KBAL 10-Q Quarterly Report Sept. 30, 2016

KIMBALL INTERNATIONAL INC

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10-Q 1 kbal10q09302016q1.htm KIMBALL INTERNATIONAL, INC. FORM 10-Q Document

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, 2016

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

For the transition period from to

Commission File Number 0-3279

KIMBALL INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



Indiana		35-0514506
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
1600 Royal Street, Jasper, Indiana		47549-1001
(Address of principal executive offices)		(Zip Code)

(812) 482-1600

Registrant’s telephone number, including area code

Not Applicable

Former name, former address and former fiscal year, if changed since last report

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

Yes x No o

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

Yes x No o

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

Large accelerated filer o Accelerated filer x

Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

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

Yes o No x

The number of shares outstanding of the Registrant’s common stock as of October 20, 2016 was:

Class A Common Stock - 285,685 shares

Class B Common Stock - 37,007,635 shares

KIMBALL INTERNATIONAL, INC.

FORM 10-Q

INDEX



		Page No.

PART I FINANCIAL INFORMATION

	Item 1. Financial Statements
	Condensed Consolidated Balance Sheets - September 30, 2016 (Unaudited) and June 30, 2016	3
	Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended September 30, 2016 and 2015	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended September 30, 2016 and 2015	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended September 30, 2016 and 2015	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	25
	Item 4. Controls and Procedures	26

PART II OTHER INFORMATION

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 6. Exhibits	28

SIGNATURES		29

EXHIBIT INDEX		30

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, 2016			June 30, 2016
ASSETS
Current Assets:
Cash and cash equivalents	$	46,861		$	47,576
Short-term investments	15,842			—
Receivables, net of allowances of $2,291 and $2,145, respectively	52,716			51,710
Inventories	41,765			40,938
Prepaid expenses and other current assets	5,773			10,254
Assets held for sale	—			9,164
Total current assets	162,957			159,642
Property and Equipment, net of accumulated depreciation of $184,339 and $181,500, respectively	85,657			87,086
Intangible Assets, net of accumulated amortization of $35,383 and $35,147, respectively	2,898			3,021
Deferred Tax Assets	14,261			12,790
Other Assets	12,306			11,031
Total Assets	$	278,079		$	273,570

LIABILITIES AND SHARE OWNERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	31		$	29
Accounts payable	44,020			41,826
Customer deposits	20,052			18,625
Dividends payable	2,316			2,103
Accrued expenses	40,352			44,292
Total current liabilities	106,771			106,875
Other Liabilities:
Long-term debt, less current maturities	188			212
Other	16,304			16,615
Total other liabilities	16,492			16,827
Share Owners’ Equity:
Common stock-par value $0.05 per share:
Class A - Shares authorized: 50,000,000 Shares issued: 286,000 and 292,000, respectively	14			14
Class B - Shares authorized: 100,000,000 Shares issued: 42,738,000 and 42,733,000, respectively	2,137			2,137
Additional paid-in capital	1,144			2,917
Retained earnings	211,006			205,104
Accumulated other comprehensive income	1,357			1,311
Less: Treasury stock, at cost, 5,641,000 shares and 5,512,000 shares, respectively	(60,842		)	(61,615		)
Total Share Owners’ Equity	154,816			149,868
Total Liabilities and Share Owners’ Equity	$	278,079		$	273,570

See Notes to Condensed Consolidated Financial Statements

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except for Per Share Data)



	(Unaudited)
	Three Months Ended
	September 30
	2016			2015
Net Sales	$	174,996		$	156,569
Cost of Sales	116,309			105,487
Gross Profit	58,687			51,082
Selling and Administrative Expenses	43,227			40,171
Restructuring (Gain) Expense	(1,832		)	1,186
Operating Income	17,292			9,725
Other Income (Expense):
Interest income	110			71
Interest expense	(5		)	(6		)
Non-operating income (expense), net	292			(689		)
Other income (expense), net	397			(624		)
Income Before Taxes on Income	17,689			9,101
Provision for Income Taxes	6,691			3,479
Net Income	$	10,998		$	5,622

Earnings Per Share of Common Stock:
Basic Earnings Per Share	$	0.29		$	0.15
Diluted Earnings Per Share	$	0.29		$	0.15

Dividends Per Share of Common Stock	$	0.060		0.055

Average Number of Shares Outstanding:
Class A and B Common Stock:
Basic	37,609			37,515
Diluted	38,008			37,827

See Notes to Condensed Consolidated Financial Statements

See Exhibit 11 Computation of Earnings Per Share for explanatory notes.

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)



	Three Months Ended									Three Months Ended
	September 30, 2016									September 30, 2015
(Unaudited)	Pre-tax			Tax			Net of Tax			Pre-tax			Tax			Net of Tax
Net income							$	10,998								$	5,622
Other comprehensive income (loss):
Available-for-sale securities	$	(23	)	$	9		$	(14	)	$	—		$	—		$	—
Postemployment severance actuarial change	243			(94		)	149			234			(91		)	143
Reclassification to (earnings) loss:
Amortization of actuarial change	(145		)	56			(89		)	(114		)	44			(70		)
Other comprehensive income (loss)	$	75		$	(29	)	$	46		$	120		$	(47	)	$	73
Total comprehensive income							$	11,044								$	5,695

See Notes to Condensed Consolidated Financial Statements

KIMBALL INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)



	(Unaudited)
	Three Months Ended
	September 30
	2016			2015
Cash Flows From Operating Activities:
Net income	$	10,998		$	5,622
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,935			3,633
(Gain) Loss on sales of assets	(2,076		)	12
Restructuring and asset impairment charges	—			19
Deferred income tax and other deferred charges	(1,504		)	(397		)
Stock-based compensation	1,779			1,525
Excess tax benefits from stock-based compensation	—			(301		)
Other, net	(819		)	(142		)
Change in operating assets and liabilities:
Receivables	(986		)	4,623
Inventories	(827		)	(8,460		)
Prepaid expenses and other current assets	4,478			263
Accounts payable	594			3,866
Customer deposits	1,427			1,427
Accrued expenses	(3,987		)	(5,366		)
Net cash provided by operating activities	13,012			6,324
Cash Flows From Investing Activities:
Capital expenditures	(2,353		)	(5,359		)
Proceeds from sales of assets	11,306			34
Purchases of capitalized software	(113		)	(495		)
Purchases of available-for-sale securities	(15,899		)	—
Other, net	(702		)	(82		)
Net cash used for investing activities	(7,761		)	(5,902		)
Cash Flows From Financing Activities:
Net change in capital leases and long-term debt	(22		)	(20		)
Dividends paid to Share Owners	(2,060		)	(1,902		)
Repurchases of Common Stock	(2,717		)	(9,596		)
Excess tax benefits from stock-based compensation	—			301
Repurchase of employee shares for tax withholding	(1,167		)	(1,477		)
Net cash used for financing activities	(5,966		)	(12,694		)
Net Decrease in Cash and Cash Equivalents	(715		)	(12,272		)
Cash and Cash Equivalents at Beginning of Period	47,576			34,661
Cash and Cash Equivalents at End of Period	$	46,861		$	22,389
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes	$	321		$	236
Interest expense	$	5		$	6

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,” “we,” “us,” or “our”) have been prepared in accordance with the instructions to Form 10-Q. As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although we believe that the disclosures are adequate to make the information presented not misleading. Intercompany transactions and balances have been eliminated. Management believes the financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly the financial statements for the interim periods. The results of operations for the interim periods shown in this report are not necessarily indicative of results for any future interim period or for the entire fiscal year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in our latest annual report on Form 10-K.

Note 2. Recent Accounting Pronouncements and Supplemental Information

Recent Accounting Pronouncements:

In June 2016, the Financial Accounting Standards Board (“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. The guidance is effective for our first quarter of fiscal year 2021 with early adoption in our fiscal year 2020 permitted. We have not yet determined the effect of this guidance on our consolidated financial statements.

In March 2016, the FASB issued guidance on simplifying the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification on the statement of cash flows. The guidance is effective for our first quarter of fiscal year 2018 with early adoption permitted. We have not yet determined the effect of this guidance on our consolidated financial statements.

In February 2016, the FASB issued guidance that revises the accounting for leases. The guidance is intended to improve financial reporting of leasing transactions by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Leases will continue to be classified as either operating or finance leases, with the classification affecting the pattern of expense recognition in the statement of income. The guidance will also require additional disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for our first quarter of fiscal year 2020 with early adoption permitted, and is required to be applied using a modified retrospective approach to each prior reporting period. We have not yet determined the effect of this guidance on our consolidated financial statements.

In January 2016, the FASB issued guidance which is intended to improve the recognition and measurement of financial instruments. The guidance revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with the fair value of financial instruments. The guidance is effective prospectively for our first quarter of fiscal year 2019 financial statements with early adoption allowed on certain provisions. We have not yet determined the effect of this guidance on our consolidated financial statements.

In November 2015, the FASB issued guidance on simplifying the balance sheet classification of deferred taxes. The guidance requires the classification of deferred tax assets and liabilities as noncurrent in a classified balance sheet. The current requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not affected by this update. The guidance is effective for our first quarter of fiscal year 2018 financial statements with early adoption permitted, and allows for the use of either a prospective or retrospective transition method. We early adopted using the retrospective transition method for our fiscal year ended June 30, 2016, and thus reclassified current deferred tax assets and liabilities to noncurrent in our consolidated balance sheet as presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016 .

In July 2015, the FASB issued guidance on simplifying the measurement of inventory which applies to inventory that is measured using first-in, first-out (“FIFO”) or average cost. Inventory within the scope of this update is required to be measured at the lower of cost or net realizable value, which is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. The guidance does not impact inventory measured on a last-in, first-out (“LIFO”) basis. The standards update is effective prospectively for our first quarter fiscal year 2018 financial statements with early adoption permitted. We do not expect the adoption to have a material effect on our consolidated financial statements.

In April 2015, the FASB issued guidance that requires debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability and further clarification guidance allows the cost of securing a revolving line of credit to be recorded as a deferred asset regardless of whether a balance is outstanding. We adopted this guidance for our first quarter of fiscal year 2017 financial statements. The adoption did not have a material effect on our consolidated financial statements.

In April 2015, the FASB issued guidance on customer’s accounting for cloud computing fees and provided criteria for customers in a cloud computing arrangement to use to determine whether the arrangement includes a license of software. The guidance clarifies that a software license included in a cloud computing arrangement should be accounted for consistent with the acquisition of other software licenses, whereas a cloud computing arrangement that does not include a software license should be accounted for as a service contract. We adopted this guidance beginning in our first quarter of fiscal year 2017 using the prospective transition method. The adoption did not have a material effect on our consolidated financial statements.

In June 2014, the FASB provided explicit guidance on how to account for share-based payments granted to employees in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The guidance was effective prospectively in our first quarter of fiscal year 2017. The adoption did not have a material effect on our consolidated financial statements.

In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. To achieve this core principle, the guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance addresses several areas including transfer of control, contracts with multiple performance obligations, and costs to obtain and fulfill contracts. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB decided to defer the effective date for this new revenue standard by one year, which will make the guidance effective for our first quarter fiscal year 2019 financial statements using either of two acceptable adoption methods: (i) retrospective adoption to each prior reporting period presented with the option to elect certain practical expedients; or (ii) adoption with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures. In March 2016, the FASB issued additional guidance which further clarifies assessing whether an entity is a principal or an agent in a revenue transaction, and impacts whether an entity reports revenue on a gross or net basis; in April 2016, the FASB issued additional guidance that addresses identifying performance obligations and implementing licensing guidance; and in May 2016, the FASB issued additional guidance that clarifies collectability, noncash consideration, and other transition issues. The amendments have the same effective date and transition requirements as the new revenue standard. We have not yet selected a transition method nor determined the effect of this guidance on our consolidated financial statements.

Notes Receivable and Trade Accounts Receivable:

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

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

basis. Adjustments to the allowance for credit losses are recorded in selling and administrative expenses. Customary terms require payment within 30 days , with terms beyond 30 days being considered extended.

Income Taxes:

In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate which is based on expected annual income, statutory tax rates, and available tax planning opportunities in the various jurisdictions in which we operate. Unusual or infrequently occurring items are separately recognized in the quarter in which they occur. Our effective tax rate for the first three months of fiscal years 2017 and 2016 was 37.8% and 38.2% , respectively, and neither period included material unusual items.

Non-operating Income (Expense), net:

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

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



	Three Months Ended
	September 30
(Amounts in Thousands)	2016			2015
Foreign Currency Loss	$	(7	)	$	(23	)
Gain (Loss) on Supplemental Employee Retirement Plan Investments	367			(575		)
Other	(68		)	(91		)
Non-operating income (expense), net	$	292		$	(689	)

Note 3. Inventories

Inventory components were as follows:



(Amounts in Thousands)	September 30, 2016			June 30, 2016
Finished products	$	27,287		$	26,494
Work-in-process	1,519			1,840
Raw materials	25,293			25,070
Total FIFO inventory	54,099			53,404
LIFO reserve	(12,334		)	(12,466		)
Total inventory	$	41,765		$	40,938

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, 2016 and 2015 was immaterial.

Note 4. Accumulated Other Comprehensive Income

During the three months ended September 30, 2016 and September 30, 2015 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, 2016	$	—		$	1,311		$	1,311
Other comprehensive income (loss) before reclassifications	(14		)	149			135
Reclassification to (earnings) loss	—			(89		)	(89		)
Net current-period other comprehensive income (loss)	(14		)	60			46
Balance at September 30, 2016	$	(14	)	$	1,371		$	1,357

Balance at June 30, 2015	$	—		$	1,229		$	1,229
Other comprehensive income (loss) before reclassifications	—			143			143
Reclassification to (earnings) loss	—			(70		)	(70		)
Net current-period other comprehensive income (loss)	—			73			73
Balance at September 30, 2015	$	—		$	1,302		$	1,302

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



Reclassifications from Accumulated Other Comprehensive Income	Three Months Ended						Affected Line Item in the Condensed Consolidated Statements of Income
	September 30,
(Amounts in Thousands)	2016			2015
Postemployment Benefits Amortization of Actuarial Gain ⁽¹⁾	$	92		$	77		Cost of Sales
	53			37			Selling and Administrative Expenses
	(56		)	(44		)	Provision for Income Taxes
Total Reclassifications for the Period	$	89		$	70		Net Income

Amounts in parentheses indicate reductions to income.

(1) See Note 11 - Postemployment Benefits of Notes to Condensed Consolidated Financial Statements for further information on postemployment benefit plans.

Note 5. Commitments and Contingent Liabilities

Guarantees:

Standby letters of credit are issued to third-party suppliers, lessors, insurance, and financial institutions and can only be drawn upon in the event of Kimball’s failure to pay its obligations to a beneficiary. As of September 30, 2016 , we had a maximum financial exposure from unused standby letters of credit totaling $1.2 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 $1.9 million as of September 30, 2016 .

We are not aware of circumstances that would require us to perform under any of these arrangements and believe that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect our consolidated financial statements. Accordingly, no liability has been recorded as of September 30, 2016 with respect to the standby letters of credit or performance bonds. Kimball also enters into commercial letters of credit to facilitate payments to vendors and from customers.

We estimate product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction with the length of the warranty offered. Management refines the warranty liability periodically based on changes in historical cost trends and in certain cases where specific warranty issues become known.

Product Warranties:

Changes in the product warranty accrual for the three months ended September 30, 2016 and 2015 were as follows:



	Three Months Ended
	September 30
(Amounts in Thousands)	2016			2015
Product Warranty Liability at the beginning of the period	$	2,351		$	2,264
Additions to warranty accrual (including changes in estimates)	213			394
Settlements made (in cash or in kind)	(306		)	(305		)
Product Warranty Liability at the end of the period	$	2,258		$	2,353

Other Contingency:

In March 2016, in connection with a renewal of one of our contracts, we became aware of noncompliance and inaccuracies in our General Services Administration (“GSA”) subcontractor reporting. Accordingly, we retained outside legal counsel to assist in conducting an internal review of our reporting practices, and we self-reported the matter and the results of the internal review to the GSA. We have promptly responded to inquiries from the GSA since our initial reporting, and we intend to cooperate fully with any further inquiries or investigations. While we are not able to reasonably estimate the future financial impact, if any, of the possible sanctions at this time, any of them could, if imposed, have a material adverse impact on our business, future financial position, results of operations, or cash flows. The timing of the government’s review and determination of any outcome of these matters is uncertain and, therefore, it is unclear as to when and to what extent, if any, our previously issued earnings guidance might be impacted. We have incurred, and will continue to incur, legal and related costs in connection with our internal review and the government’s response to this matter. During the first quarter of fiscal year 2017, sales related to our GSA contracts were approximately 8.8% of total Kimball International, Inc. sales, with one contract accounting for approximately 5.2% of total Kimball International, Inc. sales and the other contract accounting for approximately 3.6% of Kimball International, Inc. sales.

Note 6. Restructuring

We recognized pre-tax restructuring gain of $1.8 million in the three months ended September 30, 2016 , and recognized $1.2 million of restructuring expense in the three months ended September 30, 2015 . We utilize available market prices and management estimates to determine the fair value of impaired fixed assets. Restructuring activity is included in the Restructuring (Gain) Expense line item on the Company’s Condensed Consolidated Statements of Income.

Capacity Utilization Restructuring Plan:

In November 2014, we announced a capacity utilization restructuring plan which included the consolidation of our metal fabrication production from an operation located in Post Falls, Idaho, into existing production facilities in Indiana, and the reduction of our Company plane fleet from two jets to one.

The transfer of work from our Idaho facility involved the start-up of metal fabrication capabilities in an existing Company-owned facility, along with the transfer of certain assembly operations into two additional existing Company-owned facilities, all located in southern Indiana. All production was transferred out of the Idaho facility as of March 2016, after which work continued in the Indiana facilities to train employees, ramp up production and eliminate the inefficiencies associated with the start-up of production in these facilities. The improvement of customer delivery, supply chain dynamics, and reduction of transportation costs will generate pre-tax annual savings of approximately $5 million . During our first quarter of fiscal year 2017 savings began to ramp up, and we achieved savings of $0.9 million . We expect to achieve the full quarterly savings level during our quarter ending December 31, 2016. In addition, during the first quarter of fiscal year 2017 , we sold our Post Falls, Idaho facility and land which was classified as held for sale. We recognized a pre-tax gain of $2.1 million as the $12.0 million selling price net of selling costs exceeded the book value of the facility and land.

The reduction of our plane fleet from two jets to one reduced our cost structure while aligning the plane fleet size with our needs following the spin-off of Kimball Electronics on October 31, 2014. The sale of the plane resulted in a $0.2 million pre-tax gain in the third quarter of fiscal year 2015 which partially offset the impairment charge of $1.1 million recorded in the second quarter of fiscal year 2015. As a result of the aircraft fleet reduction, our annual pre-tax savings are $0.8 million .

The restructuring plan is substantially complete with pre-tax restructuring totaling $10.8 million . Excluding the pre-tax gain from the sale of the Idaho facility of $2.1 million , the restructuring expense consisted of $4.9 million of transition, training, and other employee costs, $6.9 million of plant closure and other exit costs, and $1.1 million of non-cash asset impairment. Approximately 91% of the total restructuring expense was cash expense.



Summary of Restructuring Plan:
	Accrued June 30, 2016		Three Months Ended September 30, 2016										Total Incurred Since Plan Announcement			Total Expected Plan Costs
(Amounts in Thousands)	Accrued June 30, 2016		Amounts Charged / (Gain) Cash			Amounts Charged Non-cash		Amounts Utilized/ Cash Paid			Accrued September 30, 2016 ⁽¹⁾		Total Incurred Since Plan Announcement			Total Expected Plan Costs
Capacity Realignment and Post Falls, Idaho Exit
Transition and Other Employee Costs	$	444	$	(24	)	$	—	$	(224	)	$	196	$	4,681		$	4,681
Asset Write-downs	—		—			—		—			—		284			284
Plant Closure and Other Exit Costs	7		273			—		(280		)	—		6,857			6,857
Gain on Sale of Facility	—		(2,081		)	—		2,081			—		(2,081		)	(2,081		)
Total	$	451	$	(1,832	)	$	—	$	1,577		$	196	$	9,741		$	9,741
Plane Fleet Reduction
Transition and Other Employee Costs	$	—	$	—		$	—	$	—		$	—	$	224		$	224
Asset Write-downs	—		—			—		—			—		822			822
Total	$	—	$	—		$	—	$	—		$	—	$	1,046		$	1,046
Total Restructuring Plan	$	451	$	(1,832	)	$	—	$	1,577		$	196	$	10,787		$	10,787


(1)	The accrued restructuring balance at September 30, 2016 is recorded in current liabilities.

Note 7. Assets Held for Sale

At September 30, 2016 , no assets were classified as held for sale. During the first quarter of fiscal year 2017 , we sold our Post Falls, Idaho facility and land which was classified as held for sale. We recognized a pre-tax gain of $2.1 million as the $12.0 million selling price exceeded the book value of the facility and land net of selling costs.

At June 30, 2016 , assets totaling $9.2 million were classified as held for sale for the facility and land located in Post Falls, Idaho.

Note 8. Fair Value

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


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


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


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

Our policy is to recognize transfers between these levels as of the end of each quarterly reporting period. There were no transfers between these levels during the three months ended September 30, 2016 . There were also no changes in the inputs or valuation techniques used to measure fair values compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016 .

We hold a total investment of $1.3 million in a privately-held company, consisting of $0.5 million in non-marketable equity securities invested during fiscal year 2016, and $0.8 million in stock warrants invested during the quarter ended September 30, 2016 . The investment in non-marketable equity securities is classified as a level 3 financial asset and is accounted for using the cost method, 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 9 - Investments of Notes to Condensed Consolidated Financial Statements for further information regarding the investment in non-marketable equity securities, and Note 10 - Derivative Instruments of Notes to Condensed Consolidated Financial Statements for further information regarding the investment in stock warrants. No other purchases or sales of level 3 assets occurred during the three months ended September 30, 2016 .

Financial Instruments Recognized at Fair Value:

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



Financial Instrument	Level	Valuation Technique/Inputs Used
Cash Equivalents: Money market funds	1	Market - Quoted market prices
Cash Equivalents: Commercial paper	2	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	2	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	2	Market - Based on market data which use evaluated pricing models and incorporate available trade, bid, and other market information.
Trading securities: Mutual funds held in nonqualified SERP	1	Market - Quoted market prices
Derivative Assets: Stock warrants	3	Market - Stock warrants are analyzed for reasonableness on a quarterly basis. The privately-held company is currently in an early stage of start-up. The pricing of recent purchases or sales of the investment are considered, as well as positive and negative qualitative evidence, in the assessment of fair value.

Recurring Fair Value Measurements:

As of September 30, 2016 and June 30, 2016 , the fair values of financial assets that are measured at fair value on a recurring basis using the market approach were as follows:



(Amounts in Thousands)	September 30, 2016
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents: Money market funds	$	40,603	$	—	$	—	$	40,603
Cash equivalents: Commercial paper	—		4,000		—		4,000
Available-for-sale securities: Secondary market certificates of deposit	—		9,890		—		9,890
Available-for-sale securities: Municipal bonds	—		5,952		—		5,952
Trading Securities: Mutual funds in nonqualified SERP	10,624		—		—		10,624
Derivatives: Stock warrants	—		—		750		750
Total assets at fair value	$	51,227	$	19,842	$	750	$	71,819

(Amounts in Thousands)	June 30, 2016
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents: Money market funds	$	45,880	$	—	$	—	$	45,880
Trading Securities: Mutual funds in nonqualified SERP	10,001		—		—		10,001
Total assets at fair value	$	55,881	$	—	$	—	$	55,881

The nonqualified supplemental employee retirement plan (“SERP”) assets consist primarily of equity funds, balanced funds, target date funds, a bond fund, and a money market fund. The SERP investment assets are offset by a SERP liability which represents Kimball’s obligation to distribute SERP funds to participants. See Note 9 - Investments of Notes to Condensed Consolidated Financial Statements for further information regarding the SERP.

Financial Instruments Not Carried At Fair Value:

Financial instruments that are not reflected in the Condensed Consolidated Balance Sheets at fair value that have carrying amounts which approximate fair value include the following:



Financial Instrument	Level	Valuation Technique/Inputs Used
Notes receivable	2	Market - Price approximated based on the assumed collection of receivables in the normal course of business, taking into account the customer’s non-performance risk
Non-marketable equity securities (cost-method investments, which carry shares at cost except in the event of impairment)	3	Cost Method, with Impairment Recognized Using a Market-Based Valuation Technique - See the explanation below the table regarding the method used to periodically estimate the fair value of cost-method investments.
Long-term debt (carried at amortized cost)	3	Income - Price estimated using a discounted cash flow analysis based on quoted long-term debt market rates, taking into account Kimball’s non-performance risk

The $0.5 million investment in non-marketable equity securities of a privately-held company is accounted for using the cost method. Kimball does not have the ability to exercise significant influence over the operating and financial policies of the investee. On a periodic basis, but no less frequently than quarterly, these investments are assessed for impairment when there are events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. If a significant

adverse effect on the fair value of the investment were to occur and was deemed to be other-than-temporary, the fair value of the investment would be estimated, and the amount by which the carrying value of the cost-method investment exceeds its fair value would be recorded as an impairment loss.

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

Note 9. Investments

Investment Portfolio:

During first quarter of fiscal year 2017 we began to invest available cash into an investment portfolio. Our investment portfolio as of September 30, 2016 was comprised of municipal bonds and certificates of deposit purchased in the secondary market. The municipal bonds include general obligation bonds and revenue bonds, some of which are pre-refunded. Our investment policy dictates that municipal bonds 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. As of June 30, 2016 , we held no investments.

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 the Company’s investment portfolio were as follows:



	September 30, 2016
(Amounts in Thousands)	Certificates of Deposit		Municipal Bonds
Within one year	$	4,286	$	2,441
After one year through two years	5,604		3,511
Total Fair Value	$	9,890	$	5,952

All investments are classified as available-for-sale securities which are recorded at fair value. See Note 8 - Fair Value 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 security. Unrealized losses on municipal bonds and certificates of deposit 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 municipal bonds and certificates of deposit have incurred a credit loss. Otherwise, unrealized gains and losses are recorded net of the tax-related effect as a component of Share Owners’ Equity.



	September 30, 2016
(Amounts in Thousands)	Certificates of Deposit			Municipal Bonds
Amortized cost basis	$	9,893		$	5,972
Unrealized holding gains	6			—
Unrealized holding losses	(9		)	(20		)
Fair Value	$	9,890		$	5,952

No investments were in a continuous unrealized loss position for greater than 12 months as of September 30, 2016 . There were no realized gains or losses as a result of sales in the three months ended September 30, 2016 .

Supplemental Employee Retirement Plan Investments:

Kimball maintains a self-directed supplemental employee retirement plan (“SERP”) in which executive employees are eligible to participate. The SERP utilizes a rabbi trust, and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy. Kimball recognizes SERP investment assets on the Condensed Consolidated Balance Sheets at current fair value. A SERP liability of the same amount is recorded on the Condensed Consolidated Balance Sheets representing an obligation to distribute SERP funds to participants. The SERP investment assets are classified as trading, and accordingly, realized and

unrealized gains and losses are recognized in income in the Other Income (Expense) category. Adjustments made to revalue the SERP liability are also recognized in income as selling and administrative expenses and offset valuation adjustments on SERP investment assets. Net unrealized holding losses for the three months ended September 30, 2016 and 2015 were, in thousands, $357 and $598 , respectively.

SERP asset and liability balances were as follows:



(Amounts in Thousands)	September 30, 2016		June 30, 2016
SERP investments - current asset	$	765	$	768
SERP investments - other long-term asset	9,859		9,233
Total SERP investments	$	10,624	$	10,001

SERP obligation - current liability	$	765	$	768
SERP obligation - other long-term liability	9,859		9,233
Total SERP obligation	$	10,624	$	10,001

Non-marketable equity securities:

We hold a total investment of $1.3 million in a privately-held company, including $0.5 million in non-marketable equity securities purchased during the quarter ended March 31, 2016. The investment in non-marketable equity securities is included in the Other Assets line of the Condensed Consolidated Balance Sheets. See Note 8 - Fair Value of Notes to Condensed Consolidated Financial Statements for more information on the valuation of these securities. The investment does not rise to the level of a material variable interest or a controlling interest in the privately-held company which would require consolidation.

Note 10. Derivative Instruments

Stock Warrants:

We hold a total investment of $1.3 million in a privately-held company, including $0.8 million in stock warrants purchased during the quarter ended September 30, 2016 . 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 September 30, 2016 , no gain or loss on the revaluation of stock warrants was recognized. See Note 8 - Fair Value of Notes to Condensed Consolidated Financial Statements for more information on the valuation of these securities.

Note 11. Postemployment Benefits

Kimball’s domestic employees participate in severance plans. These plans cover domestic employees and provide severance benefits to eligible employees meeting the plans’ qualifications, primarily involuntary termination without cause.

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



	Three Months Ended
	September 30
(Amounts in Thousands)	2016			2015
Service cost	$	119		$	120
Interest cost	15			19
Amortization of actuarial income	(145		)	(114		)
Net periodic benefit cost (income)	$	(11	)	$	25

The benefit cost (income) in the above table includes only normal recurring levels of severance activity, as estimated using an actuarial method. Unusual or non-recurring severance actions are not estimable using actuarial methods and are expensed in accordance with the applicable U.S. GAAP.

Note 12. Stock Compensation Plan

During fiscal year 2017 , 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 Amended and Restated 2003 Stock Option and Incentive Plan. For more information on stock compensation awards, refer to our Annual Report on Form 10-K for the fiscal year ended June 30, 2016 .



Type of Award	Quarter Awarded	Shares or Units	Grant Date Fair Value ⁽⁵⁾
Annual Performance Shares ⁽¹⁾	1st Quarter	120,795	$11.23 - $11.77
Relative Total Shareholder Return Awards ⁽²⁾	1st Quarter	39,153		$13.92
Restricted Share Units ⁽³⁾	1st Quarter	116,136	$11.43 - $11.97
Unrestricted Shares ⁽⁴⁾	1st Quarter	16,239		$11.43

(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 capital during fiscal year 2017, with a percentage payout ranging from 0% to 200% of the target number set forth above. Annual performance shares vest after one year.

(2) Performance units were awarded to key officers under the Company’s Relative Total Shareholder Return program. Vesting occurs at June 30, 2019. Participants will earn from 0% to 200% of the target award depending upon how the compound annual growth rate of Kimball International common stock ranks within the peer group at the end of the performance period.

(3) Restricted share units were awarded to officers and key employees. Vesting occurs at June 30, 2017, June 30, 2018, and June 30, 2019. Upon vesting, the outstanding number of restricted share units and the value of dividends accumulated over the vesting period are converted to shares of common stock.

(4) Unrestricted shares were awarded to non-employee members of the Board of Directors as compensation for director’s fees which are expensed over the period that directors earn the compensation. Unrestricted shares do not have vesting periods, holding periods, restrictions on sale, or other restrictions.

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

Note 13. Variable Interest Entities

Kimball’s 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 non-marketable equity securities and stock warrants, a note receivable related to the sale of an Indiana facility, and a note receivable for start-up financing of a new independent dealership.

The non-marketable equity securities and stock warrants were valued at $0.5 million and $0.8 million , respectively, at September 30, 2016 and were included in the Other Assets line of the Condensed Consolidated Balance Sheets. As of June 30, 2016 , the non-marketable securities were valued at $0.5 million 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 8 - Fair Value of Notes to Condensed Consolidated Financial Statements.

The carrying value of the note receivable related to the sale of an Indiana facility, net of a $0.5 million allowance, was $0.8 million as of both September 30, 2016 and June 30, 2016 . For both periods, the carrying value was included on the Receivables line of our Condensed Consolidated Balance Sheets.

The carrying value of the note receivable for start-up financing of a new independent dealership was $0.2 million and $0.3 million as of September 30, 2016 and June 30, 2016 , respectively, and was included on the Other Assets line of our Condensed Consolidated Balance Sheets.

We have no 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 to the VIEs was limited to the items discussed above during the quarter ended September 30, 2016 .

Note 14. Credit Quality and Allowance for Credit Losses of Notes Receivable

Kimball monitors credit quality and associated risks of notes receivable on an individual basis based on criteria such as financial stability of the party and collection experience in conjunction with general economic and market conditions. We hold collateral for the note receivable from the sale of an Indiana facility thereby mitigating the risk of loss. Dealer lending represents start-up financing for a new independent dealership. As of September 30, 2016 and June 30, 2016 , Kimball had no material past due outstanding notes receivable.



	As of September 30, 2016						As of June 30, 2016
(Amounts in Thousands)	Unpaid Balance		Related Allowance		Receivable Net of Allowance		Unpaid Balance		Related Allowance		Receivable Net of Allowance
Note Receivable from Sale of Indiana Facility	$	1,291	$	489	$	802	$	1,302	$	489	$	813
Dealer Lending	247		—		247		250		—		250
Other Notes Receivable	312		137		175		333		139		194
Total	$	1,850	$	626	$	1,224	$	1,885	$	628	$	1,257

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

Business Overview

Kimball International, Inc. (the “Company,” “Kimball,” “we,” “us,” or “our”) creates design driven, innovative furnishings sold through our family of brands: Kimball Office, National Office Furniture, and Kimball Hospitality. Our diverse portfolio offers solutions for the workplace, learning, healing, and hospitality environments. Dedicated to our Guiding Principles, our values and integrity are evidenced by public recognition as a highly trusted company and an employer of choice. “We Build Success” by establishing long-term relationships with customers, employees, suppliers, share owners 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:

•

The U.S. government, as well as state and local governments, can typically terminate or modify their contracts with us either at their discretion or if we default by failing to perform under the terms of the applicable contract, which could expose us to liability and impede our ability to compete in the future for contracts and orders. The failure to comply with regulatory and contractual requirements could subject us to investigations, fines, or other penalties, and violations of certain regulatory and contractual requirements could also result in us being suspended or debarred from future government contracting. In March 2016, in connection with a renewal of one of our two contracts with the GSA, we became aware of noncompliance and inaccuracies in our GSA subcontractor reporting. Accordingly, we retained outside legal counsel to assist in conducting an internal review of our reporting practices, and we self-reported the matter and the results of the internal review to the GSA. We have promptly responded to inquiries from the GSA since our initial reporting, and we intend to cooperate fully with any further inquiries or investigations. We cannot reasonably predict the outcome of a government investigation at this time. During the first quarter of fiscal year 2017, sales related to our GSA contracts were approximately 8.8% of total Kimball International, Inc. sales, with one contract accounting for approximately 5.2% of total Kimball International, Inc. sales and the other contract accounting for approximately 3.6% of Kimball International, Inc. sales.

•

Due to the contract and project nature of the furniture markets, fluctuation in the demand for our products and variation in the gross margin on those projects is inherent to our business which in turn impact our operating results. Effective management of our manufacturing capacity is and will continue to be critical to our success. See below for further details regarding current sales and open order trends.

•

We expect to continue to invest in capital expenditures prudently, particularly for projects, including potential acquisitions, that would enhance our capabilities and diversification while providing an opportunity for growth and improved profitability. We have a strong focus on cost control and closely monitor market changes and our liquidity in order to proactively adjust our operating costs, discretionary capital spending, and dividend levels as needed. Managing working capital in conjunction with fluctuating demand levels is likewise key. In addition, a long-standing component of our profit sharing cash incentive plan is that it is linked to our worldwide and business unit performance which is designed to adjust compensation expense as profits change.


•	We continue to maintain a strong balance sheet. Our short-term liquidity available, represented as cash, cash equivalents, and short-term investments plus the unused amount of our credit facility, was $91.5 million at September 30, 2016 .


•	We continue to focus on mitigating the impact of select raw material commodity pricing pressures.

•

Globalization continues to reshape not only the markets in which we operate but also our key customers and competitors. In addition, demand for shorter lead times on a portion of our hospitality orders allows us to utilize available manufacturing capacity in the U.S., and we continue to reduce lead times with the remainder of our supply base in order to achieve our customers’ requests. We also continually evaluate the optimal location of production facilities and suppliers, particularly for hospitality furniture, in order to provide products to our customers most efficiently and at the lowest cost.


•	Current global economic uncertainties including low oil prices and continued volatility in financial markets may pose a threat to our future growth if companies reduce capital spending in response to the elevated uncertainty.


•	Employees throughout our business operations are an integral part of our ability to compete successfully, and the stability of the management team is critical to long-term Share Owner value. Our career development and succession planning processes help to maintain stability in management.

Financial Overview



	At or for the Three Months Ended
	September 30
(Amounts in Millions)	2016			2015			% Change
Net Sales	$	175.0		$	156.6		12	%
Gross Profit	58.7			51.1			15	%
Selling and Administrative Expenses	43.2			40.2			8	%
Restructuring (Gain) Expense	(1.8		)	1.2
Operating Income	17.3			9.7			78	%
Operating Income %	9.9		%	6.2		%
Adjusted Operating Income *	$	15.5		$	10.9		42	%
Adjusted Operating Income % *	8.8		%	7.0		%
Net Income	$	11.0		$	5.6		96	%
Adjusted Net Income *	9.9			6.3			56	%
Diluted Earnings Per Share	$	0.29		$	0.15
Adjusted Diluted Earnings Per Share *	$	0.26		$	0.17
Open Orders	$	127.9		$	123.0		4	%

* Items indicated represent Non-GAAP measurements. See “Reconciliation of Non-GAAP Financial Measures” below.



Net Sales by End Market Vertical
	Three Months Ended
	September 30
(Amounts in Millions)	2016		2015		% Change
Commercial	$	50.5	$	49.9	1	%
Education	26.6		21.9		21	%
Finance	16.7		14.9		12	%
Government	19.7		19.9		(1	%)
Healthcare	22.6		16.2		40	%
Hospitality	38.9		33.8		15	%
Total Net Sales	$	175.0	$	156.6	12	%

First quarter fiscal year 2017 consolidated net sales were $175.0 million compared to first quarter fiscal year 2016 net sales of $156.6 million , or a 12% increase. Increased volume was the primary driver while price increases contributed to a lesser extent.

During the first quarter of fiscal year 2017, we redefined our vertical market reporting to better reflect the end markets that we serve. The largest shifts among vertical markets were sales to certain government-affiliated customers such as state universities, which were previously classified in the government vertical market and are now classified in the education vertical market. Prior period information is also being reported on a comparable basis to reflect the new vertical market definitions.

Our healthcare and education vertical market sales benefited from strong sales growth with group purchasing organizations and our continued focus on targeting sales to these markets. The increased sales in the hospitality vertical market were driven by increased non-custom business. Each of our vertical market sales levels can fluctuate depending on the mix of projects in a given period.

Open orders at September 30, 2016 increased 4% when compared to the open order level as of September 30, 2015 primarily due to increased hospitality furniture orders and to a lesser extent increased orders for office furniture. Open orders at a point in time may not be indicative of future sales trends.

In the first quarter of fiscal year 2017 we recorded net income of $11.0 million and diluted earnings per share of $0.29 , inclusive of $1.1 million , or $0.03 per diluted share, of after-tax restructuring gain driven by the sale of the Idaho facility. In the first quarter of fiscal year 2016 we recorded net income of $5.6 million and earnings per diluted share of $0.15 , inclusive of $0.7 million , or $0.02 per diluted share, of after-tax restructuring expenses. Excluding these nonrecurring gains or expenses, our adjusted net income for the first quarter of fiscal year 2017 was $9.9 million , or $0.26 per diluted share, compared to adjusted net income for the first quarter of fiscal year 2016 of $6.3 million , or $0.17 per diluted share.

Gross profit as a percent of net sales increased 0.9 of a percentage point in the first quarter of fiscal year 2017 compared to the first quarter of fiscal year 2016 , driven by pricing, leverage on higher sales volume, and benefits from our restructuring plan involving the transfer of metal fabrication production from Idaho into facilities in Indiana.

As a percent of net sales, selling and administrative expenses in the first quarter of fiscal year 2017 compared to the first quarter of fiscal year 2016 decreased 1.0 percentage point due to the increased sales volumes. In absolute dollars, selling and administrative expenses in the first quarter of fiscal year 2017 compared to the first quarter of fiscal year 2016 increased 7.6% in part due to higher incentive compensation costs as a result of higher earnings levels. We also had an unfavorable variance within selling and administrative expenses of $0.9 million for the first quarter of fiscal year 2017 compared to the first quarter of fiscal year 2016 related to the normal revaluation to fair value of our Supplemental Employee Retirement Plan (“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 November 2014, we approved a capacity utilization restructuring plan which included the consolidation of our metal fabrication production from an operation located in Post Falls, Idaho, into existing production facilities in Indiana, and the reduction of our Company plane fleet from two jets to one. The jet was sold in the third quarter of fiscal year 2015, and as a result of the aircraft fleet reduction, we began realizing the expected pre-tax annual savings of $0.8 million . The remaining jet is primarily used for transporting customers to visit our showrooms, offices, research and development center, and manufacturing locations. The consolidation of our metal fabrication production was substantially complete as of June 30, 2016, and the facility and land was sold during the first quarter of fiscal year 2017. During the first quarter of fiscal year 2017, we recognized a pre-tax restructuring gain of $1.8 million which included a gain on the sale of the facility and land of $2.1 million and was partially offset by restructuring expense of $0.3 million. We recognized pre-tax restructuring expense of $1.2 million in the first quarter of fiscal year 2016. We anticipated the improvement of customer delivery, supply chain dynamics, and reduction of transportation costs to generate pre-tax savings of approximately $5 million per year upon completion of the manufacturing consolidation. During our first quarter of fiscal year 2017 savings began to ramp up, and we achieved savings of $0.9 million. We expect to achieve the full quarterly savings level during our quarter ending December 31, 2016. See Note 6 - Restructuring of Notes to Condensed Consolidated Financial Statements for further information on restructuring.

Other Income (Expense) consisted of the following:



	Three Months Ended
	September 30
(Amounts in Thousands)	2016			2015
Interest Income	$	110		$	71
Interest Expense	(5		)	(6		)
Foreign Currency Loss	(7		)	(23		)
Gain (Loss) on Supplemental Employee Retirement Plan Investments	367			(575		)
Other	(68		)	(91		)
Other Income (Expense), net	$	397		$	(624	)

Our effective tax rate for the first three months of fiscal years 2017 and 2016 was 37.8% and 38.2% , respectively, and neither period included material unusual items.

Comparing the balance sheet as of September 30, 2016 to June 30, 2016 , our short-term investments line increased as we began investing in available-for-sale securities including municipal bonds and certificates of deposit purchased in the secondary market. The assets held for sale line was reduced to zero as of September 30, 2016 as we completed the sale of our Idaho facility during the first quarter of fiscal year 2017.

Liquidity and Capital Resources

Our cash position which is comprised of cash, cash equivalents, and short-term investments increased to $62.7 million at September 30, 2016 from $47.6 million at June 30, 2016 , due to $13.0 million cash flows from operations and proceeds from sale of assets net of selling expenses of $11.3 million as discussed below.

Working capital at September 30, 2016 was $56.2 million compared to working capital of $52.8 million at June 30, 2016 . The current ratio was 1.5 at both September 30, 2016 and June 30, 2016 .

Kimball’s short-term liquidity available, represented as cash, cash equivalents, and short-term investments plus the unused amount of our credit facility, totaled $91.5 million at September 30, 2016 . We had no credit facility borrowings outstanding as of September 30, 2016 or June 30, 2016 . At September 30, 2016 , we had $1.2 million in letters of credit outstanding, which reduced our borrowing capacity on the credit facility.

Cash Flows

The following table reflects the major categories of cash flows for the first three months of fiscal years 2017 and 2016 .



	Three Months Ended
	September 30
(Amounts in millions)	2016			2015
Net cash provided by operating activities	$	13,012		$	6,324
Net cash used for investing activities	$	(7,761	)	$	(5,902	)
Net cash used for financing activities	$	(5,966	)	$	(12,694	)

Cash Flows from Operating Activities

For the first three months of fiscal year 2017 net cash provided by operating activities was $13.0 million and for the first three months of fiscal year 2016 net cash provided by operating activities was $6.3 million . Changes in working capital balances provided $0.7 million of cash in the first three months of fiscal year 2017 and used $3.6 million in the first three months of fiscal year 2016 . The $3.6 million usage of cash from changes in working capital balances in the first three months of fiscal year 2016 was primarily driven by fluctuations in our inventory and accrued expenses balances. Inventory levels increased $8.5 million primarily to support lead time requirements of select hospitality customers and to support the manufacturing consolidation plan while accrued expenses declined $5.4 million due to the payment of accrued profit-based incentive compensation during the first quarter of fiscal year 2016.

Our measure of accounts receivable performance, also referred to as Days Sales Outstanding (“DSO”), for the three -month periods ended September 30, 2016 and September 30, 2015 was 28.0 days and 29.0 days, respectively. We define DSO as the average of monthly trade accounts and notes receivable divided by an average day’s net sales. Our Production Days Supply on Hand (“PDSOH”) of inventory measure for the first quarter ended September 30, 2016 decreased to 46.0 days from 53.0 days from the first quarter ended September 30, 2015 . The PDSOH decrease was driven by efforts focused on reduction of inventory levels. We define PDSOH as the average of the monthly gross inventory divided by an average day’s cost of sales.

Cash Flows from Investing Activities

During the first quarter of fiscal year 2017 we invested $15.9 million in available-for-sale securities including municipal bonds and certificates of deposit purchased in the secondary market. During the first quarter of fiscal year 2017 we also received proceeds from the sale of assets net of selling expenses of $11.3 million , the majority of which relates to the sale of our Idaho facility. During the first three months of fiscal years 2017 and 2016 , we reinvested $2.5 million and $5.9 million , respectively, into capital investments for the future. The capital investments during the first three months of the current year were primarily for showroom renovations and various manufacturing equipment. The capital investments during the first three months of the prior year were primarily for facility improvements and manufacturing equipment.

Cash Flows from Financing Activities

Kimball paid dividends of $2.1 million and $1.9 million in the three -month periods ended September 30, 2016 and September 30, 2015 , respectively. Consistent with our historical dividend policy, the Company’s Board of Directors evaluates the appropriate dividend payment on a quarterly basis. During the first three months of fiscal years 2017 and 2016, we repurchased shares pursuant to a previously announced stock repurchase program which drove cash outflow of $2.7 million and $9.6 million , respectively.

Credit Facility

We maintain a $30 million credit facility with a maturity date of October 2019 that allows for both issuances of letters of credit and cash borrowings. This facility provides an option to increase the amount available for borrowing to $55 million at our request, subject to the consent of the participating banks. At both September 30, 2016 and June 30, 2016 , we had no short-term borrowings outstanding. At September 30, 2016 , we had $1.2 million in letters of credit outstanding, which reduced our borrowing capacity on the credit facility.

The credit facility requires us to comply with certain debt covenants, the most significant of which are the adjusted leverage ratio and the fixed charge coverage ratio. The adjusted leverage ratio is defined as (a) consolidated total indebtedness minus unencumbered U.S. cash on hand in the U.S. in excess of $15,000,000 to (b) consolidated EBITDA, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be greater than 3.0 to 1.0. The fixed charge coverage ratio is defined as (a) the sum of (i) consolidated EBITDA, minus (ii) 50% of depreciation expense, minus (iii) taxes paid, minus (iv) dividends and distributions paid, to (b) the sum of (i) scheduled principal payments on indebtedness due and/or paid, plus (ii) interest expense, calculated on a consolidated basis in accordance with GAAP, determined as of the end of each of its fiscal quarters for the trailing four fiscal quarters then ending, to not be less than 1.10 to 1.00. We were in compliance with all debt covenants of the credit facility during the three -month period ended September 30, 2016 .

The table below compares the adjusted leverage ratio and fixed charge coverage ratio with the limits specified in the credit agreement.



	At or For the Period Ended		Limit As Specified in
Covenant	September 30, 2016		Credit Agreement	Excess
Adjusted Leverage Ratio	(0.49	)	3.00	3.49
Fixed Charge Coverage Ratio	1,514.20		1.10	1,513.10

Future Liquidity

We believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under our credit facility will be sufficient to fund future dividends and meet our working capital and other operating needs for at least the next 12 months. During the remainder of fiscal year 2017 we anticipate cash outflow of approximately $4.5 million for deferred incentive compensation related to our fiscal year 2016 performance. We expect to continue to repurchase shares if conditions are favorable. We also expect to continue to invest in capital expenditures prudently, particularly for projects, including potential acquisitions, that would enhance our capabilities and diversification while providing an opportunity for growth and improved profitability.

Our ability to generate cash from operations to meet our liquidity obligations could be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw material components in the supply chain, a decline in demand for our services, loss of key contract customers, including government subcontract customers, or potential fines and penalties that may result from the government’s review of our GSA subcontractor reporting, and other unforeseen circumstances. In particular, should demand for our products decrease significantly over the next 12 months, the available cash provided by operations could be adversely impacted.

Non-GAAP Financial Measures

This item contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States in the statements of income, statements of comprehensive income, balance sheets, or statements of cash flows of the Company. The non-GAAP financial measures used within this item include (1) operating income excluding restructuring gain/expense; (2) net income excluding restructuring gain/expense; and (3) diluted earnings per share excluding restructuring gain/expense. Reconciliations of the reported GAAP numbers to these non-GAAP financial measures are included in the table below. Management believes it is useful for investors to understand how its core operations performed without gains or expenses incurred in executing its restructuring plans. Excluding these amounts allows investors to meaningfully trend, analyze, and benchmark the performance of the Company’s core operations. Many of the Company’s internal performance measures that management uses to make certain operating decisions exclude these gains/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
(Amounts in Thousands, Except for Per Share Data)
	Three Months Ended
	September 30
	2016			2015
Operating Income	$	17,292		$	9,725
Pre-tax Restructuring (Gain) Expense	(1,832		)	1,186
Adjusted Operating Income	$	15,460		$	10,911
Net Sales	$	174,996		$	156,569
Adjusted Operating Income %	8.8		%	7.0		%

Net Income	$	10,998		$	5,622
Pre-tax Restructuring (Gain) Expense	(1,832		)	1,186
Tax on Restructuring (Gain) Expense	713			(461		)
After-tax Restructuring (Gain) Expense	(1,119		)	725
Adjusted Net Income	$	9,879		$	6,347

Diluted Earnings Per Share	$	0.29		$	0.15
Impact of Restructuring (Gain) Expense	(0.03		)	0.02
Adjusted Diluted Earnings Per Share	$	0.26		$	0.17

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

Fair Value

During the first quarter of fiscal year 2017 , no financial instruments were affected by a lack of market liquidity. For level 1 financial assets, readily available market pricing was used to value the financial instruments. 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 of a privately-held company is classified as a level 3 financial asset and is accounted for as a derivative instrument valued on a recurring basis whereby the stock warrants are analyzed for reasonableness on a quarterly basis.

Kimball also holds non-marketable equity securities of a privately-held company, classified as a level 3 financial asset. The investment in non-marketable equity securities is accounted for as a cost-method investment which carries the securities at cost, except in the event of impairment.

See Note 8 - Fair Value of Notes to Condensed Consolidated Financial Statements for additional information.

Contractual Obligations

There have been no material changes outside the ordinary course of business to Kimball’s 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, 2016.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements are limited to standby letters of credit, two performance bonds, and operating leases entered into in the normal course of business. These arrangements do not have a material current effect and are not reasonably likely to have a material future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. See Note 5 - Commitments and Contingent Liabilities of Notes to Condensed Consolidated Financial Statements for more information on the standby letters of 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

Kimball’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the condensed consolidated financial statements and related notes. Actual results could differ from these estimates and assumptions. Management 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, 2016. During the first three months of fiscal 2017 , 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 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 may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “seeks,” “likely,” “future,” “may,” “might,” “should,” “would,” “will,” and similar expressions. These forward-looking statements are subject to risks and uncertainties including, but not limited to, the outcome of a governmental review of our subcontractor reporting practices, adverse changes in the global economic conditions, increased global competition, significant reduction in customer order patterns, loss of key customers or suppliers, financial stability of key customers and suppliers, relationships with strategic customers and product distributors, availability or cost of raw materials and components, increased competitive pricing pressures reflecting excess industry capacities, changes in the regulatory environment, or similar unforeseen events. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of Kimball are contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016 .

Item 3. Quantitative and Qualitative Disclosures About Market Risk

During first quarter of fiscal year 2017 we began to invest available cash into an investment portfolio of available-for-sale securities, comprised of municipal bonds and certificates of deposit purchased in the secondary market. As of September 30, 2016 , the fair value of the investment portfolio was $15.8 million . Our investment policy dictates that municipal bonds must be investment grade quality, and all certificates of deposit are FDIC insured. These securities are fixed income instruments and will

decline in value if market interest rates increase. A hypothetical 100 basis point increase in an annual period in market interest rates from levels at September 30, 2016 would cause the fair value of these investments to decline by an immaterial amount. Further information on investments is provided in Note 9 - Investments of Notes to Condensed Consolidated Financial Statements.

We also hold a total investment of $1.3 million in a privately-held company, consisting of $0.5 million in non-marketable equity securities invested during fiscal year 2016, and $0.8 million in stock warrants invested during the quarter ended September 30, 2016 . The fair value of the investment may fluctuate due to events and changes in circumstances, but we have incurred no impairment during the quarter ended September 30, 2016 .

There have been no material changes to other market risks, including commodity risk and foreign currency risk, 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, 2016.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Kimball maintains controls and procedures designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of those controls and procedures performed as of September 30, 2016 , our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective.

(b) Changes in internal control over financial reporting.

There have been no changes in Kimball’s internal control over financial reporting that occurred during the quarter ended September 30, 2016 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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

A share repurchase program authorized by the Board of Directors was announced on October 16, 2007 . The program allows for the repurchase of up to two million shares of common stock and will remain in effect until all shares authorized have been repurchased. On August 11, 2015 an additional two million shares of common stock were authorized by the Board of Directors for repurchase. At September 30, 2016 , 1.9 million shares remained available under the repurchase program.




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 (July 1-July 31, 2016)	—	$	—	—	2,273,471
Month #2 (August 1-August 31, 2016)	—	$	—	—	2,273,471
Month #3 (September 1-September 20, 2016)	337,813	$	12.92	337,813	1,935,658
Total	337,813	$	12.92	337,813

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-K for the fiscal year ended June 30, 2012)


3(b)	Restated By-laws of the Company (Incorporated by reference to Exhibit 3(b) to the Company’s Form 8-K filed April 26, 2016)


10(a)*	2016 Annual Cash Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed October 27, 2016)


11	Computation of Earnings Per Share


31.1	Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


31.2	Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


32.1	Certification furnished by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


32.2	Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


101.INS	XBRL Instance Document


101.SCH	XBRL Taxonomy Extension Schema Document


101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document


101.DEF	XBRL Taxonomy Extension Definition Linkbase Document


101.LAB	XBRL Taxonomy Extension Label Linkbase Document


101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*Constitutes management contract or compensatory arrangement

SIGNATURES

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



		KIMBALL INTERNATIONAL, INC.

	By:	/s/ ROBERT F. SCHNEIDER
		Robert F. Schneider Chief Executive Officer
		November 2, 2016


	By:	/s/ MICHELLE R. SCHROEDER
		Michelle R. Schroeder Vice President, Chief Financial Officer
		November 2, 2016

Kimball International, Inc.

Exhibit Index



Exhibit No.		Description
3(a)		Amended and Restated Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3(a) to the Company’s Form 10-K for the fiscal year ended June 30, 2012)
3(b)		Restated By-laws of the Company (Incorporated by reference to Exhibit 3(b) to the Company’s Form 8-K filed April 26, 2016)
10(a)*		2016 Annual Cash Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed October 27, 2016)
11		Computation of Earnings Per Share
31.1		Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification furnished by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*Constitutes management contract or compensatory arrangement

TABLE OF CONTENTS

Part I. Financial Informationprint Item 1. Financial Statementsprint Note 1. Basis Of Presentationprint Note 2. Recent Accounting Pronouncements and Supplemental Informationprint Note 3. Inventoriesprint Note 4. Accumulated Other Comprehensive Incomeprint Note 5. Commitments and Contingent Liabilitiesprint Note 6. Restructuringprint Note 7. Assets Held For Saleprint Note 8. Fair Valueprint Note 9. Investmentsprint Note 10. Derivative Instrumentsprint Note 11. Postemployment Benefitsprint Note 12. Stock Compensation Planprint Note 13. Variable Interest Entitiesprint Note 14. Credit Quality and Allowance For Credit Losses Of Notes Receivableprint Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operationsprint Item 3. Quantitative and Qualitative Disclosures About Market Riskprint Item 4. Controls and Proceduresprint Part II. Other Informationprint Item 2. Unregistered Sales Of Equity Securities and Use Of Proceedsprint Item 6. Exhibitsprint

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KBAL 10-Q Quarter ended Sept. 30, 2016