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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 September 30, 2020
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number    0-3279
KIMBALL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Indiana35-0514506
(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 ClassTrading Symbol(s)Name of each exchange on which registered
Class B Common Stock, par value $0.05 per shareKBAL
The 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  x                         Accelerated filer  o 
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.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes      No  x
The number of shares outstanding of the Registrant’s common stock as of October 23, 2020 was:
Class A Common Stock - 193,162 shares
Class B Common Stock - 36,784,289 shares



KIMBALL INTERNATIONAL, INC.
FORM 10-Q
INDEX
Page No.
 
PART I    FINANCIAL INFORMATION
 
 
PART II    OTHER INFORMATION
 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
(Unaudited) 
September 30,
2020
June 30,
2020
ASSETS  
Current Assets:  
Cash and cash equivalents$102,931 $91,798 
Short-term investments13,519 5,294 
Receivables, net of allowances of $2,490 and $2,574, respectively
51,208 68,365 
Inventories42,145 49,857 
Prepaid expenses and other current assets14,772 16,869 
Assets held for sale 215 
Total current assets224,575 232,398 
Property and equipment, net of accumulated depreciation of $196,642 and $193,641, respectively
90,341 92,041 
Right-of-use operating lease assets15,325 16,461 
Goodwill11,160 11,160 
Other intangible assets, net of accumulated amortization of $36,493 and $40,442, respectively
14,870 13,949 
Deferred tax assets8,454 7,485 
Other assets12,998 12,773 
Total Assets$377,723 $386,267 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt$30 $27 
Accounts payable36,553 40,229 
Customer deposits21,724 19,649 
Current portion of operating lease liability4,873 4,886 
Dividends payable3,506 3,454 
Accrued expenses32,096 41,076 
Total current liabilities98,782 109,321 
Other Liabilities:
Long-term debt, less current maturities79 109 
Long-term operating lease liability15,416 16,610 
Other15,753 15,431 
Total other liabilities31,248 32,150 
Shareholders’ Equity:
Common stock-par value $0.05 per share:
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
2,141 2,141 
Additional paid-in capital3,681 3,770 
Retained earnings307,177 305,024 
Accumulated other comprehensive income2,168 2,137 
Less: Treasury stock, at cost, 6,050,000 shares and 6,110,000 shares, respectively
(67,484)(68,286)
Total Shareholders’ Equity247,693 244,796 
Total Liabilities and Shareholders’ Equity$377,723 $386,267 
See Notes to Condensed Consolidated Financial Statements
3


KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
(Unaudited)
Three Months Ended
September 30
20202019
Net Sales$147,944 $201,452 
Cost of Sales95,586 131,082 
Gross Profit52,358 70,370 
Selling and Administrative Expenses41,689 50,914 
Restructuring Expense4,240 4,350 
Operating Income6,429 15,106 
Other Income (Expense):
Interest income102 607 
Interest expense(28)(23)
Non-operating income (expense), net743 1 
Other income (expense), net817 585 
Income Before Taxes on Income7,246 15,691 
Provision for Income Taxes1,860 4,307 
Net Income$5,386 $11,384 
Earnings Per Share of Common Stock:  
Basic Earnings Per Share$0.15 $0.31 
Diluted Earnings Per Share$0.14 $0.31 
Class A and B Common Stock:
Average Number of Shares Outstanding - Basic36,974 36,937 
Average Number of Shares Outstanding - Diluted37,220 37,247 
See Notes to Condensed Consolidated Financial Statements

4


KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
(Unaudited)(Unaudited)
Three Months EndedThree Months Ended
September 30, 2020September 30, 2019
(Unaudited)Pre-taxTaxNet of TaxPre-taxTaxNet of Tax
Net income$5,386 $11,384 
Other comprehensive income (loss):
Available-for-sale securities$(25)$7 $(18)$(8)$2 $(6)
Postemployment severance actuarial change178 (46)132 149 (39)110 
Reclassification to (earnings) loss:
Amortization of actuarial change(112)29 (83)(88)23 (65)
Other comprehensive income (loss)$41 $(10)$31 $53 $(14)$39 
Total comprehensive income$5,417 $11,423 

See Notes to Condensed Consolidated Financial Statements

5


KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
 (Unaudited)
Three Months Ended
September 30
20202019
Cash Flows From Operating Activities:
Net income$5,386 $11,384 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation3,592 3,610 
Amortization653 521 
(Gain) loss on sales of assets(6)41 
Restructuring and asset impairment charges830 2,675 
Deferred income tax and other deferred charges(1,006)(639)
Stock-based compensation949 1,661 
Other, net(138)2,295 
Change in operating assets and liabilities:
Receivables17,397 2,521 
Inventories7,712 (458)
Prepaid expenses and other current assets2,479 1,712 
Accounts payable(3,612)(192)
Customer deposits2,075 (631)
Accrued expenses(9,352)(13,444)
Net cash provided by operating activities26,959 11,056 
Cash Flows From Investing Activities:
Capital expenditures(2,823)(6,873)
Proceeds from sales of assets7 101 
Purchases of capitalized software(1,161)(481)
Purchases of available-for-sale securities(10,000)(5,971)
Maturities of available-for-sale securities1,750 12,667 
Other, net(21)47 
Net cash used for investing activities(12,248)(510)
Cash Flows From Financing Activities:
Change in long-term debt(27)(25)
Dividends paid to shareholders(3,315)(2,939)
Repurchase of employee shares for tax withholding(236)(842)
Net cash used for financing activities(3,578)(3,806)
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)
92,444 73,837 
Cash, Cash Equivalents, and Restricted Cash at End of Period (1)
$103,577 $80,577 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes$1,864 $34 
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)September 30,
2020
June 30,
2020
September 30,
2019
June 30,
2019
Cash and Cash Equivalents$102,931 $91,798 $79,934 $73,196 
Restricted cash included in Other Assets646 646 643 641 
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
6


KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts in Thousands, Except for Share and Per Share Data)
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Shareholders’ Equity
Three months ended September 30, 2020 (Unaudited)Class AClass B
Amounts at June 30, 2020$10 $2,141 $3,770 $305,024 $2,137 $(68,286)$244,796 
Net income5,386 5,386 
Other comprehensive income (loss)31 31 
Issuance of non-restricted stock (13,000 shares)
(168)168  
Compensation expense related to stock compensation plans949 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 principle134 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 income11,384 11,384 
Other comprehensive income (loss)39 39 
Issuance of non-restricted stock (9,000 shares)
(118)118  
Conversion of Class A to Class B common stock (2,000 shares)
   
Compensation expense related to stock compensation plans2,011 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
7


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 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 August 2018, the Financial Accounting Standards Board (“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 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 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 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 was adopted during our first quarter of fiscal year 2021 and did not have a material effect on our condensed consolidated financial statements.
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. 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 September 30, 2020 and June 30, 2020 our goodwill totaled $11.2 million. During the quarter ended September 30, 2020, no goodwill impairment was recognized.
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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:
 September 30, 2020June 30, 2020
(Amounts in Thousands)CostAccumulated
Amortization
Net ValueCostAccumulated
Amortization
Net Value
Capitalized Software$40,643 $33,340 $7,303 $43,671 $37,566 $6,105 
Customer Relationships7,050 2,054 4,996 7,050 1,871 5,179 
Trade Names3,570 1,041 2,529 3,570 952 2,618 
Non-Compete Agreements100 58 42 100 53 47 
Other Intangible Assets$51,363 $36,493 $14,870 $54,391 $40,442 $13,949 
Amortization expense related to intangible assets was, in thousands, $653 during the quarter ended September 30, 2020, and $521 during the quarter ended September 30, 2019. Amortization expense in future periods is expected to be, in thousands, $2,170 for the remainder of fiscal year 2021, and $2,460, $2,068, $1,806, and $1,649 in the four years ending June 30, 2025, and $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 no 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 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.
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.
9


Components of the Non-operating income (expense), net line, were:
 Three Months Ended
 September 30
(Amounts in Thousands)20202019
Gain on Supplemental Employee Retirement Plan Investments$758 $58 
Other(15)(57)
 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 Phase 1:
In June 2019, we announced a transformation restructuring plan to optimize resources for future growth, improve efficiency, and build capabilities across our organization. We believe phase 1 of our transformation restructuring plan 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:
We reviewed our overall manufacturing facility footprint 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 consolidated a David Edward production facility in Red Lion, Pennsylvania into our Baltimore, Maryland 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 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.
We estimate that the total pre-tax restructuring charges upon completion of the plan will be approximately $11.1 million. The restructuring charges are expected to consist of approximately $3.6 million for severance and other employee-related costs, $3.5 million for facility exit and other costs, and $4.0 million for asset impairment. Approximately 55% of the total cost estimate is expected to be cash expense.
10


A summary of the charges recorded in connection with phase 1 of the transformation restructuring plan is as follows:
Three Months EndedCharges Incurred to Date
September 30
(Amounts in Thousands)20202019
Cash-related restructuring charges:
Severance and other employee related costs$62 $1,206 $2,884 
Facility exit costs and other cash charges331 469 2,371 
Total cash-related restructuring charges$393 $1,675 $5,255 
Non-cash charges:
Transition stock compensation 470 725 
Impairment of assets332 2,205 4,022 
Other non-cash charges38  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 costsFacility exit and other costsTotal
Balance at June 30, 2020$167 $65 $232 
Additions charged to expense62  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
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$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 is as follows:
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 charges127 
Total cash-related restructuring charges$3,017 
Non-cash charges:
Impairment of assets460 
Total charges$3,477 
A summary of the current period activity in accrued restructuring related to phase 2 of the transformation restructuring plan is as follows:
(Amounts in Thousands)Severance and other employee related costs
Balance at June 30, 2020$ 
Additions charged to expense2,890 
Cash payments charged against reserve(2,087)
Balance at September 30, 2020$803 

Note 4. Revenue
Disaggregation of Revenue
The following table provides information about revenue by end market:
 Three Months Ended
September 30
(Amounts in Millions)20202019
Workplace$95.3 $125.8 
Health20.6 28.9 
Hospitality32.0 46.8 
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 Workplace end market includes sales to the commercial, financial, government and 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.
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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 three months ended September 30, 2020 that was included in the June 30, 2020 customer deposit balance was $14.5 million.
Note 5. 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 no 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.
Certain leases have terms that are dependent upon the occurrence of events, activities, or 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 Condensed Consolidated Statements of Income and Comprehensive Income in the same 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 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 twelve months or less.
The components of our lease expenses are as follows:
Three Months Ended
September 30
(Amounts in Millions)20202019
Operating lease expense$0.8 $0.8 
Variable lease expense0.7 0.7 
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 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 charges are included in the Restructuring Expense line item on our Condensed Consolidated Statements of Income.
13


Supplemental cash flow and other information related to leases are as follows:
Three Months Ended
September 30
(Amounts in Millions)20202019
Cash flow information:
Operating lease payments impacting lease liability$1.2 $1.2 
Leased assets obtained in exchange for operating lease liabilities$ $0.1 
As of
September 30
(Amounts in Millions)20202019
Other information:
Weighted-average remaining term (in years)5.46.1
Weighted-average discount rate4.7 %4.6 %
The following table summarizes the future minimum lease payments as of September 30, 2020:
Fiscal Year Ended
(Amounts in Millions)
June 30 (1)
2021$3.8 
20224.7 
20234.1 
20243.4 
20253.1 
Thereafter3.9 
Total lease payments$23.0 
Less interest2.7 
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.

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Note 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
September 30
(Amounts in Thousands, Except for Per Share Data)20202019
Net Income$5,386 $11,384 
Average Shares Outstanding for Basic EPS Calculation36,974 36,937 
Dilutive Effect of Average Outstanding Compensation Awards246 310 
Average Shares Outstanding for Diluted EPS Calculation37,220 37,247 
Basic Earnings Per Share$0.15 $0.31 
Diluted Earnings Per Share$0.14 $0.31 

Note 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 25.7% for the three months ended September 30, 2020, which was equal to the combined federal and state statutory tax rate. Our effective tax rate was 27.4% for the three months ended September 30, 2019, which was higher than the combined federal and state statutory rate primarily due to a prior year tax provision adjustment.
Note 8. Inventories
Inventory components were as follows:
(Amounts in Thousands)September 30,
2020
June 30,
2020
Finished products$25,099 $29,081 
Work-in-process1,247 1,648 
Raw materials32,119 35,295 
Total FIFO inventory58,465 66,024 
LIFO reserve(16,320)(16,167)
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 month periods ended September 30, 2020 and 2019 was immaterial.
15


Note 9. Accumulated Other Comprehensive Income
During the three months ended 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
(Amounts in Thousands)Unrealized Investment Gain (Loss)Postemployment Benefits Net Actuarial Gain (Loss)Accumulated Other Comprehensive Income
Balance at June 30, 2020$32 $2,105 $2,137 
Other comprehensive income (loss) before reclassifications(18)132 114 
Reclassification to (earnings) loss (83)(83)
Net current-period other comprehensive income (loss)(18)49 31 
Balance at September 30, 2020$14 $2,154 $2,168 
Balance at June 30, 2019$23 $1,914 $1,937 
Other comprehensive income (loss) before reclassifications(6)110 104 
Reclassification to (earnings) loss (65)(65)
Net current-period other comprehensive income (loss)(6)45 39 
Balance at September 30, 2019$17 $1,959 $1,976 

The following reclassifications were made from Accumulated Other Comprehensive Income to the Condensed Consolidated Statements of Income:
Reclassifications from Accumulated Other Comprehensive IncomeThree Months EndedAffected Line Item in the Condensed Consolidated Statements of Income
September 30
(Amounts in Thousands)20202019
Postemployment Benefits Amortization of Actuarial Gain (1)
$112 $88 Non-operating income (expense), net
(29)(23)Benefit (Provision) for Income Taxes
Total Reclassifications for the Period$83 $65 Net Income
Amounts in parentheses indicate reductions to income.
(1) See Note 14 - Postemployment Benefits of Notes to Condensed Consolidated Financial Statements for further information on postemployment benefit plans.
Note 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 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
16


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 $8.7 million as of 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, no liability has been recorded as of September 30, 2020 with respect to the standby letters of 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 three months ended September 30, 2020 and 2019 were as follows:
Three Months Ended
September 30
(Amounts in Thousands)20202019
Product Warranty Liability at the beginning of the period$3,190 $2,238 
Additions to warranty accrual (including changes in estimates)427 278 
Settlements made (in cash or in kind)(572)(370)
Product Warranty Liability at the end of the period$3,045 $2,146 

Note 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.
There were 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, 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 12 - Investments of Notes to Condensed Consolidated Financial Statements for further information regarding the investment in equity securities without readily determinable fair value, and Note 13 - Derivative Instruments of Notes to Condensed Consolidated Financial Statements for further information regarding the investment in stock warrants. No purchases or sales of Level 3 assets occurred during the three months ended September 30, 2020.
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Financial Instruments Recognized at Fair Value:
The following methods and assumptions were used to measure fair value:
Financial InstrumentLevelValuation Technique/Inputs Used
Cash Equivalents: Money market funds1Market - Quoted market prices
Available-for-sale securities: Secondary market certificates of deposit2Market - 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 securities1Market - Quoted market prices
Trading securities: Mutual funds held in nonqualified SERP1Market - Quoted market prices
Derivative Assets: Stock warrants3
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.

Recurring Fair Value Measurements:
As of September 30, 2020 and June 30, 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:
September 30, 2020
(Amounts in Thousands)Level 1Level 2Level 3Total
Assets    
Cash equivalents: Money market funds$98,571 $ $ $98,571 
Available-for-sale securities: Secondary market certificates of deposit 3,519  3,519 
Available-for-sale securities: U.S. Treasury securities10,000   10,000 
Trading Securities: Mutual funds in nonqualified SERP12,708   12,708 
Derivatives: Stock warrants  1,500 1,500 
Total assets at fair value$121,279 $3,519 $1,500 $126,298 
     
June 30, 2020
(Amounts in Thousands)Level 1Level 2Level 3Total
Assets    
Cash equivalents: Money market funds$91,035 $ $ $91,035 
Available-for-sale securities: Secondary market certificates of deposit 5,294  5,294 
Trading Securities: Mutual funds in nonqualified SERP11,975   11,975 
Derivatives: Stock warrants  1,500 1,500 
Total assets at fair value$103,010 $5,294 $1,500 $109,804