**
**UNITED STATES**SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-Q****
**

(Mark One)[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

**
For the quarterly period ended December 31, 2009

OR
**

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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 __                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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  __   	No                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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  ___                                                                                        Accelerated filer  	 X  	Non-accelerated filer         (Do	not check if a smaller reporting company)             	Smaller reporting company         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Indicate by check mark whether the registrant is a shell company (as	defined in Rule 12b-2 of the Exchange Act).  	Yes  __   	No   X                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| The number of shares outstanding of the Registrant's common stock as of	January 21, 2010 was:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|   | Class A Common Stock - 10,761,776 shares |
|--------|------------------------------------------|
|   | Class B Common Stock - 26,792,896 shares |

1 

----

**KIMBALL INTERNATIONAL, INC.FORM 10-QINDEX**

****Page No.** PART I    FINANCIAL INFORMATION Item 1. Financial Statements  Condensed Consolidated Balance Sheets      	 - December 31, 2009	(Unaudited) and June 30, 20093  Condensed Consolidated Statements of	Income (Unaudited)        -	Three and Six Months Ended December 31, 2009 and 20084  Condensed Consolidated Statements of	Cash Flows (Unaudited)        -	Six Months Ended December 31, 2009 and 20085  Notes to Condensed Consolidated	Financial Statements (Unaudited)6-28Item 2. Management's Discussion and	Analysis of Financial        Condition and Results of Operations	29-42Item 3. Quantitative and Qualitative	Disclosures About Market Risk	43Item 4. Controls and Procedures43 PART II    OTHER INFORMATION    Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43 Item	4. Submission of Matters to a Vote of Security Holders44Item 6. Exhibits45 SIGNATURES46 EXHIBIT INDEX47**

2 

----

**PART I. FINANCIAL INFORMATIONItem 1. Financial Statements****KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Amounts in Thousands, Except forShare andPer Share Data)**

|                                                                                                                                                                           |   | (Unaudited)                                                                        |   |                                                                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|
|                                                                                                                                                                           |   | December 31,                                                                       |   | June 30,                                                               |
|                                                                                                                                                                           |   | 2009                                                                               |   | 2009                                                                   |
| ASSETS                                                                                                                                                                    |   |                                                                               |   |                                                                   |
| Current Assets:                                                                                                                                                           |   |                                                                               |   |                                                                   |
|     Cash and cash equivalents                                                                                                                              |   |  $     50,108                                        |   |  $   75,932                                        |
|     Short-term investments                                                                                                                                 |   |  26,545                                                                  |   |  25,376                                                      |
|     Receivables, net of allowances of $4,776 and $4,366,			respectively                                                                                    |   |  145,057                                                                 |   |  143,398                                                     |
|     Inventories                                                                                                                                            |   |  143,683                                                                 |   |  127,004                                                     |
|     Prepaid expenses and other current assets                                                                                                              |   |  41,082                                                                  |   |  35,720                                                      |
|     Assets held for sale                                                                                                                                   |   |  1,160                                                                   |   |  1,358                                                       |
|         Total current assets                                                                                                           |   |  407,635                                                                 |   |  408,788                                                     |
| Property and Equipment, net of accumulated depreciation of $344,327			and                                                                                                 |   |                                                                               |   |                                                                   |
|     $338,001, respectively                                                                                                                                 |   |  204,210                                                                 |   |  200,474                                                     |
| Goodwill                                                                                                                                                                  |   |  2,634                                                                   |   |  2,608                                                       |
| Other Intangible Assets, net of accumulated amortization of $63,176			and                                                                                                 |   |                                                                               |   |                                                                   |
|     $62,481, respectively                                                                                                                                  |   |  8,938                                                                   |   |  10,181                                                      |
| Other Assets                                                                                                                                                              |   |  20,519                                                                  |   |  20,218                                                      |
|         Total Assets                                                                                                                   |   |  $   643,936                                                   |   |  $ 642,269                                                   |
| LIABILITIES AND SHARE OWNERS' EQUITY                                                                                                                                  |   |                                                                               |   |                                                                   |
| Current Liabilities:                                                                                                                                                      |   |                                                                               |   |                                                                   |
|     Current maturities of long-term debt                                                                                                                   |   |  $            61  |   |  $          60  |
|     Accounts payable                                                                                                                                       |   |  166,634                                                                 |   |  165,051                                                     |
|     Borrowings under credit facilities                                                                                                                     |   |  14,369                                                                  |   |  12,677                                                      |
|     Dividends payable                                                                                                                                      |   |  2,413                                                                   |   |  2,393                                                       |
|     Accrued expenses                                                                                                                                       |   |  50,941                                                                  |   |  52,426                                                      |
|         Total current liabilities                                                                                                      |   |  234,418                                                                 |   |  232,607                                                     |
| Other Liabilities:                                                                                                                                                        |   |                                                                               |   |                                                                   |
|     Long-term debt, less current maturities                                                                                                                |   |  349                                                                     |   |  360                                                         |
|     Other                                                                                                                                                  |   |  23,195                                                                  |   |  26,948                                                      |
|         Total other liabilities                                                                                                        |   |  23,544                                                                  |   |  27,308                                                      |
| Share Owners' Equity:                                                                                                                                                 |   |                                                                               |   |                                                                   |
|     Common stock-par value $0.05 per share:                                                                                                                |   |                                                                               |   |                                                                   |
|         Class A - 49,826,000 shares authorized                                                                                         |   |                                                                               |   |                                                                   |
|                          14,368,000 shares issued |   |  718                                                                     |   |  718                                                         |
|         Class B - 100,000,000 shares authorized                                                                                        |   |                                                                               |   |                                                                   |
|                          28,657,000 shares issued |   |  1,433                                                                   |   |  1,433                                                       |
|     Additional paid-in capital                                                                                                                             |   |  249                                                                     |   |  343                                                         |
|     Retained earnings                                                                                                                                      |   |  457,040                                                                 |   |  458,180                                                     |
|     Accumulated other comprehensive income (loss)                                                                                                          |   |  2,453                                                                   |   |  (501)                                                            |
|     Less: Treasury stock, at cost:                                                                                                                         |   |                                                                               |   |                                                                   |
|         Class A - 3,743,000 and 3,646,000 shares, respectively                                                                         |   |  (50,843)                                                                     |   |  (50,421)                                                         |
|         Class B - 1,936,000 and 2,093,000 shares, respectively                                                                         |   |  (25,076)                                                                     |   |  (27,398)                                                         |
|             Total Share Owners' Equity                                                                         |   |  385,974                                                                 |   |  382,354                                                     |
|                 Total Liabilities and Share Owners' Equity                                 |   |  $   643,936                                                   |   |  $ 642,269                                                   |
| See Notes to Condensed Consolidated Financial Statements                                                                                                                  |   |                                                                               |   |                                                                   |

3 

**KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME****(Amounts in Thousands, Except for Per ShareData)**
			(Unaudited) 			(Unaudited)			Three Months Ended 			Six Months Ended			December 31 			December 31			2009 			2008 			2009 			2008			Net Sales			 $    275,161  			 $      327,606  			 $      549,820  			 $      667,101 			Cost of Sales			 231,020  			 271,285  			 458,495  			 552,268 			Gross Profit			 44,141  			 56,321  			 91,325  			 114,833 			Selling and Administrative Expenses			 46,616  			 48,992  			 92,682  			 102,297 			Other General Income			 (3,256) 			 (9,906) 			 (3,256) 			 (9,906)			Restructuring Expense			 291  			 1,053  			 777  			 2,016 			Operating Income			 490  			 16,182  			 1,122  			 20,426 			Other Income (Expense):       			    Interest income			 388  			 669  			 665  			 1,444 			    Interest expense			 (91) 			 (614) 			 (106) 			 (1,390)			    Non-operating income (expense)			 716  			 (3,909) 			 2,440  			 (4,687)			        Other income (expense), net			 1,013  			 (3,854) 			 2,999  			 (4,633)			Income Before Taxes on Income			 1,503  			 12,328  			 4,121  			 15,793 			Provision (Benefit) for Income Taxes			 (403) 			 4,146  			 441  			 5,427 			Net Income 			 $       1,906  			 $          8,182  			 $          3,680  			 $        10,366 			Earnings Per Share of Common Stock:       			    Basic Earnings Per Share:       			        Class A			  $         0.05   			 $           0.22   			  $           0.09   			 $           0.27  			        Class B			  $         0.05   			 $           0.22   			  $           0.10   			 $           0.28  			    Diluted Earnings Per Share:       			        Class A			  $         0.05   			  $           0.21   			  $           0.09   			  $           0.27  			        Class B			  $         0.05   			  $           0.22   			  $           0.10   			  $           0.28         			Dividends Per Share of Common Stock:       			    Class A			  $       0.045   			  $         0.155   			  $         0.090   			  $         0.310  			    Class B			  $       0.050   			  $         0.160   			  $         0.100   			  $         0.320         			Average Number of Shares Outstanding       			    Class A and B Common Stock:       			        Basic			37,339  			37,059  			37,326  			37,036 			        Diluted			37,514  			37,349  			37,527  			37,362 			See Notes to Condensed Consolidated Financial Statements       

4
**KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Thousands)** 			(Unaudited)			Six Months Ended			December 31			2009 			2008			Cash Flows From Operating Activities:   			    Net income 			 $    3,680  			 $ 10,366 			    Adjustments to reconcile net income to net cash provided by			operating activities:   			        Depreciation and amortization			 17,775  			 19,120 			        (Gain) loss on sales of assets			 8  			 (8,367)			        Restructuring and exit costs			 -0-  			 (113)			        Deferred income tax and other deferred charges			 (2,759) 			 2 			        Stock-based compensation			 758  			 1,562 			        Excess tax benefits from stock-based compensation			 -0-  			 (2)			        Other, net			 196  			 -0- 			        Change in operating assets and liabilities:   			            Receivables			 (1,418) 			 3,710 			            Inventories			 (16,679) 			 7,042 			            Prepaid expenses and other current assets			 (1,902) 			 5,142 			            Accounts payable			 2,365  			 (9,832)			            Accrued expenses			 (5,824) 			 (15,736)			                Net cash (used for) provided by operating activities			 (3,800) 			 12,894 			Cash Flows From Investing Activities:   			    Capital expenditures			 (20,756) 			 (27,080)			    Proceeds from sales of assets			 863  			 11,232 			    Payments for acquisitions			 -0-  			 (5,391)			    Purchase of capitalized software and other assets			 (152) 			 (503)			    Purchases of available-for-sale securities			 (4,824) 			 (3,938)			    Sales and maturities of available-for-sale securities			 3,359  			 4,588 			    Other, net			 454  			 5 			        Net cash used for investing activities			 (21,056) 			 (21,087)			Cash Flows From Financing Activities:   			    Proceeds from revolving credit facility			 -0-  			 40,000 			    Payments on revolving credit facility			 -0-  			 (23,348)			    Additional net change in credit facilities			 1,439  			 4,232 			    Payments on capital leases and long-term debt			 (10) 			 (477)			    Dividends paid to Share Owners			 (3,623) 			 (11,723)			    Excess tax benefits from stock-based compensation			 -0-  			 2 			    Repurchase of employee shares for tax withholding			 (115) 			 (374)			        Net cash (used for) provided by financing activities			 (2,309) 			 8,312 			Effect of Exchange Rate Change on Cash and Cash Equivalents			 1,341  			 (2,961)			Net Decrease in Cash and Cash Equivalents			 (25,824) 			 (2,842)			Cash and Cash Equivalents at Beginning of Period			 75,932  			 30,805 			Cash and Cash Equivalents at End of Period			 $  50,108  			 $ 27,963 			Supplemental Disclosure of Cash Flow Information   			    Cash paid (refunded) during the period for:   			        Income taxes			 $    8,143  			 $  (1,726)			        Interest expense			 $         71  			 $   1,401 			See Notes to Condensed Consolidated Financial Statements   

5

**KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

**Note 1.Summary of Significant Accounting Policies**

***Basis of Presentation:***

The accompanying unaudited Condensed Consolidated Financial Statements of	Kimball International, Inc. (the "Company") 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 the Company	believes that the disclosures are adequate to make the information presented	not misleading. All significant 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 the Company's latest annual report on Form 10-K.

***Change in Estimates:***

The Company periodically performs assessments of the useful lives of	assets. In evaluating useful lives, the Company considers how long assets	will remain functionally efficient and effective, given levels of	technology, competitive factors, and the economic environment. If the	assessment indicates that the assets will continue to be used for a longer	period than previously anticipated, the useful life of the assets are	revised, resulting in a change in estimate. Changes in estimates are	accounted for on a prospective basis by depreciating the assets' current	carrying values over their revised remaining useful lives. 

Effective July 1, 2009, the Company revised the useful lives of Surface	Mount Technology (SMT) production equipment from 5 years to 7 years.	Additionally, effective	October 1, 2008, the Company revised the useful lives of Enterprise Resource	Planning (ERP) software from 7	years to 10 years. The effect of these changes in estimates, compared to the	original depreciation and amortization, for the three and six months ended	December 31,	2009 was a pre-tax reduction in depreciation and amortization expense of, in thousands,	($537) and ($1,074), respectively. The pre-tax reduction in amortization	expense for both the three and six months ended December 31, 2008 was, in	thousands, ($482). The pre-tax	(decrease) increase to depreciation and amortization expense in future periods	is expected to be, in thousands, ($1,074) for the remaining six months of fiscal year	2010, and ($1,010), $141, $1,052, and $1,272 in the four years ending June	30, 2014, and $1,756 thereafter.

6

***Revisions to the Earnings Per Share Calculation:***

In June 2008, the Financial Accounting Standards Board (FASB) issued	guidance on determining whether instruments granted in share-based payment	transactions are participating securities. Under the guidance, unvested	share-based payment awards that contain nonforfeitable rights to dividends	are considered to be a separate class of securities and are excluded from	the common stock EPS calculations. The Company's restricted share unit	awards meet the definition of a participating security when held by	retirement-age participants. The guidance became effective as of the	beginning of the Company's fiscal year 2010 and required that previously	reported earnings per share data be recast in financial statements issued in	periods after the effective date. The guidance impacted the Company's Class	A Common Stock earnings per share results for certain interim periods and	the annual period of fiscal year 2009. The impact on Class A diluted earnings	per share for the three months ended December 31, 2008 was a reduction from	$0.22 as originally reported to $0.21. The impact on	Class A basic earnings per share for the six months ended December 31, 2008	was a reduction from $0.28 as originally reported to $0.27. The impact on	fiscal year 2009 Class A basic earnings per share was a reduction from $0.47	as originally reported to $0.46. Class B Common Stock calculations were not	impacted significantly enough to cause a change in the earnings per share	result. 

***Goodwill and Other Intangible Assets:***

The Electronic Manufacturing Services (EMS) segment had goodwill of, in thousands, $2,634 and $2,608, as		of December 31, 2009 and June 30, 2009, respectively. Goodwill		increased by, in thousands, $26 during the six months ended December 31,		2009		due to the effect of changes in foreign currency exchange rates. 

Goodwill represents the difference between the purchase price and the		related underlying tangible and intangible net asset fair values resulting		from business acquisitions. Annually, or if conditions indicate an		earlier review is necessary, the Company compares the carrying value of		the reporting unit to an estimate of the reporting unit's fair value to		identify potential impairment. If		the estimated fair value of the reporting unit is less than the carrying value,		a second step is performed to determine the amount of potential goodwill		impairment. If impaired, goodwill is		written down to its estimated implied fair value. Goodwill		is assigned to and the fair value is tested at the reporting unit level.		The fair value is established primarily using a discounted cash flow analysis and		secondarily a market approach utilizing current industry information. The calculation of the fair value of the reporting units		considers current market conditions existing at the assessment date.

In addition to performing the required annual testing, the Company		will continue to monitor circumstances and events in future periods to		determine whether additional goodwill impairment testing is warranted on		an interim basis. The Company can provide no assurance that		an impairment charge for the goodwill balance,		which approximates only 0.4% of the Company's total assets, will not occur in future periods as a result of these analyses. 

7
Other intangible assets consist of capitalized software,		product rights, and customer relationships and are reported as Other		Intangible Assets on the Condensed Consolidated Balance Sheets. 		Intangible assets are reviewed for impairment when events or		circumstances indicate that the carrying value may not be recoverable		over the remaining lives of the assets.  

A summary of other intangible assets subject to amortization by segment is as follows:
 				December 31, 2009 				June 30, 2009				(Amounts in Thousands) 				Cost 				Accumulated				Amortization 				Net Value 				Cost 				Accumulated				Amortization 				Net Value				Electronic Manufacturing Services:            				    Capitalized Software 				  $27,303   				  $       24,514   				  $    2,789   				  $27,455   				  $       24,217   				  $    3,238  				    Customer Relationships 				  1,167   				  539   				  628   				  1,167   				  448   				  719  				        Other Intangible Assets 				  $28,470   				  $       25,053   				  $    3,417   				  $28,622   				  $       24,665   				  $    3,957              				Furniture:            				    Capitalized Software 				  $36,667   				  $       32,579   				  $    4,088   				  $37,107   				  $       32,533   				  $    4,574  				    Product Rights 				  1,160   				  402   				  758   				  1,160   				  334   				  826  				        Other Intangible Assets 				  $37,827   				  $       32,981   				  $    4,846   				  $38,267   				  $       32,867   				  $    5,400              				Unallocated Corporate:            				    Capitalized Software 				  $  5,817   				  $         5,142   				  $       675   				  $  5,773   				  $         4,949   				  $       824  				        Other Intangible Assets 				  $  5,817   				  $         5,142   				  $       675   				  $  5,773   				  $         4,949   				  $       824   				  				  				  				  				  				 				Consolidated 				  $72,114   				  $       63,176   				  $    8,938   				  $72,662   				  $       62,481   				  $  10,181  

Amortization expense related to other intangible assets was, in		thousands, $638 and $1,267 during the quarter and year-to-date periods		ended December 31, 2009, respectively. Amortization expense		related to other intangible assets was, in thousands, $872 and $2,543		during the quarter and year-to-date periods ended December 31, 2008,		respectively. Amortization expense in future periods is expected to		be, in thousands, $1,054 for the remainder of fiscal year 2010, and		$2,066, $1,828, $1,482, and $1,112 in the four years ending June 30,		2014, and $1,396 thereafter. The amortization period for product		rights is 7 years. The amortization periods for customer		relationship intangible assets range from 10 to 16 years.  The		estimated useful life of internal-use software ranges from 3 to 10		years.

Internal-use software is stated at cost lessaccumulated amortization and is amortized using the straight-line method. Duringthe software application development stage, capitalized costs include externalconsulting costs, cost of software licenses, and internal payroll andpayroll-related costs for employees who are directly associated with a softwareproject. Upgrades and enhancements are capitalized if they result in addedfunctionality which enable the software to perform tasks it was previouslyincapable of performing. Software maintenance, training, data conversion,and business process reengineering costs are expensed in the period in whichthey are incurred.  

8

Product rights to produce and sell certain products areamortized on a straight-line basis over their estimated useful lives, and capitalized customer relationships are amortized		based onthe estimated attrition rate of customers. The Company has no intangible assets with indefinite useful liveswhich are not subject to amortization.  

***Other General******Income: ***

Other General Income in fiscal year 2010 includes		settlement proceeds related to an antitrust class action lawsuit of		which the Company was a class member. Other General Income in fiscal		year 2009 includes a gain related to the sale of		undeveloped land and timberland holdings, and earnest money deposits		retained by the Company resulting from the termination of a contract		to sell and lease back the Company's Poland building and real estate.
Components of Other General Income:   **Three Months Ended** **Six****Months Ended****(Amounts in Thousands)****December****31** **December 31** **2009** **2008** **2009** **2008**Settlement Proceeds Related to			Antitrust Class Action Lawsuit$ 3,256   $      -0-			 $ 3,256   $      -0-			Gain on Sale of Undeveloped Land and			Timberland Holdings-0-			 7,978   -0-			 7,978  Earnest Money Deposits Retained-0-			 1,928   -0-			 1,928  Other General Income$ 3,256   $ 9,906   $ 3,256   $ 9,906  
***Non-operating Income (Expense): ***

Non-operating income (expense) includes the impact of such items as foreign	currency rate movements and related derivative gain or loss, fair value	adjustments on Supplemental Employee Retirement Plan (SERP) investments,	non-production rent income, bank charges, and other miscellaneous	non-operating income and expense items that are not directly related to	operations. The gain or loss on SERP investments is exactly offset by a	change in the SERP liability that is recognized in selling and	administrative expenses.
Components of Non-operating income (expense), net: **Three Months Ended** **Six Months Ended****(Amounts in Thousands)****December 31**			 **December 31** **2009** **2008** **2009** **2008**Foreign Currency/Derivative Gain			(Loss)$    456 			 $ (1,499) $    783 			 $   (988)Gain (Loss) on Supplemental Employee Retirement			Plan Investments503 			 (2,234) 2,020 			 (3,357)Other(243) (176)			 (363) (342)Non-operating income (expense), net$    716   $ (3,909)			 $ 2,440   $(4,687)
***Effective Tax Rate:***

In determining the quarterly provision for income taxes,		the Company uses 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 the Company		operates. Unusual or infrequently occurring items are separately		recognized in the quarter in which they occur.

9

The Company's provision for income taxes as a percentage of	pre-tax earnings ("effective tax rate") was	(26.8%) and 10.7%, respectively, for the three and six months ended December	31, 2009, as compared to 33.6% and 34.4%, respectively, for the three and	six months ended December 31, 2008. Relatively low pre-tax income accompanied by	$1.1 million of favorable tax accrual adjustments primarily related to the	research and development tax credit and a foreign deferred tax adjustment,	in conjunction with the positive impacts of	lower tax	rates in foreign jurisdictions as compared to the domestic rate, drove the	negative effective tax rate in the second quarter of fiscal year 2010 and	the lower effective tax rate for the six-month period when compared to the	same period a year ago. The prior fiscal year second quarter included a favorable $0.8	million tax benefit related to the European operations and a $0.5 million	research and development tax credit adjustment. Negatively impacting both	prior year periods' effective tax rates were losses generated in select	foreign jurisdictions that have a lower tax rate compared to the domestic	rate.

***Subsequent Events:***
The Company	has evaluated the impact of subsequent events through February 5, 2010,	which is the date these financial statements were issued.*** ***
***New Accounting Standards:***
		In January 2010, the FASB issued guidance to improve disclosures about		fair value instruments. The guidance requires additional disclosure		about significant transfers between levels 1, 2, and 3 of the fair value		hierarchy and requires disclosure of changes in level 3 activity on a		gross basis. In addition, the guidance clarifies existing requirements		regarding the required level of disaggregation by class of assets and		liabilities and also clarifies disclosures of inputs and valuation		techniques. The guidance will be effective beginning in the Company's		third quarter of fiscal year 2010, except for the requirement to		disclose level 3 activity on a gross basis, which will be effective as		of the beginning of the Company's fiscal year 2012. The Company is		currently evaluating the impact of adoption of the guidance on its		consolidated financial statements.

		In June 2009, the FASB established the FASB Accounting Standards		Codification (Codification) as the single official source of		authoritative U.S. GAAP recognized by the FASB (other than guidance		issued by the Securities and Exchange Commission). The Codification does		not change current U.S. GAAP but is intended to simplify user access to		all authoritative U.S. GAAP by providing all literature related to a		particular topic in one place. All existing FASB accounting standard		documents have been superseded.  During the first quarter of fiscal year		2010, the Company began to utilize the Codification and revised its		financial statements to no longer refer to former U.S. GAAP standards.

		In June 2009, the FASB issued guidance related to variable interest		entities (VIEs) which modifies how a company determines when VIEs should		be consolidated. The guidance clarifies that the determination of		whether a company is required to consolidate an entity is based on,		among other things, an entity's purpose and design and a company's		ability to direct the activities of the entity that most significantly		impact the entity's economic performance. The guidance requires an		ongoing reassessment of whether a company is the primary beneficiary of		a variable interest entity and requires additional disclosures about a		company's involvement in variable interest entities. The guidance will		be effective as of the beginning of the Company's fiscal year 2011. The		Company is currently evaluating the impact, if any, of adoption of the		guidance on its consolidated financial statements.

10

In		April 2009, the FASB issued guidance for interim disclosures about fair		value of financial instruments. This guidance expands to interim periods		the existing annual requirement to disclose the fair value of financial		instruments that are not reflected on the balance sheet at fair value.		The guidance became effective for interim periods beginning in the		Company's first quarter of fiscal year 2010, and the required disclosure		has been provided in				Note 7 - Fair Value of Financial Assets and Liabilities of Notes to		Condensed Consolidated Financial Statements.

In June 2008, the		FASB issued guidance for determining whether instruments granted in		share-based payment transactions are participating securities. This		guidance provides that unvested share-based payment awards that contain		nonforfeitable rights to dividends or dividend equivalents (whether paid		or unpaid) are participating securities and shall be included in the		computation of earnings per share pursuant to the two-class method. The		two-class method is an earnings allocation method for computing earnings		per share when an entity's capital structure includes multiple classes		of common stock and participating securities. This guidance became		effective as of the beginning of the Company's fiscal year 2010 and		required that previously reported earnings per share data be recast in		financial statements issued in periods after the effective date. The		effect of adopting the guidance is disclosed under the caption		"Revisions to the Earnings Per Share Calculation" within this footnote.

In April 2008, the		FASB issued guidance for the determination of the useful life of		intangible assets. This guidance amends the factors that should be		considered in developing renewal or extension assumptions used to		determine the useful life of a recognized intangible asset under the		goodwill and other intangible assets accounting principles. This new		guidance allows an entity to use its own historical experience in		renewing or extending similar arrangements, adjusted for entity-specific		factors, in developing assumptions about renewal or extension used to		determine the useful life of a recognized intangible asset. As a result,		the determination of intangible asset useful lives is now consistent		with the method used to determine the period of expected cash flows used		to measure the fair value of the intangible assets. The guidance for		determining the useful life of a recognized intangible asset is to be		applied prospectively to intangible assets acquired after the effective		date. Disclosure requirements are to be applied prospectively to all		intangible assets recognized as of, and subsequent to, the effective		date. The provisions of this guidance were adopted prospectively as of		the beginning of the Company's fiscal year 2010 and did not have an		effect on the Company's consolidated financial statements.

		In December 2007, the FASB issued  guidance on business combinations		which requires that the fair value of the purchase price of an		acquisition including the issuance of equity securities be determined on		the acquisition date; requires that all assets, liabilities,		noncontrolling interests, contingent consideration, contingencies, and		in-process research and development costs of an acquired business be		recorded at fair value at the acquisition date; requires that		acquisition costs generally be expensed as incurred; requires that		restructuring costs generally be expensed in periods subsequent to the		acquisition date; and requires that changes in deferred tax asset		valuation allowances and acquired income tax uncertainties after the		measurement period impact income tax expense. This guidance also		broadens the definition of a business combination and expands		disclosures related to business combinations. Additionally, in April		2009, the FASB issued further guidance which requires that acquired		contingent assets and liabilities be recognized at fair value if fair		value can be reasonably estimated. If the fair value cannot be		reasonably estimated, the asset or liability will be recognized in		accordance with existing accounting principles for accounting for		contingencies and reasonable estimation of the amount of a loss. This		new guidance became effective for business combinations occurring after		the beginning of the Company's fiscal year 2010. The impact, if any, of		this guidance on the Company's financial position, results of		operations, and cash flows will depend on the extent of business		combinations completed in the future.

11

		In December 2007, the FASB issued guidance on noncontrolling interests		in consolidated financial statements. This guidance requires that		noncontrolling interests be reported as a separate component of equity,		that net income attributable to the parent and to the noncontrolling		interest be separately identified in the consolidated statements of		income, that changes in a parent's ownership interest be accounted for		as equity transactions, and that, when a subsidiary is deconsolidated,		any retained noncontrolling equity investment in the former subsidiary		and the gain or loss on the deconsolidation of the subsidiary be		measured at fair value. This guidance became effective as of the		beginning of the Company's fiscal year 2010. The Company does not		currently have noncontrolling interests, and therefore the adoption of		this guidance did not have an impact on the Company's financial		position, results of operations, or cash flows.

In September 2006,		the FASB issued guidance on fair value measurements, which defines fair		value, establishes a framework for measuring fair value in generally		accepted accounting principles, and expands disclosures about fair value		measurements. This guidance is only applicable to existing accounting		pronouncements that require or permit fair value measurements and does		not require any new fair value measurements. The guidance, as originally		issued, was to be effective as of the beginning of the Company's fiscal		year 2009. In February 2008, the FASB issued additional guidance on fair		value measurements, approving a one-year deferral to the beginning of		the Company's fiscal year 2010 for all non-financial assets and		liabilities, except those that are recognized or disclosed at fair value		in the financial statements on a recurring basis at least annually. The		Company adopted the provisions of fair value measurement guidance		applicable to financial instruments as of July 1, 2008. The Company		adopted the provisions of fair value measurement guidance applicable to		non-financial assets and liabilities as of July 1, 2009 which did not		have a material effect on the Company's consolidated financial		statements. Required disclosures have been provided in				Note 7 - Fair Value of Financial Assets and Liabilities of Notes to		Condensed Consolidated Financial Statements.

**Note 2. Inventories**

Inventory components of the Company were as follows:
**December		31,****June 30,****(Amounts in Thousands)****2009****2009**Finished Products				$  35,613   				$  35,530    Work-in-Process				12,058   				11,752    Raw Materials				108,857   				93,999      Total FIFO		Inventory				$156,528   				$141,281    LIFO Reserve				(12,845)  				(14,277)     Total Inventory				$143,683   				$127,004    
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. During the three and six-month periods ended	December 31, 2009, LIFO inventory liquidations increased net	income by, in thousands, $371 and $967, respectively. During the three and	six-month periods ended December 31, 2008, LIFO inventory liquidations	increased net income by, in thousands, $918 and $1,000, respectively.

12

**Note 3. Comprehensive Income(Loss)**

Comprehensive income (loss) includes all changes in equity during a period	except those resulting from investments by and distributions to Share	Owners. Comprehensive income (loss), shown net of tax if applicable, for the	three and six-month periods ended December 31, 2009 and 2008 was as follows:
 				Three Months Ended 				December 31, 2009 				Three Months Ended				December 31, 2008				(Amounts in Thousands)				Pre-tax				 				Tax				 				Net of Tax 				Pre-tax				 				Tax				 				Net of Tax				Net income    				 $     1,906      				 $     8,182 				Other comprehensive income (loss):           				    Foreign currency translation adjustments				 $    (1,442) 				 $        353  				 $    (1,089) 				 $    (1,003) 				 $   (880) 				 $    (1,883)				    Postemployment severance actuarial change				 516  				 (206) 				 310  				 196  				 (78) 				 118 				    Other fair value changes:           				        Available-for-sale securities				 (44) 				 18  				 (26) 				 956  				 (385) 				 571 				        Derivatives				 1,169  				 (350) 				 819  				 (14,653) 				 4,557  				 (10,096)				    Reclassification to (earnings) loss:           				        Available-for-sale securities				 (30) 				 12  				 (18) 				 31  				 (12) 				 19 				        Derivatives				 (60) 				 26  				 (34) 				 3,337  				 (1,398) 				 1,939 				        Amortization of prior service costs				 72  				 (29) 				 43  				 72  				 (29) 				 43 				        Amortization of actuarial change				 146  				 (58) 				 88  				 (2) 				 1  				 (1)				Other comprehensive income (loss)				 $        327  				 $       (234) 				 $          93  				 $  (11,066) 				 $  1,776  				 $    (9,290)				Total comprehensive income (loss)    				 $     1,999      				 $    (1,108)                                     				Six Months Ended				December 31, 2009 				Six Months Ended				December 31, 2008				(Amounts in Thousands)				Pre-tax				 				Tax				 				Net of Tax 				Pre-tax				 				Tax				 				Net of Tax				Net income    				 $     3,680      				 $    10,366 				Other comprehensive income (loss):           				    Foreign currency translation adjustments				 $     1,921  				 $       (432) 				 $     1,489  				 $    (6,295) 				 $   (880) 				 $    (7,175)				    Postemployment severance actuarial change				 (674) 				 269  				 (405) 				 -0-  				 -0-  				 -0- 				    Other fair value changes:           				        Available-for-sale securities				 (44) 				 18  				 (26) 				 991  				 (395) 				 596 				        Derivatives				 854  				 (140) 				 714  				 (14,597) 				 4,633  				 (9,964)				    Reclassification to (earnings) loss:           				        Available-for-sale securities				 (56) 				 22  				 (34) 				 -0-  				 -0-  				 -0- 				        Derivatives				 1,385  				 (434) 				 951  				 3,705  				 (1,640) 				 2,065 				        Amortization of prior service costs				 143  				 (57) 				 86  				 143  				 (57) 				 86 				        Amortization of actuarial change				 298  				 (119) 				 179  				 8  				 (3) 				 5 				Other comprehensive income (loss)				 $     3,827  				 $       (873) 				 $     2,954  				 $  (16,045) 				 $  1,658  				 $  (14,387)				Total comprehensive income (loss)    				 $     6,634      				 $    (4,021)

13

					Accumulated other comprehensive					income (loss), net of tax effects, was as follows: 					December 31,					2009 					June 30,					2009					(Amounts in Thousands)   					Foreign currency translation adjustments					  $     9,310   					  $     7,821  					Unrealized gain (loss) from:   					    Available-for-sale securities					  403   					  463  					    Derivatives					  (4,066)  					  (5,731) 					Postemployment benefits:   					    Prior service costs					  (894)  					  (980) 					    Net actuarial loss					  (2,300)  					  (2,074) 					Accumulated other comprehensive income (loss)					  $     2,453   					  $      (501) 
**Note 4. Segment Information**

Management organizes the Company into segments based upon differences in	products and services offered in each segment. The EMS segment provides	engineering and manufacturing services which utilize common production and	support capabilities to a variety of industries globally. The EMS segment	focuses on electronic assemblies that have high durability requirements and	are sold on a contract basis and produced to customers' specifications. The	EMS segment currently sells primarily to customers in the medical,	automotive, industrial controls, and public safety industries. The Furniture	segment provides furniture for the office and hospitality industries, sold	under the Company's family of brand names. Each segment's product line	offerings consist of similar products and services sold within various	industries. Intersegment sales are	insignificant.

14

Unallocated corporate assets include cash and cash equivalents, short-term	investments, and other assets not allocated to segments. Unallocated	corporate net income consists of income not	allocated to segments for purposes of evaluating segment performance and	includes income from corporate investments and other non-operational items.	The basis of segmentation and accounting policies of the segments are	consistent with those disclosed in the Company's Annual Report on Form	10-K for the fiscal year ended June 30, 2009.
 **Three Months Ended** **Six****Months Ended**  **December 31** **December 31** **(Amounts in Thousands) ****2009** **2008** **2009** **2008** Net Sales:         Electronic Manufacturing		Services$166,983  $166,912  $332,469  $349,833   Furniture			108,140  160,694  217,306  317,268   Unallocated			Corporate and Eliminations38  -0- 45  -0-  Consolidated$275,161 
 $327,606  $549,820 
 $667,101           Net Income (Loss):         Electronic Manufacturing		Services$    2,665 
 $    			(709)			 $    2,446  
 $   (1,477)			  Furniture			(996)			
 4,049 			 784 
 7,232 			  Unallocated      Corporate and Eliminations237 
 4,842 			 450 
 4,611 			  Consolidated$    1,906 
(1)$   			8,182 
(2)$     3,680
(1)$   10,366 
(2)
(1) Net Income (Loss) included after-tax	restructuring charges, in thousands, of $184 and $476 in the three and six months ended	December 31, 2009, respectively. The EMS segment recorded, in the threeand six monthsended December 31, 2009, in thousands, $229 and $505, respectively, of after-tax restructuring	charges. The Furniture segment recorded, in	the three and six months ended December 31, 2009, in thousands, $59 and $51,respectively, of after-tax	restructuring income. Unallocated Corporate and Eliminations recorded, in the threeand six months	ended December 31, 2009, in thousands, $14 and $22, respectively,	of after-tax restructuring charges. SeeNote 6 - Restructuring Expenseof Notes to Condensed Consolidated Financial Statements for furtherdiscussion. Additionally, the EMS segment recorded for both the three and sixmonths ended December 31, 2009, after-tax income of  $2.0 million resultingfrom settlement proceeds related to an antitrust class action lawsuit of whichthe Company was a class member.(2) Net Income (Loss) included after-tax	restructuring charges, in thousands, of $661 and $1,255 in the three and six months ended	December 31, 2008, respectively.  The EMS segment recorded, in the threeand six monthsended December 31, 2008, in thousands, $464 and $899, respectively, of after-tax restructuring	charges.  The Furniture segment recorded, in	the three and six months ended December 31, 2008, in thousands, $143 and$289, respectively, of after-tax	restructuring charges.  Unallocated Corporate and Eliminations recorded, in the threeand six months	ended December 31, 2008, in thousands, $54 and $67, respectively,	of after-tax restructuring charges.  SeeNote 6 - Restructuring Expense of	Notes to Condensed Consolidated Financial Statements for further discussion. Additionally, the EMS segment recorded forboth the three and six months ended December 31, 2008, $1.6 million of after-tax incomefor earnest money deposits retained by the Company resulting from the termination of thecontract to sell the Company's Poland building and real estate.  Unallocated Corporateand Eliminations also recorded, for both thethree and six months ended December 31, 2008, after-tax gains of $4.8 million onthe sale of undeveloped land holdings and timberlands which were closed on during thequarter. 
 **December 31,** **June 30,** **(Amounts in Thousands)****2009****2009**Total Assets: Electronic		Manufacturing Services$377,596 $351,506  Furniture		186,646 184,755  Unallocated      Corporate and Eliminations79,694 106,008  Consolidated		$643,936 
 $642,269 
 
15

**Note5. Commitmentsand Contingent Liabilities**

Standby letters of credit are issued to third-party suppliers, lessors,	and	insurance and financial institutions and can only be drawn upon in the event	of the Company's failure to pay its obligations to the beneficiary.  As	of December 31, 2009, the Company had a maximum financial exposure	from unused standby letters of credit totaling $4.8 million. The Company is	not aware of circumstances that	would require it to perform under any of these arrangements and believes that	the resolution of any claims that might arise in the future, either	individually or in the aggregate, would not materially affect the Company's	financial statements. Accordingly, no liability has been recorded as	of December 31, 2009 with respect to the standby letters of	credit. The Company also enters into commercial letters of credit to	facilitate payment to vendors and from customers.

The Company estimates 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 in cases where  specific warranty issues become known.

Changes in the product warranty accrual for the six months ended	December	31, 2009 and 2008 were as follows:
**Six Months Ended		December 31****(Amounts in Thousands)**
**2009** 
**2008**Product Warranty Liability at the			beginning of the period$ 2,176 $ 1,470 			Accrual for warranties issued217  619  Reductions related to pre-existing warranties (including      changes in estimates)		(37)  		(4)Settlements made (in cash or in kind)		(504)		(498)Product Warranty Liability at the end of the period		$			1,852 			 		$ 1,587 			
16

**Note 6. Restructuring Expense**

		The Company recognized consolidated pre-tax restructuring expense of		$0.3 million and $0.8 million in the three and six months ended December		31, 2009, respectively, and $1.0 million and $2.0 million in the three		and six months ended December 31, 2008, respectively. The action		discussed below represents the majority of the restructuring costs		during the period presented in the summary table on the following page.		Former restructuring plans that are substantially complete and did not		have significant expense during the period presented are included in the		summary table on the following page under the caption Other		Restructuring Plans and include the Furniture segment Office Furniture		Manufacturing Consolidation Plan and the Unallocated Corporate Gaylord		restructuring plan.

		The Company utilizes available market prices and management estimates to		determine the fair value of impaired fixed assets. Restructuring charges		are included in the Restructuring Expense line item on the Company's		Condensed Consolidated Statements of Income.

***European Consolidation Plan:***

		During the fourth quarter of fiscal year 2008, the Company approved a		plan to expand its European automotive electronics capabilities and to		establish a European Medical Center of Expertise in Poznan, Poland. The		Company presently has an operation in Poznan. The Company successfully		completed the move of production from Longford, Ireland, into the		existing Poznan facility during the fiscal year 2009 second quarter. As		part of the plan, the Company is also consolidating its EMS facilities		located in Bridgend, Wales, and Poznan, Poland, into a new larger		facility in Poznan, which is expected to improve the Company's margins		in the very competitive EMS market. Construction of the new, larger		facility in Poland is complete and limited production has begun. The		Company intends to sell the existing Poland facility and real estate.		The plan is being executed in stages with a projected final completion		by the end of the Company's fiscal year 2011. The Company currently		estimates that the pre-tax charges related to the consolidation		activities will be approximately, in millions, $20.4 consisting of $18.9		of severance and other employee costs, $0.3 of property and equipment		asset impairment, $0.7 of lease exit costs, and $0.5 of other exit		costs. 

17
				Summary of All Plans				   				  				   				   				   				   				  				 				  				Accrued				June 30,				2009 (2) 				Six Months Ended December 31, 2009				 				Accrued				December 31,				2009 (2)				 				Total Charges				Incurred Since Plan Announcement (3)				 				Total Expected				Plan Costs (3) 				 				(Amounts in Thousands) 				Amounts				Charged (Income) Cash 				Amounts				Charged  				Non-cash 				Amounts Utilized/				Cash Paid 				Adjustments    				EMS Segment                				    FY 2008 European Consolidation Plan             				        Transition and Other Employee Costs				  $  12,288   				  $      719   				  $      -0-   				  $     -0-   				  $      (335) (4)				  $12,672   				  $         18,320   				  $18,881   				        Asset Write-downs				  -0-   				  -0-   				  -0-   				  -0-   				  -0-   				  -0-   				  346   				  346   				        Plant Closure and Other Exit Costs				  -0-   				  105   				  -0-   				  (105)  				  -0-   				  -0-   				  562   				  1,176   				    Total EMS Segment				  $  12,288   				  $      824   				  $      -0-   				  $   (105)  				  $      (335)  				  $12,672   				  $         19,228   				  $20,403   				Furniture Segment                				    Other Restructuring Plans (1)				  -0-   				  (83)  				  -0-   				  83   				  -0-   				  -0-   				  152   				  152   				Unallocated Corporate                				    Other Restructuring Plans (1)				  -0-   				  36   				  -0-   				  (36)  				  -0-   				  -0-   				  612   				  682   				Consolidated Total of All Plans				  $  12,288   				  $      777   				  $      -0-   				  $     (58)  				  $      (335)  				  $12,672   				  $         19,992   				  $21,237                   				(1) Other Restructuring Plans with charges during the six months				ended December 31, 2009 include the Office Furniture				Manufacturing Consolidation Plan initiated in fiscal year 2009				and the Unallocated Corporate Gaylord restructuring plan				initiated in fiscal year 2007. 				(2) Accrued restructuring at December 31, 2009 and June 30, 2009				was $12.7 million and $12.3 million, respectively. The balances				include $10.2 million and $3.8 million recorded in current				liabilities and $2.5 million and $8.5 million recorded in other				long-term liabilities at December 31, 2009 and June 30, 2009,				respectively.  				(3) These columns include restructuring plans that were active				during the six months ended December 31, 2009, including the EMS				segment European Consolidation Plan initiated in fiscal year				2008, the Furniture segment Office Furniture Manufacturing				Consolidation Plan initiated in fiscal year 2009, and the				Unallocated Corporate Gaylord restructuring plan initiated in				fiscal year 2007. 				(4) The effect of changes in foreign currency exchange rates				within the EMS segment due to revaluation of the restructuring				liability is included in this amount.  
18

**Note		7. Fair Value of Financial Assets and Liabilities**

The Company 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.

The Company invested in a convertible promissory note and				stock warrants of a privately-held company during the quarter				ended December 31, 2009. The Company has been chosen as the				primary supplier for the privately-held company to produce				products in the future and negotiations for a definitive supply				agreement are underway.  

The convertible promissory note is classified as an				available-for-sale debt security as a result of the conversion				option and was valued using a recurring market-based method				which approximates fair value by using the amortized cost basis				of the promissory note, with the discount amortized to interest				income over the term.  The stock warrants are classified as				derivative instruments as a result of a net settlement feature				and were valued on a recurring basis using a market-based method				which utilizes the Black-Scholes valuation model with the				following inputs: risk-free interest rate, volatility, expected				life, and the estimated stock price.

See								Note 9 - Short-Term Investments of Notes to Condensed				Consolidated Financial Statements for further information				regarding the convertible debt security.  See								Note 8 - Derivative Instruments of Notes to Condensed				Consolidated Financial Statements for further information				regarding the stock warrants.  

There were no other changes in the Company's valuation				techniques used to measure fair values compared to those				disclosed in the Company's Annual Report on Form 10-K for the				fiscal year ended June 30, 2009.

19
						Recurring Fair Value						Measurements:						As of December 31, 2009 and June 30, 2009, the fair						values of financial assets and liabilities that are						measured at fair value on a recurring basis using the						market approach are categorized as follows: 						December 31, 2009						(Amounts in Thousands) 						Level 1 						Level 2 						Level 3 						Total						Assets        						    Cash equivalents 						  $       34,141   						  $            -0-   						  $            -0-   						  $       34,141  						    Available-for-sale securities: Municipal securities 						  -0-   						  25,685   						  -0-   						  25,685  						    Available-for-sale securities: Convertible debt						securities 						  -0-   						  -0-   						  860   						  860  						    Derivatives: Foreign currency forward contracts 						  -0-   						  1,472   						  -0-   						  1,472  						    Derivatives: Stock warrants 						  -0-   						  -0-   						  146   						  146  						    Nonqualified supplemental employee retirement plan						assets 						  13,305   						  -0-   						  -0-   						  13,305  						        Total assets at fair value 						  $       47,446   						  $       27,157   						  $         1,006   						  $       75,609  						Liabilities        						    Derivatives: Foreign currency forward contracts 						  $            -0-   						  $            352   						  $            -0-   						  $            352  						        Total liabilities at fair value 						  $            -0-   						  $            352   						  $            -0-   						  $            352                   						June 30, 2009						(Amounts in Thousands) 						Level 1 						Level 2 						Level 3 						Total						Assets        						    Cash equivalents 						  $       42,114   						  $            -0-   						  $            -0-   						  $       42,114  						    Available-for-sale securities: Municipal securities 						  -0-   						  25,376   						  -0-   						  25,376  						    Derivatives: Foreign currency forward contracts 						  -0-   						  784   						  -0-   						  784  						    Nonqualified supplemental employee retirement plan						assets 						  10,992   						  -0-   						  -0-   						  10,992  						        Total assets at fair value 						  $       53,106   						  $       26,160   						  $            -0-   						  $       79,266  						Liabilities        						    Derivatives: Foreign currency forward contracts 						  $            -0-   						  $         3,407   						  $            -0-   						  $         3,407  						        Total liabilities at fair value 						  $            -0-   						  $         3,407   						  $            -0-   						  $         3,407          						The changes in fair value of Level 3 investment assets						for the three and six months ended December 31, 2009						were immaterial.  There were no Level 3 investments as						of the fiscal year ended June 30, 2009.
***Non-Recurring Fair Value Measurements:***
During the			three and six months ended December 31, 2009, the Company had no			fair value adjustments applicable to items that are subject to			non-recurring fair value measurement after the initial measurement			date.

20

***Disclosure of Other Financial Instruments:***

Other financial instruments that are not			reflected in the Condensed Consolidated Balance Sheets at fair value			have carrying amounts that approximate fair value as follows:

**Assets**
					 
**Liabilities**
Certain					cash and cash equivalents
 
Accounts					payable
Receivables
 
Borrowings					under credit facilities
Other					assets not recorded at fair value
 
Dividends					payable 
 
Accrued					expenses
The fair value estimate for long-term debt, excluding capital			leases, was estimated using a discounted cash flow analysis based on			quoted long-term debt market rates adjusted for the Company's			non-performance risk. There was an immaterial difference between the			carrying value and estimated fair value of long-term debt as of			December 31, 2009 and June 30, 2009.

**Note 8. 	Derivative Instruments**

***Foreign Currency Forward Contracts:***

The Company operates internationally and is therefore exposed to			foreign currency exchange rate fluctuations in the normal course of			its business. The Company's primary means of managing this exposure			is to utilize natural hedges, such as aligning currencies used in			the supply chain with the sale currency. To the extent natural			hedging techniques do not fully offset currency risk, the Company			uses derivative instruments with the objective of reducing the			residual exposure to certain foreign currency rate movements.			Factors considered in the decision to hedge an underlying market			exposure include the materiality of the risk, the volatility of the			market, the duration of the hedge, the degree to which the			underlying exposure is committed to, and the availability,			effectiveness, and cost of derivative instruments. Derivative			instruments are only utilized for risk management purposes and are			not used for speculative or trading purposes. 

The Company uses forward contracts designated as cash flow hedges			to protect against foreign currency exchange rate risks inherent in			forecasted transactions denominated in a foreign currency. As of			December 31, 2009, the Company had outstanding foreign currency			forward contracts to hedge currencies against the U.S. dollar in the			aggregate notional amount of $10.6 million and to hedge currencies			against the Euro in the aggregate notional amount of 23.3 million			EUR. The notional amount is an indicator of the volume of derivative			activities but is not an indicator of the potential gain or loss on			the derivatives.

In limited cases due to unexpected changes in forecasted			transactions, cash flow hedges may cease to meet the criteria to be			designated as cash flow hedges. Depending on the type of exposure			hedged, the Company may either purchase a forward contract in the			opposite position of the undesignated hedge or may retain the hedge			until it matures if the hedge continues to provide an adequate			offset in earnings against the currency revaluation impact of			foreign currency denominated liabilities.  

21

The fair value of outstanding derivative instruments is			recognized on the balance sheet as a derivative asset or liability.			When derivatives are settled with the counterparty, the derivative			asset or liability is relieved and cash flow is impacted for the net			settlement. For derivative instruments that meet the criteria of			hedging instruments under FASB guidance, the effective portions of			the gain or loss on the derivative instrument are initially recorded			net of related tax effect in Accumulated Other Comprehensive Income			(Loss), a component of Share Owners' Equity, and are subsequently			reclassified into earnings in the period or periods during which the			hedged transaction is recognized in earnings. The ineffective			portion of the derivative gain or loss is reported in the			Non-operating income (expense) line item on the Condensed			Consolidated Statements of Income immediately. The gain or loss			associated with derivative instruments that cease to meet the			criteria for hedging under FASB guidance is also reported in the			Non-operating income (expense) line item on the Condensed			Consolidated Statements of Income immediately. 

Based on fair values			as of December 31, 2009, the Company estimates that $4.9 million of			pre-tax derivative losses deferred in Accumulated Other			Comprehensive Income (Loss) will be reclassified into earnings,			along with the earnings effects of related forecasted transactions,			within the next 12 months. Losses on forward			exchange contracts are generally offset by gains in operating costs			in the income statement when the underlying hedged transaction is			recognized in earnings. Because gains or losses on forward			contracts fluctuate partially based on currency spot rates, the			future effect on earnings of the cash flow hedges alone is not			determinable, but in conjunction with the underlying hedged			transactions, the result is expected to be a decline in currency			risk. The maximum length of time the Company had hedged its exposure			to the variability in future cash flows was 11 and 15 months as of			December 31, 2009 and June 30, 2009, respectively. 

***Stock Warrants:***

In conjunction with			the Company's investment in a convertible debt security of a			privately-held company during the quarter ended December 31, 2009,			the Company received common and preferred stock warrants which			provide the right to purchase the privately-held company's equity			securities at a specified exercise price. Specifically, the Company			received a stock warrant to purchase 1,000,000 shares of common			stock at a $0.15 per share exercise price and received a stock			warrant to purchase a number of shares of preferred stock based on			the latest preferred stock offering price (667,000 shares of preferred stock at a $1.50 per share exercise			price, based on the last offering price of outstanding preferred			stock). 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. Gains and losses on the revaluation of stock			warrants are recognized in the Non-operating income (expense) line			item on the Condensed Consolidated Statements of Income. 

See						Note 7 - Fair Value of Financial Assets and Liabilities of Notes			to Condensed Consolidated Financial Statements for further			information regarding the fair value of derivative assets and			liabilities and						Note 3 - Comprehensive Income (Loss) of Notes to Condensed			Consolidated Financial Statements for the amount and changes in			derivative gains and losses deferred in Accumulated Other			Comprehensive Income (Loss).

22

			Information on the location and amounts of derivative fair values in			the Condensed Consolidated Balance Sheets and derivative gains and			losses in the Condensed Consolidated Statements of Income are			presented below.
					Fair Values of Derivative Instruments					on the Condensed Consolidated Balance Sheets  					Asset Derivatives 					Liability Derivatives 					 					 					Fair Value As of 					 					 					Fair Value As of					(Amounts in Thousands) 					Balance Sheet Location 					December 31,					2009 					June 30,					2009 					Balance Sheet Location 					December 31,					2009 					June 30,					2009					Derivatives designated as 					hedging instruments:          					   Foreign currency forward contracts 					Prepaid expenses and 					other current assets					  $ 1,217   					  $      742   					Accrued expenses 					  $      36   					  $ 2,581              					Derivatives not designated as 					hedging instruments:          					   Foreign currency forward contracts 					Prepaid expenses and 					other current assets					  255   					  42   					Accrued expenses 					  316   					  631         					Other liabilities (long-term)					  -0-   					  195  					   Stock warrants 					Other assets (long-term)					  146   					  -0-        					Total derivatives   					  $ 1,618   					  $      784     					  $    352   					  $ 3,407  

23
				The Effect of Derivative Instruments on				Other Comprehensive Income (Loss)              				Three Months Ended				December 31 				Six Months Ended				December 31				(Amounts in Thousands)     				2009				 				2008 				2009				 				2008				Amount of Pre-Tax Gain or (Loss) Recognized in Other				Comprehensive 				Income (Loss) (OCI) on Derivative (Effective Portion):				 				 				  				 				 				  				        Foreign currency forward contracts   				  $      1,169   				  $  (14,653)  				  $         854   				  $  (14,597)                                                 				The Effect of Derivative Instruments on Condensed Consolidated				Statements of Income      				(Amounts in Thousands)                  				Three Months Ended				December 31 				Six Months Ended				December 31				Derivatives in Cash Flow Hedging Relationships				 				Location of Gain or (Loss)  				2009				 				2008 				2009				 				2008				Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated				OCI into Income (Effective Portion):				 				 				 				 				        Foreign currency forward contracts 				Net Sales 				  $             1   				  $         -0-   				  $           12   				  $         -0-  				        Foreign currency forward contracts 				Cost of Sales 				  (186)  				  (1,012)  				  (1,402)  				  (1,719) 				        Foreign currency forward contracts 				Non-operating income (expense) 				  244   				  (2,466)  				  (39)  				  (2,131) 				        Total     				  $           59   				  $    (3,478)  				  $    (1,429)  				  $    (3,850)             				Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated				OCI into Income (Ineffective Portion):				 				 				 				 				        Foreign currency forward contracts 				Non-operating income (expense) 				  $             1   				  $         141   				  $           44   				  $         145                          				Derivatives Not Designated as Hedging Instruments				 				 				 				         				Amount of Pre-Tax Gain or (Loss) Recognized in Income on				Derivative:				 				  				 				 				 				 				 				        Foreign currency forward contracts 				Non-operating income (expense) 				  $         400   				  $         -0-   				  $       (437)  				  $         -0-  				        Stock warrants 				Non-operating income (expense) 				  -0-   				  -0-   				  -0-   				  -0-  				        Total     				  $         400   				  $         -0-   				  $       (437)  				  $         -0-                          				Total Derivative Pre-Tax Gain (Loss) Recognized in Income   				  $         460   				  $    (3,337)  				  $    (1,822)  				  $    (3,705) 

**Note 9.  Short-Term	Investments**

***Municipal Securities:***

The Company's short-term investment portfolio		includes available-for-sale securities which are comprised of exempt		securities issued by municipalities ("Municipal Securities") which can		be in the form of General Obligation Bonds, Revenue Bonds, Tax		Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes,		pre-refunded (by U.S. Govt. or State and Local Govt.) bonds, and		short-term putable bonds. The Company's investment policy dictates that		municipal securities must be investment grade quality.

24

Available-for-sale securities are recorded at fair		value. See				Note 7 - Fair Value of Financial Assets and Liabilities 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 debt		securities are recognized in earnings when a company has an intent to		sell or is likely to be required to sell before recovery of the loss, or		when the debt security has incurred a credit loss. Otherwise, unrealized		gains and losses are recorded net of the tax related effect as a		component of Share Owners' Equity. Municipal securities mature within a		five-year period.

				Municipal Securities    				(Amounts in Thousands) 				December 31,				2009 				June 30,				2009				Amortized cost basis 				  $   25,015   				  $   24,606  				Unrealized holding gains 				  670   				  770  				Unrealized holding losses  				  -0-   				  -0-  				Other-than-temporary impairment 				  -0-   				  -0-  				    Fair Value 				  $   25,685   				  $   25,376  
					Activity for the municipal securities					that were classified as available-for-sale was as follows:        					Municipal Securities 					Three Months Ended					December 31 					Six Months Ended					December 31					(Amounts in Thousands) 					2009 					2008 					2009 					2008					Proceeds from sales 					  $         1,556   					  $         1,610   					  $         3,109   					  $         3,268  					Gross realized gains from sale of available-for-sale					securities					      included in earnings 					  30   					  22   					  56   					  53  					Gross realized losses from sale of available-for-sale					securities 					      included in earnings 					  -0-   					  (35)  					  -0-   					  (35) 					Net unrealized holding gain (loss) included in Accumulated										      Other Comprehensive Income (Loss) 					  (44)  					  956   					  (44)  					  991  					Net (gains) losses reclassified out of Accumulated Other 					      Comprehensive Income (Loss) 					  (30)  					  31   					  (56)  					  -0-  

Realized gains and losses are reported in Other			Income (Expense) category of the Condensed Consolidated Statements			of Income. The cost of each individual security was used in			computing the realized gains and losses. During the three and six			months ended December 31, 2008, the Company also recorded, in			thousands, $18 of other-than-temporary impairment. No			other-than-temporary impairment was recorded during the three and			six months ended December 31, 2009.

25

***Convertible Debt Securities:***

On December 17, 2009, the Company purchased a			secured convertible promissory note from a privately-held company			with a face amount of $1.0 million. The Company has been chosen as the			primary supplier for the privately-held company to produce products			in the future and negotiations for a definitive supply agreement are			underway. The convertible note is accounted for as an			available-for-sale debt security and is recorded at fair value. 			Interest accrues on the debt security at a rate of 8.00% per annum			and is due with the principal at the December 17, 2010 maturity			date. The debt security is convertible into the preferred stock of			the privately-held company upon certain events, including a			qualified financing, a nonqualified financing, initial public			offering or a change in control.

In connection with the purchase of the debt			security, the Company also received stock warrants to purchase the			common and preferred stock of the privately-held company at a			specified exercise price. See						Note 8 - Derivative Instruments of Notes to Condensed			Consolidated Financial Statements for further information regarding			stock warrants. 

In the aggregate, the investments, security			interest, and supply agreement do not rise to the level of a			material variable interest or a controlling interest in the			privately-held company which would require consolidation.

See						Note 7 - Fair Value of Financial Assets and Liabilities of Notes			to Condensed Consolidated Financial Statements for more information			on the fair value of available-for-sale securities.  Unrealized			losses on the debt security will be recognized in earnings when			there is an intent to sell or is likely to be required to sell			before recovery of the loss, or when the debt security has incurred			a credit loss. Otherwise, unrealized gains and losses are recorded			net of the tax related effect as a component of Share Owners'			Equity.

***Supplemental Employee Retirement Plan			Investments:***

The Company maintains a self-directed			supplemental employee retirement plan (SERP) for executive			employees. The SERP is structured as a rabbi trust, and therefore			assets in the SERP portfolio are subject to creditor claims in the			event of bankruptcy. The Company recognizes SERP investment assets			on the balance sheet at current fair value. A SERP liability of the			same amount is recorded on the balance sheet representing the			Company's 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.			Adjustments made to revalue the SERP liability are also recognized			in income and exactly offset valuation adjustments on SERP			investment assets. The change in net unrealized holding gains and			(losses) for the six-month periods ended December 31, 2009 and 2008			was, in thousands, $2,000 and ($3,361), respectively. SERP asset and			liability balances were as follows: 

 (Amounts in Thousands) 			December 31,			2009 			June 30,			2009			SERP investment - current asset 			  $         4,377   			  $         3,536  			SERP investment - other long-term asset 			  8,929   			  7,456  			    Total SERP investment 			  $       13,306   			  $       10,992      			SERP obligation - current liability 			  $         4,377   			  $         3,536  			SERP obligation - other long-term liability 			  8,929   			  7,456  			    Total SERP obligation 			  $       13,306   			  $       10,992  

26

**Note 10.  AssetsHeld for Sale**

At December 31, 2009, a facility and land related to the		Gaylord, Michigan, exited operation within the EMS segment were	classified as held for sale and totaled, in thousands, $1,160. The assets were reported as unallocated corporate assets for		segment reporting purposes.  The Company expects to sell these assets during	the next 12 months. During the second quarter of fiscal year 2010, the		Company sold equipment related to previously held timberlands. The sale		had an immaterial effect on the Company's consolidated financial		statements. At June 30, 2009, the Company had, in thousands, assets		totaling $1,358 classified as held for sale.

**Note 11. Postemployment Benefits**

The Company maintains severance plans for all	domestic employees. These plans 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 the Company's severance plans were as follows:
 **Three Months Ended** **Six Months Ended**  **December 31** **December 31** **(Amounts in Thousands)****2009** **2008** **2009** **2008** Service cost$  185  			 $   48  			 $   378  			 $ 162  			 Interest cost				104  				 				21  				 				212  				 				69  				 Amortization of prior service costs				72  				 72  				 				143  				 				143  				 Amortization of actuarial change				146  				 				(2) 				 				298  				 				8  				 Net periodic benefit cost$ 				507  				 $				139  				 				$1,031  				 $				382  				 
The benefit cost in the above table includes only normal recurring levels	of severance activity, as estimated using an actuarial method. Unusual	or non-recurring severance actions, such as those disclosed in		Note 6 - Restructuring Expense	of Notes to Condensed Consolidated Financial Statements, are not estimable	using actuarial methods and are expensed in accordance with the applicable		U.S. GAAP.

27

**Note 12.  Stock Compensation Plan**

During fiscal year 2010, the following stock		compensation was awarded to officers, key employees, and non-employee		directors. All awards were granted under the 2003 Stock Option and		Incentive Plan. For more information on similar unrestricted shares and performance share awards, refer to the Company's Annual Report on Form		10-K for the fiscal year ended June 30, 2009.
**Performance Shares** 
**Quarter Awarded** **Maximum				Potential Shares Issuable** **Grant Date Fair Value				(4)**Annual Performance Shares - Class A				(1) 1st Quarter 240,000   $ 6.24  Long-Term Performance Shares - Class A				(2) 1st Quarter 726,350   $ 6.24  Long-Term Performance Shares - Class A				(2) 2nd Quarter 1,280   $ 7.22  
 
**Unrestricted Shares** 
**Quarter Awarded** ** Shares** **Grant Date Fair Value				(4)**Unrestricted Shares (Director Compensation) -				Class B				(3) 2nd Quarter 19,662   $ 7.63  (1)Annual performance shares were awarded to officers. Payouts				will be based upon the fiscal year 2010 cash incentive payout percentages				calculated under the Company's 2005 Profit Sharing Incentive				Bonus Plan. The				number of shares issued will be less than the maximum potential				shares issuable if the maximum cash incentive payout percentages				are not achieved. Annual performance shares vest after one year.				(2)Long-term performance shares were awarded to officers and				other key employees. Payouts will be based upon the cash				incentive payout percentages calculated under the Company's 2005				Profit Sharing Incentive Bonus Plan. Long-term performance				shares are based on five successive annual performance				measurement periods, with each annual tranche having a grant				date when economic profit tiers are established at the beginning				of the applicable fiscal year and a vesting date at the end of				each annual period. The number of shares issued will be less than				the maximum potential shares issuable if the maximum cash				incentive payout percentages are not achieved. (3) Unrestricted shares were awarded to				non-employee members of the Board of Directors as compensation				for director's fees, as a result of directors' elections to				receive unrestricted shares in lieu of cash payment. Director's				fees 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.(4) The grant				date fair value of 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 performance share awards. The grant date				fair value shown for long-term performance shares is applicable				to the first tranche only. The grant date fair value of the				unrestricted shares was based on the stock price at the date of				the award.
28

**Item 2.  Management's Discussion and Analysis ofFinancial Condition and Results of Operations**
**Business Overview**
Kimball International, Inc. provides a variety of	products from its two business segments: the Electronic Manufacturing	Services (EMS) segment and the Furniture segment. The EMS segment provides	engineering and manufacturing services which utilize common production and	support capabilities globally to the medical, automotive, industrial	control, and public safety industries.  The Furniture segment provides	furniture for the office and hospitality industries, sold under the	Company's family of brand names. 

Within both segments, most of the markets in which the	Company competes were adversely affected by the global recession and	liquidity crisis. The Company experienced declining sales and order trends	beginning in the second quarter of fiscal year 2009. Open orders at December	31, 2009 were 45% lower in the Furniture segment and 2% higher in the EMS	segment when compared to December 31, 2008.  As compared to September 30,	2009, the December 31, 2009 open orders for the Furniture segment declined	6%, and the EMS segment open orders increased 6%.  While open orders at a	point in time are not necessarily indicative of future sales, three consecutive	increases in open order levels for the EMS	segment are encouraging.

After experiencing sales declines in calendar year	2009, the EMS industry sales projections (by IDC, InForum, and Electronic	Trend Publications) show growth for calendar year 2010 in the range of 4.5%	to 9.1% as compared to the calendar year 2009 levels. In addition, the	Semiconductor Industry Association (SIA) reported that semiconductor sales	are projected to grow approximately 10% in calendar year 2010, and although	the Company does not directly serve this market, it may be indicative of end	market demand for products utilizing electronic components. 

The Company continues its strategy of diversification	within the EMS segment customer base as it currently focuses on the four key	vertical markets of medical, automotive, industrial control, and public	safety. Short-term demand in the automotive market improved during the first	half of the Company's fiscal year 2010 in conjunction with the Cash for	Clunkers program, but the automotive market recovery is expected to remain	slow due to the impact of current economic conditions on durable goods	spending. Demand in the medical market has remained stable, and the Company	sees signs of growth. The industrial control vertical market is also showing	signs of stability, after benefiting from spending targeted at energy	savings technologies, and the public safety vertical market is likewise	stable. Sales to customers in the medical industry are the largest portion	of the Company's EMS segment with sales to customers in the automotive	industry being the second largest of the four vertical markets. The	Company's sales to customers in the automotive industry are diversified	among more than ten domestic and foreign customers and represented	approximately 33% of the EMS segment's net sales for the second quarter of	fiscal year 2010. The amount of sales of electronic components that relate	to General Motors, Ford, and Chrysler automobiles sold in North America were	only approximately 8% of the Company's EMS segment net sales during the	second quarter of fiscal year 2010.

29

As of November 2009, the Business and Institutional	Furniture Manufacturer Association (BIFMA International) is projecting an	approximate 2% year-over-year decline in the office furniture industry for	calendar year 2010 after an approximate 30% projected decline in calendar	year 2009 with a return to positive growth expected to begin late	in calendar year 2010. While the Company's mid-market brand has fared better	than its contract office furniture brand due to the project nature of the	contract market and the changing U.S. consumption patterns, it cannot predict future overall office furniture order	trends at this time due to the short lead time of orders and the volatility	in the economy. In addition, the hotel industry forecasts (reported by Smith Travel Research and	PricewaterhouseCoopers LLP) project occupancy rates to stabilize in calendar	year 2010 after an approximate 9% decline in calendar year 2009 and project revenue	per available room (RevPAR) to decline another 1% for calendar year 2010	after an approximate 17% decline in calendar year 2009. The Company expects	order rates for hospitality furniture to remain depressed in the near term	due to the lower hotel occupancy rates and RevPAR rates.

Competitive pricing pressures within the EMS segment	and on many projects within the Furniture segment continue to put pressure	on the Company's operating margins. 

The current market conditions and the tightening of the	credit markets have also increased the risk of uncollectible accounts and	notes receivables. Accordingly, the Company heightened its monitoring of	receivables and related credit risks, and the Company believes its accounts	and notes receivables allowance for uncollectible accounts is adequate as of	December 31, 2009. The Company could potentially record additional	allowances in the future depending on the pace of recovery of the markets in	which the Company competes. 

The Company is continually assessing its strategies in	relation to the market conditions. A long-standing component of the	Company's profit sharing incentive bonus plan is that it is linked to the	performance of the Company which automatically lowers total compensation	expense when profits are down. The Company has also implemented various	initiatives in response to the market conditions including reducing	operating costs, more closely scrutinizing customer and supply chain risk,	and deferring or cancelling capital expenditures that are not immediately	required to support customer requirements. The Company will continue to	closely monitor market changes and its liquidity in order to proactively	adjust its operating costs, discretionary capital spending, and dividend	levels as needed.

The Company continues to maintain a strong balance	sheet which includes a minimal amount of long-term debt of $0.4 million and	Share Owners' equity of $386.0 million. The Company's short-term liquidity	available, represented as cash, cash equivalents, and short-term investments	plus the unused amount of the Company's revolving credit facility was $158.9	million at December 31, 2009.

In addition to the above risks related to the current	market conditions, management currently considers the following events,	trends, and uncertainties to be most important to understanding the	Company's financial condition and operating performance:
- The Company will continue its focus on				preserving cash and minimizing debt.  Managing working capital				levels is key.  In addition, the Company plans to minimize				capital expenditures where appropriate but will continue to				invest in capital expenditures prudently, particularly for				projects that would enhance the Company's capabilities and				diversification while providing an opportunity for growth and				improved profitability as the economy and the Company's markets				recover.  
- Although the Company has seen recent				declines in the cost of some commodities and in fuel prices, if				the price of oil trends upwards, the price of other commodities				may also increase.  This continues to be an area of focus within				the Company.  
- Globalization continues to reshape not				only the industries in which the Company operates but also its				key customers and competitors.

30

 
- The nature of the electronic manufacturing				services industry is such that the start-up of new programs to				replace departing customers or expiring programs occurs				frequently. The success of the Company's EMS segment is				dependent on the successful replacement of such customers or				programs. Such changes usually occur gradually over time as old				programs phase out of production while newer programs ramp up.				While the margins vary depending on the size of the program and				the vertical market being served, replacement programs often				carry lower margins.  
- Successful execution of the Company's				restructuring plans is critical to the Company's future				performance. The success of the restructuring initiatives is				dependent on accomplishing the plans in a timely and effective				manner. The Company's restructuring plans are discussed in the				segment discussions below.  
- The increasingly competitive marketplace				mandates that the Company continually re-evaluate its business				models.
- The Company's employees throughout its				business operations are an integral part of the Company's				ability to compete successfully, and the stability of its				management team is critical to long-term Share Owner value. The				Company's career development and succession planning process				helps to maintain stability in management.  
- As end markets dictate, the Company is				continually assessing under-utilized capacity and developing				plans to grow the Company's customer base and better utilize				manufacturing operations, including shifting manufacturing				capacity to lower cost venues as necessary. 
			o    During the first quarter of fiscal year 2009, the Company			approved a restructuring plan to consolidate production of select			office furniture manufacturing departments. The consolidation is			complete and has reduced manufacturing costs and excess capacity by			eliminating redundant property and equipment, processes, and			employee costs. 

			o    During the fourth quarter of fiscal year 2008, the Company			approved a plan to expand its European automotive electronics			capabilities and to establish a European Medical Center of Expertise			in Poznan, Poland. The Company presently has an operation in Poznan.			The Company successfully completed the move of production from			Longford, Ireland, into the existing Poznan facility during the			second quarter of fiscal year 2009. As part of the plan, the Company			is also consolidating its EMS facilities located in Bridgend, Wales,			and Poznan into a new, larger facility in Poznan, with a projected			final completion by the end of the Company's fiscal year 2011. 			Construction of the new, larger facility in Poland is complete and			limited production has begun. - To support growth and diversification				efforts, the Company has focused on both organic growth and				acquisition activities. Acquisitions allow rapid diversification				of both customers and industries served.
- The regulatory and business environment				for U.S. public companies requires that the Company continually				evaluate and enhance its practices in the areas of corporate				governance and management practices. The Company has taken a				number of steps to conform its corporate governance to evolving				national and industry-wide best practices among U.S. public				companies, not only to comply with new legal requirements, but				also to enhance the decision-making process of the Board of				Directors.  

Certain preceding statements could be considered	forward-looking statements under the Private Securities Litigation Reform	Act of 1995 and are subject to certain risks and uncertainties including,	but not limited to, a significant change in economic conditions, loss of key	customers or suppliers, or similar unforeseen events.

31

***Financial Overview - Consolidated***

Second quarter fiscal year 2010 consolidated net sales were $275.2	million compared to second quarter fiscal year 2009 net sales of $327.6	million, a 16% decrease, due to a net sales decrease in the Furniture	segment. Net income for the second quarter of fiscal year 2010 was $1.9	million, or $0.05 per Class B diluted share, inclusive of $2.0 million	after-tax income, or $0.05 per Class B diluted share, resulting from	settlement proceeds related to an antitrust class action lawsuit of which	the Company was a class member and after-tax restructuring charges of $0.2	million, or less than $0.01 per Class B diluted share. Second quarter fiscal	year 2009 net income was $8.2 million, or $0.22 per Class B diluted share,	inclusive of after-tax restructuring charges of $0.7 million, or $0.02 per	Class B diluted share. The second quarter fiscal year 2009 restructuring	charges were primarily related to the European consolidation plan.  Second	quarter fiscal year 2009 results also include two non-recurring income	items: a $4.8 million after-tax gain, or $0.13 per Class B diluted share,	related to the sale of a portion of the Company's undeveloped land holdings	and timberlands; and $1.6 million of after-tax income, or $0.04 per Class B	diluted share, for earnest money deposits retained by the Company resulting	from the termination of the contract to sell the Company's Poland building	and real estate.   

Net sales for the six-month period ended December 31,	2009 of $549.8 million were down 18% from net sales of $667.1 million for	the same period of the prior fiscal year due to a 32% net sales decrease in	the Furniture segment and a 5% net sales decrease in the EMS segment. Net	income for the six-month period ended December 31, 2009 totaled $3.7	million, or $0.10 per Class B diluted share, inclusive of $0.5 million, or	$0.01 per Class B diluted share, of after-tax restructuring costs and  $2.0	million after-tax income, or $0.05 per Class B diluted share, resulting from	the settlement proceeds related to the antitrust class action lawsuit. Net	income for the six-month period ended December 31, 2008 totaled $10.4	million, or $0.28 per Class B diluted share, inclusive of $1.3 million, or	$0.03 per Class B diluted share, of after-tax restructuring costs primarily	related to the European consolidation plan; $4.8 million after-tax gain, or	$0.13 per Class B diluted share, related to the sale of a portion of the	Company's undeveloped land holdings and timberlands; and $1.6 million of	after-tax income, or $0.04 per Class B diluted share, for earnest money	deposits retained by the Company resulting from the termination of the	contract to sell the Company's Poland building and real estate. 

Consolidated gross profit as a percent of net sales declined to 16.0% for	the second quarter of fiscal year 2010 from 17.2% in the second quarter of	fiscal year 2009.  For the year-to-date period of fiscal year 2010, gross	profit as a percent of net sales declined to 16.6% compared to 17.2% for the	year-to-date period of fiscal year 2009. Improved gross profit as a percent	of net sales for the second quarter and fiscal-year-to-date periods by both	the Furniture segment and EMS segment was more than offset on a consolidated	basis by a shift in sales mix (as depicted in the table below) toward	the EMS segment which operates at a lower gross profit percentage than the	Furniture segment.  Gross profit is discussed in more detail in the segment	discussions below. 
 
**Three Months Ended**
**Six Months Ended** 
**December 31**
**December 31**  
**2009**
**2008**
**2009**
**2008** 
EMS segment net sales as % of total
61%
51%
60%
52%
Furniture segment net sales as % of total
39%
49%
40%
48%
32

Consolidated selling and administrative expense	increased as a percent of net sales for both the three and six months ended	December 31, 2009 compared to the three and six months ended December 31,	2008 due to sales volumes declining at a quicker rate than the selling and	administrative expenses. Second quarter fiscal year 2010 consolidated	selling and administrative expenses declined in absolute dollars by 5%	compared to the second quarter of fiscal year 2009 primarily due to	decreased labor costs, other comprehensive cost reduction efforts throughout	the Company, lower bad debt expense, and lower profit-based incentive	compensation costs.  Partially offsetting these costs reductions were	increased employee benefit costs primarily related to the Company's	retirement plan contribution and increased sales and product marketing	initiatives. Consolidated selling and administrative expenses for the first	half of fiscal year 2010 declined in absolute dollars by 9% compared to the	first half of fiscal year 2009 primarily due to decreased labor expenses,	lower depreciation and amortization expenses, and other comprehensive cost	reduction efforts throughout the Company.  In addition, in the second	quarter and fiscal-year-to-date period of fiscal year 2010, the Company	recorded $0.5 million and $2.0 million, respectively, of expense compared to	$2.2 million and $3.4 million, respectively, of income in the second quarter	and fiscal-year-to-date period of fiscal year 2009 related to the normal	revaluation to fair value of its Supplemental Employee Retirement Plan (SERP)	liability. The result for the second quarter and year-to-date period was an	unfavorable variance in selling and administrative costs of $2.7 million and	$5.4 million, respectively. As the general equity markets improved, the	value of the SERP investments increased, causing additional selling and	administrative expense related to the SERP liability. The SERP expense	recorded in selling and administrative expenses was exactly offset by an	increase in SERP investment income which was recorded in Other Income	(Expense) as an investment gain; therefore, there was no effect on net	earnings. The SERP investment is primarily comprised of employee	contributions.  

Other General Income in	the second quarter and first half of fiscal year 2010 included $3.3 million	of pre-tax income recorded in the EMS segment resulting from settlement	proceeds related to an antitrust class action lawsuit of which the Company	was a class member. The class action alleged the defendant sellers illegally	conspired to fix prices for electronic components purchased by a business	unit within the EMS segment. Other General Income in the second quarter of	fiscal year 2009 included the $8.0 million pre-tax gain on the sale of a	portion of the Company's undeveloped land holdings and timberlands. The	gain was included in Unallocated Corporate in segment reporting. In	addition, the Company had a conditional agreement to sell and lease back the	facilities and real estate that house its current Poland operations.	However, during the second quarter of fiscal year 2009, the buyer was unable	to close the transaction.  As a result, the Company was entitled to retain	approximately $1.9 million of the deposit funds held by the Company which	was recorded as pre-tax income in Other General Income.  This income was	recorded in the EMS segment. 

The Company recorded other income of $1.0 million and $3.0 million during	the three and six months ended December 31, 2009, respectively, compared to	other expense of $3.9 million and $4.6 million recorded during the three and	six months ended December 31, 2008, respectively. The $2.7 million and $5.4	million appreciation in SERP investments was the primary driver of the	increased other income for the three and six months ended December 31, 2009,	respectively. In addition, Other Income (Expense) in the second quarter and	first half of fiscal year 2009 included an unfavorable impact of foreign	currency movements which were partially offset by a favorable currency	impact within operating income. Interest expense for the second quarter and	first half of fiscal year 2010 was lower than the same periods of fiscal	year 2009 due to lower average outstanding debt balances coupled with lower	interest rates.  Interest income was likewise lower for the second quarter	and first half of fiscal year 2010 compared to the same periods of fiscal	year 2009 due to lower interest rates and lower average investment balances.	

33

Relatively low pre-tax income accompanied by $1.1 million of favorable	tax accrual adjustments primarily related to the research and development	tax credit and a foreign deferred tax adjustment, in conjunction with the	positive impacts of lower tax rates in foreign jurisdictions as compared to	the domestic rate, drove the lower than normal effective tax rate of 10.7%	for the first half of fiscal year 2010.  The effective tax rate for the	first half of fiscal year 2009 of 34.4% included a favorable $0.9 million	tax benefit related to the European operations and a $0.5 million research	and development tax credit adjustment which were partially offset by the	negative impact of losses generated in select foreign jurisdictions which	have a lower tax rate than the domestic tax rate.   

Comparing the balance sheets as of December 31, 2009 to	June 30, 2009, the Company's inventory balance increased in order to support	the transfer of production to the new EMS facility in Poland from the other	EMS facilities in Europe. 

***Electronic Manufacturing Services Segment***

During the fourth quarter of fiscal year 2008, the	Company approved a plan to expand its European automotive electronics	capabilities and to establish a European Medical Center of Expertise in	Poznan, Poland. The Company successfully completed the move of production	from Longford, Ireland, into the existing Poznan facility during the fiscal	year 2009 second quarter. As part of the plan, the Company is also	consolidating its EMS facilities located in Bridgend, Wales, and Poznan,	Poland, into a new, larger facility in Poznan, which is expected to improve	the Company's margins in the very competitive EMS market. Construction of	the new, larger facility in Poland is complete and limited production has	begun. The plan is being executed in stages with a projected final	completion by the end of the Company's fiscal year 2011. See		Note 6 - Restructuring Expense of Notes to Condensed Consolidated	Financial Statements for more information on restructuring charges. 

EMS segment results were as follows:
 
**At or for the			Three Months Ended**
** **
**For the			Six Months Ended**
** ** 
**December 31**
** **
**December 31**
** **
**(Amounts in			Millions)**
**2009** 
**2008**
**% Change**
**2009** 
**2008**
**% Change**   
Net Sales 
			$   167.0  
			$  166.9 
			0%
			$  332.5  
			$  349.8 
			(5%)
Net Income (Loss)			
			$       2.7 
			$     (0.7)
			476%
			$      2.4 
			$    (1.5)
			266%  
Restructuring			Expense, net of tax
			   $       0.2 
			$      0.5 
			 
			$      0.5  
			$      0.9  
			 
Open Orders
			$   170.9 
			$  167.7 
			2%
			 
Second quarter fiscal year 2010 EMS segment net sales	to customers in the automotive industry increased which offset net sales	declines to customers in the industrial control and public safety industries	compared to the second quarter of fiscal year 2009. Sales to customers in	the medical industry were flat compared to the same quarter of the prior	fiscal year. The decreased EMS segment net sales for the first half of	fiscal year 2010 as compared to the first half of fiscal year 2009 were due	to decreased sales to customers in all four of this segment's vertical	markets. While open orders increased 2%, open orders at a point in time may	not be indicative of future sales trends due to the contract nature of the	Company's business. 

34

The second quarter fiscal year 2010 EMS segment gross	profit as a percent of net sales improved 0.6 percentage points compared to	the second quarter of fiscal year 2009, and the improvement was primarily driven by labor	efficiency improvements at select manufacturing facilities and reduced	overhead costs. The year-to-date fiscal year 2010 EMS segment gross profit	as a percent of sales improved slightly from the year-to-date fiscal year	2009 level.  

EMS segment selling and administrative expense declined	in absolute dollars by 4% and 10% for the	second quarter and first half of fiscal year 2010 compared to the same	periods of fiscal year 2009, respectively. The second quarter improvement	was primarily related to decreased labor expense, lower bad debt expense,	and a strong focus on managing all costs. The year-to-date improvement was	driven by benefits realized from restructuring actions, lower	depreciation/amortization expense, decreased labor expense, and other	overall cost reduction efforts.  Partially offsetting these second quarter	and year-to-date improvements were increased profit-based incentive	compensation costs.  

EMS segment Other General Income in the second quarter	of fiscal year 2010 included $3.3 million of pre-tax income, or $2.0 million	after-tax, resulting from settlement proceeds related to the antitrust class	action lawsuit. EMS segment Other General Income for the second quarter of	fiscal year 2009 included the aforementioned $1.9 million pre-tax, which	equated to $1.6 million after-tax, amount retained due to the buyer being	unable to close on the sale of the existing Poland building. 

The EMS segment second quarter and first half of fiscal	year 2010 included the benefit of $0.7 million favorable net tax accrual	adjustments.  The EMS segment also recorded $0.8 million and $0.9 million in	the second quarter and first half of fiscal year 2009, respectively, of tax	benefit related to its European operations, and $0.3 million of favorable	net tax accrual adjustments in both the second quarter and first half of	fiscal year 2009. 

Included in this segment are a significant amount of sales to Bayer AG	affiliates which accounted for the following portions of consolidated net	sales and EMS segment net sales: 
 
**Three Months Ended**
**Six Months Ended** 
**December 31**
**December 31**  
**2009**
**2008**
**2009**
**2008** 
Bayer AG affiliated sales as a percent of			consolidated net sales
14%
10%
15%
11%
Bayer AG affiliated sales as a percent of EMS			segment net sales 
23%
20%
25%
22%
The nature of the electronic manufacturing services	industry is such that the start-up of new customers and new programs to	replace expiring programs occurs frequently. New customer and program	start-ups generally cause losses early in the life of a program, which are	generally recovered as the program matures and becomes established. This	segment continues to experience margin pressures related to an overall	excess capacity position in the electronics subcontracting services market.	

Risk factors within the EMS segment include, but are	not limited to, general economic and market conditions, customer order	delays, increased globalization, foreign currency exchange rate	fluctuations, rapid technological changes, component availability, the	contract nature of this industry, unexpected integration issues with	acquisitions, the concentration of sales to large customers, and the	potential for customers to choose to insource a greater portion of their	electronics manufacturing. The continuing success of this segment is	dependent upon its ability to replace expiring customers/programs with new	customers/programs. Additional risk factors that could have an effect on the	Company's performance are contained in the Company's Annual Report on Form	10-K for the fiscal year ended June 30, 2009.

35

***Furniture Segment***

During the first quarter of fiscal year 2009, the	Company approved a restructuring plan to consolidate production of select	office furniture manufacturing departments. The consolidation reduced	manufacturing costs and excess capacity by eliminating redundant property	and equipment, processes, and employee costs. The consolidation is complete.	See		Note 6 - Restructuring Expense of Notes to Condensed Consolidated	Financial Statements for more information on restructuring charges. 

Furniture segment results were as follows: 
 
**At or for the			Three Months Ended**
** **
**For the			Six Months Ended**
** ** 
**December 31**
** **
**December 31**
** ** 
			 
			 
 
**2009** 
**2008**
**% Change**
**2009** 
**2008**
**% Change**
**(Amounts in Millions)**  
Net Sales 
			$  108.1   
			$   160.7 
			(33%)
			$  217.3   
			$  317.3 
			(32%)
Net Income (Loss)
			$    (1.0) 
			$       4.0 
			(125%)
			$      0.8  
			$      7.2 
			(89%)
Restructuring			(Income) Expense, net of tax
			$    (0.1)  
			$       0.2 
			 
			$    (0.1)   
			$      0.3  
			 
Open Orders
			$    61.4  
			$   111.1 
			(45%)
			 
The net sales decline in the Furniture segment for the	three and six months ended December 31, 2009 compared to the same periods of	the prior fiscal year resulted from decreased net sales of both office	furniture and hospitality furniture. Decreased sales volumes of office	furniture more than offset price increases net of higher discounting which	contributed approximately $2.1 million and $5.5 million to net sales during	the second quarter and first half of fiscal year 2010 when compared to the	same periods of fiscal year 2009, respectively. Second quarter and fiscal	2010 year-to-date sales of newly introduced office furniture products which	have been sold for less than twelve months approximated $6.5 million and	$12.6 million, respectively. Furniture products open orders at December 31,	2009 declined when compared to the open orders at December 31, 2008 due to	decreased open orders for both office furniture and hospitality furniture.	Open orders at a point in time may not be indicative of future sales trends.	

Second quarter and year-to-date fiscal year 2010	Furniture segment gross profit as a percent of net sales improved 1.2 and	2.3 percentage points when compared to the same periods of fiscal year 2009,	respectively.  Items contributing to the improved second quarter and	year-to-date gross profit as a percent of net sales included: price	increases on select product, lower freight and commodity costs, a sales mix	shift to higher margin product, and other overall cost reduction actions. A	decrease in LIFO inventory reserves resulting primarily from lower LIFO	inventory levels also positively impacted the fiscal-year-to-date 2010 gross	profit. These improvements more than offset the negative impact of the lower	volumes on the gross profit percentage, increased employee benefit costs,	and increased discounting resulting from competitive pricing pressures. Due	to the significant decline in sales volume, the gross profit dollars	declined as compared to the second quarter and year-to-date period of fiscal	year 2009. 

36

Second quarter and year-to-date fiscal year 2010	selling and administrative expenses decreased in absolute dollars by 12% and	15%, respectively, but increased as a percent of net sales on the lower	sales volumes, when compared to the same periods of fiscal year 2009. The	second quarter and year-to-date fiscal year 2010 selling and administrative	expense decline resulted from lower labor costs, lower profit-based	incentive compensation costs, lower bad debt expense, and other improvements	resulting from the focus on managing all costs. Partially offsetting the	lower costs in the second quarter of fiscal year 2010 were increased	employee benefit expenses and increased sales and product marketing costs. 	

Risk factors within this segment include, but are not	limited to, general economic and market conditions, increased global	competition, financial stability of customers, supply chain cost pressures,	and relationships with strategic customers and product distributors.	Additional risk factors that could have an effect on the Company's	performance are contained in the Company's Annual Report on Form 10-K for	the fiscal year ended June 30, 2009.

**Liquidity and Capital Resources**

Working capital at December 31, 2009 was $173.2 million	compared to working capital of $176.2 million at June 30, 2009. The current	ratio was 1.7 at December 31, 2009 and 1.8 at June 30, 2009.

The Company's internal measure of Accounts Receivable	performance, also referred to as Days Sales Outstanding (DSO), for the first	half of fiscal year 2010 of 47.4 days increased from the 45.7 days for the	first six months of fiscal year 2009. The Company defines DSO as the average	of monthly accounts and notes receivable divided by an average day's net	sales. The Company's Production Days Supply on Hand (PDSOH) of inventory	measure for the first six months of fiscal year 2010 decreased to 63.2 days	from 64.2 days for the first six months of fiscal year 2009. The Company	defines PDSOH as the average of the monthly gross inventory divided by an	average day's cost of sales.

The Company's short-term liquidity available,	represented as cash, cash equivalents, and short-term investments plus the	unused amount of the Company's revolving credit facility, totaled $158.9	million at December 31, 2009 compared to $183.7 million at June 30, 2009.	The credit facility provides an option to increase the amount available by	an additional $50 million at the Company's request, subject to participating	banks' consent.

The Company's net cash position from an aggregate of	cash, cash equivalents, and short-term investments less short-term	borrowings under credit facilities decreased from $88.6 million at June 30,	2009 to $62.3 million at December 31, 2009. Operating activities used $3.8	million of cash flow in the first six months of fiscal year 2010 compared to	the $12.9 million of cash generated by operating activities in the first six	months of fiscal year 2009.  Increased inventory levels were the primary	operating activity use of cash. During the first half of fiscal year 2010,	the Company reinvested $20.9 million into capital investments for the	future, primarily for manufacturing equipment in both segments and the new	Poland facility, which is part of the plan to consolidate the European	manufacturing footprint. Financing cash flow activities for the first six	months of fiscal year 2010 included $3.6 million in dividend payments, which	was a decrease from the $11.7 million of dividends paid during the first six	months of fiscal year 2009. The approximate 70% decline in dividends paid	was a result of reduced dividend rates beginning in the fourth quarter of	fiscal year 2009 to preserve cash. Consistent with the Company's historical	dividend policy, the Company's Board of Directors will evaluate the	appropriate dividend payment on a quarterly basis. During fiscal year 2010,	the Company expects to minimize capital expenditures where appropriate but	will continue to invest in capital expenditures prudently, particularly for	projects that would enhance the Company's capabilities and diversification	while providing an opportunity for growth and improved profitability as the	economy and the Company's markets recover. The Company plans to sell its	Poland facility which is being replaced by the newly constructed larger	Poland facility.

37

At December 31, 2009, the Company had $12.9 million of	short-term borrowings outstanding under its $100 million credit facility	described in more detail below. The Company also has several smaller foreign	credit facilities available and had total borrowings of $1.4 million US	dollar equivalent under these facilities as of December 31, 2009. At June	30, 2009, the Company had $12.7 million of short-term borrowings	outstanding.

The Company maintains a $100 million credit facility	with an expiration date in April 2013 that allows for both issuances of	letters of credit and cash borrowings. The $100 million credit facility	provides an option to increase the amount available for borrowing to $150	million at the Company's request, subject to the group of participating	banks' consent. The $100 million credit facility requires the Company to	comply with certain debt covenants including interest coverage ratio,	minimum net worth, and other terms and conditions. The Company was in	compliance with these covenants at December 31, 2009.

The Company believes the most significant covenants	under its $100 million credit facility are minimum net worth and interest	coverage ratio. The table below compares the actual net worth and interest	coverage ratio with the limits specified in the credit agreement.

**Covenant**
 
**At			or For the Period Ended December 31, 2009**
 
**Limit As Specified in Credit Agreement**
 
**Excess**
Minimum Net Worth   
 
			$385,974,000
 
			$362,000,000
 
			$23,974,000
Interest Coverage Ratio
 
65.0
 
3.0
 
62.0
The Interest Coverage Ratio is calculated on a rolling	four-quarter basis as defined in the credit agreement.

The outstanding balance under the $100 million credit	facility at December 31, 2009 consisted of $12.9 million for a Euro currency	borrowing, which provides a natural currency hedge against a Euro	denominated intercompany note between the U.S. parent and Euro functional	currency subsidiaries. There were also approximately $4.8 million in letters	of credit against the credit facility. Total availability to borrow under	the $100 million credit facility was $82.3 million at December 31, 2009.

The Company maintains a separate foreign credit	facility for its EMS segment operation in Thailand which is backed by the	$100 million revolving credit facility.  In addition to the $100 million	credit facility, the Company can opt to utilize foreign credit facilities	which are available to satisfy short-term cash needs at that specific	location rather than funding from intercompany sources. The Company has a	credit facility for its EMS segment operation in Poznan, Poland, which	allows for multi-currency borrowings up to 6 million Euro equivalent	(approximately $8.6 million U.S. dollars at December 31, 2009 exchange	rates). These foreign credit facilities can be cancelled at any time by	either the bank or the Company. At December 31, 2009, the Company had $1.4	million US dollar equivalent of Euro denominated short-term borrowings	outstanding under the foreign credit facility in Poland.

The Company believes its principal sources of liquidity	from available funds on hand, cash generated from operations, and the	availability of borrowing under the Company's credit facilities will be	sufficient in fiscal year 2010 and the foreseeable future. One of the	Company's primary sources of funds is its ability to generate cash from	operations to meet its liquidity obligations, which could be adversely	affected by factors such as general economic and market conditions, a	decline in demand for the Company's products, loss of key contract	customers, the ability of the Company to generate profits, and other	unforeseen circumstances. In particular, should demand for the Company's	products decrease significantly over the next 12 months due to the weakened	economy, the available cash provided by operations could be adversely	impacted. Another source of funds is the Company's credit facilities. The	$100 million credit facility is contingent on complying with certain debt	covenants.

38

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.

**Fair Value**

During fiscal year 2010, no financial assets 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 available-for-sale securities classified as level 2 assets,	the fair values are determined based on observable market inputs which use	evaluated pricing models that vary by asset class and incorporate available	trade, bid, and other market information. The Company evaluated the inputs	used to value the instruments and validated the accuracy of the instrument	fair values based on historical evidence. The Company's foreign currency	forward contract derivatives, which were classified as level 2	assets/liabilities, were independently valued using a financial risk	management software package using observable market inputs such as forward	interest rate yield curves, current spot rates, and time value calculations.	To verify the reasonableness of the independently determined fair values,	these derivative fair values were compared to fair values calculated by the	counterparty banks. The Company's own credit risk and counterparty credit	risk had an immaterial impact on the valuation of the foreign currency	forward contract derivatives. 

The Company invested in a convertible promissory note	and stock warrants of a privately-held company during the quarter ended	December 31, 2009 and has been chosen as the primary supplier for the	privately-held company to produce products in the future and negotiations	for a definitive supply agreement are underway. The convertible	promissory note, classified as an available-for-sale debt security, was	valued using a recurring market-based method which approximates fair value	by using the amortized cost basis of the promissory note, with the discount	amortized to interest income over the term. The stock warrants, classified	as derivative instruments, were valued on a recurring basis using a	market-based method which utilizes the Black-Scholes valuation model.  The	fair value measurements for the convertible promissory note and stock	warrants were calculated using unobservable inputs and were classified as	level 3 financial assets. 

See		Note 7 - Fair Value of Financial Assets and Liabilities of Notes to	Condensed Consolidated Financial Statements for more information. 

**Contractual Obligations**

There have been no material changes outside the	ordinary course of business to the Company'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 the Company's Annual Report on Form 10-K for the fiscal year	ended June 30, 2009.

**Off-Balance Sheet Arrangements**

The Company has no off-balance sheet arrangements other than standby	letters of credit 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 the Company's	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 standby letters of	credit. The Company does 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.

39

**Critical Accounting Policies**

The Company's 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 consolidated	financial statements and related notes. Actual results could differ from	these estimates and assumptions. Management uses its best judgment in the	assumptions used to value these estimates, which are based on current facts	and circumstances, prior experience, and other assumptions that are believed	to be reasonable. The Company's management overlays a fundamental philosophy	of valuing its assets and liabilities in an appropriately conservative	manner. Management believes the following critical accounting policies	reflect the more significant judgments and estimates used in preparation of	the Company's consolidated financial statements and are the policies that	are most critical in the portrayal of the Company's financial position and	results of operations. Management has discussed these critical accounting	policies and estimates with the Audit Committee of the Company's Board of	Directors and with the Company's independent registered public accounting	firm.

*Revenue recognition* - The Company recognizes revenue when title	and risk transfer to the customer, which under the terms and conditions of	the sale may occur either at the time of shipment or when the product is	delivered to the customer. Service revenue is recognized as services are	rendered. Shipping and handling fees billed to customers are recorded as	sales while the related shipping and handling costs are included in cost of	goods sold. The Company recognizes sales net of applicable sales tax.
- Sales returns and allowances - At the time revenue		is recognized certain provisions may also be recorded, including returns		and allowances, which involve estimates based on current discussions		with applicable customers, historical experience with a particular		customer and/or product, and other relevant factors. As such, these		factors may change over time causing the provisions to be adjusted		accordingly. At December 31, 2009 and June 30, 2009, the reserve for		returns and allowances was $3.2 million and $4.4 million, respectively.		The returns and allowances reserve approximated 2% to 3% of gross trade		receivables during the past two years. 
- Allowance for doubtful accounts - Allowance for		doubtful accounts is generally based on a percentage of aged accounts		receivable, where the percentage increases as the accounts receivable		become older. However, management judgment is utilized in the final		determination of the allowance based on several factors including		specific analysis of a customer's credit worthiness, changes in a		customer's payment history, historical bad debt experience, and general		economic and market trends. The allowance for doubtful accounts at both		December 31, 2009 and June 30, 2009 was $3.1 million. During the		preceding two-year period, this reserve had been at or less than 1% of		gross trade accounts receivable up until March 2009 and has since		approximated 2% of gross trade accounts receivable. The higher reserve		was driven by increased risk created by deteriorating market conditions		at that time. 		40

*Excess and obsolete inventory* - Inventories were valued using the	lower of last-in, first-out (LIFO) cost or market value for approximately	10% and 14% of consolidated inventories at December 31, 2009 and June 30,	2009, respectively, including approximately 78% and 83% of the Furniture	segment inventories at December 31, 2009 and June 30, 2009, respectively.	The remaining inventories were valued at lower of first-in, first-out (FIFO)	cost or market value. Inventories recorded on the Company's balance sheet	are adjusted for excess and obsolete inventory. In general, the Company	purchases materials and finished goods for contract-based business from	customer orders and projections, primarily in the case of long lead time	items, and has a general philosophy to only purchase materials to the extent	covered by a written commitment from its customers. However, there are times	when inventory is purchased beyond customer commitments due to minimum lot	sizes and inventory lead time requirements, or where component allocation or	other procurement issues may exist. The Company may also purchase additional	inventory to support transfers of production between manufacturing	facilities. Evaluation of excess inventory includes such factors as	anticipated usage, inventory turnover, inventory levels, and product demand	levels. Factors considered when evaluating inventory obsolescence include	the age of on-hand inventory and reduction in value due to damage, use as	showroom samples, design changes, or cessation of product lines.

*Self-insurance reserves* - The Company is self-insured up to	certain limits for auto and general liability, workers' compensation, and	certain employee health benefits such as medical, short-term disability, and	dental with the related liabilities included in the accompanying financial	statements. The Company's policy is to estimate reserves based upon a number	of factors including known claims, estimated incurred but not reported	claims, and other analyses, which are based on historical information along	with certain assumptions about future events. Changes in assumptions for	such matters as increased medical costs and changes in actual experience	could cause these estimates to change and reserve levels to be adjusted	accordingly. At December 31, 2009 and June 30, 2009, the Company's accrued	liabilities for self-insurance exposure were $5.4 million and $6.5 million,	respectively.

*Taxes* - Deferred income tax assets and liabilities are recognized	for the estimated future tax consequences attributable to temporary	differences between the financial statement carrying amounts of existing	assets and liabilities and their respective tax bases. These assets and	liabilities are measured using enacted tax rates expected to apply to	taxable income in the years in which the temporary differences are expected	to reverse. The Company evaluates the recoverability of its deferred tax	assets each quarter by assessing the likelihood of future profitability and	available tax planning strategies that could be implemented to realize its	deferred tax assets. If recovery is not likely, the Company provides a	valuation allowance based on its best estimate of future taxable income in	the various taxing jurisdictions and the amount of deferred taxes ultimately	realizable. Future events could change management's assessment. 

The Company operates within multiple taxing jurisdictions and is subject	to tax audits in these jurisdictions. These audits can involve complex	issues, which may require an extended period of time to resolve. However,	the Company believes it has made adequate provision for income and other	taxes for all years that are subject to audit. As tax periods are	effectively settled, the provision will be adjusted accordingly. The	liability for uncertain income tax and other tax positions was $3.6 million	at December 31, 2009 and $3.5 million at June 30, 2009.

41

*Goodwill*- Goodwill represents the difference between the purchase	price and the related underlying tangible and intangible net asset fair	values resulting from business acquisitions. Annually, or if conditions	indicate an earlier review is necessary, the Company compares the carrying	value of the reporting unit to an estimate of the reporting unit's fair	value to identify potential impairment. If the estimated fair value of the	reporting unit is less than the carrying value, a second step is performed	to determine the amount of potential goodwill impairment. If impaired,	goodwill is written down to its estimated implied fair value. Goodwill is	assigned to and the fair value is tested at the reporting unit level. The	fair value is established primarily using a discounted cash flow analysis and	secondarily a market approach utilizing current	industry information. The calculation of the fair value of the reporting	units considers current market conditions existing at the assessment date.	In addition to performing the required annual testing, the Company will	continue to monitor circumstances and events in future periods to determine	whether additional goodwill impairment testing is warranted on an interim	basis. The Company can provide no assurance that an impairment charge for	the Company's remaining goodwill balance will not occur in future periods as	a result of these analyses. At both December 31, 2009 and June 30, 2009, the	Company's goodwill totaled $2.6 million. 

**New Accounting Standards**

See		Note 1 - Summary of Significant Accounting Policies 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. These statements can be identified by the use of words such as	"believes," "estimates," "projects," "expects," "anticipates," "forecasts,"	and similar expressions. These forward-looking statements are subject to	risks and uncertainties including, but not limited to, continuing impacts of	the global economic conditions, significant volume reductions from key	contract customers, significant reduction in customer order patterns, loss	of key customers or suppliers within specific industries, financial	stability of key customers and suppliers, availability or cost of raw	materials, increased competitive pricing pressures reflecting excess	industry capacities, successful execution of restructuring plans, or similar	unforeseen events. Additional cautionary statements regarding other risk	factors that could have an effect on the future performance of the Company	are contained in the Company's Annual Report on Form 10-K for the fiscal	year ended June 30, 2009.

42

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

There have been no material changes to market risks from the  information disclosed in Item  7A "Quantitative and Qualitative Disclosures About Market Risk" ofthe Company's Annual Report on Form 10-K for thefiscal year ended June 30, 2009.

**Item 4.  Controls and Procedures**

(a) Evaluation of disclosure controls and procedures.

The Company maintains controls and procedures designed to ensure that    information required to be disclosed in the reports that the Company files    or submits 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 the Company's management, including its	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 December 31, 2009, the    Chief Executive Officer and Chief Financial Officer of the Company    concluded that its disclosure    controls and procedures were effective.

(b) Changes in internal control over financial reporting.

There have been no changes in the  Company's internal control over financial reporting that occurred during the  quarter ended December 31, 2009 that have materially affected, or that are  reasonably likely to materially affect, the Company's 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 ofDirectors was announced on October 16, 2007. The program allows for the repurchase of upto two million shares of any combination of Class A and Class B shares and will remain in effect until all shares authorized havebeen repurchased. The Company did not repurchase any shares under the repurchaseprogram during the second quarter of fiscal year 2010. At December 31, 2009, twomillion shares remained available under the repurchase program.

43

**Item 4. Submission of Matters to a Vote of Security Holders**
The Company's Annual Meeting of Share Owners was held on October      20, 2009.       The Board of Directors was elected in its entirety, based on the following  election results:    Nominees as Directors by Holders of Class A Common Stock**Votes For*****Votes Withheld**   Douglas A. Habig9,627,367 				16,148   James C. Thyen9,300,047343,468   Christine M. Vujovich9,300,047343,468   Harry W. Bowman9,300,047343,468   Geoffrey L. Stringer9,300,047343,468   Thomas J.		Tischhauser9,627,367 				16,148 There were 110,202 broker non-votes for      the above nominees as Directors.  *Votes for nominees as Directors by      holders of Class A Common Stock represented an average of 88% of the total				10,711,825      Class A shares outstanding and eligible to vote. Nominee as Director by Holders of Class B Common Stock**Votes For******Votes Withheld**   Dr. Jack R. Wentworth22,407,8691,326,193          There		were 3,126,338 broker non-votes for the above nominee as Director.**Votes for nominee as Director by holders of Class B        Common Stock represented 84% of the total 26,574,005 Class B shares        outstanding and eligible to vote.The appointment of the Deloitte Entities, an independent registered public		accounting firm, as the Company's independent auditors for the fiscal		year ended June 30, 2010 was approved by holders of Class A Common Stock		based on the following voting results:   Votes		for***: 9,642,235             		Votes Against:  -0-             		Votes Abstaining:  1,280          There		were no broker non-votes for the appointment of the Deloitte Entities		proposal.***Votes for the appointment of the Deloitte Entities as the Company's		independent auditors represented 90% of the total 10,711,825 Class A shares        outstanding and eligible to vote.
44

**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, 2007)

(3(b))  Restated By-laws of the Company (Incorporated by reference to	Exhibit 3(b) to  the Company's Form 8-K filed October 23, 2009)

(10)  Summary of Director and Named Executive Officer Compensation			

(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

45

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized. 
     KIMBALL INTERNATIONAL, INC.       By:/s/ James C. Thyen  JAMES C. THYENPresident,Chief Executive Officer  February 5, 2010             By:/s/ Robert F. Schneider  ROBERT F. SCHNEIDERExecutive Vice President, Chief Financial Officer  February 5, 2010
46

**Kimball International, Inc.Exhibit Index**
Exhibit No. Description3(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, 2007)3(b) Restated By-laws of the Company (Incorporated by reference to Exhibit	3(b) to the    Company's Form 8-K filed October 23, 2009)10 Summary of Director and Named Executive Officer Compensation11 Computation of Earnings Per Share31.1 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 200231.2 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 200232.1 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 200232.2 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
47