Fair Value

3 Months Ended

Sep. 30, 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 three months ended September 30, 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, 2022.

In connection with the acquisition of Poppin, we entered into an earn-out arrangement with contingent payments up to $45.0 million based on revenue and profitability milestones achieved through June 30, 2024. We do not currently expect to have any earn-out payments under this arrangement, therefore our contingent earn-out liability as of September 30, 2022 was zero. As of June 30, 2022 the fair value of the contingent earn-out liability was $3.2 million. The liability is carried at fair value and is classified in Level 3 of the fair value hierarchy and is included in Other long-term liabilities line on our Condensed Consolidated Balance Sheet. During the three months ended September 30, 2022 and 2021, the recurring revaluation to fair value resulted in a gain of $3.2 million and a loss of $4.6 million, respectively.

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


	September 30, 2022
(Amounts in Thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents: Money market funds	$	11,919	$	—	$	—	$	11,919

Derivatives: Interest rate swap contract	—		2,738		—		2,738



Trading Securities: Mutual funds in nonqualified SERP	10,072		—		—		10,072
Derivatives: Stock warrants	—		—		1,500		1,500
Total assets at fair value	$	21,991	$	2,738	$	1,500	$	26,229







	June 30, 2022
(Amounts in Thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents: Money market funds	$	5,508	$	—	$	—	$	5,508

Derivatives: Interest rate swap contract	—		1,986		—		1,986



Trading Securities: Mutual funds in nonqualified SERP	10,517		—		—		10,517
Derivatives: Stock warrants	—		—		1,500		1,500
Total assets at fair value	$	16,025	$	1,986	$	1,500	$	19,511
Liabilities

Contingent earn-out liability	—		—		3,160		3,160
Total liabilities at fair value	$	—	$	—	$	3,160	$	3,160

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 first quarter of fiscal year 2022, we recorded $0.7 million of right-of-use asset and associated leasehold improvement impairment resulting from closure from 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 Operations. The asset groups used to calculate impairment included the right-of-use lease assets, leasehold improvements, and lease liabilities.

Financial Instruments Not Carried At Fair Value:

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

Financial Instrument

Level

Valuation Technique/Inputs Used

Notes receivable

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

Equity securities without readily determinable fair value

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

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.

+ References + Details