Making A
Difference
For People
For Customers
For The Future
Kimball international
2008 Annual Report
James c. Thyen,
President and
Chief Executive Officer (left)
Douglas A. Habig,
Chairman of the Board
To Our Share Owners
The business world today is very different from a year ago. The markets are more competitive; some
of our vertical markets have seen dramatic changes. The relative positions of the global economies
have shifted, as exhibited by the exchange rates. Few could have foreseen the many changes that have
occurred. Despite these changes, Kimball has held true to its values. The Company is a much changed
organization: faster, flatter and more flexible. Today we are better aligned to make a difference in the
markets we serve. Making a difference for our customers, our share owners, our employees and our
communities has been a guiding force of this Company from its founding.
Our financial results for the year and particularly the second half of the fiscal year are not
acceptable. Our position relative to competitive benchmarks is not where we want or believe it should
be. While our strategies were well received in our core markets, we faced new challenges. Rapid shifts
in the economy, increased uncertainty and reduced consumer confidence, as well as significant and
rapid commodity cost increases, affected both the electronic manufacturing services markets and the
furniture markets. These factors drove competitive intensity and increased margin pressures.
Consolidated net sales for the fiscal year were $1,352,000,000, which was an increase over the
prior fiscal year 2007, due primarily to increases in Electronic Manufacturing Services (EMS) segment
sales. Successfully replacing the revenues of expiring electronics program business has seen a shift to
lower-margin products which lowered earnings. Net sales increased approximately five percent for the
year; profits declined, driven by the challenges of increased material costs, higher freight, and a product
mix based on lower margins. Gross profit was down, partially due to a higher sales mix from the EMS
segment, which carries a lower margin than Furniture. Excess capacity and contractual customer price
reductions on select products also lowered gross margins. Admittedly, while reducing excess capacity
earlier in the year, our EMS segment stumbled in execution. The root causes of the stumble have been
addressed and rectified. The exit of two U.S. facilities and the transfer of work into other locations was
completed, with savings to be seen in fiscal year 2009. Our new China facility has completed a year
of production and has received several new orders from multiple customers. To improve profitability,
an office workforce restructuring streamlined administrative and support processes, reducing salaried
personnel costs and more properly aligning to the existing levels of business. We have taken cost and
pricing actions to improve margins and reduce capital in both segments.
Cash availability in uncertain times is a substantial asset. The Company’s net cash position from an
aggregate of cash and short-term investments less short-term borrowings is $29.8 million. Combined
with a new $100 million credit facility and very low long-term debt levels, the Company is well
positioned in a slowed economy.
Making A Difference in Global eMS:
Within our EMS segment, we responded to the accelerated pace of change in the European markets,
which affected the competitive position of our global footprint. In April, we announced a plan to
consolidate our operations in Ireland and Wales into a new, larger facility in Poznan, Poland, expanding
our automotive capabilities and establishing a medical center of expertise. Evolving customer
preferences for lower-cost venues inhibited the growth originally planned for the Ireland and Wales
locations, prompting a reevaluation of our European facility strategy. Additionally, we reviewed our
cost structure and aggressively realigned many North American-based corporate and segment level
administrative, professional, technical, and support roles into the actual business units, taking these
functions closer to the global markets we serve, providing better synergy, access and communications
with our customers, while yielding significant savings.
Acting on our strategic plan, we have grown by acquisition and diversification. With our fiscal
year 2007 acquisition of Reptron Electronics, Inc., sales to customers in the medical industry are now
the largest portion of our EMS segment sales, with the automotive industry the second largest. The
foresight of our diversification strategy has shown positive results. While we grew business in our
key vertical markets of medical, industrial and public safety, we have also maintained a leadership
position in the important automotive market, and have diversified our automotive customers and
product programs worldwide. Overall, we have grown year over year, in spite of market conditions.
Reflecting our committed focus on four key markets, Kimball Electronics now ranks sixteenth in the
world among EMS companies*.
* MMI, (Manufacturing Market Insider), March 2008, “Top 50 EMS Providers in 2007”
The decisions we make today have an impact on the future, especially in regard to the environment and natural resources, but also to the people and communities that depend upon us. Those decisions can make a difference for the better, or for worse.it is up to us to make them responsibly.Making A Difference in the furniture Markets: Each of our furniture brands experienced positive responses to their new product introductions: Kimball Office and National at the annual NeoCon trade show in Chicago, and Kimball Hospitality at the Hospitality Design show in Las Vegas. Kimball Office captured imaginations with its HumTM open plan and private office furniture, while National positioned itself as a more upscale provider with a strong sustainability message. Kimball Hospitality received renewed interest in its customer solutions and service package of value, including custom and program products. This investment in our products portfolio and brand strength sustains the development and growth of our distribution network, a crucial element to our long-term growth. The hospitality market continues to show a strong response to our package of value, solutions focus, and record of performance as we demonstrate broad appeal in servicing the finest hotel brands in the world. Kimball Hospitality is gaining market share and continues to focus on growth and diversification, supporting U.S.-based customers. While the hospitality market has been impacted by lessened leisure and business travel related to the rising costs of fuel, inflation and fluctuations in currency rates, the need for renovations and refurbishment projects has remained steady. The majority of Kimball Hospitality sales are in serving this need. Our Furniture segment has been impacted by the crisis in the financial markets as a result of the sub prime and credit debacle. The commercial markets responded with a lowered demand for office furnishings, especially in the highly competitive, large project-oriented office furniture contract market. These same influences drove many businesses to select more of our value-oriented office furniture products, which still significantly benefited this segment. Increased competitive price discounting, rising commodity and raw material costs, particularly steel and petroleum-based plastics and foams, and increasing fuel-related freight costs have been partially offset by price increases. The broad based pressures of inflation, global exchange rates and freight continue to affect both product and operating costs, indicating that price increases will be required at an ongoing rate not seen in many years.Making A Difference in the future: We are committed to responsibly improving the performance of the Company and have taken steps to do so. We are committed to margin improvement and strategic growth, with a view to build share owner value. That commitment is matched by our commitment to making a difference in lives through education and opportunities and in the quality of life through civic projects and environmental protections. We believe that corporate social responsibility – in our local communities and across the globe – is an opportunity to demonstrate by example, to live our guiding principles and ethical values. We are extremely proud of the actions taken by our employees, and in the following pages we invite you to learn how Kimball is making a difference. For more detail on the past year, we encourage you to read the following Form 10-K. To gain an expanded view of the products, services, and capabilities of Kimball International, we suggest visiting our website at www.kimball.com.James C. Thyen, President and Chief Executive OfficerDouglas A. Habig, Chairman of the Board Making A
Difference
For People
Kimball believes in supporting its communities
and encouraging employees to become involved
in civic or charitable projects. Kimball employees
have always responded and demonstrated a
humanitarian spirit. When an earthquake devastated
portions of china, employees of our Asian locations
responded with donations to the disaster-relief
efforts. in its 42 consecutive years, the employee-
run Kimball Bowl-a-thon has raised $248,996 for
the Muscular Dystrophy Association. emphasizing
safety over the past 58 years, Kimball has nurtured
and sustained a safety culture. This mindset
supports a world-class loss-prevention program,
benefitting employees’ families as our facilities
achieve significant safety milestones. from pitching
in, to providing solutions, we believe in making
a difference.
in our
coMMuniTieS
Making a difference in the many
communities in which we operate has long
been a priority at Kimball. In the last 57
years, Kimball has donated over $12 million
to various local charities and projects of
these communities where our employees
live and work. Two years after the tragedy
of Hurricane Katrina, New Orleans
still needs assistance. Deciding to help,
Kimball Office launched its Smart Actions
Campaign to give back to the city, donating
entirely furnished new offices to eight local
recipients. The four businesses and four
non-profit organizations are rebuilding
lives and the community. Kimball Office
employees adopted East End Park, in the
Lakeview area of New Orleans, planting 50
live oak and sycamore trees. Since 1990,
Kimball has given over 362,000 seedlings
for neighborhood planting and use in
communities’ recovery efforts for areas
disaster-stricken by wildfires and storms.
By improving the quality of life in our
communities, we improve ourselves.
in the
environMenT
Responsible environmental practices make good business sense. The Corporate
Recycling Center diverted waste materials from the landfill and realized savings
of $445,721. Last year Kimball recycled 5,440,173 pounds of materials. The
Environmental Management Systems for eight Kimball Office and National
Office Furniture manufacturing facilities achieved ISO 14001: 2004 registration,
the global standard for environmental protection and commitment to
continuous improvement. Four Kimball Electronics locations have achieved
registration of ISO 14001:2004. Reducing fuel usage and emissions earned
Kimball’s truck fleet certification by the Environmental Protection Agency as
a SmartWay Partner. Kimball’s ranking in the twenty-fifth percentile reflects a
high level of success implementing sustainable practices.
2 Kimball 2008 www.kimball.com
in our
DeSiGn
From renewable resources, low-emissions manufacturing
processes, and design for disassembly, our design-for-the-
environment approach integrates indoor air quality, recycled
content, and use of green-certified materials. Our teams design
products that save resources, have longer life and recycle easily.
Approach task seating and Scenario tables are GreenguardTM
certified for indoor air quality, helping customers achieve LEED
(Leadership in Energy and Environmental Design) points in
their quest for environmentally conscious facilities. Kimball
Hospitality received Forest Stewardship Council Chain of
Custody certification, verifying the path of raw materials from
the forest to the consumer. National Office Furniture is among
the first in the industry to attain Gold certification under a
new Sustainability Standard of the Business and Institutional
Furniture Manufacturers’ Association. We advocate buildings
that are environmentally responsible. Numerous Kimball
facilities and showrooms have earned certification under the
U.S. Green Building Council’s LEED standards. Certification
is pending for the newly renovated Kimball corporate
headquarters building.
in their
liveS
When Indianapolis Colts star Gary Brackett sought assistance with his
IMPACT Foundation for pediatric cancer patients and their families,
Kimball Hospitality employees answered by serving on the Foundation’s
advisory board and participating in fundraisers. Kimball Hospitality
personnel provided furnishings for 26 guest rooms of Jill’s House, a low-cost/
no-cost guest facility for patients and families during prolonged treatment
at the Midwest Proton Radiotherapy Institute. They also made donations
to Camp Pacific Heartland for children with HIV/AIDS and to the Wilson
Foundation, which provides services for disadvantaged children. The people
of Kimball Office donated $10,000 to The Chicago Lighthouse, an agency for
the visually impaired and hosted a New York event which raised $20,000 for
Yankee star Derek Jeter’s Turn 2 Foundation, which motivates youth to turn
from drugs and alcohol and “Turn 2” healthy lifestyles. Nearly $30,000 was
raised by National Office Furniture employee teams in this year’s American
Cancer Society Relay for Life.
www.kimball.com Kimball 2008 3
in product
QuAliTY
Our commitment to excellence is reflected in our quality
record. Within the world of electronics, specialty “high-cost-
of-failure” electronics refers to those modules and components
for which quality is paramount: medical, automotive,
industrial and public safety. Assuring quality across multiple
locations as we provide customers a single point of contact is
one aspect of our package of value. Our quality record has
earned Kimball Electronics recognition among the global top
20 providers in the EMS industry.
in our
cAPABiliTY
Our package of value includes our
outstanding capability to serve.
Customers value our global footprint
of operations, with our capability to
transfer production to meet their needs.
They recognize this is an advantage
many competitors of our size do not
have. They take comfort knowing
Kimball personnel around the world
will provide consistency of processes
and performance. As we have realigned
our global EMS resources, we have
successfully maintained existing
customers and added additional
business. Our European consolidation
will add to our capabilities, expanding
our automotive capacity and establishing
a new center of expertise for medical
equipment manufacturing.
4 Kimball 2008 www.kimball.com
in
reliABiliTY
During the year, we made significant
strides improving quality and
reliability. Widespread use of metrics
communicated to shop floor team
levels, enables real-time views and
immediate actions. We continue to make
improvements, as we further embrace
methodologies such as Lean and Six
Sigma, sharing best practices across both
segments. Expanding these approaches
from the shop floor into the office and
administrative areas will streamline and
simplify our business processes.
Making A
Difference
For Customers
The needs of our customers drive the value-
added services we provide worldwide. Testimony
to our service record is that so many have
been customers for so long. When we obtain
customers, we normally do not lose them. Their
referrals and references are proof that we make
a difference in their success. in keeping with our
corporate vision, when we build success for our
customers, we build it for ourselves.
The office furniture Dealers Alliance, an
association for north American office furniture
dealers, presented Kimball office with its
inaugural Aligned Manufacturer Service Award for
sustained contributions to the dealer community.
Driving our designs with research, Hum. Minds at Work ™ is
the result of three years of “cognitive ergonomics” research,
studying how people actually work, mentally as well as physically.
Breaking new ground as a workplace desk system that facilitates
interaction, Hum helps customers attain peak productivity as
they also attain points for LEED certification. The single largest
Kimball Office product introduction since 2003, Hum drew
large crowds at NeoCon. Designed to accommodate all work
modes in its concentrate or collaborate continuum, Hum is also
designed to have a positive impact on the environment. Strong
and durable for a long life, it has significant recycled content,
uses plantation-grown wood and low-energy consumption LED
lights, and is easily taken apart for recycling.
HUM makes a difference.
in our
THinKinG
www.kimball.com Kimball 2008 5
Making A
Difference
For The Future
Making a difference doesn’t always mean
monumental changes; a multitude of small
actions sometimes has the greatest impact.
Kimball has taken many actions in its history that
have made a difference in our communities, the
lives of employees and their children, and in the
protection of our environment.
creating opportunities is something
Kimball has long understood. in 2008, the
company awarded $82,000 in Kimball scholarships
to seven students. Since 1963, Kimball has
helped 356 children of employees pursue higher
education, awarding over $3 million in college
scholarships. This benefits our communities and is
a solid investment in the future.
in our
efficiencY
High-performance organizations excel at
efficiency, but efficiency without effectiveness
is still wasted effort. Across Kimball we
have made enormous strides to improve
operational effectiveness. National’s focus
on improving product flow through its
main casegoods manufacturing plant
led to a number of efficiency gains in the
production of its new desk lines. Within
our manufacturing operations we are
implementing technology such as our
IntegraClear™ and Pura™ ultraviolet (UV)
curing wood finish processes, which
efficiently reduces both material consumption
and air emissions. Providing exceptional
clarity and durability, while meeting or
exceeding indoor air quality standards, these
environmentally friendly wood finishes help
customers achieve LEED credits.
in our
BuSineSS
Anticipating customers’ needs, adapting to market changes,
and assuring reliable performance are the means by which
Kimball will continue its record of growth into the future.
With a vision of serving customers, enriching employees
and rewarding share owners, Kimball will continue making
a difference.
6 Kimball 2008 www.kimball.com
in our
fleXiBiliTY
Changing markets and customer
preferences demand the ability to adapt
and respond. Improving our operational
flexibility and personal responsiveness
is a priority. We have made strides to
become faster, flatter as an organization,
and more flexible in meeting customers’
needs. Developing products that meet
performance needs, pricing parameters
and changing styles and design trends,
we have demonstrated flexibility in both
manufacturing and marketing.
Focused on the top two-thirds of the market, Kimball
Hospitality has gained market share. Creating a unique
package of value, Kimball Hospitality leverages its
“blended solution” approach to customers’ requirements
for proprietary designs, speed of delivery, quality and
reliability. Drawing upon exclusive supply partners,
Kimball Hospitality delivers high value solutions to the
finest hotel brands in the world. By sharpening our focus
on our primary markets, we are executing our strategy of
driving long-term growth in both sales and earnings. We
are committed to building success for our customers and
share owners, well into the Future.
in our
focuS
www.kimball.com Kimball 2008 7
Financial Highlights(Amounts in thousands, except for per share data) 2008 2007 % ChangeNet Sales $1,351,985 $1,286,930 5.1%Income from Continuing Operations 78 23,266 -99.7%Return on Capital 0.02% 5.24% -99.6%Cash Flow from Operations 43,399 44,374 -2.2%Working Capital 162,602 198,611 -18.1%Capital Investments 50,647 41,880 20.9%Share Owners’ Equity 392,467 427,448 -8.2%Earnings Per Share from Continuing Operations (Diluted) Class A 0.00 0.58 -100.0% Class B 0.00 0.60 -100.0%Dividends Declared Class A 0.62 0.62 0.0% Class B 0.64 0.64 0.0%Market Price Per Share High 15.35 25.95 Low 8.28 12.85 Close 8.28 14.0146% furniture54% electronic Manufacturing Services2008 Sales By Business Segments8 Kimball 2008 www.kimball.comIncome from Continuing Operations, Return on Capital, Cash Flow from Operations and Earnings Per Share include restructuring charges. Capital investments excludes business acquisitions.furnitureManufacturing, Product Design, Marketing, Sales. Kimball officeCasegoods, Desks, Seating, Tables, Filing Cabinets, Book Cases, Office Systems, Accessories. nationalCasegoods, Desks, Seating, Tables, Dividers, Filing Cabinets, Book Cases, Accessories. Kimball HospitalityBeds, Desks, Seating, Casegoods, Dressers, Side Tables. electronic Manufacturing ServicesManufacturing, Testing Services, Regulatory Support, Value-Added Services. AutomotiveAir Bag ECU’s, Stability Control ECU’s, Electronic Power Steering, Sensors, Telematics, Video Camera Systems, Compass and Navigations Systems. MedicalDiagnostic Imaging, Urinalysis Equipment, Hematology Equipment, Surgical Instruments, Defibrillators, Vital Signs Monitoring, Laboratory Measurement, Physical Therapy, Glucose Monitoring, Respiration Monitors, Home Health Care. Public SafetyEmergency Personnel Communications, Material Identification Systems, Night Vision Systems, X-ray Systems, Surveillance Equipment, Fire Protection Equipment. industrialCommunications Infrastructure Equipment, HVAC Controls, Flow Metering Controls, Power Metering Controls, Portable Tool Chargers, Analytical Instrumentation, Motor Controllers, Semiconductor Manufacturing Equipment.Who We AreKimball 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 DoKimball International, Inc. provides a variety of products from its two business segments: the Electronic Manufacturing Services segment and the Furniture segment. The Electronic Manufacturing Services segment provides engineering and manufacturing services which utilize common production and support capabilities to a variety of industries globally. The Furniture segment provides furniture for the office and hospitality industries sold under the Company’s family of brand names.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 BankDepartment 5352, Shareholder Services OperationsPO Box 92301Cleveland, OH 44101-4301Phone: (800) 622-6757TDD Line: (800) 622-5571Internet Address: www.nationalcitystocktransfer.comE-Mail Address: shareholder.inquiries@nationalcity.comCorporate Headquarters:Kimball International, Inc. 1600 Royal StreetJasper, Indiana 47549-1001 (812) 482-1600(800) 482-1616 (Toll Free)(812) 482-8500 (TDD for Hearing Impaired)Board of DirectorsHarry W. Bowman + · Retired; Former President and Chief Executive Officer, The Stiffel CompanyDirector 8 yearsDouglas A. Habig ·Chairman of the Board of Directors, Kimball InternationalDirector 35 yearsPolly B. Kawalek + Retired; Former Senior Vice President and President, Quaker Foods, PepsiCo Beverages and FoodsDirector 11 yearsGeoffrey L. Stringer + # ·Retired; Former Executive Vice President, Bank One Corporation and Chief Executive Officer, Bank One Capital CorporationDirector 5 yearsJames C. Thyen ·President, Chief Executive Officer,Kimball InternationalDirector 26 yearsJohn T. ThyenRetired; Former Senior Executive Vice President, Strategic Marketing, Kimball InternationalDirector 18 yearsThomas J. TischhauserExecutive Consultant, Leadership Development,Former Corporate Vice President, Continental Automotive and Motorola, Inc.Director appointed August 19, 2008Ronald J. Thyen Retired; Former Senior Executive Vice President, Operations Officer, Assistant Secretary, Kimball InternationalDirector 35 yearsChristine M. Vujovich # ·Vice President, Marketing and Environmental Policy, Cummins, Inc.Director 14 yearsDr. Jack R. Wentworth # Retired; Arthur M. Weimer Professor Emeritus, Business Administration, Indiana University; Former Dean, Kelley School of Business, Indiana UniversityDirector 24 years+ Member of the Audit Committee of the Board# Member of the Compensation and Governance Committee of the Board· Member of the Strategic Planning Committee of the BoardCorporate OfficersDonald D. CharronExecutive Vice President, President–Kimball Electronics GroupJohn H. KahleExecutive Vice President,General Counsel, SecretaryP. Daniel MillerExecutive Vice President, President–FurnitureRobert F. SchneiderExecutive Vice President,Chief Financial OfficerGary W. SchwartzExecutive Vice President, Chief Information OfficerR. Gregory KincerVice President, Business Development, TreasurerMichelle R. SchroederVice President, Corporate ControllerDean M. VonderheideVice President, Human ResourcesDomestic Subsidiary OfficersRoger Chang (Chang Shang Yu)Vice President, Asian Operations, Kimball Electronics GroupRichard C. FarrVice President, Global Operations, National Office FurnitureJeffrey L. FenwickVice President, General Manager,Kimball OfficeRamona K. HoffmanVice President, Marketing,Kimball OfficeSteven T. KornVice President, North American Operations,Kimball Electronics GroupJohn C. ManchirVice President, Operations,Kimball OfficeDirk H. ManningVice President, Sales,Kimball OfficeKevin D. McCoyVice President, Sales,National Office FurnitureDwaine R. SaalmanVice President, Strategic Accounts,Kimball OfficeStanley C. SappVice President, General Manager,Kimball HospitalityMichael K. SergesketterVice President, Chief Financial Officer,Kimball Electronics GroupChristopher J. ThyenVice President, Business Development,Kimball Electronics GroupDonald W. Van WinkleVice President, General Manager,National Office FurnitureZygmunt WitortVice President, European Operations,Kimball Electronics GroupForeign Subsidiary ManagersJanusz Kasprzyk General Manager, Kimball Electronics Poland, Sp. zo. o.Tongchai ChuenchujitGeneral Manager, Kimball Electronics (Thailand), Ltd.Robert BurreGeneral Manager, Kimball Electronics-Mexico, S.A. de C.V.Daniel Gu (LuYin Gu)General Manager, Kimball Electronics (Nanjing) Co., Ltd.Shane TiernanGeneral Manager, Kimball Electronics Ireland, Ltd.Offi cersOther Corporate DataKimball International, Inc. and SubsidiariesKimball International urges you to help the environment – please recycle.Web sites for the charities mentioned on pages two and three:Gary Brackett’s IMPACT Foundation: http://www.garybrackett.orgJill’s House: http://www.jills-house.orgCamp Pacifi c Heartland: http://www.hollywoodheart.org/campheartland.phpWilson Foundation: http://www.mcjcwilsonfoundation.orgThe Chicago Lighthouse: http://www.thechicagolighthouse.orgDerek Jeter’s Turn 2 Foundation: http://derekjeter.mlb.com/players/jeter_derek/turn2/index.jspACS Relay for Life: http://www.cancer.org/docroot/par/content/PAR_1_Relay_For_Life.aspMuscular Dystrophy Association: http://www.mda.orgSMThis report is printed on FSC-certifi ed paper made with 10% post-consumer waste. The FSC sets standards to ensure the wood and pulp used in the production process are grown, harvested and manufactured to high environmental standards. All parts of the manufacturing process are audited to ensure adherence to these standards.The inks used in the printing of this report contain an average of 25%-35% vegetable oils from plant derivatives, a renewable resource. They replace petroleum inks as an effort to also reduce volatile organic compounds (VOC’s). 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, 2008
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
Securities registered pursuant to Section 12(b) of the Act:
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(g) of the Act:
Class A Common Stock, par value $0.05 per share
No ¥
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes n
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. ¥
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer n Accelerated filer ¥
Smaller reporting company n
Non-accelerated filer n
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes 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. The aggregate market value of the Class B Common Stock held by non-affiliates, as of December 31, 2007
(the last business day of the Registrant’s most recently completed second fiscal quarter) was $323.2 million, based on 94.0% of Class B
Common Stock held by non-affiliates.
The number of shares outstanding of the Registrant’s common stock as of August 15, 2008 was:
Class A Common Stock — 11,673,845 shares
Class B Common Stock — 25,291,736 shares
Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on October 21, 2008, are incorporated by
reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
KIMBALL INTERNATIONAL, INC.
FORM 10-K
INDEX
PART I
Item 1.
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Share Owner Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Share
Owner Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
Page No.
3-9
10-15
16
16-17
17
17
18
18-20
21
22-37
37
38-78
79
79
79
79-80
80
80-81
81
81
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83-84
PART IV
2
Item 1 — Business
General
PART I
As used herein, the term “Company” refers to Kimball International, Inc., the Registrant, and its subsidiaries
and reference to a year relates to a fiscal year, ended June 30 of the year indicated, rather than a calendar year unless
the context indicates otherwise. Additionally, references to the first, second, third, and fourth quarters refer to those
respective quarters of the fiscal year indicated.
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 Electronic Manufacturing
Services (EMS) segment and the Furniture segment. The EMS segment provides engineering and manufacturing
services which utilize common production and support capabilities to a variety of industries globally. The EMS segment,
formerly named the Electronic Contract Assemblies segment, was renamed during fiscal year 2008 to more accurately
reflect the focus of the segment. The Furniture segment provides furniture for the office and hospitality industries, sold
under the Company’s family of brand names. Production currently 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 ten states and the District of Columbia.
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, 2008 were as follows:
(Amounts in Thousands)
Furniture Segment
2008
2007
2006
Branded Furniture Product Line . . . . . . . . . . . . . . . . . . $ 624,836
-0-
Contract Private Label Furniture Product Line . . . . . . . .
Total Furniture Segment . . . . . . . . . . . . . . . . . . . . . . $ 624,836
727,149
-0-
Electronic Manufacturing Services Segment . . . . . . . . . . .
Unallocated Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 602,903
11,059
$ 613,962
672,968
-0-
$ 573,759
38,830
$ 612,589
496,706
254
Kimball International, Inc.
. . . . . . . . . . . . . . . . . . . . $1,351,985
$1,286,930
$1,109,549
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,
2008 is included in Note 14 — Segment and Geographic Area Information of Notes to Consolidated Financial
Statements and is incorporated herein by reference.
Segments
Electronic Manufacturing Services
Overview
The Company entered the electronic manufacturing services 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 subassemblies 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 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.
3
In an effort to improve profitability and increase Share Owner value while remaining committed to its business
model of being market driven and customer centered, during the third quarter of fiscal year 2008, the Company approved a
restructuring plan designed to more appropriately align its workforce in a changing business environment. Within the
Company’s EMS segment, the restructuring activities included realigning engineering and technical resources closer to
the customer and streamlining administrative and sales processes. The plan also included reducing corporate personnel
costs to more properly align with the overall sales mix change within the Company. This plan was substantially complete
as of the end of fiscal year 2008.
During the third quarter of fiscal year 2007, the Company acquired Reptron Electronics, Inc. (“Reptron”), a U.S. based
electronics manufacturing services company which provided engineering services, electronics manufacturing services, and
display integration services. Reptron had four manufacturing operations located in Tampa, Florida; Hibbing, Minnesota;
Gaylord, Michigan; and Fremont, California. The acquisition 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. 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, during the fourth quarter of fiscal year 2007, the
Company finalized a restructuring plan within the EMS segment to exit the manufacturing facility located in Gaylord,
Michigan. Production ceased during the second quarter of fiscal year 2008, and the facility is currently held for sale. During the
second quarter of fiscal year 2008, the Company approved a restructuring plan to further consolidate its EMS facilities that
resulted in the exit of the manufacturing facility located in Hibbing, Minnesota. Production at the Hibbing facility ceased in the
fourth quarter of fiscal year 2008, and the Company’s lease of the Hibbing facility ends in December 2008. A majority of the
Gaylord and Hibbing business transferred to several of the Company’s other worldwide EMS facilities.
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. During the fourth quarter of fiscal
year 2008, the Company approved a plan to expand its European automotive electronics capabilities and to establish a European
Medical Center of Expertise in Poznan, Poland. As part of the plan, the Company will consolidate its EMS facilities located in
Longford, Ireland; Wales, United Kingdom; and Poznan, Poland; into a new, larger facility in Poznan, which is expected to
improve margins in the very competitive EMS market. The plan includes the sale of the existing Poland building at a gain which
will partially fund the consolidation activities. The plan is to be executed in stages with a projected completion date of
December 2011.
During the third quarter of fiscal year 2006, the Company approved a restructuring plan within the EMS 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 facility was sold during fiscal year 2008. The decision to exit this facility was a result
of excess capacity in North America.
Late in fiscal year 2007, the Company began production in a new manufacturing facility built in Nanjing, China.
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 — Acquisitions of Notes to Consolidated Financial Statements.
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 — Restructuring Expense of Notes to
Consolidated Financial Statements.
Sales revenue of the EMS 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. Fiscal year 2008 net sales to automotive industry customers approximated one-third of the
Company’s EMS segment net sales.
Locations
As of June 30, 2008, the Company’s EMS segment consisted of ten manufacturing facilities with two located in Indiana
and one in each of Florida, California, China, Mexico, Thailand, Poland, Ireland, and the United Kingdom. During fiscal year
2008, the Company ceased production in one facility in Michigan and one facility in Minnesota pursuant to restructuring plans.
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. A plan was approved to consolidate the Company’s EMS facilities located in Ireland, Wales, and Poland
into a new, larger facility in Poland over the next several fiscal years. Operations located outside of the United States continue to
be an integral part of the Company’s EMS segment. See Item 1A — Risk Factors for information regarding financial and
operational risks related to the Company’s international operations.
4
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 electronics 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.
The Company does not believe that it, or the industry in general, has any special practices or special conditions
affecting working capital items that are significant for understanding the EMS segment other than fluctuating
inventory levels which may increase in conjunction with transfers of production among facilities.
Competitors
The EMS industry is very competitive as numerous manufacturers 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 and was ranked the 16th largest
EMS provider for calendar year 2007 by Manufacturing Market Insider in their March 2008 edition.
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. The Company may also purchase additional
inventory to support transfers of production between manufacturing facilities.
Customer Concentration
While the total electronic assemblies market has broad applications, the Company’s customers are concen-
trated in the automotive, medical, industrial, and public safety industries. 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 EMS segment net sales:
Year Ended June 30,
2008
2006
2007
Bayer AG affiliated sales as a percent of consolidated net sales. . . . . . . . . . . . .
TRW sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . . . . . . .
Bayer AG affiliated sales as a percent of EMS segment net sales . . . . . . . . . . .
TRW sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . . . . . . .
6%
11% 15%
7%
8% 12%
21% 30% 13%
13% 14% 27%
The fiscal year 2008 reduction in sales to Bayer AG as compared to fiscal year 2007 is related to two factors.
First, 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 in fiscal year 2007 are now to Siemens AG. Second, net sales to
Bayer AG affiliates were impacted as a result of the Company’s selling price reduction effective January 2007 to Bayer
AG affiliates which was offset by an equal reduction in the cost of raw materials purchased from Bayer AG affiliates.
The fiscal year 2007 increase in sales to Bayer AG as compared to fiscal year 2006 resulted from the acquisition of
Bayer Diagnostics Manufacturing Limited which occurred during the fourth quarter of fiscal year 2006. The Company
also continues to focus on diversification of the EMS segment customer base. 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.
5
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, credenzas,
seating, tables, systems/dividers, filing and storage units, and accessories such as audio visual boards and task
lighting. 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, condominiums, and mixed use developments.
Products include headboards, desks, tables, dressers, entertainment centers, chests, wall panels, upholstered
seating, task seating, and vanities. 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.
As part of the workforce reduction restructuring activities discussed in the EMS segment above, within the
Company’s Furniture segment, the restructuring activities included realigning information technology and procure-
ment resources closer to the customer and streamlining administrative and sales processes to drive further synergies
afforded by the alignment of the sales and manufacturing functions within this segment. Related expenditures are
primarily for employee severance and transition costs. This plan was substantially complete as of the end of fiscal year
2008 with a few activities expected to occur in the first half of fiscal year 2009 in the Furniture segment.
In conjunction with the cessation of manufacturing contract private label products, during 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. As a result of ceasing operations at this facility, 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 — Discontinued Operations of Notes to Consolidated Financial Statements.
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.
Expenses related to this plan include software impairment, accelerated amortization, employee severance, and other
consolidation costs. This plan was complete as of June 30, 2008.
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 — Restructuring Expense of
Notes to Consolidated Financial Statements.
Locations
The Company’s furniture products as of June 30, 2008 were primarily produced at twelve plants: nine located
in Indiana, two in Kentucky, and one in Idaho. In addition, select finished goods are purchased from external
sources. The Company continually assesses manufacturing capacity and has adjusted such capacity in recent years.
A facility in Indiana houses an Education Center for dealer and employee training, a Research and Devel-
opment 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
ten cities in the United States.
6
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.
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
nonstandard products. The Company offers payment terms similar to industry standards and in unique circum-
stances 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.
The Company does not believe that it, or the industry in general, has any special practices or special conditions
affecting working capital items that are significant for understanding the Company’s business. The Company does
receive advance payments on select furniture projects primarily in the hospitality industry.
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 the Company has been able to maintain an appropriate supply of rolled steel to meet demand,
general supply limitations in the market are impacting 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.
7
Other Information
Backlog
At June 30, 2008, the aggregate sales price of production pursuant to worldwide open orders, which may be
canceled by the customer, was $306.8 million as compared to $287.3 million at June 30, 2007. Open orders as of
June 30, 2007 have been adjusted to be consistent with the calculation of open orders as of June 30, 2008.
(Amounts in Millions)
Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Backlog of Continuing Operations . . . . . . . . . . . . . . . . . . . . . .
June 30, 2008
June 30, 2007
$101.0
205.8
$306.8
$ 95.3
192.0
$287.3
Substantially all of the open orders as of June 30, 2008 are expected to be filled within the next fiscal year.
Open orders generally may not be indicative of future sales trends.
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:
(Amounts in Millions)
Research and Development Costs of Continuing Operations . . . . . . . . . . . . . . .
Year Ended June 30
2008
2006
2007
$16
$17
$15
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 patent and trademarks which it
believes are significant to the Furniture segment only:
Registered Trademarks: National. Furniture with Personality, Cetra, Footprint, Traxx, Interworks, Xsite,
Definition, Skye, WaveWorks, Senator, and Prevail.
Trademark: President, Hum. Minds at Work, Integra Clear, Pura
Patent: Traxx
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.
8
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 commitment to the environment,
five 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, 2010, 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.
Employees
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Full-Time Employees of Continuing Operations . . . . . . . . . . . .
June 30, 2008
June 30, 2007
4,955
2,240
7,195
5,540
2,020
7,560
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.
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 incor-
porated therein are not intended to be incorporated into this Annual Report on Form 10-K.
Forward-Looking Statements
This document may contain certain forward-looking statements. These are statements made by management,
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 — 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.
9
Item 1A — 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.
Unfavorable macroeconomic and industry 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 and industry factors such as:
(cid:129) general corporate profitability of the Company’s end markets;
(cid:129) profitability of financial institutions to whom the Company sells office furniture which are being impacted
by the credit market issues;
(cid:129) new office construction and refurbishment rates;
(cid:129) new hotel and casino construction and refurbishment rates;
(cid:129) automotive industry fluctuations, specifically variation in the performance and market share of U.S. based
auto manufacturers;
(cid:129) changes in the medical device industry;
(cid:129) demand for end-user products which include electronic assembly components produced by the Company;
(cid:129) excess capacity in the industries in which the Company competes; and
(cid:129) 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 manufacturing
capacities. These decisions include determining what level of additional business to accept, production schedules,
component procurement commitments, and personnel requirements, among various other considerations. 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.
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
EMS segment, as a result of intense competition from large EMS providers, 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.
10
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. If a current customer of the Company merges with or is acquired by a party that
currently is aligned with a competitor, the Company could lose future revenues. 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, TRWAutomotive, Inc., accounted for approximately 7%, 8%, and 12% of consolidated net sales
in fiscal years 2008, 2007, and 2006, respectively. As a result of the acquisition of the Bridgend, Wales, United Kingdom,
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 11%, 15%, and 6% of consolidated net sales in fiscal years
2008, 2007, and 2006, respectively. Significant declines in the level of purchases by these customers within the EMS
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. The Company also purchases select finished
goods. 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’s operating results are impacted by the cost of fuel and other energy sources. The cost of
energy is a critical component of freight expense and the cost of operating manufacturing facilities. If the cost of
energy continues to increase, it could reduce profitability of the Company.
The Company could be impacted by manufacturing inefficiencies at certain locations. At times the
Company may experience labor or other manufacturing inefficiencies due to factors such as new product
introductions, transfers of production among the Company’s manufacturing facilities, 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 products with lower margins could have an adverse impact on the Company’s
financial position, results of operations, or cash flows.
The Company’s restructuring efforts may not be successful. During the fourth quarter of fiscal year 2008,
the Company approved a plan to expand its European automotive electronics capabilities and to establish a
European Medical Center of Expertise in Poznan, Poland. As part of the plan, the Company will consolidate its
EMS facilities located in Longford, Ireland; Wales, United Kingdom; and Poznan, Poland; into a new, larger facility
in Poznan, which is expected to improve margins in the very competitive EMS market. The plan includes the sale of
the existing Poland building at a gain which will partially fund the consolidation activities. The Company
continually evaluates its manufacturing capabilities and capacities in relation to current and anticipated market
conditions. The successful execution of restructuring initiatives is dependent on several factors and may not be
accomplished as quickly or effectively as anticipated.
11
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:
(cid:129) difficulties in identifying suitable acquisition candidates and in negotiating and consummating acquisitions
on terms attractive to the Company;
(cid:129) difficulties in the assimilation of the operations of the acquired company;
(cid:129) the diversion of resources, including diverting management’s attention from current operations;
(cid:129) risks of entering new geographic or product markets in which the Company has limited or no direct prior
experience;
(cid:129) the potential loss of key employees of the acquired company;
(cid:129) the potential incurrence of indebtedness to fund the acquisition;
(cid:129) 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;
(cid:129) the acquired business not achieving anticipated revenues, earnings, cash flow, or market share;
(cid:129) excess capacity;
(cid:129) the assumption of undisclosed liabilities; and
(cid:129) dilution of earnings.
The above risks could have a material adverse effect on the Company’s financial position, results of operations,
or cash flows.
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.
Continued success of the EMS segment start-up operation in China is critical for securing additional customers for
this operation. Production at this new facility occurred throughout fiscal year 2008 and is expected to continue
ramping up.
12
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:
(cid:129) economic and political instability;
(cid:129) changes in foreign regulatory requirements and laws;
(cid:129) tariffs and other trade barriers;
(cid:129) potentially adverse tax consequences; and
(cid:129) 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 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 EMS 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 standards such as ergonomic considerations, 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 nine to eighteen months 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.
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, transfers of production among the Company’s manufacturing
facilities, 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.
13
There are inherent uncertainties involved in estimates, judgments, and assumptions used in the prep-
aration 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 SEC 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.
Fluctuations in the Company’s effective tax rate could have a significant impact on the Company’s financial
position, results of operations, or cash flows. The mix of pre-tax income among the tax jurisdictions in which the
Company operates that have varying tax rates could impact the Company’s effective tax rate. 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.
A failure to successfully implement
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.
information technology solutions could adversely affect
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 EMS 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, results of operations, or cash flows.
14
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.
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, 2008 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:
(cid:129) actual or anticipated fluctuations in operating results;
(cid:129) announcements concerning the Company, competitors, or industry;
(cid:129) overall volatility of the stock market;
(cid:129) changes in government regulations;
(cid:129) changes in the financial estimates of securities analysts or investors regarding the Company, the industry, or
competitors; and
(cid:129) 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.
15
Item 1B — Unresolved Staff Comments
None.
Item 2 — 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, 2008, are as follows:
Number of Facilities
Electronic
Manufacturing
Services
Unallocated
Corporate
Total
Furniture
5
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
2
1
1
1
2
1
1
1
1
1
1
1
1
Total Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
10
5
22
2
1
2
1
1
1
1
2
1
1
35
The listed facilities occupy approximately 5,224,000 square feet in aggregate, of which approximately
5,015,000 square feet are owned and 209,000 square feet are leased. Square footage of these facilities is
summarized by segment as follows:
Approximate Square Footage
Furniture
Electronic
Manufacturing
Services
Unallocated
Corporate
Total
Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,736,000
21,000
936,000
168,000
343,000
20,000
5,015,000
209,000
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,757,000
1,104,000
363,000
5,224,000
During fiscal year 2008, within the EMS segment, the Company ceased production at a Gaylord, Michigan,
facility and a Hibbing, Minnesota, facility. The Gaylord facility is currently held for sale. The lease on the Hibbing
facility expires on December 31, 2008. The Company plans to exit, within the EMS segment, the Ireland facility
during fiscal year 2009 and the United Kingdom facility in fiscal year 2011 as part of the Company’s plan to
consolidate these facilities and the Poland facility into a new, larger facility in Poland.
Included in Unallocated Corporate are executive, national sales and administrative offices, a recycling facility,
and a training and education center and corporate showroom. The Company sold its child development facility
during the first quarter of fiscal year 2008.
16
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 fiscal year 2008.
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 nine leased showroom facilities, total
402,000 square feet and expire from fiscal year 2009 to 2056 with many of the leases subject to renewal options. The
leased showroom facilities are in six states and the District of Columbia. (See Note 5 — Commitments and Contingent
Liabilities of Notes to Consolidated Financial Statements for additional information concerning leases.)
The Company owns approximately 27,800 acres of land which includes land where various Company facilities
reside, including approximately 27,300 acres generally for hardwood timber reserves and approximately 180 acres
of land in the Kimball Industrial Park, Jasper, Indiana (a site for certain production and other facilities, and for
possible future expansions). During fiscal year 2009, the Company intends to sell approximately 27,300 acres of
timber and farm land that it currently owns.
Item 3 — 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 — 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 2008.
17
Executive Officers of the Registrant
The executive officers of the Registrant as of September 2, 2008 are as follows:
(Age as of September 2, 2008)
Name
Age
Office and Area of Responsibility
James C. Thyen. . . . . . . . .
Douglas A. Habig . . . . . . .
Robert F. Schneider . . . . . .
Donald D. Charron . . . . . .
President, Chief Executive Officer, Director
64
61 Chairman of the Board
47 Executive Vice President, Chief Financial Officer
44 Executive Vice President, President — Kimball
Electronics Group
P. Daniel Miller . . . . . . . . .
Michelle R. Schroeder . . . .
60 Executive Vice President, President — Furniture
43 Vice President, Corporate Controller (functioning as
Principal Accounting Officer)
John H. Kahle . . . . . . . . . .
Gary W. Schwartz . . . . . . .
51 Executive Vice President, General Counsel, Secretary
60 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.
PART II
Item 5 — Market for Registrant’s Common Equity, Related Share Owner Matters and Issuer Purchases of
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:
2008
2007
High
Low
High
Low
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14.38
$15.35
$13.96
$11.52
$10.94
$11.35
$ 9.51
$ 8.28
$20.20
$25.95
$25.72
$20.04
$16.00
$18.72
$18.51
$12.85
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.
18
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 $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 2008, dividends declared were $23.7 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 2008 compared to fiscal year 2007 are as follows:
2008
2007
Class A
Class B
Class A
Class B
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.155
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.155
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.155
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.155
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $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 15, 2008, the Company’s Class A Common Stock was owned by 541 Share Owners of record, and
the Company’s Class B Common Stock was owned by 1,700 Share Owners of record, of which 275 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.
Issuer Purchases of Equity Securities
The following table presents a summary of share repurchases made by the Company during the fourth quarter
of fiscal year 2008:
Period
Total Number
of Shares
Purchased(1)
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs(2)
Month #1 (April 1 - April 30, 2008) . . .
Month #2 (May 1 - May 31, 2008) . . . .
Month #3 (June 1 - June 30, 2008) . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
-0-
6,022
-0-
6,022
$
-0-
$10.29
-0-
$
$10.29
-0-
-0-
-0-
-0-
2,000,000
2,000,000
2,000,000
(1) Shares were withheld from employees to satisfy tax withholding obligations due in connection with stock
issued under the 2003 Stock Option and Incentive Plan.
(2) The share repurchase program authorized by the Board of Directors was announced on October 16, 2007. The
program allows for the repurchase of up to two million shares of any combination of Class A and Class B shares
and will remain in effect until all shares authorized have been repurchased. The repurchases shown in this table
were not pursuant to this program and therefore did not reduce the two million shares authorized for repurchase
under the program.
19
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 of the Company’s Class B Common
Stock from June 30, 2003, through June 30, 2008, the last business day in the respective fiscal years, to the
cumulative total return of the NASDAQ Stock Market (U.S. and Foreign) and a peer group index for the same period
of time. Due to the diversity of its operations, the Company is not aware of any public companies that are directly
comparable to it. The peer group index is comprised of publicly traded companies in both of the Company’s
segments, as follows:
EMS Segment: Benchmark Electronics, Inc., Jabil Circuit, Inc., Plexus Corp.
Furniture Segment: HNI Corp., Knoll Inc., Steelcase, Inc., Herman Miller, Inc.
In order to reflect the segment allocation of Kimball International, Inc., a market capitalization-weighted index
was first computed for each segment group, then a composite peer group index was calculated based on each
segment’s proportion of net sales to total consolidated sales for each fiscal year. The public companies included in
the peer group have a larger revenue base than each of the Company’s business segments.
The performance graph also includes the S&P Midcap 400 Index, which, in years prior to fiscal year 2008, had
been an index of companies with market capitalization levels similar to the Company. However, this index is no
longer comparable. The S&P Midcap 400 index is provided in the graph below to show the impact of the transition
between this index and the new peer group index and will not be provided in future years.
The graph assumes $100 is invested in the Company’s stock and each of the three indexes at the closing market
quotations on June 30, 2003 and that dividends are reinvested. The performances shown on the graph are not
necessarily indicative of future price performance.
Comparison of Cumulative Five Year Total Return
Kimball International, Inc.
NASDAQ Stock Market (U.S. & Foreign)
Peer Group Index
S&P MidCap 400 Index
S
R
A
L
L
O
D
300
250
200
150
100
50
0
2003
2004
2005
2006
2003
2004
2005
2007
2006
2008
2007
2008
Kimball International Inc.
NASDAQ Stock Market (U.S. &
. . . . . . . . . . . .
$100.00
$ 98.85
$ 92.56
$144.82
$106.55
$ 66.83
Foreign) . . . . . . . . . . . . . . . . . . . . . . . .
Peer Group Index . . . . . . . . . . . . . . . . . . .
S&P MidCap 400 Index . . . . . . . . . . . . . .
$100.00
$100.00
$100.00
$127.18
$130.23
$127.98
$127.04
$150.28
$145.94
$135.21
$146.50
$164.88
$162.10
$142.02
$195.40
$142.32
$102.45
$181.07
20
Item 6 — Selected Financial Data
This information should be read in conjunction with Item 8 — Financial Statements and Supplementary Data
and Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Amounts in Thousands, Except for Per Share Data)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,351,985
Income from Continuing Operations . . . . . . . $
78
Earnings Per Share from Continuing
2008
Operations
Basic:
Year Ended June 30
2006
2007
2005
2004
$1,286,930 $1,109,549 $1,004,386 $992,823
18,342 $ 28,253
$
23,266
28,613
$
$
Class A . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . $
0.00
0.00
$
$
0.60 $
0.61 $
0.74 $
0.75 $
0.48 $
0.48 $
0.73
0.75
Diluted:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . $
0.00
0.00
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 722,667
Long-Term Debt, Less Current Maturities . . . $
Cash Dividends Per Share:
0.58 $
0.60 $
$
$
$ 694,741
0.74 $
0.75 $
0.47 $
0.48 $
$ 679,021
$ 600,540
421 $
832 $
1,125 $
350 $
0.72
0.74
$614,069
395
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . $
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 2008 income from continuing operations included $14.6 million ($0.39 per diluted share) of after-
tax restructuring expenses and $0.7 million ($0.02 per diluted share) of after-tax income received as part of a Polish
offset credit program for investments made in the Company’s Poland operation.
Fiscal year 2007 income from continuing operations included $0.9 million ($0.02 per diluted share) of after-
tax restructuring expenses.
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 the Company’s Poland operation.
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 the Company’s Poland operation.
21
Item 7 — 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 Manufacturing Services (EMS) segment. The Furniture segment provides furniture for
the office and hospitality industries, sold under the Company’s family of brand names. The EMS segment provides
engineering and manufacturing services which utilize common production and support capabilities to a variety of
industries globally. The EMS segment, formerly named the Electronic Contract Assemblies segment, was renamed
during the first quarter of fiscal year 2008 to more accurately reflect the focus of the segment. There was no financial
statement impact from this name change.
Management currently considers the following events, trends, and uncertainties to be most important to
understanding the Company’s financial condition and operating performance:
(cid:129) Globalization continues to reshape not only the industries in which the Company operates but also its key
customers.
(cid:129) The Company is continually assessing its strategies in relation to the instability in the U.S. economic
environment and the volatility of the U.S. financial markets. A portion of the Company’s office furniture
sales are to financial institutions which are being impacted by the credit market issues. The Company is
closely monitoring market changes in order to proactively adjust discretionary spending in anticipation of
the impact those market changes may have on its sales and operations.
(cid:129) Competitive pricing within the EMS segment and on select projects within the Furniture segment continues
to put pressure on the Company’s operating margins.
(cid:129) Increased upward pressure on commodity and fuel prices is expected to be a challenge the Company will
continue to address in the near term.
(cid:129) The Company currently has excess capacity at select operations.
(cid:129) The Business and Institutional Furniture Manufacturer Association (BIFMA International) lowered its
projection for growth in the office furniture industry and is currently projecting a year-over-year decline in
the office furniture industry for the remainder of calendar years 2008 and 2009.
(cid:129) 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 EMS segment is dependent on the successful replacement of such
customers or programs. Such changes usually occur gradually over time as old programs phase out of
production while newer programs ramp up.
(cid:129) The Company continues its strategy of diversification within the EMS segment customer base as it focuses
on four key market verticals: medical, automotive, industrial control, and public safety. With the Company’s
fiscal year 2007 acquisition of Reptron Electronics, Inc. (Reptron), sales to customers in the medical
industry are now the largest portion of the Company’s EMS segment with sales to customers in the
automotive industry being the second largest.
(cid:129) Successful execution of the Company’s restructuring plans is critical to the Company’s future performance.
The success of the restructuring initiatives is dependent on accomplishing the plans in a timely and effective
manner. A critical component of the restructuring initiatives is transfer of production among facilities which
during fiscal year 2008 contributed to some manufacturing inefficiencies and excess working capital. The
Company’s restructuring plans are discussed in the segment discussions below.
(cid:129) The EMS segment’s new operation in China started production in June 2007. The continued success of this
start-up operation is critical for securing additional customers and increasing facility utilization.
(cid:129) Beginning in the third quarter of fiscal year 2007, the EMS 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. Fiscal year 2008 had a full-year impact of this pricing reduction while fiscal
year 2007 only had the impact for half of the year and thus resulted in a $65 million net sales reduction in
fiscal year 2008 when compared to fiscal year 2007. Gross profit dollars were not impacted, but the
consolidated fiscal year-to-date 2008 gross profit as a percent of net sales measure increased approximately
1 percentage point as a result of this pricing change compared to fiscal year 2007. Selling, general and
administrative (SG&A) costs as a percent of net sales increased by a similar percentage. There was no impact
to net income and net cash flows.
22
(cid:129) The Company continues to have a strong balance sheet which includes a net cash position from an aggregate
of cash, cash equivalents, and short-term investments, less short-term borrowings under credit facilities
totaling $29.8 million at June 30, 2008.
(cid:129) The increasingly competitive marketplace mandates that the Company continually re-evaluate its business
models.
(cid:129) 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.
(cid:129) 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:
(cid:129) 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. During the fourth quarter of fiscal year 2008, the Company approved a plan to expand its
European automotive electronics capabilities and to establish a European Medical Center of Expertise in
Poznan, Poland. The Company presently has an operation in Poznan. As part of the plan, the Company will
consolidate its EMS facilities located in Longford, Ireland; Bridgend, Wales; and Poznan into a new, larger
facility in Poznan. In fiscal year 2008, the Company also completed the consolidation of U.S. manufacturing
facilities within the EMS segment due to excess capacity resulting in the exit of two facilities. These
activities are discussed in more detail in the fiscal year 2008 EMS segment discussion below.
(cid:129) As part of the Company’s diversification plan for the EMS segment, during the third quarter of fiscal year
2007, the Company acquired Reptron. This acquisition is discussed in more detail in the fiscal year 2008
EMS segment discussion below.
(cid:129) 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.
(cid:129) 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 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.
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. 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. During the fourth quarter of fiscal year 2008 the Company bought out the remaining term of the
building lease. 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. All three 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.
23
See Note 18 — 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 . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30
2008
2007
2006
$ -0-
$ 8,744
$ 62,110
Operating Loss of Discontinued Operations, Net of Tax . . . . . . . . . .
Loss on Disposal of Discontinued Operations, Net of Tax . . . . . . . . .
Loss from Discontinued Operations, Net of Tax . . . . . . . . . . . . . . . .
Loss from Discontinued Operations per Class B Diluted Share . . . . .
$ (124)
-0-
$ (124)
$(0.00)
$(3,068)
(1,046)
$(4,114)
$ (0.11)
$ (6,639)
(6,911)
$(13,550)
$ (0.36)
Related Party Disclosure
During fiscal year 2006, the Company’s forest products hardwood lumber operation which was 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 was a
note receivable. The Company recorded an allowance on this note receivable at the time of sale since there was
uncertainty as to whether the entire balance was collectable. In fiscal year 2008, $0.3 million of expense was
recorded as an additional allowance for this receivable and final payment was received for the net amount. The
Company has no ongoing commitments resulting from the sales agreement.
Fiscal Year 2008 Results of Operations
The following discussions are based on income from continuing operations and therefore exclude all income
statement activity of the discontinued operations.
Financial Overview — Consolidated
Fiscal year 2008 consolidated net sales were $1.35 billion compared to fiscal year 2007 net sales of
$1.29 billion, a 5% increase over fiscal year 2007. The higher net sales resulted from increased EMS segment
net sales related to the third quarter fiscal year 2007 Reptron acquisition within the EMS segment which contributed
net sales of $144 million in fiscal year 2008 and $55 million in fiscal year 2007 as well as increased organic
Furniture and EMS segment net sales. In addition, in mid-fiscal year 2007, the Company reduced the price of
finished product sold to a customer in the EMS segment which carried forward through fiscal year 2008. Fiscal year
2008 had a full-year impact of this pricing reduction while fiscal year 2007 only had the impact for half of the year
and thus resulted in a $65 million net sales reduction in fiscal year 2008 when compared to fiscal year 2007, which
partially offset the EMS sales increase.
The Company recorded income from continuing operations for fiscal year 2008 of $0.1 million, or less than
$0.01 per Class B diluted share, inclusive of after-tax restructuring charges of $14.6 million, or $0.39 per Class B
diluted share. The fiscal year 2008 restructuring charges were primarily related to the European consolidation plan,
a workforce reduction plan, and the exit of two domestic EMS facilities. Fiscal year 2007 income from continuing
operations 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. Information regarding the acquisition and restructurings is included
in the segment discussions below.
Consolidated gross profit as a percent of sales in fiscal year 2008 was 18.4% compared to 20.3% in fiscal year
2007. Both the EMS segment and the Furniture segment contributed to the decline as discussed in more detail in the
segment discussions below. Gross profit was also negatively impacted as the Company’s sales mix continued to shift
toward the EMS segment, which operates at a lower gross profit percentage than the Furniture segment. Partially
offsetting the fiscal year 2008 gross profit as a percent of net sales decline, the EMS customer pricing adjustment
discussed above increased gross margin as a percent of net sales approximately 1 percentage point compared to
fiscal year 2007 gross margin. This EMS customer pricing adjustment had no impact on the gross margin dollars for
either fiscal year 2008 or fiscal year 2007 as the reduction in sales was offset by an equal reduction in material cost
purchased from the same customer.
24
The fiscal year 2008 consolidated selling, general and administrative (SG&A) expense level in absolute dollars
approximated the fiscal year 2007 level and declined as a percent of net sales. The decline in consolidated SG&A
costs as a percent of net sales was primarily due to the leverage of the higher net sales level and the shift in sales mix
toward the EMS segment, which has a lower SG&A percentage than the Furniture segment.
Fiscal year 2008 other income totaled $3.2 million compared to fiscal year 2007 other income of $9.9 million.
Fiscal year 2008 interest expense was $0.9 million higher due to higher average outstanding debt balances, and
fiscal year 2008 interest income was $1.9 million lower than fiscal year 2007 as the Company’s average cash and
short-term investment balances were lower. In addition, a $3.5 million decline in the market value of the Company’s
Supplemental Employee Retirement Plan (SERP) investments for fiscal year 2008 as compared to fiscal year 2007
contributed to the decline in other income. The loss on the SERP investment that was recognized in other income
was exactly offset by a reduction in the SERP liability which was recognized in SG&A expense in accordance with
U.S. GAAP. Fiscal year 2008 other income also included $1.3 million pre-tax income relating to funds received as
part of a Polish offset credit program for investments made in the Company’s Poland operation.
As a result of various tax benefits in fiscal year 2008, such as tax-exempt interest income and the research and
development credit, coupled with the tax benefit recorded related to the pre-tax loss, the Company recorded an
overall income tax benefit greater than the pre-tax loss. The fiscal year 2007 effective tax rate was 36%. For further
detail see Note 9 — Income Taxes of Notes to Consolidated Financial Statements.
Comparing the balance sheets as of June 30, 2008 to June 30, 2007, the decline in the Company’s cash and
short-term investment balances was primarily a result of the Company repurchasing 1.7 million Class B shares
during fiscal year 2008 under a previously authorized share repurchase program. The Company’s inventory balance
has increased since June 30, 2007 primarily in support of the transfer of production related to the consolidation of
facilities. The Company’s accounts payable balance increased since June 30, 2007 due to an agreement with select
customers from which the Company also purchases materials that allows the Company to extend accounts payable
terms if those customers extend the timeframe in which they pay the Company. The Company’s accounts receivable
balance thus likewise increased, but to a lesser extent due to offsetting declines in accounts receivable elsewhere in
the Company. The Company’s borrowings under credit facilities increased as the Company opted to borrow to fund
short-term cash needs rather than sell debt securities in its investment portfolio which have favorable yields.
Electronic Manufacturing Services Segment
In an effort to improve profitability and increase Share Owner value while remaining committed to its business
model of being market driven and customer centered, during the third quarter of fiscal year 2008, the Company
approved a restructuring plan designed to more appropriately align its workforce in a changing business envi-
ronment. Within the Company’s EMS segment, the restructuring activities included realigning engineering and
technical resources closer to the customer and streamlining administrative and sales processes. The plan also
included reducing corporate personnel costs to more properly align with the overall sales mix change within the
Company. Expenditures were primarily for employee severance and transition costs. This plan was substantially
complete as of the end of fiscal year 2008.
25
During the third quarter of fiscal year 2007, the Company acquired Reptron, a U.S. based electronics
manufacturing services company which provided engineering services, electronics manufacturing services, and
display integration services. Reptron had four manufacturing operations located in Tampa, Florida; Hibbing,
Minnesota; Gaylord, Michigan; and Fremont, California. The acquisition 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. 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, during the fourth quarter of fiscal year 2007 the Company finalized a
restructuring plan within the EMS segment to exit the facility located in Gaylord, Michigan, and transfer the business
to several of the Company’s other EMS facilities. The Company ceased production at the facility during the second
quarter of fiscal year 2008. Excess equipment was sold during the third quarter of fiscal year 2008, and the Gaylord
facility is classified as held for sale. Expenditures included employee severance and transition costs which were
recognized as part of the purchase price allocation, not impacting earnings. Expenditures also included losses on the
sale of equipment, impairment on the facility, and an immaterial amount related to other closure activities which
impacted earnings as the costs were incurred. The Company expects to recognize minimal future charges related to
ongoing facility maintenance expenses. During the second quarter of fiscal year 2008, the Company approved a
separate restructuring plan to further consolidate its EMS facilities that resulted in the exit of the manufacturing
facility located in Hibbing, Minnesota, which was also one of the acquired Reptron facilities. Production at the
Hibbing facility ceased in the fourth quarter of fiscal year 2008, and the Company’s lease of the Hibbing facility will
end in December 2008. A majority of the Hibbing business transferred to several of the Company’s worldwide EMS
facilities. Expenditures, most of which were recognized during fiscal year 2008, included employee severance and
transition costs, asset and goodwill impairment, lease exit costs, and other plant closure and exit costs.
During the fourth quarter of fiscal year 2006, the Company acquired the Bridgend, Wales, United Kingdom,
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. The
Wales, United Kingdom, facility 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. 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 emphasized the Company’s strategic expansion of global capabilities and responsiveness in serving the
Company’s customers. During the fourth quarter of fiscal year 2008, the Company approved a plan to expand its
European automotive electronics capabilities and to establish a European Medical Center of Expertise in Poznan,
Poland. As part of the plan, the Company will consolidate its EMS facilities located in Longford, Ireland; Wales,
United Kingdom; and Poznan, Poland; into a new, larger facility in Poznan, which is expected to improve the
Company’s margins in the very competitive EMS market. The plan includes the sale of the existing Poland building
at a gain which will partially fund the consolidation activities. The plan is to be executed in stages with a projected
completion date of December 2011.
During the third quarter of fiscal year 2006, the Company approved a restructuring plan within the EMS
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 facility was sold during fiscal year 2008. 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.
The acquisitions are discussed in further detail in Note 2 — Acquisitions of Notes to Consolidated Financial
Statements. The restructuring plans are discussed in further detail in Note 17 — Restructuring Expense of Notes to
Consolidated Financial Statements.
26
EMS segment net sales and open orders were as follows:
(Amounts in Millions)
Net Sales:
EMS Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Orders:
EMS Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At or For the Year
Ended June 30
2008
2007
% Change
$727.1
$673.0
$205.8
$192.0
8%
7%
Fiscal year 2008 EMS segment net sales increased $54 million, or 8%, from fiscal year 2007. The acquisition
completed midway through the third quarter of fiscal year 2007 within the EMS segment contributed sales of
$144 million in fiscal year 2008 and $55 million in fiscal year 2007. In addition, in mid-fiscal year 2007, the
Company reduced the price of finished product sold to a customer in the EMS segment which carried forward
through fiscal year 2008. Fiscal year 2008 had a full-year impact of this pricing reduction while fiscal year 2007
only had the impact for half of the year and thus resulted in a $65 million net sales reduction in fiscal year 2008 when
compared to fiscal year 2007. See the discussion below for more information on this selling price change. Increased
sales to customers in the medical, industrial control, and public safety industries more than offset decreased sales to
customers in the automotive industry driven by declines in the domestic automotive market. 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.
The EMS segment recorded a loss from continuing operations of $15.3 million for fiscal year 2008, inclusive
of after-tax restructuring charges of $12.8 million primarily related to the European consolidation plan, the
workforce reduction plan, and the exit of two domestic EMS facilities. EMS segment fiscal year 2007 income from
continuing operations totaled $1.0 million, inclusive of after-tax restructuring charges of $0.1 million.
Fiscal year 2008 gross profit as a percent of net sales declined 1.2 percentage points compared to fiscal year
2007. Fiscal year 2008 gross profit was negatively impacted by excess capacity costs and inefficiencies some of
which were associated with the closure of two domestic facilities and the related transfer of production to other
facilities within this segment. Gross profit was also negatively impacted by a shift in product mix to lower margin
product.
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 EMS 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
approximately 1 percentage point, and SG&A as a percent of net sales increased by a similar percentage for
fiscal year 2008 as compared to fiscal year 2007.
Fiscal year 2008 SG&A increased in both dollars and as a percent of net sales when compared to fiscal year
2007. The inclusion of the SG&A expenses of the mid-third quarter fiscal year 2007 acquisition for the entire fiscal
year 2008 was the primary driver of the increase in SG&A in absolute dollars. The customer pricing adjustment
mentioned above increased SG&A as a percent of net sales, and the leverage of higher sales volume decreased
SG&A as a percent of net sales. In addition, increased investments in business development resources contributed to
the SG&A increase as a percent of net sales and in absolute dollars.
27
The fiscal year 2008 and 2007 earnings were unfavorably impacted by pre-tax costs, in millions, of $2.3 and
$3.5, respectively, related to the start-up of an EMS manufacturing facility in China. Fiscal year 2008 income from
continuing operations included $1.3 million of pre-tax income relating to funds received as part of the Polish offset
credit program for investments made in the Company’s Poland operation.
Included in this segment are a significant amount of sales to Bayer AG affiliates which accounted for the
following portions of consolidated net sales and EMS segment net sales:
Year Ended
June 30
2008
2007
Bayer AG affiliated sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . .
Bayer AG affiliated sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . .
11% 15%
21% 30%
The reduction in year-to-date sales to Bayer AG is related to two factors. First, 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 in fiscal year 2007 are now to Siemens AG. Second, net sales to Bayer AG affiliates were also impacted as
a result of the Company’s aforementioned selling price reduction effective January 2007 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 EMS 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 — Risk Factors.
Furniture Segment
As part of the workforce reduction restructuring activities discussed in the EMS segment above, within the
Company’s Furniture segment,
the restructuring activities included realigning information technology and
procurement resources closer to the customer and streamlining administrative and sales processes to drive further
synergies afforded by the alignment of the sales and manufacturing functions within this segment. Related
expenditures were primarily for employee severance and transition costs. This plan was substantially complete as of
the end of fiscal year 2008 with a few activities expected to occur in the first half of fiscal year 2009 in the Furniture
segment.
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.
Expenses related to this plan included software impairment, accelerated amortization, employee severance, and
other consolidation costs. This plan was complete as of June 30, 2008.
28
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
2008
2007
% Change
Branded Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract Private Label Furniture . . . . . . . . . . . . . . . . . . . . . . . . . .
$624.8
-0-
$602.9
11.1
4%
(100%)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$624.8
$614.0
2%
Open Orders:
Furniture Segment
Branded Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$101.0
$ 95.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$101.0
$ 95.3
6%
6%
Increased net sales volumes of both office and hospitality furniture contributed to the increased branded
furniture net sales level. Price increases net of higher discounting contributed approximately $4 million to the
increased net sales of branded furniture during fiscal year 2008 when compared to fiscal year 2007. Fiscal year 2008
sales of newly introduced office furniture products which the Company began selling during fiscal year 2008
approximated $57 million. Branded furniture products open orders at June 30, 2008 were 6% higher than open
orders at June 30, 2007 as higher hospitality furniture open orders more than offset lower office furniture open
orders. The absence of net sales and open orders of contract private label products was a result of the planned exit of
this product line. Open orders at a point in time may not be indicative of future sales trends.
The Furniture segment income from continuing operations was $13.4 million in fiscal year 2008, inclusive of
after-tax restructuring charges of $1.3 million, compared to income from continuing operations of $17.8 million in
fiscal year 2007, which included $0.8 million of after-tax restructuring charges. The fiscal year 2008 restructuring
charges were primarily related to the workforce reduction plan, and the fiscal year 2007 restructuring charges were
primarily related to the consolidation and standardization of administrative, marketing, and business development
functions within this segment. Fiscal year 2008 gross profit as a percent of net sales declined 2.1 percentage points
when compared to fiscal year 2007. Gross profit was negatively impacted by supply chain cost increases, increased
fuel expense, a sales mix shift to lower margin product, and competitive pricing pressures. Price increases on select
office furniture products partially offset the higher costs.
As compared to fiscal year 2007, fiscal year 2008 SG&A expenses decreased in both absolute dollars and as a
percent of net sales as the Furniture segment incurred lower advertising and product promotion expenses and lower
incentive compensation costs. Increased investments in the segment’s sales force partially offset the other SG&A
savings. The leverage of the segment’s higher sales volumes also contributed to the SG&A as a percent of net sales
improvement. The Furniture segment earnings were also positively impacted by savings realized through various
cost reduction initiatives.
See Note 17 — 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 — Risk Factors.
29
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. See Note 1 —
Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for additional infor-
mation related to the cumulative effect of the accounting change.
Financial Overview — 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 EMS 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 continued to shift toward the EMS
segment. Since the EMS segment operated at a lower gross profit percentage than the Furniture segment, this
contributed to the consolidated gross profit downward trend. The fiscal year 2007 EMS 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
EMS 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.
30
Electronic Manufacturing Services Segment
EMS segment net sales and open orders were as follows:
(Amounts in Millions)
Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At or For the Year
Ended June 30
2007
2006
$673.0
$192.0
$496.7
$130.6
% Change
35%
47%
Fiscal year 2007 EMS 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 EMS segment contributed sales of $319.3 million in fiscal year 2007 and $61.5 million in fiscal year
2006. The selling price change to Bayer AG and affiliates reduced fiscal year 2007 net sales by approximately
$64 million. 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. Open orders as of June 30, 2007 have been adjusted to
be consistent with the calculation of open orders as of June 30, 2008. 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.
EMS 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 — 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. 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.
31
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. 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 EMS segment earnings also benefited from a lower effective tax rate
due to adjustments to income tax accruals.
Included in this segment were 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 EMS segment net
sales:
Year Ended
June 30
2007
2006
Bayer AG affiliated sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . .
TRW sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bayer AG affiliated sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . .
TRW sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6%
15%
8% 12%
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 EMS segment customer base.
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
2007
2006
% Change
Branded Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract Private Label Furniture . . . . . . . . . . . . . . . . . . . . . . . . . .
$602.9
11.1
$573.8
38.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$614.0
$612.6
Open Orders:
Furniture Segment
Branded Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract Private Label Furniture . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 95.3
-0-
$ 94.7
2.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 95.3
$ 96.7
5%
(71%)
0%
1%
(100%)
(1%)
32
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 — Restructuring Expense of Notes to Consolidated Financial Statements for more information on
restructuring charges.
Liquidity and Capital Resources
Working capital at June 30, 2008 was $163 million compared to working capital of $199 million at June 30,
2007. The current ratio was 1.5 at June 30, 2008 and 1.8 at June 30, 2007.
The Company’s internal measure of Accounts Receivable performance, also referred to as Days Sales
Outstanding (DSO), for fiscal year 2008 increased to 46.6 from 44.0 for fiscal year 2007. The DSO increase
was primarily due to certain customers extending the timeframe in which they pay the Company. The Company also
purchases materials from these customers and has an agreement that likewise allows the Company to extend
accounts payable terms. 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 2008 increased to 59.9 from 55.7 for fiscal year 2007. The increased PDSOH was
driven by EMS segment increased average inventory balances primarily in support of transfers of production
between manufacturing facilities within the EMS segment. 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 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.
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 $80 million at June 30, 2007 to $30 million at June 30,
2008, as cash flow generated from operations was more than offset by cash payments during the fiscal year for
capital expenditures, share repurchases, and dividends. Operating activities generated $43 million of cash flow in
fiscal year 2008 compared to $44 million in fiscal year 2007. The Company’s repurchase of Class B shares under a
previously authorized share repurchase program utilized $25 million of cash. The Company reinvested $51 million
into capital investments for the future, primarily for manufacturing equipment and facility improvements. During
fiscal year 2009, the Company expects to continue to invest in manufacturing equipment and also plans to construct
a new EMS manufacturing facility in Poland as part of the consolidation of the European manufacturing footprint.
The land and new facility are expected to cost approximately $35 million, and the Company has a conditional
agreement to sell the current Poland facility for approximately $24 million. During fiscal year 2009, the Company
intends to sell approximately 27,300 acres of timber and farm land that it currently owns. Fiscal year 2008 financing
cash flow activities included $24 million in dividend payments, which remained flat with fiscal year 2007.
33
The Company previously maintained a $75 million credit facility with an expiration date in May 2009 that
allowed for both issuances of letters of credit and cash borrowings. During the fourth quarter of fiscal year 2008, the
Company replaced the $75 million credit facility with a $100 million credit facility which expires in April 2013.
The $75 million credit facility provided an option to increase the amount available for borrowing to $125 million at
the Company’s request, subject to participating banks’ consent. Similarly, the $100 million credit facility provides
an option to increase the amount available for borrowing to $150 million at the Company’s request, subject to
participating banks’ consent. Similar to the previous $75 million credit facility, the $100 million credit facility
requires the Company to comply with certain debt covenants including interest coverage ratio, minimum net worth,
and other terms and conditions. The Company was in compliance with these covenants at June 30, 2008.
At June 30, 2008, the Company had $52.6 million of short-term borrowings outstanding. The outstanding
balance consisted of $17.3 million for a Euro currency borrowing which provides a natural currency hedge against
Euro denominated intercompany notes between the U.S. parent and the Euro functional currency subsidiaries, and
an additional $33.6 million borrowing funded short-term cash needs. In addition, at June 30, 2008, the Company
had $1.7 million of short-term borrowings outstanding under a separate Thailand credit facility which is backed by
the $100 million credit facility. The Company also had letters of credit against the credit facility. Total availability to
borrow under the $100 million credit facility was $44.2 million at June 30, 2008. At June 30, 2007, the Company
had $18.9 million of short-term borrowings outstanding under the $75 million credit facility.
The Company also has a credit facility for which the expiration date has been extended to November 2008 for
its electronics operation in Wales, United Kingdom, which allows for multi-currency borrowings up to 2 million
Sterling equivalent (approximately $4 million U.S. dollars at current exchange rates) and is available to cover bank
overdrafts. Bank overdrafts may be deemed necessary to satisfy short-term cash needs rather than funding from
intercompany sources. At June 30, 2007, as collateral subject to lien, this facility required 3 million Euro
(approximately $4 million U.S. dollars) to be held as restricted cash which was classified as other long-term
assets on the Company’s balance sheet. The restricted cash is no longer required as collateral and was reclassified to
cash and cash equivalents on the Company’s balance sheet. At June 30, 2008, the Company had no borrowings
outstanding under the overdraft facility. At June 30, 2007, the Company had $3.0 million U.S. dollar equivalent of
Sterling-denominated short-term borrowings outstanding under the overdraft facility. See Note 6 — Long-Term
Debt and Credit Facility of Notes to Consolidated Financial Statements for more information on the credit facilities.
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 during fiscal year 2008. The notes were classified as Current
Liabilities on the Consolidated Balance Sheets. See Note 2 — Acquisitions of Notes to Consolidated Financial
Statements for information on the Reptron acquisition.
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
2009 and the foreseeable future for working capital needs, 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. The $100 million credit
facility 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 2009. The Company anticipates maintaining a
strong liquidity position for the next twelve months. 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.
34
Contractual Obligations
The following table summarizes the Company’s contractual obligations as of June 30, 2008.
Payments Due During Fiscal Years Ending June 30,
Total
2009
2010-2011
2012-2013
Thereafter
(Amounts in Millions)
Recorded Contractual Obligations:
Long-Term Debt Obligations(a) . . . . . . . . . $
Capital Lease Obligations(a) . . . . . . . . . . .
Other Long-Term Liabilities Reflected on
the Balance Sheet(b)(c)(d) . . . . . . . . . . . .
0.5
0.4
$ 0.1
0.4
$ 0.1
0.0
34.8
10.9
13.4
Unrecorded Contractual Obligations:
Operating Leases(d) . . . . . . . . . . . . . . . . .
Purchase Obligations(e). . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . .
18.9
298.0
2.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $355.1
3.8
272.0
0.0
$287.2
6.6
16.3
2.5
$38.9
$ 0.0
0.0
1.6
4.3
9.5
0.0
$15.4
$ 0.3
0.0
8.9
4.2
0.2
0.0
$13.6
(a) Refer to Note 6 — Long-Term Debt and Credit Facility of Notes to Consolidated Financial Statements for more
information regarding Long-Term Debt and Capital Lease Obligations. The $0.1 million long-term debt
obligations and $0.4 million capital lease payments due in fiscal year 2009 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:
(cid:129) 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 2009
amount includes $3.0 million for SERP payments recorded as a current liability.
(cid:129) The timing of employee transition payments related to facilities to be exited is estimated based on the
expected termination in the underlying restructuring plan. The fiscal year 2009 amount also includes
$6.6 million for restructuring employee transition payments recorded as a current liability.
(cid:129) The timing of severance plan payments is estimated based on the average service life of employees. The fiscal
year 2009 amount also includes $0.3 million for severance payments recorded as a current liability.
(cid:129) The timing of warranty payments is estimated based on historical data. The fiscal year 2009 amount includes
$1.0 million for short-term warranty payments recorded as a current liability.
(c) Excludes $2.2 million of long-term unrecognized tax benefits associated with the adoption of Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), and
associated accrued interest and penalties along with miscellaneous other long-term liabilities which are not tied
to a contractual obligation and for which the Company cannot make a reasonably reliable estimate of the period
of future payments.
(d) Refer to Note 5 — 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. In certain instances, such as when lead times
dictate, the Company enters into contractual agreements for material in excess of the levels required to fulfill
customer orders. In turn, agreements with the customers cover a portion of that exposure for the material which
was purchased prior to having a firm order.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements other than standby letters of credit and operating leases
entered into in the normal course of business. These arrangements do not have a material current effect and are not
reasonably likely to have a material future effect on the Company’s financial condition, results of operations,
liquidity, capital expenditures, or capital resources. See Note 5 — Commitments and Contingent Liabilities of Notes
to Consolidated Financial Statements for more information on standby letters of credit. The Company does not have
material exposures to trading activities of non-exchange traded contracts.
35
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 U.S. GAAP. 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 — 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 — 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.
(cid:129) Allowance for sales returns — 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, 2008 and
June 30, 2007, the reserve for returns and allowances was $3.3 million and $3.2 million, respectively. Over the
past two years, the returns and allowances reserve has been approximately 2% of gross trade receivables.
(cid:129) Allowance for doubtful accounts — Allowance for doubtful accounts is generally based on a percentage of
aged accounts receivable, where the percentage increases as the accounts receivable become older. However,
management judgment is utilized in the final determination of the allowance based on several factors
including specific analysis of a customer’s credit worthiness, changes in a customer’s payment history,
historical bad debt experience, and general economic and market trends. The allowance for doubtful
accounts at June 30, 2008 and June 30, 2007 was $0.8 million and $1.2 million, respectively, and over the
past two years, this reserve has been less than 1% of gross trade accounts receivable.
Excess and obsolete inventory — Inventories were valued using the lower of last-in, first-out (LIFO) cost or market
value for approximately 17% and 18% of consolidated inventories at June 30, 2008 and June 30, 2007, respectively,
including approximately 85% and 86% of the Furniture segment inventories at June 30, 2008 and June 30, 2007,
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. The Company may also purchase additional inventory to support transfers of production between manufacturing
facilities. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover, inventory levels, and
product demand levels. Factors considered when evaluating inventory obsolescence include the age of on-hand inventory
and reduction in value due to damage, use as showroom samples, design changes, or cessation of product lines.
Self-insurance reserves — The Company is self-insured up to certain limits for auto and general liability,
workers’ compensation, and certain employee health benefits such as medical, short-term disability, and dental with
the related liabilities included in the accompanying financial statements. The Company’s policy is to estimate
reserves based upon a number of factors including known claims, estimated incurred but not reported claims, and
other analyses, which are based on historical information along with certain assumptions about future events.
Changes in assumptions for such matters as increased medical costs and changes in actual experience could cause
these estimates to change and reserve levels to be adjusted accordingly. At June 30, 2008 and June 30, 2007, the
Company’s accrued liabilities for self-insurance exposure were $6.6 million and $7.0 million, respectively,
excluding immaterial amounts held in a voluntary employees’ beneficiary association (VEBA) trust.
36
Income taxes — Deferred income tax assets and liabilities are recognized for the estimated future tax consequences
attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are expected to reverse. The Company evaluates the
recoverability of its deferred tax assets each quarter by assessing the likelihood of future profitability and available tax
planning strategies that could be implemented to realize its deferred tax assets. If recovery is not likely, the Company
provides a valuation allowance based on its best estimate of future taxable income in the various taxing jurisdictions and
the amount of deferred taxes ultimately realizable. Future events could change management’s assessment.
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 were effective as of the beginning of the Company’s fiscal year 2008. 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
effectively settled, the provision will be adjusted accordingly. Additional information on income taxes is contained
in Note 9 — Income Taxes of Notes to Consolidated Financial Statements.
Goodwill — 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. At June 30, 2008, goodwill was reviewed due primarily to a reduction in the Company’s market capitalization;
however, the interim review resulted in no additional goodwill impairment. Goodwill is assigned to and the fair value is
tested at the reporting unit level. At June 30, 2008 and June 30, 2007, the Company’s goodwill totaled, in millions, $15.4
and $15.5, respectively. Goodwill impairment of $0.2 million pre-tax was recorded during fiscal year 2008 related to
terminated business in conjunction with the consolidation of the EMS segment Hibbing, Minnesota, operation.
New Accounting Standards
See Note 1 — Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for
information regarding New Accounting Standards.
Item 7A — Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk: As of June 30, 2008 and 2007, the Company had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of $52 million and $67 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, 2008 and 2007 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 — 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 $53 million and $22 million outstanding balances of variable rate obligations at June 30, 2008
and 2007, 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 —
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 — 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.
37
Item 8 — Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of June 30, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30,
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30,
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page No.
39
40
41
42
43
Consolidated Statements of Share Owners’ Equity for Each of the Three Years in the Period Ended
June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
45-78
38
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.
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 account-
ing 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 — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Com-
mission, management concluded that its internal control over financial reporting was effective as of June 30, 2008.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has issued an audit
report on the Company’s internal control which is included herein.
/s/
JAMES C. THYEN
James C. Thyen
President,
Chief Executive Officer
September 2, 2008
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
September 2, 2008
39
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, 2008 and 2007, 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, 2008. Our audits also included the
financial statement schedules listed in the Index at Item 15. We also have audited the Company’s internal control
over financial reporting as of June 30, 2008, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on these financial statements and financial statement
schedules and an opinion on 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 audits of the 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,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included 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, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended June 30, 2008, 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, the Company maintained, in all material respects, effective
internal control over financial reporting as of June 30, 2008, based on the criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
September 2, 2008
40
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
June 30,
2008
June 30,
2007
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,805
51,635
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
180,307
Receivables, net of allowances of $1,057 and $1,477, respectively . . . . . . . . . . . . . .
164,961
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,227
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,374
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
466,309
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 35,027
67,350
172,190
135,901
34,348
3,032
447,848
Property and Equipment, net of accumulated depreciation of $340,076 and $320,889,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Intangible Assets, net of accumulated amortization of $66,087 and $58,901,
189,904
15,355
173,800
15,518
13,373
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,726
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $722,667
20,585
36,990
$694,741
LIABILITIES AND SHARE OWNERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
470
174,575
52,620
6,989
69,053
303,707
Other Liabilities:
Long-term debt, less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
421
26,072
26,493
5,515
$
150,409
21,968
7,031
64,314
249,237
832
17,224
18,056
Share Owners’ Equity:
Common stock-par value $0.05 per share:
Class A — Shares authorized 49,826,000 in 2008 and 2007 Shares issued
14,368,000 in 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
718
718
Class B — Shares authorized 100,000,000 in 2008 and 2007 Shares issued
28,657,000 in 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Treasury stock, at cost:
1,433
14,531
456,413
12,308
1,433
14,568
480,863
3,395
Class A — 2,691,000 in 2008 and 2,733,000 in 2007 . . . . . . . . . . . . . . . . . . . . . .
Class B — 3,372,000 in 2008 and 1,761,000 in 2007 . . . . . . . . . . . . . . . . . . . . . .
Total Share Owners’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(46,517)
(46,419)
392,467
Total Liabilities and Share Owners’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $722,667
(47,536)
(25,993)
427,448
$694,741
See Notes to Consolidated Financial Statements
41
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
Year Ended June 30
2007
2008
2006
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,351,985
1,103,511
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
248,474
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
232,131
Selling, General and Administrative Expenses . . . . . . . . . . . . . . . . .
21,911
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,568)
Other Income (Expense):
$1,286,930
1,025,570
261,360
233,409
1,528
26,423
$1,109,549
860,658
248,891
215,857
4,655
28,379
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) from Continuing Operations Before Taxes on
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . .
Loss from Discontinued Operations, Net of Tax. . . . . . . . . . . . . . . .
Income (Loss) Before Cumulative Effect of Change in Accounting
Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative Effect of Change in Accounting Principle, Net of Tax . .
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings (Loss) Per Share of Common Stock:
Basic Earnings Per Share from Continuing Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings Per Share from Continuing Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic Earnings (Loss) Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings (Loss) Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Average Number of Shares Outstanding:
Basic:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See Notes to Consolidated Financial Statements
3,362
(1,967)
3,512
(1,703)
3,204
(2,364)
(2,442)
78
(124)
(46)
-0-
(46)
0.00
0.00
0.00
0.00
(0.00)
(0.00)
(0.00)
(0.00)
11,696
25,418
37,114
11,868
25,504
37,372
$
$
$
$
$
$
$
$
$
5,237
(1,073)
6,795
(1,030)
9,929
36,352
13,086
23,266
(4,114)
19,152
-0-
19,152
0.60
0.61
0.58
0.60
0.49
0.50
0.47
0.49
11,979
26,623
38,602
12,325
26,932
39,257
4,592
(249)
7,398
(923)
10,818
39,197
10,584
28,613
(13,550)
15,063
299
15,362
0.74
0.75
0.74
0.75
0.39
0.41
0.39
0.40
13,195
25,002
38,197
13,360
25,024
38,384
$
$
$
$
$
$
$
$
$
42
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended June 30
2007
2008
2006
Cash Flows From Operating Activities:
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net (loss) income to net cash provided by operating
(46)
$ 19,152
$ 15,362
activities:
Cumulative effect of a change in accounting principle . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sales of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax and other deferred charges . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . .
Change in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from disposal of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .
Payments for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of capitalized software and other assets . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and maturities of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
-0-
39,421
(840)
-0-
2,736
4,193
3,979
(14)
3,341
(22,960)
(2,950)
13,071
3,468
43,399
(49,742)
5,209
250
(4,566)
(905)
(33,184)
53,777
3
(29,158)
Cash Flows From Financing Activities:
(4,445)
Payments on revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-0-
Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,267
Net change in other credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,022)
Payments on capital leases and long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . .
(24,844)
Repurchases of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(23,701)
Dividends paid to Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . .
-0-
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(859)
Repurchase of employee shares for tax withholding . . . . . . . . . . . . . . . . . . . . . . .
-0-
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(22,590)
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
4,127
Effect of Exchange Rate Change on Cash and Cash Equivalents . . . . . . . . . . . . . . . .
Net (Decrease) Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . .
(4,222)
35,027
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,805
-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)
(4,440)
1,268
925
(565)
(1,078)
(24,419)
1,095
6,595
-0-
(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)
-0-
21,023
(44)
(131)
-0-
(24,175)
89
-0-
-0-
(66)
(3,304)
534
7,604
57,253
$ 64,857
Supplemental Information
— Fiscal year 2008 cash paid for acquisitions consists of payments to redeem the remaining bonds from the prior year acquisition of Reptron
Electronics, Inc. (“Reptron”) of $4.6 million. Fiscal year 2007 cash paid for acquisitions consists of payments for the fiscal year 2007 acquisition of
Reptron of $46.4 million and the fiscal year 2006 acquisition of the Bridgend, Wales, United Kingdom, operation of $4.7 million. Fiscal year 2006 cash
paid for acquisitions consists of payments for the fiscal year 2006 acquisition of the Bridgend, Wales, United Kingdom, operation of $27.3 million and the
Longford, Ireland, operation of $0.2 million.
— Fiscal year 2008 cash payments for repurchases of common stock of $24.8 million include $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.
See Notes to Consolidated Financial Statements
43
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
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Deferred
Stock-Based
Compensation
Treasury
Stock
Total
Share
Owners’
Equity
Amounts at June 30, 2005. . . . . . . . . . . . . . . . . . . . . . . $718 $1,433 $ 4,625 $495,557
$
901
$(7,812)
$(67,196) $428,226
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in unrealized gains and losses on securities . .
Foreign currency translation adjustment . . . . . . . . . . . .
Net change in derivative gains and losses . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . .
Issuance of non-restricted stock (19,000 shares) . . . . . . .
Net exchanges of shares of Class A and Class B common
stock (869,000 shares) . . . . . . . . . . . . . . . . . . . . .
Reclassification of restricted share units relating to
adoption of FAS 123(R), Share-Based Payment
(614,000 shares) . . . . . . . . . . . . . . . . . . . . . . . . .
Vesting of restricted share units (1,000 shares) . . . . . . . .
Compensation expense related to stock incentive plans,
including cumulative effect adjustment . . . . . . . . . . .
Exercise of stock options (8,000 shares) . . . . . . . . . . . .
Performance share issuance (38,000 shares) . . . . . . . . .
Dividends declared:
15,362
(166)
468
(317)
(146)
(3,307)
2,441
(31)
3,247
(108)
(702)
15,362
(166)
468
(317)
15,347
203
-0-
-0-
(10)
3,247
26
(56)
349
3,307
7,812
(10,253)
21
134
646
Class A ($0.62 per share) . . . . . . . . . . . . . . . . . . .
Class B ($0.64 per share) . . . . . . . . . . . . . . . . . . .
(8,330)
(16,071)
Amounts at June 30, 2006. . . . . . . . . . . . . . . . . . . . . . . $718 $1,433 $ 6,019 $486,518
$
886
$
-0-
(8,330)
(16,071)
$(72,992) $422,582
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in unrealized gains and losses on securities . .
Foreign currency translation adjustment . . . . . . . . . . . .
Net change in derivative gains and losses . . . . . . . . . . .
Postemployment severance prior service cost . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . .
Issuance of non-restricted stock (8,000 shares) . . . . . . . .
Net exchanges of shares of Class A and Class B common
stock (1,138,000 shares) . . . . . . . . . . . . . . . . . . . .
Vesting of restricted share units . . . . . . . . . . . . . . . . .
Compensation expense related to stock incentive plans . .
Exercise of stock options (469,000 shares) . . . . . . . . . .
Performance share issuance (101,000 shares) . . . . . . . . .
Share repurchases (266,000 shares) . . . . . . . . . . . . . . .
Dividends declared:
19,152
76
3,182
574
(1,323)
73
5,940
(29)
4,745
28
(2,208)
19,152
76
3,182
574
(1,323)
21,661
191
-0-
(29)
4,745
7,270
(541)
(3,624)
118
(5,940)
7,242
1,667
(3,624)
Class A ($0.62 per share) . . . . . . . . . . . . . . . . . . .
Class B ($0.64 per share) . . . . . . . . . . . . . . . . . . .
(7,609)
(17,198)
Amounts at June 30, 2007. . . . . . . . . . . . . . . . . . . . . . . $718 $1,433 $14,568 $480,863
$ 3,395
$
-0-
(7,609)
(17,198)
$(73,529) $427,448
Comprehensive income:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in unrealized gains and losses on securities . .
Foreign currency translation adjustment . . . . . . . . . . . .
Net change in derivative gains and losses . . . . . . . . . . .
Postemployment severance prior service cost . . . . . . . . .
Postemployment severance net actuarial loss . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . .
Issuance of non-restricted stock (13,000 shares) . . . . . . .
Net exchanges of shares of Class A and Class B common
stock (91,000 shares) . . . . . . . . . . . . . . . . . . . . . .
Vesting of restricted share units (12,000 shares) . . . . . . .
Compensation expense related to stock incentive plans . .
Performance share issuance (139,000 shares) . . . . . . . . .
Share repurchases (1,733,000 shares). . . . . . . . . . . . . .
Cumulative effect of adoption of FIN 48, Accounting for
Uncertainty in Income Taxes . . . . . . . . . . . . . . . . .
Dividends declared:
(46)
433
9,090
(714)
172
(68)
(31)
(326)
(220)
3,763
(3,223)
(712)
(46)
433
9,090
(714)
172
(68)
8,867
173
-0-
(32)
3,763
(1,050)
(22,298)
(712)
204
326
188
2,173
(22,298)
Class A ($0.62 per share) . . . . . . . . . . . . . . . . . . .
Class B ($0.64 per share) . . . . . . . . . . . . . . . . . . .
(7,476)
(16,216)
Amounts at June 30, 2008. . . . . . . . . . . . . . . . . . . . . . . $718 $1,433 $14,531 $456,413
$12,308
$
-0-
(7,476)
(16,216)
$(92,936) $392,467
See Notes to Consolidated Financial Statements
44
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
intercompany balances and transactions have been eliminated in the
foreign subsidiaries. All significant
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 using 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.
Estimates of collectibility result in an increase or decrease 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 and money market funds. Cash equivalents are stated at cost, which approximates market
value. Short-term investments consist primarily of municipal bonds and U.S. Government 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 17% and 18% of consolidated inventories at
June 30, 2008 and June 30, 2007, 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. Major maintenance activities and improvements are
capitalized; other maintenance, repairs, and minor renewals and betterments are expensed.
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.
45
Goodwill and Other 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
annually for impairment using a fair value approach at the reporting unit level, or more often if events or
circumstances change that could cause goodwill to become impaired. At June 30, 2008, goodwill was reviewed due
primarily to a reduction in the Company’s market capitalization; however, the interim review resulted in no
additional goodwill impairment. The Company uses discounted cash flows to establish its reporting unit fair values.
When all or a portion of a reporting unit is disposed of, goodwill is allocated to the gain or loss on disposition using
the relative fair value method. 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. During fiscal year 2008, the terminated business in
conjunction with the consolidation of a Hibbing, Minnesota, operation resulted in a pre-tax goodwill impairment
loss of $172, in thousands.
A summary of the goodwill by segment is as follows:
(Amounts in Thousands)
Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronic Manufacturing Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2008
June 30,
2007
$ 1,733
13,622
$ 1,733
13,785
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,355
$15,518
In the Electronic Manufacturing Services (EMS) segment, goodwill decreased in the aggregate by, in
thousands, $163 during fiscal year 2008 due to a $172 decrease for impairment related to terminated business
in conjunction with the consolidation of a Hibbing, Minnesota, operation, a $165 decrease due to an adjustment to
estimated employee transition pay related to the consolidation of a Gaylord, Michigan, operation, and a $123
decrease to adjust the fair value of assets and liabilities estimated as of the date of the Reptron acquisition, partially
offset by a $96 increase related to tax provision adjustments for activity prior to the Reptron acquisition and a $201
increase due to the effect of changes in foreign currency exchange rates. Goodwill impairment was calculated based
upon the cessation of cash flows for the business activities not continuing after the facility consolidation. The
goodwill related to the Hibbing business activities continuing after the facility consolidation was transferred to the
EMS reporting units which are receiving the business.
Other intangible assets consist of capitalized software, product rights, and customer relationships and are
reported as Other Intangible Assets on the Consolidated Balance Sheets. Intangible assets are reviewed for
impairment when events or circumstances indicate that the carrying value may not be recoverable over the
remaining lives of the assets.
Internal-use software is stated at cost less accumulated amortization and is amortized using the straight-line
method. 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.
Product rights to produce and sell certain products are amortized on a straight-line basis over their estimated
useful lives, and 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.
46
A summary of other intangible assets subject to amortization by segment is as follows:
(Amounts in Thousands)
Furniture:
June 30,
2008
Accumulated
Amortization
Cost
Net Value
Cost
June 30,
2007
Accumulated
Amortization
Net Value
Capitalized Software . . . . . . . . . $43,868
1,160
Product Rights . . . . . . . . . . . . . .
$37,895
210
$ 5,973
950
$44,631
1,160
$35,048
210
$ 9,583
950
Other Intangible Assets. . . . . . $45,028
$38,105
$ 6,923
$45,791
$35,258
$10,533
Electronic Manufacturing Services:
Capitalized Software . . . . . . . . . $27,228
937
Customer Relationships . . . . . . .
$22,531
247
$ 4,697
690
$26,919
937
$18,887
65
$ 8,032
872
Other Intangible Assets. . . . . . $28,165
$22,778
$ 5,387
$27,856
$18,952
$ 8,904
Unallocated Corporate:
Capitalized Software . . . . . . . . . $ 6,267
$ 5,204
$ 1,063
$ 5,839
$ 4,691
$ 1,148
Other Intangible Assets. . . . . . $ 6,267
$ 5,204
$ 1,063
$ 5,839
$ 4,691
$ 1,148
Consolidated . . . . . . . . . . . . . . . . . $79,460
$66,087
$13,373
$79,486
$58,901
$20,585
During fiscal years 2008, 2007, and 2006, amortization expense of other intangible assets from continuing
operations, including asset write-downs associated with the Company’s restructuring plans, was, in thousands,
$8,036, $8,756, and $7,735, respectively. Amortization expense in future periods is expected to be, in thousands,
$5,194, $3,473, $2,174, $1,253, and $569 in the five years ending June 30, 2013, and $710 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. The estimated useful life of internal-use software ranges from
three to seven years.
Research and Development: The costs of research and development are expensed as incurred. Research and
development costs from continuing operations were approximately, in millions, $16, $17, and $15 in fiscal years
2008, 2007, and 2006, respectively.
Advertising: Advertising costs are expensed as incurred. Advertising costs from continuing operations,
included in selling, general and administrative expenses were, in millions, $6.2, $8.3, and $5.6, in fiscal years 2008,
2007, and 2006, 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
other analyses, which are based on historical information along with certain assumptions about future events.
Approximately 68% 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. 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.
47
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, Bayer AG and Siemens AG,
represented 16% and 15%, respectively, of consolidated accounts receivable at June 30, 2008. TRW Automotive,
Inc. and Bayer AG, represented 14% and 16%, respectively, of consolidated accounts receivable at June 30, 2007.
The Company currently does not foresee a credit risk associated with these receivables. 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 — 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 and related derivative gain or loss, fair value adjustments on Supplemental
Employee Retirement Plan (SERP) investments, non-production rent income, bank charges, and other miscella-
neous non-operating income and expense items that are not directly related to 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 fiscal 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 assets and 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.
Stock-Based Compensation: As described in Note 8 — Stock Compensation Plans of Notes to Consolidated
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. 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, compen-
sation expense related to stock options is recognized in the income statement beginning in fiscal year 2006.
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.
48
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 — Earnings Per Share of Notes to Consolidated Financial Statements.
The Company’s stock-based compensation plans allow early vesting when an employee reaches retirement 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, $0.2 million lower, and $0.1 million higher during fiscal years 2008, 2007, and 2006, respectively.
New Accounting Standards:
In June 2008, the Financial Accounting Standards Board (FASB) issued a FASB
Staff Position (FSP) on Emerging Issues Task Force (EITF) 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 provides that
unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share
pursuant to the two-class method. The two-class method is an earnings allocation method for computing earnings
per share when an entity’s capital structure includes multiple classes of common stock and participating securities.
FSP EITF 03-6-1 is effective as of the beginning of the Company’s fiscal year 2010 and requires that previously
reported earnings per share data be recast in financial statements issued in periods after the effective date. The
Company is currently evaluating the impact of FSP EITF 03-6-1 on its consolidated financial statements.
In May 2008, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 162, The Hierarchy of
Generally Accepted Accounting Principles (FAS 162). FAS 162 identifies the sources of accounting principles and
the framework for selecting the principles used in the preparation of financial statements that are presented in
conformity with generally accepted accounting principles in the United States. This statement is not expected to
change existing practices but rather reduce the complexity of financial reporting. This statement will go into effect
60 days after the Securities and Exchange Commission approves related auditing rules and is not expected to have a
material effect on the Company’s consolidated financial statements.
In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP
FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other
Intangible Assets. FSP FAS 142-3 allows an entity to use its own historical experience in renewing or extending
similar arrangements, adjusted for entity-specific factors, in developing assumptions about renewal or extension used
to determine the useful life of a recognized intangible asset. As a result, the determination of intangible asset useful
lives is now consistent with the method used to determine the period of expected cash flows used to measure the fair
value of the intangible assets, as described in other accounting principles. The guidance for determining the useful life
of a recognized intangible asset is to be applied prospectively to intangible assets acquired after the effective date.
Disclosure requirements are to be applied prospectively to all intangible assets recognized as of, and subsequent to, the
effective date. The provisions of FSP FAS 142-3 are effective as of the beginning of the Company’s fiscal year 2010
and are currently not expected to have a material effect on the Company’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (FAS 161). FAS 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, and requires entities to provide enhanced qualitative disclosures
about objectives and strategies for using derivatives, quantitative disclosures about fair values and amounts of gains
and losses on derivative contracts, and disclosures about credit-risk-related contingent features in derivative
agreements. FAS 161 will be effective as of the Company’s third quarter of fiscal year 2009. The Company is
currently evaluating the financial statement disclosures required under FAS 161.
49
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (FAS 141(R)). FAS 141(R)
requires that the fair value of the purchase price of an acquisition including the issuance of equity securities be determined on
the acquisition date; requires that all assets, liabilities, noncontrolling interests, contingent consideration, contingencies, and
in-process research and development costs of an acquired business be recorded at fair value at the acquisition date; requires
that acquisition costs generally be expensed as incurred; requires that restructuring costs generally be expensed in periods
subsequent to the acquisition date; and requires that changes in deferred tax asset valuation allowances and acquired income
tax uncertainties after the measurement period impact income tax expense. FAS 141(R) also broadens the definition of a
business combination and expands disclosures related to business combinations. FAS 141(R) will be applied prospectively to
business combinations occurring after the beginning of the Company’s fiscal year 2010, except that business combinations
consummated prior to the effective date must apply FAS 141(R) income tax requirements immediately upon adoption. The
Company is currently evaluating the impact of FAS 141(R) on its financial position, results of operations, and cash flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an
Amendment of ARB No. 51 (FAS 160). FAS 160 requires that noncontrolling interests be reported as a separate component of
equity, that net income attributable to the parent and to the noncontrolling interest be separately identified in the consolidated
statements of income, that changes in a parent’s ownership interest be accounted for as equity transactions, and that, when a
subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the
deconsolidation of the subsidiary be measured at fair value. FAS 160 will be applied prospectively, except for presentation and
disclosure requirements which will be applied retrospectively, as of the beginning of the Company’s fiscal year 2010. The
Company does not currently have noncontrolling interests, and therefore the adoption of FAS 160 is not expected to have an
impact on the Company’s financial position, results of operations, or cash flows.
In June 2007, the FASB ratified the EITF 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 will be applied prospectively for income tax benefits on dividends
declared after the beginning of the Company’s fiscal year 2009. The adoption of EITF 06-11 is not expected to have a material
impact on the Company’s financial position, results of operations, or cash flows.
In February 2007, the FASB issued 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 has
determined that it will not elect to use fair value accounting for any eligible items, and therefore FAS 159 will have no impact on
its financial position, results of operations, or cash flows.
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). 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. At the end
of fiscal year 2007, the Company adopted the provisions of FAS 158 related to recognition of plan assets, benefit liabilities, and
comprehensive income. The Company expects to adopt the provisions of this rule that require 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. This rule impacts the accounting for the Company’s unfunded noncontributory
postemployment severance plans.
In September 2006, the FASB issued FSP AUG AIR-1, Accounting for Planned Major Maintenance Activities. The
staff position eliminated the accrue-in-advance method of accounting for planned major maintenance activities. The
Company previously used the accrue-in-advance method primarily to reserve for future aircraft maintenance activities
required by Federal Aviation Administration regulations. FSP AUG AIR-1 was effective as of the beginning of the
Company’s fiscal year 2008. As of July 1, 2007, the Company adopted the deferral method whereby major maintenance
activities are capitalized and depreciated over the useful life. The adoption of the deferral method did not have a material
impact on the Company’s financial position, results of operations, or cash flows, thus FSP AUG AIR-1 was not
retrospectively applied.
50
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 and does not require any new fair value measurements. The standard, as
originally issued, was to be effective as of the beginning of the Company’s fiscal year 2009. With the issuance in
February 2008 of FSP FAS 157-2, Effective Date of FASB Statement No. 157, the FASB approved a one-year
deferral to the beginning of the Company’s fiscal year 2010 for all non-financial assets and liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a recurring basis at least annually. In
addition, the FASB has excluded leases from the scope of FAS 157 with the issuance of FSP FAS 157-1, Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under Statement 13. FAS 157 will be
applied prospectively. The fiscal year 2009 adoption of FAS 157, applicable to financial instruments, is not expected
to have a material impact on the Company’s financial position, results of operations, or cash flows. The Company is
currently evaluating the effect of applying FAS 157 to non-financial assets and liabilities in fiscal year 2010.
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 were effective on July 1, 2007. See Note 9 — Income Taxes of Notes to
Consolidated Financial Statements for information on the adoption of these pronouncements.
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 SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. FAS 155 is effective for all instruments acquired, issued, or subject to a
remeasurement event occurring after July 1, 2007. The Company does not currently hold any hybrid financial
instruments, and therefore the adoption of FAS 155 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 completed the acquisition of Reptron. 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 EMS 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 acquisition included four manufacturing operations located in Tampa, Florida; Hibbing,
Minnesota; Gaylord, Michigan; and Fremont, California. In fiscal year 2008, pursuant to its restructuring plans, the
Company ceased operations at the Gaylord, Michigan, and Hibbing, Minnesota, facilities and transferred a majority
of the business to several of the Company’s other worldwide EMS facilities. See Note 17 — Restructuring Expense
of Notes to Consolidated Financial Statements for additional details of the restructuring plans.
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 at acquisition date plus $4.8 million of senior secured
notes and accrued interest redeemed in fiscal year 2008, and pay direct acquisition costs of $2.3 million. See
Note 6 — Long-Term Debt and Credit Facility of Notes to Consolidated Financial Statements for further infor-
mation on the senior secured notes.
51
The following table summarizes the final purchase price allocation to assets acquired, liabilities assumed, and
goodwill. The acquisition resulted in $11.9 million of goodwill for the EMS segment of the Company. Goodwill of
$10.1 million is deductible for tax purposes. The Company also identified and recorded intangible assets of $0.9 million
related to customer relationships. See Note 1 — 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. The purchase price allocation is final.
(Amounts in Thousands)
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer Relationship Intangible Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Long-Term Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reptron
Acquisition
Purchase Price
Allocation
$13,218
24,948
1,130
1,173
18,380
937
339
11,876
$72,001
$16,584
3,547
767
184
$21,082
$50,919
Fiscal Year 2006 Acquisitions:
On April 3, 2006, the Company entered into an asset purchase agreement for the acquisition of the Bridgend,
Wales, United Kingdom, 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 EMS segment and better positions the Company to capitalize on
growth opportunities in the medical market within this segment. The BDML 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 final.
(Amounts in Thousands)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
BDML
Acquisition
Purchase Price
Allocation
$28,829
2,035
653
826
63
1,342
$33,748
1,760
$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 were not part of the purchase price allocation for tax purposes. The
entire amount of goodwill was allocated to the EMS 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 EMS 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.
The Company is currently in the process of consolidating its EMS facilities located in Wales, Ireland, and Poland
into a new, larger facility in Poland, as part of a restructuring plan to establish a European Medical Center of Expertise in
Poland. See Note 17 — Restructuring Expense of Notes to Consolidated Financial Statements for additional information.
Note 3 Inventories
Inventories are valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 17%
and 18% of consolidated inventories at June 30, 2008 and June 30, 2007, respectively, including approximately 85%
and 86% of the Furniture segment inventories at June 30, 2008 and June 30, 2007, respectively. The EMS 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
$1.1 million higher in fiscal year 2008, $0.1 million higher in fiscal year 2007, and $0.7 million lower in fiscal year
2006, and net income, which includes the effect of discontinued operations, would have been $1.1 million higher in
fiscal year 2008, $0.1 million higher in fiscal year 2007, and $2.9 million lower in fiscal year 2006. Additionally,
inventories would have been, in millions, $18.2 and $16.4 higher at June 30, 2008 and 2007, 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 $0.1 million in fiscal year 2008, $1.1 million in fiscal year 2007, and
$1.3 million in fiscal year 2006. LIFO liquidations increased net income, which includes the effect of discontinued
operations, by $0.1 million in fiscal year 2008, $1.1 million in fiscal year 2007, and $3.6 million in fiscal year 2006.
Inventory components at June 30 are as follows:
(Amounts in Thousands)
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,201
14,363
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,583
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total FIFO inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $183,147
2008
2007
$ 34,577
15,162
102,584
$152,323
LIFO Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18,186)
Total inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $164,961
(16,422)
$135,901
Note 4 Property and Equipment
Major classes of property and equipment at June 30 consist of the following:
(Amounts in Thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008
2007
$
9,472
171,249
326,136
23,123
$
9,865
165,483
304,531
14,810
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 529,980
(340,076)
$ 494,689
(320,889)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 189,904
$ 173,800
53
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lesser of Useful Life or
5 to 50
2 to 20
Term of Lease
Depreciation and amortization of property and equipment from continuing operations, including asset write-
downs associated with the Company’s restructuring plans, totaled, in millions, $34.0 for fiscal year 2008, $31.7 for
fiscal year 2007, and $28.5 for fiscal year 2006.
At June 30, 2008, in thousands, assets totaling $1,374 were classified as held for sale, comprised of a facility
and land related to the exited EMS operation in Gaylord, Michigan. The assets were reported as unallocated
corporate assets for segment reporting purposes. The Company expects to sell the facility and land during the next
12 months. Due to a decline in the market value of the EMS facility, the Company recorded in the Restructuring
Expense line of the Company’s Consolidated Statements of Income a pre-tax impairment loss, in thousands, of $390
during fiscal year 2008, of which $310 was recorded within the EMS segment and $80 was recorded after the assets
were classified as unallocated corporate. The fair value of the assets was determined by prices for similar assets.
During fiscal year 2008, the Company sold the facility related to the exited EMS operation in Auburn, Indiana,
which totaled, in thousands, $2,534 that was previously classified as held for sale and reported as unallocated
corporate assets for segment reporting purposes. The facility was sold with no resulting gain or loss as impairment,
in thousands, of $157, had already been recorded during fiscal year 2008 on the Restructuring Expense line of the
Company’s Consolidated Statements of Income.
The Furniture segment recognized, in thousands, a $149 pre-tax loss during fiscal year 2008 due to a decline in
the market value of held for sale manufacturing equipment. The pre-tax loss of $149 was the result of impairment
charges and losses on the sales of the equipment and was recorded, in thousands, as $109 in the Cost of Sales line
and $40 in the Restructuring Expense line of the Company’s Consolidated Statements of Income. As of June 30,
2008, no assets were classified as held for sale within the Furniture segment.
At June 30, 2007, the Company had, in thousands, assets totaling $3,032 classified as held for sale.
Note 5 Commitments and Contingent Liabilities
Leases:
Operating leases from continuing operations for certain office, showroom, manufacturing facilities, land, and
equipment, which expire from fiscal year 2009 to 2056, contain provisions under which minimum annual lease
payments are, in millions, $3.8, $3.4, $3.2, $2.6, and $1.7 for the five years ended June 30, 2013, respectively, and
aggregate $4.2 million from fiscal year 2014 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 from continuing operations amounted to, in
millions, $7.8, $6.5, and $4.7 in fiscal years 2008, 2007, and 2006, respectively.
As of June 30, 2008 and 2007, the Company had, in millions, $0.4 and $0.8, respectively, of capitalized leases
for equipment. Future minimum capital annual lease payments excluding imputed interest are, in millions, $0.4 for
the fiscal year ending June 30, 2009, with no payments thereafter.
Guarantees:
As of June 30, 2008 and 2007, the Company had no guarantees issued which were contingent on the future
performance of another entity. 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, 2008 and 2007, the Company had a maximum financial exposure from unused standby letters
of credit totaling $5.1 million and $14.5 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, 2008 and 2007 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.
54
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 2008 and 2007 were as follows:
(Amounts in Thousands)
Product Warranty Liability at the beginning of the year . . . . . . . . . . . . . . . . . . . . $2,147
446
Accrual for warranties issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(166)
Reductions related to pre-existing warranties (including changes in estimates) . . .
(957)
Settlements made (in cash or in kind) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008
2007
$2,127
961
(47)
(894)
Product Warranty Liability at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . $1,470
$2,147
Note 6 Long-Term Debt and Credit Facility
Long-term debt consists of long-term notes payable and capitalized leases. Aggregate maturities of long-term
debt for the next five years are, in thousands, $470, $60, $61, $12, and $14, respectively, and aggregate $274
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, 2008, the Company had no balances due on senior secured notes. 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 notes were valued in
the preliminary purchase price allocation at their stated 101% redemption price, which approximated 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 were irrevocably and uncon-
ditionally guaranteed by the acquired Reptron legal entity and were 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 was 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 — Acquisitions of
Notes to Consolidated Financial Statements for information on the Reptron acquisition.
The Company maintains a revolving credit facility which expires in April 2013 and provides for up to
$100 million in borrowings, with an option to increase the amount available for borrowing to $150 million at the
Company’s request, subject to participating banks’ consent. The $100 million credit facility replaced a previous
$75 million credit facility, which also provided 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 2008, 2007, and 2006. The
commitment fee on the unused portion of principal amount of the credit facility is payable at a rate that ranges from
12.5 to 15.0 basis points per annum as determined by the Company’s leverage ratio. 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 $100 million revolving
credit facility. The separate foreign credit facility is expected to be reviewed in May 2009 for renewal. 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.
55
At June 30, 2008, the Company had $52.6 million of short-term borrowings outstanding. The outstanding
balance consisted of $17.3 million for 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, and an
additional $33.6 million funded short-term cash needs. The Company also had letters of credit against the credit
facility. In addition, at June 30, 2008, $1.7 million of short-term borrowings were outstanding under a separate
foreign credit facility which is backed by the $100 million credit facility. Total availability to borrow under the
$100 million credit facility was $44.2 million at June 30, 2008. At June 30, 2007, the Company had $18.9 million of
short-term borrowings outstanding under the credit facility.
The Company also has a credit facility for its electronics operation in Wales, United Kingdom. The facility will
be reviewed in November 2008 and will expire if not renewed at that time. The facility allows for multi-currency
borrowings up to 2 million Sterling equivalent (approximately $4 million US dollars) and is available to cover bank
overdrafts. Bank overdrafts may be deemed necessary to satisfy short-term cash needs rather than funding from
intercompany sources. 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, 2008, the Company had no borrowings outstanding under the
overdraft facility. At June 30, 2007, as collateral subject to lien, this facility required 3 million Euro (approximately
$4 million US dollars) to be held as restricted cash which was classified as other long-term assets on the Company’s
balance sheet. The restricted cash is no longer required as collateral and was reclassified to cash and cash
equivalents on the Company’s balance sheet. At June 30, 2007, the Company had $3.0 million US dollar equivalent
of Sterling-denominated short-term borrowings outstanding under the overdraft facility.
As of June 30, 2008 and 2007, the weighted average interest rates on the Company’s short-term borrowings
outstanding under the credit facilities were 4.99% and 4.93%, respectively. Cash payments for interest on
borrowings were, in thousands, $2,197, $889, and $544, in fiscal years 2008, 2007, and 2006, 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 employees of acquired companies.
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 Compensation and Governance Committee of the Board of Directors.
Total expense related to employer contributions to the retirement plans was $5.8 million for each of fiscal years
2008, 2007, and 2006.
Employees of certain foreign subsidiaries are covered by local pension or retirement plans. Total expense
related to employer contributions to these foreign plans for 2008, 2007, and 2006 was, in millions, $1.0, $0.9, and
$0.2, respectively.
56
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 components and changes in the Benefit
Obligation, Accumulated Other Comprehensive Income, and Net Periodic Benefit Cost are as follows:
(Amounts in Thousands)
Changes and Components of Benefit Obligation:
2008
2007
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,200
282
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
130
Actuarial loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(555)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-0-
Initial actuarial obligation recorded for severance plan . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,177
Balance in current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 283
1,894
Balance in noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total benefit obligation recognized in the Consolidated Balance Sheets . . . $2,177
Changes and Components in Accumulated Other Comprehensive Income
(before tax):
Accumulated Other Comprehensive Income at beginning of year . . . . . . . . . . . $2,200
113
Change due to unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(286)
Change due to unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated Other Comprehensive Income at end of year . . . . . . . . . . . . . . . . $2,027
Balance in unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance in unrecognized prior service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . .
113
1,914
$
-0-
-0-
-0-
-0-
-0-
2,200
$2,200
$ 286
1,914
$2,200
$
-0-
-0-
2,200
$2,200
-0-
2,200
Total accumulated other comprehensive income recognized in Share
Owners’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,027
$2,200
Components of Net Periodic Benefit Cost (before tax):
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 282
120
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
-0-
-0-
-0-
-0-
Net periodic benefit cost recognized in the Consolidated Statements of
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 705
$
-0-
The benefit cost in the above table includes only normal recurring levels of severance activity, as estimated
using an actuarial method and management judgment. Unusual or nonrecurring severance actions, such as those
disclosed in Note 17 — Restructuring Expense of Notes to Consolidated Financial Statements, are not estimable
using actuarial methods and are expensed when incurred.
The Company amortizes prior service costs on a straight-line basis over the average remaining service period
of employees that were active at the time of the plan initiation and amortizes actuarial losses on a straight-line basis
over the average remaining service period of employees expected to receive benefits under the plan.
The estimated actuarial net loss and 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 are, pre-tax in
thousands, $15 and $286, respectively.
The following table discloses assumptions used in actuarial calculations for fiscal years 2008 and 2007:
Discount Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5%
Rate of Compensation Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0%
57
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 ten-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 $4.0 million, $4.9 million, and
$3.8 million in fiscal year 2008, 2007, and 2006, respectively. The total income tax benefit from continuing
operations for stock compensation arrangements was $1.6 million, $1.9 million, and $1.5 million in fiscal year
2008, 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 —
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 2008 is presented below:
Performance shares outstanding at July 1, 2007. . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
683,997
384,282
(201,598)
(107,629)
Performance shares outstanding at June 30, 2008 . . . . . . . . . . . . . . . .
759,052
Weighted Average
Grant Date Fair
Value
$17.43
12.16
16.68
16.62
$12.16
58
As of June 30, 2008, there was approximately $3.0 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 annual performance periods ending August 2008 through August 2012, with a weighted average
vesting period of 1.7 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 $12.16, $17.42, and $12.24
for performance share awards granted in fiscal year 2008, 2007, and 2006, respectively. During fiscal year 2008 and
2007, respectively, 201,598 and 150,651 performance shares vested at a fair value of $3.4 million and $1.8 million.
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 and accumulated dividends will be forfeited.
A summary of RSU activity under the 2003 Plan during fiscal year 2008 is presented below:
Restricted Share Units outstanding at July 1, 2007 . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Share Units
500,100
-0-
(15,000)
(4,200)
Restricted Share Units outstanding at June 30, 2008 . . . . . . . . . . . . . .
480,900
Weighted Average
Grant Date
Fair Value
$15.75
-0-
15.50
14.79
$15.77
As of June 30, 2008, there was approximately $1.8 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 1.3 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 2008, 2007, and 2006 was, in thousands, $233,
$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 2008, 2007, and 2006, respectively, the Company granted a total of 13,186, 7,668, and 18,501 unrestricted
shares of Class B common stock at an average grant date fair value of $13.16, $24.53, and $11.22, for a total fair
value of $0.2 million, $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.
59
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 2008, 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
outstanding are exercisable from one 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 had an immaterial number of stock appreciation rights outstanding under the former 1996
Stock Incentive Program, prior to their expiration in August 2007. As valued by the Black-Scholes valuation model,
these awards had no value as of June 30, 2007.
A summary of stock option activity under the two former plans during fiscal year 2008 is presented below:
Options outstanding at July 1, 2007 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
830,043
-0-
-0-
(7,250)
(43,631)
Options outstanding at June 30, 2008 . . . . . . . .
779,162
Options vested . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable at June 30, 2008. . . . . . . . .
779,162
779,162
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
$15.65
-0-
-0-
15.06
19.41
$15.45
$15.45
$15.45
3.7 years
3.7 years
3.7 years
$-0-
$-0-
$-0-
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. No options were exercised during fiscal year 2008.
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, $2,858 expire from fiscal
year 2012 to 2028. Income tax benefits net of valuation allowance associated with net tax credit carryforwards of, in
thousands, $104, expire from fiscal year 2014 to 2021. A valuation reserve was provided as of June 30, 2008 for
deferred tax assets relating to certain foreign and state net operating losses of, in thousands, $1,308, certain state tax
credit carryforwards of, in thousands, $3,460, and, in thousands, $198 related to other deferred tax assets that the
Company currently believes are more likely than not to remain unrealized in the future.
60
The components of the deferred tax assets and liabilities as of June 30, 2008 and 2007, were as follows:
(Amounts in Thousands)
Deferred Tax Assets:
2008
2007
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted share units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,680
2,606
3,022
8,146
2,573
1,443
586
3,564
5,467
(58)
4,166
2,201
(4,966)
$ 2,349
3,657
3,256
8,716
1,944
1,422
856
3,230
438
312
3,307
1,151
(4,420)
Total asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,430
$26,218
Deferred Tax Liabilities:
Property & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,298
64
730
$ 9,370
174
493
Total liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,092
$10,037
Net Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,338
$16,181
The components of income (loss) from continuing operations before taxes on income are as follows:
(Amounts in Thousands)
United States
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,605)
241
$38,576
(2,224)
$32,716
6,481
Year Ended June 30
2007
2006
2008
Total income (loss) from continuing operations before income
taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,364)
$36,352
$39,197
61
The provision (benefit) for income taxes from continuing operations is composed of the following items:
(Amounts in Thousands)
Currently Payable:
Year Ended June 30
2007
2006
2008
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,355
934
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
815
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,185
553
2,897
$ 17,118
1,232
3,495
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,104
19,635
21,845
Deferred Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,200)
(698)
(1,648)
(5,303)
(488)
(758)
(8,831)
(525)
(1,905)
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,546)
(6,549)
(11,261)
Total provision (benefit) for income taxes from continuing
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,442)
$13,086
$ 10,584
A reconciliation of the statutory U.S. income tax rate from continuing operations to the Company’s effective
income tax rate follows:
2008
Year Ended June 30
2007
2006
Amount
(Amounts in Thousands)
Tax computed at U.S. federal statutory rate . . . . . . . . . . $ (827)
(542)
State income taxes, net of federal income tax benefit . . .
151
Foreign tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(692)
Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . . .
(214)
Domestic manufacturing deduction . . . . . . . . . . . . . . . .
(604)
Research credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286
Other — net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-0-
Resolution of IRS audit . . . . . . . . . . . . . . . . . . . . . . . . .
%
Amount
%
Amount
%
35.0% $12,723
1,420
22.9
(6.4)
843
(1,201)
29.3
(323)
9.1
(686)
25.5
705
(12.1)
(395)
-0-
35.0% $13,719
1,093
3.9
(1,561)
2.3
(651)
(3.3)
(347)
(0.9)
(500)
(1.9)
385
2.0
(1,554)
(1.1)
35.0%
2.8
(4.0)
(1.7)
(0.9)
(1.3)
1.1
(4.0)
Total provision (benefit) for income taxes from
continuing operations . . . . . . . . . . . . . . . . . . . . . . . $(2,442) 103.3% $13,086
36.0% $10,584
27.0%
Cash payments for income taxes, net of refunds, were in thousands, $8,456, $14,599, and $10,028 in fiscal year
2008, 2007, and 2006, respectively.
62
In 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in tax positions. FIN 48
requires that the Company recognize in its financial statements the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of the position. The Company adopted the
provisions of FIN 48 on July 1, 2007, the beginning of the Company’s fiscal year. Upon the adoption of FIN 48 on
July 1, 2007, the Company recognized a $5.8 million increase in the liability for unrecognized tax benefits including
interest and penalties. The increase was accounted for as a reduction to the July 1, 2007 balance of retained earnings
in the amount of $0.7 million and an increase to deferred tax assets of $5.1 million. The total liability for
unrecognized tax benefits totaled $6.4 million as of July 1, 2007.
Changes in the unrecognized tax benefit during fiscal year 2008 were as follows:
(Amounts in Thousands)
Beginning balance — July 1, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax positions related to prior years:
Unrecognized
Tax Benefit
$ 5,617
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
161
(4,737)
Tax positions related to current year:
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapses in statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance — June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
-0-
(13)
(78)
$ 1,020
The $4.7 million reduction for prior year tax positions was due primarily to the IRS approving Form 3115,
Application for Change in Accounting Method. The approval of Form 3115 eliminated the need for an unrec-
ognized tax benefit liability. The reduction in the liability resulted in a corresponding adjustment to deferred tax
assets. Included in the June 30, 2008 and July 1, 2007 liability for unrecognized tax benefits were, respectively, in
millions, $0.7 and $0.6 of unrecognized tax benefits that if recognized would impact the effective tax rate.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as Interest
expense and Non-operating expense, respectively, under Other Income (Expense) on the Consolidated Statements
of Income. Interest and penalties recognized for the period ended June 30, 2008 were, in millions, $0.3 income. The
total amount of liability accrued for interest and penalties related to unrecognized tax benefits as of June 30, 2008
and July 1, 2007, respectively, in millions, were interest of $0.3 and $0.7 and penalties of $0.1 and $0.1. Interest and
penalties are not included in the tabular roll forward of unrecognized tax benefits above.
The Company, or one of its wholly-owned subsidiaries, files U.S. federal income tax returns and income tax returns
in various state, local, and foreign jurisdictions. The Company is no longer subject to any significant U.S. federal tax
examinations by tax authorities for years before fiscal year 2006. During the Company’s fiscal year ended June 30, 2007,
the Internal Revenue Service completed an examination of the U.S. federal tax returns for fiscal years ended June 30,
2004 and 2005, which the Company believes effectively settled those years. The Company is subject to various state and
local income tax examinations by tax authorities for years after June 30, 2003 and various foreign jurisdictions for years
after June 30, 2002. The Company does not expect the change in the amount of unrecognized tax benefits in the next
12 months to have a significant impact on the results of operations or the financial position of the Company.
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.
63
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.
During fiscal year 2008, cash payments for repurchases of common stock were $24.8 million which included
$2.5 million that was included in accounts payable at June 30, 2007. With these repurchases, the Company
completed a previously authorized share repurchase program. Subsequent to the completion of the previously
authorized share repurchase program, the Board of Directors authorized a plan which allows for the repurchase of
up to an additional 2,000,000 shares of the Company’s common stock.
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 27 and 12 months as of
June 30, 2008 and 2007, respectively. 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, 2008 and 2007 was, in
thousands, $1,307 and $835, recorded in assets, and $2,582 and $430 recorded in liabilities, respectively. Derivative gains
(losses), on a pre-tax basis, were, in thousands, ($3,130), 1,287, and ($405), in fiscal year 2008, 2007, and 2006,
respectively. Included in the derivative gain for fiscal year 2007 was $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 2008 and 2006. Derivative gains and losses are reported in the Cost of
Sales and Non-Operating Income lines of the Consolidated Statements of Income and the Net Income (Loss) line of the
Consolidated Statements of Cash Flows. The Company estimates that, in thousands, $1,036 of pre-tax derivative losses
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, 2009.
Note 12 Short-Term Investments
The Company’s short-term investment portfolio consists of available-for-sale securities, primarily government and
municipal obligations. 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 six-year period.
(Amounts in Thousands)
Carrying cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30
2008
2007
$51,216
502
(83)
-0-
$51,635
$67,699
21
(321)
(49)
$67,350
64
As of June 30, 2008, 24 investments were in an unrealized loss position and the unrealized loss approximated
0.4% of their fair value. The duration of the unrealized loss positions ranges from three to 56 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 were in a continuous unrealized loss position for less
than 12 months total, in thousands, $18,535 and ($83), respectively, as of June 30, 2008. There were no investments
which were in a continuous unrealized loss position for 12 months or longer as of June 30, 2008. The fair value and
unrealized loss for investments which were 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 were in a continuous unrealized loss position for 12 months or longer total, in thousands, $5,888 and ($65),
respectively, as of June 30, 2007.
Proceeds from sales of available-for-sale securities were, in thousands, $39,126, $13,403, and $13,285 for the years
ended June 30, 2008, 2007, and 2006, respectively. Gross realized gains and (losses) on the sale of available-for-sale
securities at June 30, 2008 were, in thousands, $305 and ($71), respectively, compared to gross realized gains and (losses)
of, in thousands, $17 and ($72), respectively, at June 30, 2007 and $2 and ($91), respectively, at June 30, 2006. 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.
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, 2008, 2007, and 2006 was, in thousands,
($2,385), $2,939, and $1,720, respectively. SERP asset and liability balances were as follows:
(Amounts in Thousands)
SERP investment — current asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SERP investment — other long-term asset . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total SERP investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SERP obligation — current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SERP obligation — other long-term liability . . . . . . . . . . . . . . . . . . . . . . . . . .
Total SERP obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13 Accrued Expenses
Accrued expenses consisted of:
(Amounts in Thousands)
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
June 30
2008
2007
$ 2,958
10,009
$12,967
$ 2,958
10,009
$12,967
$ 2,888
10,498
$13,386
$ 2,888
10,498
$13,386
June 30
2008
2007
$ 5,882
24,596
5,617
7,376
6,728
18,854
$69,053
$ 3,413
27,332
5,575
7,990
1,098
18,906
$64,314
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
EMS segment provides engineering and manufacturing services which utilize common production and support
capabilities to a variety of industries globally. The EMS segment focuses on electronic assemblies that have high
durability requirements and are sold on a contract basis and produced to customers’ specifications. The Company
currently sells primarily to customers in the medical, automotive, industrial controls, and public safety industries.
The EMS segment, formerly named the Electronic Contract Assemblies segment, was renamed to more accurately
reflect the focus of this segment. There was no financial impact from this name change.
Included in the EMS segment are sales to two major customers. Sales to Bayer AG entities under common
control, including Bayer Diagnostics Manufacturing Limited, totaled, in millions, $149.9, $198.9, and $66.4 in
fiscal years 2008, 2007, and 2006, respectively, representing 11%, 15%, and 6% of consolidated net sales,
respectively, for such periods. Sales to TRWAutomotive, Inc., totaled in millions, $97.0, $96.6, and $135.6 in fiscal
years 2008, 2007, and 2006, respectively, representing 7%, 8%, and 12% of consolidated net sales, respectively, for
such periods.
The accounting policies of the segments are the same as those described in Note 1 — 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 standalone 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 EMS 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.
66
Income statement amounts presented are from continuing operations.
(Amounts in Thousands)
Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and Amortization . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes . . . . . . .
Income (Loss) from Continuing
Operations(1) . . . . . . . . . . . . . . . . . . . . . . .
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures . . . . . . . . . . . . . . . . . . .
Furniture
$624,836
21,800
-0-
-0-
8,260
13,417
240,674
1,733
21,896
At or For the Year Ended June 30, 2008
Electronic
Manufacturing
Services
Unallocated
Corporate and
Eliminations
$727,149
17,621
-0-
1,043
(9,737)
(15,264)
396,773
13,622
27,846
$
-0-
-0-
3,362
924
(965)
1,925
85,220
-0-
-0-
Consolidated
$1,351,985
39,421
3,362
1,967
(2,442)
78
722,667
15,355
49,742
Furniture
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . $613,962
18,093
Depreciation and Amortization . . . . . . . . .
-0-
Interest Income . . . . . . . . . . . . . . . . . . . .
3
Interest Expense . . . . . . . . . . . . . . . . . . . .
11,283
Provision for Income Taxes . . . . . . . . . . .
Income from Continuing Operations(2)
17,810
. . .
225,555
Total Assets . . . . . . . . . . . . . . . . . . . . . . .
1,733
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . .
22,313
Capital Expenditures . . . . . . . . . . . . . . . .
Furniture
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . $612,589
17,901
Depreciation and Amortization . . . . . . . . .
-0-
Interest Income . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . .
-0-
10,728
Provision (Benefit) for Income Taxes . . . .
Income from Continuing Operations(3)
17,291
. . .
228,017
Total Assets . . . . . . . . . . . . . . . . . . . . . . .
1,733
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . .
9,607
Capital Expenditures . . . . . . . . . . . . . . . .
At or For the Year Ended June 30, 2007
Electronic
Manufacturing
Services
Unallocated
Corporate and
Eliminations
$672,968
20,561
-0-
1,025
1,489
981
381,631
13,785
18,568
$
-0-
-0-
5,237
45
314
4,475
87,555
-0-
-0-
At or For the Year Ended June 30, 2006
Electronic
Manufacturing
Services
Unallocated
Corporate and
Eliminations
$496,706
18,117
-0-
217
221
6,456
324,284
1,553
19,919
$
254
-0-
4,592
32
(365)
4,866
126,720
-0-
-0-
Consolidated
$1,286,930
38,654
5,237
1,073
13,086
23,266
694,741
15,518
40,881
Consolidated
$1,109,549
36,018
4,592
249
10,584
28,613
679,021
3,286
29,526
(1) Includes consolidated after-tax restructuring charges of $14.6 million in fiscal year 2008. On a segment basis,
the Furniture segment recorded a $1.3 million restructuring charge, the EMS segment recorded a $12.8 million
restructuring charge, and Unallocated Corporate recorded a $0.5 million restructuring charge. See Note 17 —
Restructuring Expense of Notes to Consolidated Financial Statements for further discussion. The EMS
segment also recorded $0.7 million of after-tax income in fiscal year 2008, received as part of a Polish offset
credit program for investments made in the Company’s Poland operation.
67
(2) 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 EMS segment recorded a $0.1 million
restructuring charge, and Unallocated Corporate recorded a minimal amount of restructuring. See Note 17 —
Restructuring Expense of Notes to Consolidated Financial Statements for further discussion.
(3) 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 EMS segment recorded a
$0.5 million restructuring charge. See Note 17 — Restructuring Expense of Notes to Consolidated Financial
Statements for further discussion. The EMS segment also recorded $1.3 million of after-tax income in fiscal
year 2006, received as part of a Polish offset credit program for investments made in the Company’s Poland
operation.
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
2007
2008
2006
Branded Furniture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $624,836
Contract Private Label Products(4) . . . . . . . . . . . . . . . . . . . . .
-0-
$602,903
11,059
$573,759
38,830
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $624,836
$613,962
$612,589
(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
2007
2008
2006
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 990,326
361,659
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 921,230
365,700
$ 920,724
188,825
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,351,985
$1,286,930
$1,109,549
Long-Lived Assets:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166,589
24,097
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,889
Other Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 167,579
16,062
24,868
$ 157,739
17,841
18,302
Total long-lived assets. . . . . . . . . . . . . . . . . . . . . . . . $ 217,575
$ 208,509
$ 193,882
68
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 . . . . . . . . . . . . . .
Undistributed Earnings (Loss) . . . . . . .
Income from Continuing Operations . . .
Average Basic Shares Outstanding. . . . .
Basic Earnings Per Share from
Year Ended June 30, 2008
Total
Class A Class B
Year Ended June 30, 2007
Class A Class B
Total
Year Ended June 30, 2006
Class A Class B
Total
$ 7,476
(7,442)
$ 16,216 $ 23,692
(23,614)
(16,172)
$ 7,609
(478)
$17,198
(1,063)
$24,807
(1,541)
$ 8,330
1,455
$
34
11,696
$
44 $
25,418
78
37,114
$ 7,131
11,979
$16,135
26,623
$23,266
38,602
$ 9,785
13,195
$16,071
2,757
$18,828
25,002
$24,401
4,212
$28,613
38,197
Continuing Operations
. . . . . . . . . .
$ 0.00
$
0.00
$ 0.60
$
0.61
$
0.74
$ 0.75
Diluted Earnings Per Share from
Continuing Operations:
Dividends Declared and Assumed
Dividends on Dilutive Shares . . . . . .
Undistributed Earnings (Loss) . . . . . . .
$ 7,514
(7,514)
$ 16,224 $ 23,738
(23,660)
(16,146)
$ 7,708
(565)
$17,360
(1,237)
$25,068
(1,802)
$ 8,411
1,436
Income from Continuing Operations . . .
Average Diluted Shares Outstanding . . .
Diluted Earnings Per Share from
Continuing Operations
. . . . . . . . . .
Reconciliation of Basic and Diluted EPS
from Continuing Operations
Calculations:
Income from Continuing Operations
Used for Basic EPS Calculation . . . .
Assumed Dividends Payable on Dilutive
Shares:
Stock options. . . . . . . . . . . . . . . . .
Performance shares . . . . . . . . . . . . .
Reduction of Undistributed Earnings
(Loss) — allocated based on Class A
and Class B shares . . . . . . . . . . . . .
Income from Continuing Operations
$16,077
2,689
$18,766
25,024
$24,488
4,125
$28,613
38,384
$
-0-
11,868
$
78 $
25,504
78
37,372
$ 7,143
12,325
$16,123
26,932
$23,266
39,257
$ 9,847
13,360
$ 0.00
$
0.00
$ 0.58
$
0.60
$
0.74
$ 0.75
$
34
$
44 $
78
$ 7,131
$16,135
$23,266
$ 9,785
$18,828
$28,613
-0-
38
(72)
-0-
8
26
-0-
46
-0-
99
151
11
151
110
-0-
81
-0-
6
-0-
87
(46)
(87)
(174)
(261)
(19)
(68)
(87)
Used for Diluted EPS Calculation . . .
$
-0-
$
78 $
78
$ 7,143
$16,123
$23,266
$ 9,847
$18,766
$28,613
Average Shares Outstanding for Basic
EPS Calculation . . . . . . . . . . . . . . .
11,696
25,418
37,114
11,979
26,623
38,602
13,195
25,002
38,197
Dilutive Effect of Average Outstanding:
Stock options. . . . . . . . . . . . . . . . .
Performance shares . . . . . . . . . . . . .
Restricted share units . . . . . . . . . . .
Average Shares Outstanding for Diluted
-0-
61
111
-0-
12
74
-0-
73
185
-0-
160
186
236
16
57
236
176
243
-0-
131
34
-0-
10
12
-0-
141
46
EPS Calculation . . . . . . . . . . . . . . .
11,868
25,504
37,372
12,325
26,932
39,257
13,360
25,024
38,384
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.
In fiscal year 2008, all 792,000 average stock options were antidilutive and were excluded from the dilutive
calculation. In addition, 149,000 of the 334,000 average restricted share units and 82,000 of the 155,000 average
performance share grants were antidilutive and excluded from the dilutive calculation. 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.
69
LOSS PER SHARE FROM DISCONTINUED OPERATIONS
Year Ended
June 30, 2008
Year Ended
June 30, 2007
Year Ended
June 30, 2006
Basic:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(0.00)
$(0.00)
$(0.00)
$(0.00)
$(0.11)
$(0.11)
$(0.11)
$(0.11)
$(0.36)
$(0.35)
$(0.36)
$(0.36)
EARNINGS PER SHARE FROM CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE
Year Ended
June 30, 2008
Year Ended
June 30, 2007
Year Ended
June 30, 2006
Basic:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.01
$0.01
$0.01
$0.01
EARNINGS PER SHARE (INCLUDING DISCONTINUED OPERATIONS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE)
(Amounts in Thousands, Except for
Per Share Data)
Basic Earnings (Loss) Per Share:
Year Ended June 30, 2008
Total
Class A Class B
Year Ended June 30, 2007
Class A Class B
Total
Year Ended June 30, 2006
Class A Class B
Total
Dividends Declared . . . . . . . . . . . .
Undistributed Loss . . . . . . . . . . . . .
$ 7,476 $ 16,216
(16,257)
(7,481)
$ 23,692
(23,738)
$ 7,609 $17,198
(3,901)
(1,754)
$24,807
(5,655)
$ 8,330 $16,071
(5,916)
(3,123)
$24,401
(9,039)
Net Income (Loss) . . . . . . . . . . .
Average Basic Shares Outstanding . . .
Basic Earnings (Loss) Per Share . . . .
(5) $
$
11,696
$ (0.00) $
(41) $
25,418
(0.00)
Diluted Earnings (Loss) Per Share:
Dividends Declared and Assumed
37,114
(46) $ 5,855 $13,297
26,623
0.50
11,979
$
0.49 $
$19,152
38,602
$ 5,207 $10,155
25,002
13,195
0.41
$
0.39
$
$15,362
38,197
Dividends on Dilutive Shares . . . .
Undistributed Loss . . . . . . . . . . . . .
$ 7,514 $ 16,224
(16,231)
(7,553)
$ 23,738
(23,784)
$ 7,708 $17,360
(4,059)
(1,857)
$25,068
(5,916)
$ 8,411 $16,077
(5,950)
(3,176)
$24,488
(9,126)
Net Income (Loss) . . . . . . . . . . .
$
(39) $
(7) $
(46) $ 5,851 $13,301
$19,152
$ 5,235 $10,127
$15,362
Average Diluted Shares
Outstanding . . . . . . . . . . . . . . . .
Diluted Earnings (Loss) Per Share . .
11,868
$ (0.00) $
25,504
(0.00)
37,372
12,325
$
0.47 $
26,932
0.49
39,257
13,360
0.39
$
25,024
0.40
$
38,384
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.
In fiscal year 2008, all 792,000 average stock options were antidilutive and were excluded from the dilutive
calculation. In addition, 149,000 of the 334,000 average restricted share units and 82,000 of the 155,000 average
performance share grants were antidilutive and excluded from the dilutive calculation. 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.
70
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 (loss) and other compre-
hensive income (loss), which includes the net change in unrealized gains and losses on investments, foreign
currency translation adjustments, the net change in derivative gains and losses, net actuarial change in postemploy-
ment severance, and postemployment severance prior service cost.
(Amounts in Thousands)
Net income (loss) . . . . . . . . . .
Other comprehensive income
(loss):
Foreign currency translation
adjustments . . . . . . . . . . .
Postemployment severance
actuarial change . . . . . . .
Other fair value changes:
Investments . . . . . . . . . . .
Derivatives . . . . . . . . . . .
Reclassification to earnings:
Investments . . . . . . . . . . .
Derivatives . . . . . . . . . . .
Amortization of prior
service costs . . . . . . . .
Amortization of actuarial
change . . . . . . . . . . . .
Other comprehensive income
(loss) . . . . . . . . . . . . . . . . .
Total comprehensive income . .
Year Ended June 30, 2008
Tax
Net
Pre-tax
Year Ended June 30, 2007
Pre-tax
Tax
Net
Year Ended June 30, 2006
Pre-tax
Tax
Net
$
(46)
$19,152
$15,362
$ 9,090 $
-0-
$ 9,090
$ 3,182 $ -0-
$ 3,182
$ 468
$ -0-
$
468
(130)
52
(78)
(2,200)
877
(1,323)
-0-
953
(4,396)
(379)
1,678
574
(2,718)
22
2,044
(9)
(637)
13
1,407
(386)
(776)
(234)
3,130
93
(1,126)
(141)
2,004
104
(1,287)
(41)
454
63
(833)
286
17
(114)
(7)
172
10
-0-
-0-
-0-
-0-
-0-
-0-
110
405
-0-
-0-
-0-
154
206
(44)
(152)
-0-
-0-
-0-
(232)
(570)
66
253
-0-
-0-
$ 8,716 $
197
$ 8,913
$ 8,867
$ 1,865 $ 644
$ 2,509
$21,661
$(179) $ 164
$
(15)
$15,347
Accumulated other comprehensive income, net of tax effects, were as follows:
(Amounts in Thousands)
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . $13,855
Unrealized gain (loss) from:
Year Ended June 30
2007
2008
2006
$ 4,765
$1,583
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
252
(580)
(181)
134
(257)
(440)
Postemployment benefits:
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(68)
(1,151)
-0-
(1,323)
-0-
-0-
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . $12,308
$ 3,395
$ 886
Note 17 Restructuring Expense
Because of evolving customer preferences for EMS operations in low-cost regions, during the fourth quarter of
fiscal year 2008, the Company approved a plan to expand its European automotive electronics capabilities and to
establish a European Medical Center of Expertise in Poznan, Poland. As part of the plan, the Company will
consolidate its EMS facilities located in Longford, Ireland; Wales, United Kingdom; and Poznan, Poland; into a
new, larger facility in Poznan, which is expected to improve margins in the very competitive EMS market. The plan
includes the sale of an existing Poland building at a gain which will partially fund the consolidation activities. The
plan is to be executed in stages with a projected completion date of December 2011. The Company currently
estimates that the pre-tax charges related to the consolidation activities will be approximately, in millions, $20.0
consisting of approximately $18.5 of severance and other employee costs, $0.6 of lease exit costs, $0.4 of property
and equipment asset impairment, and $0.5 of other exit costs. These estimates exclude the estimated gain on the sale
of the Poland building mentioned above.
71
In an effort to improve profitability and increase Share Owner value while remaining committed to its business
model of being market driven and customer centered, during the third quarter of fiscal year 2008, the Company
approved a restructuring plan designed to more appropriately align its workforce in a changing business envi-
ronment. Within the Company’s EMS segment, the restructuring activities include realigning engineering and
technical resources closer to the customer and streamlining administrative and sales processes. Within the
Company’s Furniture segment, the restructuring activities include realigning information technology and pro-
curement resources closer to the customer and streamlining administrative and sales processes to drive further
synergies afforded by the recent alignment of the sales and manufacturing functions within this segment. The plan
also includes reducing corporate personnel costs to more properly align with the overall sales mix change within the
Company. The Company expects total pre-tax restructuring expenses of $2.8 million, consisting of employee
severance and transition costs of approximately $2.4 million and other restructuring expenses of $0.4 million. On a
segment basis, the Company expects total pre-tax restructuring expenses of $1.6 million in the Furniture segment,
consisting of employee severance and transition costs of approximately $1.2 million and other restructuring
expenses of $0.4 million. The Company expects total pre-tax restructuring expenses for employee severance and
transition costs of approximately $0.8 million in the EMS segment and $0.4 million in Unallocated Corporate. The
plan was substantially complete by June 30, 2008 with a few activities to occur in the first half of fiscal year 2009.
With the Reptron acquisition, the Company recognized it would have excess capacity in North America. See
Note 2 — Acquisitions of Notes to Consolidated Financial Statements for additional details of the acquisition.
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, during the fourth quarter of fiscal year 2007, the Company finalized a restructuring plan within the
EMS segment to exit the facility located in Gaylord, Michigan, and transfer the business to several of the
Company’s other EMS facilities. The Company ceased production at the facility during the second quarter of fiscal
year 2008. Excess equipment was sold during the third quarter of fiscal year 2008, and the Gaylord facility is
classified as held for sale. The Company expects to recognize minimal future charges related to ongoing facility
maintenance expenses. The Company expects total pre-tax restructuring costs to be approximately $1.8 million,
including $0.8 million related to employee severance and transition costs which were recognized as a purchase price
allocation adjustment, not impacting earnings, asset impairment of $0.7 million and $0.3 million of other
restructuring costs. Subsequent to this decision, during the second quarter of fiscal year 2008, the Company
approved a restructuring plan to further consolidate its EMS facilities that will result in the exit of a manufacturing
facility located in Hibbing, Minnesota, which was also one of the facilities acquired in the acquisition of Reptron. A
majority of the Hibbing business transferred to several of the Company’s other worldwide EMS facilities. The
leased facility will be exited, and some of the equipment will be sold. The Company ceased production at the facility
during the fourth quarter of fiscal year 2008 and will complete all remaining restructuring activities by the second
quarter of fiscal year 2009. The Company expects total pre-tax restructuring charges, most of which were
recognized during fiscal year 2008, to be approximately $1.6 million, including $0.5 million related to employee
severance and transition costs, asset and goodwill impairment of $0.4 million, lease exit costs of $0.3 million, and
other restructuring costs of $0.4 million.
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 EMS 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 fiscal year 2007, and the facility was sold during fiscal year 2008.
Total pre-tax restructuring charges related to this plan were $1.4 million, consisting of employee transition costs of
$0.7 million, acceleration of software amortization of $0.4 million, acceleration of plant, property, and equipment
depreciation of $0.1 million, and other restructuring costs of $0.4 million partially offset by $0.2 million for gains
on the sale of equipment net of other asset impairment.
72
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. The
plan includes accelerating amortization through fiscal year 2008 on a portion of the Company’s Enterprise Resource
Planning (ERP) software. 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 were recognized in fiscal year 2006 as
discontinued operations. The Company estimates total pre-tax charges under the plan, when complete, to be
approximately $17.1 million, including the pre-tax loss on the sale of business operations and other impairment of
$11.1 million which was recorded as discontinued operations, and restructuring charges for plant, property, and
equipment impairment of $0.6 million, software impairment of $2.8 million, acceleration of software amortization
of $2.2 million, and employee severance costs of $0.4 million. This plan was complete as of June 30, 2008.
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 2008 Restructuring Charges:
As a result of the fiscal year 2008, 2007, and 2006 restructuring plans, the Company recognized consolidated
pre-tax restructuring expense of $21.9 million in fiscal year 2008. Within the Furniture segment, the Company
recognized pre-tax restructuring expense of $2.2 million in fiscal year 2008, which included restructuring charges
of $1.2 million for employee severance costs, $0.8 million for accelerated software amortization, and $0.2 million
for plant, property, and equipment impairment. Within the EMS segment, the Company recognized pre-tax
restructuring expense of $19.0 million in fiscal year 2008, which included restructuring charges of $17.0 million for
employee severance costs, $1.2 million for plant, property, and equipment impairment, $0.2 million for goodwill
impairment, and $0.6 million for other restructuring costs. Within Unallocated Corporate, the Company recognized
$0.7 million pre-tax restructuring expense in fiscal year 2008, which included restructuring charges of $0.3 million
for employee severance costs, $0.2 million for asset impairment, and $0.2 million for other restructuring costs.
Fiscal Year 2007 Restructuring Charges:
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 EMS segment recognized pre-tax restructuring
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 EMS 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.
73
Reserves:
At June 30, 2008, there was a $16.3 million restructuring liability relating to continuing operations remaining
on the Consolidated Balance Sheet consisting of $6.7 million in current liabilities and $9.6 million in other long-
term liabilities. The restructuring charge, utilization, cash paid to date, and ending reserve balances of continuing
operations at June 30, 2008 were as follows:
(Amounts in Thousands)
Reserve June 30, 2005 . . . . . . . . . . . . . . . . . . . . . . .
Amounts Charged — Cash . . . . . . . . . . . . . . . . . . . .
Amounts Charged — Non-Cash . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts Utilized/Cash Paid . . . . . . . . . . . . . . . . . . .
Reserve June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . .
Amounts Charged — Cash . . . . . . . . . . . . . . . . . . . .
Amounts Charged — Non-Cash . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts Utilized/Cash Paid . . . . . . . . . . . . . . . . . . .
Amounts Adjusted(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve June 30, 2007 . . . . . . . . . . . . . . . . . . . . . . .
Amounts Charged — Cash . . . . . . . . . . . . . . . . . . . .
Amounts Charged — Non-Cash . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts Utilized/Cash Paid . . . . . . . . . . . . . . . . . . .
Amounts Adjusted(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Transition
and Other
Employee Costs
Asset and
Goodwill
Write-downs
Plant Closure
and Other
Exit Costs
$
$
-0-
812
-0-
812
(435)
377
362
-0-
362
(733)
1,042
$ 1,048
18,248
255
18,503
(3,133)
(275)
$
-0-
-0-
3,843
3,843
(3,843)
$
-0-
-0-
953
953
(953)
-0-
$
-0-
-0-
2,736
2,736
(2,736)
-0-
$ -0-
-0-
-0-
-0-
-0-
$ -0-
213
-0-
213
(213)
-0-
$ -0-
672
-0-
672
(507)
-0-
$
$
Total
-0-
812
3,843
4,655
(4,278)
377
575
953
1,528
(1,899)
1,042
$ 1,048
18,920
2,991
21,911
(6,376)
(275)
Reserve June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . .
$16,143
$
-0-
$ 165
$16,308
(1) A restructuring reserve was established during fiscal year 2007 and adjusted in fiscal year 2008 related to the
purchase price allocation of the Reptron acquisition. The $0.8 million adjusted reserve increased the goodwill
balance of the acquired entity.
74
Total Restructuring Charges Incurred to Date Since Announcement of Plans:
(Amounts in Thousands)
Electronic Manufacturing Services Segment
Transition
and Other
Employee Costs
Asset and
Goodwill
Write-downs
Plant Closure
and Other
Exit Costs
Q4, 2008 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Q3, 2008 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Q2, 2008 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 Plan(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,750
799
536
(119)
743
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,709
Furniture Segment
Q3, 2008 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,190
432
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,622
Unallocated Corporate
Q3, 2008 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
347
-0-
-0-
347
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,678
$ 409
-0-
440
578
199
$1,626
$
-0-
5,670
$5,670
$
-0-
80
156
$ 236
$7,532
$ 63
-0-
338
150
46
$597
$ -0-
(50)
$ (50)
$ -0-
47
290
$337
$884
Total
$16,222
799
1,314
609
988
$19,932
$ 1,190
6,052
$ 7,242
$
$
347
127
446
920
$28,094
(2) In addition to the incurred charges to the EMS segment 2007 plan shown above, an additional $0.8 million
increase in restructuring reserves were recognized as an adjustment to the purchase price allocation of the
Reptron acquisition.
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. With the exit, the Company no longer has 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. 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.
75
The Company utilized available market prices and management estimates to determine the fair value of
impaired fixed assets. The costs shown below related to the exit of PTV cabinet and stand production at the Juarez
facility are included in discontinued operations and those costs related to the building lease and other costs after
production of PTV cabinets and stands ceased are included in continuing operations. Pre-tax charges related to exit
activities at the Juarez facility were as follows:
(Amounts in Thousands)
2008 Exit costs in continuing operations . . . . . . . . . . . .
Exit costs in discontinued operations . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 Exit costs in continuing operations . . . . . . . . . . . .
Exit costs in discontinued operations . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Exit costs in continuing operations . . . . . . . . . . . .
Exit costs in discontinued operations . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2006 Discontinued Operations:
Property &
Equipment
Impairment and
Losses on Sales
Transition
and Other
Employee
Costs
Lease and
Other Exit
Costs
$
-0-
-0-
$
-0-
-0-
$
1,623
$1,623
-0-
$
$1,623
$1,623
$
-0-
30
$
30
-0-
$
1,101
$1,101
-0-
$
$1,131
$1,131
$1,272
13
$1,285
$ 648
994
$1,642
$1,920
$1,007
$2,927
Total
$1,272
43
$1,315
$ 648
3,718
$4,366
$1,920
$3,761
$5,681
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 does not have significant continuing cash flows or continuing
involvement with this business.
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 was a
note receivable. During fiscal year 2008, the Company opted to accept a cash payment of a lesser amount as
payment in full of the note receivable. The sale resulted in a net loss of $5.0 million. The Company has no ongoing
commitments resulting from the sales agreement. The Company does not have significant continuing cash flows or
continuing involvement with this business.
76
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 does not have significant continuing cash
flows or continuing involvement with this business.
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 Loss from Discontinued Operations, Net of Tax line of the Consolidated
Statements of Income. During fiscal year 2008, the Company did not classify any additional businesses as
discontinued operations.
Operating results and the loss on sale of the discontinued operations were as follows:
Year Ended June 30
(Amounts in Thousands)
Net Sales of Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . $ -0-
Operating Loss of Discontinued Operations . . . . . . . . . . . . . . . . . . . . $ (78)
(46)
Benefit (Provision) for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . .
2008
2007
2006
$ 8,744
$(5,046)
1,978
$ 62,110
$(11,671)
5,032
Operating Loss of Discontinued Operations, Net of Tax . . . . . . . . . . . $(124)
$(3,068)
$ (6,639)
Loss on Disposal of Discontinued Operations . . . . . . . . . . . . . . . . . . $ -0-
-0-
Benefit for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,600)
554
$(11,495)
4,584
Loss on Disposal of Discontinued Operations, Net of Tax . . . . . . . . . $ -0-
$(1,046)
$ (6,911)
Loss from Discontinued Operations, Net of Tax . . . . . . . . . . . . . . . . $(124)
$(4,114)
$(13,550)
77
Note 19 Quarterly Financial Information (Unaudited)
(Amounts in Thousands, Except for Per Share Data)
Fiscal Year 2008:
Net Sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) from Continuing Operations(2) . . . . . . .
Net Income (Loss)(2) . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings (Loss) Per Share from Continuing
Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings (Loss) Per Share from Continuing
Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings (Loss) Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings (Loss) Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2007:
Net Sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings Per Share from Continuing
Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings Per Share from Continuing
Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30
December 31
March 31
June 30
Three Months Ended
$333,937
67,780
321
6,562
6,438
$347,794
66,680
623
4,240
4,240
$332,091
56,073
3,958
(889)
(889)
$338,163
57,941
17,009
(9,835)
(9,835)
$
$
$
$
$
$
$
$
0.18
0.17
0.17
0.17
0.17
0.17
0.17
0.17
$
$
$
$
$
$
$
$
0.11
0.12
0.11
0.11
0.11
0.12
0.11
0.11
$
$
$
$
$
$
$
$
(0.02)
(0.02)
(0.02)
(0.02)
(0.02)
(0.02)
(0.02)
(0.02)
$
$
$
$
$
$
$
$
(0.27)
(0.27)
(0.27)
(0.27)
(0.27)
(0.27)
(0.27)
(0.27)
$309,779
64,665
334
6,283
3,671
$327,268
67,381
283
8,160
7,204
$311,582
60,355
648
4,388
3,816
$338,301
68,959
263
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
(1) Net sales and gross profit are from continuing operations. Operating results from the Reptron acquisition are
included in the table above as of February 15, 2007.
(2) Income from continuing operations and net income for the quarter ended September 30, 2007 included
$0.7 million ($0.02 per diluted share) of after-tax income received as part of a Polish offset credit program for
investments made in the Company’s Poland operation.
78
Item 9 — Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A — 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, 2008, 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 effectiveness of the Company’s internal control
over financial reporting as of June 30, 2008 has been audited by the Company’s independent registered
public accounting firm. 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 Inde-
pendent 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, 2008 that have materially affected, or that are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Item 9B — Other Information
None.
Item 10 — 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 Company’s Proxy Statement for its annual meeting of Share Owners to be held October 21, 2008
under the caption “Election of Directors.”
79
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 Company’s Proxy Statement for its annual meeting of Share Owners to be held October 21, 2008
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 Company’s Proxy Statement for its annual meeting of
Share Owners to be held October 21, 2008 under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance.”
Code of Ethics
The Company has a code of ethics that applies to all of its employees, 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 — Executive Compensation
The information required by this item is incorporated by reference to the material contained in the Company’s
Proxy Statement for its annual meeting of Share Owners to be held October 21, 2008 under the captions
“Information Concerning the Board of Directors and Committees,” “Compensation Discussion and Analysis,”
“Compensation Committee Report,” and “Executive Officer and Director Compensation.”
Item 12 — 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 Company’s
Proxy Statement for its annual meeting of Share Owners to be held October 21, 2008 under the caption “Share
Ownership Information.”
80
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes the Company’s equity compensation plans as of June 30, 2008:
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in first column)
2,019,114(1)
$15.45(2)
877,857(3)
Equity compensation plans
approved by Share Owners . .
Equity compensation plans not
approved by Share Owners . .
Total . . . . . . . . . . . . . . . . . . . .
2,019,114
-0-
-0-
$ 15.45
-0-
877,857
(1)
Includes 779,162 Class B stock option grants, 703,552 Class A and 55,500 Class B performance share awards,
and 375,800 Class A and 105,100 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 877,857 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, perfor-
mance 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 — 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 Company’s
Proxy Statement for its annual meeting of Share Owners to be held October 21, 2008 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 Company’s
Proxy Statement for its annual meeting of Share Owners to be held October 21, 2008 under the caption “Information
Concerning the Board of Directors and Committees.”
Item 14 — Principal Accounting Fees and Services
The information required by this item is incorporated by reference to the material contained in the Company’s
Proxy Statement for its annual meeting of Share Owners to be held October 21, 2008 under the caption
“Independent Registered Public Accounting Firm” and “Approval Process for Services Performed by the Inde-
pendent Registered Public Accounting Firm.”
81
PART IV
Item 15 — 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 Company are found in Item 8 and incorporated
herein.
Management’s Report on Internal Control Over Financial
Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . .
Consolidated Balance Sheets as of June 30, 2008 and 2007 . . . . . . .
Consolidated Statements of Income for Each of the Three Years in
the Period Ended June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Share Owners’ Equity for Each of the
Three Years in the Period Ended June 30, 2008 . . . . . . . . . . . . . .
39
40
41
42
43
44
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 45-78
(2) Financial Statement Schedules:
II. Valuation and Qualifying Accounts for Each of the Three Years in
the Period Ended June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85
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 86 for a list of the exhibits filed or incorporated herein as a part of this
report.
82
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
September 2, 2008
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
September 2, 2008
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
September 2, 2008
/s/ MICHELLE R. SCHROEDER
Michelle R. Schroeder
Vice President,
Corporate Controller
(functioning as Principal Accounting Officer)
September 2, 2008
83
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
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
* 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
September 2, 2008
/s/ DOUGLAS A. HABIG
Douglas A. Habig
Director
Individually and as Attorney-In-Fact
84
Schedule II. — Valuation and Qualifying Accounts
KIMBALL INTERNATIONAL, INC.
Description
(Amounts in Thousands)
Year Ended June 30, 2008
Valuation Allowances:
Balance at
Beginning
of Year
Additions/
(Reductions)
to Expense
Charged to
Other
Accounts
Write-offs and
Recoveries
Balance at
End of
Year
Short-Term Receivable Allowance . . . .
Long-Term Note Receivable
Allowance . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset . . . . . . . . . . . . . . .
$1,477
$
48
$1,400
$4,420
$ 300
$1,159
$ 11
$ -0-
$ -0-
$ (479)
$1,057
$(1,700)
$ (613)
$
-0-
$4,966
Year Ended June 30, 2007
Valuation Allowances:
Short-Term Receivable Allowance . . . .
Long-Term Note Receivable
Allowance . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset . . . . . . . . . . . . . . .
Year Ended June 30, 2006
Valuation Allowances:
$1,282
$ (282)
$242
$1,400
$3,856
$
-0-
$ 574
$
$
$
235
$1,477
-0-
(10)
$1,400
$4,420
$(1,283)
$1,282
$
-0-
$ (627)
$1,400
$3,856
$ -0-
$ -0-
$
9
$ -0-
$ -0-
Short-Term Receivable Allowance . . . .
Long-Term Note Receivable
Allowance . . . . . . . . . . . . . . . . . . .
Deferred Tax Asset . . . . . . . . . . . . . . .
$2,142
$ 414
$
-0-
$3,429
$1,400
$1,054
85
Exhibit No.
KIMBALL INTERNATIONAL, INC.
INDEX OF EXHIBITS
Description
3(a)
3(b)
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
Amended and restated Articles of Incorporation of the Company (Incorporated by reference to
Exhibit 3(a) to the Company’s Form 10-K for the year ended June 30, 2007)
Restated By-laws of the Company (Incorporated by reference to Exhibit 3(b) to the Company’s
Form 8-K filed August 22, 2008)
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 April 23, 2008, among the Company, the lenders party thereto and
JPMorgan Chase Bank, N.A., as Agent and Letter of Credit Issuer (Incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed April 28, 2008)
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 — 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
* (cid:2) constitutes management contract or compensatory arrangement
86
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: September 2, 2008
/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: September 2, 2008
/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, 2008 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.
Date: September 2, 2008
/s/
JAMES C. THYEN
JAMES C. THYEN
President,
Chief Executive Officer
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, 2008 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.
Date: September 2, 2008
/s/ ROBERT F. SCHNEIDER
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer
Board of Directors
Harry W. Bowman + ·
Retired; Former President and
Chief Executive Officer, The Stiffel Company
Director 8 years
Douglas A. Habig ·
Chairman of the Board of Directors,
Kimball International
Director 35 years
Polly B. Kawalek +
Retired; Former Senior Vice President
and President, Quaker Foods,
PepsiCo Beverages and Foods
Director 11 years
Geoffrey L. Stringer + # ·
Retired; Former Executive Vice President,
Bank One Corporation and Chief Executive Officer,
Bank One Capital Corporation
Director 5 years
James C. Thyen ·
President, Chief Executive Officer,
Kimball International
Director 26 years
John T. Thyen
Retired; Former Senior Executive Vice President,
Strategic Marketing, Kimball International
Director 18 years
Thomas J. Tischhauser
Executive Consultant, Leadership Development,
Former Corporate Vice President,
Continental Automotive and Motorola, Inc.
Director appointed August 19, 2008
Ronald J. Thyen
Retired; Former Senior Executive Vice President,
Operations Officer, Assistant Secretary,
Kimball International
Director 35 years
Christine M. Vujovich # ·
Vice President, Marketing and Environmental Policy,
Cummins, Inc.
Director 14 years
Dr. Jack R. Wentworth #
Retired; Arthur M. Weimer Professor Emeritus,
Business Administration, Indiana University;
Former Dean, Kelley School of Business,
Indiana University
Director 24 years
+ Member of the Audit Committee of the Board
# Member of the Compensation and Governance Committee
of the Board
· Member of the Strategic Planning 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
Department 5352, Shareholder Services 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)
Offi cers
Corporate Officers
Domestic Subsidiary Officers
Foreign Subsidiary Managers
Donald D. Charron
Executive Vice President,
President–Kimball Electronics Group
Roger Chang (Chang Shang Yu)
Vice President, Asian Operations,
Kimball Electronics Group
Dwaine R. Saalman
Vice President, Strategic Accounts,
Kimball Office
Janusz Kasprzyk
General Manager,
Kimball Electronics Poland,
Sp. zo. 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.
Shane Tiernan
General Manager,
Kimball Electronics Ireland, Ltd.
Stanley C. Sapp
Vice President,
General Manager,
Kimball Hospitality
Michael K. Sergesketter
Vice President,
Chief Financial Officer,
Kimball Electronics Group
Christopher J. Thyen
Vice President,
Business Development,
Kimball Electronics Group
Donald W. Van Winkle
Vice President,
General Manager,
National Office Furniture
Zygmunt Witort
Vice President,
European Operations,
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
Richard C. Farr
Vice President, Global Operations,
National Office Furniture
Jeffrey L. Fenwick
Vice President, General Manager,
Kimball Office
Ramona K. Hoffman
Vice President, Marketing,
Kimball Office
Steven T. Korn
Vice President,
North American Operations,
Kimball Electronics Group
John C. Manchir
Vice President, Operations,
Kimball Office
Dirk H. Manning
Vice President, Sales,
Kimball Office
Kevin D. McCoy
Vice President, Sales,
National Office Furniture
Web sites for the charities mentioned on pages two and three:
Gary Brackett’s IMPACT Foundation: http://www.garybrackett.org
Jill’s House: http://www.jills-house.org
Camp Pacifi c Heartland: http://www.hollywoodheart.org/campheartland.php
Wilson Foundation: http://www.mcjcwilsonfoundation.org
The Chicago Lighthouse: http://www.thechicagolighthouse.org
Derek Jeter’s Turn 2 Foundation: http://derekjeter.mlb.com/players/jeter_derek/turn2/index.jsp
ACS Relay for Life: http://www.cancer.org/docroot/par/content/PAR_1_Relay_For_Life.asp
Muscular Dystrophy Association: http://www.mda.org
Kimball International urges you to help
the environment – please recycle.
SM
This report is printed entirely on Forest Stewardship Council certified paper with 10% post-consumer waste.
This report is printed on FSC-certifi ed paper made with 10% post-consumer waste. The FSC sets standards to ensure
FSC certification ensures that the paper used in this report contains fiber from well-managed and responsibly
the wood and pulp used in the production process are grown, harvested and manufactured to high environmental
harvested forests.
standards. All parts of the manufacturing process are audited to ensure adherence to these standards.
The inks used in the printing of this report contain an average of 25%-35% vegetable oils from plant derivatives, a
renewable resource. They replace petroleum inks as an effort to also reduce volatile organic compounds (VOC’s).
furniture – Manufacturing, Product Design,
Marketing, Sales. office furniture: Casegoods,
Desks, Seating, Tables, Dividers, Filing Cabinets,
Book Cases, Office Systems, Accessories.
Hospitality: Beds, Desks, Seating, Casegoods,
Dressers, Side Tables. electronics – Manufacturing,
Testing Services, Regulatory Support, Value-Added
Services. Automotive: Air Bag ECU’s, Stability
Control ECU’s, Electronic Power Steering, Sensors,
Telematics, Video Camera Systems, Compass and
Navigations Systems. Medical: Diagnostic Imaging,
Urinalysis Equipment, Hematology Equipment,
Surgical Instruments, Defibrillators, Vital Signs
Monitoring, Laboratory Measurement, Physical
Therapy, Glucose Monitoring, Respiration Monitors,
Home Health Care. Public Safety: Emergency
Personnel Communications, Material Identification
Systems, Night Vision Systems, X-ray Systems,
Surveillance Equipment, Fire Protection Equipment.
industrial: Communications Infrastructure Equipment,
HVAC Controls, Flow Metering Controls, Power
Metering Controls, Portable Tool Chargers, Analytical
Instrumentation, Motor Controllers, Semiconductor
Manufacturing Equipment. Making A Difference
1600 Royal Street
Jasper, IN 47549
812-482-1600
812-482-8500 TDD
www.kimball.com