

Credit Facility

~~We maintain~~As of September 30, 2020 we had a $75 million credit facility with a maturity date of October 2024 that ~~allows~~allowed for both issuances of letters of credit and cash borrowings. We also ~~have~~had 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~~could consist

of, at our election, advances in U.S. dollars or advances in any other currency that iswas agreed to by the lenders. The proceeds of the revolving loans ~~are~~were 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~~was available for the issuance of letters of credit. At ~~March 31,~~September 30, 2020, we had $1.6 million in letters of credit outstanding, which reduced our borrowing capacity on the credit facility. At both ~~March 31,~~September 30, 2020 and June 30, ~~2019,~~2020, we had no borrowings outstanding.

The credit facility ~~requires~~required us to comply with certain debt covenants, the most significant of which ~~are~~were the adjusted leverage ratio and the fixed charge coverage ratio. The adjusted leverage ratio iswas 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~~did 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~~could not be greater than 3.0 to 1.0. The fixed charge coverage ratio iswas 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 iswas 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~~could not be less than 1.10 to 1.00. We were in compliance with all debt covenants of the credit facility during the ~~nine-month~~three-month period ended ~~March 31,~~September 30, 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

March 31, 2020

Credit Agreement

Excess

Covenant

September 30, 2020

Credit Agreement

Excess

Adjusted Leverage Ratio

(0.13)

3.00

3.13

Adjusted Leverage Ratio

(0.43)

3.00

3.43

Fixed Charge Coverage Ratio

556.67

1.10

555.57

Fixed Charge Coverage Ratio

514.87

1.10

513.77

Future Liquidity

On November 4, 2020, we amended our credit facility to now allow for up to $125 million in borrowings, with an option to increase the amount available for borrowing to $200 million at our request, subject to participating banks’ consent. The amended credit facility maintains a maturity date of October 2024. The complete agreement was filed as Exhibit 10.1 to our Current Report on Form 8-K filed on November 4, 2020.

While we expect the impact of COVID-19 will continue 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 amended credit facility will be sufficient to meet our working capital and other operating needs for at least the next 12twelve months. During the ~~third quarter~~remainder of fiscal year ~~2020,~~2021, we also anticipate cash outflow of approximately $110 million for the Poppin, Inc. merger, and approximately $8 million related to the second phase of our transformation restructuring plan. Our Board of Directors declared a quarterly ~~dividend~~dividends of $0.09 per share, to be paid during both our ~~fourth quarter~~second and third quarters of fiscal year ~~2020.~~2021. Future cash dividends are subject to approval by our Board of Directors and may be adjusted as

business needs or market conditions change. We ~~have suspended~~plan to reinstate our share repurchase ~~activity, which had at March 31,~~program during the second quarter of fiscal year 2021. At September 30, 2020, 2.5 million shares remained available ~~for repurchase.~~under the repurchase program. During the remainder of fiscal year ~~2020~~2021 we expect to continue investments in capital expenditures, ~~albeit at a reduced level than we had planned,~~ particularly for projects such as 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 SERP liability; ~~(3)~~(2) adjusted operating income percentage, defined as adjusted operating income as a percentage of net sales; ~~(4)~~(3) adjusted net income, defined as net income excluding restructuring expenses and CEO transition costs; ~~(5)~~(4) adjusted diluted earnings per share, defined as diluted earnings per share excluding restructuring expenses and CEO transition costs; ~~(6)~~(5) adjusted EBITDA, defined as earnings before interest, taxes, depreciation, and amortization and excluding restructuring expenses and CEO transition costs; and ~~(7)~~(6) 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~~tables 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.


Adjusted Operating Income	Three Months Ended
	September 30
	2020			2019
Operating Income, as reported	$	6,429		$	15,106
Add: Pre-tax Restructuring Expense	4,240			4,350
Add: Pre-tax Expense Adjustment to SERP Liability	758			58
Add: Pre-tax CEO Transition Costs	141			175
Adjusted Operating Income	$	11,568		$	19,689
Net Sales	$	147,944		$	201,452
Adjusted Operating Income %	7.8		%	9.8		%


Adjusted Net Income	Three Months Ended
	September 30
	2020			2019
Net Income, as reported	$	5,386		$	11,384
Pre-tax CEO Transition Costs	141			175
Tax on CEO Transition Costs	(36)			(45)
Add: After-tax CEO Transition Costs	105			130
Pre-tax Restructuring Expense	4,240			4,350
Tax on Restructuring Expense	(1,092)			(1,120)
Add: After-tax Restructuring Expense	3,148			3,230
Adjusted Net Income	$	8,639		$	14,744


Adjusted Diluted Earnings Per Share	Three Months Ended
	September 30
	2020			2019
Diluted Earnings Per Share, as reported	$	0.14		$	0.31
Add: After-tax CEO Transition Costs	—			0.01
Add: After-tax Restructuring Expense	0.09			0.08
Adjusted Diluted Earnings Per Share	$	0.23		$	0.40

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


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”)													Earnings Before Interest, Taxes, Depreciation, and Amortization excluding Restructuring Expense and CEO Transition Costs (“Adjusted EBITDA”)
		Three Months Ended									Nine Months Ended										Three Months Ended
		March 31,									March 31,										September 30
		2020			2019			2020			2019				2020			2019
Net Income	Net Income	$	9,451		$	7,954		$	31,874		$	28,235		Net Income	$	5,386		$	11,384
Provision for Income Taxes	Provision for Income Taxes	2,906			2,521			11,585			9,274			Provision for Income Taxes	1,860			4,307
Income Before Taxes on Income	Income Before Taxes on Income	12,357			10,475			43,459			37,509			Income Before Taxes on Income	7,246			15,691

Interest Expense	Interest Expense	21			40			65			146			Interest Expense	28			23
Interest Income	Interest Income	(386)			(492)			(1,482)			(1,339)			Interest Income	(102)			(607)
Depreciation	Depreciation	3,861			3,716			11,337			11,077			Depreciation	3,592			3,610
Amortization	Amortization	639			496			1,707			1,455			Amortization	653			521
Pre-tax CEO Transition Costs	Pre-tax CEO Transition Costs	175			252			525			1,809			Pre-tax CEO Transition Costs	141			175
Pre-tax Restructuring Expense	Pre-tax Restructuring Expense	818			—			6,564			—			Pre-tax Restructuring Expense	4,240			4,350
Adjusted EBITDA	Adjusted EBITDA	$	17,485		$	14,487		$	62,175		$	50,657		Adjusted EBITDA	$	15,798		$	23,763
Net Sales	Net Sales	$	178,174		$	177,369		$	571,790		$	572,500		Net Sales	$	147,944		$	201,452
Net Income as a Percentage of Net Sales		5.3		%	4.5		%	5.6		%	4.9		%
Adjusted EBITDA as a Percentage of Net Sales		9.8		%	8.2		%	10.9		%	8.8		%
Net Income %														Net Income %	3.6		%	5.7		%
Adjusted EBITDA %														Adjusted EBITDA %	10.7		%	11.8		%

The 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 the backlog of orders 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~~accounted for as a cost-method investment which carries the securities at cost, ~~minus impairment, if any, plus or minus changes resulting from observable price changes~~except in ~~orderly transactions for~~ the ~~identical or a similar investment~~event of ~~the same issuer.~~impairment.

See Note 1211 - Fair Value ~~in the~~of Notes to Condensed Consolidated Financial Statements for additional information.

Contractual Obligations

~~There~~As of September 30, 2020, 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.~~2020.

3431

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 111 0 - Commitments and Contingent Liabilities ~~in the~~of Notes to Condensed Consolidated Financial Statements for more information on the standby letters of ~~credit.~~credit and performance bonds. 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.~~2020. During the first ~~nine~~three months of fiscal year ~~2020,~~2021, 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~~of 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 generally can be identified by the use of words or phrases, including, but not limited to “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “setting up,” “beginning to,” “will,” “should,” “would,” “resume,” or similar ~~expressions.~~statements. 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~~possibility that any of ~~COVID-19~~the anticipated benefits of the proposed transaction between the Company and Poppin will not be realized or will not be realized within the expected time period; the risk that integration of the operations of Poppin with the Company will be materially delayed or will be more costly or difficult than expected; the inability to complete the proposed transaction due to the failure to obtain any required stockholder approval; the failure to satisfy other conditions to completion of the proposed transaction, including receipt of required regulatory and other approvals; the failure of the proposed transaction to close for any other reason; the effect of the announcement of the transaction, including on ~~our business, disruptions in our supply chain~~customer relationships and operating results; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; the risk that any ~~impact of COVID-19 on cost and availability,~~projections or guidance by the Company or Poppin, including revenues, margins, earnings, or any other financial results are not realized; adverse changes in global economic ~~conditions,~~conditions; successful execution of Phase 2 of the Company’s restructuring plan; the impact on the Company or Poppin of changes in ~~tariffs, successful execution~~tariffs; increased global competition; significant reduction in customer order patterns; loss of ~~our transformation restructuring plan, the impact of changes in the regulatory environment, the~~key suppliers; loss of or significant volume reductions from key contract ~~customers, the~~customers; financial stability of key customers and ~~suppliers,~~suppliers; relationships with strategic customers and product distributors; availability or cost of raw materials and components; changes in the regulatory environment; global health concerns (including the impact of the COVID-19 outbreak); or similar unforeseen events. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of ~~Kimball International~~the Company are contained in ~~our Annual Report on~~the Company’s Form 10-K filing for the fiscal year ended June 30, ~~2019~~2020 and ~~in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.~~other filings with the Securities and Exchange Commission.

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~~and if further tariffs are assessed the landed cost of our products ~~subject~~could increase materially, which would reduce our net income if we are unable to ~~tariffs~~mitigate the additional cost. We strive to ~~include furniture products, parts, and components at a 10% rate effective September 2018, increasing to a 25% rate effective June 2019. We worked to partially~~ offset increases in the cost of these materials through supplier negotiations, global sourcing initiatives, and product re-engineering and parts ~~standardization, and price increases on our products.~~standardization. We are also exposed to ~~fluctuation~~fluctuations 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.~~planning.

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.~~

2020.

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 ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

3633

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 ~~March 31,~~September 30, 2020, ~~approximately~~ 2.5 million shares remained available under the repurchase program. We did not repurchase any shares under the repurchase program ~~but we have~~during the first quarter of fiscal year 2021 due to temporarily ~~suspended~~suspending 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

3734

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)~~


2(a)			~~3(b)~~ ~~Restated By-laws of the Company~~ ~~(Incorporated by reference to Exhibit 3(b) to the Company’s Form 8-K filed~~ ~~April~~Agreement and Plan of Merger, dated as of November 4, 2020, by and among Kimball International, Inc., Project Fifth Gear Merger Corp., Poppin, Inc. and Fortis Advisors LLC, as the Stockholders’ Representative (Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed November 4, 2020)
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 10-K filed August 28, 2020)
10(a)*			Employment Offer between the Company and Mr. Wolfe (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed October 5, 2020)
10(b)			First Amendment to Credit Agreement, dated as of November 4, 2020, among Kimball International, Inc., the lender parties thereto, JPMorgan Chase Bank, National Association, as administrative agent, and the guarantors named therein (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed November 4, 2020)
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			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 September 30, 2020 ) ~~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 ~~ection906 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

*constitutes management contract or compensatory arrangement

3835

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
						~~May 11,~~November 5, 2020


			By:			/s/ ~~MICHELLE R. SCHROEDER~~TIMOTHY J. WOLFE
						~~Michelle R. Schroeder~~ ~~Executive Vice President,~~Timothy J. Wolfe Chief Financial Officer
						~~May 11,~~November 5, 2020

3936


	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


	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



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