Fair Value

9 Months Ended

Mar. 31, 2022

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

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

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

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

Our policy is to recognize transfers between these levels as of the end of each quarterly reporting period. There were no transfers between these levels during the nine months ended March 31, 2022 and 2021.

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, 2021.

In connection with the acquisition of Poppin, remaining contingent earn-out payments up to $65.0 million may be paid based on revenue and profitability milestones achieved through June 30, 2024, with the expected payments to be in the range of $0 to $5 million. As of March 31, 2022 and June 30, 2021, the fair value of the contingent earn-out liability was $4.4 million and $20.2 million, respectively. The liability is carried at fair value and is classified in Level 3 of the fair value hierarchy. During the three and nine months ended March 31, 2022, the recurring revaluation to fair value resulted in a loss of $2.2 million and a gain of $15.8 million, respectively.

The recurring Level 3 fair value measurements of our contingent consideration liability include the following significant unobservable inputs:

Contingent Consideration Liability

Fair Value

Valuation Technique

Unobservable Inputs

Range

Selected

Revenue and EBITDA Based Payments

4.4

million

Discounted Cash Flow

Revenue Discount Rate

5.0% to 7.0%

5.8

EBITDA Volatility

40.0% to 50.0%

45.0

Revenue Volatility

8.0% to 11.0%

10.5

Financial Instruments Recognized at Fair Value:

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

Financial Instrument

Level

Valuation Technique/Inputs Used

Cash Equivalents: Money market funds

Market - Quoted market prices

Trading securities: Mutual funds held in nonqualified SERP

Market - Quoted market prices

Derivative Assets: Stock warrants

Market - The privately-held company is in a start-up phase. The pricing of recent purchases or sales of the investment are considered, if any, as well as positive and negative qualitative evidence, in the assessment of fair value. The value of the stock warrants fluctuates primarily in relation to the value of the privately-held company's underlying securities.

Derivative Asset: Interest Rate Swap

Market - Based on observable market inputs using standard calculations, such as time value, forward interest rate yield curves, and current spot rates adjusted for Kimball International's non-performance risk.

Contingent earn-out liability

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

Recurring Fair Value Measurements:

As of March 31, 2022 and June 30, 2021, the fair values of financial assets that are measured at fair value on a recurring basis using the market or income approach are categorized as follows:


	March 31, 2022
(Amounts in Thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents: Money market funds	$	2,008	$	—	$	—	$	2,008

Derivatives: Interest rate swap contract	—		1,640		—		1,640



Trading Securities: Mutual funds in nonqualified SERP	13,113		—		—		13,113
Derivatives: Stock warrants	—		—		1,500		1,500
Total assets at fair value	$	15,121	$	1,640	$	1,500	$	18,261
Liabilities

Contingent earn-out liability	—		—		4,440		4,440
Total liabilities at fair value	$	—	$	—	$	4,440	$	4,440


	June 30, 2021
(Amounts in Thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents: Money market funds	$	18,762	$	—	$	—	$	18,762





Trading Securities: Mutual funds in nonqualified SERP	14,049		—		—		14,049
Derivatives: Stock warrants	—		—		1,500		1,500
Total assets at fair value	$	32,811	$	—	$	1,500	$	34,311
Liabilities

Contingent earn-out liability	—		—		20,190		20,190
Total liabilities at fair value	$	—	$	—	$	20,190	$	20,190

Non-Recurring Fair Value Measurements:

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

Non-recurring Fair Value Adjustment

Level

Valuation Technique/Inputs Used

Impairment of Right of Use Lease Assets and Related Asset Groups

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

Impairment of Goodwill

Income - Based on a valuation model that determines fair value based on estimated discounted future cash flows of each reporting unit, requiring the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, future market conditions and discount rates that capture the risk associated with future cash flows.

During the year-to-date period of fiscal years 2022 and 2021, we recorded $0.7 million and $0.2 million, respectively of right-of-use asset and associated leasehold improvement impairment resulting from closure of our leased Pennsylvania and Maryland facilities as part of our transformation restructuring plan. The impairment loss is included as a component of the Restructuring

Expense line item on our Condensed Consolidated Statements of Income. The asset groups used to calculate impairment included the right-of-use lease assets, leasehold improvements, and lease liabilities.

In connection with our annual goodwill impairment test, we assessed goodwill at the reporting unit level for impairment during our second quarter of fiscal year 2022 ended December 31, 2021, and based on our analysis our Poppin reporting unit had carrying value in excess of the calculated fair value. Annual goodwill impairment testing determined the carrying value of the Poppin reporting unit exceeded its relative fair value, most notably driven by the impact of COVID-19 and supply chain disruptions on our sales growth models. As a result, we recorded $34.1 million of goodwill impairment related to our Poppin business during the year-to-date period ended March 31, 2022. The impairment loss is included in the Goodwill Impairment line item on our Condensed Consolidated Statements of Income.

Financial Instruments Not Carried At Fair Value:

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

Financial Instrument

Level

Valuation Technique/Inputs Used

Notes receivable

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

Equity securities without readily determinable fair value

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

The carrying value of our cash deposit accounts, trade accounts receivable, trade accounts payable, customer deposits, and dividends payable approximates fair value due to their relatively short maturity and immaterial non-performance risk. Based upon variable interest rates currently available to the Company, the fair value of our debt approximates the carrying value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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