Kimball Serves The World
Who We Are
Kimball International, Inc. is a preeminent manufacturer of furniture and
electronic assemblies, serving customers around the world. Our customers,
both large and small, receive our undivided attention, as we treat every one as
the only one. Our touch is felt throughout daily life in both the workplace and in
the home.
Recognized with a reputation for excellence, Kimball International is committed
to a high performance culture that values personal and organizational
commitment to quality, reliability, value, speed, and ethical behavior. Kimball
employees know they are part of a corporate culture that builds success for
customers while enabling employees to share in the Company’s success
through personal, professional and financial growth.
What We Do
Kimball International, Inc. provides a variety of products from its two business
segments: the Furniture segment and the Electronic Contract Assemblies
segment. The Furniture segment provides furniture for the office and hospitality
industries sold under the Company’s family of brand names. The Electronic
Contract Assemblies segment provides engineering and manufacturing services
which utilize common production and support capabilities to a variety of
industries globally.
Kimball International, Inc.
1600 Royal Street
Jasper, IN 47549
812-482-1600
812-482-8500 TDD
www.kimball.com
Kimball International 2007 Annual Report
The strategic expansion of our global footprint of
facilities supports our vision of accessibility and
partnership with our customers. Greater utilization
of these capabilities is a high priority of our organic
growth activities. From Poland to China to the USA,
our people and expertise are readily available
to serve.
Kimball Serves The World
Who We Are
Kimball International, Inc. is a preeminent manufacturer of furniture and
electronic assemblies, serving customers around the world. Our customers,
both large and small, receive our undivided attention, as we treat every one as
the only one. Our touch is felt throughout daily life in both the workplace and in
the home.
Recognized with a reputation for excellence, Kimball International is committed
to a high performance culture that values personal and organizational
commitment to quality, reliability, value, speed, and ethical behavior. Kimball
employees know they are part of a corporate culture that builds success for
customers while enabling employees to share in the Company’s success
through personal, professional and financial growth.
What We Do
Kimball International, Inc. provides a variety of products from its two business
segments: the Furniture segment and the Electronic Contract Assemblies
segment. The Furniture segment provides furniture for the office and hospitality
industries sold under the Company’s family of brand names. The Electronic
Contract Assemblies segment provides engineering and manufacturing services
which utilize common production and support capabilities to a variety of
industries globally.
Kimball International, Inc.
1600 Royal Street
Jasper, IN 47549
812-482-1600
812-482-8500 TDD
www.kimball.com
Kimball International 2007 Annual Report
The strategic expansion of our global footprint of
facilities supports our vision of accessibility and
partnership with our customers. Greater utilization
of these capabilities is a high priority of our organic
growth activities. From Poland to China to the USA,
our people and expertise are readily available
to serve.
Certified to ISO-9000 standards, our
Nanjing facility creates a high-quality,
dual-plant supply capability for our
global customers, enabling expanded
support of the growing Far East markets.
2007 Sales By
Business Segments
52%
Electronic Contract
Assemblies
48%
Furniture
The selection of Kimball Electronics-
Poland to supply new automotive
electronics is significant, as the European
market is expected to put Kimball in a
strong position for growth.
Making service more accessible,
Kimball Office and National
garnered attention with new
showrooms in Chicago and
New York, unveiling new brand
marketing and new products.
Design community feedback
is positive, with enthusiasm
for the changes made and
excitement about the future.
Financial Highlights
(Amounts in thousands, except for per share data)
2007
2006
% Change
Net Sales
$1,286,930
$1,109,549
Income from Continuing Operations
Return on Capital
Cash Flow from Operations
Working Capital
Capital Investments
Share Owners’ Equity
Earnings Per Share from Continuing
Operations (Diluted)
Class A
Class B
Dividends Declared
Class A
Class B
Market Price Per Share
High
Low
Close
23,266
5.24%
44,374
198,611
41,880
427,448
28,613
6.40%
76,612
231,381
31,517
422,582
0.58
0.60
0.62
0.64
25.95
12.85
14.01
0.74
0.75
0.62
0.64
19.72
10.25
19.71
16.0%
-18.7%
-18.1%
-42.1%
-14.2%
32.9%
1.2%
-21.6%
-20.0%
0.0%
0.0%
Income from Continuing Operations, Return on Capital, Cash Flow from Operations and Earnings Per Share
include restructuring charges.
Capital investments excludes business acquisitions.
High-profile resort properties
and major hotel brands
continue to select Kimball
Hospitality as a strategic
partner. Capabilities, processes,
and a service mindset
exemplify the work between
Kimball’s Asian and U.S. team
members on behalf of the
customer.
To Our Share Owners
From our headquarters in the heart of America, to our operations
across three continents, Kimball serves the world! Our global
capabilities meet the needs and challenges of our global customers.
Our global strategy supports our vision of serving our customers well
in the manner they demand. Our drive for leaner supply chains and
lower cost solutions is proof of our perseverance in changing global
markets. Our chosen markets are demanding increased agility and
responsiveness, often with a shorter horizon. Our commitment is to
meet these challenges in a manner that is responsible to all of our
stakeholders. Competition is increasing, across the nation and around
the globe. Your Company faced challenges during fiscal 2007, yet our
actions over the past year addressed them and are moving us on the
road to success. We are turning the corner on growth.
We are not relaxing in our efforts to drive sales and results.
Consolidated Net Sales for the fiscal year were $1,287,000,000, up
for the year compared to fiscal year 2006, primarily on increased
sales from our acquisitions in the Electronic Contract Assemblies
segment and organic Furniture segment growth. We saw a significant
increase in our hospitality furniture sales in fiscal year 2007 which was
somewhat offset by the planned and completed exit of our contract
private label furniture products. The 3rd and 4th quarters of fiscal year
2007 net sales comparison to the prior year was also impacted by a $64
million reduction in the price of finished product sold to a customer
in the Electronic Contract Assemblies segment. The cost of raw
material which the Company purchases from this same customer was
reduced by a similar amount, and therefore, this pricing change had no
impact on income from continuing operations. With the acquisitions
made over the last two years, the electronics side of your Company
is growing, and is now the larger in net sales of your Company’s two
business segments.
Income from continuing operations is down compared to last year as
competitive pressures in our Electronic Contract Assemblies segment,
particularly in the automotive industry, continue to tighten on our
margins. Losses from the delayed start-up of our new Electronics China
operation also affected income as production did not begin until the
end of the fiscal year. Benchmarking our performance, we continue to
focus on operating cost reductions because we know our costs are too
high in both of our segments compared to our competitors.
We reinvested $42 million during the year in capital investments
for the future, including the construction of the new China facility
and manufacturing equipment and an additional $51 million for an
electronics company acquisition. Your Company’s balance sheet
remains solid and strong, with positive cash flow from operations
during fiscal 2007. Your Company’s net cash position from an
aggregate of cash and short-term investments less short-term
borrowings is $80 million. With virtually no long-term debt, your
Company is well positioned with capital readily available to fund
our growth.
In our Electronic Contract Assemblies segment, the loss of volume
from the automotive industry continues to negatively impact sales
and income. The overall landscape of the domestic automotive market
for the past few years put us firmly on the road of diversification,
acquisition and expansion. Our strategy of market diversification
and globalization of our operations footprint has proven important
in partially offsetting the reduced automotive business. We have
heightened our focus on other key market sectors, such as industrial
controls, medical, and public safety, with sustained commitment
to automotive, as a high priority of our organic growth strategy.
On an annual run rate, with the acquisition of Reptron Electronics in
fiscal year 2007, medical is expected to become our largest market
sector. While our acquisition of Reptron Electronics has presented
challenges as we integrate the two companies, we are very pleased
with the quality expansion of our customer portfolio combined with
the dedicated and capable staff joining our Company. We anticipate
improved performance as a result of the acquisition. Growth, variable
cost productivity and increased capacity utilization continue to be our
focus for this segment. Our global portfolio of capabilities expanded
with the addition of our electronics facility in Nanjing, China. Nanjing
is now up and running as we received final certification on our
production lines from our first customer at the end of the fiscal year.
Four additional customers have awarded business to Nanjing with
production slated to begin by the end of the calendar year.
In our Furniture segment we focused on completing the organizational
realignment, simplification and standardization of our business
processes resulting from the furniture consolidation decision. As
we realign manufacturing and marketing into one streamlined
and integrated organization, we are seeing improved customer
responsiveness, improved product and service quality, and improved
reliability. These improvements are leading to lower total costs, and
greater effectiveness. We have remained consistent in our strategy
and focus on our core furniture markets. Continuing improvements
are expected in fiscal 2008. Both the Kimball Office and National brand
teams have been extremely active with new product introductions
and enhancements to existing lines. We are seeing results and
favorable market response, especially with the two new office systems
product lines introduced in February. These investments are expected
to produce revenue growth among our Select and Aligned dealers,
Platinum Partner program, and Major Flags/Brands program. Kimball
Hospitality has proven its ability to serve customers worldwide
with logistical solutions and world-class service and products. They
have been rewarded with dramatic increases in sales and profits.
Our Asian employees play a critical role in product development,
project management and service. Coming together as a team,
from Jasper to Asia and back, has been a great accomplishment in
creating a performance-oriented culture. From start-up companies to
multinational corporations, our furniture brands are serving the world.
Your Company’s vision of building success strongly guides our strategy
to serve our customers, wherever they may be around the world. Every
phone call, design project, supplier agreement, and timely product
shipment demonstrates Kimball’s commitment to serve the world.
We invite you to read the following Form 10-K to better understand
Kimball International. However, for an even greater view into the
products and operations of the Company, we encourage you to
visit our internet website at www.kimball.com and see how Kimball
serves the world!
James C. Thyen
President and Chief Executive Officer
Douglas A. Habig
Chairman of the Board
Board of Directors
Harry W. Bowman +
Retired; Former President and Chief Executive Officer of
The Stiffel Company
Director 7 years
James C. Thyen
President and Chief Executive Officer,
Kimball International
Director 25 years
Gary P. Critser +
Retired; Former Senior Executive
Vice President, Secretary and Treasurer,
Kimball International
Director 3 years
Douglas A. Habig
Chairman of the Board of Directors,
Kimball International
Director 34 years
John T. Thyen
Retired; Former Senior Executive Vice President,
Strategic Marketing, Kimball International
Director 17 years
Ronald J. Thyen
Retired; Former Senior Executive Vice President,
Operations Officer, Assistant Secretary,
Kimball International
Director 34 years
John B. Habig
Chairman of the Board of Directors of SVB&T Corporation,
a Bank Holding Company
Director 51 years
Christine M. Vujovich #
Vice President, Marketing and Environmental Policy,
Cummins, Inc.
Director 13 years
Dr. Jack R. Wentworth #
Retired; Arthur M. Weimer Professor Emeritus of Business
Administration, Indiana University; Former Dean of the
Kelley School of Business, Indiana University
Director 23 years
+ Member of the Audit Committee of the Board
# Member of the Compensation and Governance Committee
of the Board
Other Corporate Data
Kimball International, Inc. and Subsidiaries
10-K Report:
A copy of the Company’s annual report to the Securities and
Exchange Commission on Form 10-K is available, without charge,
upon written request directed to Robert F. Schneider, Executive Vice
President, Chief Financial Officer at our corporate headquarters.
Transfer Agent and Registrar of the
Class A and B Common Stock:
Share Owners with questions concerning address changes, dividend
checks, registration changes, lost share certificates or transferring
shares may contact:
National City Bank
Corporate Trust Operations
PO Box 92301
Cleveland, OH 44101-4301
Phone: (800) 622-6757
TDD Line: (800) 622-5571
Internet Address: www.nationalcitystocktransfer.com
E-Mail Address: shareholder.inquiries@nationalcity.com
Corporate Headquarters:
Kimball International, Inc.
1600 Royal Street
Jasper, Indiana 47549-1001
(812) 482-1600
(800) 482-1616 (Toll Free)
(812) 482-8500 (TDD for Hearing Impaired)
Polly B. Kawalek +
Retired; Former Senior Vice President
and President, Quaker Foods,
PepsiCo Beverages and Foods
Director 10 years
Geoffrey L. Stringer #
Retired; Former Executive Vice President of
Bank One and Chief Executive Officer of
Bank One Capital Corporation
Director 4 years
Officers
Corporate Officers
Donald D. Charron
Executive Vice President,
President–Kimball Electronics Group
John H. Kahle
Executive Vice President,
General Counsel, Secretary
P. Daniel Miller
Executive Vice President,
President–Furniture
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
Gary W. Schwartz
Executive Vice President,
Chief Information Officer
R. Gregory Kincer
Vice President, Business Development,
Treasurer
Michelle R. Schroeder
Vice President, Corporate Controller
Dean M. Vonderheide
Vice President, Human Resources
Foreign Subsidiary Managers
Janusz Kasprzyk
General Manager,
Kimball Electronics Poland,
Sp. z o. o.
Tongchai Chuenchujit
General Manager,
Kimball Electronics (Thailand), Ltd.
Robert Burre
General Manager,
Kimball Electronics-Mexico,
S.A. de C.V.
Daniel Gu (LuYin Gu)
General Manager,
Kimball Electronics (Nanjing) Co., Ltd.
John Harris
General Manager,
Kimball Electronics Wales, Ltd.
Shane Tiernan
General Manager,
Kimball Electronics Ireland, Ltd.
Domestic Subsidiary Officers
Roger Chang (Chang Shang Yu)
Vice President, Asian Operations,
Kimball Electronics Group
John S. Dick
Vice President, Chief Financial Officer,
Office Furniture Group
Jeffrey L. Fenwick
Vice President, Marketing,
Kimball Office
Steven T. Korn
Vice President, Business Development,
Kimball Electronics Group
Kent F. Mahlke
Vice President, Global Operations,
National Office Furniture
John C. Manchir
Vice President, Operations,
Kimball Office
Dirk H. Manning
Vice President, Field Sales,
Kimball Office
Kevin D. McCoy
Vice President, Sales,
National Office Furniture
Paul J. Plante
Vice President, Medical Industry Solution,
Kimball Electronics Group
Dwaine R. Saalman
Vice President, Strategic Accounts,
Kimball Office
Stanley C. Sapp
Vice President,
General Manager,
Kimball Hospitality
Michael K. Sergesketter
Vice President,
Chief Financial Officer,
Kimball Electronics Group
Kevin R. Smith
Vice President,
North American Operations,
Kimball Electronics Group
Kevin B. Stokes
Vice President,
Global Technical Services,
Kimball Electronics Group
Donald W. VanWinkle
Vice President,
General Manager,
National Office Furniture
David E. White
Vice President, Sales & Distribution,
Kimball Office
Zygmunt Witort
Vice President,
European Operations,
Kimball Electronics Group
Certified to ISO-9000 standards, our
Nanjing facility creates a high-quality,
dual-plant supply capability for our
global customers, enabling expanded
support of the growing Far East markets.
2007 Sales By
Business Segments
52%
Electronic Contract
Assemblies
48%
Furniture
The selection of Kimball Electronics-
Poland to supply new automotive
electronics is significant, as the European
market is expected to put Kimball in a
strong position for growth.
Making service more accessible,
Kimball Office and National
garnered attention with new
showrooms in Chicago and
New York, unveiling new brand
marketing and new products.
Design community feedback
is positive, with enthusiasm
for the changes made and
excitement about the future.
Financial Highlights
(Amounts in thousands, except for per share data)
2007
2006
% Change
Net Sales
$1,286,930
$1,109,549
Income from Continuing Operations
Return on Capital
Cash Flow from Operations
Working Capital
Capital Investments
Share Owners’ Equity
Earnings Per Share from Continuing
Operations (Diluted)
Class A
Class B
Dividends Declared
Class A
Class B
Market Price Per Share
High
Low
Close
23,266
5.24%
44,374
198,611
41,880
427,448
28,613
6.40%
76,612
231,381
31,517
422,582
0.58
0.60
0.62
0.64
25.95
12.85
14.01
0.74
0.75
0.62
0.64
19.72
10.25
19.71
16.0%
-18.7%
-18.1%
-42.1%
-14.2%
32.9%
1.2%
-21.6%
-20.0%
0.0%
0.0%
Income from Continuing Operations, Return on Capital, Cash Flow from Operations and Earnings Per Share
include restructuring charges.
Capital investments excludes business acquisitions.
High-profile resort properties
and major hotel brands
continue to select Kimball
Hospitality as a strategic
partner. Capabilities, processes,
and a service mindset
exemplify the work between
Kimball’s Asian and U.S. team
members on behalf of the
customer.
To Our Share Owners
From our headquarters in the heart of America, to our operations
across three continents, Kimball serves the world! Our global
capabilities meet the needs and challenges of our global customers.
Our global strategy supports our vision of serving our customers well
in the manner they demand. Our drive for leaner supply chains and
lower cost solutions is proof of our perseverance in changing global
markets. Our chosen markets are demanding increased agility and
responsiveness, often with a shorter horizon. Our commitment is to
meet these challenges in a manner that is responsible to all of our
stakeholders. Competition is increasing, across the nation and around
the globe. Your Company faced challenges during fiscal 2007, yet our
actions over the past year addressed them and are moving us on the
road to success. We are turning the corner on growth.
We are not relaxing in our efforts to drive sales and results.
Consolidated Net Sales for the fiscal year were $1,287,000,000, up
for the year compared to fiscal year 2006, primarily on increased
sales from our acquisitions in the Electronic Contract Assemblies
segment and organic Furniture segment growth. We saw a significant
increase in our hospitality furniture sales in fiscal year 2007 which was
somewhat offset by the planned and completed exit of our contract
private label furniture products. The 3rd and 4th quarters of fiscal year
2007 net sales comparison to the prior year was also impacted by a $64
million reduction in the price of finished product sold to a customer
in the Electronic Contract Assemblies segment. The cost of raw
material which the Company purchases from this same customer was
reduced by a similar amount, and therefore, this pricing change had no
impact on income from continuing operations. With the acquisitions
made over the last two years, the electronics side of your Company
is growing, and is now the larger in net sales of your Company’s two
business segments.
Income from continuing operations is down compared to last year as
competitive pressures in our Electronic Contract Assemblies segment,
particularly in the automotive industry, continue to tighten on our
margins. Losses from the delayed start-up of our new Electronics China
operation also affected income as production did not begin until the
end of the fiscal year. Benchmarking our performance, we continue to
focus on operating cost reductions because we know our costs are too
high in both of our segments compared to our competitors.
We reinvested $42 million during the year in capital investments
for the future, including the construction of the new China facility
and manufacturing equipment and an additional $51 million for an
electronics company acquisition. Your Company’s balance sheet
remains solid and strong, with positive cash flow from operations
during fiscal 2007. Your Company’s net cash position from an
aggregate of cash and short-term investments less short-term
borrowings is $80 million. With virtually no long-term debt, your
Company is well positioned with capital readily available to fund
our growth.
In our Electronic Contract Assemblies segment, the loss of volume
from the automotive industry continues to negatively impact sales
and income. The overall landscape of the domestic automotive market
for the past few years put us firmly on the road of diversification,
acquisition and expansion. Our strategy of market diversification
and globalization of our operations footprint has proven important
in partially offsetting the reduced automotive business. We have
heightened our focus on other key market sectors, such as industrial
controls, medical, and public safety, with sustained commitment
to automotive, as a high priority of our organic growth strategy.
On an annual run rate, with the acquisition of Reptron Electronics in
fiscal year 2007, medical is expected to become our largest market
sector. While our acquisition of Reptron Electronics has presented
challenges as we integrate the two companies, we are very pleased
with the quality expansion of our customer portfolio combined with
the dedicated and capable staff joining our Company. We anticipate
improved performance as a result of the acquisition. Growth, variable
cost productivity and increased capacity utilization continue to be our
focus for this segment. Our global portfolio of capabilities expanded
with the addition of our electronics facility in Nanjing, China. Nanjing
is now up and running as we received final certification on our
production lines from our first customer at the end of the fiscal year.
Four additional customers have awarded business to Nanjing with
production slated to begin by the end of the calendar year.
In our Furniture segment we focused on completing the organizational
realignment, simplification and standardization of our business
processes resulting from the furniture consolidation decision. As
we realign manufacturing and marketing into one streamlined
and integrated organization, we are seeing improved customer
responsiveness, improved product and service quality, and improved
reliability. These improvements are leading to lower total costs, and
greater effectiveness. We have remained consistent in our strategy
and focus on our core furniture markets. Continuing improvements
are expected in fiscal 2008. Both the Kimball Office and National brand
teams have been extremely active with new product introductions
and enhancements to existing lines. We are seeing results and
favorable market response, especially with the two new office systems
product lines introduced in February. These investments are expected
to produce revenue growth among our Select and Aligned dealers,
Platinum Partner program, and Major Flags/Brands program. Kimball
Hospitality has proven its ability to serve customers worldwide
with logistical solutions and world-class service and products. They
have been rewarded with dramatic increases in sales and profits.
Our Asian employees play a critical role in product development,
project management and service. Coming together as a team,
from Jasper to Asia and back, has been a great accomplishment in
creating a performance-oriented culture. From start-up companies to
multinational corporations, our furniture brands are serving the world.
Your Company’s vision of building success strongly guides our strategy
to serve our customers, wherever they may be around the world. Every
phone call, design project, supplier agreement, and timely product
shipment demonstrates Kimball’s commitment to serve the world.
We invite you to read the following Form 10-K to better understand
Kimball International. However, for an even greater view into the
products and operations of the Company, we encourage you to
visit our internet website at www.kimball.com and see how Kimball
serves the world!
James C. Thyen
President and Chief Executive Officer
Douglas A. Habig
Chairman of the Board
Board of Directors
Harry W. Bowman +
Retired; Former President and Chief Executive Officer of
The Stiffel Company
Director 7 years
James C. Thyen
President and Chief Executive Officer,
Kimball International
Director 25 years
Gary P. Critser +
Retired; Former Senior Executive
Vice President, Secretary and Treasurer,
Kimball International
Director 3 years
Douglas A. Habig
Chairman of the Board of Directors,
Kimball International
Director 34 years
John T. Thyen
Retired; Former Senior Executive Vice President,
Strategic Marketing, Kimball International
Director 17 years
Ronald J. Thyen
Retired; Former Senior Executive Vice President,
Operations Officer, Assistant Secretary,
Kimball International
Director 34 years
John B. Habig
Chairman of the Board of Directors of SVB&T Corporation,
a Bank Holding Company
Director 51 years
Christine M. Vujovich #
Vice President, Marketing and Environmental Policy,
Cummins, Inc.
Director 13 years
Dr. Jack R. Wentworth #
Retired; Arthur M. Weimer Professor Emeritus of Business
Administration, Indiana University; Former Dean of the
Kelley School of Business, Indiana University
Director 23 years
+ Member of the Audit Committee of the Board
# Member of the Compensation and Governance Committee
of the Board
Other Corporate Data
Kimball International, Inc. and Subsidiaries
10-K Report:
A copy of the Company’s annual report to the Securities and
Exchange Commission on Form 10-K is available, without charge,
upon written request directed to Robert F. Schneider, Executive Vice
President, Chief Financial Officer at our corporate headquarters.
Transfer Agent and Registrar of the
Class A and B Common Stock:
Share Owners with questions concerning address changes, dividend
checks, registration changes, lost share certificates or transferring
shares may contact:
National City Bank
Corporate Trust Operations
PO Box 92301
Cleveland, OH 44101-4301
Phone: (800) 622-6757
TDD Line: (800) 622-5571
Internet Address: www.nationalcitystocktransfer.com
E-Mail Address: shareholder.inquiries@nationalcity.com
Corporate Headquarters:
Kimball International, Inc.
1600 Royal Street
Jasper, Indiana 47549-1001
(812) 482-1600
(800) 482-1616 (Toll Free)
(812) 482-8500 (TDD for Hearing Impaired)
Polly B. Kawalek +
Retired; Former Senior Vice President
and President, Quaker Foods,
PepsiCo Beverages and Foods
Director 10 years
Geoffrey L. Stringer #
Retired; Former Executive Vice President of
Bank One and Chief Executive Officer of
Bank One Capital Corporation
Director 4 years
Officers
Corporate Officers
Donald D. Charron
Executive Vice President,
President–Kimball Electronics Group
John H. Kahle
Executive Vice President,
General Counsel, Secretary
P. Daniel Miller
Executive Vice President,
President–Furniture
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
Gary W. Schwartz
Executive Vice President,
Chief Information Officer
R. Gregory Kincer
Vice President, Business Development,
Treasurer
Michelle R. Schroeder
Vice President, Corporate Controller
Dean M. Vonderheide
Vice President, Human Resources
Foreign Subsidiary Managers
Janusz Kasprzyk
General Manager,
Kimball Electronics Poland,
Sp. z o. o.
Tongchai Chuenchujit
General Manager,
Kimball Electronics (Thailand), Ltd.
Robert Burre
General Manager,
Kimball Electronics-Mexico,
S.A. de C.V.
Daniel Gu (LuYin Gu)
General Manager,
Kimball Electronics (Nanjing) Co., Ltd.
John Harris
General Manager,
Kimball Electronics Wales, Ltd.
Shane Tiernan
General Manager,
Kimball Electronics Ireland, Ltd.
Domestic Subsidiary Officers
Roger Chang (Chang Shang Yu)
Vice President, Asian Operations,
Kimball Electronics Group
John S. Dick
Vice President, Chief Financial Officer,
Office Furniture Group
Jeffrey L. Fenwick
Vice President, Marketing,
Kimball Office
Steven T. Korn
Vice President, Business Development,
Kimball Electronics Group
Kent F. Mahlke
Vice President, Global Operations,
National Office Furniture
John C. Manchir
Vice President, Operations,
Kimball Office
Dirk H. Manning
Vice President, Field Sales,
Kimball Office
Kevin D. McCoy
Vice President, Sales,
National Office Furniture
Paul J. Plante
Vice President, Medical Industry Solution,
Kimball Electronics Group
Dwaine R. Saalman
Vice President, Strategic Accounts,
Kimball Office
Stanley C. Sapp
Vice President,
General Manager,
Kimball Hospitality
Michael K. Sergesketter
Vice President,
Chief Financial Officer,
Kimball Electronics Group
Kevin R. Smith
Vice President,
North American Operations,
Kimball Electronics Group
Kevin B. Stokes
Vice President,
Global Technical Services,
Kimball Electronics Group
Donald W. VanWinkle
Vice President,
General Manager,
National Office Furniture
David E. White
Vice President, Sales & Distribution,
Kimball Office
Zygmunt Witort
Vice President,
European Operations,
Kimball Electronics Group
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
¥
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2007
or
n
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 0-3279
KIMBALL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
1600 Royal Street, Jasper, Indiana
(Address of principal executive offices)
35-0514506
(I.R.S. Employer Identification No.)
47549-1001
(Zip Code)
(812) 482-1600
Registrant's telephone number, including area code
Title of each Class
Name of each exchange on which registered
Class B Common Stock, par value $0.05 per share
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.05 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes n
No ¥
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act. Yes n
No ¥
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 ¥
No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. n
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of ""accelerated filer and large accelerated filer'' in Rule 12b-2 of the Exchange Act. (Check One:)
Large accelerated filer n
Accelerated filer ¥
Non-accelerated filer n
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes n
No ¥
Class A Common Stock is not publicly traded and, therefore, no market value is available, but it is convertible on a one-for-one
basis for Class B Common Stock which would indicate an equal value. The aggregate market value of the Class B Common Stock
held by non-affiliates, as of December 29, 2006 (the last business day of the Registrant's most recently completed second fiscal
quarter) was $623.5 million, based on 94.6% of Class B Common Stock held by non-affiliates.
The number of shares outstanding of the Registrant's common stock as of August 17, 2007 was:
Class A Common Stock Ì 11,630,871 shares
Class B Common Stock Ì 26,369,169 shares
Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on October 16, 2007, are incorporated by
reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
KIMBALL INTERNATIONAL, INC.
FORM 10-K
INDEX
PART I
Item 1.
Business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 1A. Risk Factors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 1B. Unresolved Staff CommentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Properties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 2.
Item 3.
Legal Proceedings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Submission of Matters to a Vote of Security HoldersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 4.
Executive Officers of the Registrant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PART II
Item 5. Market for Registrant's Common Equity, Related Share Owner Matters and Issuer
Purchases of Equity Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selected Financial Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial Statements and Supplementary Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial
Item 9.
Disclosure ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 9A. Controls and Procedures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 9B. Other Information ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PART III
Item 10. Directors, Executive Officers and Corporate GovernanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 11. Executive CompensationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Share Owner Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 13. Certain Relationships and Related Transactions, and Director Independence ÏÏÏÏÏÏÏÏ
Principal Accounting Fees and Services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 14.
Page No.
3-10
11-17
17
18-19
19
19
20
20-22
23
24-39
40
41-82
83
83
83
83-84
84
84-85
85
85
Item 15. Exhibits, Financial Statement Schedules ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
86
PART IV
SIGNATURESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
87-88
2
Item 1 Ì Business
General
PART I
As used herein, the term ""Company'' refers to Kimball International, Inc., the Registrant, and its
subsidiaries unless the context indicates otherwise.
The Company was incorporated in Indiana in 1939. The corporate headquarters is located at 1600 Royal
Street, Jasper, Indiana.
The Company provides a variety of products from its two business segments: the Furniture segment and
the Electronic Contract Assemblies segment. The Furniture segment provides furniture for the office and
hospitality industries, sold under the Company's family of brand names. The Electronic Contract Assemblies
segment provides engineering and manufacturing services which utilize common production and support
capabilities to a variety of industries globally. Production occurs in Company-owned or leased facilities located
in the United States, Mexico, Thailand, China, Poland, Ireland, and the United Kingdom. In the United
States, the Company has facilities and showrooms in 12 states and the District of Columbia.
The Company's Furniture segment was previously referred to as the Furniture and Cabinets segment.
Available Information
We make available free of charge through our website, www.ir.kimball.com, our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all
amendments to those reports as soon as reasonably practicable after such material is electronically filed with,
or furnished to, the Securities and Exchange Commission (SEC). All reports we file with the SEC are also
available via the SEC website, www.sec.gov, or may be read and copied at the SEC Public Reference Room
located at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. The Company's Internet website and the
information contained therein or incorporated therein are not intended to be incorporated into this Annual
Report on Form 10-K.
Acquisitions
During the third quarter of fiscal year 2007, the Company acquired Reptron Electronics, Inc. (""Rep-
tron''), a U.S. based electronics manufacturing services company which provides engineering services,
electronics manufacturing services, and display integration services. Reptron had four manufacturing opera-
tions located in Tampa, Florida; Hibbing, Minnesota; Gaylord, Michigan; and Fremont, California. The
acquisition is included in the Company's Electronic Contract Assemblies segment and will increase the
Company's capabilities and expertise in support of the Company's long-term strategy to grow business in the
medical electronics and high-end industrial sectors.
During the fourth quarter of fiscal year 2006, the Company acquired the Bridgend, Wales, UK
manufacturing operations of Bayer Diagnostics Manufacturing Limited (""BDML'') and its parent company,
Bayer HealthCare LLC, a member of the worldwide group of companies headed by Bayer AG. This
acquisition better positions the Electronic Contract Assemblies segment of the Company to capitalize on
growth opportunities in the medical market. The BDML workforce and their capabilities have added to the
Electronics' segment package of value that is offered to medical customers. Also during the fourth quarter of
fiscal year 2006, the Company acquired a printed circuit board assembly operation in Longford, Ireland from
Magna Donnelly Electronics Longford Limited. Both of these acquisitions emphasize the Company's strategic
expansion of global capabilities and responsiveness in serving its customers.
The acquisitions are discussed in further detail in ""Management's Discussion and Analysis of Financial
Condition and Results of Operations'' in Item 7 and in Note 2 Ì Acquisitions of Notes to Consolidated
Financial Statements.
3
Restructuring
During the fourth quarter of fiscal year 2007, the Company finalized a restructuring plan within the
Electronic Contract Assemblies segment to exit a manufacturing facility located in Gaylord, Michigan. This
facility was one of four facilities acquired in the acquisition of Reptron. With the acquisition, the Company
recognized it would have excess capacity in North America. Management developed a plan as of the
acquisition date to consolidate capacity within the acquired facilities. Based on a review of future growth
potential in various geographies and input from existing customers regarding future capacity needs, it was
determined that the Gaylord facility's automotive electronics business would transfer to other electronics
manufacturing sites located in Jasper, Indiana and Nanjing, China. The Gaylord facility and some of the
equipment will be sold. The Company expects to cease production during the second quarter of fiscal year
2008 and complete all restructuring activities by the fourth quarter of fiscal year 2008. Planned expenditures
include employee severance and transition costs which have been recognized as part of the purchase price
allocation, not impacting earnings, and an immaterial amount related to inventory transfers and post-closing
activities which will impact earnings as the costs are incurred.
During the third quarter of fiscal year 2006, the Company approved a restructuring plan within the
Electronic Contract Assemblies segment to exit a manufacturing facility located in Northern Indiana. As part
of this restructuring plan, the production for select programs was transferred to other locations within this
segment. Operations at this facility ceased in the Company's first quarter of fiscal year 2007, and the
remaining facility is classified as held for sale. The plan included employee transition costs, asset impairment
costs, accelerated software amortization costs, and other exit costs. The decision to exit this facility was a
result of excess capacity in North America.
As part of the Company's plan to sharpen focus and simplify business processes within the Furniture
segment, the Company announced during the first quarter of fiscal year 2006, a plan which included
consolidation of administrative, marketing, and business development functions to better serve the segment's
primary markets. To simplify and standardize business processes, a portion of the Company's Enterprise
Resource Planning (ERP) software is being redesigned. Expenses related to this plan include software
impairment, accelerated amortization, employee severance, and other consolidation costs. The ERP redesign
efforts are expected to continue during approximately the next year.
Additional information regarding the Company's restructuring activities is located in ""Management's
Discussion and Analysis of Financial Condition and Results of Operations'' in Item 7 and in Note 17 Ì
Restructuring Expense of Notes to Consolidated Financial Statements.
Discontinued Operations
During the first quarter of fiscal year 2007, the Company approved a plan to exit the production of wood
rear projection television (""PTV'') cabinets and stands within the Furniture segment, which resulted in the
exit of the Company's Juarez, Mexico operation. For some time, the market demand for wood rear PTV
cabinets had been declining due to the market shift to plasma and LCD large-screen televisions, and the
Company responded to this trend. In August 2004, the Company sold the building in Juarez and subsequently
leased back a much smaller manufacturing footprint in the same facility to reduce excess capacity. Thereafter,
during fiscal year 2006, the Company further consolidated its two Mexican wood rear PTV cabinet and stand
operations into the one smaller Juarez facility. Production ceased at the Juarez facility during the second
quarter of fiscal year 2007, and all inventory has been sold. Miscellaneous wrap-up activities including
disposition of remaining equipment were complete as of June 30, 2007. The lease on the building expires in
August 2009, and the Company is attempting to sublease its portion of the facility. As a result of ceasing
operations at this facility, the fiscal year-to-date and previous fiscal years financial results associated with the
Mexican operations in the Furniture segment were classified as discontinued operations beginning in the
quarter ended December 31, 2006, and all prior periods were restated. The discontinued operations are
discussed in further detail in ""Management's Discussion and Analysis of Financial Condition and Results of
Operations'' in Item 7 and in Note 18 Ì Discontinued Operations of Notes to Consolidated Financial
Statements.
4
Sales by Product Line and Segment
Sales from continuing operations by segment, after elimination of intersegment sales, for each of the three years in
the period ended June 30, 2007 were as follows:
(Amounts in Thousands)
Furniture segment
2007
2006
2005
Branded Furniture Product Line ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contract Private Label Furniture Product LineÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Contract Assemblies segment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unallocated Corporate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kimball International, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 602,903
11,059
$ 613,962
672,968
Ì
$1,286,930
$ 573,759
38,830
$ 612,589
496,706
254
$1,109,549
$ 512,801
51,017
$ 563,818
439,696
872
$1,004,386
Sales of contract private label products decreased in conjunction with the planned exit of this product line.
Financial information by segment and geographic area for each of the three years in the period ended June 30, 2007
is included in Note 14 Ì Segment and Geographic Area Information of Notes to Consolidated Financial Statements and
is incorporated herein by reference.
Segments
Furniture
Overview
Since 1950, the Company has produced wood furniture and cabinets. During fiscal year 2007, the Company ceased
manufacturing contract private label products as it increased focus on core markets. These core markets include office
furniture sold under the Kimball Office and National Office Furniture brand names and hospitality furniture sold under
the Kimball Hospitality brand name. Kimball Office and National Office Furniture provide office furniture solutions for
private offices, open floor plan areas, conference rooms, training rooms, lobby, and lounge areas with a vast mix of wood,
metal, laminate, paint, and fabric options. Products include desks and credenzas, seating, tables, systems/dividers, filing
and storage units, and accessories such as audio visual boards and task lighting. Additionally, Kimball Office sells
floor-to-ceiling room dividers and wall panels. Kimball Office products tend to focus on the more complex customer
solutions and National Office Furniture products are geared more to the mid-market/less complex/lower cost aspect of
the office furniture market. Kimball Hospitality provides furniture solutions for hotel properties, timeshare properties,
condominiums, and mixed use developments. Products include room headboards and footboards, desks, tables, floor-to-
ceiling wall panels, in-room seating, lobby and lounge furniture, and headboard lighting. Also included in this segment are
the Company's trucking fleet and customer fulfillment centers, which handle primarily product of this segment; but
certain logistics services, such as backhauls, are sold on a contract basis. Sales revenue of the Furniture segment is
generally not affected by seasonality with the exception of certain product lines which are impacted by the buying patterns
of customers such as the U.S. Federal Government whose purchases of the Company's product are generally higher in the
first half of the Company's fiscal year.
Locations
The Company's office and hospitality furniture products as of June 30, 2007 are produced at eleven plants: eight
located in Indiana, two in Kentucky, and one in Idaho. The Company continually assesses manufacturing capacity and
has adjusted such capacity in recent years. During fiscal year 2007, the Company ceased production at its leased furniture
manufacturing facility in Mexico and is attempting to sublease the facility.
A facility in Indiana houses shared services such as engineering, finish development, and sample production. Another
facility in Indiana houses an Education Center for dealer and employee training, a Research and Development Center, and a
Corporate Showroom for product display. Office space is leased in Dongguan, Guangdong, China to facilitate sourcing of
product from Pacific Rim countries. Office furniture showrooms are maintained in nine cities in the United States.
Marketing Channels
Kimball Office and National brands of office furniture are marketed through Company salespersons to end users,
office furniture dealers, wholesalers, rental companies, and catalog houses throughout North America and on an
international basis. Hospitality furniture is marketed to end users using independent manufacturers' representatives.
5
Major Competitive Factors
The Company's furniture is sold in the office furniture and hospitality furniture industries. These industries have
similar major competitive factors which include price in relation to quality and appearance, the utility of the product,
supplier lead time, reliability of on-time delivery, and the ability to respond to requests for special and non-standard
products. The Company offers payment terms similar to industry standards and in unique circumstances may allow
alternate payment terms.
Certain industries are more price sensitive than others, but all expect on-time, damage-free delivery. The Company
maintains sufficient finished goods inventories to be able to offer prompt shipment of certain lines of Kimball Office and
National office furniture as well as most of the Company's own lines of hospitality furniture. The Company also produces
contract hospitality furniture to customers' specifications and shipping timelines. Many office furniture products are
shipped through the Company's delivery system, which the Company believes offers it the ability to reduce damage to
product, enhance scheduling flexibility, and improve the capability for on-time deliveries.
Competitors
There are numerous manufacturers of office and hospitality furniture competing within the marketplace, with a
significant number of competitors offering similar products. The Company believes, however, that there are a limited
number of relatively large manufacturers of wood office and hospitality furniture. In many instances wood office furniture
competes in the market with metal office furniture. Based on available industry statistics, metal office furniture has a
larger share of the total office furniture market.
The Company's competition includes office furniture manufacturers such as Steelcase, Inc., Herman Miller, Inc.,
Knoll, Inc., Haworth, Inc., and HNI Corporation and hospitality furniture manufacturers such as American of
Martinsville, Fleetwood Fine Furniture, Inc., Thomasville Furniture Industries, Inc., and Fairmont Designs.
Raw Material Availability
Certain components used in the production of furniture are manufactured internally within the segment and are
generally readily available, as are other raw materials used in the production of wood furniture. With the exception of
rolled steel, raw materials used in the manufacture of metal office furniture have been readily available in the global
market. While we have been able to maintain an appropriate supply of rolled steel to meet demand, general supply
limitations in the market are impacting our costs. Certain fabricated seating components and wood frame assemblies as
well as finished furniture products, which are generally readily available, are sourced on a global scale in an effort to
provide a quality product at the lowest total cost.
Electronic Contract Assemblies
Overview
The Company entered the electronic manufacturing services (EMS) market in 1985 with knowledge acquired from
the production of electronic organs, which were first produced in 1963. The Company's focus is on electronic assemblies
that have high durability requirements such as automotive, medical, industrial, and public safety applications. Electronics
and electro-mechanical products (electronic assemblies) are sold globally on a contract basis and produced to customers'
specifications. The Company's engineering and manufacturing services primarily entail the insertion and attachment of
microchips and other electronic capacitors and conductors in ever more complex and smaller designs onto multi-layered
circuit boards, the production of wiring harnesses and other electronic equipment, assembling such into sub or final
products, testing of products under a series of harsh conditions, and assembly and packaging of electronic and other related
products, all to the specifications and designs of our customers. Integrated throughout this segment is customer program
management over the life cycle of the product along with supply chain management, which affords customers the
opportunity to focus their attention and resources to sales, marketing, and product development as they sell their unique
end products under their brand name into various markets and industries.
During the fourth quarter of fiscal year 2006, the Company acquired an operation in Wales, United Kingdom which
currently provides manufacturing services for medical diagnostic systems such as assembling and packaging medical test
strips and assembling and testing of electronic diagnostic testers. This facility is FDA certified and was acquired to support
the Company's efforts to capitalize on growth opportunities in the medical market. The Company also acquired a printed
circuit board assembly operation in Longford, Ireland during the fourth quarter of fiscal year 2006. Late in fiscal year
2007, the Company began production in a manufacturing facility built in Nanjing, China. During the third quarter of fiscal
year 2007, the Company also acquired Reptron whereby Reptron became a wholly-owned subsidiary of the Company. The
acquisition of Reptron will increase the Company's capabilities and expertise in support of the Company's long-term
strategy to grow in the medical and industrial control markets.
Sales revenue of the Electronic Contract Assemblies segment is generally not affected by seasonality with the
exception of the buying patterns of automotive industry customers whose purchases of the Company's product are
generally lower in the first quarter of the Company's fiscal year.
6
Locations
As of June 30, 2007 the Company's Electronic Contract Assemblies segment consists of twelve
manufacturing facilities with two located in Indiana and one in each of Florida, Michigan, Minnesota,
California, China, Mexico, Thailand, Poland, Ireland, and the United Kingdom. During fiscal year 2007, the
Company exited one Indiana facility not included above pursuant to a restructuring plan announced during
fiscal year 2006 which was driven by excess North American capacity. The Florida, Michigan, Minnesota, and
California facilities were acquired via the Reptron acquisition during fiscal year 2007. The Ireland and United
Kingdom facilities were acquired by the Company during fiscal year 2006. The contract electronics
manufacturing industry in general has been faced with excess capacity. The Company has not been immune to
the economic slowdown and continually evaluates its operations as to the most optimum capacity and service
levels by geographic region and has announced plans to exit the above-mentioned Michigan facility.
Operations located outside of the United States continue to be an integral part of the Company's Electronic
Contract Assemblies segment. See Item 1A Ì Risk Factors for information regarding financial and opera-
tional risks related to the Company's international operations.
Marketing Channels
Manufacturing and engineering services are marketed by the Company's business development team.
Contract electronic assemblies are manufactured based on specific orders, generally resulting in a small
amount of finished goods consisting primarily of goods awaiting shipment to specific customers.
Major Competitive Factors
Key competitive factors in the EMS market are competitive pricing, quality and reliability, engineering
design services, production flexibility, on-time delivery, customer lead time, test capability, and global
presence. Growth in the EMS industry is created through the proliferation of electronic components in today's
advanced products along with the continuing trend of original equipment manufacturers in the electronic
industry to subcontract the assembly process to companies with a core competence in this area. The nature of
the EMS 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. The segment continues to
experience margin pressures related to an overall excess capacity position in the EMS industry and more
specifically this segment's new program launches and diversification efforts. The continuing success of this
segment is dependent upon its ability to replace expiring customers/programs with new customers/programs.
Competitors
The EMS industry is very competitive as numerous manufacturers of contract electronic assemblies
compete for business from existing and potential customers. The Company's competition includes EMS
companies such as Benchmark Electronics, Inc., Jabil Circuit, Inc., and Plexus Corp. The Company does not
have a significant share of the EMS market.
7
Raw Material Availability
Raw materials utilized in the manufacture of contract electronic products are generally readily available
from both domestic and foreign sources, although from time to time the industry experiences shortages of
certain components due to supply and demand forces, combined with rapid product life cycles of certain
components. Raw materials are normally acquired for specific customer orders and may or may not be
interchangeable among products. Inherent risks associated with rapid technological changes within this
contract industry are mitigated by procuring raw materials, for the most part, based on firm orders.
Customer Concentration
While the total electronic assemblies market has broad applications, the Company's customers are
concentrated in the automotive, industrial, and medical industries. As a result of the acquisition of the
Bridgend, Wales, UK manufacturing operations of Bayer Diagnostics Manufacturing Limited in the Com-
pany's fourth quarter of fiscal year 2006, sales to Bayer AG entities under common control are significant and
accounted for approximately 30% of this segment's net sales in fiscal year 2007, compared to 13% in fiscal year
2006 and 4% in fiscal year 2005. Sales to Bayer AG companies accounted for approximately 15% of the
Company's consolidated net sales in fiscal year 2007, compared to 6% and 2% in fiscal years 2006 and 2005,
respectively. Also included in this segment are sales of electronic assemblies to TRW Automotive, Inc., a full-
service automotive supplier, which accounted for approximately 14% of this segment's net sales in fiscal year
2007, compared to 27% in fiscal year 2006 and 30% in fiscal year 2005. Sales to TRW Automotive, Inc.
accounted for approximately 8% of the Company's consolidated net sales in fiscal year 2007, compared to 12%
and 13% in fiscal years 2006 and 2005, respectively. TRW Automotive, Inc. sells complete braking assemblies,
in part manufactured by the Company, to several major automotive companies, most with multiple braking
assembly programs that span multiple vehicle platforms, which partially mitigates the Company's exposure to
this customer. The Company also supplies electronic power steering products to TRW Automotive, Inc.
Other Information
Backlog
At June 30, 2007, the aggregate sales price of production pursuant to worldwide open orders, which may
be canceled by the customer, were $331.0 million as compared to $227.3 million at June 30, 2006.
(Amounts in Millions)
Furniture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Contract Assemblies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total Backlog of Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 30, 2007
June 30, 2006
$ 95.3
235.7
$331.0
$ 96.7
130.6
$227.3
Substantially all of the open orders as of June 30, 2007 are expected to be filled within the next fiscal
year. Open orders as of June 30, 2007 include open orders of the Reptron acquisition made during fiscal year
2007, and open orders as of June 30, 2006 exclude open orders related to all discontinued operations. Open
orders generally may not be indicative of future sales trends.
8
Research, Patents, and Trademarks
Research and development activities include the development of manufacturing processes, major process
improvements, new product development and product redesign, information technology initiatives, and
electronic and wood related technologies.
Research and development costs were approximately as follows:
(Amounts in Millions)
Research and Development Costs of Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year Ended June 30
2005
2006
2007
$17
$15
$18
The Company owns the Kimball (registered trademark) trademark, which it believes is significant to its
office furniture, hospitality furniture, and electronics businesses, and owns the following patents and
trademarks which it believes are significant to its furniture business only: National (registered trademark),
Cetra (registered trademark), Footprint (registered trademark), Traxx (patented and registered trademark),
Interworks (registered trademark), Xsite (registered trademark), Definition (registered trademark), Skye
(registered trademark), WaveWorks (registered trademark), Senator (registered trademark), President, and
Prevail (registered trademark). The Company also owns certain patents and other trademarks and has certain
other trademark and patent applications pending, which in the Company's opinion are not significant to its
business. Patents owned by the Company expire at various times depending on the patent's date of issuance.
Environment and Energy Matters
The Company's operations are subject to various foreign, federal, state, and local laws and regulations
with respect to environmental matters. The Company believes that it is in substantial compliance with present
laws and regulations and that there are no material liabilities related to such items.
The Company is dedicated to excellence, leadership, and stewardship in matters of protecting the
environment and communities in which the Company has operations. Reinforcing the Company's commit-
ment to the environment, four of the Company's showrooms have been designed under the guidelines of the
U.S. Green Building Council's LEED (Leadership in Energy and Environmental Design) for Commercial
Interiors program. The Company believes that continued compliance with foreign, federal, state, and local
laws and regulations which have been enacted relating to the protection of the environment will not have a
material effect on its capital expenditures, earnings or competitive position. Management believes capital
expenditures for environmental control equipment during the two fiscal years ending June 30, 2009, will not
represent a material portion of total capital expenditures during those years.
The Company's manufacturing operations require significant amounts of energy, including natural gas
and oil. Federal and state statutes and regulations control the allocation of fuels available to the Company, but
to date the Company has experienced no interruption of production due to such regulations. In its wood
processing plants, a portion of energy requirements are satisfied internally by the use of the Company's own
wood waste products.
9
Employees
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign CountriesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total Full-Time Employees of Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏ
June 30, 2007
June 30, 2006
5,540
2,020
7,560
4,724
2,319
7,043
The Company has a collective bargaining agreement with employees at the Hibbing, Minnesota
manufacturing operation acquired during fiscal year 2007. The Company has no other collective bargaining
agreements with its domestic employees. Approximately 3% of the Company's domestic employees are
covered by a collective bargaining agreement, and the agreement does not expire during the Company's fiscal
year 2008. All of the Company's foreign operations are subject to collective bargaining arrangements, many
mandated by government regulation or customs of the particular countries. The Company believes that its
employee relations are good.
Forward-Looking Statements
This document may contain certain forward-looking statements. These are statements made by manage-
ment, using their best business judgment based upon facts known at the time of the statements or reasonable
estimates, about future results, plans, or future performance and business of the Company. Such statements
involve risk, uncertainty, and their ultimate validity is affected by a number of factors, both specific and
general. They should not be construed as a guarantee that such results or events will, in fact, occur or be
realized. The statements may be identified by the use of words such as ""believes'', ""anticipates'', ""expects'',
""intends'', ""projects'', ""estimates,'' and similar expressions. It is not possible to foresee or identify all factors
that could cause actual results to differ from expected or historical results. Additional information regarding
risk factors is available in ""Item 1A Ì Risk Factors'' of this report. The Company makes no commitment to
update these factors or to revise any forward-looking statements for events or circumstances occurring after
the statement is issued, except as required in current and quarterly periodic reports filed with the SEC or
otherwise by law.
At any time when the Company makes forward-looking statements, it desires to take advantage of the
""safe harbor'' which is afforded such statements under the Private Securities Litigation Reform Act of 1995
where factors could cause actual results to differ materially from forward-looking statements.
10
Item 1A Ì Risk Factors
The following important risk factors, among others, could affect future results and events, causing results
and events to differ materially from those expressed or implied in forward-looking statements made in this
report and presented elsewhere by management from time to time. Such factors, among others, may have a
material adverse effect on the Company's business, financial condition, and results of operations and should be
carefully considered. It is not possible to predict or identify all such factors. Consequently, any such list should
not be considered to be a complete statement of all the Company's potential risks or uncertainties. Because of
these and other factors, past performance should not be considered an indication of future performance.
Downturns in economic and market conditions could adversely impact demand for the Company's
products and adversely affect operating results. Market demand for the Company's products, which impacts
revenues and gross profit, is influenced by a variety of economic factors such as:
‚ general corporate profitability of the Company's end markets;
‚ new office construction and refurbishment rates;
‚ new hotel and casino construction and refurbishment rates;
‚ automotive industry fluctuations, specifically variation in the performance and market share of
U.S. based auto manufacturers;
‚ changes in the medical device industry;
‚ demand for end-user products which include electronic assembly components produced by the
Company;
‚ excess capacity in the industries in which the Company competes; and
‚ changes in customer order patterns, including changes in product quantities, delays in orders or
cancellation of orders.
The Company must make decisions based on order volumes in order to achieve efficiency in manufactur-
ing capacities. These decisions include determining what level of additional business to accept, production
schedules, component procurement commitments, and personnel requirements, among various other consider-
ations. The Company must constantly monitor the changing economic landscape and may modify its strategic
direction based upon the changing business environment. If the Company does not react quickly enough to the
changes in market or economic conditions, it could result in lost customers, decreased market share, and
increased operating costs.
The Company operates in a highly competitive environment and may not be able to compete
successfully. The electronic manufacturing services industry is very competitive as numerous manufacturers
compete globally for business from existing and potential customers. The office and hospitality furniture
industries are also competitive due to numerous global manufacturers competing in the marketplace. The high
level of competition in these industries impacts the Company's ability to implement price increases or, in some
cases, even maintain prices, which could lower profit margins.
11
The Company faces pricing pressures that could adversely affect the Company's financial position,
results of operations or cash flows. The Company faces pricing pressures in both of its segments, especially
the Electronic Contract Assemblies segment, as a result of intense competition, emerging products or over-
capacity. While the Company works toward reducing costs to respond to pricing pressures, if the Company
cannot achieve the proportionate reductions in costs, profit margins may suffer. As end markets dictate, the
Company is continually assessing excess capacity and developing plans to better utilize manufacturing
operations, including consolidating and shifting manufacturing capacity to lower cost venues as necessary.
Reduction of purchases by or the loss of one or more key customers could reduce revenues and
profitability. Losses of key contract customers within specific industries or significant volume reductions from
key contract customers are both risks. In addition, continuing success of the Company is dependent upon
replacing expiring contract customers/programs with new customers/programs. One of the Company's
customers, TRW Automotive, Inc., accounted for approximately 8%, 12%, and 13% of consolidated net sales
in fiscal years 2007, 2006, and 2005, respectively. As a result of the acquisition of the Bridgend, Wales, UK
manufacturing operations of Bayer Diagnostics Manufacturing Limited in the Company's fourth quarter of
fiscal year 2006, sales to Bayer are also significant and accounted for 15%, 6%, and 2% of consolidated net
sales in fiscal years 2007, 2006, and 2005, respectively. Significant declines in the level of purchases by these
customers within the Electronic Contract Assemblies segment or other key customers in either of the
Company's segments, or the loss of a significant number of customers, could have a material adverse effect on
business. In addition, the nature of the contract electronics manufacturing industry is such that the start-up of
new customers and new programs to replace expiring programs occurs frequently, and new customer and
program start-ups generally cause losses early in the life of a program. Furthermore, the Company is exposed
to the credit risk of customers, including risk of bankruptcy, and is subject to losses from accounts receivable.
The Company's future operating results depend on the ability to purchase a sufficient amount of
materials, parts, and components at competitive prices. The Company depends on suppliers globally to
provide timely delivery of materials, parts, and components for use in the Company's products. Maintaining
strong relationships with key suppliers of components critical to the manufacturing process is essential. If
suppliers fail to meet commitments to the Company in terms of price, delivery or quality, it could interrupt the
Company's operations and negatively impact the Company's ability to meet commitments to customers.
The Company could be adversely affected by increased commodity costs or availability of raw
materials. Price increases of commodity components could have an adverse impact on profitability if the
Company cannot offset such increases with other cost reductions or by price increases to customers. In recent
years, the Company has experienced increases in the prices of key commodities used in Furniture segment
products, such as steel and wood composite sheet stock. Raw materials utilized by the Company are generally
available, but future availability is unknown and could impact the Company's ability to meet customer order
requirements.
The Company could be impacted by manufacturing inefficiencies at certain locations. At times the
Company may experience labor or other manufacturing inefficiencies due to items such as new product
introductions, a new operating system or turnover in personnel. Manufacturing inefficiencies could have an
adverse impact on the Company's financial position, results of operations or cash flows.
A change in the Company's sales mix among various products could have a negative impact on the gross
profit margin. Changes in product sales mix could negatively impact the gross margin of the Company as
margins of different products vary. The Company strives to improve the margins of all products, but certain
products have lower margins in order to price the product competitively or in connection with the start-up of a
new program. An increase in the proportion of sales of product with lower margins could have an adverse
impact on the Company's financial position, results of operations or cash flows.
12
The Company's restructuring efforts may not be successful. During fiscal year 2007, the Company
announced a restructuring plan to exit an electronics manufacturing facility in Gaylord, Michigan which was
one of four facilities obtained via the Reptron acquisition. With the acquisition, the Company recognized it
would have excess capacity in North America, thus management developed a plan as of the acquisition date to
consolidate capacity within the acquired facilities. During fiscal year 2006, the Company announced
restructuring activities that included increasing its focus within the Furniture segment to better serve primary
markets. The plan includes the consolidation of administrative, marketing, and business development
functions within the Furniture segment, which is not yet complete. While the Company believes that these
actions will result in a more competitive position and should also reduce certain costs, there are inherent risks
in making these types of organizational changes. The Company continually evaluates its manufacturing
capabilities and capacities in relation to current and anticipated market conditions. The success of restructur-
ing initiatives is dependent on several factors and may not be accomplished as quickly or effectively as
anticipated.
Acquisitions by their nature may present risks to the Company. The Company's sales growth plans may
occur through both organic growth and acquisitions. Acquisitions involve many risks, including:
‚ difficulties in identifying suitable acquisition candidates and in negotiating and consummating
acquisitions on terms attractive to the Company;
‚ difficulties in the assimilation of the operations of the acquired company;
‚ the diversion of resources, including diverting management's attention from current operations;
‚ risks of entering new geographic or product markets in which the Company has limited or no direct
prior experience;
‚ the potential loss of key employees of the acquired company;
‚ the potential incurrence of indebtedness to fund the acquisition;
‚ the potential issuance of common stock for some or all of the purchase price, which could dilute
ownership interests of the Company's current shareholders;
‚ the acquired business may not achieve anticipated revenues, earnings, cash flow or market share;
‚ excess capacity;
‚ the assumption of undisclosed liabilities; and
‚ dilution of earnings.
The above risks could have a material adverse effect on the Company's financial position, results of
operations or cash flows.
13
Start-up operations could present risks to the Company's current operations. The Company is
committed to growing its business, and therefore from time to time the Company may determine that it would
be in its best interests to start up a new operation. Start-up operations involve a number of risks and
uncertainties, such as funding the capital expenditures related to the start-up operation, developing a
management team for the new operation, diversion of management focus away from current operations, and
creation of excess capacity. Any of these risks could have a material adverse effect on the Company's financial
position, results of operations or cash flows. A successful start-up of the Electronic Contract Assemblies
segment operation in China is critical for securing future customers for this newly constructed operation. The
Company has recently received final customer approval to start production in this facility.
Our international operations involve financial and operational risks. The Company has operations
outside the United States, primarily in China, Thailand, Poland, Ireland, the United Kingdom, and Mexico.
The Company's international operations are subject to a number of risks, which may include the following:
‚ economic and political instability;
‚ changes in foreign regulatory requirements and laws;
‚ tariffs and other trade barriers;
‚ potentially adverse tax consequences; and
‚ foreign labor practices.
These risks could have an adverse effect on the Company's financial position, results of operations or cash
flows. In addition, fluctuations in exchange rates could impact our operating results. The Company's risk
management strategy includes the use of derivative financial instruments to hedge certain foreign currency
exposures. Any hedging techniques the Company implements in the future contain risks and may not be
entirely effective. Exchange rate fluctuations could also make the Company's products more expensive than
competitor's products not subject to these fluctuations, which could adversely affect the Company's revenues
and profitability in international markets.
If the Company's efforts to introduce new products are not successful, this could limit sales growth or
cause sales to decline. The Electronic Contract Assemblies segment depends on industries that utilize
technologically advanced electronics components which often have short life cycles. The Company must
continue to invest in advanced equipment and product development to remain competitive in this area. The
Furniture segment regularly introduces new products to keep pace with workplace trends and evolving
regulatory and industry requirements, including environmental, health, safety, and similar standards for the
workplace and for product performance. The introduction of new products requires the coordination of the
design, manufacturing, and marketing of such products. The design and engineering of certain new products
can take up to two years or more, and further time may be required to achieve customer acceptance.
Accordingly, the launch of any particular product may be delayed or be less successful than originally
anticipated by the Company. Difficulties or delays in introducing new products or lack of customer acceptance
of new products could limit sales growth or cause sales to decline.
14
If customers do not perceive the Company's products to be of high quality, the Company's brand and
name recognition could suffer. The Company believes that establishing and maintaining brand and name
recognition is critical to business. Promotion and enhancement of the Company's brands will depend on the
effectiveness of marketing and advertising efforts and on successfully providing high quality products and
superior services. If customers do not perceive our products and services to be of high quality, the Company's
brand and name recognition could suffer, which could have a material adverse effect on the Company's
business.
A loss of independent manufacturing representatives, dealers, or other sales channels could lead to a
decline in sales of the Company's Furniture segment products. The Company's office furniture is marketed
primarily through Company salespersons to end users, office furniture dealers, wholesalers, rental companies,
and catalog houses. The Company's hospitality furniture is marketed to end users using independent
manufacturing representatives. A significant loss within any of these sales channels could result in a sales
decline and thus have an adverse impact on the Company's financial position, results of operations or cash
flows.
The Company must effectively manage working capital. The Company has historically had positive
operating cash flows, but effective management of working capital is key to continuing that trend. The
Company closely monitors inventory and receivable efficiencies and continuously strives to improve these
measures of working capital but customer financial difficulties or Company manufacturing delays could cause
deteriorating working capital trends.
The Company's assets could become impaired. As business conditions change, the Company must
continually evaluate and work toward the optimum asset base. It is possible that certain assets such as, but not
limited to, facilities, equipment, intangible assets, or goodwill could be impaired at some point in the future
depending on changing business conditions. If assets of the Company become impaired the result could be an
adverse impact on the Company's financial position and results of operations.
There are inherent uncertainties involved in estimates, judgments, and assumptions used in the
preparation of financial statements in accordance with generally accepted accounting principles in the
United States (U.S. GAAP). Any changes in estimates, judgments and assumptions could have a material
adverse effect on the Company's financial position, results of operations or cash flows. The Company's
financial statements filed with the Securities and Exchange Commission are prepared in accordance with
U.S. GAAP and the preparation of such financial statements includes making estimates, judgments, and
assumptions that affect reported amounts of assets, liabilities, and related reserves, revenues, expenses, and
income. Estimates are inherently subject to change in the future, and such changes could result in
corresponding changes to the amounts of assets, liabilities, income or expenses and likewise could have an
adverse effect on the Company's financial position, results of operations or cash flows.
The Company could be subject to additional tax liabilities, interest, and penalties. The Company is
subject to income taxes as well as non-income based taxes, in both the United States and various foreign
jurisdictions. Judgment is required in determining the worldwide provision for income taxes, other tax
liabilities, interest, and penalties. 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. The Company has also made
assumptions about the realization of deferred tax assets. Changes in these assumptions could result in a
valuation allowance for these assets. Final determination of tax audits or tax disputes may be different from
what is currently reflected by the Company's income tax provisions and accruals.
15
A failure to successfully implement information technology solutions could adversely affect the
Company. The Company's business depends on effective information technology systems. Information
systems require an ongoing commitment of significant resources to maintain and enhance existing systems and
develop new systems in order to keep pace with changes in information processing technology and evolving
industry standards. Implementation delays or poor execution of information technology systems could disrupt
the Company's operations and increase costs.
An inability to protect the Company's intellectual property could have a significant impact on business.
The Company attempts to protect its intellectual property rights, both in the United States and in foreign
countries, through a combination of patent, trademark, copyright and trade secret laws, as well as licensing
agreements and third-party nondisclosure and assignment agreements. Because of the differences in foreign
laws concerning proprietary rights, the Company's intellectual property rights do not generally receive the
same degree of protection in foreign countries as they do in the United States, and therefore in some parts of
the world the Company has limited protections, if any, for its intellectual property. Competing effectively
depends, to a significant extent, on maintaining the proprietary nature of the Company's intellectual property.
The degree of protection offered by the claims of the various patents and trademarks may not be broad enough
to provide significant proprietary protection or competitive advantages to the Company, and patents or
trademarks may not be issued on pending or contemplated applications. In addition, not all of the Company's
products are covered by patents. It is also possible that the Company's patents and trademarks may be
challenged, invalidated, cancelled, narrowed or circumvented.
A third party could claim that the Company has infringed on their intellectual property rights. The
Company could be notified of a claim regarding intellectual property rights which could lead to the Company
spending time and money to defend or address the claim. Even if the claim is without merit, it could result in
substantial costs and diversion of resources.
The Company's insurance may not adequately protect the Company from liabilities related to product
defects. The Company maintains product liability and other insurance coverage that the Company believes to be
generally in accordance with industry practices. However, our insurance coverage may not be adequate to protect
the Company fully against substantial claims and costs that may arise from liabilities related to product defects,
particularly if the Company has a large number of defective products or if the root cause is disputed.
The Company's failure to maintain Food and Drug Administration (FDA) registration of one or more
of its registered manufacturing facilities could negatively impact the Company's ability to produce products
for customers in the medical industry. The Company is diversifying the Electronic Contract Assemblies
segment which includes increasing sales to customers in the regulated medical industry. To maintain FDA
registration, the Company is subject to FDA audits of the manufacturing process. FDA audit failure could
result in a partial or total suspension of production, fines, or criminal prosecution. Failure or noncompliance
could have an adverse effect on the Company's reputation in addition to an adverse impact on the Company's
financial position and results of operations.
The Company is subject to extensive environmental regulation and significant potential environmental
liabilities. The past and present operation and ownership by the Company of manufacturing plants and real
property are subject to extensive and changing federal, state, local, and foreign environmental laws and
regulations, including those relating to discharges in air, water, and land, the handling and disposal of solid and
hazardous waste, and the remediation of contamination associated with releases of hazardous substances. The
Company cannot predict what environmental legislation or regulations will be enacted in the future, how
existing or future laws or regulations will be administered or interpreted or what environmental conditions may
be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing
laws, may require additional expenditures by the Company, some of which could be material. In addition, any
investigations or remedial efforts relating to environmental matters could involve material costs or otherwise
result in material liabilities.
The Company's failure to retain the existing management team and continue to attract qualified
personnel could adversely affect the Company's business. The Company's culture and guiding principles focus
on continuous training, motivating, and development of employees, and it strives to attract, motivate, and
retain qualified managerial personnel. Failure to retain and attract qualified personnel could adversely affect
the Company's business.
Turnover in personnel could cause manufacturing inefficiencies. The demand for manufacturing labor in
certain geographic areas makes it difficult to retain experienced production employees. Turnover could result
in additional training and inefficiencies that could impact the Company's operating results.
16
Natural disasters or other catastrophic events may impact the Company's production schedules and, in
turn, negatively impact profitability. Natural disasters or other catastrophic events, including severe weather,
terrorist attacks, power interruptions, and fires, could disrupt operations and likewise the ability to produce or
deliver the Company's products. The Company's manufacturing operations require significant amounts of
energy, including natural gas and oil, and governmental regulations control the allocation of such fuels to the
Company. In the event the Company experiences a temporary or permanent interruption in its ability to
produce or deliver product, revenues could be reduced, and business could be materially adversely affected. In
addition, catastrophic events, or the threat thereof, can adversely affect U.S. and world economies, and could
result in delayed or lost sales of the Company's products. In addition, any continuing disruption in the
Company's computer system could adversely affect the ability to receive and process customer orders,
manufacture products, and ship products on a timely basis, and could adversely affect relations with
customers, potentially resulting in reduction in orders from customers or loss of customers. The Company
maintains insurance to help protect the Company from costs relating to these matters but such may not be
sufficient or paid in a timely manner to the Company in the event of such an interruption.
The requirements of being a public company may strain the Company's resources and distract
management. The Company is subject to the reporting requirements of federal securities laws, including the
Sarbanes-Oxley Act of 2002. Among other requirements, the Sarbanes-Oxley Act requires that the Company
maintain effective disclosure controls and procedures and internal control over financial reporting. The
Company has, and expects to continue to, expend significant management time and resources maintaining
documentation and testing internal control over financial reporting. While management's evaluation as of
June 30, 2007 resulted in the conclusion that the Company's internal control over financial reporting was
effective as of that date, the Company cannot predict the outcome of testing in future periods. If the Company
concludes in future periods that its internal control over financial reporting is not effective, or if its
independent registered public accounting firm is not able to render the required attestations, it could result in
lost investor confidence in the accuracy, reliability, and completeness of the Company's financial reports.
The value of the Company's common stock may experience substantial fluctuations for reasons over
which the Company has little control. The value of common stock could fluctuate substantially based on a
variety of factors, including, among others:
‚ actual or anticipated fluctuations in operating results;
‚ announcements concerning the Company, competitors or industry;
‚ overall volatility of the stock market;
‚ changes in government regulations;
‚ changes in the financial estimates of securities analysts or investors regarding the Company, the
industry or competitors; and
‚ general market or economic conditions.
Furthermore, stock prices for many companies fluctuate widely for reasons that may be unrelated to their
operating results. These fluctuations, coupled with changes in results of operations and general economic,
political, and market conditions, may adversely affect the value of the Company's common stock.
Item 1B Ì Unresolved Staff Comments
None.
17
23
2
1
1
1
2
1
1
1
1
2
1
1
38
Item 2 Ì Properties
The location and number of the Company's major manufacturing, warehousing, and service facilities,
including the executive and administrative offices, as of June 30, 2007, are as follows:
Number of Facilities
Electronic
Contract
Assemblies
Unallocated
Corporate
Total
Indiana ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kentucky ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Florida ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minnesota ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Michigan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
California ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Idaho ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
MexicoÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thailand ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Poland ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
China ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
United KingdomÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ireland ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Furniture
15
2
1
1
1
6
2
1
1
1
1
1
1
1
1
1
1
Total Facilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
20
12
6
The listed facilities occupy approximately 5,430,000 square feet in aggregate, of which approximately
5,110,000 square feet are owned and 320,000 square feet are leased. Square footage of these facilities is
summarized by segment as follows:
Approximate Square Footage
Furniture
Electronic
Contract
Assemblies
Unallocated
Corporate
Total
OwnedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LeasedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,736,000
21,000
1,016,000
279,000
358,000
20,000
5,110,000
320,000
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,757,000
1,295,000
378,000
5,430,000
During fiscal year 2007, within the Electronic Contract Assemblies segment, the Company exited an
Auburn, Indiana facility, and as a result of the Reptron acquisition, now occupies facilities in Florida,
Michigan, Minnesota, and California. The Company plans to exit the Michigan facility during fiscal year
2008. The Electronic Contract Assemblies segment manufacturing facility constructed in China began
production during the latter portion of fiscal year 2007. Also during fiscal year 2007, the Company ceased
production at its leased Furniture segment manufacturing facility in Mexico.
Included in Unallocated Corporate are executive, national sales and administrative offices, a recycling
facility, a child development facility, and a training and education center and corporate showroom. The
Company sold the child development facility during the first quarter of fiscal year 2008.
18
All leased and owned facilities of the Company, including those major facilities listed above plus leased
furniture showroom areas, total approximately 6.2 million square feet. Several unutilized facilities are held for
sale or offered for lease. (See Note 5 Ì Commitments and Contingent Liabilities of Notes to Consolidated
Financial Statements for additional information concerning leases.)
Generally, properties are utilized at normal capacity levels on a multiple shift basis. At times, certain
facilities utilize a reduced second or third shift. Due to sales fluctuations, not all facilities were utilized at
normal capacity during the 2007 fiscal year.
Significant loss of income resulting from a facility catastrophe would be partially offset by business
interruption insurance coverage.
Operating leases for all facilities and related land, including idle facilities and eight leased showroom
facilities, total 715,000 square feet and expire from fiscal year 2008-2056 with many of the leases subject to
renewal options. The leased showroom facilities are in seven states and the District of Columbia.
The Company owns approximately 27,900 acres of land which includes land where various Company
facilities reside, including approximately 27,300 acres generally for hardwood timber reserves and approxi-
mately 180 acres of land in the Kimball Industrial Park, Jasper, Indiana (a site for certain production and
other facilities, and for possible future expansions). The Company leases approximately six acres of land in
Laem Chabang, Thailand where it has an electronics manufacturing facility, with the lease expiring in 2030.
The Company also leases approximately nine acres in Nanjing, China where it has an electronics manufactur-
ing facility, with the lease expiring in 2056.
Item 3 Ì Legal Proceedings
The Registrant and its subsidiaries are not parties to any pending legal proceedings, other than ordinary
routine litigation incidental to the business, which individually, or in aggregate, are not expected to be
material.
Item 4 Ì Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal
year 2007.
19
Executive Officers of the Registrant
The executive officers of the Registrant as of August 31, 2007 are as follows:
(Age as of August 31, 2007)
Name
James C. Thyen ÏÏÏÏÏÏÏÏÏÏÏ
Douglas A. Habig ÏÏÏÏÏÏÏÏÏ
Robert F. Schneider ÏÏÏÏÏÏÏ
Donald D. Charron ÏÏÏÏÏÏÏÏ
P. Daniel Miller ÏÏÏÏÏÏÏÏÏÏÏ
Michelle R. Schroeder ÏÏÏÏÏ
John H. Kahle ÏÏÏÏÏÏÏÏÏÏÏÏ
Gary W. Schwartz ÏÏÏÏÏÏÏÏÏ
Age
63
60
46
43
59
42
50
59
Office and Area of Responsibility
President, Chief Executive Officer, Director
Chairman of the Board
Executive Vice President, Chief Financial Officer
Executive Vice President, President Ì Kimball Electronics
Group
Executive Vice President, President Ì Furniture
Vice President, Corporate Controller (functioning as
Principal Accounting Officer)
Executive Vice President, General Counsel, Secretary
Executive Vice President, Chief Information Officer
Executive
Officer
Since
1974
1975
1992
1999
2000
2003
2004
2004
Executive officers are elected annually by the Board of Directors. All of the executive officers unless
otherwise noted have been employed by the Company for more than the past five years in the capacity shown
or some other executive capacity. Michelle R. Schroeder was appointed to Vice President in December 2004
and Corporate Controller in August 2002, having previously served the Company as Assistant Corporate
Controller and Director of Financial Analysis.
Item 5 Ì Market for Registrant's Common Equity, Related Share Owner Matters and Issuer Purchases of
PART II
Equity Securities
Market Prices
The Company's Class B Common Stock trades on the NASDAQ Global Select Market of The
NASDAQ Stock Market LLC under the symbol: KBALB. High and low sales prices by quarter for the last
two fiscal years as quoted by the NASDAQ system are as follows:
2007
2006
High
Low
High
Low
First QuarterÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$20.20
$25.95
$25.72
$20.04
$16.00
$18.72
$18.51
$12.85
$14.34
$12.36
$15.36
$19.72
$11.84
$10.25
$10.65
$14.06
There is no established public trading market for the Company's Class A Common Stock. However,
Class A shares are convertible on a one-for-one basis to Class B shares.
20
Dividends
There are no restrictions on the payment of dividends except charter provisions that require on a fiscal
year basis, that shares of Class B Common Stock are entitled to an additional $0.02 per share dividend more
than the dividends paid on Class A Common Stock, provided that dividends are paid on the Company's
Class A Common Stock. During fiscal year 2007, dividends declared were $24.8 million, or $0.62 per share on
Class A Common Stock and $0.64 per share on Class B Common Stock. Included in these figures are
dividends computed and accrued on unvested Class A and Class B restricted share units, which will be paid by
a conversion to the equivalent value of common shares after a specified vesting period. Dividends by quarter
for fiscal year 2007 compared to fiscal year 2006 are as follows:
2007
2006
Class A
Class B
Class A
Class B
First Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second QuarterÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.155
$0.155
$0.155
$0.155
Total DividendsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.620
$0.16
$0.16
$0.16
$0.16
$0.64
$0.155
$0.155
$0.155
$0.155
$0.620
$0.16
$0.16
$0.16
$0.16
$0.64
Share Owners
On August 17, 2007, the Company's Class A Common Stock was owned by 540 Share Owners of record,
and the Company's Class B Common Stock was owned by 1,727 Share Owners of record, of which 267 also
owned Class A Common Stock.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 of Part III for information on securities authorized for issuance under equity compensation
plans.
21
Issuer Purchases of Equity Securities
The following table presents a summary of share repurchases made by the Company:
Period
Total Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of Shares Maximum Number of
Purchased as Part of
Publicly Announced
Plans or Programs
Shares that May Yet Be
Purchased Under the
Plans or Programs(1)
Month #1 (April 1 - April 30, 2007)ÏÏÏÏÏ
Month #2 (May 1 - May 31, 2007)ÏÏÏÏÏÏ
Month #3 (June 1 - June 30, 2007) ÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
266,427
266,427
Ì
Ì
$13.60
$13.60
Ì
Ì
266,427
266,427
2,000,000
2,000,000
1,733,573
(1) The share repurchase program previously authorized by the Board of Directors was announced on
August 5, 2004. The program allows for the repurchase of up to 2 million shares and will remain in effect
until all shares authorized have been repurchased.
Performance Graph
The following performance graph is not deemed to be ""soliciting material'' or to be ""filed'' with the SEC
or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of
Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent
the Company specifically incorporates it by reference into such a filing.
The graph below compares the cumulative total return to Share Owners on the Class B Common Stock
of the Company from June 30, 2002, through June 30, 2007, the last business day in the respective fiscal years,
to the cumulative total return of the S&P Midcap 400 Index and the NASDAQ Stock Market (U.S. and
Foreign) for the same period of time. The Company does not believe that any published specific industry or
line of business index adequately represents the current operations of the Company or that it can identify a
peer group that merits comparison. The graph assumes $100 is invested in the Company's stock and each of
the two indexes at the closing market quotations on June 30, 2002, and that dividends are reinvested. The
performances shown on the graph are not necessarily indicative of future price performance.
Kimball International, Inc.
NASDAQ Stock Market (U.S. & Foreign)
S&P Midcap 400 Index
S
R
A
L
L
O
D
300
250
200
150
100
50
0
2002
2003
2004
Kimball International, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NASDAQ Stock Market (U.S. & Foreign)ÏÏÏÏÏ
S&P Midcap 400 Index ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005
2003
97.6
111.4
99.3
2002
100.0
100.0
100.0
2006
2007
2004
98.0
141.0
127.1
2005
91.8
142.5
144.9
2006
143.7
151.9
163.7
2007
105.7
183.2
194.0
22
Item 6 Ì Selected Financial Data
(Amounts in Thousands, Except for Per Share Data)
Net Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations ÏÏÏÏÏÏ
Earnings Per Share from Continuing
Operations
Basic:
2007
2006
Year Ended June 30
2005
2004
2003
$1,286,930
23,266
$
$1,109,549
28,613
$
$1,004,386
18,342
$
$992,823
$ 28,253
$1,034,452
21,822
$
Class AÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
0.60
0.61
$
$
0.74
0.75
$
$
0.48
0.48
$
$
0.73
0.75
$
$
0.56
0.58
Diluted:
Class AÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-Term Debt, Less Current Maturities
Cash Dividends Per Share:
0.58
$
$
0.60
$ 694,741
832
$
0.74
$
$
0.75
$ 679,021
1,125
$
0.47
$
$
0.48
$ 600,540
350
$
0.72
$
$
0.74
$614,069
395
$
0.56
$
$
0.58
$ 615,644
833
$
Class AÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
0.62
0.64
$
$
0.62
0.64
$
$
0.62
0.64
$
$
0.62
0.64
$
$
0.62
0.64
The preceding table excludes all income statement activity of the discontinued operations.
Fiscal year 2007 net sales included $319.3 million related to acquisitions in fiscal years 2007 and 2006.
Fiscal year 2007 income from continuing operations included $0.9 million ($0.02 per diluted share) of after-
tax restructuring expenses.
Fiscal year 2006 net sales included $61.5 million related to acquisitions in that year. Fiscal year 2006
income from continuing operations also included $2.8 million ($0.07 per diluted share) of after-tax
restructuring expenses and $1.3 million ($0.03 per diluted share) of after-tax income received as part of a
Polish offset credit program for investments made in our Poland operations.
Fiscal year 2005 income from continuing operations included $0.2 million ($0.01 per diluted share) of
after-tax restructuring expenses.
Fiscal year 2004 income from continuing operations included $0.7 million ($0.02 per diluted share) of
after-tax restructuring expenses and $1.3 million ($0.03 per diluted share) of after-tax income received as part
of a Polish offset credit program for investments made in our Poland operations.
Fiscal year 2003 income from continuing operations included $4.5 million ($0.12 per diluted share) of
after-tax restructuring expenses.
23
Item 7 Ì Management's Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Kimball International, Inc. provides a variety of products from its two business segments: the Furniture
segment and the Electronic Contract Assemblies segment. The Furniture segment provides furniture for the
office and hospitality industries, sold under the Company's family of brand names. The Electronic Contract
Assemblies segment provides engineering and manufacturing services which utilize common production and
support capabilities to a variety of industries globally.
Management currently considers the following events, trends, and uncertainties to be most important to
understanding its financial condition and operating performance:
‚ Globalization continues to reshape not only the industries in which the Company operates but also its
key customers.
‚ Competitive pricing, especially for suppliers of electronic contract assemblies to customers in the
automotive industry, continues to put pressure on the Company's operating margins. Within the
Furniture segment, pricing remains competitive on select projects.
‚ Though the Company's efforts have resulted in improvements at various locations, the Company's
results continue to be hindered by manufacturing inefficiencies and excess capacity at select
operations.
‚ As reported by the Business and Institutional Furniture Manufacturer Association (BIFMA Interna-
tional), year-over-year growth in the office furniture industry is forecasted for the remainder of
calendar year 2007.
‚ 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, and the new programs often
carry lower margins. The success of the Company's Electronic Contract Assemblies 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.
‚ Softness in the U.S. automotive end market continues, and a portion of the electronic component parts
produced by the Company are used in completed assemblies in vehicles produced by U.S. automotive
manufacturers, some of which are currently in the midst of executing restructuring activities.
‚ The Company continues to focus on diversification of the Electronic Contract Assemblies segment
customer base. With the fiscal year 2007 and 2006 acquisitions, the proportion of sales to customers in
the medical industry has increased as a percent of total Electronic Contract Assemblies segment sales.
‚ Successful integration of the Company's acquisitions is critical to the Company's future performance.
Recent acquisitions are discussed in more detail in the below section entitled ""Acquisitions.''
‚ A successful start-up of the Electronic Contract Assemblies segment operation in China is critical for
securing future customers for this newly constructed operation. The China facility has received several
new orders from multiple customers, and it achieved production certification and began shipping
product late in the fourth quarter of fiscal year 2007.
24
‚ Beginning in the third quarter of fiscal year 2007, the Electronic Contract Assemblies segment was
impacted by a reduction in the pricing of select raw material which is purchased from a major customer,
Bayer AG and affiliates. The selling price of the finished product back to that customer has likewise been
reduced by an amount equal to the material price reduction. Since inception, this pricing change reduced
net sales and material cost by approximately $64 million. Gross profit dollars were not impacted, but the
fiscal year 2007 consolidated gross profit percent of net sales measure increased approximately 1.0 percent-
age point as a result of this pricing change. There was no impact to net income and net cash flows.
‚ With the fiscal year 2007 and 2006 acquisitions, the Company's sales mix is shifting toward the
Electronic Contract Assemblies segment. Since the Electronic Contract Assemblies segment operates
at a lower gross profit percentage than the Furniture segment, consolidated gross profit is trending
down when compared to pre-acquisition levels. The Electronic Contract Assemblies segment operates
at lower selling, general and administrative (SG&A) cost as a percent of sales, which has the effect of
improving the consolidated SG&A percentage.
‚ The Company's net cash position from an aggregate of cash, cash equivalents, and short-term
investments, less short-term borrowings totaled $80 million at June 30, 2007.
‚ The increasingly competitive marketplace mandates that the Company continually re-evaluate its
business models.
‚ 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'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.
To address these and other trends and events, the Company has taken, or continues to consider and take,
the following actions:
‚ As end markets dictate, the Company is continually assessing excess capacity and developing plans to
better utilize manufacturing operations, including shifting manufacturing capacity to lower cost venues
as necessary.
‚ As part of a restructuring plan announced in the first quarter of fiscal year 2006, the business processes
within the Furniture segment are being simplified and standardized, and business functions are being
consolidated.
‚ The Company exited the manufacture of contract private label products to further sharpen its focus on
primary markets in the Furniture segment. As part of this planned exit, during the second quarter of
fiscal year 2007, the Company exited the production of wood rear projection television (PTV) cabinets
and stands resulting in the closure of the Company's Juarez, Mexico manufacturing facility.
‚ During the fourth quarter of fiscal year 2007, the Company finalized a restructuring plan within the
Electronic Contract Assemblies segment to exit a manufacturing facility located in Gaylord, Michigan.
This plan is discussed in more detail in the Restructuring section below.
‚ As part of the Company's diversification plan for the Electronic Contract Assemblies segment, during
the third quarter of fiscal year 2007, the Company acquired Reptron. This acquisition is discussed in
more detail in the Acquisitions section below and in Note 2 Ì Acquisitions of Notes to Consolidated
Financial Statements. During the fourth quarter of fiscal year 2006, the Company acquired the
Bridgend, Wales, UK manufacturing operation of Bayer Diagnostics Manufacturing Limited, which
better positions the Electronic Contract Assemblies segment to capitalize on growth opportunities in
the medical market. During the fourth quarter of fiscal year 2006, the Company also acquired an
electronics manufacturing operation in Longford, Ireland from Magna Donnelly Electronics Longford
Limited.
‚ 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.
‚ The Company continues to evaluate means to preserve the value of its experienced employees and
management team and further align their interests with those of the Share Owners.
The 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.
25
Acquisitions
During the third quarter of fiscal year 2007, the Company acquired Reptron, a U.S. based electronics
manufacturing services company which provides engineering services, electronics manufacturing services, and
display integration services. The acquisition is included in the Company's Electronic Contract Assemblies
segment and increased the Company's capabilities and expertise in support of the Company's long-term
strategy to grow business in the medical electronics and high-end industrial sectors. The operating results of
this acquisition are included in the Company's consolidated financial statements beginning on the acquisition
date.
During the fourth quarter of fiscal year 2006, the Company acquired the Bridgend, Wales, UK
manufacturing operation of Bayer Diagnostics Manufacturing Limited (""BDML'') from BDML and its
parent company, Bayer HealthCare LLC, a member of the worldwide group of companies headed by Bayer
AG. This acquisition better positions the Electronic Contract Assemblies segment of the Company to
capitalize on growth opportunities in the medical market. The workforce and its capabilities have added to the
Electronic Contract Assemblies segment's package of value offered to its medical customers. Also during the
fourth quarter of fiscal year 2006, the Company acquired an electronics manufacturing operation in Longford,
Ireland from Magna Donnelly Electronics Longford Limited. Both of these acquisitions emphasize the
Company's strategic expansion of global capabilities and responsiveness in serving the Company's customers.
Restructuring
During the fourth quarter of fiscal year 2007, the Company finalized a restructuring plan within the
Electronic Contract Assemblies segment to exit a manufacturing facility located in Gaylord, Michigan. This
facility was one of four facilities acquired in the recent acquisition of Reptron, as described in Note 2 Ì
Acquisitions of Notes to Consolidated Financial Statements. With the acquisition, the Company recognized it
would have excess capacity in North America. Management developed a plan as of the acquisition date to
consolidate capacity within the acquired facilities. Based on a review of future growth potential in various
geographies and input from existing customers regarding future capacity needs, it was determined that the
Gaylord facility's automotive electronics business would transfer to other electronics manufacturing sites
located in Jasper, Indiana and Nanjing, China. The Gaylord facility and some of the equipment will be sold.
The Company expects to cease production during the second quarter of fiscal year 2008 and complete all
restructuring activities by the fourth quarter of fiscal year 2008. Planned expenditures include employee
severance and transition costs which have been recognized as part of the purchase price allocation, not
impacting earnings, and an immaterial amount related to inventory transfers and post-closing activities which
will impact earnings as the costs are incurred.
In the third quarter of fiscal year 2006, the Company approved a restructuring plan within the Electronic
Contract Assemblies segment to exit a manufacturing facility located in Northern Indiana. As part of this
restructuring plan, the production for select programs was transferred to other locations within this segment.
Operations at this facility ceased in the Company's first quarter of fiscal year 2007, and the remaining facility
is classified as held for sale. The plan included employee transition costs, accelerated software amortization
costs, accelerated asset depreciation, and other restructuring costs which were partially offset by gains on the
sale of equipment net of other asset impairment. The decision to exit this facility was a result of excess
capacity in North America.
As part of the Company's plan to sharpen focus and simplify business processes within the Furniture
segment, the Company announced during the first quarter of fiscal year 2006, a plan which included
consolidation of administrative, marketing, and business development functions to better serve the segment's
primary markets. To simplify and standardize business processes, a portion of the Company's Enterprise
Resource Planning (ERP) software is being redesigned. Expenses related to this plan include accelerated
software amortization, asset impairment, and employee transition and other costs. The ERP redesign efforts
are expected to be complete during the next year.
The restructuring plans are discussed in further detail in Note 17 Ì Restructuring Expense of Notes to
Consolidated Financial Statements.
26
Discontinued Operations
During the first quarter of fiscal year 2007, the Company approved a plan to exit the production of PTV
cabinets and stands within the Furniture segment, which resulted in the exit of the Company's Juarez, Mexico
operation. For some time, the market demand for wood rear PTV cabinets had been declining due to the
market shift to plasma and LCD large-screen televisions, and the Company responded to this trend. In August
2004, the Company sold the building in Juarez and subsequently leased back a much smaller manufacturing
footprint in the same facility to reduce excess capacity. Thereafter during fiscal year 2006, the Company
further consolidated its two Mexican wood rear PTV cabinet and stand operations into the one smaller Juarez
facility. Production ceased at the Juarez facility during the second quarter of fiscal year 2007, and all inventory
has been sold. Miscellaneous wrap-up activities including disposition of remaining equipment are complete.
The lease on the building expires in August 2009, and the Company is attempting to sublease its portion of the
facility. As a result of ceasing operations at this facility, the financial results associated with the Mexican
operations in the Furniture segment were classified as discontinued operations beginning in the quarter ended
December 31, 2006, and all prior periods were restated.
During fiscal year 2006, the Company sold a forest products hardwood lumber business unit, a business
unit which produced and sold fixed-wall furniture systems, and an operation that manufactured polyurethane
and polyester molded components. During fiscal year 2005, the Company exited the branded residential
furniture business and a veneer slicing operation. All five business units were part of the Furniture segment.
The cessation of these non-core operations did not impact any of the remaining operations of the Company.
The results of the above-mentioned operations are reported as discontinued operations in the Company's
Consolidated Financial Statements.
See Note 18 Ì Discontinued Operations of Notes to Consolidated Financial Statements for more
information on the discontinued operations.
Financial results of the discontinued operations were as follows:
(Amounts in Thousands, Except for Per Share Data)
Net Sales of Discontinued Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating Loss of Discontinued Operations, Net of Tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gain (Loss) on Disposal of Discontinued Operations, Net of Tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss from Discontinued Operations, Net of TaxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss from Discontinued Operations per Class B Diluted Share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year Ended June 30
2006
2005
2007
$ 8,744
$(3,068)
$(1,046)
$(4,114)
$ (0.11)
$ 62,110
$ (6,639)
$ (6,911)
$(13,550)
(0.36)
$
$141,465
$ (2,067)
$
$ (1,754)
$ (0.04)
313
27
Related Party Disclosure
During fiscal year 2006, the Company's forest products hardwood lumber operation which has been
accounted for as a discontinued operation was sold to Indiana Hardwoods, Inc. Barry L. Cook, President of
Indiana Hardwoods, Inc. was formerly employed by the Company as a Vice President of Kimball
International, Inc. and had responsibility for this hardwoods lumber operation. The transaction prices were
negotiated between the Company and Indiana Hardwoods, Inc. The Company also considered offers from
other interested outside parties, but determined that it was in the Company's best interest financially to sell
this operation to Indiana Hardwoods, Inc. The purchase price totaled $25.5 million, of which $23.5 million
was collected at closing and $2.0 million remains a note receivable. The Company has no other ongoing
commitments resulting from the sales agreement.
FASB Statement No. 123(R), Share-Based Payment
The Company maintains stock-based employee compensation plans. Prior to fiscal year 2006, the
Company accounted for the plans under the recognition and measurement provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations (APB 25). Accordingly, because all
stock options granted had an exercise price equal to the market value of the underlying common stock on the
date of the grant, no expense related to employee stock options was recognized in income. However, expense
related to other share-based awards such as restricted share units (RSUs) and performance shares had been
recognized in the income statement under APB 25. Effective July 1, 2005, the Company adopted the fair
value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (FAS 123(R)). Under
the modified prospective method of adoption selected by the Company, beginning in fiscal year 2006, the
Company began recognizing compensation expense related to stock options, but compensation cost in fiscal
year 2005 related to stock options continues to be disclosed on a pro forma basis only in Note 1 Ì Summary of
Significant Accounting Policies of Notes to Consolidated Financial Statements.
After-tax stock option expense recognized during fiscal years 2007 and 2006 totaled $0.3 million and
$0.2 million, respectively. The Company estimates after-tax expense for previously issued stock options will
approximate $0.1 million for fiscal year 2008, assuming a constant estimated forfeiture rate.
As of June 30, 2007, there was approximately $6.7 million of unrecognized compensation cost related to
nonvested performance shares, based on the latest estimated attainment of performance goals. That cost is
expected to be recognized over a weighted average period of 3.6 years. As of June 30, 2007, there was
approximately $3.3 million of unrecognized compensation cost related to nonvested Restricted Share Units
(RSU) awarded under the plan. That cost is expected to be recognized over a weighted average period of
2.2 years.
FAS 123(R) requires that forfeitures be estimated over the vesting period of an award, rather than being
recognized as a reduction of compensation expense when the forfeiture actually occurs. FAS 123(R) also
requires that liability awards be revalued to fair value, which, upon the adoption of FAS 123(R) in fiscal year
2006, had the effect of a reduction of a liability for outstanding stock appreciation rights. The impact of the
revaluation of the stock appreciation rights and the use of the estimated forfeiture method for periods prior to
fiscal year 2006 totaled $0.3 million of income, net of taxes, and is presented on the Consolidated Statements
of Income for fiscal year 2006 as a Cumulative Effect of a Change in Accounting Principle, as required by
FAS 123(R).
During fiscal year 2006, the Company shifted from issuing RSUs, which vest based solely on the passage
of time, as a management retention vehicle, to awards of performance shares. The Company has not awarded
stock options since fiscal year 2004.
See Note 8 Ì Stock Compensation Plans of Notes to Consolidated Financial Statements for additional
information.
28
Fiscal Year 2007 Results of Operations
The following discussions are based on income from continuing operations and therefore exclude all
income statement activity of the discontinued operations and the cumulative effect of the accounting change.
Financial Overview Ì Consolidated
Fiscal year 2007 consolidated net sales were $1.29 billion compared to fiscal year 2006 net sales of
$1.11 billion, a 16% increase over fiscal year 2006. Acquisitions completed in the fourth quarter of fiscal year
2006 and in the third quarter of fiscal year 2007 within the Electronic Contract Assemblies segment
contributed net sales of $319.3 million in fiscal year 2007 and $61.5 million in fiscal year 2006. Income from
continuing operations for fiscal year 2007 was $23.3 million, or $0.60 per Class B diluted share, inclusive of
after-tax restructuring charges of $0.9 million, or $0.02 per Class B diluted share. Fiscal year 2006 income
from continuing operations was $28.6 million, or $0.75 per Class B diluted share, inclusive of after-tax
restructuring charges of $2.8 million, or $0.07 per Class B diluted share.
Consolidated gross profit as a percent of sales in fiscal year 2007 was 20.3% compared to 22.4% in fiscal
year 2006. With the fiscal year 2007 and 2006 acquisitions, the Company's sales mix continues to shift toward
the Electronic Contract Assemblies segment. Since the Electronic Contract Assemblies segment operates at a
lower gross profit percentage than the Furniture segment, this is contributing to the consolidated gross profit
downward trend. The fiscal year 2007 Electronic Contract Assemblies segment gross profit percentage
declined compared to fiscal year 2006 while the fiscal year 2007 Furniture segment gross profit percentage
improved compared to fiscal year 2006.
Consolidated selling, general and administrative (SG&A) expenses increased in absolute dollars but
decreased as a percent of net sales compared to fiscal year 2006. The decline in consolidated SG&A costs as a
percent of net sales was due to the leverage of the additional net sales from the acquisitions and the shift in
sales mix toward the Electronic Contract Assemblies segment, which has a lower SG&A percentage than the
Furniture segment.
Fiscal year 2007 other income decreased compared to fiscal year 2006 primarily due to $2.2 million pre-
tax income relating to funds received in fiscal year 2006 as part of a Polish offset credit program for
investments made in the Company's Poland operation.
The fiscal year 2007 effective income tax rate was 36% as compared to a 27% effective income tax rate in
fiscal year 2006. The increased effective income tax rate was related to a higher mix of income being
generated by domestic operations in fiscal year 2007, which carry a higher effective tax rate, coupled with the
negative effect of losses generated by select foreign operations which have a lower effective tax rate. For fiscal
year 2006, in addition to the positive impact of a higher mix of income being generated at foreign operations,
the fiscal year 2006 effective tax rate was also driven down by $1.6 million for adjustments to income tax
accruals resulting from the favorable closure of several prior year tax audits.
Comparing the balance sheets as of June 30, 2007 to June 30, 2006, the increased balances in the
Company's receivables, inventories, goodwill, and property and equipment were primarily related to the
acquisition of Reptron. Likewise, the decline in the Company's cash and short-term investment balances was
primarily a result of the Reptron acquisition. Other long-term assets increased on higher supplemental
employee retirement plan investment balances and restricted cash. An increase in accounts payable related to
the Reptron acquisition was partially offset by a reduction in accounts payable at the Company's other
operations.
29
Furniture Segment
Furniture segment net sales and open orders were as follows:
(Amounts in Millions)
Net Sales:
Furniture Segment
At or For the Year
Ended June 30
2006
2007
% Change
Branded Furniture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contract Private Label Furniture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$602.9
11.1
$573.8
38.8
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$614.0
$612.6
5%
(71%)
0%
Open Orders:
Furniture Segment
Branded Furniture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contract Private Label Furniture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 95.3
Ì
$ 94.7
2.0
1%
(100%)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 95.3
$ 96.7
(1%)
Price increases net of higher discounting increased fiscal year 2007 net sales of branded furniture, which
includes office and hospitality furniture, by approximately $2.3 million as compared to fiscal year 2006.
Increased net sales volumes of hospitality furniture also contributed to the increased branded furniture net
sales level. Fiscal year 2007 sales of newly introduced office furniture products which the Company began
selling during fiscal year 2007 approximated $24.0 million. Branded furniture products open orders at June 30,
2007 were 1% higher than open orders at June 30, 2006 as higher hospitality furniture open orders offset lower
office furniture open orders. Net sales of contract private label products decreased in conjunction with the
planned exit of this product line.
The Furniture segment income from continuing operations was $17.8 million in fiscal year 2007, inclusive
of after-tax restructuring charges of $0.8 million, compared to income from continuing operations of
$17.3 million in fiscal year 2006, which included $2.3 million of after-tax restructuring charges. The fiscal year
2007 and fiscal year 2006 restructuring charges were primarily related to the consolidation and standardization
of administrative, marketing, and business development functions within this segment. Fiscal year 2007 gross
profit as a percent of net sales increased 0.4 percentage point when compared to fiscal year 2006. Items which
positively impacted gross profit during fiscal year 2007 included price increases on select furniture products,
lower workers compensation expense, and a sales mix shift away from lower margin contract private label
products. Conversely, fiscal year 2007 gross profit was negatively impacted by higher discounting on select
furniture products and a shift in sales mix among branded furniture products. As compared to fiscal year 2006,
fiscal year 2007 SG&A expenses increased in absolute dollars and as a percent of net sales as lower incentive
compensation costs were more than offset by increases in other SG&A costs, including increased investments
for product marketing and promotion and for additional sales staff in support of the Company's sales growth
strategy.
See Note 17 Ì Restructuring Expense of Notes to Consolidated Financial Statements for more
information on restructuring charges.
Risk factors within this segment include, but are not limited to, general economic and market conditions,
increased global competition, 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
located within Item 1A Ì Risk Factors.
30
Electronic Contract Assemblies Segment
Electronic Contract Assemblies segment net sales and open orders were as follows:
(Amounts in Millions)
Net Sales:
Electronic Contract Assemblies Segment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Open Orders:
Electronic Contract Assemblies Segment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
At or For the Year
Ended June 30
2006
2007
% Change
$673.0
$496.7
$235.7
$130.6
35%
80%
Fiscal year 2007 Electronic Contract Assemblies segment net sales increased $176.3 million, or 35%,
from fiscal year 2006 due to the acquisitions. Acquisitions completed in the fourth quarter of fiscal year 2006
and in the third quarter of fiscal year 2007 within the Electronic Contract Assemblies segment contributed
sales of $319.3 million in fiscal year 2007 and $61.5 million in fiscal year 2006. A selling price change to a
major customer reduced fiscal year 2007 net sales by approximately $64 million. See the discussion below for
more information on this selling price change. Increased sales to customers in the medical and industrial
control industries more than offset decreased sales to customers in the automotive industry driven by declines
in the domestic automotive market. Excluding acquisitions, sales to customers in the medical industry would
have declined.
The open orders increase was driven by the acquisitions. Due to the contract nature of the Company's
business, open orders at a point in time may not be indicative of future sales trends.
Electronic Contract Assemblies segment fiscal year 2007 income from continuing operations totaled
$1.0 million, inclusive of after-tax restructuring charges of $0.1 million, as compared to fiscal year 2006
income from continuing operations of $6.5 million, inclusive of after-tax restructuring charges of $0.5 million.
The restructuring charges were related to the exit of a North American manufacturing facility as discussed in
more detail in Note 17 Ì Restructuring Expense of Notes to Consolidated Financial Statements.
Beginning in the third quarter of fiscal year 2007, gross profit as a percent of sales was favorably impacted
by a reduction in the pricing of select raw material which is purchased from Bayer AG and affiliates, a major
customer within the Electronic Contract Assemblies segment. The selling price of the finished product back to
Bayer AG and affiliates was likewise reduced by an amount equal to the material price reduction. While there
was no impact to gross profit dollars, net income, or net cash flows related to this pricing change, gross profit
as a percent of net sales increased and SG&A as a percent of net sales increased by a similar percentage. This
relationship with Bayer AG and affiliates was part of an acquisition completed in the fourth quarter of fiscal
year 2006.
Fiscal year 2007 gross profit as a percent of net sales declined from fiscal year 2006 as net sales of higher
margin mature products, primarily automotive products, reached end of life and were replaced with net sales
of lower margin new products including certain assemblies produced at the acquired business units, which
more than offset the positive gross profit percentage impact of the above-mentioned Bayer AG selling price
change. While the above-mentioned Bayer pricing change negatively impacted SG&A as a percent of net
sales, the SG&A as a percent of net sales for this segment declined overall in part due to lower incentive
compensation costs. The fiscal year 2007 and 2006 acquisitions also had the effect of lowering this segment's
gross profit and SG&A as a percent of net sales. The acquisitions positively contributed to this segment's
earnings.
The fiscal year 2007 and 2006 earnings were unfavorably impacted by after-tax costs, in millions, of
$3.5 and $0.4, respectively, related to the start-up of a manufacturing facility in China. The Company has
received final customer approval to begin production at this facility. There were minimal sales recorded for the
China facility during fiscal year 2007. Fiscal year 2006 income from continuing operations included
$1.3 million of after-tax income relating to funds received as part of the Polish offset credit program for
investments made in the Company's Poland operation. Fiscal year 2006 Electronic Contract Assemblies
segment earnings also benefited from a lower effective tax rate due to adjustments to income tax accruals.
31
Included in this segment are a significant amount of sales to Bayer AG affiliates and TRW Automotive,
Inc. Sales to these two customers accounted for the following portions of consolidated net sales and Electronic
Contract Assemblies segment net sales:
Year Ended
June 30
Bayer AG affiliated sales as a percent of consolidated net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
TRW sales as a percent of consolidated net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Bayer AG affiliated sales as a percent of Electronic Contract Assemblies segment
2007
2006
15%
6%
8% 12%
net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
TRW sales as a percent of Electronic Contract Assemblies segment net sales ÏÏÏÏÏÏ
30% 13%
14% 27%
The reduced TRW Automotive, Inc. percentages of segment and consolidated net sales were a result of
certain TRW Automotive, Inc. products reaching end of life in addition to the higher total net sales base
resulting from the acquisitions which likewise drove the higher percentages of net sales to Bayer AG affiliates
compared to the prior year. In January 2007, Bayer AG sold its diagnostics unit to Siemens AG, and thus a
portion of the Company's net sales which were formerly to Bayer AG affiliates are now to Siemens AG. Net
sales to Bayer AG affiliates were also impacted in the third and fourth quarters of fiscal year 2007 as a result
of the Company's aforementioned selling price reduction to Bayer AG affiliates which was offset by an equal
reduction in the material cost. The Company also continues to focus on diversification of the Electronic
Contract Assemblies segment customer base.
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. New business awards for projects in the
automotive industry are extremely competitive.
Risk factors within this segment include, but are not limited to, general economic and market conditions,
increased globalization, foreign currency exchange rate fluctuations, rapid technological changes, component
availability, the contract nature of this industry, unexpected integration issues with acquisitions, and the
importance of sales to large customers. 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 located within Item 1A Ì Risk Factors.
Fiscal Year 2006 Results of Operations
The following discussions are based on income from continuing operations and therefore exclude all
income statement activity of the fiscal years 2007, 2006, and 2005 discontinued operations and the fiscal year
2006 cumulative effect of the accounting change.
Financial Overview Ì Consolidated
Fiscal year 2006 consolidated net sales were $1.1 billion compared to fiscal year 2005 net sales of
$1.0 billion, a 10% increase over fiscal year 2005. Fiscal year 2006 consolidated net sales included
$61.5 million from acquisitions that were completed during the fiscal year in the Company's Electronic
Contract Assemblies segment. Fiscal year 2006 consolidated income from continuing operations was
$28.6 million, or $0.75 per Class B diluted share, inclusive of $2.8 million, or $0.07 per Class B diluted share,
of after-tax restructuring costs. Fiscal year 2005 consolidated income from continuing operations was
$18.3 million, or $0.48 per Class B diluted share, inclusive of $0.2 million, or $0.01 per Class B diluted share,
of after-tax restructuring costs.
Consolidated gross profit as a percent of sales in fiscal year 2006 was 22.4% compared to 22.1% in fiscal
year 2005. With the acquisitions completed in fiscal year 2006, the Company's sales mix shifted toward the
Electronic Contract Assemblies segment, which operates at a lower gross profit percentage than the Furniture
segment. Fiscal year 2006 improved gross profit in the Furniture segment offset the impact of the sales mix
shift toward the Electronic Contract Assemblies segment and lower gross profit in the Electronic Contract
Assemblies segment.
Consolidated selling, general and administrative (SG&A) expenses decreased as a percent of net sales,
but increased in absolute dollars compared to fiscal year 2005 due to higher incentive compensation costs
which are linked to Company profitability.
32
Fiscal year 2006 other income increased compared to fiscal year 2005 on higher interest income and
$2.2 million pre-tax income relating to funds received as part of a Polish offset credit program for investments
made in our Poland operation. Fiscal year 2005 other income included the benefit of derivative gains which
partially offset other related currency fluctuations.
The fiscal year 2006 effective income tax rate was 27% as compared to a 24% effective tax rate in fiscal
year 2005. The fiscal year 2006 effective tax rate was lower than the statutory rate due to the positive tax effect
of the Company's foreign operations which have a lower effective tax rate than the Company's domestic
facilities as well as $1.6 million for adjustments to income tax accruals resulting from the favorable closure of
several prior year tax audits. The fiscal year 2005 effective tax rate was also lower than the statutory rate
primarily due to the positive tax effect of the Company's foreign operations.
Furniture Segment
Furniture segment net sales and open orders were as follows:
(Amounts in Millions)
Net Sales:
Furniture Segment
At or For the Year
Ended June 30
2005
2006
% Change
Branded Furniture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contract Private Label Furniture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$573.8
38.8
$512.8
51.0
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$612.6
$563.8
Open Orders:
Furniture Segment
Branded Furniture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contract Private Label Furniture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 94.7
2.0
$ 73.0
5.4
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 96.7
$ 78.4
12%
(24%)
9%
30%
(63%)
23%
The branded furniture products net sales increase was due to price increases of approximately $13 million
as well as increased volumes of both office and hospitality furniture. The net sales decrease of contract private
label products was primarily due to the planned exit of this product line. Branded furniture products open
orders at June 30, 2006 were 30% higher than open orders at June 30, 2005 on higher open orders of both
office and hospitality furniture. At June 30, 2006, open orders for contract private label products were 63%
lower than open orders at June 30, 2005 primarily due to the planned exit.
The Furniture segment income from continuing operations was $17.3 million in fiscal year 2006, inclusive
of after-tax restructuring charges of $2.3 million, compared to income from continuing operations of
$4.4 million in fiscal year 2005, which included $0.2 million of after-tax restructuring charges. The fiscal year
2006 restructuring charges were related to the consolidation of administrative, marketing, and business
development functions within this segment. The fiscal year-over-year earnings improvement was driven by the
higher sales volumes and improved gross profit percent. More specifically, income from continuing operations
was positively impacted by price increases on select branded furniture products and improved labor
efficiencies. Higher employee benefit expenses in fiscal year 2006 partially offset the improvements. As
compared to the prior year, fiscal year 2006 SG&A expenses remained flat as a percent of net sales, but
increased in absolute dollars due to higher incentive compensation costs which are linked to Company
profitability.
See Note 17 Ì Restructuring Expense of Notes to Consolidated Financial Statements for more
information on restructuring charges.
33
Electronic Contract Assemblies Segment
Electronic Contract Assemblies segment net sales and open orders were as follows:
(Amounts in Millions)
Net Sales:
Electronic Contract Assemblies Segment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Open Orders:
Electronic Contract Assemblies Segment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
At or For the Year
Ended June 30
2005
2006
% Change
$496.7
$439.7
13%
$130.6
$108.2
21%
The sales increase was driven by $61.5 million net sales resulting from the fiscal year 2006 acquisitions in
the United Kingdom and Ireland. Increased year-over-year sales to customers in the industrial control and
medical industries more than offset decreased year-over-year sales to customers in the automotive industry.
Within the automotive industry, increased sales to certain customers were more than offset by decreased sales
to other customers as certain programs are nearing end of life. At June 30, 2006, open orders for the Electronic
Contract Assemblies segment increased 21% from open orders at June 30, 2005 due to the inclusion of open
orders of the fiscal year 2006 acquisitions.
Electronic Contract Assemblies segment fiscal year 2006 income from continuing operations totaled
$6.5 million, inclusive of after-tax restructuring charges of $0.5 million, a 40% decline from the $10.8 million
income from continuing operations in fiscal year 2005. The restructuring charges were related to the exit of a
North American manufacturing facility as discussed in more detail in Note 17 Ì Restructuring Expense of
Notes to Consolidated Financial Statements. The fiscal year 2006 decrease in income from continuing
operations was primarily attributable to a decline in gross profit as a percent of net sales which was driven by
tighter margins on products due to competitive pricing pressures and a sales mix shift among various products
to those with lower margins along with increased employee benefit expenses. Acquisitions completed during
fiscal year 2006 also had the effect of lowering this segment's gross profit as a percent of net sales. Partially
offsetting the gross profit decline, fiscal year 2006 income from continuing operations was positively impacted
by lower new product introduction costs and $1.3 million of after-tax income relating to funds received as part
of the Polish offset credit program for investments made in the Company's Poland operation. Fiscal year 2006
Electronic Contract Assemblies segment earnings also benefited from a lower effective tax rate as compared
to the fiscal year 2005 rate as fiscal year 2006 included adjustments to income tax accruals.
34
Included in this segment are a significant amount of sales to TRW Automotive, Inc., a full-service
automotive supplier. As a result of the acquisition of the Bridgend, Wales, UK manufacturing operations of
BDML in the Company's fourth quarter of fiscal year 2006, sales to Bayer AG are also significant. Sales to
these two customers accounted for the following portions of consolidated net sales and Electronic Contract
Assemblies segment net sales:
Bayer AG affiliated sales as a percent of consolidated net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
TRW sales as a percent of consolidated net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Bayer AG affiliated sales as a percent of Electronic Contract Assemblies segment
Year Ended
June 30
2006
2005
2%
6%
12% 13%
net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
TRW sales as a percent of Electronic Contract Assemblies segment net sales ÏÏÏÏÏÏ
13%
4%
27% 30%
Liquidity and Capital Resources
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 $149 million at June 30, 2006 to
$80 million at June 30, 2007 primarily related to the cash outflow of $51.1 million for acquisitions.
Working capital at June 30, 2007 was $199 million compared to working capital of $231 million at
June 30, 2006. The current ratio was 1.8 at June 30, 2007 and 2.0 at June 30, 2006.
The Company's internal measure of Accounts Receivable performance, also referred to as Days Sales
Outstanding (DSO), for fiscal year 2007 increased to 44.0 from 43.1 for fiscal year 2006. The Company
defines DSO as the average of monthly accounts and notes receivable divided by an annual average day's net
sales. The Company's Production Days Supply on Hand (PDSOH) of inventory measure for fiscal year 2007
increased to 55.7 from 47.8 for fiscal year 2006. The increase was driven by increased inventory levels
associated with the acquisitions, in addition to Electronic Contract Assemblies segment increased average
inventory balances coupled with declining average daily organic (which exclude acquisitions) sales. The
Company defines PDSOH as the average of the monthly gross inventory divided by an annual average day's
cost of sales.
The Company does not disclose discontinued operations separately from continuing operations in the
Consolidated Statements of Cash Flows. However, for clarity purposes, the Company does separately disclose
the adjustment to net income for the gain or loss on disposal of discontinued operations in cash flows from
operating activities and the proceeds from disposal of discontinued operations in cash flows from investing
activities.
Operating activities generated $44 million of cash flow in fiscal year 2007 compared to $77 million in
fiscal year 2006. The reduction in operating cash flow was primarily related to less cash generated from
changes in working capital during fiscal year 2007 compared to fiscal year 2006. The Company reinvested
$42 million into capital investments for the future, including manufacturing equipment, expenditures related
to the new showroom in New York, a new aircraft, expenditures related to the construction of an electronics
manufacturing facility in Nanjing, China, and long-haul tractors and trailers. The Company also expended
$51 million for acquisitions, most of which relates to the acquisition of Reptron. Fiscal year 2007 financing
cash flow activities included $24 million in dividend payments, which remained flat with fiscal year 2006.
At June 30, 2007, the Company's outstanding balance in senior secured notes was $4.5 million. These
notes represented the remaining portion of notes originally held by Reptron which was not tendered as of the
date of the acquisition. The Company redeemed the notes in the first quarter of fiscal year 2008. The notes are
classified as Current Liabilities on the Consolidated Balance Sheets. See Note 2 Ì Acquisitions of Notes to
Consolidated Financial Statements for information on the Reptron acquisition.
35
In April 2007, the Company entered into a new credit facility for its electronics operation in Wales, UK.
The facility is reviewed annually for renewal and will expire in March 2008 if not renewed at that time. The
new credit facility provides a 2 million Sterling (approximately $4 million US dollars at current exchange
rates) facility which is available to cover bank overdrafts. Bank overdrafts may be deemed necessary to satisfy
short-term cash needs rather than funding from intercompany sources. As collateral subject to lien, this
facility requires 3 million Euro (approximately $4 million US dollars at current exchange rates) to be held as
restricted cash which is classified as other long-term assets on the Company's balance sheet. The restricted
cash is held in an account which is interest bearing payable to the Company. At June 30, 2007, the Company
had $3.0 million US dollar equivalent of Sterling-denominated short-term borrowings outstanding under the
overdraft facility.
The Company also maintains a $75 million revolving credit facility that allows for both issuances of
letters of credit and cash borrowings. At June 30, 2007, the Company had $18.9 million of short-term
borrowings outstanding under this revolving credit facility. The outstanding balance consists of a Euro
currency borrowing which provides a natural currency hedge against Euro denominated intercompany notes
between the US parent and the Euro functional currency subsidiaries. The Company issued an additional
$14.4 million in letters of credit against the revolving credit facility, which reduces total availability to borrow
to $41.7 million at June 30, 2007. At June 30, 2006, the Company had $21.0 million of short-term borrowings
outstanding under the revolving credit facility and $2.1 million short-term borrowings outstanding under a
separate foreign facility which is backed by the $75 million revolving credit facility.
The $75 million revolving credit facility also provides an option to increase the amount available for
borrowing to $125 million at the Company's request, subject to participating banks' consent. The credit facility
requires the Company to comply with certain debt covenants including debt-to-total capitalization, interest
coverage ratio, minimum net worth, and other terms and conditions. The Company was in compliance with
these covenants at June 30, 2007. See Note 6 Ì Long-Term Debt and Credit Facility of Notes to Consolidated
Financial Statements for more information on the credit facility.
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 2008 for working capital needs, share repurchases, dividends, and for funding investments in the
Company's future, including potential acquisitions. The Company's primary source of funds is its ability to
generate cash from operations to meet its liquidity obligations, which could be affected by factors such as 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. The Company's secondary source of funds is its credit
facilities, one of which is contingent on complying with certain debt covenants. The Company does not expect
the covenants to limit or restrict its ability to borrow on the facility in fiscal year 2008. The Company
anticipates maintaining a strong liquidity position for the 2008 fiscal year. The Company does not expect the
absence of cash flows from discontinued operations to have a material effect on future liquidity and capital
resources.
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.
36
Contractual Obligations
The following table summarizes the Company's contractual obligations as of June 30, 2007.
(Amounts in Millions)
Recorded Contractual Obligations:
Payments Due During Fiscal Years Ending June 30,
Total
2008
2009-2010
2011-2012
Thereafter
Long-Term Debt Obligations(a) ÏÏÏÏÏÏÏÏ
Capital Lease Obligations(a) ÏÏÏÏÏÏÏÏÏÏÏ
Other Long-Term Liabilities Reflected
on the Balance Sheet(b)(c)(d)ÏÏÏÏÏÏÏÏÏ
$
5.6
0.8
$
19.5
5.1
0.4
4.6
Unrecorded Contractual Obligations:
Operating Leases(d) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase Obligations(e) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
23.8
229.1
5.4
206.9
$ 0.1
0.4
3.5
7.7
11.6
$ 0.1
0.0
2.3
4.9
10.4
$ 0.3
0.0
9.1
5.8
0.2
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$278.8
$222.4
$23.3
$17.7
$15.4
(a) Refer to Note 6 Ì Long-Term Debt and Credit Facility of Notes to Consolidated Financial Statements
for more information regarding Long-Term Debt and Capital Lease Obligations. The $5.1 million long-
term debt obligations and $0.4 million capital lease payments due in fiscal year 2008 are recorded as
current liabilities.
(b) The timing of payments of certain items included on the ""Other Long-Term Liabilities Reflected on the
Balance Sheet'' line above is estimated based on the following assumptions:
‚ The timing of Supplemental Employee Retirement Plan (SERP) payments is estimated based on an
assumed retirement age of 62 with payout based on the prior distribution elections of participants. The
fiscal year 2008 amount includes $2.9 million for SERP payments recorded as a current liability.
‚ The timing of severance plan payments is estimated based on the average service life of employees.
The fiscal year 2008 amount also includes $0.3 million for severance payments recorded as a current
liability.
‚ The timing of warranty payments is estimated based on historical data. The fiscal year 2008 amount
includes $1.3 million for short-term warranty payments recorded as a current liability.
(c) Excludes $2.2 million of long-term deferred taxes and accrued interest which are not tied to a contractual
obligation.
(d) Refer to Note 5 Ì Commitments and Contingent Liabilities of Notes to Consolidated Financial
Statements for more information regarding Operating Leases and certain Other Long-Term Liabilities.
(e) Purchase Obligations are defined as agreements to purchase goods or services that are enforceable and
legally binding and that specify all significant terms. The amounts listed above for purchase obligations
include contractual commitments for items such as raw materials, supplies, capital expenditures, services,
and software acquisitions/license commitments. Cancellable purchase obligations that the Company
intends to fulfill are also included in the purchase obligations amount listed above.
37
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements other than 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 Ì Commitments and Contingent Liabilities of Notes to
Consolidated Financial Statements for information on prior year guarantees. 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.
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. A summary of the Company's significant accounting policies is disclosed in Note 1 Ì
Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements. 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 Ì 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.
‚ Allowance for sales returns Ì 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 June 30, 2007 and June 30, 2006, the reserve for returns and allowances was
$3.2 million and $2.7 million, respectively. Over the past two years, the returns and allowances reserve
has been approximately 2% of gross trade receivables.
‚ Allowance for doubtful accounts Ì 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 June 30, 2007 and 2006 was $1.2 million and $0.9 million, respectively, and over the
past two years, this reserve has approximated 1% of gross trade accounts receivable.
Excess and obsolete inventory Ì Inventories were valued using the lower of last-in, first-out (LIFO) cost
or market value for approximately 18% and 24% of consolidated inventories at June 30, 2007 and 2006,
respectively, including approximately 86% and 83% of the Furniture segment inventories at June 30, 2007 and
2006, respectively. The remaining inventories are 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. 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.
38
Self-insurance reserves Ì 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 actuarial 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 June 30, 2007 and 2006, the Company's accrued liabilities for self-insurance exposure were
$7.0 million and $7.2 million, respectively, excluding immaterial amounts held in a voluntary employees'
beneficiary association (VEBA) trust.
Income taxes Ì 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. In addition, 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 taxes for all years that are subject to audit. As tax periods
are closed, the provision is adjusted accordingly. Financial Accounting Standards Board (""FASB'') Interpre-
tation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which clarifies the accounting for
uncertainty in tax positions, requires financial statement recognition of the impact of a tax position if a position
is more likely than not of being sustained on audit, based on the technical merits of the position. Additionally,
FIN 48 provides guidance on measurement, derecognition, classification, interest and penalties, accounting in
interim periods, transition, and disclosure requirements for uncertain tax positions. The provisions of FIN 48
will be effective as of the beginning of the Company's fiscal year 2008. The cumulative effect of the change in
accounting principle, which will be recorded in the first quarter of fiscal year 2008, is estimated to increase the
Company's liability for taxes, interest, and penalties by approximately $1.5 million to $2.5 million and reduce
opening retained earnings by the same amount. The Company continues to evaluate the estimated liability as
tax positions are reviewed, including the tax positions related to the purchase price allocations of acquisitions.
Additional information on income taxes is contained in Note 9 Ì Income Taxes of Notes to Consolidated
Financial Statements.
Goodwill Ì Goodwill represents the difference between the purchase price and the related underlying
tangible and intangible net asset 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. If the estimated fair value is less than the carrying value, goodwill is impaired
and will be written down to its estimated fair value. Goodwill is assigned to and the fair value is tested at the
reporting unit level. Goodwill related to the fiscal year 2007 acquisition and the two fiscal year 2006
acquisitions was assigned to those reporting units which were expected to benefit from the synergies of the
business combinations as of the respective acquisition dates. At June 30, 2007 and 2006 the Company's
goodwill totaled, in millions, $15.5 and $3.3, respectively. No goodwill impairment was recorded in fiscal year
2007. The Company recorded pre-tax goodwill impairment of $0.4 million in fiscal year 2006.
New Accounting Standards
See Note 1 Ì Summary of Significant Accounting Policies of Notes to Consolidated Financial State-
ments for information regarding New Accounting Standards.
39
Item 7A Ì Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk: As of June 30, 2007 and 2006, the Company had an investment portfolio of fixed
income securities, excluding those classified as cash and cash equivalents, of $67 million and $107 million,
respectively. These securities are classified as available-for-sale securities and are stated at market value with
unrealized gains and losses recorded net of tax related effect as a component of Share Owners' Equity. These
securities, like all fixed income instruments, are subject to interest rate risk and will decline in value if market
interest rates increase. A hypothetical 100 basis point increase in an annual period in market interest rates
from levels at June 30, 2007 and 2006 would cause the fair value of these short-term investments to decline by
an immaterial amount. Further information on short-term investments is provided in Note 12 Ì Short-Term
Investments of Notes to Consolidated Financial Statements.
The Company is exposed to interest rate risk on certain outstanding debt balances. The outstanding loan
balances under the Company's credit facilities bear interest at variable rates based on prevailing short-term
interest rates. Based on the $22 million and $23 million outstanding balances of variable rate obligations at
June 30, 2007 and 2006, respectively, the Company estimates that a hypothetical 100 basis point change in
interest rates would not have a material effect on annual interest expense. Further information on debt
balances is provided in Note 6 Ì Long-Term Debt and Credit Facility of Notes to Consolidated Financial
Statements.
Foreign Exchange Rate Risk: The Company operates internationally, and thus is subject to potentially
adverse movements in foreign currency rate changes. The Company's risk management strategy includes the
use of derivative financial instruments to hedge certain foreign currency exposures. Derivatives are used only
to manage underlying exposures of the Company and are not used in a speculative manner. Further
information on derivative financial instruments is provided in Note 11 Ì Derivative Instruments of Notes to
Consolidated Financial Statements. The Company estimates that a hypothetical 10% adverse change in
foreign currency exchange rates relative to non-functional currency balances of monetary instruments, to the
extent not hedged by derivative instruments, would not have a material impact on profitability in an annual
period assuming similar levels of profitability as seen in fiscal years 2007 and 2006.
40
Item 8 Ì Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management's Report on Internal Control Over Financial Reporting ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Report of Independent Registered Public Accounting Firm ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheets as of June 30, 2007 and 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30,
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended
June 30, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Page No.
42
43
44
45
46
Consolidated Statements of Share Owners' Equity for Each of the Three Years in the Period
Ended June 30, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
47
48-82
41
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Kimball International, Inc. is responsible for establishing and maintaining adequate
internal control over financial reporting and for the preparation and integrity of the accompanying financial
statements and other related information in this report. The consolidated financial statements of the Company
and its subsidiaries, including the footnotes, were prepared in accordance with accounting principles generally
accepted in the United States of America and include judgments and estimates, which in the opinion of
management are applied on an appropriately conservative basis. The Company maintains a system of internal
and disclosure controls intended to provide reasonable assurance that assets are safeguarded from loss or
material misuse, transactions are authorized and recorded properly, and that the accounting records may be
relied upon for the preparation of the financial statements. This system is tested and evaluated regularly for
adherence and effectiveness by employees who work within the internal control processes, by the Company's
staff of internal auditors, as well as by the independent registered public accounting firm in connection with
their annual audit.
Management's assessment of the effectiveness of the Company's internal control over financial reporting
excluded Kimball Electronics Tampa, Inc., the surviving entity from the Reptron Electronics, Inc. acquisition
in fiscal year 2007. This acquisition represented 11% and 4% of consolidated total assets and consolidated net
sales, respectively, of the Company as of and for the year ended June 30, 2007. This acquisition is more fully
discussed in Note 2 Ì Acquisitions of Notes to Consolidated Financial Statements for fiscal year 2007. Under
guidelines established by the Securities and Exchange Commission, companies are permitted to exclude
acquisitions from their first assessment of internal control over financial reporting within one year of the date
of the acquisition.
The Audit Committee of the Board of Directors, which is comprised of directors who are not employees
of the Company, meets regularly with management, the internal auditors and the independent registered
public accounting firm to review the Company's financial policies and procedures, its internal control
structure, the objectivity of its financial reporting, and the independence of the Company's independent
registered public accounting firm. The internal auditors and the independent registered public accounting firm
have free and direct access to the Audit Committee, and they meet periodically, without management present,
to discuss appropriate matters.
Because of inherent limitations, a system of internal control over financial reporting may not prevent or
detect misstatements and even when determined to be effective, can only provide reasonable assurance with
respect to financial statement preparation and presentation.
These consolidated financial statements are subject to an evaluation of internal control over financial
reporting conducted under the supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer. Based on that evaluation, conducted under the criteria
established in Internal Control Ì Integrated Framework issued by the Committee of Sponsoring Organiza-
tions of the Treadway Commission, management concluded that its internal control over financial reporting
was effective as of June 30, 2007.
Management's assessment of the effectiveness of internal control over financial reporting as of June 30,
2007, was audited by Deloitte & Touche LLP, the Company's independent registered public accounting firm,
as stated in their report which is included herein.
JAMES C. THYEN
/s/
James C. Thyen
President,
Chief Executive Officer
August 24, 2007
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 24, 2007
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Share Owners of Kimball International, Inc.:
We have audited the accompanying consolidated balance sheets of Kimball International, Inc. and subsidiaries (the
""Company'') as of June 30, 2007 and 2006, and the related consolidated statements of income, share owners' equity, and
cash flows for each of the three years in the period ended June 30, 2007. Our audits also included the financial statement
schedules listed in the Index at Item 15. We also have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that the Company maintained effective internal
control over financial reporting as of June 30, 2007, based on criteria established in Internal Control Ì Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in
Management's Report on Internal Control over Financial Reporting, management excluded from their assessment the
internal control over financial reporting at Kimball Electronics Tampa, Inc., the surviving entity from the Reptron
Electronics, Inc. acquisition on February 15, 2007, whose financial statements reflect total assets and net sales constituting
11% and 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended June 30,
2007. Accordingly, our audit did not include the internal control over financial reporting at Kimball Electronics Tampa,
Inc. The Company's management is responsible for these financial statements and financial statement schedules, for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an opinion on these financial statements and financial statement
schedules, an opinion on management's assessment, and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audit of financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and
evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected
on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Kimball International, Inc. and subsidiaries as of June 30, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended June 30, 2007, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein. Also, in our opinion, management's assessment that the Company
maintained effective internal control over financial reporting as of June 30, 2007, is fairly stated, in all material respects,
based on the criteria established in Internal Control Ì Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of June 30, 2007, based on the criteria established in Internal
Control Ì Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 31, 2007
43
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
June 30,
2007
June 30,
2006
ASSETS
Current Assets:
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Short-term investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Receivables, net of allowances of $1,477 and $1,282, respectivelyÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expense and other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Assets held for sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 35,027
67,350
172,190
135,901
34,348
3,032
$ 64,857
106,846
154,571
109,479
31,974
353
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
447,848
468,080
Property and Equipment, net of accumulated depreciation of $320,889 and
$327,177, respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
173,800
151,122
Capitalized Software, net of accumulated amortization of $58,626 and $51,859,
respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
18,763
15,518
38,812
26,602
3,286
29,931
Total Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$694,741
$679,021
LIABILITIES AND SHARE OWNERS' EQUITY
Current Liabilities:
Current maturities of long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Borrowings under credit facility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividends payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
5,515
150,409
21,968
7,031
64,314
$
427
140,628
23,133
6,643
65,868
Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
249,237
236,699
Other Liabilities:
Long-term debt, less current maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
832
17,224
18,056
1,125
18,615
19,740
Share Owners' Equity:
Common stock-par value $0.05 per share:
Class A Ì Shares authorized 49,826,000 in 2007 and 2006 Shares issued
14,368,000 in 2007 and 2006ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
718
718
Class B Ì Shares authorized 100,000,000 in 2007 and 2006 Shares issued
28,657,000 in 2007 and 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less: Treasury stock, at cost:
1,433
14,568
480,863
3,395
1,433
6,019
486,518
886
Class A Ì 2,733,000 shares in 2007 and 1,691,000 shares in 2006 ÏÏÏÏÏÏÏÏÏÏÏ
Class B Ì 1,761,000 shares in 2007 and 3,115,000 shares in 2006 ÏÏÏÏÏÏÏÏÏÏÏ
(47,536)
(25,993)
(24,615)
(48,377)
Total Share Owners' Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
427,448
422,582
Total Liabilities and Share Owners' Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$694,741
$679,021
See Notes to Consolidated Financial Statements
44
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
Year Ended June 30
2006
2005
2007
Net Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,286,930
1,025,570
$1,109,549
860,658
$1,004,386
782,034
Gross ProfitÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, General and Administrative Expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring ExpenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Income (Expense):
Interest incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-operating income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-operating expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations Before Taxes on Income ÏÏÏ
Provision for Income Taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss from Discontinued Operations, Net of Tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income Before Cumulative Effect of Change in Accounting
261,360
233,409
1,528
26,423
5,237
(1,073)
6,795
(1,030)
9,929
36,352
13,086
23,266
(4,114)
248,891
215,857
4,655
28,379
4,592
(249)
7,398
(923)
10,818
39,197
10,584
28,613
(13,550)
222,352
205,191
321
16,840
2,104
(163)
7,163
(1,737)
7,367
24,207
5,865
18,342
(1,754)
Principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19,152
15,063
16,588
Cumulative Effect of Change in Accounting Principle, Net of
TaxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
-0-
299
-0-
Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
19,152
$
15,362
$
16,588
Earnings Per Share of Common Stock:
Basic Earnings Per Share from Continuing Operations:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share from Continuing Operations:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic Earnings Per Share:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
$
$
$
$
$
Average Number of Shares Outstanding:
Basic:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
TotalsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
TotalsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
See Notes to Consolidated Financial Statements
45
0.60
0.61
0.58
0.60
0.49
0.50
0.47
0.49
$
$
$
$
$
$
$
$
0.74
0.75
0.74
0.75
0.39
0.41
0.39
0.40
$
$
$
$
$
$
$
$
11,979
26,623
38,602
12,325
26,932
39,257
13,195
25,002
38,197
13,360
25,024
38,384
0.48
0.48
0.47
0.48
0.43
0.44
0.42
0.44
13,576
24,565
38,141
13,711
24,648
38,359
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended June 30
2007
2006
2005
Cash Flows From Operating Activities:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to net cash provided by
$ 19,152
$15,362
$16,588
operating activities:
Cumulative effect of a change in accounting principleÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gain on sales of assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Gain)/Loss on disposal of discontinued operationsÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring and exit costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income tax and other deferred chargesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock-based compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Excess tax benefits from stock-based compensation ÏÏÏÏÏÏÏÏÏÏÏÏ
Change in current assets and liabilities:
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by operating activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Flows From Investing Activities:
Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from sales of assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from disposal of discontinued operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments for acquisitionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of capitalized software and other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases of available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Sales and maturities of available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash used for investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Flows From Financing Activities:
Net change in foreign credit facilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments on revolving credit facility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from revolving credit facility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments on capital leases and long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisition of treasury stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividends paid to share owners ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Excess tax benefits from stock-based compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash used for financing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Effect of Exchange Rate Change on Cash and Cash Equivalents ÏÏÏÏÏÏ
Net (Decrease) Increase in Cash and Cash Equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and Cash Equivalents at Beginning of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and Cash Equivalents at End of Year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
-0-
38,905
(775)
1,600
953
(3,764)
4,922
(1,095)
2,021
173
(1,663)
(8,252)
(7,803)
44,374
(40,881)
2,823
721
(51,052)
(999)
(116,939)
152,470
(683)
(54,540)
925
(4,440)
1,268
(565)
(1,078)
(24,419)
1,095
6,595
(51)
(20,670)
1,006
(29,830)
64,857
35,027
$
(497)
37,907
(2,542)
11,495
5,885
(8,674)
3,695
(89)
(34,895)
(2,758)
(2,771)
46,013
8,481
76,612
(29,526)
15,037
25,231
(27,511)
(1,991)
(72,033)
25,160
(605)
(66,238)
(44)
-0-
21,023
(131)
-0-
(24,175)
89
-0-
(66)
(3,304)
534
7,604
57,253
$64,857
-0-
41,884
(1,344)
(520)
190
(6,765)
2,268
-0-
3,473
5,000
6,675
(2,935)
193
64,707
(28,127)
21,277
2,300
-0-
(5,538)
(42,741)
27,793
-0-
(25,036)
2,154
-0-
-0-
(422)
-0-
(24,136)
-0-
-0-
(129)
(22,533)
124
17,262
39,991
$57,253
Supplemental Schedule of Non-Cash Activities
During fiscal year 2007, the Company recognized non-cash transactions related to the Reptron Electronics, Inc. (""Reptron'')
acquisition. See Note 2 Ì Acquisitions for details of assets acquired and liabilities assumed. Cash payments for the Reptron acquisition
through June 30, 2007 totaled $46.4 million, excluding $4.5 million of senior secured notes that had not yet been redeemed as of June 30,
2007. Also included in fiscal year 2007 cash paid for acquisitions were current year payments for the prior year acquisition of the
Bridgend, Wales, UK operation of $4.7 million.
Cash payments for acquisition of treasury stock of $1.1 million exclude $2.5 million that was included in accounts payable at June 30, 2007.
A capital lease obligation of $1.3 million was incurred when the Company entered into a lease for equipment during fiscal year 2006.
Payments for fiscal year 2006 acquisitions of $27.5 million exclude $4.7 million that was included in accounts payable at June 30, 2006.
See Notes to Consolidated Financial Statements
46
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY
(Amounts in Thousands, Except for Share and Per Share Data)
Common Stock
Class A Class B
Additional
Paid-In
Capital
Accumulated
Other
Total
Share
Retained Comprehensive Stock-Based Treasury Owners
Equity
Earnings
Compensation
Deferred
Income
Stock
Amounts at June 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$718
$1,433
$ 6,063
$503,396
$1,622
$(5,134)
$(73,487) $434,611
Comprehensive income:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized gains and losses on securities
Foreign currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in derivative gains and losses ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of non-restricted stock (17,000 shares) ÏÏÏÏÏÏÏ
Net exchanges of shares of Class A and Class B
common stock (121,000 shares)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted share unit grant, net of forfeitures
(293,000 shares)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation expense related to stock incentive plans ÏÏ
Performance share issuance (22,000 shares) ÏÏÏÏÏÏÏÏÏÏ
Dividends declared:
Class A ($0.62 per share)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ($0.64 per share) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
16,588
(79)
(5)
(637)
(67)
(646)
(667)
549
(607)
(8,628)
(15,799)
314
646
4,802
529
(4,151)
1,473
16,588
(79)
(5)
(637)
15,867
247
-0-
(16)
2,022
(78)
(8,628)
(15,799)
Amounts at June 30, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$718
$1,433
$ 4,625
$495,557
$ 901
$(7,812)
$(67,196) $428,226
Comprehensive income:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized gains and losses on securities
Foreign currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in derivative gains and losses ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of non-restricted stock (19,000 shares) ÏÏÏÏÏÏÏ
Net exchanges of shares of Class A and Class B
common stock (869,000 shares)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Reclassification of restricted share units relating to
adoption of FAS 123(R), Share-Based Payment
(614,000 shares)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Vesting of restricted share units (1,000 shares) ÏÏÏÏÏÏÏÏ
Compensation expense related to stock incentive plans,
including cumulative effect adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercise of stock options (8,000 shares) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Performance share issuance (38,000 shares) ÏÏÏÏÏÏÏÏÏÏ
Dividends declared:
Class A ($0.62 per share)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ($0.64 per share) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
15,362
(166)
468
(317)
(146)
(3,307)
2,441
(31)
3,247
(108)
(702)
(8,330)
(16,071)
15,362
(166)
468
(317)
15,347
203
349
3,307
-0-
7,812
(10,253)
21
134
646
-0-
(10)
3,247
26
(56)
(8,330)
(16,071)
Amounts at June 30, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$718
$1,433
$ 6,019
$486,518
$ 886
$
-0-
$(72,992) $422,582
Comprehensive income:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized gains and losses on securities
Foreign currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in derivative gains and losses ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Postemployment severance prior service cost ÏÏÏÏÏÏÏÏÏÏ
Comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of non-restricted stock (8,000 shares) ÏÏÏÏÏÏÏÏ
Net exchanges of shares of Class A and Class B
common stock (1,138,000 shares) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Vesting of restricted share units ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation expense related to stock incentive plans ÏÏ
Exercise of stock options (469,000 shares) ÏÏÏÏÏÏÏÏÏÏÏÏ
Performance share issuance (101,000 shares) ÏÏÏÏÏÏÏÏÏ
Share repurchases (266,000 shares)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividends declared:
Class A ($0.62 per share)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ($0.64 per share) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19,152
76
3,182
574
(1,323)
73
5,940
(29)
4,745
28
(2,208)
(7,609)
(17,198)
19,152
76
3,182
574
(1,323)
21,661
191
-0-
(29)
4,745
7,270
(541)
(3,624)
(7,609)
(17,198)
118
(5,940)
7,242
1,667
(3,624)
Amounts at June 30, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$718
$1,433
$14,568
$480,863
$3,395
$
-0-
$(73,529) $427,448
See Notes to Consolidated Financial Statements
47
KIMBALL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the accounts of all domestic
and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in the
consolidation.
Revenue Recognition: Revenue from product sales is recognized 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. 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. Service revenue is recognized as services are rendered. Based on estimated product
returns and price concessions, a reserve for returns and allowances is recorded at the time of the sale, resulting
in a reduction of revenue. An allowance for doubtful accounts is recorded based upon the estimated
collectibility of receivables, and results in an increase in selling expenses.
Use of Estimates: The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts included in the consolidated financial statements and related footnote
disclosures. While efforts are made to assure estimates used are reasonably accurate based on management's
knowledge of current events, actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments: Cash equivalents consist primarily of highly
liquid investments with original maturities of three months or less at the time of acquisition. Cash and cash
equivalents consist of bank accounts, money market funds, and variable rate demand notes. Variable rate
demand notes are classified as cash equivalents because they contain features that provide liquidity in three
months or less. Cash equivalents are stated at cost, which approximates market value. Short-term investments
consist primarily of municipal bonds, U.S. Government securities, and auction rate securities with maturities
exceeding three months at the time of acquisition. Available-for-sale securities are stated at market value,
with unrealized gains and losses excluded from net income and recorded net of related tax effect in
Accumulated Other Comprehensive Income, as a component of Share Owners' Equity.
Inventories:
Inventories are stated at the lower of cost or market value. Cost includes material, labor,
and applicable manufacturing overhead. Costs associated with underutilization of capacity are expensed as
incurred. The last-in, first-out (LIFO) method was used for approximately 18% and 24% of consolidated
inventories in 2007 and 2006, respectively, and remaining inventories were valued using the first-in, first-out
(FIFO) method. Inventories recorded on the Company's balance sheet are adjusted for excess and obsolete
inventory. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover,
inventory levels, and product demand levels. Factors considered when evaluating 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.
Property, Equipment and Depreciation: Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided over the estimated useful life of the assets using the straight-line
method for financial reporting purposes. Leasehold improvements are amortized on a straight-line basis over
the shorter of the useful life of the improvement or the term of the lease. Maintenance, repairs, and minor
renewals and betterments are expensed; major improvements are capitalized.
Impairment of Long-Lived Assets: The Company performs reviews for impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset
and its eventual disposition are less than its carrying amount. When an impairment is identified, the carrying
amount of the asset is reduced to its estimated fair value. Assets to be disposed of are recorded at the lower of
net book value or fair market value less cost to sell at the date management commits to a plan of disposal.
48
Goodwill and Purchased Intangible Assets: Goodwill represents the difference between the purchase
price and the value of tangible and identifiable intangible net assets resulting from business acquisitions.
Goodwill is tested for potential impairment on an annual basis, or more often if events or circumstances
change that could cause goodwill to become impaired. During fiscal year 2006, the sale of a fixed-wall
furniture systems business resulted in a pre-tax goodwill impairment loss of $433, in thousands.
A summary of the goodwill by segment is as follows:
(Amounts in Thousands)
FurnitureÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Electronic Contract Assemblies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 30,
2007
$ 1,733
13,785
June 30,
2006
$1,733
1,553
ConsolidatedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$15,518
$3,286
During fiscal year 2007, the Company acquired Reptron and recorded, in thousands, $12,069 of goodwill
within the Electronic Contract Assemblies segment. See Note 2 Ì Acquisitions of Notes to Consolidated
Financial Statements for further discussion. Also in the Electronic Contract Assemblies segment, goodwill
increased, in thousands, $163 during fiscal year 2007 resulting from $114 of purchase price adjustments and
$49 due to the effect of changes in foreign currency exchange rates.
Purchased intangible assets for product rights to produce and sell certain products are amortized on a
straight-line basis over their estimated useful lives, and purchased intangible assets for capitalized customer
relationships are amortized on estimated attrition rate of customers. The Company has no intangible assets
with indefinite useful lives which are not subject to amortization. Intangible assets are reported as Other
Assets on the Consolidated Balance Sheets.
A summary of purchased intangible assets subject to amortization by segment is as follows:
(Amounts in Thousands)
Furniture:
June 30,
2007
June 30,
2006
Cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated Amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,160
(210)
Purchased Intangible Assets, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 950
Electronic Contract Assemblies:
Cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated Amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 937
(65)
Purchased Intangible Assets, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 872
Consolidated ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,822
$960
(932)
$ 28
$ Ì
( Ì)
$ Ì
$ 28
Purchased intangible assets in the Furniture segment consist of capitalized product rights to produce and
sell certain products. During fiscal year 2007, the Company's Electronic Contract Assemblies segment
acquired Reptron and recorded, in thousands, a $937 customer relationship intangible asset, which was the fair
value as of the acquisition date, and no residual value was assumed. See Note 2 Ì Acquisitions of Notes to
Consolidated Financial Statements for further discussion of the acquisition.
During fiscal year 2007, 2006, and 2005, amortization expense related to purchased intangible assets was,
in thousands, $94, $42, and $142, respectively. Amortization expense in future periods is expected to be, in
thousands, $182, $335, $305, $283, and $262 in the five years ending June 30, 2012, and $455 thereafter.
When placed in service, the product rights intangible asset life is expected to be five years. The amortization
period for the customer relationship intangible asset is 16 years.
49
Capitalized Software:
Internal-use software is stated at cost less accumulated amortization and is amortized using
the straight-line method over its estimated useful life ranging from two to seven years. Software 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. During the software application development stage, capitalized costs include external consulting costs, cost
of software licenses, and internal payroll and payroll-related costs for employees who are directly associated with a
software project. Upgrades and enhancements are capitalized if they result in added functionality which enable the
software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion, and
business process reengineering costs are expensed in the period in which they are incurred.
Research and Development: The costs of research and development are expensed as incurred. Research and
development costs from continuing operations were approximately, in millions, $17, $15, and $18 in fiscal years 2007,
2006, and 2005, respectively.
Advertising: Advertising costs are expensed as incurred. Advertising costs from continuing operations, included in selling,
general and administrative expenses were, in millions, $8.3, $5.6, and $5.3, in fiscal years 2007, 2006, and 2005, respectively.
Insurance and Self-insurance: The Company is self-insured up to certain limits for auto and general liability,
workers' compensation, and certain employee health benefits including 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 actuarial analyses,
which are based on historical information along with certain assumptions about future events. Approximately 61% of the
workforce is covered under self-insured medical and short-term disability plans.
The Company carries external medical and disability insurance coverage for the remainder of its eligible workforce
not covered by self-insured plans. The Company also carries stop-loss insurance coverage to mitigate severe losses under
external and self-insured plans. Insurance benefits are not provided to retired employees.
Income Taxes: Unremitted earnings of foreign subsidiaries have been included in the consolidated financial
statements without giving effect to the United States taxes that may be payable on distribution to the United States
because it is not anticipated such earnings will be remitted to the United States. Determination of the amount of
unrecognized deferred tax liability on unremitted earnings is not practicable.
Off-Balance Sheet Risk and Concentration of Credit Risk: The Company has business and credit risks concentrated
in the automotive, medical, and furniture industries. Two customers, TRW Automotive, Inc. and Bayer AG, represented
14% and 16%, respectively, of consolidated accounts receivable at June 30, 2007. TRW Automotive, Inc. and Bayer AG,
each represented 19% of consolidated accounts receivable at June 30, 2006. The Company currently does not foresee a
credit risk associated with these receivables. The Company holds a $2 million note receivable from the sale of a forest
products hardwood lumber business and maintains a provision for potential credit losses. The Company also has a
$2 million note receivable with one of its contract customers, due in fiscal year 2009. A provision for potential credit losses
is not currently deemed necessary on this note. The Company's off-balance sheet arrangements are limited to operating
leases entered into in the normal course of business as described in Note 5 Ì Commitments and Contingent Liabilities of
Notes to Consolidated Financial Statements.
Non-operating Income and Expense: Non-operating income and expense include the impact of such items as
foreign currency rate movements, derivatives, fair value adjustments on our Supplemental Employee Retirement Plan
(SERP) investments, recycling income, rent income, bank charges, and other miscellaneous non-operating income and
expense items that are not directly related to our operations.
Foreign Currency Translation: The Company uses the U.S. dollar and Euro predominately as its functional
currencies. Foreign currency assets and liabilities are remeasured into functional currencies at end-of-period exchange
rates, except for nonmonetary assets and equity, which are remeasured at historical exchange rates. Revenue and expenses
are remeasured at the weighted average exchange rate during the year, except for expenses related to nonmonetary assets,
which are remeasured at historical exchange rates. Gains and losses from foreign currency remeasurement are reported in
the Other Income (Expense) category of the Consolidated Statements of Income.
For businesses whose functional currency is other than the U.S. dollar, the translation of functional currency
statements to U.S. dollar statements uses end-of-period exchange rates for assets and liabilities, weighted average
exchanges rates for revenue and expenses, and historical rates for equity. The resulting currency translation adjustment is
recorded in Accumulated Other Comprehensive Income, as a component of Share Owners' Equity.
Derivative Instruments and Hedging Activities: Derivative financial instruments are recognized on the balance sheet
as either assets or liabilities and are measured at fair value. Changes in the fair value of derivatives are recorded each
period in earnings or Accumulated Other Comprehensive Income, depending on whether a derivative is designated and
effective as part of a hedge transaction, and if it is, the type of hedge transaction. Hedge accounting is utilized when a
derivative is expected to be highly effective upon execution and continues to be highly effective over the duration of the
hedge transaction. Hedge accounting permits gains and losses on derivative instruments to be deferred in Accumulated
Other Comprehensive Income and subsequently included in earnings in the periods in which earnings are affected by the
hedged item or when the derivative is determined to be ineffective. The Company's use of derivatives is generally limited
to forward purchases of foreign currency to manage exposure to the variability of cash flows, primarily related to the
foreign exchange rate risks inherent in forecasted transactions denominated in foreign currency.
50
Reclassifications: Certain prior year information has been reclassified to conform to the current year
presentation. As a result of ceasing operations at the Company's Juarez, Mexico operation, the financial
results associated with this operation were classified as discontinued operations. Discontinued operations are
discussed in further detail in Note 18 Ì Discontinued Operations of Notes to Consolidated Financial
Statements.
Tooling: The Company capitalizes the cost of tooling which it owns or which it has a noncancelable
right to use during a supply arrangement. As of June 30, 2007 and 2006, respectively, the Company had
$3.0 million and $3.1 million of Company-owned tooling costs capitalized, and $1.8 million and $0.6 million of
customer-owned tooling costs capitalized. Company-owned tooling is reported in the Property and Equipment
line of the Consolidated Balance Sheets and customer-owned tooling is reported in the Prepaid Expense and
Other Current Assets line on the Consolidated Balance Sheets.
Stock-Based Compensation: As described in Note 8 Ì Stock Compensation Plans of Notes to Consoli-
dated Financial Statements, the Company maintains stock-based employee compensation plans which allow
for the issuance of restricted stock, restricted share units, unrestricted share grants, incentive stock options,
nonqualified stock options, performance shares, performance units, and stock appreciation rights for grant to
officers and other key employees of the Company, and to members of the Board of Directors who are not
employees. Prior to fiscal year 2006, the Company accounted for the plans under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations (APB 25). Accordingly, because all stock options granted had an exercise price equal to the
market value of the underlying common stock on the date of the grant, no expense related to employee stock
options was recognized. However, expense related to other share-based awards such as restricted share units
and performance shares had been recognized in the income statement under APB 25. Effective July 1, 2005,
the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based
Payment (FAS 123(R)). Under the modified prospective method of adoption selected by the Company,
compensation expense related to stock options is recognized in the income statement beginning in fiscal year
2006, but compensation cost in fiscal year 2005 related to stock options continues to be disclosed on a pro
forma basis only. Additionally, as of the effective date, the Company eliminated its balance of Deferred Stock-
Based Compensation, which represented unrecognized compensation cost for restricted share unit awards, and
reclassified it to Treasury Stock and Additional Paid-In Capital, in accordance with the modified prospective
transition method. Financial statements for periods prior to July 1, 2005 have not been restated.
FAS 123(R) requires that forfeitures be estimated over the vesting period of an award, rather than being
recognized as a reduction of compensation expense when the forfeiture actually occurs. FAS 123(R) also
requires that liability awards be revalued to fair value, which, upon the adoption of FAS 123(R), had the
effect of a reduction of a liability for outstanding stock appreciation rights. The impact of the revaluation of
stock appreciation rights and the use of the estimated forfeiture method for prior periods have been presented
on the Consolidated Statements of Income as a Cumulative Effect of Change in Accounting Principle, as
required by FAS 123(R). The cumulative effect recorded in fiscal year 2006 totaled $0.3 million of income,
net of taxes. The earnings per share impact can be found in Note 15 Ì Earnings per Share of Notes to
Consolidated Financial Statements.
The Company's stock-based compensation plans allow early vesting when an employee reaches retire-
ment age and ceases continuous service. Under FAS 123(R), awards granted after June 30, 2005 require
acceleration of compensation expense through an employee's retirement age, whether or not the employee is
expected to cease continuous service on that date. For awards granted on or before June 30, 2005, the
Company accelerates compensation expense only in cases where a retirement eligible employee is expected to
cease continuous service prior to an award's vesting date. If the new provisions of FAS 123(R) had been in
effect for awards granted prior to June 30, 2005, compensation expense including the pro forma effect of stock
options, net of tax, would have been $0.2 million lower, $0.1 million higher, and $0.4 million higher during
fiscal years 2007, 2006, and 2005, respectively.
51
The following table illustrates the effect on income from continuing operations and earnings per share
from continuing operations if the Company had applied the fair value recognition provisions to stock-based
employee compensation in fiscal year 2005.
(Amounts in Thousands, Except for Per Share Data)
Income from Continuing Operations, as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Add: Stock-based employee compensation expense included in reported net
income, net of related tax effects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deduct: Total stock-based employee compensation expense determined under fair-
value-based method for all awards, net of related tax effects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year Ended
June 30, 2005
$18,342
1,200
1,687
Pro Forma Income from Continuing OperationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$17,855
Earnings Per Share:
As reported:
Basic Earnings Per Share from Continuing Operations:
Class AÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share from Continuing Operations:
Class AÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro Forma:
Basic Earnings Per Share from Continuing Operations:
Class AÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share from Continuing Operations:
Class AÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
$
$
$
$
$
0.48
0.48
0.47
0.48
0.46
0.47
0.46
0.47
New Accounting Standards:
In June 2007, the Financial Accounting Standards Board (FASB) ratified
the Emerging Issues Task Force consensus on Issue No. 06-11, Accounting for Income Tax Benefits of
Dividends on Share-Based Payment Awards (EITF 06-11). EITF 06-11 requires companies to recognize the
income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and
paid to employees for nonvested equity-classified employee share-based payment awards as an increase to
additional paid-in capital. The realized income tax benefit recognized in additional paid-in capital should be
included in the pool of excess tax benefits available to absorb future tax deficiencies on share-based payment
awards. EITF 06-11 is effective as of the beginning of the Company's fiscal year 2009. The Company is
currently evaluating the impact of EITF 06-11 on its financial position, results of operations, and cash flows.
In February 2007, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement
No. 115 (FAS 159). FAS 159 expands the use of fair value accounting, but does not affect existing standards
which require assets or liabilities to be carried at fair value. Under FAS 159, a company may elect to use fair
value to measure financial instruments and certain other items, which may reduce the need to apply complex
hedge accounting provisions in order to mitigate volatility in reported earnings. The fair value election is
irrevocable and is generally made on an instrument-by-instrument basis, even if a company has similar
instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses
on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning
retained earnings. Subsequent to the adoption of FAS 159, changes in fair value are recognized in earnings.
FAS 159 is effective as of the beginning of the Company's fiscal year 2009. The Company is determining
whether fair value accounting is appropriate for any of its eligible items and cannot currently estimate the
impact, if any, which FAS 159 will have on its financial position, results of operations or cash flows.
52
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R)
(FAS 158). In February 2007, the FASB issued FSP FAS 158-1, Conforming Amendments to the
Illustrations in FASB Statements No. 87, No. 88, and No. 106 and to the Related Staff Implementation
Guides (FSP FAS 158-1). FAS 158 requires employers to recognize the overfunded or underfunded status of
a defined benefit plan as an asset or liability in its statement of financial position, recognize through
comprehensive income changes in that funded status in the year in which the changes occur, and measure a
plan's assets and its obligations that determine its funded status as of the end of the employer's fiscal year.
FSP FAS 158-1 updates the illustrations, questions and answers, and other guidance contained in FASB
Statements No. 87, No. 88, and No. 106 and makes technical corrections to FAS 158. At the end of fiscal year
2007, the Company adopted the provisions of FAS 158 and FSP FAS 158-1 related to recognition of plan
assets, benefit liabilities, and comprehensive income. The Company expects to adopt the provisions of these
rules dealing with the measurement of plan assets and benefit obligations as of the year end balance sheet date
when these provisions become effective at the end of the Company's fiscal year 2009. The change in
measurement date is not expected to have a material impact on the Company's financial position, results of
operations or cash flows. These rules impact the accounting for the Company's unfunded noncontributory
postemployment severance plans. See Note 7 Ì Employee Benefit Plans of Notes to Consolidated Financial
Statements for more information.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108
(SAB 108) which provides interpretive guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement. During the first quarter of
fiscal year 2007, the Company elected early adoption of SAB 108. The adoption of SAB 108 did not have a
material impact on the Company's financial position, results of operations or cash flows.
In September 2006, the FASB issued FASB Staff Position AUG AIR-1, Accounting for Planned Major
Maintenance Activities (FSP AUG AIR-1). The staff position eliminates the accrue-in-advance method of
accounting for planned major maintenance activities. The adoption of the provisions in the staff position will
be considered a change in accounting principle with retrospective application required as described in
SFAS 154, Accounting Changes and Error Corrections, if practical. The staff position will be effective as of
the beginning of the Company's fiscal year 2008. The Company currently uses the accrue-in-advance method
primarily to reserve for future aircraft maintenance activities required by Federal Aviation Administration
regulations. The reversal of these accruals and adoption of an alternative method of expense recognition is not
expected to have a material impact on the Company's financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (FAS 157), which
defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. FAS 157 is only applicable to existing
accounting pronouncements that require or permit fair value measurements, but does not require any new fair
value measurements. FAS 157 will be effective as of the beginning of the Company's fiscal year 2009 and
must be applied prospectively except for certain derivative instruments that would be adjusted through the
opening balance of retained earnings in the period of adoption. The Company is currently evaluating the
impact of FAS 157 on its financial position, results of operations, and cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN 48 requires financial
statement recognition of the impact of a tax position if a position is more likely than not of being sustained on
audit, based on the technical merits of the position. Additionally, FIN 48 provides guidance on measurement,
derecognition, classification, interest and penalties, accounting in interim periods, transition, and disclosure
requirements for uncertain tax positions. In May 2007, the FASB issued FASB Staff Position FIN No. 48-1,
Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1). This FSP provides guidance on
how a company should determine whether a tax position is effectively settled for the purpose of recognizing
previously unrecognized tax benefits. The provisions of FIN 48 and FSP FIN 48-1 will be effective as of the
beginning of the Company's fiscal year 2008. The cumulative effect of the change in accounting principle,
which will be recorded in the first quarter of fiscal year 2008, is estimated to increase the Company's liability
for taxes, interest, and penalties by approximately $1.5 million to $2.5 million and reduce opening retained
earnings by the same amount. The Company continues to evaluate the estimated liability as tax positions are
reviewed, including the tax positions related to the purchase price allocations of acquisitions.
53
In June 2006, the FASB ratified the Emerging Issues Task Force consensus on Issue No. 06-3, How
Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in
the Income Statement (That Is, Gross Versus Net Presentation) (EITF 06-3). EITF 06-3 requires disclosure
of a company's accounting policy regarding presentation of taxes, including any tax assessed by a governmen-
tal authority that is imposed concurrently on a specific revenue-producing transaction between a seller and a
customer. If taxes included in gross revenues are significant, a company should disclose the amount of such
taxes for each period for which an income statement is presented. EITF 06-3 was effective for the Company
beginning in the third quarter of fiscal year 2007. The Company presents sales net of applicable sales taxes.
The adoption of EITF 06-3 did not cause the Company to change its accounting policy for recording sales
taxes and therefore did not have a material effect on the Company's financial position, results of operations or
cash flows.
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments (FAS 155). FAS 155 permits the Company to elect to measure any hybrid financial instrument
at fair value (with changes in fair value recognized in earnings) if the hybrid instrument contains an
embedded derivative that would otherwise be required to be bifurcated and accounted for separately under
FAS 133, Accounting for Derivative Instruments and Hedging Activities. FAS 155 will be effective for all
instruments acquired, issued, or subject to a remeasurement event occurring after the beginning of the
Company's fiscal year 2008. The adoption of FAS 155 is not expected to have a material impact on the
Company's financial position, results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (FAS 154),
which requires the direct effects of voluntary accounting principle changes to be retrospectively applied to
prior periods' financial statements. FAS 154 does not change the transition provisions of any existing
accounting pronouncements, but would apply in the unusual instance that a pronouncement does not include
specific transition provisions. FAS 154 maintains existing guidance with respect to accounting estimate
changes and corrections of errors. FAS 154 was effective for the Company beginning in fiscal year 2007 and
did not have a material impact on the Company's financial position, results of operations or cash flows.
Note 2 Acquisitions
Fiscal Year 2007 Acquisition:
On February 15, 2007, the Company closed on the definitive merger agreement dated December 18, 2006
with Reptron, whereby the Reptron entity merged into Kimball Electronics Tampa, Inc. as a wholly-owned
subsidiary of the Company. The agreement, as amended, had been unanimously approved by the boards of
directors of both the Company and Reptron, but was subject to Reptron shareholder approval, which was
obtained on February 15, 2007. The operating results of this acquisition are included in the Company's
consolidated financial statements beginning on the acquisition date.
The acquisition is included in the Company's Electronic Contract Assemblies segment and increased the
Company's capabilities and expertise in support of the Company's long-term strategy to grow business in the
medical electronics and high-end industrial sectors. Reptron's four manufacturing operations located in
Tampa, Florida; Hibbing, Minnesota; Gaylord, Michigan; and Fremont, California have been renamed with
Kimball Electronics identities.
The total amount of funds required to consummate the merger and to pay fees related to the merger was
$50.9 million. The merger was funded with available cash and short-term investments. Merger funds were
used to purchase all outstanding Reptron stock for $3.8 million, repay outstanding indebtedness and accrued
interest of $17.6 million, tender senior secured notes for $22.4 million plus $4.8 million of senior secured notes
and accrued interest remaining to be redeemed as of June 30, 2007, and pay direct acquisition costs of
$2.3 million. The Company subsequently redeemed the senior secured notes in August, 2007. See Note 6 Ì
Long-Term Debt and Credit Facility of Notes to Consolidated Financial Statements for further information on
the senior secured notes.
54
The following table summarizes the preliminary purchase price allocation to assets acquired, liabilities
assumed, and goodwill. The acquisition resulted in $12.1 million of goodwill for the Electronic Contract
Assemblies segment of the Company. Goodwill of $10.1 million is expected to be deductible for tax purposes.
The Company also identified and recorded intangible assets of $0.9 million related to customer relationships.
See Note 1 Ì Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for
further disclosure related to goodwill and intangible assets. The table shown below reflects revisions made to
the purchase price allocation since initially reported, but is still preliminary as the Company obtains additional
information for the valuation of the assets acquired and liabilities assumed. The primary areas of the purchase
price allocation that are not yet finalized relate to valuation of equipment acquired and valuation of income tax
liabilities related to the Company's adoption of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, in fiscal year 2008, which requires retroactive restatement to reflect only tax positions that are
more like than not of being sustained on audit.
Significant purchase price allocation adjustments made since initially reported include deferred tax
adjustments to reflect book versus tax basis differences related to liabilities assumed in the acquisition and a
restructuring accrual related to the approval of a restructuring plan to exit the Gaylord, Michigan facility.
With the acquisition, the Company recognized it would have excess capacity in North America. Management
developed a plan as of the acquisition date to consolidate capacity within the acquired facilities. Based on a
review of future growth potential in various geographies and input from existing customers regarding future
capacity needs, it was determined that the Gaylord facility's automotive electronics business would transfer to
other electronics manufacturing sites located in Jasper, Indiana and Nanjing, China. The Company expects
total pre-tax restructuring to be approximately $1.1 million, including $1.0 million related to employee
severance and transition costs which have been recognized as a purchase price allocation adjustment. See
Note 17 Ì Restructuring Expense of Notes to Consolidated Financial Statements for additional details of the
restructuring plan.
(Amounts in Thousands)
Accounts ReceivableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred Tax Asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Current Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property and EquipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Customer Relationship Intangible AssetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Long-Term Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets acquiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts Payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued Expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued Restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities assumed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net assets acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Reptron
Acquisition
Purchase Price
Allocation
$13,218
24,948
1,300
1,173
18,346
937
339
12,069
$72,330
$16,579
3,606
1,042
184
$21,411
$50,919
55
The following unaudited pro forma consolidated results of operations have been prepared as if the
acquisition of Reptron had occurred at the beginning of fiscal years 2007 and 2006. The selected unaudited pro
forma consolidated results of operations presented below reflect the purchase method of accounting and have
been adjusted for the estimated changes in depreciation and amortization expense on acquired tangible and
intangible assets. Interest expense and interest income have been adjusted to coincide with the post acquisition
cash and debt balances of the combined Company. Income taxes have also been adjusted as appropriate for
the combined income levels. The pro forma information has not been adjusted for any operating synergies or
other anticipated cost savings that may result from the merger. As a result, these unaudited pro forma
consolidated results of operations may not be indicative of the historical results that may have been achieved
had the companies been combined during the periods presented and is not intended to be a projection of future
results. This acquisition was not a significant subsidiary.
(Amounts in Thousands, Except for Per Share Data)
Net Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic Earnings Per Share from Continuing Operations:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share from Continuing Operations:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic Earnings Per Share
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro Forma Year
Ended June 30,
(Unaudited)
2007
2006
$1,380,238
20,681
16,571
$1,250,987
29,132
16,099
$
$
$
$
$
$
$
$
0.53
0.54
0.51
0.53
0.42
0.43
0.41
0.43
$
$
$
$
$
$
$
$
0.76
0.77
0.75
0.76
0.41
0.43
0.41
0.42
The pro forma information for the year ended June 30, 2007 included offsetting nonrecurring items of the
following after-tax amounts directly related to the acquisition: $2 million cancellation of debt income,
approximately $1 million acquisition-related expense incurred by Reptron, and $1 million expense required
under certain employment agreements due to change in control provisions.
The pro forma information for the year ended June 30, 2006 has not been adjusted to include pro forma
information for the Bridgend, Wales, UK and Longford, Ireland acquisitions which were completed in the
Company's fourth quarter of fiscal year 2006.
56
Fiscal Year 2006 Acquisitions:
On April 3, 2006, the Company entered into an asset purchase agreement for the acquisition of the
Bridgend, Wales, UK manufacturing operation of Bayer Diagnostics Manufacturing Limited (""BDML'') and
its parent company, Bayer HealthCare LLC, a member of the worldwide group of companies headed by Bayer
AG. The closing of the purchase was effective April 3, 2006. The operating results of this acquisition are
included in the Company's consolidated financial statements beginning on the acquisition date.
The acquisition is included in the Company's Electronic Contract Assemblies segment and better
positions the Company to capitalize on growth opportunities in the medical market within this segment. The
BDML workforce and their capabilities have added to the Company's package of value that is offered to its
medical customers and is a step in the Company's strategy to diversify its markets.
The Company paid BDML a sum of $31.5 million. Direct costs of the acquisition totaled $0.5 million.
The following table summarizes the assets acquired for the BDML acquisition. The building and land
were not part of the assets acquired. The Company is leasing a portion of the facility from a third party. The
table shown below reflects revisions made to the purchase price during fiscal year 2007, including liabilities
related to involuntary terminations. The purchase price adjustment is now final.
(Amounts in thousands)
Inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Software ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred Tax Asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets acquiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BDML
Acquisition
Purchase Price
Allocation
$28,829
2,035
653
826
63
1,342
$33,748
1,760
Net assets acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$31,988
For tax purposes, the amount of goodwill recognized was, in thousands, $96 and is fully deductible. The
difference between book and tax goodwill, net of deferred taxes, is due to the liabilities for involuntary
employee terminations recognized for book purposes that are not part of the purchase price allocation for tax
purposes. The entire amount of goodwill was allocated to the Electronic Contract Assemblies segment of the
Company.
On May 5, 2006, the Company acquired a printed circuit board assembly operation in Longford, Ireland
from Magna Donnelly Electronics Longford Limited. Assets acquired were $3.4 million, liabilities assumed
were $3.5 million, and the Company received $0.1 million in the acquisition. Direct costs of the acquisition
were $0.3 million. The acquisition resulted in $0.3 million of goodwill for the Electronic Contract Assemblies
segment of the Company. There were no material purchased intangible assets included in the acquisition. The
operating results of this acquisition are included in the Company's consolidated financial statements beginning
on the acquisition date. The purchase price allocation is final.
57
Note 3
Inventories
Inventories are valued using the lower of last-in, first-out (LIFO) cost or market value for approximately
18% and 24% of consolidated inventories in fiscal years 2007 and 2006, respectively, including approximately
86% and 83% of the Furniture segment inventories in fiscal years 2007 and 2006, respectively. The Electronic
Contract Assemblies segment inventories and the remaining inventories in the Furniture segment are valued
using the lower of first-in, first-out (FIFO) cost or market value.
Had the FIFO method been used for all inventories, income from continuing operations would have been
$0.1 million higher in fiscal year 2007, $0.7 million lower in fiscal year 2006, and $1.1 million higher in fiscal
year 2005, and net income, which includes the effect of discontinued operations, would have been $0.1 million
higher in fiscal year 2007, $2.9 million lower in fiscal year 2006, and $0.4 million lower in fiscal year 2005.
Additionally, inventories would have been, in millions, $16.4 and $16.3 higher at June 30, 2007 and 2006,
respectively, if the FIFO method had been used. Certain inventory quantity reductions caused liquidations of
LIFO inventory values, which increased income from continuing operations by $1.1 million in fiscal year 2007,
$1.3 million in fiscal year 2006, and an immaterial amount in fiscal year 2005. LIFO liquidations increased net
income, which includes the effect of discontinued operations, by $1.1 million in fiscal year 2007, $3.6 million
in fiscal year 2006, and $2.9 million in fiscal year 2005.
Inventory components at June 30 are as follows:
(Amounts in Thousands)
Finished products ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Work-in-process ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Raw materialsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007
2006
$ 34,577
15,162
102,584
$ 32,653
12,154
80,996
Total FIFO inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$152,323
$125,803
LIFO Reserve ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(16,422)
(16,324)
Total inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$135,901
$109,479
Note 4 Property and Equipment
Major classes of property and equipment at June 30 consist of the following:
(Amounts in Thousands)
Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Buildings and improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Construction-in-progress ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007
2006
$
9,865
165,483
304,531
14,810
$
5,005
151,421
314,184
7,689
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less: Accumulated depreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$494,689
(320,889)
$478,299
(327,177)
Property and equipment, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$173,800
$151,122
58
The useful lives used in computing depreciation are based on the Company's estimate of the service life
of the classes of property, as follows:
Years
Buildings and improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Lesser of Useful Life or
5 to 50
2 to 20
Term of Lease
Depreciation and amortization of property and equipment for continuing operations, including asset
write-downs associated with the Company's restructuring plans, totaled, in millions, $31.7 for fiscal year 2007,
$28.5 for fiscal year 2006, and $29.4 for fiscal year 2005.
At June 30, 2007, in thousands, assets totaling $3,032 were classified as held for sale, including $2,691 for
a facility related to an exited operation within the Electronic Contract Assemblies segment and $341 for
manufacturing equipment related to exited operations within the Furniture segment. The exited Electronic
Contract Assemblies facility is reported as unallocated corporate assets for segment reporting purposes. The
Furniture segment recognized a pre-tax loss in fiscal year 2007, in thousands, of $378 for impairment write-
downs on the held-for-sale assets. The Company expects to sell these assets during the next 12 months. At
June 30, 2006, the Company had, in thousands, $353 of land held as unallocated corporate assets classified as
held for sale.
Note 5 Commitments and Contingent Liabilities
Leases:
Operating leases for continuing operations for certain office, showroom, manufacturing facilities, land,
and equipment, which expire from fiscal year 2008 to 2056, contain provisions under which minimum annual
lease payments are, in millions, $5.4, $4.8, $2.9, $2.6, and $2.3 for the five years ended June 30, 2012,
respectively, and aggregate $5.8 million from fiscal year 2013 to the expiration of the leases in fiscal year 2056.
The Company is obligated under certain real estate leases to maintain the properties and pay real estate taxes.
Certain of these leases include renewal options and escalation clauses. Total rental expenses for continuing
operations amounted to, in millions, $6.5, $4.7, and $5.2 in fiscal years 2007, 2006, and 2005, respectively.
As of June 30, 2007 and 2006, the Company had, in millions, $0.8 and $1.2, respectively, of capitalized
leases for equipment. Future minimum annual lease payments excluding imputed interest are, in millions, $0.4
for each of the fiscal years ending June 30, 2008 and 2009, with no payments thereafter.
Guarantees:
As of June 30, 2007, the Company had no guarantees issued which were contingent on the future
performance of another entity. As of June 30, 2006, the Company had guarantees which consisted of customer
lease financing with recourse whereby the Company could have become liable to a third-party leasing
company if the customer defaulted on their lease, guarantees of third-party dealer facility leases and bank
loans whereby the Company could have become liable if the dealer defaulted on a lease or bank loan, and
guarantees associated with subleases whereby the Company could have been responsible for lease commit-
ments if the sublessee defaulted. At the inception of a guarantee, the Company recognizes a liability for
obligations the Company may incur if specified triggering events or conditions occur. The liability is recorded
at fair value which is estimated based on various factors including risk that the Company may have to perform
under a guarantee and ability to recover against payments made on a guarantee. The maximum potential
liability and carrying amount recorded for these guarantees was immaterial to the Company's financial
position.
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 June 30, 2007 and 2006, the Company had a maximum financial exposure from unused
standby letters of credit totaling $14.5 million and $13.5 million, respectively. 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
June 30, 2007 and 2006 with respect to the standby letters of credit. The Company also enters into commercial
letters of credit to facilitate payments to vendors and from customers.
59
Product Warranties:
The Company estimates product warranty liability at the time of sale based on historical repair 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 during fiscal years 2007 and 2006 were as follows:
(Amounts in Thousands)
Product Warranty Liability at the beginning of the yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrual for warranties issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accruals (reductions) related to pre-existing warranties (including changes in
estimates) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Settlements made (in cash or in kind) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007
2006
$2,127
961
$3,653
789
(47)
(894)
(749)
(1,566)
Product Warranty Liability at the end of the yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,147
$2,127
Note 6 Long-Term Debt and Credit Facility
Long-term debt consists of long-term notes payable, capitalized leases, and senior secured notes.
Aggregate maturities of long-term debt for the next five years are, in thousands, $5,515, $412, $60, $61, and
$12, respectively, and aggregate $287 thereafter. Interest rates range from 3.455% to 9.25%. Based upon
borrowing rates currently available to the Company, the fair value of the Company's debt approximates the
carrying value.
At June 30, 2007, the Company's outstanding balance in senior secured notes was $4.5 million. These
notes represent the remaining portion of notes originally held by Reptron which was not tendered as of the
date of the acquisition. The notes were valued in the preliminary purchase price allocation at their stated 101%
redemption price, which approximates their fair value. As of the acquisition date, the indenture agreement
related to the remaining notes was amended to eliminate or modify substantially all of the restrictive covenants
in the indenture. The notes are irrevocably and unconditionally guaranteed by the acquired Reptron legal
entity and are secured by the assets of this legal entity. The Reptron legal entity was in compliance with all
terms and covenants of the notes, as amended, as of June 30, 2007. The maturity date of the notes is February
2009; however, the Company redeemed the notes in the first quarter of fiscal year 2008. The notes were
redeemed at the stated redemption price equal to 101% of the principal amount together with interest accrued
at a fixed 8% annual interest rate through the redemption date. As of June 30, 2007, the notes were classified
as Current Liabilities on the Consolidated Balance Sheets. See Note 2 Ì Acquisitions of Notes to Consoli-
dated Financial Statements for information on the Reptron acquisition.
The Company maintains a five year revolving credit facility which expires in May 2009 and provides for
up to $75 million in borrowings, with an option to increase the amount available for borrowing to $125 million
at the Company's request, subject to participating banks' consent. The Company uses this facility for
acquisitions and general corporate purposes. A commitment fee is payable on the unused portion of the credit
facility which was immaterial to the Company's operating results for fiscal years 2007, 2006, and 2005.
Borrowings under the credit agreement bear interest at a floating rate based, at the Company's option, upon a
London Interbank Offered Rate (LIBOR) plus an applicable percentage or the greater of the federal funds
rate plus an applicable percentage and the prime rate. The Company is in compliance with debt covenants
requiring it to maintain certain debt-to-total capitalization, interest coverage ratio, minimum net worth, and
other terms and conditions.
The Company also maintains a separate foreign credit facility which is backed by the $75 million
revolving credit facility. The separate foreign credit facility is reviewed annually for renewal and will expire in
May 2008 if not renewed at that time. The interest rate applicable to borrowings in US dollars under the
separate foreign credit facility is charged at 0.75% per annum over the Singapore Interbank Money Market
Offered Rate (SIBOR). The interest rate on borrowings in Thai Baht under the separate foreign credit facility
is charged at the prevailing market rate.
60
At June 30, 2007, the Company had $18.9 million of short-term borrowings outstanding under the
revolving credit facility. The outstanding balance consists of a Euro currency borrowing which provides a
natural currency hedge against Euro denominated intercompany notes between the US parent and its Euro
functional currency subsidiaries. The Company issued an additional $14.4 million in letters of credit against
the revolving credit facility, which reduces total availability to borrow to $41.7 million at June 30, 2007. At
June 30, 2006, the Company had $21.0 million of short-term borrowings outstanding under the revolving
credit facility and $2.1 million short-term borrowings outstanding under a separate foreign facility which was
backed by the $75 million revolving credit facility.
In April 2007, the Company entered into a new credit facility for its electronics operation in Wales, UK.
The facility is reviewed annually for renewal and will expire in March 2008 if not renewed at that time. The
new credit facility provides a 2 million Sterling (approximately $4 million US dollars at current exchange
rates) facility which is available to cover bank overdrafts. Bank overdrafts may be deemed necessary to satisfy
short-term cash needs rather than funding from intercompany sources. As collateral subject to lien, this
facility requires 3 million Euro (approximately $4 million US dollars at current exchange rates) to be held as
restricted cash which is classified as other long-term assets on the Company's balance sheet. The restricted
cash is held in an account which is interest bearing payable to the Company. The interest rate applicable to the
Sterling overdraft facility is charged at 1% per annum over the Bank of England's Sterling Base Rate. At
June 30, 2007, the Company had $3.0 million of Sterling-denominated short-term borrowings outstanding
under the overdraft facility.
As of June 30, 2007 and 2006, the weighted average interest rates on the Company's short-term
borrowings outstanding under the credit facilities were 4.93% and 3.86%, respectively. Cash payments for
interest on borrowings were, in thousands, $889, $544, and $173, in fiscal years 2007, 2006, and 2005,
respectively.
Note 7 Employee Benefit Plans
Retirement Plans:
The Company has a trusteed defined contribution retirement plan in effect for substantially all domestic
employees meeting the eligibility requirements. The plan includes a 401(k) feature, thereby permitting
participants to make additional voluntary contributions on a pre-tax basis. Payments by the Company to the
trusteed plan have a five year vesting schedule and are held for the sole benefit of participants. The Company
also maintains a trusteed defined contribution retirement plan for Reptron employees.
The Company maintains a supplemental employee retirement plan (SERP) for executive employees
which enable them to defer cash compensation on a pre-tax basis in excess of IRS limitations. 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.
Company contributions for domestic employees are based on a percent of net income with certain
minimum and maximum limits as determined by the Board of Directors. Total expense related to employer
contributions to the retirement plans for fiscal years 2007, 2006, and 2005 was, in millions, $5.8, $5.8, and
$1.3, respectively.
Employees of certain foreign subsidiaries are covered by local pension or retirement plans. Total expense
related to employer contributions to these foreign plans for 2007, 2006, and 2005 was, in millions, $0.9, $0.2,
and $0.0, respectively.
61
Severance Plans:
The Company maintains severance plans for substantially all domestic employees. The plans provide
severance benefits to eligible employees meeting the plans' qualifications, primarily involuntary termination
without cause. There are no statutory requirements for the Company to contribute to the plans, nor do
employees contribute to the plans. The plans hold no assets. Benefits are paid using available cash on hand
when eligible employees meet plan qualifications for payment. Benefits are based upon an employee's years of
service and accumulate up to certain limits specified in the plans, and include both salary and medical
benefits.
The Company applied the guidance of SFAS 112, Employers' Accounting for Postemployment Benefits,
and valued benefit obligations using actuarial techniques and management judgment. As of June 30, 2007, the
Company adopted SFAS 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans. The adoption of SFAS 158 did not have a material impact on the accounting for severance obligations
because the plans have no requirement to fund plan assets; thus no transition disclosures are required. The
following disclosures provide information as of the June 30, 2007 valuation of the severance obligations:
June 30,
2007
(Amounts in Thousands)
Benefit Obligation
Current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Noncurrent liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 286
1,914
Total benefit obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,200
Accumulated Other Comprehensive Income
Prior service cost, net of tax benefit of $877ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,323
Total accumulated other comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,323
The estimated prior service cost for the severance plans that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next fiscal year is $172, in thousands, net of
taxes. The Company used a May 31, 2007 measurement date to determine the benefit obligation.
The following table discloses assumptions used in actuarial calculations:
Discount Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rate of Compensation Increase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 30,
2007
5.5%
5.0%
62
Note 8 Stock Compensation Plans
On August 19, 2003, the Board of Directors adopted the 2003 Stock Option and Incentive Plan (the
""2003 Plan''), which was approved by the Company's Share Owners on October 21, 2003. Under the 2003
Plan, 2,500,000 shares of Common Stock were reserved for restricted stock, restricted share units, unrestricted
share grants, incentive stock options, nonqualified stock options, performance shares, performance units, and
stock appreciation rights for grant to officers and other key employees of the Company and to members of the
Board of Directors who are not employees. The 2003 Plan is a 10 year plan. The Company also has stock
options outstanding under two former stock incentive plans, which are described below. The pre-tax
compensation cost that was charged against income from continuing operations for all of the plans was
$4.9 million and $3.8 million in fiscal year 2007 and 2006, respectively. The total income tax benefit from
continuing operations for stock compensation arrangements was $1.9 million and $1.5 million in fiscal year
2007 and 2006, respectively. These compensation expense and tax benefit amounts exclude the impact of the
Cumulative Effect of a Change in Accounting Principle recorded in fiscal year 2006, as described in Note 1 Ì
Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements. The Company
generally uses treasury shares for fulfillment of option exercises, issuance of performance shares, and
conversion of restricted share units.
Performance Shares:
The Company awards performance shares to officers and other key employees under the 2003 Plan.
Under these awards, a number of shares will be granted to each participant based upon the attainment of the
applicable bonus percentage calculated under the Company's profit sharing incentive bonus plan as applied to
a total potential share award made and approved by the Compensation and Governance Committee.
Performance shares are vested when issued shortly after the end of the fiscal year in which the performance
measurement period is complete and are issued as Class A and Class B common shares. Certain outstanding
performance shares are applicable to performance measurement periods in future fiscal years and will be
measured at fair value when the performance targets are established in future fiscal years. The contractual life
of performance shares ranges from one to five years. If a participant is not employed by the Company on the
date of issuance, the performance share award is forfeited, except in the case of death, retirement at age 62 or
older, total permanent disability, or certain other circumstances described in the Company's employment
policy. Additionally, to the extent performance conditions are not fully attained, performance shares are
forfeited.
A summary of performance share activity under the 2003 Plan during fiscal year 2007 is presented below:
Performance shares outstanding at July 1, 2006ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Vested ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Number of
Shares
467,354
459,217
(150,651)
(91,923)
Performance shares outstanding at June 30, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
683,997
Weighted Average
Grant Date Fair
Value
$12.24
17.42
12.25
14.02
$17.43
63
As of June 30, 2007, there was approximately $6.7 million of unrecognized compensation cost related to
performance shares, based on the latest estimated attainment of performance goals. That cost is expected to be
recognized over a weighted average period of 3.6 years. The fair value of performance shares is based on the
stock price at the date of award, reduced by the present value of dividends normally paid over the vesting
period which are not payable on outstanding performance share awards. The weighted average grant date fair
value was $17.42 and $12.24 for performance share awards granted in fiscal year 2007 and 2006, respectively.
During fiscal year 2007, 150,651 performance shares vested at a fair value of $1.8 million. No performance
shares vested during fiscal year 2006. The number of shares presented in the above table, the amounts of
unrecognized compensation, and the weighted average period include performance shares awarded that are
applicable to future performance measurement periods and will be measured at fair value when the
performance targets are established in future fiscal years.
Restricted Share Units:
Nonvested Restricted Share Units (RSU) awarded to officers and other key employees are currently
outstanding under the 2003 Plan. RSUs vest five years after the date of award. Upon vesting, the outstanding
number of RSUs and the value of dividends accumulated over the vesting period are converted to shares of
Class A and Class B common stock. If the employment of a holder of an RSU terminates before the RSU has
vested for any reason other than death, retirement at age 62 or older, total permanent disability, or certain
other circumstances described in the Company's employment policy, the RSU will be forfeited.
A summary of RSU activity under the 2003 Plan during fiscal year 2007 is presented below:
Restricted Share Units outstanding at July 1, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Vested ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Number of
Share Units
532,900
Ì
(1,500)
(31,300)
Restricted Share Units outstanding at June 30, 2007ÏÏÏÏÏÏÏÏÏÏÏÏÏ
500,100
Weighted Average
Grant Date
Fair Value
$15.75
Ì
15.78
15.78
$15.75
As of June 30, 2007, there was approximately $3.3 million of unrecognized compensation cost related to
nonvested RSU compensation arrangements awarded under the 2003 Plan. That cost is expected to be
recognized over a weighted average period of 2.2 years. The fair value of RSU awards is based on the stock
price at the date of award. The total fair value of RSU awards vested during fiscal year 2007 and 2006 was, in
thousands, $24 and $31, respectively.
Unrestricted Share Grants:
Under the 2003 Plan, unrestricted shares may be granted to participants as consideration for service to
the Company. Unrestricted share grants do not have vesting periods, holding periods, restrictions on sale or
other restrictions. The fair value of unrestricted shares is based on the stock price at the date of the award.
During fiscal year 2007 and 2006, respectively, the Company granted a total of 7,668 and 18,501 unrestricted
shares of Class B common stock at an average grant date fair value of $24.53 and $11.22, for a total fair value
of $0.2 million and $0.2 million. These shares were issued to 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.
64
Stock Options:
The Company has stock options outstanding under two former stock incentive plans. The 1996 Stock
Incentive Program, which was approved by the Company's Share Owners on October 22, 1996, allowed the
issuance of incentive stock options, nonqualified stock options, stock appreciation rights, and performance
share awards to officers and other key employees of the Company and to members of the Board of Directors
who are not employees. The 1996 Stock Incentive Program will continue to have options outstanding through
fiscal year 2013. The 1996 Directors' Stock Compensation and Option Plan, available to all members of the
Board of Directors, was approved by the Company's Share Owners on October 22, 1996. Under the terms of
that plan, Directors electing to receive all, or a portion, of their fees in the form of Company stock were also
granted a number of stock options equal to 50% of the number of shares received for compensation of fees.
The Directors' Stock Compensation and Option Plan will continue to have options outstanding through fiscal
year 2009. No shares remain available for new grants under the Company's prior stock option plans.
There were no stock option grants awarded during fiscal years 2007 and 2006. For outstanding awards,
the fair value at the date of the grant was estimated using the Black-Scholes option pricing model. Options
granted under the plans generally are exercisable from six months to five years after the date of grant and
expire five to ten years after the date of grant. Stock options are forfeited when employment terminates, except
in the case of retirement at age 62 or older, death, permanent disability, or certain other circumstances
described in the Company's employment policy.
The Company also has an immaterial number of stock appreciation rights outstanding under the former
1996 Stock Incentive Program. As valued by the Black-Scholes valuation model, these awards had no value as
of June 30, 2007 and 2006.
A summary of stock option activity under the two former plans during fiscal year 2007 is presented below:
Options outstanding at July 1, 2006 ÏÏÏÏÏÏÏÏ
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ForfeitedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Options outstanding at June 30, 2007ÏÏÏÏÏÏÏ
Number of
Shares
1,719,808
Ì
(819,117)
(39,466)
(31,182)
830,043
Options vested and expected to vest ÏÏÏÏÏÏÏÏ
Options exercisable at June 30, 2007 ÏÏÏÏÏÏÏ
813,680
286,918
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
$15.81
Ì
15.91
15.07
18.18
$15.65
$15.67
$16.77
4.5 years
4.5 years
2.9 years
$
$
$
Ì
Ì
Ì
The total intrinsic value of options exercised during fiscal year 2007 and 2006 was $5.8 million and
$0.2 million, respectively. The value of existing shares held by employees was used to exercise stock options.
The actual tax benefit realized for the tax deductions from option exercises totaled $1.9 million and
$0.1 million for fiscal year 2007 and 2006, respectively.
Note 9
Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Income
tax benefits net of valuation allowance associated with net operating losses of, in thousands, $2,092 expire from
fiscal year 2012 to 2025. Income tax benefits net of valuation allowance associated with net tax credit
carryforwards of, in thousands, $91, expire from fiscal year 2012 to 2020. A valuation reserve was provided as
of June 30, 2007 for deferred tax assets relating to certain foreign and state net operating losses of, in
thousands, $1,215, certain state tax credit carryforwards of, in thousands, $3,139, and, in thousands, $66
related to other deferred tax assets that the Company currently believes are more likely than not to remain
unrealized in the future.
65
The components of the deferred tax assets and liabilities as of June 30, 2007 and 2006, were as follows:
(Amounts in Thousands)
Deferred Tax Assets:
2007
2006
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employee benefits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted share units ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Warranty reserve ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Credit carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Charitable contribution carryforward ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net operating loss carryforward ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Miscellaneous ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation Allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,349
3,657
3,256
8,716
1,944
1,422
856
3,230
438
312
Ì
3,307
1,151
(4,420)
$ 2,092
2,433
3,431
8,326
1,320
1,364
848
3,180
221
583
1,317
2,620
1,429
(3,856)
Total assetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$26,218
$25,308
Deferred Tax Liabilities:
Property & equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capitalized softwareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Miscellaneous ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 9,370
174
493
$13,247
820
437
Total liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10,037
$14,504
Net Deferred Income Taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$16,181
$10,804
The components of income (loss) from continuing operations before taxes on income are as follows:
(Amounts in Thousands)
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total income from continuing operations before income taxes
Year Ended June 30
2006
2007
2005
$38,576
(2,224)
$32,716
6,481
$ 9,512
14,695
on income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$36,352
$39,197
$24,207
66
The provision for income taxes from continuing operations is composed of the following items:
(Amounts in Thousands)
Currently Payable:
Year Ended June 30
2006
2007
2005
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$16,185
553
2,897
$17,118
1,232
3,495
$1,655
3,605
355
Total current ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19,635
21,845
5,615
Deferred Taxes:
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(5,303)
(488)
(758)
(8,831)
(525)
(1,905)
386
(622)
486
Total deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(6,549)
(11,261)
250
Total provision for income taxes for continuing operations ÏÏÏ
$13,086
$10,584
$5,865
A reconciliation of the statutory U.S. income tax rate from continuing operations to the Company's
effective income tax rate follows:
(Amounts in Thousands)
Tax computed at U.S. federal statutory rate ÏÏÏÏÏÏÏ
State income taxes, net of federal income tax benefit
Foreign tax effect ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax-exempt interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Domestic manufacturing deduction ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Research creditÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Resolution of IRS audit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total provision for income taxes for continuing
2007
Year Ended June 30
2006
2005
Amount
%
Amount
%
Amount
%
$12,723
1,420
843
(1,201)
(323)
(686)
705
(395)
35.0% $13,719
3.9
1,093
(1,561)
2.3
(651)
(3.3)
(347)
(0.9)
(500)
(1.9)
2.0
385
(1,554)
(1.1)
35.0% $8,472
547
(2,148)
(420)
Ì
(265)
(321)
Ì
2.8
(4.0)
(1.7)
(0.9)
(1.3)
1.1
(4.0)
35.0%
2.3
(8.9)
(1.8)
Ì
(1.1)
(1.3)
Ì
operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$13,086
36.0% $10,584
27.0% $5,865
24.2%
Cash payments for income taxes, net of refunds, were in thousands, $14,599, $10,028, and $1,226 in fiscal
year 2007, 2006, and 2005, respectively.
67
Note 10 Common Stock
On a fiscal year basis, shares of Class B Common Stock are entitled to an additional $0.02 per share
dividend more than the dividends paid on Class A Common Stock, provided that dividends are paid on the
Company's Class A Common Stock. The owners of both Class A and Class B Common Stock are entitled to
share pro-rata, irrespective of class, in the distribution of the Company's available assets upon dissolution.
Owners of Class B Common Stock are entitled to elect, as a class, one member of the Company's Board
of Directors. In addition, owners of Class B Common Stock are entitled to full voting powers, as a class, with
respect to any consolidation, merger, sale, lease, exchange, mortgage, pledge, or other disposition of all or
substantially all of the Company's fixed assets, or dissolution of the Company. Otherwise, except as provided
by statute with respect to certain amendments to the Articles of Incorporation, the owners of Class B
Common Stock have no voting rights, and the entire voting power is vested in the Class A Common Stock,
which has one vote per share. The Habig families own directly or share voting power in excess of 50% of the
Class A Common Stock of Kimball International, Inc. The owner of a share of Class A Common Stock may,
at their option, convert such share into one share of Class B Common Stock at any time.
If any dividends are not paid on shares of the Company's Class B Common Stock for a period of thirty-six
consecutive months, or if at any time the number of shares of Class A Common Stock issued and outstanding
is less than 15% of the total number of issued and outstanding shares of both Class A and Class B Common
Stock, then all shares of Class B Common Stock shall automatically have the same rights and privileges as the
Class A Common Stock, with full and equal voting rights and with equal rights to receive dividends as and if
declared by the Board of Directors.
Note 11 Derivative Instruments
The Company operates internationally and is therefore exposed to foreign currency exchange rate
fluctuations in the normal course of its business. As part of its risk management strategy, the Company uses
derivative instruments to hedge certain foreign currency exposures. Before acquiring a derivative instrument to
hedge a specific risk, potential natural hedges are evaluated. Derivative instruments are only utilized to
manage underlying exposures that arise from the Company's business operations and are not used for
speculative purposes. 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.
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. The maximum
length of time the Company had hedged its exposure to the variability in future cash flows was 12 months as of
both June 30, 2007 and 2006. For derivative instruments that meet the criteria of SFAS No. 133, ""Accounting
for Derivative Instruments and Hedging Activities,'' as amended and interpreted, 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, a component of Share Owners' Equity, and are subsequently reclassified into
earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of
the gain or loss is reported in other income or expense immediately.
The fair value of derivative financial instruments recorded on the balance sheet as of June 30, 2007 and
2006 was, in thousands, $835 and $77, recorded in other current assets, and $430 and $881 recorded in other
current liabilities, respectively. Derivative gains (losses), on a pre-tax basis, were, in thousands, $1,287,
($405), and $3,022, in fiscal year 2007, 2006, and 2005, respectively. Included in the derivative gain for fiscal
year 2007 is $299 pre-tax income, in thousands, related to Thailand hedges which were determined to be
ineffective as a result of government currency exchange rate controls. Ineffectiveness was not material during
fiscal year 2006 and 2005. Derivative gains and losses are reported in the Non-Operating Income line of the
Consolidated Statements of Income and the Net Income line of the Consolidated Statements of Cash Flows.
The Company estimates that, in thousands, $229 of pre-tax derivative gains deferred in Accumulated Other
Comprehensive Income will be reclassified into earnings, along with the earnings effects of related forecasted
transactions, within the next fiscal year ending June 30, 2008.
68
Note 12 Short-Term Investments
The Company's short-term investment portfolio consists of available-for-sale securities, primarily
government and municipal obligations and auction rate securities. These securities are reported at fair value,
which is estimated based upon the quoted market values of those, or similar instruments. Carrying costs reflect
the original purchase price, with discounts and premiums amortized over the life of the security. Government
and municipal obligations mature within a five year period. Auction rate securities have interest rate resets
through a modified Dutch auction, at predetermined short-term intervals which provides the Company the
option to liquidate its holdings or roll its investments over to the next reset period.
(Amounts in Thousands)
Carrying cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized holding gains ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized holding losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other-than-temporary impairment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 30
2007
2006
$67,699
21
(321)
(49)
$107,294
Ì
(427)
(21)
Fair Value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$67,350
$106,846
As of June 30, 2007, 63 investments were in an unrealized loss position and the unrealized loss
approximated 0.7% of their fair value. The duration of the unrealized loss positions ranges from one to
39 months. The Company has the ability to hold these investments and expects unrealized losses to be
recoverable, and therefore, the Company does not consider these investments to be other-than-temporarily
impaired. In reaching the conclusion that investments are not impaired, the Company considered the severity
of loss, the credit quality of the instrument in relation to its yield, whether the external fund manager has
discretion to trade at a loss, and the fact that the value of the debt investments is driven by interest rate
fluctuations.
The fair value and unrealized loss for investments which have been in a continuous unrealized loss
position for less than 12 months total, in thousands, $42,844 and ($256), respectively, as of June 30, 2007. The
fair value and unrealized loss for investments which have been in a continuous unrealized loss position for
12 months or longer total, in thousands, $5,888 and ($65), respectively, as of June 30, 2007. The fair value and
unrealized loss for investments which were in a continuous unrealized loss position for less than 12 months
total, in thousands, $11,962 and ($114), respectively, as of June 30, 2006. The fair value and unrealized loss
for investments which were in a continuous unrealized loss position for 12 months or longer total, in thousands,
$15,705 and ($313), respectively, as of June 30, 2006.
Proceeds from sales of available-for-sale securities were, in thousands, $13,403, $13,285, and $19,384 for
the years ended June 30, 2007, 2006, and 2005, respectively. Gross realized gains and (losses) on the sale of
available-for-sale securities at June 30, 2007 were, in thousands, $17 and ($72), respectively, compared to
gross realized gains and (losses) of, in thousands, $2 and ($91), respectively, at June 30, 2006 and $139 and
($41), respectively, at June 30, 2005. The cost was determined on each individual security in computing the
realized gains and losses. Realized gains and losses are reported in the Other Income (Expense) category of
the Consolidated Statements of Income.
69
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 at June 30, 2007, 2006, and
2005 was, in thousands, $2,939, $1,720, and $1,250, respectively. SERP asset and liability balances were as
follows:
(Amounts in Thousands)
SERP investment Ì current asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SERP investment Ì other long-term asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 30
2007
2006
$ 2,888
10,498
$ 2,429
8,714
Total SERP investmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$13,386
$11,143
SERP obligation Ì current liabilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SERP obligation Ì other long-term liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,888
10,498
$ 2,429
8,714
Total SERP obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$13,386
$11,143
Note 13 Accrued Expenses
Accrued expenses consisted of:
(Amounts in Thousands)
Taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retirement plan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
InsuranceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
June 30
2007
2006
$ 3,413
27,332
5,575
7,990
20,004
$ 3,181
32,357
5,551
8,323
16,456
Total accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$64,314
$65,868
Note 14 Segment and Geographic Area Information
Management organizes the Company into segments based upon differences in products and services
offered in each segment. The segments and their principal products and services are as follows: The Furniture
segment provides furniture for the office and hospitality industries, sold under the Company's family of brand
names. The Electronic Contract Assemblies segment provides engineering and manufacturing services which
utilize common production and support capabilities to a variety of industries globally. The Company's focus is
on electronic assemblies that have high durability requirements and are sold on a contract basis and produced
to customers' specifications. The Company currently sells primarily to customers in the automotive, industrial
controls, medical, and public safety industries.
70
Included in the Electronic Contract Assemblies segment are sales to two major customers. Sales to TRW
Automotive, Inc., totaled in millions, $96.6, $135.6, and $129.7 in fiscal years 2007, 2006, and 2005,
respectively, representing 8%, 12%, and 13% of consolidated net sales, respectively, for such periods. Sales to
Bayer AG entities under common control, including Bayer Diagnostics Manufacturing Limited, totaled, in
millions, $198.9, $66.4, and $16.7 in fiscal years 2007, 2006, and 2005, respectively, representing 15%, 6%, and
2% of consolidated net sales, respectively, for such periods. The increase in sales to Bayer AG in fiscal year
2006 was related to the Company's acquisition of Bayer's Bridgend, Wales, UK manufacturing operation in
the fourth quarter of that fiscal year.
The accounting policies of the segments are the same as those described in Note 1 Ì Summary of
Significant Accounting Policies of Notes to Consolidated Financial Statements with additional explanation of
segment allocations as follows. Corporate assets and operating costs are allocated to the segments based on the
extent to which each segment uses a centralized function, where practicable. However, certain common costs
have been allocated among segments less precisely than would be required for stand alone financial
information prepared in accordance with accounting principles generally accepted in the United States of
America. Unallocated corporate assets include cash and cash equivalents, short-term investments, and other
assets not allocated to segments. Unallocated corporate income from continuing operations consists of income
not allocated to segments for purposes of evaluating segment performance and includes income from corporate
investments and other non-operational items. Sales between the Furniture segment and Electronic Contract
Assemblies segment are not material.
The Company evaluates segment performance based upon several financial measures, although the two
most common include economic profit, which incorporates a segment's cost of capital when evaluating
financial performance, and income from continuing operations. Income from continuing operations is reported
for each segment as it is the measure most consistent with the measurement principles used in the Company's
consolidated financial statements.
The Company aggregates multiple operating segments into each reportable segment. The aggregated
operating segments have similar economic characteristics and meet the other aggregation criteria required by
SFAS 131, Disclosure about Segments of an Enterprise and Related Information.
Income statement amounts presented are from continuing operations.
At or For the Year Ended June 30, 2007
(Amounts in Thousands)
Net SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and AmortizationÏÏÏÏÏÏÏÏÏÏÏÏ
Interest Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest Expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for Income TaxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations(1) ÏÏÏÏÏ
Total Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital Expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Furniture
$613,962
18,093
Ì
3
11,283
17,810
225,555
1,733
22,313
Electronic
Contract
Assemblies
$672,968
20,561
Ì
1,025
1,489
981
381,631
13,785
18,568
Unallocated
Corporate and
Eliminations
$ Ì
Ì
5,237
45
314
4,475
87,555
Ì
Ì
Consolidated
$1,286,930
38,654
5,237
1,073
13,086
23,266
694,741
15,518
40,881
71
At or For the Year Ended June 30, 2006
(Amounts in Thousands)
Net SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and AmortizationÏÏÏÏÏÏÏÏÏÏÏÏ
Interest Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest Expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision (Benefit) for Income Taxes ÏÏÏÏÏÏ
Income from Continuing Operations(2) ÏÏÏÏÏ
Total Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital Expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Furniture
$612,589
17,901
Ì
Ì
10,728
17,291
228,017
1,733
9,607
Electronic
Contract
Assemblies
$496,706
18,117
Ì
217
221
6,456
324,284
1,553
19,919
Unallocated
Corporate and
Eliminations
$
254
Ì
4,592
32
(365)
4,866
126,720
Ì
Ì
Consolidated
$1,109,549
36,018
4,592
249
10,584
28,613
679,021
3,286
29,526
At or For the Year Ended June 30, 2005
(Amounts in Thousands)
Net SalesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and AmortizationÏÏÏÏÏÏÏÏÏÏÏÏ
Interest Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest Expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for Income TaxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations(3) ÏÏÏÏÏ
Total Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital Expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Furniture
$563,818
20,078
Ì
12
4,119
4,439
301,827
2,166
17,405
Electronic
Contract
Assemblies
$439,696
18,268
Ì
43
1,090
10,753
207,068
Ì
10,722
Unallocated
Corporate and
Eliminations
$
872
Ì
2,104
108
656
3,150
91,645
Ì
Ì
Consolidated
$1,004,386
38,346
2,104
163
5,865
18,342
600,540
2,166
28,127
(1) Includes consolidated after-tax restructuring charges of $0.9 million in fiscal year 2007. On a segment
basis, the Furniture segment recorded a $0.8 million restructuring charge, the Electronic Contract
Assemblies segment recorded a $0.1 million restructuring charge, and Unallocated Corporate recorded a
minimal amount of restructuring. See Note 17 Ì Restructuring Expense of Notes to Consolidated
Financial Statements for further discussion.
(2) Includes consolidated after-tax restructuring charges of $2.8 million in fiscal year 2006. On a segment
basis, the Furniture segment recorded a $2.3 million restructuring charge, and the Electronic Contract
Assemblies segment recorded a $0.5 million restructuring charge. See Note 17 Ì Restructuring Expense
of Notes to Consolidated Financial Statements for further discussion. Also includes $1.3 million of after-
tax income received as part of a Polish offset credit program for investments made in our Poland
operations within the Electronic Contract Assemblies segment.
(3) Includes consolidated after-tax restructuring charges of $0.2 million in fiscal year 2005 primarily within
the Furniture segment. See Note 17 Ì Restructuring Expense of Notes to Consolidated Financial
Statements for further discussion.
72
Sales by Product Line:
The Furniture segment produces and sells a variety of similar products and services. Net sales to external
customers by product line within the Furniture segment were as follows:
(Amounts in Thousands)
Net Sales:
Furniture
Year Ended June 30
2006
2007
2005
Branded FurnitureÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contract Private Label Products(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$602,903
11,059
$573,759
38,830
$512,801
51,017
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$613,962
$612,589
$563,818
(4) The Net Sales decline was the result of the planned exit of Contract Private Label Products which was
complete as of June 30, 2007.
Geographic Area:
The following geographic area data includes net sales based on product shipment destination and long-
lived assets based on physical location. Long-lived assets include property and equipment and other long-term
assets such as software.
(Amounts in Thousands)
Net Sales:
At or For the Year Ended June 30
2006
2007
2005
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 921,230
365,700
$ 920,724
188,825
$ 886,862
117,524
Total net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,286,930
$1,109,549
$1,004,386
Long-Lived Assets:
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 167,579
40,930
$ 157,739
36,143
$ 203,541
30,850
Total long-lived assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 208,509
$ 193,882
$ 234,391
73
Note 15 Earnings Per Share
Earnings per share are computed using the two-class common stock method due to the dividend
preference of Class B Common Stock. Basic earnings per share are based on the weighted average number of
shares outstanding during the period. Diluted earnings per share are based on the weighted average number of
shares outstanding plus the assumed issuance of common shares and related payment of assumed dividends
for all potentially dilutive securities. Earnings per share of Class A and Class B Common Stock are as follows:
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
(Amounts in Thousands, Except for Per Share
Data)
Basic Earnings Per Share from Continuing
Operations:
Dividends Declared ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Undistributed Earnings (Loss) ÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations ÏÏÏÏ
Average Basic Shares Outstanding ÏÏÏÏÏÏ
Basic Earnings Per Share from
Year Ended June 30, 2007
Total
Class B
Class A
Year Ended June 30, 2006
Total
Class B
Class A
Year Ended June 30, 2005
Total
Class B
Class A
$ 7,609
$17,198
$24,807
(478)
(1,063)
(1,541)
$ 8,330
1,455
$16,071
2,757
$24,401
4,212
$ 8,628
$15,799
$24,427
(2,166)
(3,919)
(6,085)
$ 7,131
11,979
$16,135
26,623
$23,266
38,602
$ 9,785
13,195
$18,828
25,002
$28,613
38,197
$ 6,462
13,576
$11,880
24,565
$18,342
38,141
Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
0.60
$
0.61
$
0.74
$
0.75
$
0.48
$
0.48
Diluted Earnings Per Share from
Continuing Operations:
Dividends Declared and Assumed
Dividends on Dilutive Shares ÏÏÏÏÏÏÏÏ
Undistributed Earnings (Loss) ÏÏÏÏÏÏÏÏÏ
$ 7,708
$17,360
$25,068
(565)
(1,237)
(1,802)
$ 8,411
1,436
$16,077
2,689
$24,488
4,125
$ 8,628
$15,835
$24,463
(2,187)
(3,934)
(6,121)
Income from Continuing Operations ÏÏÏÏ
Average Diluted Shares Outstanding ÏÏÏÏ
Diluted Earnings Per Share from
$ 7,143
12,325
$16,123
26,932
$23,266
39,257
$ 9,847
13,360
$18,766
25,024
$28,613
38,384
$ 6,441
13,711
$11,901
24,648
$18,342
38,359
Continuing Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
0.58
$
0.60
$
0.74
$
0.75
$
0.47
$
0.48
Reconciliation of Basic and Diluted EPS
from Continuing Operations
Calculations:
Income from Continuing Operations
Used for Basic EPS Calculation ÏÏÏÏÏÏ
$ 7,131
$16,135
$23,266
$ 9,785
$18,828
$28,613
$ 6,462
$11,880
$18,342
Assumed Dividends Payable on Dilutive
Shares:
Stock optionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Performance share awards ÏÏÏÏÏÏÏÏÏÏÏ
Reduction of Undistributed Earnings Ì
allocated based on Class A and
Class B sharesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations
Ì
99
151
11
151
110
Ì
81
Ì
6
Ì
87
Ì
Ì
Ì
36
Ì
36
(87)
(174)
(261)
(19)
(68)
(87)
(21)
(15)
(36)
Used for Diluted EPS Calculation ÏÏÏÏ
$ 7,143
$16,123
$23,266
$ 9,847
$18,766
$28,613
$ 6,441
$11,901
$18,342
Average Shares Outstanding for Basic
EPS Calculation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
11,979
26,623
38,602
13,195
25,002
38,197
13,576
24,565
38,141
Dilutive Effect of Average Outstanding:
Stock optionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Performance share awards ÏÏÏÏÏÏÏÏÏÏÏ
Restricted share unitsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
160
186
236
16
57
236
176
243
Ì
131
34
Ì
10
12
Ì
141
46
Ì
Ì
135
Ì
57
26
Ì
57
161
Average Shares Outstanding for Diluted
EPS Calculation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
12,325
26,932
39,257
13,360
25,024
38,384
13,711
24,648
38,359
74
LOSS PER SHARE FROM DISCONTINUED OPERATIONS
Year Ended
June 30, 2007
Year Ended
June 30, 2006
Year Ended
June 30, 2005
Basic:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(0.11)
$(0.11)
$(0.11)
$(0.11)
$(0.36)
$(0.35)
$(0.36)
$(0.36)
$(0.05)
$(0.04)
$(0.05)
$(0.04)
EARNINGS PER SHARE FROM CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE
Year Ended
June 30, 2007
Year Ended
June 30, 2006
Year Ended
June 30, 2005
Basic:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.00
$0.00
$0.00
$0.00
$0.01
$0.01
$0.01
$0.01
$0.00
$0.00
$0.00
$0.00
EARNINGS PER SHARE (INCLUDING DISCONTINUED OPERATIONS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE)
(Amounts in Thousands, Except
for Per Share Data)
Basic Earnings Per Share:
Dividends Declared ÏÏÏÏÏÏ
Undistributed Loss ÏÏÏÏÏÏ
Net Income ÏÏÏÏÏÏÏÏÏÏ
Average Basic Shares
Outstanding ÏÏÏÏÏÏÏÏÏÏ
Basic Earnings Per
Share ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share:
Dividends Declared and
Assumed Dividends on
Dilutive Shares ÏÏÏÏÏÏÏ
Undistributed Loss ÏÏÏÏÏÏ
Net Income ÏÏÏÏÏÏÏÏÏÏ
Average Diluted Shares
Outstanding ÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per
Year Ended June 30, 2007
Class B
Total
Class A
Year Ended June 30, 2006
Class B
Total
Class A
Year Ended June 30, 2005
Class B
Total
Class A
$ 7,609 $17,198 $24,807 $ 8,330 $16,071 $24,401 $ 8,628 $15,799 $24,427
(1,754)
$ 5,855 $13,297 $19,152 $ 5,207 $10,155 $15,362 $ 5,838 $10,750 $16,588
(3,123) (5,916)
(5,655)
(3,901)
(5,049)
(9,039)
(2,790)
(7,839)
11,979
26,623
38,602
13,195
25,002
38,197
13,576
24,565
38,141
$
0.49 $
0.50
$
0.39 $
0.41
$
0.43 $
0.44
$ 7,708 $17,360 $25,068 $ 8,411 $16,077 $24,488 $ 8,628 $15,835 $24,463
(1,857)
$ 5,851 $13,301 $19,152 $ 5,235 $10,127 $15,362 $ 5,813 $10,775 $16,588
(3,176) (5,950)
(5,916)
(4,059)
(5,060)
(9,126)
(2,815)
(7,875)
12,325
26,932
39,257
13,360
25,024
38,384
13,711
24,648
38,359
Share ÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Included in dividends declared for the basic and diluted earnings per share computation are dividends
computed and accrued on unvested Class A and Class B restricted share units, which will be paid by a
conversion to the equivalent value of common shares after a vesting period.
0.42 $
0.39 $
0.47 $
0.49
0.44
0.40
$
$
In fiscal year 2007, all 1,147,000 stock options outstanding were dilutive and were included in the dilutive
calculation. In fiscal year 2006, all 1,944,000 stock options outstanding were antidilutive and were excluded
from the dilutive calculation. In fiscal year 2005, all 2,435,000 stock options outstanding were antidilutive and
were excluded from the dilutive calculation.
75
Note 16 Comprehensive Income
Comprehensive income includes all changes in equity during a period except those resulting from
investments by, and distributions to, Share Owners. Comprehensive income consists of net income and other
comprehensive income, which includes the net change in unrealized gains and losses on securities, foreign
currency translation adjustments, the net change in derivative gains and losses, and postemployment severance
prior service cost. The Company has elected to disclose comprehensive income in the Consolidated
Statements of Share Owners' Equity. Accumulated balances of other comprehensive income are as follows:
(Amounts in Thousands)
Balance at June 30, 2004ÏÏÏÏÏ
Current year change ÏÏÏÏÏÏÏÏÏ
Balance at June 30, 2005ÏÏÏÏÏ
Current year change ÏÏÏÏÏÏÏÏÏ
Balance at June 30, 2006ÏÏÏÏÏ
Current year change ÏÏÏÏÏÏÏÏÏ
Balance at June 30, 2007ÏÏÏÏÏ
Accumulated Other Comprehensive Income
Foreign
Currency
Translation
Adjustments
Net Change in
Unrealized Gains
and Losses on
Securities(1)
Net Change in
Derivative
Gains/Losses(2)
Postemployment
Severance Prior
Service Cost(3)
Accumulated
Other
Comprehensive
Income
$1,120
(5)
$1,115
468
$1,583
3,182
$4,765
$ (12)
(79)
$ (91)
(166)
$(257)
76
$(181)
$ 514
(637)
$(123)
(317)
$(440)
574
$ 134
$ Ì
Ì
$ Ì
Ì
$ Ì
(1,323)
$(1,323)
$1,622
(721)
$ 901
(15)
$ 886
2,509
$3,395
(1) Net of tax expense/(benefit), in thousands, of $50, ($110), and ($53) for fiscal year 2007, 2006, and
2005, respectively.
(2) Net of tax expense/(benefit), in thousands, of $183, ($54), and ($154) for fiscal year 2007, 2006, and
2005, respectively.
(3) Net of tax (benefit), in thousands, of ($877) for fiscal year 2007.
Note 17 Restructuring Expense
During the fourth quarter of fiscal year 2007, the Company approved a restructuring plan within the
Electronics Contract Assemblies segment to exit a manufacturing facility located in Gaylord, Michigan. This
facility was one of four facilities acquired in the recent acquisition of Reptron, as described in Note 2 Ì
Acquisitions of Notes to Consolidated Financial Statements. With the acquisition, the Company recognized it
would have excess capacity in North America. Management developed a plan as of the acquisition date to
consolidate capacity within the acquired facilities. Based on a review of future growth potential in various
geographies and input from existing customers regarding future capacity needs, it was determined that the
Gaylord facility's automotive electronics business would transfer to other electronics manufacturing sites
located in Jasper, Indiana and Nanjing, China. The Gaylord facility and some of the equipment will be sold.
The Company expects to cease production during the second quarter of fiscal year 2008 and complete all
restructuring activities by the fourth quarter of fiscal year 2008. The Company expects total pre-tax
restructuring to be approximately $1.1 million, including $1.0 million related to employee severance and
transition costs which have been recognized as a purchase price allocation adjustment in goodwill, not
impacting earnings, and $0.1 million related to inventory transfers and post-closing activities which will impact
earnings as the costs are incurred.
As a result of excess capacity in North America, during the third quarter of fiscal year 2006 the Company
approved a restructuring plan within the Electronic Contract Assemblies segment to exit a manufacturing
facility located in Northern Indiana. As part of this restructuring plan, the production for select programs was
transferred to other locations within this segment. Operations at this facility ceased in the Company's first
quarter of fiscal year 2007. The facility is classified as held for sale. The facility and ongoing maintenance
expenses related to the facility are reported as unallocated corporate assets and expenses for segment reporting
purposes. The Company expects minimal future charges and estimates total pre-tax restructuring charges
related to this plan, when complete, to be approximately $1.2 million, consisting of $0.7 million of employee
transition costs, acceleration of software amortization of $0.4 million, acceleration of plant, property, and
equipment depreciation of $0.1 million, and other restructuring costs of $0.3 million partially offset by
$0.3 million for gains on the sale of equipment net of other asset impairment.
76
As part of the Company's plan to sharpen focus and simplify business processes within the Furniture segment,
the Company announced during the first quarter of fiscal year 2006, a restructuring plan which included
consolidation of administrative, marketing, and business development functions to better serve the segment's
primary markets. To simplify and standardize business processes, a portion of the Company's Enterprise Resource
Planning (ERP) software is being redesigned and is expected to be complete during the next year. Accelerated
amortization costs will continue to be recognized during this period. During the first quarter of fiscal year 2006,
capitalized software costs related to the ERP software that was not yet placed in service were abandoned and
recognized as impaired. Restructuring charges related to ERP software impairment, accelerated amortization,
employee severance, and other consolidation costs are recorded on the Restructuring Expense line item of the
Company's Consolidated Statements of Income. The plan also included the sale of a forest products hardwood
lumber business and a business unit which produced fixed-wall furniture systems. Losses on the sale of these
business units are presented on the Loss from Discontinued Operations, Net of Tax line item on the Company's
Consolidated Statements of Income. See Note 18 Ì Discontinued Operations of Notes to Consolidated Financial
Statements for further discussion of these discontinued operations. The Company estimates total pre-tax charges
under the plan, when complete, to be approximately $17.0 million, including the pre-tax loss on the sale of business
operations of $10.3 million which was recorded as discontinued operations, and restructuring charges for plant,
property, and equipment impairment of $0.4 million, software impairment of $3.5 million, acceleration of software
amortization of $2.2 million, employee severance costs of $0.5 million, and other restructuring costs of $0.1 million.
During the second quarter of fiscal year 2003, the Company announced incremental cost scaling actions to
more closely align its operating capacities and capabilities with reduced demand levels related to the prolonged
nature of the global economic slowdown in many of the Company's markets and the resulting continuation of
underutilized manufacturing capacity within both of the Company's segments. Overall scaling actions included the
consolidation of capabilities and operations, selling and/or exiting redundant facilities, aligning personnel costs, and
adjusting assets associated with scaling actions to their current fair values. Activities outlined in the restructuring
plan began in the second quarter of fiscal year 2003 and were completed in the first quarter of fiscal year 2005.
The Company accounts for restructuring cost in accordance with Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. 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 Consolidated Statements of Income.
Fiscal Year 2007 Restructuring Charges:
There were no restructuring charges recognized in earnings in fiscal year 2007 regarding the restructuring plan
announced during the fourth quarter of fiscal year 2007 to exit a manufacturing facility located in Gaylord,
Michigan.
As a result of the fiscal year 2006 restructuring plan, the Company recognized consolidated pre-tax
restructuring expense of $1.5 million in fiscal year 2007. Within the Furniture segment, the Company recognized
pre-tax restructuring expense of $1.3 million in fiscal year 2007, which included restructuring charges of $0.8 million
for accelerated software amortization, $0.4 million for plant, property, and equipment impairment, and $0.1 million
for employee transition and other costs. The Electronic Contract Assemblies segment recognized pre-tax restructur-
ing expense of $0.1 million in fiscal year 2007 which included $0.3 million for employee transition costs and
$0.1 million for accelerated software amortization which were partially offset by $0.3 million of gains on the sale of
equipment net of other asset impairment. Within Unallocated Corporate, the Company recognized pre-tax
restructuring expense of $0.1 million in fiscal year 2007 for other exit costs.
Fiscal Year 2006 Restructuring Charges:
As a result of the fiscal year 2006 restructuring plan, the Company recognized consolidated pre-tax
restructuring expense of $4.7 million in fiscal year 2006. Within the Furniture segment, the Company recognized
pre-tax restructuring expense of $3.8 million in fiscal year 2006, which included restructuring charges of $0.3 million
for employee transition costs, $2.9 million for software impairment, and $0.6 million for accelerated software
amortization. Within the Electronic Contract Assemblies segment, the Company recognized pre-tax restructuring
expense of $0.9 million in fiscal year 2006, which included restructuring charges of $0.1 million for asset
impairment, $0.2 million for accelerated software amortization, $0.1 million for accelerated plant, property, and
equipment depreciation, and $0.5 million for employee transition costs.
Fiscal Year 2005 Restructuring Charges:
As a result of the fiscal year 2003 restructuring plan, the Company recognized pre-tax restructuring expense of
$0.3 million in fiscal year 2005, primarily within the Furniture segment. Included in the restructuring charge was
$0.1 million for asset write-downs and $0.2 million for plant closure and other exit costs.
77
Reserves
At June 30, 2007, there was $1.0 million restructuring liability relating to continuing operations remaining
on the Consolidated Balance Sheet. The restructuring charge, utilization and cash paid to date, and ending
reserve balances of continuing operations at June 30, 2007 were as follows:
Transition
and Other
Asset and
Goodwill
Employee Costs Write-downs
Plant Closure
and Other
Exit Costs
(Amounts in Thousands)
Reserve June 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Charged Ì Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Charged Ì Non-Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Utilized/Cash Paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Reserve June 30, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Charged Ì Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Charged Ì Non-Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Utilized/Cash Paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Reserve June 30, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Charged Ì Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Charged Ì Non-Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Utilized/Cash Paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amounts Adjusted(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì
Ì
Ì
Ì
Ì
$ Ì
812
Ì
812
(435)
$ 377
362
Ì
362
(733)
1,042
$ Ì
Ì
116
116
(116)
$ Ì
Ì
3,843
3,843
(3,843)
$ Ì
Ì
953
953
(953)
Ì
$227
205
Ì
205
(432)
$ Ì
Ì
Ì
Ì
Ì
$ Ì
213
Ì
213
(213)
Ì
$ Ì
$
Total
227
205
116
321
(548)
$ Ì
812
3,843
4,655
(4,278)
$
377
575
953
1,528
(1,899)
1,042
$ 1,048
Reserve June 30, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,048
$ Ì
(1) A restructuring reserve of $1.0 million was established during fiscal year 2007 related to the purchase
price allocation of the Reptron acquisition. The reserve increased the goodwill balance of the acquired
entity and has not been charged to restructuring expense.
78
Total Restructuring Charges Incurred to Date Since Announcement of Plans
(Amounts in Thousands)
Electronic Contract Assemblies Segment
Transition
and Other
Employee
Costs
Asset and
Goodwill
Write-downs
Plant Closure
and Other Exit
Costs
2006 PlanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003 PlanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 743
Ì
Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 743
Furniture Segment
2006 PlanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003 PlanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 432
1,124
Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,556
Unallocated Corporate
2006 PlanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003 PlanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì
Ì
Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì
Consolidated ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,299
$
199
3,756
$ 3,955
$ 4,597
2,415
$ 7,012
$ Ì
1,236
$ 1,236
$12,203
$
$
46
Ì
46
$ Ì
3,590
$3,590
$ 166
80
$ 246
$3,882
Total
$
988
3,756
$ 4,744
$ 5,029
7,129
$12,158
$
166
1,316
$ 1,482
$18,384
79
Note 18 Discontinued Operations
Fiscal Year 2007 Discontinued Operations:
During the first quarter of fiscal year 2007, the Company approved a plan to exit the production of wood
rear projection television (PTV) cabinets and stands within the Furniture segment, which affected the
Company's Juarez, Mexico operation. For some time, the market demand for wood rear PTV cabinets and
stands had been declining due to the market shift to plasma and LCD large-screen televisions, and the
Company responded to this trend. In August 2004, the Company sold the building in Juarez and subsequently
leased back a much smaller manufacturing footprint in the same facility to reduce excess capacity, and then
during fiscal year 2006, the Company further consolidated its two Mexican wood rear PTV cabinet and stand
operations into the one smaller Juarez facility. With the recent exit, the Company will no longer have
continuing involvement with the production of PTV cabinets and stands. Production at the Juarez facility
ceased during the second quarter of fiscal year 2007, and all inventory has been sold. Miscellaneous wrap-up
activities including disposition of remaining equipment were complete as of June 30, 2007. The lease on the
building expires in August 2009, and the Company is attempting to sub-lease its portion of the facility.
Beginning in the quarter ended December 31, 2006, the year-to-date financial results associated with the
Mexican operations in the Furniture segment were classified as discontinued operations, and all prior periods
were restated.
The Company currently estimates that the pre-tax charges related to exit activities at the Juarez facility
will be approximately $5.6 million, consisting of approximately $1.6 million of property and equipment
impairment and losses on sales, $1.1 million of transition and other employee costs, $2.2 million of lease exit
costs, and $0.7 million of other exit costs. As a result of this exit plan, the Company recognized within the
Furniture segment pre-tax expenses of $4.4 million in fiscal year 2007, which included charges of $1.6 million
for property and equipment impairment and losses on sales, charges of $1.1 million for transition and other
employee costs, charges of $1.0 million for lease exit costs, and $0.7 million of other exit costs. The Company
utilized available market prices and management estimates to determine the fair value of impaired fixed
assets. At June 30, 2006, liabilities related to an exit plan to consolidate Mexican furniture and cabinets
operations into one facility located at Juarez totaled $0.2 million of other exit costs. There was no balance for
this reserve at June 30, 2007.
Fiscal Year 2006 Discontinued Operations:
On September 15, 2005, in conjunction with its restructuring plan to sharpen its focus on primary markets
within the Furniture segment, the Company approved plans to sell the operations of a forest products
hardwood lumber business and a business which produced and sold fixed-wall furniture systems. Additionally
on November 8, 2005, the Company approved a plan to exit a non-core business that manufactured
polyurethane and polyester molded components for use in the recreational vehicle, signage, and residential
furniture industries.
On October 14, 2005, the Company completed the sale of the fixed-wall furniture systems business,
which included primarily the sale of property and equipment, inventory, accounts receivable, and product
rights. The purchase price totaled $1.2 million, of which $0.3 million was received at closing and $0.9 million
was a note receivable, which has been collected. The sale resulted in a net loss of $1.4 million. The loss on
disposal of the fixed-wall furniture business included an after-tax goodwill impairment loss of $0.3 million
recognized in the Furniture segment in fiscal year 2006. The goodwill impairment loss was based upon the
cessation of cash flows related to the fixed-wall furniture systems business. The Company will not have
significant continuing cash flows or continuing involvement with this business.
80
On November 30, 2005, the Company completed the sale of the forest products hardwood lumber
business to Indiana Hardwoods, Inc., which included primarily the sale of property and equipment, inventory,
accounts receivable, and timber assets. The president and owner of Indiana Hardwoods, Inc. is Barry L. Cook,
who was formerly employed by the Company as a Vice President of Kimball International, Inc. and had
responsibility for this hardwoods lumber operation. The transaction prices were negotiated between the
Company and Indiana Hardwoods, Inc. The Company also considered offers from other interested outside
parties, but ultimately determined that it was in the Company's best interest financially to sell this operation to
Indiana Hardwoods, Inc. The purchase price totaled $25.5 million, of which $23.5 million was received at
closing and $2.0 million is a note receivable. The terms of the note receivable require monthly payments of
interest for a three-year period, with the principal coming due after the three-year period. The note is
subordinate to the purchaser's bank loan. If the purchaser is not in compliance with bank loan covenants or
does not maintain sufficient cash flows, the principal payment on the note receivable may be delayed beyond
three years. The note may represent a concentration of credit risk. The Company maintains a provision for
potential credit losses based on expected collectibility of the note, which the Company believes is adequate.
The sale resulted in a net loss of $4.8 million. The Company has no ongoing commitments resulting from the
sales agreement. The Company will not have significant continuing cash flows or continuing involvement with
this business.
On January 20, 2006, the Company completed the sale of a non-core business that manufactures
polyurethane and polyester molded components for use in the recreational vehicle, signage, and residential
furniture industries, which included primarily the sale of inventories and machinery and equipment. The
purchase price totaled $0.6 million. The sale resulted in a net loss of $0.7 million. The Company will not have
significant continuing cash flows or continuing involvement with this business.
Fiscal Year 2005 Discontinued Operations:
On January 17, 2005, the Company announced its decision to exit the branded residential furniture
business, which was part of the branded furniture product line within the Furniture segment. The exit plan
included discontinuing procurement of branded residential furniture, ending marketing and dealer activities,
and selling remaining inventories. The branded residential furniture operation had no long-lived assets, and all
branded residential furniture inventory was sold.
On October 12, 2004, the Company announced a plan to exit its veneer slicing operation, which was part
of the forest products product line within the Furniture segment. The plan included the sale of veneer slicing
machinery, equipment and remaining veneer inventories. During fiscal year 2005, veneer slicing and
warehousing operations ceased, and all inventory and assets were sold.
In accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, these businesses have been classified as discontinued operations, and their operating results and gains
(losses) on disposal are presented on the Gain (Loss) from Discontinued Operations, Net of Tax line of the
Consolidated Statements of Income.
Operating results and the gain (loss) on sale of the discontinued operations were as follows:
(Amounts in Thousands)
Net Sales of Discontinued Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating Loss of Discontinued OperationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Benefit for Income TaxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating Loss of Discontinued Operations, Net of Tax ÏÏÏÏÏÏ
Gain (Loss) on Disposal of Discontinued Operations ÏÏÏÏÏÏÏÏ
Benefit (Provision) for Income Taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gain (Loss) on Disposal of Discontinued Operations, Net of
Year Ended June 30
2006
2005
2007
$ 8,744
$(5,046)
1,978
$(3,068)
$(1,600)
554
$ 62,110
$(11,671)
5,032
$ (6,639)
$(11,495)
4,584
$141,465
$ (5,848)
3,781
$ (2,067)
$
520
(207)
Tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss from Discontinued Operations, Net of TaxÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(1,046)
$(4,114)
$ (6,911)
$(13,550)
$
313
$ (1,754)
81
Note 19 Quarterly Financial Information (Unaudited)
Quarterly financial information is summarized as follows:
(Amounts in Thousands, Except for Per Share Data)
2007:
Net Sales(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross Profit(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net Income(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic Earnings Per Share from Continuing Operations:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share from Continuing
Operations:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic Earnings Per Share:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006:
Net Sales(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross Profit(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from Continuing Operations(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (Loss) Before Cumulative Effect of Change in
Accounting Principle(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net Income (Loss)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic Earnings Per Share from Continuing Operations:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings Per Share from Continuing
Operations:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic Earnings (Loss) Per Share Before Cumulative
Effect of Change in Accounting Principle:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings (Loss) Per Share Before Cumulative
Effect of Change in Accounting Principle:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic Earnings (Loss) Per Share:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted Earnings (Loss) Per Share:
Class A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Class BÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 30
December 31
March 31
June 30
Three Months Ended
$309,779
64,665
6,283
3,671
$327,268
67,381
8,160
7,204
$311,582
60,355
4,388
3,816
$338,301
68,959
4,435
4,461
$
$
$
$
$
$
$
$
0.16
0.16
0.16
0.16
0.10
0.10
0.09
0.10
$
$
$
$
$
$
$
$
0.21
0.21
0.20
0.21
0.19
0.19
0.18
0.18
$
$
$
$
$
$
$
$
0.11
0.12
0.10
0.11
0.09
0.10
0.09
0.10
$
$
$
$
$
$
$
$
0.11
0.11
0.11
0.11
0.11
0.12
0.11
0.11
$256,768
58,529
2,295
$263,512
59,708
7,156
$260,653
62,074
7,664
$328,616
68,580
11,498
(6,862)
(6,563)
0.06
0.06
0.06
0.06
(0.18)
(0.18)
(0.18)
(0.18)
(0.17)
(0.17)
(0.17)
(0.17)
$
$
$
$
$
$
$
$
$
$
$
$
4,234
4,234
0.18
0.19
0.18
0.19
0.10
0.11
0.10
0.11
0.10
0.11
0.10
0.11
$
$
$
$
$
$
$
$
$
$
$
$
7,289
7,289
0.20
0.20
0.20
0.20
0.19
0.19
0.19
0.19
0.19
0.19
0.19
0.19
$
$
$
$
$
$
$
$
$
$
$
$
10,402
10,402
0.30
0.30
0.30
0.30
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
$
$
$
$
$
$
$
$
$
$
$
$
(1) Net sales and gross profit are from continuing operations. Fiscal year 2007 net sales included $319.3 million related to
fiscal year 2007 and 2006 acquisitions. Fiscal year 2006 net sales included $61.5 million related to fiscal year 2006
acquisitions. See Note 18 Ì Discontinued Operations of Notes to Consolidated Financial Statements for further
information on discontinued operations.
(2) Fiscal year 2007 income from continuing operations and net income included $0.9 million ($0.02 per diluted share) of
after-tax restructuring expenses.
(3) Fiscal year 2006 income from continuing operations, income (loss) before cumulative effect of change in accounting
principle and net income (loss) included $2.8 million ($0.07 per diluted share) of after-tax restructuring expenses
and $1.3 million ($0.03 per diluted share) of after-tax income received as part of a Polish offset credit program for
investments made in a Poland operation.
82
Item 9 Ì Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A Ì 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 June 30, 2007, the Chief Executive
Officer and Chief Financial Officer of the Company concluded that its disclosure controls and
procedures were effective.
(b) Management's report on internal control over financial reporting.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations adopted
pursuant thereto, the Company included a report of management's assessment of the effectiveness of
its internal control over financial reporting as part of this report. The Company's independent
registered public accounting firm also attested to, and reported on, management's assessment of the
effectiveness of internal control over financial reporting. Management's report and the independent
registered public accounting firm's attestation report are included in the Company's Consolidated
Financial Statements under the captions entitled ""Management's Report on Internal Control Over
Financial Reporting'' and ""Report of Independent Registered Public Accounting Firm'' and are
incorporated herein by reference.
(c) 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 June 30, 2007 that have materially affected, or that are reasonably likely to
materially affect, the Company's internal control over financial reporting.
Item 9B Ì Other Information
None.
Item 10 Ì Directors, Executive Officers and Corporate Governance
Directors
PART III
The information required by this item with respect to Directors is incorporated by reference to the
material contained in the Registrant's Proxy Statement for its annual meeting of Share Owners to be held
October 16, 2007 under the caption ""Election of Directors.''
83
Committees
The information required by this item with respect to the Audit Committee and its financial expert and
with respect to the Compensation and Governance Committee's responsibility for establishing procedures by
which Share Owners may recommend nominees to the Board of Directors is incorporated by reference to the
material contained in the Registrant's Proxy Statement for its annual meeting of Share Owners to be held
October 16, 2007 under the caption ""Information Concerning the Board of Directors and Committees.''
Executive Officers of the Registrant
The information required by this item with respect to Executive Officers of the Registrant is included at
the end of Part I and is incorporated herein by reference.
Compliance with Section 16(a) of the Exchange Act
The information required by this item with respect to compliance with Section 16(a) of the Exchange
Act is incorporated by reference to the material contained in the Registrant's Proxy Statement for its annual
meeting of Share Owners to be held October 16, 2007 under the caption ""Section 16(a) Beneficial Ownership
Reporting Compliance.''
Code of Ethics
The Company has a code of ethics that applies to all employees of the Registrant, including the Chief
Executive Officer, Chief Financial Officer, and the Principal Accounting Officer. The code of ethics is posted
on the Company's website at www.ir.kimball.com. It is the Company's intention to disclose any amendments
to the code of ethics on this website. In addition, any waivers of the code of ethics for directors or executive
officers of the Company will be disclosed in a Current Report on Form 8-K.
Item 11 Ì Executive Compensation
The information required by this item is incorporated by reference to the material contained in the
Registrant's Proxy Statement for its annual meeting of Share Owners to be held October 16, 2007 under the
captions Ì ""Information Concerning the Board of Directors and Committees,'' ""Compensation Discussion
and Analysis,'' ""Compensation Committee Report,'' and ""Executive and Director Compensation Tables.''
Item 12 Ì Security Ownership of Certain Beneficial Owners and Management and Related Share Owner
Matters
Security Ownership
The information required by this item is incorporated by reference to the material contained in the
Registrant's Proxy Statement for its annual meeting of Share Owners to be held October 16, 2007 under the
caption ""Share Ownership Information.''
84
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes the Company's equity compensation plans as of June 30, 2007:
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in first column)
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Equity compensation plans
approved by Share
Owners ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity compensation plans
not approved by Share
Owners ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,014,140(1)
$15.65(2)
1,097,606(3)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,014,140
Ì
Ì
$15.65
Ì
1,097,606
(1) Includes 830,043 Class B stock option grants, 608,435 Class A and 75,562 Class B performance share
awards, and 386,600 Class A and 113,500 Class B restricted share unit awards. The number of
performance shares assumes that performance targets will be met.
(2) Performance shares and restricted share units not included as there is no exercise price for these awards.
(3) Includes 1,097,606 Class A and Class B shares available for issuance as restricted stock, restricted share
units, unrestricted share grants, incentive stock options, nonqualified stock options, performance shares,
performance units, and stock appreciation rights under the Company's 2003 Stock Option and Incentive
Plan. No shares remain available for issuance under the Company's prior stock option plans.
Item 13 Ì Certain Relationships and Related Transactions, and Director Independence
Relationships and Related Transactions
The information required by this item is incorporated by reference to the material contained in the
Registrant's Proxy Statement for its annual meeting of Share Owners to be held October 16, 2007 under the
caption ""Review and Approval of Transactions with Related Persons.''
Director Independence
The information required by this item is incorporated by reference to the material contained in the
Registrant's Proxy Statement for its annual meeting of Share Owners to be held October 16, 2007 under the
caption ""Information Concerning the Board of Directors and Committees.''
Item 14 Ì Principal Accounting Fees and Services
The information required by this item is incorporated by reference to the material contained in the
Registrant's Proxy Statement for its annual meeting of Share Owners to be held October 16, 2007 under the
caption ""Relationship with Independent Registered Public Accounting Firm'' and ""Approval Process for
Services Performed by the Independent Registered Public Accounting Firm.''
85
PART IV
Item 15 Ì Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Report:
(1) Financial Statements:
The following consolidated financial statements of the Registrant are found in Item 8 and
incorporated herein.
Management's Report on Internal Control Over Financial
ReportingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Report of Independent Registered Public Accounting Firm ÏÏ
Consolidated Balance Sheets as of June 30, 2007 and 2006 ÏÏ
Consolidated Statements of Income for Each of the Three
Years in the Period Ended June 30, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended June 30, 2007 ÏÏÏÏÏÏÏÏÏ
42
43
44
45
46
Consolidated Statements of Share Owners' Equity for Each
of the Three Years in the Period Ended June 30, 2007 ÏÏÏ
Notes to Consolidated Financial StatementsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
47
48-82
(2) Financial Statement Schedules:
II. Valuation and Qualifying Accounts for Each of the Three
Years in the Period Ended June 30, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
89
Schedules other than those listed above are omitted because they are either not required or
not applicable, or the required information is presented in the Consolidated Financial
Statements.
(3) Exhibits
See the Index of Exhibits on page 90 for a list of the exhibits filed or incorporated herein as a part of
this report.
86
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
KIMBALL INTERNATIONAL, INC.
By: /s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 31, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
/s/
JAMES C. THYEN
James C. Thyen
President,
Chief Executive Officer
August 31, 2007
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 31, 2007
/s/ MICHELLE R. SCHROEDER
Michelle R. Schroeder
Vice President,
Corporate Controller
(functioning as Principal Accounting Officer)
August 31, 2007
87
Signature
RONALD J. THYEN*
Ronald J. Thyen
Director
JOHN T. THYEN*
John T. Thyen
Director
CHRISTINE M. VUJOVICH*
Christine M. Vujovich
Director
POLLY B. KAWALEK*
Polly B. Kawalek
Director
GARY P. CRITSER*
Gary P. Critser
Director
Signature
HARRY W. BOWMAN*
Harry W. Bowman
Director
JAMES C. THYEN*
James C. Thyen
Director
JACK R. WENTWORTH*
Jack R. Wentworth
Director
GEOFFREY L. STRINGER*
Geoffrey L. Stringer
Director
JOHN B. HABIG*
John B. Habig
Director
* The undersigned does hereby sign this document on my behalf pursuant to powers of attorney duly executed
and filed with the Securities and Exchange Commission, all in the capacities as indicated:
Date
August 31, 2007
/s/ DOUGLAS A. HABIG
Douglas A. Habig
Director
Individually and as Attorney-In-Fact
88
Schedule II. Ì Valuation and Qualifying Accounts
KIMBALL INTERNATIONAL, INC.
Description
(Amounts in Thousands)
Year Ended June 30, 2007
Valuation Allowances:
Short-Term Receivable Allowance ÏÏ
Long-Term Note Receivable
Allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred Tax AssetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year Ended June 30, 2006
Valuation Allowances:
Short-Term Receivable Allowance ÏÏ
Long-Term Note Receivable
Allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred Tax AssetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year Ended June 30, 2005
Valuation Allowances:
Short-Term Receivable Allowance ÏÏ
Long-Term Note Receivable
Allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred Tax AssetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance at
Beginning
of Year
Additions/
(Reductions)
to Expense
Charged to
Other
Accounts
Write-offs and
Recoveries
Balance at
End of
Year
$1,282
$ (282)
$242
$
235
$1,477
$1,400
$3,856
Ì
$ 574
Ì
Ì
Ì
(10)
$
$1,400
$4,420
$2,142
$ 414
$
9
$(1,283)
$1,282
Ì
$3,429
$1,400
$1,054
Ì
Ì
Ì
$ (627)
$1,400
$3,856
$3,456
$ 391
$ 19
$(1,724)
$2,142
$ 693
$2,597
Ì
$ 874
Ì
Ì
$ (693)
(42)
$
Ì
$3,429
89
KIMBALL INTERNATIONAL, INC.
INDEX OF EXHIBITS
Exhibit No.
Description
2(a)
2(b)
3(a)
3(b)
4
10(a)*
10(b)*
10(c)*
10(d)*
10(e)*
10(f)*
10(g)*
10(h)*
10(i)
10(j)*
10(k)*
10(l)*
11
21
23
24
31.1
31.2
32.1
32.2
Agreement and Plan of Merger by and among Kimball Electronics Manufacturing, Inc., Gator
Electronics, Inc., and Reptron Electronics, Inc., dated as of December 18, 2006 (Incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed December 19, 2006)
Amendment to Agreement and Plan of Merger by and among Kimball Electronics Manufacturing, Inc.,
Gator Electronics, Inc., and Reptron Electronics, Inc., dated as of February 5, 2007 (Incorporated by
reference to Exhibit 2(b) to the Company's Form 10-Q for the period ended December 31, 2006)
Amended and restated Articles of Incorporation of the Company
Restated By-laws of the Company (Incorporated by reference to Exhibit 3(b) to the Company's
Form 10-Q for the period ended December 31, 2005)
Agreement to Furnish Debt Instruments (Incorporated by reference to Exhibit 4 to the Company's
Form 10-Q for the period ended March 31, 2007)
Summary of Director and Named Executive Officer Compensation
Supplemental Bonus Plan (Incorporated by reference to Exhibit 10(a) to the Company's Form 10-K for
the year ended June 30, 2004)
2003 Stock Option and Incentive Plan (Incorporated by reference to Appendix A to the Company's
Annual Proxy Statement filed September 10, 2003)
Supplemental Employee Retirement Plan (2006 Revision) (Incorporated by reference to Exhibit 10(a)
to the Company's Form 10-Q for the period ended March 31, 2006)
1996 Stock Incentive Program (Incorporated by reference to Exhibit 10(e) to the Company's
Form 10-K for the year ended June 30, 2006)
1996 Director Stock Compensation and Option Plan (Incorporated by reference to Exhibit 10(f) to the
Company's Form 10-K for the year ended June 30, 2006)
Form of Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K/A filed January 24, 2005)
Form of Annual Performance Share Award Agreement, as amended on August 22, 2006 (Incorporated
by reference to Exhibit 10(b) to the Company's Form 10-Q for the period ended September 30, 2006)
Credit Agreement, dated as of May 20, 2004, among the Company, the Lenders and Bank One, NA,
and First Amendment to Credit Agreement, dated as of December 7, 2005, by and among the
Company, The Lenders Party Thereto and JPMorgan Chase Bank (Incorporated by reference to
Exhibit 10(a) to the Company's Form 10-Q for the period ended December 31, 2005)
Form of Employment Agreement dated May 1, 2006 between the Company and each of James C.
Thyen, Douglas A. Habig, Robert F. Schneider, Donald D. Charron, P. Daniel Miller, John H. Kahle
and Gary W. Schwartz (Incorporated by reference to Exhibit 10(c) to the Company's Form 10-Q for
the period ended March 31, 2006)
Form of Long Term Performance Share Award, as amended on August 22, 2006 (Incorporated by
reference to Exhibit 10(c) to the Company's Form 10-Q for the period ended September 30, 2006)
Description of the Company's 2005 Profit Sharing Incentive Bonus Plan (Incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K filed October 18, 2005)
Computation of Earnings Per Share (Incorporated by reference to Note 15 Ì Earnings Per Share of
Notes to Consolidated Financial Statements)
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Power of Attorney
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
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
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
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
* • constitutes management contract or compensatory arrangement
90
Exhibit 31.1
CERTIFICATIONS PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James C. Thyen, certify that:
1. I have reviewed this Annual Report on Form 10-K of Kimball International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: August 31, 2007
/s/
James C. Thyen
JAMES C. THYEN
President,
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert F. Schneider, certify that:
1. I have reviewed this Annual Report on Form 10-K of Kimball International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: August 31, 2007
/s/ Robert F. Schneider
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Kimball International, Inc. (the ""Company'') on Form 10-K
for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof
(the ""Report''), I, James C. Thyen, President and Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
/s/
James C. Thyen
JAMES C. THYEN
President,
Chief Executive Officer
August 31, 2007
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Kimball International, Inc. (the ""Company'') on Form 10-K
for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof
(the ""Report''), I, Robert F. Schneider, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
/s/ Robert F. Schneider
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer
August 31, 2007
Certified to ISO-9000 standards, our
Nanjing facility creates a high-quality,
dual-plant supply capability for our
global customers, enabling expanded
support of the growing Far East markets.
2007 Sales By
Business Segments
52%
Electronic Contract
Assemblies
48%
Furniture
The selection of Kimball Electronics-
Poland to supply new automotive
electronics is significant, as the European
market is expected to put Kimball in a
strong position for growth.
Making service more accessible,
Kimball Office and National
garnered attention with new
showrooms in Chicago and
New York, unveiling new brand
marketing and new products.
Design community feedback
is positive, with enthusiasm
for the changes made and
excitement about the future.
Financial Highlights
(Amounts in thousands, except for per share data)
2007
2006
% Change
Net Sales
$1,286,930
$1,109,549
Income from Continuing Operations
Return on Capital
Cash Flow from Operations
Working Capital
Capital Investments
Share Owners’ Equity
Earnings Per Share from Continuing
Operations (Diluted)
Class A
Class B
Dividends Declared
Class A
Class B
Market Price Per Share
High
Low
Close
23,266
5.24%
44,374
198,611
41,880
427,448
28,613
6.40%
76,612
231,381
31,517
422,582
0.58
0.60
0.62
0.64
25.95
12.85
14.01
0.74
0.75
0.62
0.64
19.72
10.25
19.71
16.0%
-18.7%
-18.1%
-42.1%
-14.2%
32.9%
1.2%
-21.6%
-20.0%
0.0%
0.0%
Income from Continuing Operations, Return on Capital, Cash Flow from Operations and Earnings Per Share
include restructuring charges.
Capital investments excludes business acquisitions.
High-profile resort properties
and major hotel brands
continue to select Kimball
Hospitality as a strategic
partner. Capabilities, processes,
and a service mindset
exemplify the work between
Kimball’s Asian and U.S. team
members on behalf of the
customer.
To Our Share Owners
From our headquarters in the heart of America, to our operations
across three continents, Kimball serves the world! Our global
capabilities meet the needs and challenges of our global customers.
Our global strategy supports our vision of serving our customers well
in the manner they demand. Our drive for leaner supply chains and
lower cost solutions is proof of our perseverance in changing global
markets. Our chosen markets are demanding increased agility and
responsiveness, often with a shorter horizon. Our commitment is to
meet these challenges in a manner that is responsible to all of our
stakeholders. Competition is increasing, across the nation and around
the globe. Your Company faced challenges during fiscal 2007, yet our
actions over the past year addressed them and are moving us on the
road to success. We are turning the corner on growth.
We are not relaxing in our efforts to drive sales and results.
Consolidated Net Sales for the fiscal year were $1,287,000,000, up
for the year compared to fiscal year 2006, primarily on increased
sales from our acquisitions in the Electronic Contract Assemblies
segment and organic Furniture segment growth. We saw a significant
increase in our hospitality furniture sales in fiscal year 2007 which was
somewhat offset by the planned and completed exit of our contract
private label furniture products. The 3rd and 4th quarters of fiscal year
2007 net sales comparison to the prior year was also impacted by a $64
million reduction in the price of finished product sold to a customer
in the Electronic Contract Assemblies segment. The cost of raw
material which the Company purchases from this same customer was
reduced by a similar amount, and therefore, this pricing change had no
impact on income from continuing operations. With the acquisitions
made over the last two years, the electronics side of your Company
is growing, and is now the larger in net sales of your Company’s two
business segments.
Income from continuing operations is down compared to last year as
competitive pressures in our Electronic Contract Assemblies segment,
particularly in the automotive industry, continue to tighten on our
margins. Losses from the delayed start-up of our new Electronics China
operation also affected income as production did not begin until the
end of the fiscal year. Benchmarking our performance, we continue to
focus on operating cost reductions because we know our costs are too
high in both of our segments compared to our competitors.
We reinvested $42 million during the year in capital investments
for the future, including the construction of the new China facility
and manufacturing equipment and an additional $51 million for an
electronics company acquisition. Your Company’s balance sheet
remains solid and strong, with positive cash flow from operations
during fiscal 2007. Your Company’s net cash position from an
aggregate of cash and short-term investments less short-term
borrowings is $80 million. With virtually no long-term debt, your
Company is well positioned with capital readily available to fund
our growth.
In our Electronic Contract Assemblies segment, the loss of volume
from the automotive industry continues to negatively impact sales
and income. The overall landscape of the domestic automotive market
for the past few years put us firmly on the road of diversification,
acquisition and expansion. Our strategy of market diversification
and globalization of our operations footprint has proven important
in partially offsetting the reduced automotive business. We have
heightened our focus on other key market sectors, such as industrial
controls, medical, and public safety, with sustained commitment
to automotive, as a high priority of our organic growth strategy.
On an annual run rate, with the acquisition of Reptron Electronics in
fiscal year 2007, medical is expected to become our largest market
sector. While our acquisition of Reptron Electronics has presented
challenges as we integrate the two companies, we are very pleased
with the quality expansion of our customer portfolio combined with
the dedicated and capable staff joining our Company. We anticipate
improved performance as a result of the acquisition. Growth, variable
cost productivity and increased capacity utilization continue to be our
focus for this segment. Our global portfolio of capabilities expanded
with the addition of our electronics facility in Nanjing, China. Nanjing
is now up and running as we received final certification on our
production lines from our first customer at the end of the fiscal year.
Four additional customers have awarded business to Nanjing with
production slated to begin by the end of the calendar year.
In our Furniture segment we focused on completing the organizational
realignment, simplification and standardization of our business
processes resulting from the furniture consolidation decision. As
we realign manufacturing and marketing into one streamlined
and integrated organization, we are seeing improved customer
responsiveness, improved product and service quality, and improved
reliability. These improvements are leading to lower total costs, and
greater effectiveness. We have remained consistent in our strategy
and focus on our core furniture markets. Continuing improvements
are expected in fiscal 2008. Both the Kimball Office and National brand
teams have been extremely active with new product introductions
and enhancements to existing lines. We are seeing results and
favorable market response, especially with the two new office systems
product lines introduced in February. These investments are expected
to produce revenue growth among our Select and Aligned dealers,
Platinum Partner program, and Major Flags/Brands program. Kimball
Hospitality has proven its ability to serve customers worldwide
with logistical solutions and world-class service and products. They
have been rewarded with dramatic increases in sales and profits.
Our Asian employees play a critical role in product development,
project management and service. Coming together as a team,
from Jasper to Asia and back, has been a great accomplishment in
creating a performance-oriented culture. From start-up companies to
multinational corporations, our furniture brands are serving the world.
Your Company’s vision of building success strongly guides our strategy
to serve our customers, wherever they may be around the world. Every
phone call, design project, supplier agreement, and timely product
shipment demonstrates Kimball’s commitment to serve the world.
We invite you to read the following Form 10-K to better understand
Kimball International. However, for an even greater view into the
products and operations of the Company, we encourage you to
visit our internet website at www.kimball.com and see how Kimball
serves the world!
James C. Thyen
President and Chief Executive Officer
Douglas A. Habig
Chairman of the Board
Board of Directors
Harry W. Bowman +
Retired; Former President and Chief Executive Officer of
The Stiffel Company
Director 7 years
James C. Thyen
President and Chief Executive Officer,
Kimball International
Director 25 years
Gary P. Critser +
Retired; Former Senior Executive
Vice President, Secretary and Treasurer,
Kimball International
Director 3 years
Douglas A. Habig
Chairman of the Board of Directors,
Kimball International
Director 34 years
John T. Thyen
Retired; Former Senior Executive Vice President,
Strategic Marketing, Kimball International
Director 17 years
Ronald J. Thyen
Retired; Former Senior Executive Vice President,
Operations Officer, Assistant Secretary,
Kimball International
Director 34 years
John B. Habig
Chairman of the Board of Directors of SVB&T Corporation,
a Bank Holding Company
Director 51 years
Christine M. Vujovich #
Vice President, Marketing and Environmental Policy,
Cummins, Inc.
Director 13 years
Dr. Jack R. Wentworth #
Retired; Arthur M. Weimer Professor Emeritus of Business
Administration, Indiana University; Former Dean of the
Kelley School of Business, Indiana University
Director 23 years
+ Member of the Audit Committee of the Board
# Member of the Compensation and Governance Committee
of the Board
Other Corporate Data
Kimball International, Inc. and Subsidiaries
10-K Report:
A copy of the Company’s annual report to the Securities and
Exchange Commission on Form 10-K is available, without charge,
upon written request directed to Robert F. Schneider, Executive Vice
President, Chief Financial Officer at our corporate headquarters.
Transfer Agent and Registrar of the
Class A and B Common Stock:
Share Owners with questions concerning address changes, dividend
checks, registration changes, lost share certificates or transferring
shares may contact:
National City Bank
Corporate Trust Operations
PO Box 92301
Cleveland, OH 44101-4301
Phone: (800) 622-6757
TDD Line: (800) 622-5571
Internet Address: www.nationalcitystocktransfer.com
E-Mail Address: shareholder.inquiries@nationalcity.com
Corporate Headquarters:
Kimball International, Inc.
1600 Royal Street
Jasper, Indiana 47549-1001
(812) 482-1600
(800) 482-1616 (Toll Free)
(812) 482-8500 (TDD for Hearing Impaired)
Polly B. Kawalek +
Retired; Former Senior Vice President
and President, Quaker Foods,
PepsiCo Beverages and Foods
Director 10 years
Geoffrey L. Stringer #
Retired; Former Executive Vice President of
Bank One and Chief Executive Officer of
Bank One Capital Corporation
Director 4 years
Officers
Corporate Officers
Donald D. Charron
Executive Vice President,
President–Kimball Electronics Group
John H. Kahle
Executive Vice President,
General Counsel, Secretary
P. Daniel Miller
Executive Vice President,
President–Furniture
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
Gary W. Schwartz
Executive Vice President,
Chief Information Officer
R. Gregory Kincer
Vice President, Business Development,
Treasurer
Michelle R. Schroeder
Vice President, Corporate Controller
Dean M. Vonderheide
Vice President, Human Resources
Foreign Subsidiary Managers
Janusz Kasprzyk
General Manager,
Kimball Electronics Poland,
Sp. z o. o.
Tongchai Chuenchujit
General Manager,
Kimball Electronics (Thailand), Ltd.
Robert Burre
General Manager,
Kimball Electronics-Mexico,
S.A. de C.V.
Daniel Gu (LuYin Gu)
General Manager,
Kimball Electronics (Nanjing) Co., Ltd.
John Harris
General Manager,
Kimball Electronics Wales, Ltd.
Shane Tiernan
General Manager,
Kimball Electronics Ireland, Ltd.
Domestic Subsidiary Officers
Roger Chang (Chang Shang Yu)
Vice President, Asian Operations,
Kimball Electronics Group
John S. Dick
Vice President, Chief Financial Officer,
Office Furniture Group
Jeffrey L. Fenwick
Vice President, Marketing,
Kimball Office
Steven T. Korn
Vice President, Business Development,
Kimball Electronics Group
Kent F. Mahlke
Vice President, Global Operations,
National Office Furniture
John C. Manchir
Vice President, Operations,
Kimball Office
Dirk H. Manning
Vice President, Field Sales,
Kimball Office
Kevin D. McCoy
Vice President, Sales,
National Office Furniture
Paul J. Plante
Vice President, Medical Industry Solution,
Kimball Electronics Group
Dwaine R. Saalman
Vice President, Strategic Accounts,
Kimball Office
Stanley C. Sapp
Vice President,
General Manager,
Kimball Hospitality
Michael K. Sergesketter
Vice President,
Chief Financial Officer,
Kimball Electronics Group
Kevin R. Smith
Vice President,
North American Operations,
Kimball Electronics Group
Kevin B. Stokes
Vice President,
Global Technical Services,
Kimball Electronics Group
Donald W. VanWinkle
Vice President,
General Manager,
National Office Furniture
David E. White
Vice President, Sales & Distribution,
Kimball Office
Zygmunt Witort
Vice President,
European Operations,
Kimball Electronics Group
Kimball Serves The World
Who We Are
Kimball International, Inc. is a preeminent manufacturer of furniture and
electronic assemblies, serving customers around the world. Our customers,
both large and small, receive our undivided attention, as we treat every one as
the only one. Our touch is felt throughout daily life in both the workplace and in
the home.
Recognized with a reputation for excellence, Kimball International is committed
to a high performance culture that values personal and organizational
commitment to quality, reliability, value, speed, and ethical behavior. Kimball
employees know they are part of a corporate culture that builds success for
customers while enabling employees to share in the Company’s success
through personal, professional and financial growth.
What We Do
Kimball International, Inc. provides a variety of products from its two business
segments: the Furniture segment and the Electronic Contract Assemblies
segment. The Furniture segment provides furniture for the office and hospitality
industries sold under the Company’s family of brand names. The Electronic
Contract Assemblies segment provides engineering and manufacturing services
which utilize common production and support capabilities to a variety of
industries globally.
Kimball International, Inc.
1600 Royal Street
Jasper, IN 47549
812-482-1600
812-482-8500 TDD
www.kimball.com
Kimball International 2007 Annual Report
The strategic expansion of our global footprint of
facilities supports our vision of accessibility and
partnership with our customers. Greater utilization
of these capabilities is a high priority of our organic
growth activities. From Poland to China to the USA,
our people and expertise are readily available
to serve.