| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Principles of Consolidation: The consolidated financial statements include the accounts of all subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation. Operating Segments: Our operating segments are aligned with our four business units: Workplace, Health, Hospitality, and eBusiness. Our portfolio of furniture products and services are sold across all business units under our family of brands: Kimball, National, Etc., Interwoven, Kimball Hospitality, D’Style, and Poppin. Our four operating segments aggregate into one reportable segment as they share similar long-term economic characteristics, use similar production and distribution processes, and sell to similar types of customers. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts included in the consolidated financial statements and related note disclosures. While efforts are made to assure estimates used are reasonably accurate based on management’s knowledge of current events, actual results could differ from those estimates. Revenue Recognition: Revenue is measured as the amount of consideration we expect to receive in exchange for transferring distinct goods or providing services to customers. Our revenue consists substantially of product sales, and is reported net of sales discounts, rebates, incentives, returns, and other allowances offered to customers. We recognize revenue when performance obligations under the terms of contracts with our customers are satisfied, which occurs when control passes to a customer to enable them to direct the use of and obtain benefit from the product. This typically occurs when a customer obtains legal title, obtains the risks and rewards of ownership, has received the goods according to the contractual shipping terms either at the shipping point or destination, and is obligated to pay for the product. Shipping and handling activities are recognized as fulfillment activities and are expensed at the time revenue is recognized. We recognize sales net of applicable sales taxes and similar revenue-based taxes. We use judgment in estimating the reduction in net sales driven by customer rebate and incentive programs. Judgments primarily include expected sales levels to be achieved and the corresponding rebate and incentive amounts expected to be earned by dealers and salespersons. We also use judgment in estimating a reserve for returns and allowances which is recorded at the time of the sale, based on estimated product returns and price concessions. The reserve for returns and allowances is recorded in Accrued Expenses on the Consolidated Balance Sheets, and the expense is recorded as a reduction of Net Sales in the Consolidated Statements of Income. We perform ongoing credit evaluations of our customers and impair receivable balances by recording specific allowances for bad debts based on judgment using factors such as current trends, the length of time the receivables are past due, and historical collection experience. The allowance for accounts receivable balances that are determined likely to be uncollectible are a reduction in the Receivables line of the Consolidated Balance Sheets, and the expense is recorded in Selling and Administrative Expenses in the Consolidated Statements of Income. Cash and Cash Equivalents: Cash equivalents consist primarily of highly liquid investments with original maturities of three months or less at the time of acquisition. Cash and cash equivalents consist of bank accounts and money market funds. Bank accounts are stated at cost, which approximates fair value, and money market funds and commercial paper are stated at fair value. Short-Term Investments: Short-term investments consist of certificates of deposit purchased in the secondary market. 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. Our investment policy dictates that certificates of deposit must be FDIC insured. 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. Notes Receivable and Trade Accounts Receivable: Our notes receivable and trade accounts receivable are recorded per the terms of the agreement or sale, and accrued interest is recognized when earned. We determine on a case-by-case basis the cessation of accruing interest, the resumption of accruing interest, the method of recording payments received on nonaccrual receivables, and the delinquency status for our limited number of notes receivable. Our policy for estimating the allowance for credit losses on trade accounts receivable and notes receivable 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. 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. Inventories: Inventories are stated at the lower of cost or market value. Cost includes material, labor, and applicable manufacturing overhead. Costs associated with underutilization of capacity are expensed as incurred. Inventory cost was determined using the last-in, first-out (“LIFO”) method for approximately 67% and 93% of consolidated inventories at June 30, 2021 and June 30, 2020, respectively. The remaining inventories were valued using the first-in, first-out (“FIFO”) method and average cost method. The cost of inventory valued under the LIFO method is calculated using the inventory price index computation (“IPIC”) method, in which external indexes are used to calculate inflation for the purpose of valuing LIFO inventories. Under this method, inventory is grouped into LIFO pools consisting of inventory with similar productive activities, including methods of obtaining, processing, and selling inventory. A cumulative inflation index is computed for each LIFO pool, calculated as the weighted average inflation rate of the various inventory categories making up the pool. Our source of LIFO inflation indices is the producer price index (“PPI”) published by the U.S. Bureau of Labor Statistics. We assign PPI categories to similar types of inventory items in order to measure inflation for each type of inventory. The pools’ cumulative indexes are used to deflate the inventory current-year cost to base period prices, which is then compared to the prior year’s inventory valued at base period prices. If the current year’s inventory at base is greater than the previous year’s inventory at base, the increment is multiplied by the pool cumulative inflation index to price the LIFO layer. If the current year’s inventory at base is less than the previous year’s inventory at base, the decrement erodes a previous LIFO layer and is priced using the index originally used to price the layer. A LIFO reserve is calculated as the difference between the FIFO value and the total computed LIFO layers. The LIFO reserve reduces the value of FIFO inventory to LIFO cost. During periods of rising prices, the LIFO method generally results in higher current costs being charged against income while lower costs are retained in inventories. Conversely, during periods of decreasing prices, the LIFO method generally results in lower current costs being charged against income and higher stated inventories. Inventories are adjusted for excess and obsolete inventory. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover, inventory levels, and product demand levels. Factors considered when evaluating obsolescence include the age of on-hand inventory and reduction in value due to damage, use as showroom samples, design changes, or cessation of product lines. For inventory valued using the LIFO method, excess and obsolete inventory is determined based upon FIFO inventory values, but the LIFO reserve is adjusted to prevent recognizing excessive inventory reserves in total. Property, Equipment, and Depreciation: Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful life of the assets using the straight-line method for financial reporting purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Major maintenance activities and improvements are capitalized; other maintenance, repairs, and minor renewals are expensed. Depreciation and expenses for maintenance, repairs and minor renewals are included in both the Cost of Sales line and the Selling and Administrative Expenses line of the Consolidated Statements of Income. Impairment of Long-Lived Assets: We perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Impairment is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal. Business Combinations: The purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. The results of operations of the acquired business are included in our operating results from the day of acquisition. Any contingent earn-out liability is assessed quarterly and is recorded at fair value as of the reporting date. Goodwill and Other Intangible Assets: 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. During the quarter ended June 30, 2020, as a result of a deterioration of our industry conditions and a decline in our forecasted revenues driven by the COVID-19 pandemic, we quantitatively tested our goodwill for impairment, and concluded no impairment of goodwill. 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. During fiscal years 2021 and 2019, no goodwill impairment was recognized. During fiscal year 2021, we recorded $70.8 million in goodwill from the acquisition of Poppin, Inc. Other Intangible Assets reported on the Consolidated Balance Sheets consist of capitalized software, acquired technology, customer relationships, trade names, non-compete agreements and patents and trademarks. 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. During the quarter ended June 30, 2020, as a result of a deterioration of our industry conditions and a decline in our forecasted revenues driven by the COVID-19 pandemic, we assessed our customer relationship intangible assets for impairment, and concluded no impairment. A summary of intangible assets subject to amortization is as follows: June 30, 2021 June 30, 2020 (Amounts in Thousands) Cost Accumulated Amortization Net Value Cost Accumulated Amortization Net Value Capitalized Software $ 43,200 $ 34,058 $ 9,142 $ 43,671 $ 37,566 $ 6,105 Acquired Technology 7,000 559 6,441 — — — Customer Relationships 19,050 3,936 15,114 7,050 1,871 5,179 Trade Names 36,570 3,154 33,416 3,570 952 2,618 Non-Compete Agreements 100 73 27 100 53 47 Patents and Trademarks 354 16 338 — — — Other Intangible Assets $ 106,274 $ 41,796 $ 64,478 $ 54,391 $ 40,442 $ 13,949 During fiscal years 2021, 2020, and 2019, amortization expense of other intangible assets was, in thousands, $6,683, $2,402, and $1,777, respectively. Amortization expense in future periods is expected to be, in thousands, $9,438, $8,604, $7,999, $7,762, and $7,408 in the five years ending June 30, 2026, and $23,267 thereafter. The estimated useful life of capitalized software ranges from 2 to 10 years. The estimated useful life of acquired technology is 7 years. The amortization period for customer relationship intangible assets is 10 years to 20 years. The estimated useful life of trade names is 10 years. The estimated useful life of non-compete agreements is 5 years. The estimated useful life of patents is 14 years and the estimated useful life of trademarks is 15 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 reengineering costs are expensed in the period in which they are incurred. Trade names, non-compete agreements, acquired technology, patents and trademarks are amortized on a straight-line basis over their estimated useful lives. Customer relationships are amortized based on estimated attrition rates of customers. We have no intangible assets with indefinite useful lives which are not subject to amortization. Research and Development: The costs of research and development are expensed as incurred. Research and development costs were approximately, in millions, $10, $5, and $6 in fiscal years 2021, 2020, and 2019, respectively. Advertising: Advertising costs are expensed as incurred. Advertising costs, included in selling and administrative expenses were, in millions, $4.9, $4.1, and $4.9, in fiscal years 2021, 2020, and 2019, respectively. Insurance and Self-insurance: We are self-insured for certain employee health benefits including medical, short-term disability, and dental. Our self-insured reserves are estimated based upon a number of factors including known claims, estimated incurred but not reported claims, and other analyses, which are based on historical information along with certain assumptions about future events. We carry medical coverage for our eligible workforce not covered by self-insured plans. Insurance benefits are not provided to retired employees. We also participate, along with other companies, in a group captive insurance company (“Captive”). The Captive insures losses related to worker's compensation, motor vehicle liability, product liability, and general liability. The Captive reinsures catastrophic losses for all participants, including Kimball International, in excess of predetermined amounts. We pay premiums to the Captive which accumulate as a prepaid deposit estimated for losses related to the above coverage. We also maintain a reserve for outstanding unpaid workers’ compensation claims, including an estimate of incurred but not reported claims. Additionally, we purchase insurance coverage for property insurance, director and officer liability insurance, umbrella coverage, and other risks. Income Taxes: Deferred income taxes are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The deferred taxes are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. We evaluate the recoverability of deferred tax assets each quarter by assessing the likelihood of future taxable income and available tax planning strategies that could be implemented to realize our deferred tax assets. If recovery is not likely, we provide a valuation allowance based on our best estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable. Future events could change management’s assessment. We classify net deferred tax assets and liabilities as non-current assets in our consolidated balance sheets. We operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex uncertain tax positions, which may require an extended period of time to resolve. A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. We maintain a liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions. As tax positions are effectively settled, the tax liability is adjusted accordingly. We recognize interest and penalties related to unrecognized tax benefits in the Provision for Income Taxes line of the Consolidated Statements of Income. Concentrations of Credit Risk: Certain business and credit risks are inherent in our business. We currently have notes receivable from independent dealership financing and other miscellaneous notes receivable. At June 30, 2021 and 2020, $1.0 million and $1.3 million, respectively, were outstanding under the notes receivable. Off-Balance Sheet Risk: Our off-balance sheet arrangements are limited to standby letters of credit and performance bonds entered into in the normal course of business as described in Note 10 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. Non-operating Income and Expense: Non-operating income and expense include the impact of such items as fair value adjustments on Supplemental Employee Retirement Plan (“SERP”) investments, amortization of actuarial income, foreign currency rate movements, bank charges, investment gain or loss, 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. Foreign Currency Translation: Our foreign operations use the U.S. Dollar as their functional currency. Foreign currency assets and liabilities are remeasured into functional currencies at end-of-period exchange rates, except for nonmonetary assets and equity, which are remeasured at historical exchange rates. Revenue and expenses are remeasured at the weighted average exchange rate during the fiscal year, except for expenses related to nonmonetary assets, which are remeasured at historical exchange rates. Gains and losses from foreign currency remeasurement are reported in the Non-operating income or expense line item on the Consolidated Statements of Income. Derivative Instruments and Hedging Activities: Derivative financial instruments are recognized on the balance sheet as assets and liabilities and are measured at fair value. Changes in the fair value of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is designated and effective as part of a hedge transaction, and if it is, the type of hedge transaction. Hedge accounting is utilized when a derivative is expected to be highly effective upon execution and continues to be highly effective over the duration of the hedge transaction. Hedge accounting permits gains and losses on derivative instruments to be deferred in accumulated other comprehensive income and subsequently included in earnings in the periods in which earnings are affected by the hedged item, or when the derivative is determined to be ineffective. We have used derivatives primarily for forward purchases of foreign currency to manage exposure to the variability of cash flows, primarily related to the foreign exchange rate risks inherent in forecasted transactions denominated in foreign currency and interest rate risk inherent in the variable rate of our revolving credit facility. We also hold an investment in stock warrants which is accounted for as a derivative instrument and is included in the Other Assets line of the Consolidated Balance Sheets. See Note 15 - Derivative Instruments of Notes to Consolidated Financial Statements for more information on derivative instruments and hedging activities. Stock-Based Compensation: As described in Note 13 - Stock Compensation Plans of Notes to Consolidated Financial Statements, we maintain a stock-based compensation plan which allows for the issuance of stock unit awards, restricted stock awards, stock options, stock appreciation rights, and other stock-based awards, each of which may include performance-based conditions, to certain employees, non-employee directors, consultants, and advisors. We recognize the cost resulting from share-based payment transactions using a fair-value-based method. The estimated fair value of restricted share units is based on the stock price at the date of the grant. The estimated fair value of outstanding relative total shareholder return performance units (“RTSR”) is based on the grant date fair value of RTSR awards using a Monte Carlo simulation which includes estimating the movement of stock prices and the effects of volatility, interest rates, and dividends. Stock-based compensation expense is recognized for the portion of the awards that are ultimately expected to vest. Forfeitures are recognized as they occur. Recently Adopted Accounting Pronouncements: In January 2021, the Financial Accounting Standards Board (“FASB”) issued guidance that refines the application of Topic 848 - Reference Rate Reform. The reference rate reform guidance was originally issued in March 2020 and temporarily eased the potential burden in accounting for reference rate reform primarily resulting from the discontinuance of the London Interbank Offered Rate (“LIBOR”). The original guidance provided optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, and applies prospectively to contract modifications that reference LIBOR beginning March 12, 2020 through December 31, 2022. The January 2021 update clarifies the FASB’s guidance as part of the ongoing monitoring of global reference rate reform. Entities are permitted to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. The guidance was effective immediately upon issuance and we adopted the guidance prospectively during our fourth quarter of fiscal year 2021. Our current debt agreement and our derivative agreement executed in July 2021 include language that addresses the transition from LIBOR to an alternative reference rate. We are electing the optional expedients in the guidance to preserve hedge accounting relationships. The adoption of this guidance did not have a material impact on our consolidated financial statements. 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 was adopted during our first quarter of fiscal year 2021 and was applied prospectively. The adoption of this guidance did not have a material effect on our 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 was adopted during our first quarter of fiscal year 2021 and was applied retrospectively. The adoption of this guidance did not have a material effect on our 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 was adopted during our first quarter of fiscal year 2021 and did not have a material effect on our consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted: |
