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of Kimball
2011 Annual Report
sustainability
“ For more than 40 years,
Kimball Office has
maintained a commitment
to the environment by
designing and producing
products that support our
dedication to responsible
business practices.”
– Georgy Olivieri, Director of Architecture,
Design, and Sustainable Strategies,
Kimball Office
The voices of Kimball come from the many
stakeholders and constituents who interact in
a variety of ways with our Company every day.
Employees throughout Kimball have given voice to our Corporate Guiding Principles, to the
very aspects of our Company that make us a long-term employer of choice in our communities,
a responsive company to our customers, and a company that promotes personal growth to
our employees.
Customers are the reason our business exists, and in serving them over the decades, we have
learned to keep our ears tuned to their words, hearing their needs, and responding with the
products and services they want. We are fortunate to have customers who raise their voices in
support of us and our people, while offering honest feedback to help us improve.
Supply chain and business partners are crucial to our ability to focus on quality, reliability
and exceptional value and service to our customers in all our markets. Their help in adjusting
to inflationary pressures in the commodity markets and in finding solutions for alternatives,
new processes, and risk alleviation have ensured that we both succeed in a rapidly changing
business environment.
Communities, the places we live and work, have strong ties to Kimball, and their voices are
important to us. We have been an integral and active part of our local communities, lending
support and taking actions to help make them better places for our families and our Company.
Environmentalists, those who have concerns over humanity’s impacts upon the environment,
have long been a part of Kimball’s conscience. We embraced sustainability long before it
became fashionable. From our early days of woodlands conservation, to our current portfolio of
certified sustainably manufactured products, we raised our own voices to address those concerns.
Share Owners, people who have believed in Kimball over the past sixty years and who have
invested their time and money to help us grow, have been long-term voices of support and
encouragement. Our ability to keep their trust remains tied to our ability to successfully navigate
the changes in the world around us.
From around the globe, the many voices of Kimball speak in multiple languages, from a variety of
viewpoints. They help us continue to be an adaptable, flexible, responsive company dedicated
to servicing our customers’ needs.
“ Honoring those individuals and organizations that
make outstanding efforts toward environmental
stewardship is a way to demonstrate to others that
protecting and working toward a clean and healthy
environment is good business and good for business.”
– Len Peters, Secretary, Energy and Environment Cabinet, Commonwealth of Kentucky,
presenting the Governor’s Resource Caretaker Award.
“ We worked with our steel supplier to execute
a forward buy of material that essentially
locked our pricing in at certain levels for
a defined period of time.”
– Robert Young, Director of Global Supply Chain Management, Kimball Office
capability
“ We have worked with
a lot of suppliers but
the people at Kimball
are the best. Their
responsiveness and
desire to support
Philips is unparalleled.”
– Dave Butler, Managing Director of
International Operations, Philips Healthcare
“ We wanted something
classy, and that was
also very functional. We
found that the pieces
offered from Kimball
Office were a great fit.”
– Dana Clayton, Vice President,
Student Affairs and Dean of Students,
University of Evansville
reliability
Kimball Electronics was one of only four suppliers, out of 180 companies, to be singled out for special recognition by customer Philips Healthcare. Kimball was honored as “Breakthrough Supplier of the Year.” opportunity
“ The structure is spectacular, the furnishings are
perfect. It represents the essence of Temecula…
Old Traditions, New Opportunities.”
– Greg Butler, Director of Public Works/City Engineer, Temecula, California
2 Kimball 2011 www.kimball.com
“ This is a workspace
we have to be able to
show on high definition
television. We’ve been
very impressed with
how Hum looks on TV
and how it improves
our workflow.”
– Steve Ackermann, WXIX Fox 19 News
Director, Cincinnati, Ohio
“ Kimball Hospitality worked
closely with my team…
to formulate and execute
an intricate plan to ensure
that high quality furniture
products were delivered
to ensure our successful
and on-time completion
of this project.”
– Richard Oakes, Executive Director of
Corporate Procurement, Gaylord Entertainment
quality
“ We truly do believe having varied perspectives, representing different cultures
and viewpoints, promotes innovation and builds success…it’s another reason
I’m proud to be working and thinking for such a great company.”
– Scott Saalman, Director of Employee Communications, Kimball International
diversity
integrity
“ It was the best phone call I have ever made.
Ms. Brown’s reaction began with disbelief and
turned quickly into shouts of joy and dancing.
It’s very rewarding as a company to be able to
provide a meaningful gift to such a deserving
organization and the people they serve.”
– Kourtney Smith, Vice President of Marketing, National Office Furniture
responsibility
quality
www.kimball.com Kimball 2011 3
National presented Good Samaritan Regional Medical Center in Corvallis, Oregon, with a $25,000 check upon their selection as winners of National’s latest “Gift of Inspiration for Healthcare”.Financial donations from the “Gifts of Inspiration” program thus far total $85,000 to educators and healthcare providers across the country. “ Each time I moved from one position to another it was a step in the right
direction toward a higher level of responsibility and opportunity for growth.”
– Eddie Mosle, National Office Furniture – Danville
flexibility
“ I would recommend
the product to anybody.
Kimball Office did a
wonderful job of being able
to [custom] logo a lot of
the products which was
extremely important to us.”
– Jason King, Senior Associate Athletic
Director, Southern Illinois University
“ I could not be more proud than to work for the
same company my mom works for.”
– Graig Satkamp, Corporate Aircraft Pilot, Kimball Flight Operations, Kimball International
“This was a dream company to work with.”
– Mark Heath, President and CEO of the Martinsville-Henry County [Virginia]
Economic Development Corporation, on Kimball Hospitality’s announcement
to open a new seating manufacturing facility.
4 Kimball 2011 www.kimball.com
The Voluntary Protection Program (VPP) encourages and recognizes safety excellence. VPP represents a partnership between labor, management and government which advances a health and safety culture. Achieving VPP STAR Status is a mark of demonstrated leadership.Kimball International has achieved an unprecedented record of six facilities to earn the OSHA VPP STAR status for Safety.
accountability
“ Kimball has been a prolific producer
of these VPP sites. We rely on our VPP
companies… the ones that go far beyond…
that mentor others. Because of what you
are doing here… hundreds, thousands
really, of other employees are safer and
better off.”
– Lori Torres, Commissioner, Indiana Department of Labor, commenting on
Kimball’s achievement of six OSHA VPP Star certified facilities.
“ To enhance mutual
communication and
inspire morale, we
organized our annual
spring outing to
Lishui, Nanjing.”
– Maria Ma, Human Resources,
Kimball Electronics – Nanjing
“ One of the best things I feel Kimball Office does as a manufacturer is
design and create products that really work well together — there’s full
integration. I don’t know of any other manufacturer that does that.”
– Rebecca Denison Schultz, President and Owner, D2P
possibility
www.kimball.com Kimball 2011 5
6 Kimball 2011 www.kimball.comTo Our Share Owners:Your Company is known globally for excellence in execution and customer service, thanks to the efforts and dedication of Kimball employees across the world. Their efforts and their results give voice to the successes that make Kimball International a respected company, a valued partner, a preferred employer, a trusted corporate neighbor, and a sound investment.Financial results for fiscal year 2011 reflect a series of gains and offsets, which impacted both operating segments. Open orders in the Furniture segment increased in the second half of fiscal year 2011, but were more than offset by declines in the Electronic Manufacturing Services (EMS) segment. With enhanced product offerings and an uptick in growth in the commercial office interiors markets, earnings for the Furniture segment improved. An expanded recognition of our package of value brought new customers and awards of additional program contracts to the EMS segment, but various challenges reduced net income. Certain vertical markets in both segments provided opportunities for growth, as we took advantage of economic reset.Consolidated Net Sales for the fiscal year were $1,202,597,000 which was a 7% increase over last fiscal year sales. Net Sales in the EMS segment were up 2% compared to prior year, primarily due to improved sales in the medical, industrial controls, and public safety vertical markets. Net sales in the Furniture segment were up 16% with the largest increase in office furniture. Hospitality furniture sales were also up, but at a lower rate than office furniture.Gross Profit as a percent of sales was up less than one percentage point over prior year, as the sales mix shifted towards the Furniture segment which carries a higher gross profit percentage than the EMS segment. In the Furniture segment, gross profit as a percentage of sales was down, partly the result of pricing pressures in the markets as well as higher commodity costs. In the EMS segment, gross profit was up, driven by a shift to higher margin programs and improved efficiencies. Consolidated selling and administrative costs increased in real dollars but were down as a percentage of net sales due to the improved leverage of higher sales volumes. Net Income for fiscal year 2011 was $4.9 million, or $0.14 per Class B diluted share. We remain committed to a strategy of driving margin improvement which directly links to growing Share Owner value. We are committed to our stated margin goals in both segments, but have adjusted the timeline to achieve them due to the impacts of the recession on our markets.We also remain committed to prudent use of capital in both segments. The $33.2 million in capital investments made this year were primarily related to new production equipment in the EMS segment. These investments maintained and expanded our capabilities.Cash management remained one of your Company’s priorities throughout the year. Although cash balances are down, we generated $21.3 million in cash flow from operations this year, compared to $13.4 million in fiscal year 2010. Overall, our balance sheet remains strong, with virtually no long-term debt. As of June 30, the Company’s cash position stood at $51.4 million, compared to $65.3 million at the end of last fiscal year.Electronics: Our Electronic Manufacturing Services (EMS) segment saw strong growth in the industrial controls vertical market. The improved diversification of our book of business into more contract programs from customers in the medical markets was offset by the normal ending of certain major customer programs within the medical vertical market. Overall, we were very pleased that our EMS segment rebounded quickly from the recession.The tragic earthquake and tsunami in Japan had an impact on the global supply chain for electrical components as well as on the automotive market in general. We kept in close contact with both our customers and suppliers, and as a result, we experienced minimal disruption in our supply chain. However, impacts on the availability of other automotive assemblies, such as transmissions or drivetrains, did affect our customers, resulting in deferrals of placed orders. The result was an unfavorable impact on our revenue stream and profit margins. Although we experienced strong quote activity and new program win rates, we also incurred increased costs related to quick ramp-up in production for a few key customers and start-up costs for new program awards. Activities related to the exit of our Wales (UK) operation and transfer into our Poland facility continued to impact profits.The EMS segment was successful in winning new customer awards and securing additional programs from existing customers, and as a result, we saw sales and gross profit increases. However, net income for the segment declined compared to last year, primarily due to having non-recurring Other General Income in the prior fiscal year. Indicative of our customer commitment and outstanding www.kimball.com Kimball 2011 7package of value was our recognition as “Breakthrough Supplier of the Year” by customer Philips Healthcare. This great accomplishment was achieved by excellent communication, collaboration, and skilled manufacturing by our global employees, as we partnered to manage costs, ensure quality and support sustainability.Furniture: The Furniture segment saw a sense of stability return in the market, although volatility of change in some sectors required flexibility in our operations. Projections by the Business and Institutional Furniture Manufacturer Association (BIFMA) estimated an approximate 16% year-over-year increase in office furniture consumption for calendar year 2011. The market for hospitality furniture saw some improvement, as property owners could no longer defer upgrades and refurbishments of existing guest rooms. We saw strong quoting and sample activity. While we were encouraged by this increase in activity, this market has reset at a new level of momentum. We have been able to take advantage of improved business conditions to grow top-line revenue. With increases in sales in this segment, we were better able to leverage fixed overhead costs. Operational improvements yielded incremental cost savings. However, aggressive competitive bid pricing, commodity cost increases, and higher freight costs, primarily related to national fuel price increases, maintained pressure on profit margins. Both the Kimball Office and National office furniture brands gained national attention for their unprecedented achievement of ANSI/BIFMA level ™ 2 and 3 certifications of sustainability for 100 percent of their products. This accomplishment positioned these brands as two of the industry’s most prominent manufacturers of sustainably-made contract office furniture. Our investment in expanding our product offerings began to return value as the capabilities of our Martinsville, Virginia upholstered seating plant opened doors to a number of opportunities and contract awards. We look ahead invigorated and inspired by the dedication, commitment and compassion of our family of employees across the world. Their voices convey our brands’ package of value. Likewise, they serve as the voices of our customers, identifying needs and acting on the customers’ behalf to provide solutions. Our secret weapon remains our engaged employees. Their voices bring collective life to our vision of building success.To better appreciate how the people and brands of Kimball International are serving our customers, our global communities and our environment, we suggest that you spend time visiting our website at www.kimball.com.For more detailed insights into the past year, we encourage you to read the following Form 10-K.“ Each of us plays an important role. What we do every day matters…We are a team and we cannot succeed alone.” – Jim Thyen, President and CEO, Kimball International– Bob Brown, SupplierJames C. Thyen, President and Chief Executive OfficerDouglas A. Habig, Chairman of the Board Who We Are
What We Do
Kimball International, Inc. is a preeminent manufacturer of furniture
and electronic assemblies, serving customers around the world. Our
customers, both large and small, receive our undivided attention, as we
treat every one as the only one. Our touch is felt throughout daily life in
both the workplace and in the home.
Recognized with a reputation for excellence, Kimball International
is committed to a high performance culture that values personal and
organizational commitment to quality, reliability, value, speed, and
ethical behavior. Kimball employees know they are part of a corporate
culture that builds success for customers while enabling employees to
share in the Company’s success through personal, professional, and
financial growth.
Kimball 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.
Furniture
Kimball Office
National
Manufacturing, Product Design, Marketing, Sales.
Casegoods, Desks, Seating, Tables, Filing Cabinets, Book Cases, Office Systems, Accessories.
Casegoods, Desks, Seating, Tables, Dividers, Filing Cabinets, Book Cases, Accessories.
Kimball Hospitality
Beds, Desks, Seating, Casegoods, Dressers, Side Tables.
Electronic Manufacturing Services Manufacturing, Design and Testing Services, Regulatory Support, Value-Added Services.
Medical
Automotive
Industrial
Public Safety
Diagnostic Imaging, Urinalysis Equipment, Hematology Equipment, Surgical Instruments,
Defibrillators, Vital Signs Monitoring, Laboratory Measurement, Physical Therapy,
Glucose Monitoring, Respiration Monitors, Home Health Care, Sleep Therapy Devices.
Anti-Lock Braking, Stability Controls, Electronic Power Steering, Sensors, Telematics, Video Camera Systems,
Compass and Navigation Systems, High Efficiency Electronic Ignition Systems, Electronic Window Lifts.
HVAC Controls, Flow Metering Controls, Power Metering Controls, Portable Tool Chargers,
Analytical Instrumentation, Motor Controllers, Semiconductor Manufacturing Equipment, Transportation Battery
Chargers.
Emergency Personnel Communications, Material Identification Systems, Night Vision Systems,
X-ray Systems, Surveillance Equipment, Fire Protection Equipment, Military Power Supply Units,
Power Filters, Point of View Cameras.
2011 Sales By
Business Segments
60%
Electronic
Manufacturing Services
40%
Furniture
Financial Highlights
(Amounts in thousands, except for per share data)
2 011
2010
% Change
7.1%
-54.4%
-54.5%
59.5%
-1.1%
-6.2%
2.6%
-55.6%
-51.7%
0.0%
0.0%
$1,202,597
$1,122,808
4,922
1.21%
21,349
178,011
33,210
387,399
0.12
0.14
0.18
0.20
7.89
4.81
6.43
10,803
2.66%
13,382
180,018
35,415
377,428
0.27
0.29
0.18
0.20
9.59
5.48
5.53
Net Sales
Net Income
Return on Capital
Cash Flow from Operations
Working Capital
Capital Investments
Share Owners’ Equity
Earnings Per Share (Diluted)
Class A
Class B
Dividends Declared
Class A
Class B
Market Price Per Share
High
Low
Close
8 Kimball 2011 www.kimball.com
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, 2011
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-3279
KIMBALL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
1600 Royal Street, Jasper, Indiana
(Address of principal executive offices)
35-0514506
(I.R.S. Employer Identification No.)
47549-1001
(Zip Code)
(812) 482-1600
Registrant's telephone number, including area code
Title of each Class
Class B Common Stock, par value $0.05 per share
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, par value $0.05 per share
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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.
Large accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Accelerated filer
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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, 2010 (the last business day of the
Registrant's most recently completed second fiscal quarter) was $182.5 million, based on 96.2% of Class B Common Stock held by non-affiliates.
The number of shares outstanding of the Registrant's common stock as of August 15, 2011 was:
Class A Common Stock - 10,330,236 shares
Class B Common Stock - 27,419,652 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on October 18, 2011, are incorporated by reference into Part III.
KIMBALL INTERNATIONAL, INC.
FORM 10-K INDEX
PART I
Page No.
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
(Removed and Reserved) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant's Common Equity, Related Share Owner Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Share Owner Matters . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15.
Exhibits, Financial Statement Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
8
14
15
16
16
16
17
19
19
32
33
69
69
70
70
70
70
71
71
72
73
2
Item 1 - Business
General
PART I
As used herein, the term "Company" refers to Kimball International, Inc., the Registrant, and its subsidiaries. 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 globally to the medical, automotive, industrial control, and public safety
industries. The Furniture segment provides furniture for the office and hospitality industries, sold under the Company's family
of brand names. Production currently occurs in Company-owned or leased facilities located in the United States, Mexico,
Thailand, China, Poland, and Wales, United Kingdom. In the United States, the Company has facilities and showrooms in 11
states and the District of Columbia.
Sales by Segment
Sales by segment, after elimination of intersegment sales, for each of the three years in the period ended June 30, 2011 were as
follows:
(Amounts in Thousands)
Electronic Manufacturing Services segment . . . . . .
Furniture segment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated Corporate and Eliminations . . . . . . . . .
Kimball International, Inc. . . . . . . . . . . . . . . . . . . .
2011
2010
2009
$ 721,419
481,178
—
$ 1,202,597
60%
40%
—%
100%
$ 709,133
413,611
64
$ 1,122,808
63%
37%
—%
100%
$ 642,802
564,618
—
$ 1,207,420
53%
47%
—%
100%
Financial information by segment and geographic area for each of the three years in the period ended June 30, 2011 is included
in Note 15 - Segment and Geographic Area Information of Notes to Consolidated Financial Statements and is incorporated
herein by reference.
Segments
Electronic Manufacturing Services
Overview
The Company began producing electronic assemblies, circuit boards, and wiring harnesses for electronic organs and keyboards
in 1961 and has since grown and evolved with the EMS industry. The Company's current focus is on electronic assemblies that
have high durability, quality, reliability, and regulatory compliance requirements primarily in medical, automotive, industrial
control, and public safety applications. The Company's business development managers work to build long-term relationships
that create value for customers, suppliers, employees and Share Owners, and this quest is supported globally from locations in
six countries through prototype, new product development and introduction, supply chain management, test development,
complete system assembly, and repair and reverse logistics services.
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:
•
•
•
•
•
•
production and testing of printed circuit board assemblies (PCBAs);
industrialization and automation of the manufacturing processes;
product and process validation and qualification;
testing of products under a series of harsh conditions;
assembly and packaging of electronic and other related products; and
complete product life cycle management.
Integrated throughout this segment is customer program management over the life cycle of the product along with supply chain
3
management, which affords customers the opportunity to focus their attention and resources to sales, marketing, and product
development as they sell their unique end products under their brand name into various markets and industries.
During the fourth quarter of fiscal year 2011, the Company approved a plan to exit a 35,000 square feet leased assembly
operation located in Fremont, California. A majority of the business will be transferred to an existing Jasper, Indiana facility by
mid-fiscal year 2012.
During the first quarter of fiscal year 2009, the Company acquired privately-held Genesis Electronics Manufacturing (Genesis)
of Tampa, Florida. The acquisition supports the Company's growth and diversification strategy, bringing new customers in the
Company's key medical and industrial control markets.
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 near Poznan, Poland. As part of the plan, the Company is
consolidating its EMS facilities located in Wales, United Kingdom, and Poznan, Poland, into a new larger facility near Poznan,
which is expected to improve the Company's margins in the very competitive EMS market. The plan is being executed in
stages with a projected completion date of mid-fiscal year 2012.
The Genesis acquisition is discussed in further detail in Note 2 - Acquisition of Notes to Consolidated Financial Statements.
Additional information regarding the Company's restructuring activities is located in Note 18 - 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 2011 net sales to automotive industry customers approximated one-fourth of the Company's
EMS segment net sales.
Locations
As of June 30, 2011, the Company's EMS segment consisted of eight manufacturing facilities with one located in each of
Indiana, Florida, California, Poland, China, Mexico, Thailand, and Wales, United Kingdom. The facilities located in Wales and
California are being consolidated into other facilities with a projected completion by mid-fiscal year 2012. The Company
continually assesses under-utilized capacity and evaluates its operations as to the most optimum capacity and service levels by
geographic region. 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.
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 include 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 becomes established and matures. The segment continues to
experience margin pressures related to an overall excess capacity position in the electronics subcontracting services market.
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 and start-up of new programs.
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
4
Corp. The Company does not have a significant share of the EMS market and was ranked the 19th largest global EMS provider
for calendar year 2010 by Manufacturing Market Insider in the March 2011 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. In addition, unforeseen events such as the
March 2011 earthquake and tsunami in Japan can and have disrupted portions of the supply chain. The Company continues to
monitor EMS suppliers who were affected either by physical damage to production facilities or indirect production impacts
caused by electricity blackouts or aftershocks. There has been minimal disruption in the supply chain up to this point as the
Company has maintained close communication with suppliers.
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 new
product introductions and transfers of production between manufacturing facilities.
Customer Concentration
While the total electronic assemblies market has broad applications, the Company's customers are concentrated in the medical,
automotive, industrial control, and public safety industries. 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:
Bayer AG affiliated sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . .
Bayer AG affiliated sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30
2010
15%
24%
2009
12%
23%
2011
11%
19%
The Company's sales to Bayer AG began to decline in the fourth quarter of fiscal year 2011 as the Company's primary
manufacturing contract with Bayer AG expired. Margins on the Bayer AG product were generally lower than the Company's
other EMS products. The nature of the contract business is such that start-up of new customers to replace expiring customers
occurs frequently. The Company continues to focus on diversification of the EMS segment customer base.
Furniture
Overview
Since 1950, the Company has produced wood furniture. 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 brand names and hospitality furniture sold under the Kimball Hospitality brand name. Kimball Office and
National 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, collaborative workstations, contemporary cubicle systems, 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 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.
During the first quarter of fiscal year 2009, the Company approved a restructuring plan to consolidate production of select
office furniture manufacturing departments. The consolidation was substantially completed during fiscal year 2009 with the
remaining items completed during fiscal year 2010. The consolidation has reduced manufacturing costs and excess capacity by
eliminating redundant property and equipment, processes, and employee costs.
5
Additional information regarding the Company's restructuring activities is located in Note 18 - Restructuring Expense of Notes
to Consolidated Financial Statements.
Locations
The Company's furniture products as of June 30, 2011 were primarily produced at eleven plants: seven located in Indiana, two
in Kentucky, and one each in Idaho and Virginia. The facility in Virginia was opened during fiscal year 2011 and houses a
showroom and production operations to make upholstered seating, headboards, and other products for the Company's custom,
program, and catalog offerings for hospitality guest rooms and public spaces. In addition, select finished goods are purchased
from external sources. The Company continually assesses manufacturing capacity and has adjusted such capacity in recent
years.
In addition, a facility in Indiana houses an education center for dealer and employee training, a research and development
center, and a product showroom. Office furniture showrooms are maintained in nine additional cities in the United States.
Office space is leased in Dongguan, Guangdong, China, to facilitate sourcing of select finished goods and components from the
Asia Pacific Region.
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 non-standard products. The Company
offers payment terms similar to industry standards and in unique circumstances may grant 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 office furniture as well as most of
the Company's own lines of hospitality furniture. The Company also produces 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 from customers 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 furniture. In many instances wood office furniture competes in the market with nonwood
office furniture. Based on available industry statistics, nonwood office furniture has a larger share of the total office furniture
market.
The Company's competition includes furniture manufacturers such as Steelcase Inc., Herman Miller, Inc., Knoll, Inc., Haworth,
Inc., and HNI Corporation and several other privately-owned furniture manufacturers.
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 and nonwood furniture. 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 quality products at the lowest total cost.
6
Other Information
Backlog
At June 30, 2011, the aggregate sales price of production pursuant to worldwide open orders, which may be canceled by the
customer, was as follows:
(Amounts in Millions)
EMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Backlog. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
June 30
2011
June 30
2010
165.1
90.4
255.5
$
$
199.1
70.6
269.7
The decline in EMS segment open orders is primarily the result of lower orders from Bayer AG. Substantially all of the open
orders as of June 30, 2011 are expected to be filled within the next fiscal year. Open orders 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30
2010
2009
2011
$13
$12
$14
The Company owns the Kimball (registered trademark) trademark, which it believes is significant to the EMS and Furniture
segments, and owns the following patents and trademarks which it believes are significant to the Furniture segment only:
Registered Trademarks: National. Furniture with Personality, Cetra, Traxx, Interworks, Xsite, Definition, Skye,
WaveWorks, Senator, Prevail, Eloquence, Hum. Minds at Work, Pura, and Fluent
Trademarks: President, IntegraClear, Exhibit, Priority, Villa, and Wish
Patents: Wish, Priority, Xsite, Exhibit (pending), Fluent (pending), and Villa (pending)
The Company also owns other patents and trademarks and has certain other trademark and patent applications pending, which
in the Company's opinion are not significant to its business. Patents owned by the Company expire at various times depending
on the patent's date of issuance.
Environment and Energy Matters
The Company's operations are subject to various foreign, federal, state, and local laws and regulations with respect to
environmental matters. The Company believes that it is in substantial compliance with present laws and regulations and that
there are no material liabilities related to such items.
The Company is dedicated to excellence, leadership, and stewardship in matters of protecting the environment and
communities in which the Company has operations. Reinforcing the Company's commitment to the environment, six of the
Company's showrooms and two non-manufacturing locations 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, 2013, 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.
7
Employees
June 30
2011
June 30
2010
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Full-Time Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,787
2,575
6,362
3,831
2,356
6,187
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
The Company makes available free of charge through its website, http://www.ir.kimball.com, its annual reports 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 the Company files with the SEC are also available via the SEC website, http://www.sec.gov, or may be read
and copied at the SEC Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The Company's Internet
website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual
Report on Form 10-K.
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 and 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," "forecasts," 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.
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 continue to 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:
•
•
•
general corporate profitability of the Company's end markets;
credit availability to the Company's end markets;
profitability of financial institutions to whom the Company sells office furniture which continue to be impacted by the
changing regulatory environment and the credit market issues;
• white-collar unemployment rates;
•
•
commercial property vacancy rates;
new office construction and refurbishment rates;
8
•
•
•
•
•
•
new hotel and casino construction and refurbishment rates;
automotive industry fluctuations;
changes in the medical device industry;
demand for end-user products which include electronic assembly components produced by the Company;
excess capacity in the industries in which the Company competes; and
changes in customer order patterns, including changes in product quantities, delays in orders, or cancellation of orders.
The Company must make decisions based on order volumes in order to achieve efficiency in 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.
Market conditions have had and may continue to have an adverse impact on the Company's operating results. The
Company's key strategies remain intact, but it must continue to adjust operations as needed to stay focused on its priorities and
to align with the changing market conditions. The Company cannot predict the timing or the duration of any downturn in the
economy or the related effect on the Company's results of operations and financial condition.
The Company is exposed to the credit risk of its customers. The current economic conditions and the state of the credit
markets drive an elevated risk of potential bankruptcy of customers resulting in a greater risk of uncollectible outstanding
accounts receivable. Accordingly, the Company intensely monitors its receivables and related credit risks. The realization of
these risks could have a negative impact on the Company's profitability.
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, sales to Bayer AG affiliates accounted for 11%, 15%, and 12% of
consolidated net sales in fiscal years 2011, 2010, and 2009, respectively. The Company's sales to Bayer AG began to decline in
the fourth quarter of fiscal year 2011 as the Company's primary manufacturing contract with Bayer AG expired. Margins on
the Bayer AG product were generally lower than the Company's other EMS products. The continuing success of the Company
is dependent upon replacing expiring contract customers/programs with new customers/programs. 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. The Company
can provide no assurance that it will be able to fully replace any lost sales, which could have an adverse effect on the
Company's financial position, results of operations or cash flows. A reduction of government spending on furniture could also
have an adverse impact on the Company's sales levels.
The Company operates in a highly competitive environment and may not be able to compete successfully. 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, and over-capacity. Numerous manufacturers within the EMS industry 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. In times of reduced demand for office furniture, large
competitors may apply more pressure to their aligned distribution to sell their products exclusively which could lead to reduced
opportunities for the Company's products. 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. In addition, 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. 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'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. The financial stability of suppliers is monitored by the Company when
feasible as the loss of a significant supplier could have an adverse impact on the Company's operations. Supplier's adjust their
capacity as demand fluctuates, and component shortages and/or component allocations could occur. Certain finished products
and components purchased by the Company are primarily manufactured in select regions of the world and issues in those
regions could cause manufacturing delays. Maintaining strong relationships with key suppliers of components critical to the
manufacturing process is essential. 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. Materials utilized by
the Company are generally available, but future availability is unknown and could impact the Company's ability to meet
9
customer order requirements. 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'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. Increases in the cost of energy 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 sudden decline in sales, 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. In addition, the EMS segment has historically
operated at a lower gross profit percentage than the Furniture segment, and if the sales mix trends toward the EMS segment, the
Company's consolidated gross profit margin will be negatively impacted. 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 2011, the Company approved a plan to exit a small assembly facility located in
Fremont, California. A majority of the business will be transferred to an existing Jasper, Indiana facility by mid-fiscal
year 2012.
• 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 near Poznan, Poland. The plan
included the consolidation of the Company's EMS facilities located in Wales, United Kingdom, and Poznan, Poland,
into a new larger facility near Poznan, which is expected to improve the Company's margins in the very competitive
EMS market. The plan is being executed in stages with a projected completion date of mid-fiscal year 2012.
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.
Acquisitions by their nature may present risks to the Company. The Company's sales growth plans may occur through
both organic growth and acquisitions. Acquisitions involve many risks, including:
•
•
•
•
•
•
•
•
•
•
•
•
difficulties in identifying suitable acquisition candidates and in negotiating and consummating acquisitions on terms
attractive to the Company;
difficulties in the assimilation of the operations of the acquired company;
the diversion of resources, including diverting management's attention from current operations;
risks of entering new geographic or product markets in which the Company has limited or no direct prior experience;
the potential loss of key customers of the acquired company;
the potential loss of key employees of the acquired company;
the potential incurrence of indebtedness to fund the acquisition;
the potential issuance of common stock for some or all of the purchase price, which could dilute ownership interests of
the Company's current shareholders;
the acquired business not achieving anticipated revenues, earnings, cash flow, or market share;
excess capacity;
the assumption of undisclosed liabilities; and
dilution of earnings.
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.
10
The Company's international operations involve financial and operational risks. The Company has operations outside the
United States, primarily in China, Thailand, Poland, the United Kingdom, and Mexico. The Company's international
operations are subject to a number of risks, which may include the following:
•
•
•
•
•
•
economic and political instability;
compliance with laws, such as the Foreign Corrupt Practices Act, applicable to U.S. companies doing business outside
the United States;
changes in foreign regulatory requirements and laws;
tariffs and other trade barriers;
potentially adverse tax consequences; and
foreign labor practices.
These risks could have an adverse effect on the Company's financial position, results of operations, or cash flows. In addition,
fluctuations in exchange rates could impact the Company's 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 Furniture segment regularly introduces new products to keep pace with workplace trends and evolving regulatory
and industry requirements, including environmental, health, and 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.
The EMS segment depends on industries that utilize technologically advanced electronic 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.
If customers do not perceive the Company's products to be innovative and 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 innovative and high quality products and superior services. If customers do
not perceive its products and services to be innovative and 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 closely monitors inventory and receivable
efficiencies and continuously strives to improve these measures of working capital, but customer financial difficulties,
cancellation or delay of customer orders, 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.
There are inherent uncertainties involved in estimates, judgments, and assumptions used in the preparation of financial
statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP). Any changes
in estimates, judgments, and assumptions could have a material adverse effect on the Company's financial position,
results of operations, or cash flows. The Company's financial statements filed with the SEC are prepared in accordance with
U.S. GAAP, and the preparation of such financial statements includes making estimates, judgments, and assumptions that affect
11
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.
Changes in financial accounting standards may affect the Company's financial position, results of operations, or cash
flows. The Financial Accounting Standards Board (FASB) is considering various proposed rule changes. The SEC is
considering adopting rules that would require U.S. issuers to prepare their financial statements contained in SEC filings in
accordance with International Financial Reporting Standards (IFRS). The implementation of new accounting standards or
changes to U.S. GAAP could adversely impact 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 or loss 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 comply with the financial covenants under the Company's $100 million credit facility could adversely
impact the Company. The Company's credit facility requires the Company to comply with certain financial covenants. The
Company believes the most significant covenants under its credit facility are minimum net worth and interest coverage ratio.
More detail on these financial covenants is discussed in Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations. As of June 30, 2011, the Company had no short-term borrowings under its credit facilities and had
total cash and cash equivalents of $51.4 million. In the future, a default on the financial covenants under the Company's credit
facility could cause an increase in the borrowing rates or could make it more difficult for the Company to secure future
financing which could adversely affect the financial condition of the Company.
A failure to successfully implement information technology solutions could adversely affect the Company. The
Company's business depends on effective information technology systems. Information systems require an ongoing
commitment of significant resources to maintain and enhance existing systems and develop new systems in order to keep pace
with changes in information processing technology and evolving industry standards. Implementation delays or poor execution
of information technology systems could disrupt the Company's operations and increase costs.
An inability to protect the Company's intellectual property could have a significant impact on business. The Company
attempts to protect its intellectual property rights, both in the United States and in foreign countries, through a combination of
patent, trademark, copyright, and trade secret laws, as well as licensing agreements and third-party non-disclosure 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, canceled, 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, its 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 its customers in the
medical industry. To maintain FDA registration, the Company is subject to FDA audits of the manufacturing process. FDA
12
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.
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. In addition, the increased prevalence of global climate issues may result in new regulations
that may negatively impact the Company. 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; maintain its engineering, technical, and manufacturing
process expertise; and continue to attract qualified personnel could adversely affect the Company's business. The
success of the Company is dependent on keeping pace with technological advancements and adapting services to provide
manufacturing capabilities which meet customers' changing needs. In addition, the Company must retain its qualified
engineering and technical personnel and successfully anticipate and respond to technological changes in a cost effective and
timely manner. 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 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 retaining experienced production employees difficult. 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 may control the allocation of such fuels to the Company. Employees are an integral part of the Company's business
and events such as a pandemic could reduce the availability of employees reporting for work. 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 some of 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 Company does not have operations located in Japan and thus has had no production facilities directly impacted by the
effects of the March 2011 earthquake and tsunami. The Company continues to monitor EMS customers and suppliers who
were affected either by physical damage to production facilities or indirect production impacts caused by electricity blackouts
or aftershocks. There has been minimal disruption in the supply chain up to this point, but customers could still be impacted
with part shortages unrelated to electronic components, and their production schedule reductions could cause the Company to
have delayed or canceled orders. The Company has maintained close communications with customers and suppliers and
notified them, where appropriate, of force majeure conditions which may impact the Company's performance.
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 management time and
resources maintaining documentation and testing internal control over financial reporting. While management's evaluation as
of June 30, 2011 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.
13
Imposition of government regulations may significantly increase the Company's operating costs in the United States.
The federal government has a broad agenda of potential legislative and regulatory reforms, which if enacted, could significantly
impact the profitability of the Company by burdening it with forced cost choices that cannot be recovered by increased pricing.
• The healthcare reform legislation passed in 2010 by the United States Federal Government is likely to increase the
Company's total healthcare costs which could have a significant impact on the Company's financial position, results of
operations, manufacturing facilities and employment in the U.S., or cash flows.
•
International Traffic in Arms Regulations (ITAR) must be followed when producing defense related products for the
U.S. government. A breach of these regulations could have an adverse impact on the Company's financial condition,
results of operations, or cash flows.
• The Company imports a portion of its wood furniture products and is thus subject to an antidumping tariff on wooden
bedroom furniture supplied from China. Although the impact to the Company of the tariff rates since the imposition
of the Antidumping Duty Administrative Review has not been material, the tariffs are subject to review and could
result in retroactive and prospective tariff rate increases which could have an adverse impact on the Company's
financial condition, results of operations, or cash flows.
The value of the Company's common stock may experience substantial fluctuations for reasons over which the
Company has little control. The value of common stock could fluctuate substantially based on a variety of factors, including,
among others:
•
•
•
•
•
actual or anticipated fluctuations in operating results;
announcements concerning the Company, competitors, or industry;
overall volatility of the stock market;
changes in the financial estimates of securities analysts or investors regarding the Company, the industry, or
competitors; and
general market or economic conditions.
Furthermore, stock prices for many companies fluctuate widely for reasons that may be unrelated to their operating results.
These fluctuations, coupled with changes in results of operations and general economic, political, and market conditions, may
adversely affect the value of the Company's common stock.
Item 1B - Unresolved Staff Comments
None.
14
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, 2011, are as follows:
Number of Facilities
Electronic
Manufacturing
Services
Furniture
Unallocated
Corporate
Total
North America
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia
China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
1
1
1
1
1
1
1
8
4
1
13
2
1
1
1
1
1
18
2
1
1
2
1
1
1
18
4
30
The listed facilities occupy approximately 4,949,000 square feet in aggregate, of which approximately 4,733,000 square feet
are owned and 216,000 square feet are leased. Square footage of these facilities is summarized by segment as follows:
Electronic
Manufacturing
Services
Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,011,000
129,000
1,140,000
Approximate Square Footage
Furniture
3,491,000
67,000
3,558,000
Unallocated
Corporate
231,000
20,000
251,000
Total
4,733,000
216,000
4,949,000
Within the EMS segment, the Company plans to exit the United Kingdom facility in fiscal year 2012. As of June 30, 2011, the
Company is no longer leasing back the Poland facility that was sold during fiscal year 2010.
During the fourth quarter of fiscal year 2011, the Company approved a plan to exit the small leased EMS assembly facility
located in California. A majority of the business will be transferred to an existing Indiana EMS facility by mid-fiscal year
2012.
During fiscal year 2011, the Company opened a leased facility in Virginia which houses hospitality furniture production and a
showroom.
Included in Unallocated Corporate are executive, national sales and administrative offices, and a recycling facility.
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 2011.
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 ten leased office furniture showroom facilities which are not
15
included in the tables above, total 302,000 square feet and expire from fiscal year 2012 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 500 acres of land which includes land where various Company facilities reside, including
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).
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. The outcome of current routine pending litigation, individually and in the aggregate, is not expected
to have a material adverse impact on the Company.
Item 4 - (Removed and Reserved)
Executive Officers of the Registrant
The executive officers of the Registrant as of August 29, 2011 are as follows:
(Age as of August 29, 2011)
Name
James C. Thyen . . . . . . . . . . .
Douglas A. Habig . . . . . . . . .
Robert F. Schneider. . . . . . . .
Donald D. Charron . . . . . . . .
John H. Kahle . . . . . . . . . . . .
Gary W. Schwartz . . . . . . . . .
Donald W. Van Winkle. . . . .
Stanley C. Sapp . . . . . . . . . . .
Michelle R. Schroeder. . . . . .
Age
67
64
50
47
54
63
50
50
46
Office and
Area of Responsibility
Executive Officer
Since
President, Chief Executive Officer, Director
Chairman of the Board
Executive Vice President, Chief Financial Officer
Executive Vice President, President-Kimball Electronics Group
Executive Vice President, General Counsel, Secretary
Executive Vice President, Chief Information Officer
Vice President, President-Office Furniture Group
Vice President, President-Kimball Hospitality
Vice President, Chief Accounting Officer
1974
1975
1992
1999
2004
2004
2010
2010
2003
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 principal occupation shown or some other executive
capacity. Donald W. Van Winkle was appointed to Vice President, President-Office Furniture Group in February 2010. He had
previously served as Vice President, General Manager of National Office Furniture from October 2003 until February 2010,
and prior to that served as Vice President, Chief Finance and Administrative Officer for the Furniture Brands Group as well as
other key finance roles within the Furniture segment since joining the Company in January 1991. Stanley C. Sapp was
appointed to Vice President, President-Kimball Hospitality in February 2010. He had previously served as Vice President and
General Manager of Kimball Hospitality from February 2005 until February 2010, and prior to that served in other key roles
within the Furniture segment since joining the Company in June 2002.
16
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 were as follows:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
6.50
7.17
7.73
7.89
$
$
$
$
4.81
5.51
6.09
5.92
$
$
$
$
8.36
9.25
9.59
8.65
$
$
$
$
5.75
7.16
6.10
5.48
2011
2010
High
Low
High
Low
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.
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 annual dividends paid on Class A Common
Stock, provided that dividends are paid on the Company's Class A Common Stock. Dividends declared totaled $7.3 million for
both fiscal years 2011 and 2010. Included in these figures for fiscal year 2010 are dividends computed and accrued on unvested
Class A and Class B restricted share units, which were paid by a conversion to the equivalent value of common shares on the
vesting date. Dividends declared by quarter for fiscal year 2011 compared to fiscal year 2010 were as follows:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share Owners
2011
2010
Class A
0.045
0.045
0.045
0.045
0.180
$
$
Class B
0.05
0.05
0.05
0.05
0.20
$
$
Class A
0.045
0.045
0.045
0.045
0.180
$
$
Class B
0.05
0.05
0.05
0.05
0.20
$
$
On August 15, 2011, the Company's Class A Common Stock was owned by 567 Share Owners of record, and the Company's
Class B Common Stock was owned by 1,549 Share Owners of record, of which 304 also owned Class A Common Stock.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item concerning securities authorized for issuance under equity compensation plans is
incorporated by reference to Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Share
Owner Matters of Part III.
Issuer Purchases of Equity Securities
A 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 Company did not repurchase any shares under the repurchase program during
the fourth quarter of fiscal year 2011. At June 30, 2011, two million shares remained available under the repurchase program.
17
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, 2006 through June 30, 2011, 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. Therefore, 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 graph assumes $100 is invested in the Company's stock and each of the two indexes at the closing market quotations on
June 30, 2006 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006
$ 100.00
$ 100.00
$ 100.00
2007
2008
2009
2010
2011
$
73.57
$ 122.33
96.94
$
$
46.15
$ 108.31
69.93
$
$
$
$
36.63
86.75
46.46
$
33.30
$ 100.42
68.78
$
$
39.92
$ 132.75
93.12
$
18
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . .
Earnings Per Share from Continuing
Operations:
Basic:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets
Long-Term Debt, Less Current Maturities. . . . .
Cash Dividends Per Share:
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
Year Ended June 30
2009
2008
2007
$ 1,202,597
$ 1,122,808
$ 1,207,420
$ 1,351,985
$ 1,286,930
$
$
$
$
$
$
$
$
$
4,922
$
10,803
$
17,328
$
78
$
23,266
0.12
0.14
0.12
0.14
626,312
286
0.18
0.20
$
$
$
$
$
$
$
$
0.27
0.29
0.27
0.29
636,751
299
0.18
0.20
$
$
$
$
$
$
$
$
0.46
0.47
0.46
0.47
642,269
360
0.40
0.42
$
$
$
$
$
$
$
$
—
—
—
—
722,667
421
0.62
0.64
$
$
$
$
$
$
$
$
0.59
0.61
0.58
0.60
694,741
832
0.62
0.64
The income statement activity of discontinued operations in each of the years ended June 30, 2011, 2010, and 2009 was zero.
The preceding table excludes all income statement activity of discontinued operations in the years ended June 30, 2008 and
2007.
Fiscal year 2011 income from continuing operations included $0.6 million ($0.01 per diluted share) of after-tax restructuring
expenses.
Fiscal year 2010 income from continuing operations included $1.2 million ($0.03 per diluted share) of after-tax restructuring
expenses, $2.0 million ($0.05 per diluted share) of after-tax income resulting from settlement proceeds related to an antitrust
lawsuit of which the Company was a class member, and $7.7 million ($0.20 per diluted share) of after-tax income from the sale
of the facility and land in Poland.
Fiscal year 2009 income from continuing operations included $1.8 million ($0.04 per diluted share) of after-tax restructuring
expenses, $9.1 million ($0.24 per diluted share) of after-tax non-cash goodwill impairment, $1.6 million ($0.04 per diluted
share) of after-tax income from earnest money deposits retained by the Company resulting from the termination of a contract to
sell the Company's Poland facility and land, and $18.9 million ($0.51 per diluted share) of after-tax gains on the sale of
undeveloped land holdings and timberlands.
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.
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 Electronic Manufacturing
Services (EMS) segment and the Furniture segment. The EMS segment provides engineering and manufacturing services
which utilize common production and support capabilities globally to the medical, automotive, industrial control, and public
safety industries. The Furniture segment provides furniture for the office and hospitality industries, sold under the Company's
family of brand names.
19
Overall market conditions in the EMS industry continue to be favorable. As reported in the July 2011 Manufacturing Market
Insider (MMI) publication, an EMS industry sales projection (by New Venture research) shows forecasted growth for calendar
year 2011 of 8.8% compared to calendar year 2010. In addition in June 2011, the Semiconductor Industry Association (SIA)
endorsed a forecast of 5.4% growth of semiconductor sales for calendar year 2011, and although the Company does not directly
serve this market, it may be indicative of increased end market demand for products utilizing electronic components.
In the EMS segment, the Company focuses on the four key vertical markets of medical, automotive, industrial control, and
public safety. Demand in the medical and industrial control markets are showing signs of strength. Automotive activity was
mixed as true end market demand was somewhat masked by reduced vehicle production and lower dealer inventories caused by
the March 2011 earthquake and tsunami in Japan. The public safety market remains stable. Sales to customers in the medical
industry are the largest portion of the Company's EMS segment with sales to customers in the automotive industry being the
second largest of the four vertical markets. The Company's sales to customers in the automotive industry are diversified among
more than ten domestic and foreign customers and represented approximately one-fourth of the EMS segment's net sales for
fiscal year 2011.
The office furniture and hospitality furniture markets continue to show signs of improvement. As of May 2011, the Business
and Institutional Furniture Manufacturer Association (BIFMA) projected a 16% year-over-year increase in the office furniture
industry for calendar year 2011 compared to the 7% increase in calendar year 2010 and the 29% decrease in calendar year
2009. BIFMA projects office furniture industry growth of approximately 10% in calendar year 2012 which would bring the
industry closer to pre-recession levels. In addition, the hotel industry forecasts (reported by Smith Travel Research and
PricewaterhouseCoopers LLP) project occupancy rates to increase approximately 4% in calendar year 2011 after a 6% increase
in calendar year 2010 and a 9% industry decline in calendar year 2009 and project revenue per available room to increase 7%
for calendar year 2011 after a 5% increase in calendar year 2010 and a 17% industry decline in calendar year 2009.
Competitive pricing pressures within both the EMS segment and the Furniture segment continue to put a strain on the
Company's operating margins.
The Company is committed to ensuring it sustains the cost efficiencies and process improvements undertaken during the
recession. In addition, a long-standing component of the Company's profit sharing incentive bonus plan is that it is linked to
the performance of the Company which automatically lowers total compensation expense when profits are down and likewise
increases total compensation expense when profits are up. The focus on cost control continues. At the same time, the
Company has continued making prudent investments in product development, technology, and marketing and business
development initiatives to drive profitable growth. The Company also continues to closely monitor market changes and its
liquidity in order to proactively adjust its operating costs, discretionary capital spending, and dividend levels as needed.
The Company continued to maintain a strong balance sheet as of the end of fiscal year 2011, which included minimal long-term
debt of $0.3 million and Share Owners' equity of $387.4 million. The Company's short-term liquidity available, represented as
cash and cash equivalents plus the unused amount of the Company's revolving credit facility, was $146.2 million at June 30,
2011.
In addition to the above risks related to the current market conditions, management currently considers the following events,
trends, and uncertainties to be most important to understanding the Company's financial condition and operating performance:
• The nature of the EMS industry is such that the start-up of new programs to replace departing customers or expiring
programs occurs frequently. The Company's sales to Bayer AG began to decline in the fourth quarter of fiscal year
2011 as the Company's primary manufacturing contract with Bayer AG expired. Margins on the Bayer AG product
were generally lower than the Company's other EMS products. 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. The transition to new programs may
temporarily reduce sales and increase operating costs, resulting in a temporary decline in operating profit at the
impacted business unit. See Item 1A - Risk Factors for more information on the risks related to contract customers.
• The Company does not have operations located in Japan and thus has had no production facilities directly impacted by
the effects of the March 2011 earthquake and tsunami. The Company continues to monitor EMS customers and
suppliers who were affected either by physical damage to production facilities or indirect production impacts caused
by electricity blackouts or aftershocks. There has been minimal disruption in the supply chain up to this point, but
customers could still be impacted with part shortages unrelated to electronic components, and their production
schedule reductions could cause the Company to have delayed or canceled orders. The Company has maintained close
communications with customers and suppliers.
• Commodity price pressure is expected to continue in the near-term. Mitigating the impact of higher commodity and
fuel prices continues to be an area of focus within the Company.
20
• The Company will continue its focus on preserving cash. Managing working capital in conjunction with fluctuating
demand levels is key. In addition, the Company plans to minimize capital expenditures where appropriate but has
been and will continue to invest in capital expenditures for projects including potential acquisitions that would
enhance the Company's capabilities and diversification while providing an opportunity for growth and improved
profitability.
• Management continues to evaluate and monitor the implementation of the healthcare reform legislation that was
signed into law in March 2010. This legislation is expected to increase the Company's healthcare and related
administrative expenses.
• Globalization continues to reshape not only the industries in which the Company operates but also its key customers
and competitors.
• The increasingly competitive marketplace mandates that the Company continually re-evaluate its business models.
• The Company's employees throughout its business operations are an integral part of the Company's ability to compete
successfully, and the stability of its management team is critical to long-term Share Owner value. The Company's
career development and succession planning processes help to maintain stability in management.
• To support growth and diversification efforts, the Company focuses on both organic growth and potential acquisition
targets. Acquisitions allow rapid diversification of both customers and industries served.
Certain preceding statements could be considered forward-looking statements under the Private Securities Litigation Reform
Act of 1995 and are subject to certain risks and uncertainties including, but not limited to, a significant change in economic
conditions, loss of key customers or suppliers, or similar unforeseen events.
Fiscal Year 2011 Results of Operations
Financial Overview - Consolidated
Fiscal year 2011 consolidated net sales were $1.20 billion compared to fiscal year 2010 net sales of $1.12 billion, a 7%
increase, resulting from a 16% net sales increase in the Furniture segment and a 2% net sales increase in the EMS segment.
Fiscal year 2011 net income was $4.9 million, or $0.14 per Class B diluted share, inclusive of $0.6 million, or $0.01 per Class
B diluted share, of after-tax restructuring costs primarily related to the European consolidation plan. The Company recorded
net income for fiscal year 2010 of $10.8 million, or $0.29 per Class B diluted share, inclusive of $1.2 million, or $0.03 per
Class B diluted share, of after-tax restructuring costs primarily related to the European consolidation plan. The fiscal year 2010
results also included the following items: a $7.7 million after-tax gain, or $0.20 per Class B diluted share, related to the sale of
a facility and land in Poland, and $2.0 million of after-tax income, or $0.05 per Class B diluted share, resulting from settlement
proceeds related to an antitrust class action lawsuit of which the Company was a class member.
Consolidated gross profit as a percent of net sales improved to 16.2% for fiscal year 2011 from 15.7% in fiscal year 2010
primarily due to a shift in sales mix (as depicted in the table below) toward the Furniture segment which operates at a higher
gross profit percentage than the EMS segment. Gross profit is discussed in more detail in the segment discussions below.
Segment Net Sales as a % of Consolidated Net Sales
EMS segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
June 30
2011
60%
40%
2010
63%
37%
Fiscal year 2011 consolidated selling and administrative expenses increased 5.2% in absolute dollars, but decreased as a percent
of net sales, compared to fiscal year 2010, on increased operating leverage as a result of the increase in revenue. The increase
in absolute dollars was primarily due to higher commissions in the Furniture segment resulting from the higher sales volumes
and higher labor costs which were partially offset by lower severance expense. In addition, the Company recorded $3.1 million
of expense within selling and administrative expenses due to an increase in its Supplemental Employee Retirement Plan
(SERP) liability resulting from the normal revaluation of the liability to fair value during fiscal year 2011 compared to $1.5
million of expense which was recorded in fiscal year 2010. The value of the SERP investments increased causing additional
selling and administrative expense related to the SERP liability. The SERP expense recorded in selling and administrative
expenses was exactly offset by an increase in SERP investment income which was recorded in Other Income (Expense) as an
investment gain; therefore, there was no effect on net earnings. Employee contributions comprise approximately 90% of the
SERP investment.
21
The Company recorded no Other General Income during fiscal year 2011. Other General Income in fiscal year 2010 included
$6.7 million pre-tax gain recorded in the EMS segment related to the sale of the Company's land and facility that housed its
Poland operation before moving to another facility in Poland. In addition, fiscal year 2010 Other General Income included
$3.3 million of pre-tax income also recorded in the EMS segment resulting from settlement proceeds related to an antitrust
class action lawsuit of which the Company was a class member.
Other Income (Expense) included other income of $2.0 million for fiscal year 2011 compared to other income of $3.3 million
for fiscal year 2010. The variance in other income was driven by unfavorable foreign exchange movement that impacts the
EMS segment and a $1.2 million impairment loss related to the valuation of convertible notes which were partially offset by the
increased SERP investment income mentioned above and a revaluation of stock warrants resulting in a gain of $1.0 million.
The fiscal year 2011 effective tax rate was (10.9)% as relatively low pre-tax income coupled with the favorable impact of the
Company's earnings mix and the research and development credit resulted in a tax benefit despite the Company's pre-tax
income. The mix of earnings between U.S. and foreign jurisdictions largely contributed to the overall tax benefit due to losses
in the U.S. which have a higher statutory tax rate than the Company's foreign operations which were profitable in fiscal year
2011. The fiscal year 2010 effective tax rate was (81.0)% as relatively low pre-tax income coupled with a tax benefit due to the
Company's tax planning strategy related to the sale of its Poland facility and land and the favorable impact of the Company's
earnings mix resulted in a tax benefit in fiscal year 2010 despite the Company's pre-tax income. See Note 9 - Income Taxes of
Notes to Consolidated Financial Statements for more information.
Comparing the balance sheet as of June 30, 2011 to June 30, 2010, the increase in property and equipment was a result of the
Company's purchase of machinery and equipment, primarily within the EMS segment. The Company's accounts receivable,
inventory, and accounts payable balances declined in relation to lower sales levels toward the end of fiscal year 2011 within the
EMS segment as the Company's primary manufacturing contract with Bayer AG expired. The increased accrued expenses
balance was comprised of increased accrued compensation, higher accrued selling expenses within the Furniture segment, and
the reclassification of accrued restructuring from long-term to short-term as completion of the European consolidation plan is
expected during the next fiscal year. The Company's accumulated other comprehensive income (loss) balance increase was
primarily the result of positive foreign currency translation adjustments. See Note 17 - Comprehensive Income of Notes to
Consolidated Financial Statements for more information.
Electronic Manufacturing Services Segment
EMS segment results follow:
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland Land/Facility Gain, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
At or For the Year
Ended June 30
2011
2010
% Change
721.4
5.5
4.1
—
0.5
165.1
$
$
$
$
$
$
2 %
(64)%
(74)%
709.1
15.3
15.7
7.7
1.2
199.1
(17)%
Fiscal year 2011 EMS segment net sales to customers in the medical, industrial control, and public safety industries increased
compared to fiscal year 2010 which more than offset a decrease in net sales to customers in the automotive industry. While
open orders were down 17% as of June 30, 2011 compared to June 30, 2010 primarily due to lower orders from Bayer AG,
open orders at a point in time may not be indicative of future sales trends due to the contract nature of the Company's business.
Fiscal year 2011 EMS segment gross profit as a percent of net sales improved 0.2 percentage points when compared to fiscal
year 2010. The improvement was primarily driven by the benefit from a sales mix shift toward higher margin product, lower
depreciation expense, and improved labor efficiencies at select units which more than offset inefficiencies related to the
European restructuring activities and higher component costs related to the rapid ramp up of new customer programs.
EMS segment selling and administrative expenses in absolute dollars increased 7% in fiscal year 2011 as compared to fiscal
year 2010 and also increased as a percent of net sales primarily due to increased salaries and employee benefit costs.
22
During the fourth quarter of fiscal year 2011, the Company approved a plan to exit the small assembly facility located in
Fremont, California. A majority of the business will be transferred to an existing Jasper, Indiana facility by mid-fiscal year
2012. The pre-tax restructuring charges related to the Fremont restructuring plan recorded during fiscal year 2011 totaled $0.3
million. As the Company continues to execute its plan to expand its European automotive electronics capabilities and to
establish a European Medical Center of Expertise near Poznan, Poland, the consolidation of its EMS facilities has a final
completion target of mid-fiscal year 2012. The consolidation is expected to improve the Company's margins in the very
competitive EMS market. The pre-tax restructuring charges recorded during fiscal year 2011 totaled $0.9 million, but the EMS
segment also is experiencing inefficiencies related to the consolidation of the facilities. See Note 18 - Restructuring Expense of
Notes to Consolidated Financial Statements for more information on restructuring charges. The restructuring expenses
recorded in fiscal year 2010 were primarily related to the European consolidation plan.
The EMS segment recorded no Other General Income during fiscal year 2011. EMS segment Other General Income for fiscal
year 2010 included a $6.7 million pre-tax gain from the sale of the existing Poland facility and land. Including the tax benefit
related to the sale of this facility and land, the after-tax gain was $7.7 million. In addition, Other General Income in fiscal year
2010 included $3.3 million of pre-tax income, or $2.0 million after-tax, resulting from settlement proceeds related to the
antitrust class action lawsuit.
EMS segment Other Income/Expense for fiscal year 2011 totaled expense of $1.9 million, compared to income of $0.1 million
in fiscal year 2010. The variance in Other Income/Expense was primarily related to unfavorable foreign currency exchange
movement in fiscal year 2011.
As a percent of net sales, operating income was 0.8% for fiscal year 2011 and 2.2% for fiscal year 2010. Fiscal year 2010
operating income included the gain on the sale of the Poland facility and land and also included the settlement from the class
action lawsuit.
The EMS segment fiscal year 2011 effective tax rate was favorably impacted by the earnings mix between U.S. and foreign
jurisdictions. During fiscal year 2010, the EMS segment recorded $1.0 million of tax income related to the sale of the facility
and land in Poland instead of tax expense normally associated with a gain, resulting from a tax planning strategy. The fiscal
year 2010 EMS segment income tax was also favorably impacted by the mix of earnings between U.S. and foreign EMS
operations.
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:
Bayer AG affiliated sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . . .
Bayer AG affiliated sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30
2011
11%
19%
2010
15%
24%
The Company's sales to Bayer AG began to decline in the fourth quarter of fiscal year 2011 due to the expiration of the
Company's primary manufacturing contract with Bayer AG. This contract accounted for a majority of the sales to Bayer AG
during fiscal year 2011. Margins on the Bayer AG product were generally lower than the Company's other EMS products. 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 becomes established and matures. This segment continues to experience margin
pressures related to an overall excess capacity position in the electronics subcontracting services market.
Risk factors within the EMS segment include, but are not limited to, general economic and market conditions, disruption to the
supply chain and customer production schedules due to the March 2011 earthquake and tsunami in Japan, customer order
delays, increased globalization, foreign currency exchange rate fluctuations, rapid technological changes, component
availability, supplier stability, the contract nature of this industry, unexpected integration issues with acquisitions, the
concentration of sales to large customers, and the potential for customers to choose to in-source a greater portion of their
electronics manufacturing. The continuing success of this segment is dependent upon its ability to replace expiring customers/
programs with new customers/programs. Additional risk factors that could have an effect on the Company's performance are
located within Item 1A - Risk Factors.
23
Furniture Segment
Furniture segment results follow:
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
At or For the Year
Ended June 30
2010
2011
% Change
481.2
1.1
0.5
90.4
$
$
$
$
413.6
(9.4)
(5.8)
70.6
16%
111%
108%
28%
The fiscal year 2011 net sales increase in the Furniture segment compared to fiscal year 2010 resulted primarily from increased
net sales of office furniture and to a lesser extent from increased net sales of hospitality furniture. The increase in office
furniture sales was the result of higher sales volumes which were partially offset by higher discounting net of price increases.
Fiscal year 2011 sales of newly introduced office furniture products which have been sold for less than twelve months
approximated $17.1 million. Open orders of furniture products at June 30, 2011 increased 28% from the orders open as of
June 30, 2010 as open orders for both office furniture and hospitality furniture increased. Open orders at a point in time may
not be indicative of future sales trends.
Fiscal year 2011 Furniture segment gross profit as a percent of net sales declined 0.7 percentage points when compared to fiscal
year 2010. Items contributing to the decline included increased discounting resulting from competitive pricing pressures and
inflationary commodity cost increases. The gross profit decline was partially offset by price increases on select product and the
increased operating leverage of the higher sales volumes.
Fiscal year 2011 selling and administrative expenses increased in absolute dollars by 4.1%, but decreased as a percent of net
sales on the higher sales volumes, when compared to fiscal year 2010. The selling and administrative expenses were impacted
by higher commissions resulting from the higher net sales, higher profit-based incentive compensation costs, and higher costs
associated with sales and marketing initiatives to drive growth, which were partially offset by lower severance expense.
As a percent of net sales, operating income (loss) was 0.2% for fiscal year 2011 and (2.3)% for fiscal year 2010.
Risk factors within this segment include, but are not limited to, general economic and market conditions, increased global
competition, financial stability of customers, supply chain cost pressures, and relationships with strategic customers and
product distributors. Additional risk factors that could have an effect on the Company's performance are located within Item
1A - Risk Factors.
Fiscal Year 2010 Results of Operations
Financial Overview - Consolidated
Fiscal year 2010 consolidated net sales were $1.12 billion compared to fiscal year 2009 net sales of $1.21 billion, a 7%
decrease, due to a 27% net sales decrease in the Furniture segment, which more than offset a 10% net sales increase in the EMS
segment. Fiscal year 2010 net income was $10.8 million, or $0.29 per Class B diluted share, inclusive of $1.2 million, or $0.03
per Class B diluted share, of after-tax restructuring costs primarily related to the European consolidation plan. The fiscal year
2010 results also included the following items: a $7.7 million after-tax gain, or $0.20 per Class B diluted share, related to the
sale of the facility and land in Poland, and $2.0 million of after-tax income, or $0.05 per Class B diluted share, resulting from
settlement proceeds related to an antitrust class action lawsuit of which the Company was a class member. The Company
recorded net income for fiscal year 2009 of $17.3 million, or $0.47 per Class B diluted share, inclusive of after-tax restructuring
charges of $1.8 million, or $0.04 per Class B diluted share, primarily related to the European consolidation plan. The fiscal
year 2009 results also included the following items: an $18.9 million after-tax gain, or $0.51 per Class B diluted share, related
to the sale of the Company's undeveloped land holdings and timberlands; a $9.1 million after-tax non-cash goodwill
impairment charge, or $0.24 per Class B diluted share; and $1.6 million of after-tax income, or $0.04 per Class B diluted share,
for earnest money deposits retained by the Company resulting from the termination of a contract to sell the Company's Poland
facility and land.
Consolidated gross profit as a percent of net sales declined to 15.7% for fiscal year 2010 from 16.8% in fiscal year 2009 due to
a shift in sales mix (as depicted in the table below) toward the EMS segment which operates at a lower gross profit percentage
than the Furniture segment. The EMS segment and Furniture segment gross profit as a percent of net sales both improved in
24
fiscal year 2010 as compared to fiscal year 2009. Gross profit is discussed in more detail in the segment discussions below.
Segment Net Sales as a % of Consolidated Net Sales
EMS segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30
2010
63%
37%
2009
53%
47%
Fiscal year 2010 consolidated selling and administrative expenses increased slightly as a percent of net sales compared to fiscal
year 2009, due to sales volumes declining at a quicker rate than the selling and administrative expenses. Consolidated selling
and administrative expenses for fiscal year 2010 declined in absolute dollars by 6% compared to fiscal year 2009 primarily due
to decreased labor expense, lower bad debt expense, lower depreciation and amortization expense, and other comprehensive
cost reduction efforts throughout the Company. Partially offsetting these reductions, the Company experienced increased
employee benefit costs primarily related to the reinstatement of the Company's retirement plan contribution, increased
advertising and marketing costs, and increased incentive compensation costs at select business units during fiscal year 2010 as
compared to fiscal year 2009.
In addition, in fiscal year 2010, the Company recorded $1.5 million of expense compared to $2.8 million of income in fiscal
year 2009 related to the normal revaluation to fair value of its Supplemental Employee Retirement Plan (SERP) liability. The
result was an unfavorable variance in selling and administrative expenses of $4.3 million. As the general equity markets
improved, the value of the SERP investments increased, causing additional selling and administrative expense related to the
SERP liability. The SERP expense recorded in selling and administrative expenses was exactly offset by an increase in SERP
investment income which was recorded in Other Income (Expense) as an investment gain; therefore, there was no effect on net
earnings. The SERP investment is comprised of approximately 90% employee contributions.
Fiscal year 2010 Other General Income included a $6.7 million pre-tax gain within the EMS segment related to the sale of the
facility and land in Poland. Fiscal year 2010 Other General Income also included $3.3 million of pre-tax income recorded in
the EMS segment resulting from settlement proceeds related to an antitrust class action lawsuit of which the Company was a
class member. The class action alleged the defendant sellers illegally conspired to fix prices for electronic components
purchased by a business unit within the EMS segment. Other General Income in fiscal year 2009 included a $31.5 million pre-
tax gain on the sale of undeveloped land holdings and timberlands. The gain on the sale of land holdings and timberlands was
included in Unallocated Corporate in segment reporting. In addition, during fiscal year 2009, the Company had a conditional
agreement to sell and lease back the facility that housed its Poland operations. However, the buyer was unable to close the
transaction within the terms of the agreement. As a result, the Company was entitled to retain approximately $1.9 million of
the deposit funds held by the Company which was recorded as pre-tax income in Other General Income in the EMS segment.
In fiscal year 2009, the Company recorded non-cash pre-tax goodwill impairment charges of $14.6 million as a result of interim
goodwill impairment testing which was completed due to the uncertainty associated with the economy and the significant
decline in the Company's sales and order trends during fiscal year 2009 as well as the increased disparity between the
Company's market capitalization and the carrying value of its Share Owners' equity. The goodwill was related to prior
acquisitions in both of the Company's segments. See Note 1 - Summary of Significant Accounting Policies of Notes to
Consolidated Financial Statements for more information on goodwill.
Other Income (Expense) included other income of $3.3 million for fiscal year 2010 compared to other expense of $0.4 million
for fiscal year 2009. The $4.3 million favorable variance in SERP investments was the primary driver of the increased other
income for fiscal year 2010. Interest expense for fiscal year 2010 was lower than fiscal year 2009 due to lower average
outstanding debt balances coupled with lower interest rates. Interest income was likewise lower for fiscal year 2010 compared
to fiscal year 2009 due to lower interest rates and lower average investment balances.
The fiscal year 2010 effective tax rate was (81.0)% compared to the effective tax rate for fiscal year 2009 of 31.6%. Relatively
low pre-tax income coupled with a tax benefit due to the Company's tax planning strategy related to the sale of its Poland
facility and land and the favorable impact of the Company's earnings mix resulted in a tax benefit in fiscal year 2010 despite
the Company's pre-tax income. The mix of earnings between U.S. and foreign jurisdictions largely contributed to the overall
tax benefit due to losses in the U.S. which have a higher statutory tax rate than the Company's foreign operations which were
profitable in fiscal year 2010. In fiscal year 2009, the Company's foreign operations experienced losses while income was
generated in the U.S. See Note 9 - Income Taxes of Notes to Consolidated Financial Statements for more information.
25
Electronic Manufacturing Services Segment
EMS segment results follow:
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland Land/Facility Gain, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill Impairment, net of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
At or For the Year
Ended June 30
2010
2009
% Change
709.1
15.3
15.7
7.7
—
1.2
199.1
$
$
$
$
$
$
$
10%
170%
234%
642.8
(22.0)
(11.8)
—
8.0
1.5
156.9
27%
Fiscal year 2010 EMS segment net sales to customers in the automotive, medical, industrial control, and public safety
industries all increased compared to fiscal year 2009. While open orders were up 27% as of June 30, 2010 compared to June
30, 2009, open orders at a point in time may not be indicative of future sales trends due to the contract nature of the Company's
business.
Fiscal year 2010 EMS segment gross profit as a percent of net sales improved 1.5 percentage points when compared to fiscal
year 2009. The improvement was primarily driven by labor efficiency improvements and fixed cost leverage associated with
the increased sales.
EMS segment selling and administrative expenses in absolute dollars decreased 1% in fiscal year 2010 as compared to fiscal
year 2009 and also declined as a percent of net sales in fiscal year 2010 compared to fiscal year 2009 primarily because of the
higher sales volumes. The reduction in selling and administrative expenses for fiscal year 2010 compared to fiscal year 2009
was primarily related to a decrease in overall salary expense, benefits realized from restructuring actions, lower depreciation/
amortization expense, and other overall cost reduction efforts which were partially offset by higher incentive compensation
costs.
EMS segment Other General Income for fiscal year 2010 included a $6.7 million pre-tax gain from the sale of the existing
Poland facility and land. Including the tax benefit related to the sale of this facility and land, the after-tax gain was $7.7
million. In addition, Other General Income in fiscal year 2010 included $3.3 million of pre-tax income, or $2.0 million after-
tax, resulting from settlement proceeds related to the antitrust class action lawsuit. EMS segment Other General Income for
fiscal year 2009 included the $1.9 million pre-tax, or $1.6 million after-tax, amount retained by the Company resulting from the
termination of a contract to sell the Company's Poland facility and land.
The restructuring expenses recorded in fiscal years 2010 and 2009 were primarily related to the European consolidation plan.
The fiscal year 2009 EMS segment earnings were also impacted by the recording of non-cash pre-tax goodwill impairment of
$12.8 million, or $8.0 million after-tax.
As a percent of net sales, operating income (loss) was 2.2% for fiscal year 2010 and (3.4)% for fiscal year 2009.
During fiscal year 2010, the EMS segment recorded $1.0 million of tax income related to the sale of the facility and land in
Poland instead of tax expense normally associated with a gain, as a result of a tax planning strategy. The fiscal year 2010 EMS
segment income tax was also favorably impacted by the mix of earnings between U.S. and foreign EMS operations. The fiscal
year 2009 EMS effective income tax rate was favorably impacted by a tax benefit related to its European operations which was
primarily offset by the impact of losses in select foreign jurisdictions which have a lower tax rate.
26
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:
Bayer AG affiliated sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . . .
Bayer AG affiliated sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30
2010
15%
24%
2009
12%
23%
Furniture Segment
Furniture segment results follow:
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill Impairment, net of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring (Income) Expense, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
At or For the Year
Ended June 30
2010
2009
413.6
(9.4)
(5.8)
—
(0.1)
70.6
$
$
$
$
$
$
564.6
13.8
8.3
1.1
0.1
70.2
% Change
(27)%
(168)%
(169)%
1 %
The fiscal year 2010 net sales decline in the Furniture segment compared to fiscal year 2009 resulted from decreased net sales
of both office furniture and hospitality furniture. The decline in office furniture sales was primarily due to decreased sales
volumes, with higher discounting net of price increases contributing to a lesser extent. Fiscal year 2010 sales of newly
introduced office furniture products which had been sold for less than twelve months approximated $20.9 million. Open orders
of furniture products at June 30, 2010 approximated the open orders levels as of June 30, 2009 as increased open orders for
office furniture were primarily offset by decreased orders for hospitality furniture. Open orders at a point in time may not be
indicative of future sales trends.
Fiscal year 2010 Furniture segment gross profit as a percent of net sales improved 0.3 percentage points when compared to
fiscal year 2009. Items contributing to the improved gross profit as a percent of net sales included: price increases on select
product, lower commodity costs, a sales mix shift to higher margin product, lower employee benefit costs, and other overall
cost reduction efforts. These improvements more than offset the negative impact of the lower absorption of fixed costs
associated with the lower net sales, increased discounting resulting from competitive pricing pressures, and increased costs
related to the reinstatement of the Company's retirement plan contribution for fiscal year 2010. Due to the significant decline in
sales volume, the fiscal year 2010 gross profit dollars declined as compared to fiscal year 2009.
Fiscal year 2010 selling and administrative expenses decreased in absolute dollars by 11%, but increased as a percent of net
sales on the lower sales volumes, when compared to fiscal year 2009. The fiscal year 2010 selling and administrative expense
decline resulted from lower overall salary expense realized from past restructurings and the salary reduction plan implemented
by the Company in fiscal year 2009, lower commission costs related to the lower sales volumes, lower bad debt expense, and
other improvements resulting from the focus on managing all costs. Partially offsetting the lower costs were higher advertising
and product marketing expenses, increased costs related to the reinstatement of the Company's retirement plan contribution,
and higher severance costs due to scaling operations.
The Furniture segment earnings for fiscal year 2009 were impacted by the recording of non-cash pre-tax goodwill impairment
of $1.8 million, which equated to $1.1 million after-tax.
During the first quarter of fiscal year 2009, the Company approved a restructuring plan to consolidate production of select
office furniture manufacturing departments. The consolidation reduced manufacturing costs and excess capacity by eliminating
redundant property and equipment, processes, and employee costs. Most of the consolidation activities occurred during fiscal
year 2009, and the remaining activities were completed during fiscal year 2010.
As a percent of net sales, operating income (loss) was (2.3)% for fiscal year 2010 and 2.4% for fiscal year 2009.
27
Liquidity and Capital Resources
Working capital at June 30, 2011 was $178.0 million compared to working capital of $180.0 million at June 30, 2010. The
current ratio was 1.8 at both June 30, 2011 and June 30, 2010.
The Company's internal measure of accounts receivable performance, also referred to as Days Sales Outstanding (DSO), for
fiscal year 2011 of 48.5 days was comparable to the 47.8 days for fiscal year 2010. The Company defines DSO as the average
of monthly accounts and notes receivable divided by an average day's net sales. The Company's Production Days Supply on
Hand (PDSOH) of inventory measure for fiscal year 2011 increased to 64.4 days from 63.0 days for fiscal year 2010. The
Company defines PDSOH as the average of the monthly gross inventory divided by an average day's cost of sales.
The Company's short-term liquidity available, represented as cash and cash equivalents plus the unused amount of the
Company's revolving credit facility, totaled $146.2 million at June 30, 2011 compared to $161.1 million at June 30, 2010.
The Company's cash and cash equivalents position decreased from $65.3 million at June 30, 2010 to $51.4 million at June 30,
2011. The Company had no short-term borrowings outstanding as of June 30, 2011 or June 30, 2010. Operating activities
generated $21.3 million of cash flow in fiscal year 2011 compared to the $13.4 million of cash generated by operating activities
in fiscal year 2010. During fiscal year 2011, the Company reinvested $33.2 million into capital investments for the future,
primarily for manufacturing equipment in the EMS segment. The Company also paid $7.3 million of dividends in fiscal year
2011. Consistent with the Company's historical dividend policy, the Company's Board of Directors will evaluate the
appropriate dividend payment on a quarterly basis. During fiscal year 2012, the Company expects to continue to invest in
capital expenditures prudently, particularly for projects including potential acquisitions that would enhance the Company's
capabilities and diversification while providing an opportunity for growth and improved profitability as the economy and the
Company's markets recover.
At June 30, 2011, the Company had no short-term borrowings outstanding under its $100 million credit facility described in
more detail below. The Company also has several smaller foreign credit facilities available described in more detail below and
likewise had no borrowings outstanding under these facilities as of June 30, 2011 or June 30, 2010.
At June 30, 2011, the Company had $5.2 million committed in letters of credit against the $100 million credit facility. Total
availability to borrow under the $100 million credit facility was $94.8 million at June 30, 2011.
The Company maintains the $100 million credit facility with an expiration date in April 2013 that allows for both issuances of
letters of credit and cash borrowings. The $100 million credit facility provides an option to increase the amount available for
borrowing to $150 million at the Company's request, subject to the consent of the participating banks. The $100 million credit
facility, upon which there were no borrowings at June 30, 2011, requires the Company to comply with certain debt covenants,
the most significant of which are the interest coverage ratio and minimum net worth. The Company was in compliance with
the debt covenants during the fiscal year ended June 30, 2011.
The table below compares the actual net worth and interest coverage ratio with the limits specified in the credit agreement.
Covenant
Minimum Net Worth
Interest Coverage Ratio
At or For the Period
Ended June 30, 2011
$387,399,000
46.0
Limit As Specified in
Credit Agreement
$362,000,000
3.0
Excess
$25,399,000
43.0
The Interest Coverage Ratio is calculated on a rolling four-quarter basis as defined in the credit agreement.
In addition to the $100 million credit facility, the Company can opt to utilize foreign credit facilities which are available to
satisfy short-term cash needs at a specific foreign location rather than funding from intercompany sources. The Company
maintains a foreign credit facility for its EMS segment operation in Thailand which is backed by the $100 million revolving
credit facility. The Company has a credit facility for its EMS segment operation in Poland, which allows for multi-currency
borrowings up to 6.0 million Euro equivalent (approximately $8.7 million U.S. dollars at June 30, 2011 exchange rates). These
foreign credit facilities can be canceled at any time by either the bank or the Company.
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 for fiscal year 2012 and the foreseeable future.
One of the Company's sources of funds has been its ability to generate cash from operations to meet its liquidity obligations,
which during fiscal year 2011 was hampered by working capital variations which negatively impacted cash balances, and could
be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw
material components in the supply chain, a decline in demand for the Company's products, loss of key contract customers, the
28
ability of the Company to generate profits, and other unforeseen circumstances. In particular, should demand for the
Company's products decrease significantly over the next 12 months, the available cash provided by operations could be
adversely impacted. Another source of funds is the Company's credit facilities. The $100 million credit facility is contingent
on complying with certain debt covenants.
The preceding statements are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Certain
factors could cause actual results to differ materially from forward-looking statements.
Fair Value
During fiscal year 2011, no level 1 or level 2 financial instruments were affected by a lack of market liquidity. For level 1
financial assets, readily available market pricing was used to value the financial instruments. The Company's foreign currency
derivatives, which were classified as level 2 assets/liabilities, were independently valued using observable market inputs such
as forward interest rate yield curves, current spot rates, and time value calculations. To verify the reasonableness of the
independently determined fair values, these derivative fair values were compared to fair values calculated by the counterparty
banks. The Company's own credit risk and counterparty credit risk had an immaterial impact on the valuation of the foreign
currency derivatives.
The Company invested in convertible promissory notes and stock warrants of a privately-held company during fiscal year
2010. During fiscal year 2011, the convertible promissory notes experienced an other-than-temporary decline in fair market
value resulting in a $1.2 million impairment loss and, upon a qualified financing, were subsequently converted to non-
marketable equity securities which are accounted for as a cost-method investment. The stock warrants, classified as derivative
instruments, were valued on a recurring basis using a market-based method which utilizes the Black-Scholes valuation model
which resulted in a $1.0 million derivative gain as a result of the qualified financing. The fair value measurements for the stock
warrants were calculated using unobservable inputs and were classified as level 3 financial assets.
See Note 11 - Fair Value of Notes to Consolidated Financial Statements for more information.
Contractual Obligations
The following table summarizes the Company's contractual obligations as of June 30, 2011.
(Amounts in Millions)
Recorded Contractual Obligations (a):
Long-Term Debt Obligations (b) . . . . . . . . . . . . . . . . . . . . . .
Other Long-Term Liabilities Reflected on the Balance
Sheet (c) (d) (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecorded Contractual Obligations:
Operating Leases (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Obligations (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments Due During Fiscal Years Ending June 30
Total
2012
2013-2014
2015-2016
Thereafter
$
0.3
$ —
$ —
$
0.1
$
0.2
33.0
16.1
11.0
226.0
0.3
3.3
212.9
0.1
3.2
4.7
7.6
0.1
2.9
2.3
5.5
—
10.8
0.7
—
0.1
$ 270.6
$ 232.4
$ 15.6
$ 10.8
$ 11.8
(a) As of June 30, 2011, the Company had no Capital Lease Obligations.
(b) Refer to Note 6 - Long-Term Debt and Credit Facility of Notes to Consolidated Financial Statements for more
information regarding Long-Term Debt Obligations. Accrued interest is also included on the Long-Term Debt
Obligations line. The fiscal year 2012 amount includes less than $0.1 million of long-term debt obligations due in fiscal
year 2012 which was recorded as a current liability. The estimated interest not yet accrued related to debt is included in
the Other line item within the Unrecorded Contractual Obligations.
(c)
The timing of payments of certain items included on the "Other Long-Term Liabilities Reflected on the Balance Sheet"
line above is estimated based on the following assumptions:
• The timing of 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 2012 amount includes $5.6 million for SERP payments
recorded as current liabilities.
29
• 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 2012 amount includes $8.2 million for
restructuring employee transition payments and the related derivatives recorded as a current liability.
• The timing of severance plan payments is estimated based on the average remaining service life of employees.
The fiscal year 2012 amount includes $0.9 million for severance payments recorded as a current liability.
• The timing of warranty payments is estimated based on historical data. The fiscal year 2012 amount includes
$1.2 million for short-term warranty payments recorded as a current liability.
(d)
(e)
(f)
Excludes $4.3 million of long-term unrecognized tax benefits and associated accrued interest and penalties along with
deferred tax liabilities and miscellaneous other long-term tax 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.
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.
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 through fiscal year 2016. 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.
The preceding statements are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Certain
factors could cause actual results to differ materially from forward-looking statements.
Critical Accounting Policies
The Company's consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts
reported and disclosed in the consolidated financial statements and related notes. Actual results could differ from these
estimates and assumptions. Management uses its best judgment in the assumptions used to value these estimates, which are
based on current facts and circumstances, prior experience, and other assumptions that are believed to be reasonable. The
Company's management overlays a fundamental philosophy of valuing its assets and liabilities in an appropriately conservative
manner. Management believes the following critical accounting policies reflect the more significant judgments and estimates
used in preparation of the Company's consolidated financial statements and are the policies that are most critical in the
portrayal of the Company's financial position and results of operations. Management has discussed these critical accounting
policies and estimates with the Audit Committee of the Company's Board of Directors and with the Company's independent
registered public accounting firm.
Revenue recognition - The Company recognizes revenue when title and risk transfer to the customer, which under the terms
and conditions of the sale may occur either at the time of shipment or when the product is delivered to the customer. Service
revenue is recognized as services are rendered. Shipping and handling fees billed to customers are recorded as sales while the
related shipping and handling costs are included in cost of goods sold. The Company recognizes sales net of applicable sales
tax.
•
Sales returns and allowances - At the time revenue is recognized certain provisions may also be recorded, including a
provision for 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, 2011 and June 30, 2010, the reserve
30
for returns and allowances was $2.1 million and $2.5 million, respectively. The returns and allowances reserve
approximated 1% to 3% of gross trade receivables during fiscal years 2011 and 2010.
• 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, 2011 and June 30, 2010 was $1.4
million and $1.3 million, respectively. During the two-year period preceding June 30, 2011, this reserve had
approximated 1% of gross trade accounts receivable except for the period July 2009 through December 2009 during
which time it approximated 2% of gross trade accounts receivable. The higher reserve was driven by increased risk
created by deteriorating market conditions during that time.
Excess and obsolete inventory - Inventories were valued using the lower of last-in, first-out (LIFO) cost or market value for
approximately 11% and 9% of consolidated inventories at June 30, 2011 and June 30, 2010, respectively, including
approximately 81% and 78% of the Furniture segment inventories at June 30, 2011 and June 30, 2010, respectively. The
remaining inventories were valued at lower of first-in, first-out (FIFO) cost or market value. Inventories recorded on the
Company's balance sheet are adjusted for excess and obsolete inventory. In general, the Company purchases materials and
finished goods for contract-based business from customer orders and projections, primarily in the case of long lead time items,
and has a general philosophy to only purchase materials to the extent covered by a written commitment from its customers.
However, there are times when inventory is purchased beyond customer commitments due to minimum lot sizes and inventory
lead time requirements, or where component allocation or other procurement issues 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, 2011 and June 30, 2010, the Company's accrued liabilities for self-insurance exposure were $3.6 million and $4.7
million, respectively.
Taxes - Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to
temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which the temporary differences are expected to reverse. The Company evaluates the recoverability of its deferred tax assets
each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented
to realize its deferred tax assets. If recovery is not likely, the Company provides a valuation allowance based on its best
estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable.
Future events could change management's assessment.
The Company operates within multiple taxing jurisdictions and is subject to tax audits in these jurisdictions. These audits can
involve complex issues, which may require an extended period of time to resolve. However, the Company believes it has made
adequate provision for income and other taxes for all years that are subject to audit. As tax periods are effectively settled, the
provision will be adjusted accordingly. The liability for uncertain income tax and other tax positions, including accrued interest
and penalties on those positions, was $3.6 million at June 30, 2011 and $3.7 million at June 30, 2010.
New Accounting Standards
See Note 1 - Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for information
regarding New Accounting Standards.
31
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk: There was no balance in debt securities at June 30, 2011. As of June 30, 2010, the Company had an
investment in debt securities, excluding those classified as cash and cash equivalents, of $2.5 million. These securities were
classified as available-for-sale securities and were stated at fair value. The Company's policy for recording unrealized losses on
debt securities is to recognize a loss in earnings when there is an intent to sell or a requirement to sell before recovery of the
loss, or when the debt security has incurred a credit loss. Otherwise, unrealized gains and losses are recorded net of the tax
related effect as a component of Share Owners' Equity. A hypothetical 100 basis point increase in an annual period in market
interest rates from levels at June 30, 2010 would have caused the fair value of these investments to decline by an immaterial
amount. Further information on investments is provided in Note 13 - Investments 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 12 - Derivative
Instruments of Notes to Consolidated Financial Statements. The Company estimates that a hypothetical 10% adverse change in
foreign currency exchange rates from levels at June 30, 2011 and 2010 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.
Equity Risk: As of June 30, 2011, the Company held a non-marketable equity investment in a privately-held company. If the
private company experiences certain events or circumstances, such as the loss of customers, the inability to achieve growth
initiatives, or if there are factors beyond its control in the markets which it serves, the private company's performance could be
affected materially resulting in a loss of some or all of its value, which could result in an other-than-temporary impairment of
the investment. If an other-than-temporary impairment of fair value would occur, the investment would be adjusted down to its
fair value and an impairment charge would be recognized in earnings. The non-marketable equity investment had a carrying
amount of $1.8 million as of June 30, 2011. At June 30, 2010, there was no balance held in non-marketable equity investments.
32
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, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2011. . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30, 2011 . . . . . . . . . .
Consolidated Statements of Share Owners' Equity for Each of the Three Years in the Period Ended June 30, 2011 . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page No.
34
35
36
37
38
39
40
33
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 accounting firm to review the
Company's financial policies and procedures, its internal control structure, the objectivity of its financial reporting, and the
independence of the Company's independent registered public accounting firm. The internal auditors and the independent
registered public accounting firm have free and direct access to the Audit Committee, and they meet periodically, without
management present, to discuss appropriate matters.
Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements
and even when determined to be effective, can only provide reasonable assurance with respect to financial statement
preparation and presentation.
These consolidated financial statements are subject to an evaluation of internal control over financial reporting conducted under
the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer.
Based on that evaluation, conducted under the criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission, management concluded that its internal control over
financial reporting was effective as of June 30, 2011.
Deloitte & Touche LLP, the Company's independent registered public accounting firm, has issued an audit report on the
Company's internal control over financial reporting which is included herein.
/s/ JAMES C. THYEN
James C. Thyen
President,
Chief Executive Officer
August 29, 2011
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 29, 2011
34
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, 2011 and 2010, 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, 2011. Our audits also included the financial statement schedule
listed in the Index at Item 15. We also have audited the Company's internal control over financial reporting as of June 30, 2011,
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 schedule, 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 schedule 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, and 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, 2011 and 2010, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2011, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole, presents 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, 2011, 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
August 29, 2011
35
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
June 30
2011
June 30
2010
ASSETS
Current Assets:
$
$
$
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net of allowances of $1,799 and $3,349, respectively. . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and Equipment, net of accumulated depreciation of $360,105 and $337,251,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Intangible Assets, net of accumulated amortization of $65,514 and $63,595,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND SHARE OWNERS' EQUITY
Current Liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Liabilities:
Long-term debt, less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share Owners' Equity:
Common stock-par value $0.05 per share:
Class A - 49,826,000 shares authorized; 14,368,000 shares issued. . . . . . . . . . . . . . . . . . .
Class B - 100,000,000 shares authorized; 28,657,000 shares issued. . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Treasury stock, at cost:
$
$
$
51,409
—
149,753
141,097
50,215
2,807
395,281
196,682
2,644
7,625
24,080
626,312
12
149,107
1,835
66,316
217,270
286
21,357
21,643
718
1,433
230
450,172
1,618
Class A - 3,945,000 and 3,834,000 shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B - 1,330,000 and 1,579,000 shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Share Owners' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Share Owners' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(49,437)
(17,335)
387,399
626,312
$
See Notes to Consolidated Financial Statements
65,342
2,496
154,343
146,406
43,776
1,160
413,523
186,999
2,443
8,113
25,673
636,751
61
178,693
1,828
52,923
233,505
299
25,519
25,818
718
1,433
119
454,800
(9,775)
(49,415)
(20,452)
377,428
636,751
36
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
$
$
Year Ended June 30
2010
1,122,808
946,275
176,533
181,771
(9,980)
2,051
—
2,691
2011
1,202,597
1,008,005
194,592
191,167
—
1,009
—
2,416
$
$
$
$
$
820
(121)
4,542
(3,220)
2,021
4,437
(485)
4,922
0.12
0.14
0.12
0.14
10,493
27,233
37,726
10,639
27,234
37,873
$
$
$
$
$
1,188
(142)
2,980
(749)
3,277
5,968
(4,835)
10,803
0.27
0.29
0.27
0.29
10,694
26,765
37,459
10,791
26,770
37,561
2009
1,207,420
1,004,901
202,519
192,711
(33,417)
2,981
14,559
25,685
2,499
(1,565)
2,663
(3,956)
(359)
25,326
7,998
17,328
0.46
0.47
0.46
0.47
11,036
26,125
37,161
11,121
26,151
37,272
$
$
$
$
$
$
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other General Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Income (Expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Before Taxes on Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings Per Share of Common Stock:
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings 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
37
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,922
$
10,803
$
17,328
Year Ended June 30
2011
2010
2009
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,207
Gain on sales of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35)
—
3,658
—
1,284
—
963
2,975
3,243
(5,004)
(28,524)
6,660
21,349
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(31,371)
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
941
—
Purchase of capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,839)
Purchases of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and maturities of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used for) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows From Financing Activities:
Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on revolving credit facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional net change in credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on capital leases and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of employee shares for tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Exchange Rate Change on Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . .
Net (Decrease) Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents at Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(1,458)
(33,727)
88,750
(88,750)
—
(62)
(7,330)
—
(278)
(7,670)
6,115
(13,933)
65,342
34,760
(6,771)
176
(2,023)
—
1,824
(263)
(392)
(17,629)
(26,229)
(8,269)
26,700
695
13,382
(34,791)
12,900
—
(624)
(7,193)
29,702
198
192
—
(12,248)
—
(60)
(7,264)
263
(1,212)
(20,521)
(3,643)
(10,590)
75,932
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
51,409
$
65,342
$
See Notes to Consolidated Financial Statements
37,618
(32,796)
278
(8,860)
14,559
2,129
(297)
—
31,386
36,667
7,994
(5,142)
(16,705)
84,159
(47,679)
49,942
(5,391)
(632)
(8,032)
34,572
(320)
22,460
60,620
(63,349)
(35,805)
(527)
(19,410)
297
(1,209)
(59,383)
(2,109)
45,127
30,805
75,932
38
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY
(Amounts in Thousands, Except for Share and Per Share Data)
Amounts at June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
718
$ 1,433
$
14,531
$
456,413
$
12,308
$
(92,936)
$ 392,467
Common Stock
Class A
Class B
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Share
Owners'
Equity
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. . . . . . . . . . . . . . . . . .
Postemployment severance actuarial change . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of non-restricted stock (29,000 shares) . . . . . . . . . . . . . . . . . . . . .
Net exchanges of shares of Class A and Class B
common stock (1,188,000 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vesting of restricted share units (219,000 shares) . . . . . . . . . . . . . . . . . . . .
Compensation expense related to stock incentive plans . . . . . . . . . . . . . . .
Performance share issuance (76,000 shares) . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared:
Class A ($0.40 per share). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B ($0.42 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,328
(4,617)
(10,944)
(484)
(10,038)
(4,210)
2,129
(1,585)
211
(6,034)
(5,151)
171
(2,006)
17,328
211
(6,034)
(5,151)
171
(2,006)
4,519
(37)
—
(750)
2,129
(413)
(4,617)
(10,944)
447
10,038
3,460
1,172
Amounts at June 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
718
$ 1,433
$
343
$
458,180
$
(501)
$
(77,819)
$ 382,354
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. . . . . . . . . . . . . . . . . .
Postemployment severance actuarial change . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of non-restricted stock (20,000 shares) . . . . . . . . . . . . . . . . . . . . .
Net exchanges of shares of Class A and Class B
common stock (460,000 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vesting of restricted share units (209,000 shares) . . . . . . . . . . . . . . . . . . . .
Compensation expense related to stock incentive plans . . . . . . . . . . . . . . .
Performance share issuance (97,000 shares) . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared:
Class A ($0.18 per share). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B ($0.20 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,803
(66)
(2,567)
(3,435)
(784)
(1,955)
(5,376)
(209)
(490)
(274)
1,824
(1,075)
(463)
(10,384)
1,724
173
(324)
10,803
(463)
(10,384)
1,724
173
(324)
1,529
(17)
—
(552)
1,824
(379)
(1,955)
(5,376)
258
3,057
3,157
1,480
Amounts at June 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
718
$ 1,433
$
119
$
454,800
$
(9,775)
$
(69,867)
$ 377,428
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . .
Net change in derivative gains and losses . . . . . . . . . . . . . . . . . . . . .
Postemployment severance prior service cost. . . . . . . . . . . . . . . . . .
Postemployment severance actuarial change . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of non-restricted stock (39,000 shares) . . . . . . . . . . . . . . . . . . . . .
Net exchanges of shares of Class A and Class B
common stock (215,000 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense related to stock incentive plans . . . . . . . . . . . . . . .
Performance share issuance (99,000 shares) . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared:
Class A ($0.18 per share). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B ($0.20 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,922
(107)
(728)
(1,378)
(1,889)
(5,448)
(556)
(551)
1,284
(66)
10,313
(458)
171
1,367
4,922
10,313
(458)
171
1,367
16,315
(164)
—
1,284
(127)
(1,889)
(5,448)
499
1,279
1,317
Amounts at June 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
718
$ 1,433
$
230
$
450,172
$
1,618
$
(66,772)
$ 387,399
See Notes to Consolidated Financial Statements
39
KIMBALL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the accounts of all domestic and foreign
subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation.
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 note 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.
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. 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.
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. Bank accounts are stated at cost, which approximates fair value, and money market funds are stated at
fair value. Short-term investments consist primarily of securities with maturities exceeding three months at the time of
acquisition. Available-for-sale securities are stated at fair value. Unrealized losses on debt securities are recognized in earnings
when a company has an intent to sell or is likely to be required to sell before recovery of the loss, or when the debt security has
incurred a credit loss. Otherwise, unrealized gains and losses are recorded net of the tax related effect as a component of Share
Owners' Equity.
Notes Receivable and Trade Accounts Receivable: The Company's notes receivable and trade accounts receivable are recorded
per the terms of the agreement or sale, and accrued interest is recognized when earned. The Company determines on a case-by-
case basis the cessation of accruing interest, the resumption of accruing interest, the method of recording payments received on
nonaccrual receivables, and the delinquency status for the Company's limited number of notes receivable.
The Company's policy for estimating the allowance for credit losses on trade accounts receivable and notes receivable includes
analysis of such items as agement, credit worthiness, payment history, and historical bad debt experience. Management uses
these specific analyses in conjunction with an evaluation of the general economic and market conditions to determine the final
allowance for credit losses on the trade accounts receivable and notes receivable. Trade accounts receivable and notes
receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. The Company's
limited number of notes receivable allows management to monitor the risks, credit quality indicators, collectability, and
probability of impairment on an individual basis. Estimates of collectability result in an increase or decrease in selling
expenses.
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 11% and 9% of consolidated inventories at June 30, 2011 and June 30, 2010,
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
40
management commits to a plan of disposal.
Goodwill and Other Intangible Assets: Goodwill represents the difference between the purchase price and the related
underlying tangible and intangible net asset fair values resulting from business acquisitions. Annually, or if conditions indicate
an earlier review is necessary, the Company compares the carrying value of the reporting unit to an estimate of the reporting
unit's fair value to identify potential impairment. If the estimated fair value of the reporting unit is less than the carrying value,
a second step is performed to determine the amount of potential goodwill impairment. If impaired, goodwill is written down to
its estimated implied fair value. Goodwill is assigned to and the fair value is tested at the reporting unit level. The fair value is
established primarily using a discounted cash flow analysis and secondarily a market approach utilizing current industry
information. The calculation of the fair value of the reporting units considers current market conditions existing at the
assessment date.
A summary of the goodwill by segment is as follows:
(Amounts in Thousands)
Balance as of June 30, 2009
Electronic
Manufacturing
Services
Furniture
Consolidated
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Foreign Currency Translation . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2010
$
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Foreign Currency Translation . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2011
$
15,434
(12,826)
2,608
(165)
15,269
(12,826)
2,443
201
$
1,733
(1,733)
—
—
1,733
(1,733)
—
—
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
15,470
(12,826)
2,644
$
1,733
(1,733)
—
$
17,167
(14,559)
2,608
(165)
17,002
(14,559)
2,443
201
17,203
(14,559)
2,644
During fiscal year 2011 and 2010, no goodwill impairment loss was recognized. During fiscal year 2009, goodwill was
reviewed on an interim basis due to the continued uncertainty associated with the economy and liquidity crisis and the
significant decline in the Company's sales and order trends as well as the increased disparity between the Company's market
capitalization and the carrying value of its Share Owners' equity. Interim testing resulted in the recognition of goodwill
impairment of, in thousands, $12,826 within the Electronic Manufacturing Services (EMS) segment and $1,733 within the
Furniture segment. The impairment was recorded on the Goodwill Impairment line item of the Company's Consolidated
Statements of Income.
In addition to performing the required annual testing, the Company will continue to monitor circumstances and events in future
periods to determine whether additional goodwill impairment testing is warranted on an interim basis. The Company can
provide no assurance that an impairment charge for the remaining goodwill balance, which approximates only 0.4% of the
Company's total assets, will not occur in future periods as a result of these analyses.
Other Intangible Assets reported on the Consolidated Balance Sheets consist of capitalized software, product rights, and
customer relationships. 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.
41
A summary of other intangible assets subject to amortization by segment is as follows:
(Amounts in Thousands)
Electronic Manufacturing Services:
Cost
June 30, 2011
Accumulated
Amortization
Net Value
Cost
June 30, 2010
Accumulated
Amortization
Net Value
Capitalized Software . . . . . . . . . . . . .
Customer Relationships . . . . . . . . . . .
Other Intangible Assets . . . . . . . . .
$
28,676
1,167
29,843
$
Furniture:
Capitalized Software . . . . . . . . . . . . .
Product Rights . . . . . . . . . . . . . . . . . .
Other Intangible Assets . . . . . . . . .
36,375
1,160
37,535
Unallocated Corporate:
Capitalized Software . . . . . . . . . . . . .
Other Intangible Assets . . . . . . . . .
Consolidated. . . . . . . . . . . . . . . . . . . . .
$
5,761
5,761
73,139
$
25,700
744
26,444
33,064
606
33,670
5,400
5,400
65,514
$
$
2,976
423
3,399
3,311
554
3,865
361
361
7,625
$
$
27,519
1,167
28,686
36,053
1,160
37,213
5,809
5,809
71,708
$
$
24,807
614
25,421
32,399
470
32,869
5,305
5,305
63,595
$
$
2,712
553
3,265
3,654
690
4,344
504
504
8,113
During fiscal years 2011, 2010, and 2009, amortization expense of other intangible assets was, in thousands, $2,367, $2,484,
and $3,931, respectively. Amortization expense in future periods is expected to be, in thousands, $2,378, $2,009, $1,393, $875,
and $391 in the five years ending June 30, 2016, and $579 thereafter. The amortization period for product rights is 7 years.
The amortization period for the customer relationship intangible asset ranges from 10 to 16 years. The estimated useful life of
internal-use software ranges from 3 to 10 years.
Internal-use software is stated at cost 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.
Research and Development: The costs of research and development are expensed as incurred. Research and development
costs were approximately, in millions, $13, $12, and $14 in fiscal years 2011, 2010, and 2009, respectively.
Advertising: Advertising costs are expensed as incurred. Advertising costs, included in selling and administrative expenses
were, in millions, $4.3, $5.5, and $4.5, in fiscal years 2011, 2010, and 2009, 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 59% 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: 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.
42
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 uncertain tax positions, which may require an extended period of time to resolve. A tax benefit from an
uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination
by taxing authorities, based on the technical merits of the position. The Company maintains a liability for uncertain income tax
and other tax positions, including accrued interest and penalties on those positions. As tax periods are effectively settled, the
liability is adjusted accordingly. The Company recognizes interest and penalties related to unrecognized tax benefits in the
Provision (Benefit) for Income Taxes line of the Consolidated Statements of Income.
Off-Balance Sheet Risk and Concentration of Credit Risk: The Company has business and credit risks concentrated in the
medical, automotive, and furniture industries. Two customers, Bayer AG and TRW Automotive, Inc., represented 18% and
10%, respectively, of consolidated accounts receivable at June 30, 2010. These customers did not have a material concentration
of accounts receivable at June 30, 2011. Additionally, the Company currently has notes receivable with an electronics
engineering services firm and a note receivable related to the sale of an Indiana facility, and formerly had a loan agreement with
a contract customer. At June 30, 2011 and 2010, $2.8 million and $4.2 million, respectively, was outstanding under the notes
receivables. The Company does not foresee a credit risk associated with the current balance of 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.
Other General Income: No Other General Income was recorded in fiscal year 2011. Other General Income in fiscal year 2010
included a gain on the sale of the Company's Poland facility and land and settlement proceeds related to a class action lawsuit
of which the Company was a class member. Other General Income in fiscal year 2009 included a gain related to the sale of
undeveloped land and timberland holdings, as well as earnest money deposits retained by the Company resulting from the
termination of the contract to sell and lease back the Company's Poland facility and land.
Components of Other General Income:
(Amounts in Thousands)
Gain on Sale of Poland Facility and Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement Proceeds Related to Antitrust Class Action Lawsuit. . . . . . . . . . . . . . . . . . . .
Gain on Sale of Undeveloped Land and Timberland Holdings . . . . . . . . . . . . . . . . . . . .
Earnest Money Deposits Retained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other General Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Year Ended June 30
2010
2009
2011
—
—
—
—
—
$
$
6,724
3,256
—
—
9,980
$
$
—
—
31,489
1,928
33,417
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 miscellaneous 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 Non-
operating income or expense line item on 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 exchange rates for revenue and
expenses, and historical rates for equity. The resulting currency translation adjustment is recorded in Accumulated Other
Comprehensive Income (Loss), 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 (Loss), 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
43
(Loss) 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 uses derivatives primarily for 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. Additionally, the Company has an investment in stock warrants which is
accounted for as a derivative instrument. See Note 12 - Derivative Instruments of Notes to Consolidated Financial Statements
for more information on derivative instruments and hedging activities.
Stock-Based Compensation: As described in Note 8 - Stock Compensation Plans of Notes to Consolidated Financial
Statements, the Company maintains stock-based 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. The Company recognizes the cost resulting from share-based payment transactions using
a fair-value-based method. The estimated fair value of outstanding performance shares is based on the stock price at the date of
the grant. For performance shares, the price is reduced by the present value of dividends normally paid over the vesting period
which are not payable on outstanding performance share awards. Stock-based compensation expense is recognized for the
portion of the award that is ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates.
New Accounting Standards: In June 2011, the Financial Accounting Standards Board (FASB) issued new guidance on the
presentation of comprehensive income. This guidance eliminates the option to present the components of other comprehensive
income as part of the Statement of Share Owners' Equity. Instead, the Company must report comprehensive income in either a
single continuous statement of comprehensive income which contains two sections, net income and other comprehensive
income, or in two separate but consecutive statements. While the new guidance changes the presentation of comprehensive
income, there are no changes to the components that are recognized in net income or other comprehensive income under
current accounting guidance. The guidance is effective for the Company's first quarter fiscal year 2013 financial statements on
a retrospective basis. As this guidance only amends the presentation of the components of comprehensive income, the adoption
will not have an impact on the Company's consolidated financial position, results of operations, or cash flows.
In May 2011, the FASB issued guidance to amend certain measurement and disclosure requirements related to fair value
measurements to improve consistency with international reporting standards. The guidance requires additional disclosures,
including disclosures related to the measurement of level 3 assets. The guidance is effective prospectively for the Company's
third quarter fiscal year 2012 financial statements. The Company is currently evaluating this guidance, but does not expect its
adoption will have a material effect on its consolidated financial statements.
In July 2010, the FASB issued guidance expanding disclosures about the credit quality of financing receivables and the
allowance for credit losses. The additional disclosures are intended to facilitate the evaluation of 1) the nature of credit risk
inherent in the Company's portfolio of financing receivables, 2) how that risk is analyzed and assessed in arriving at the
allowance for credit losses, and 3) the changes and reasons for those changes in the allowance for credit losses. Financing
receivables include loans and notes receivable, trade accounts receivable, and certain other contractual rights to receive money
on demand or on fixed or determinable dates. The expanded disclosures, disaggregated by portfolio segment or class of
financing receivable, include a roll-forward of the allowance for credit losses as well as impaired, nonaccrual, restructured and
past due loans, and credit quality indicators. The guidance became effective for the Company's second quarter fiscal year 2011
financial statements, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity
during a reporting period became effective for the Company's third quarter fiscal year 2011 financial statements. These
disclosures have been provided in Note 1 - Summary of Significant Accounting Policies and Note 20 - Credit Quality and
Allowance for Credit Losses of Notes Receivable of Notes to Consolidated Financial Statements. The adoption of this
guidance did not have a material impact on the Company's financial statements.
In January 2010, the FASB issued guidance to improve disclosures about fair value instruments. The guidance requires
additional disclosure about significant transfers between levels 1, 2, and 3 of the fair value hierarchy and requires disclosure of
level 3 activity on a gross basis. In addition, the guidance clarifies existing requirements regarding the required level of
disaggregation by class of assets and liabilities and also clarifies disclosures of inputs and valuation techniques. The guidance
became effective beginning in the Company's third quarter of fiscal year 2010, except for the requirement to disclose level 3
activity on a gross basis, which will be effective as of the beginning of the Company's fiscal year 2012. The Company does not
expect the adoption of this guidance to have a material impact on its financial statements.
In June 2009, the FASB issued guidance related to variable interest entities (VIEs) which modifies how a company determines
when VIEs should be consolidated. The guidance clarifies that the determination of whether a company is required to
consolidate an entity is based on, among other things, an entity's purpose and design and a company's ability to direct the
44
activities of the entity that most significantly impact the entity's economic performance. The guidance requires an ongoing
reassessment of whether a company is the primary beneficiary of a VIE and requires additional disclosures about a company's
involvement in VIEs. The guidance became effective as of the beginning of the Company's fiscal year 2011. The adoption did
not have an impact on the Company's consolidated financial statements. Required disclosures have been provided in Note 19 -
Variable Interest Entities of Notes to Consolidated Financial Statements.
Note 2 Acquisition
During fiscal year 2009, the Company acquired privately-held Genesis Electronics Manufacturing located in Tampa, Florida.
The acquisition supports the Company's growth and diversification strategy, bringing new customers in key target markets.
The acquisition purchase price totaled $5.4 million. Assets acquired were $7.7 million, which included $2.0 million of
goodwill, and liabilities assumed were $2.3 million. Direct costs of the acquisition were not material. Goodwill was allocated
to the EMS segment of the Company. The operating results of this acquisition are included in the Company's consolidated
financial statements beginning on September 1, 2008 and excluding goodwill impairment recorded during fiscal year 2009, had
an immaterial impact on the fiscal year 2011, 2010 and 2009 financial results. See Note 1 - Summary of Significant
Accounting Policies of Notes to Consolidated Financial Statements for more information on goodwill impairment. The
purchase price allocation is final.
Note 3 Inventories
Inventories are valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 11% and 9% of
consolidated inventories at June 30, 2011 and June 30, 2010, respectively, including approximately 81% and 78% of the
Furniture segment inventories at June 30, 2011 and June 30, 2010, 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 would have been $0.2 million higher in fiscal year 2011, $0.8
million lower in fiscal year 2010, and $2.4 million lower in fiscal year 2009. Certain inventory quantity reductions caused
liquidations of LIFO inventory values, which increased income by $0.9 million in fiscal year 2011, $1.3 million in fiscal year
2010, and $2.5 million in fiscal year 2009.
Inventory components at June 30 were as follows:
(Amounts in Thousands)
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total FIFO inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIFO reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$
$
$
$
$
$
33,287
11,734
109,337
154,358
(13,261)
141,097
2011
12,849
184,684
349,489
9,765
556,787
(360,105)
196,682
$
$
$
$
$
$
33,177
13,209
112,897
159,283
(12,877)
146,406
2010
13,705
180,810
320,576
9,159
524,250
(337,251)
186,999
45
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:
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years
5 to 50
2 to 20
Lesser of Useful Life or Term of Lease
Depreciation and amortization of property and equipment, including asset write-downs associated with the Company's
restructuring plans, totaled, in millions, $29.0 for fiscal year 2011, $32.5 for fiscal year 2010, and $33.9 for fiscal year 2009.
At June 30, 2011, in thousands, assets totaling $2,807 were classified as held for sale, including $1,647 for a tract of land in
Poland and $1,160 for a facility and land related to the Gaylord, Michigan exited operation, both within the EMS segment. The
Poland land is reported as an EMS segment asset, and the Gaylord, Michigan facility and land are reported as unallocated
corporate assets for segment reporting purposes. At June 30, 2010, the Company had, in thousands, assets totaling $1,160
classified as held for sale.
Note 5 Commitments and Contingent Liabilities
Leases:
Operating leases for certain office, showroom, manufacturing facilities, land, and equipment, which expire from fiscal year
2012 to 2056, contain provisions under which minimum annual lease payments are, in millions, $3.3, $2.8, $1.9, $1.5, and $0.8
for the five years ended June 30, 2016, respectively, and aggregate $0.7 million from fiscal year 2017 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 leases include renewal options and escalation clauses. Total rental expenses amounted to, in millions,
$6.2, $5.4, and $6.1 in fiscal years 2011, 2010, and 2009, respectively, including certain leases requiring contingent lease
payments based on warehouse space utilized, which amounted to expense of, in millions, $0.5, $0.4, and $1.1 in fiscal years
2011, 2010, and 2009, respectively.
As of June 30, 2011 and 2010, the Company had no capitalized leases.
Guarantees:
As of June 30, 2011 and 2010, 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. The Company had a
maximum financial exposure from unused standby letters of credit totaling $5.2 million as of June 30, 2011 and $4.2 million as
of June 30, 2010. 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, 2011
and 2010 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.
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 2011, 2010, and 2009 were as follows:
(Amounts in Thousands)
Product Warranty Liability at the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to warranty accrual (including changes in estimates) . . . . . . . . . . . . . . . . . . . .
Settlements made (in cash or in kind) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product Warranty Liability at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
$
1,818
$
2,176
$
1,470
1,060
(769)
2,109
$
59
(417)
1,818
$
1,820
(1,114)
2,176
$
46
Note 6 Long-Term Debt and Credit Facility
Long-term debt, less current maturities as of June 30, 2011 and 2010, was, in thousands, $286 and $299, respectively, and
current maturities of long-term debt were, in thousands, $12 and $61, respectively. Long-term debt consists of a long-term note
payable, which has an interest rate of 9.25% and matures in 2025. Aggregate maturities of long-term debt for the next five
years are, in thousands, $12, $14, $15, $16, and $18, respectively, and aggregate $223 thereafter.
Credit facilities consisted of the following:
(Amounts in Millions, in U.S Dollar Equivalents)
Availability to
Borrow at
June 30, 2011
Borrowings
Outstanding at
June 30, 2011
Borrowings
Outstanding at
June 30, 2010
Primary revolving credit facility (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
94.8
$
Poland overdraft credit facility (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.7
0.3
$
103.8
$
—
—
—
—
$
$
—
—
—
—
(1) The Company's primary revolving credit facility, which expires in April 2013, 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 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 2011, 2010, and 2009. 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 credit facility requires the Company to comply with certain debt covenants
including interest coverage ratio and net worth. The Company was in compliance with these covenants during the fiscal
year ended June 30, 2011. The Company had $5.2 million in letters of credit against the credit facility at June 30, 2011.
The Company also maintains a foreign credit facility for its EMS segment operation in Thailand which is backed by the
$100 million revolving credit facility. This foreign credit facility is reviewed for renewal annually and can be canceled at
any time by either the bank or the Company. Interest on borrowing in US dollars under the 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 facility is charged at the prevailing market rate.
(2) The credit facility for the EMS segment operation in Poland allows for multi-currency borrowings up to a 6 million Euro
equivalent (approximately $8.7 million U.S. dollars at June 30, 2011 exchange rates) and is available to cover bank
overdrafts. Bank overdrafts may be deemed necessary to satisfy short-term cash needs at the Company's Poland location
rather than funding from intercompany sources. This credit facility is reviewed for renewal annually and can be canceled
at any time by either the bank or the Company. Interest on the overdraft is charged at 1.75% over the Euro Overnight
Index Average (EONIA).
As of both June 30, 2011 and 2010, there were no outstanding short-term borrowings. Cash payments for interest on
borrowings were, in thousands, $121, $203, and $1,807, in fiscal years 2011, 2010, and 2009, respectively. Capitalized interest
expense was immaterial during fiscal years 2011, 2010, and 2009.
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 which permits participants to make 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 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
47
limits as determined annually by the Compensation and Governance Committee of the Board of Directors. Total expense
related to employer contributions to the retirement plans was, in millions, $5.0, $4.5, and $0.0 for fiscal years 2011, 2010, and
2009, respectively.
Employees of certain foreign subsidiaries are covered by local pension or retirement plans. Total expense related to employer
contributions to these foreign plans for fiscal years 2011, 2010, and 2009 was, in millions, $0.5, $0.6, and $0.7, respectively.
Severance Plans:
The Company maintains severance plans for all domestic employees which 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 (Loss), and Net
Periodic Benefit Cost are as follows:
(Amounts in Thousands)
Changes and Components of Benefit Obligation:
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss for the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance in current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance in noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total benefit obligation recognized in the Consolidated Balance Sheets . . . . . . . . . .
Changes and Components in Accumulated Other Comprehensive Income (Loss)
(before tax):
Accumulated Other Comprehensive Income (Loss) at beginning of year . . . . . . . . . . . . . .
Change in unrecognized prior service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated Other Comprehensive Income (Loss) at end of year . . . . . . . . . . . . . . . . . . .
Balance in unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance in unrecognized actuarial loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Accumulated Other Comprehensive Income (Loss) recognized in Share Owners'
Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30
2011
2010
$
5,900
$
5,469
934
264
(1,501)
(524)
5,073
890
4,183
5,073
5,332
(286)
(2,275)
2,771
1,057
1,714
$
$
$
$
$
$
854
408
1,292
(2,123)
5,900
1,035
4,865
5,900
5,078
(285)
539
5,332
1,343
3,989
$
$
$
$
$
$
$
2,771
$
5,332
Components of Net Periodic Benefit Cost (before tax):
Year Ended June 30
2011
2010
2009
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic benefit cost recognized in the Consolidated Statements of Income . . . . . .
$
$
934
264
286
774
$
854
408
285
753
432
205
285
517
$
2,258
$
2,300
$
1,439
The decrease in the benefit obligation primarily resulted from a decrease in the historical rate of severance payments used to
project future severance eligible terminations. 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 non-recurring severance
actions, such as those disclosed in Note 18 - Restructuring Expense of Notes to Consolidated Financial Statements, are not
estimable using actuarial methods and are expensed in accordance with the applicable U.S. GAAP.
48
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 prior service cost and actuarial net loss for the severance plans that will be amortized from accumulated other
comprehensive income (loss) into net periodic benefit cost over the next fiscal year are, pre-tax in thousands, $286 and $301,
respectively.
Assumptions used to determine fiscal year end benefit obligations are as follows:
Discount Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of Compensation Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average assumptions used to determine fiscal year net periodic benefit costs are as follows:
Discount Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of Compensation Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
5.0%
4.0%
2011
4.8%
4.0%
2010
6.2%
3.3%
2010
5.0%
4.0%
2009
5.9%
4.5%
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, 2008. 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 a former stock incentive plan, which is described below. The pre-tax
compensation cost that was charged against income for all of the plans was $1.3 million, $1.8 million, and $2.1 million in fiscal
year 2011, 2010, and 2009, respectively. The total income tax benefit for stock compensation arrangements was $0.5 million,
$0.7 million, and $0.9 million in fiscal year 2011, 2010, and 2009, respectively. The Company generally uses treasury shares
for fulfillment of option exercises and issuance of performance shares.
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 issued 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 shares are issued, 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 2011 is presented below:
Number
of Shares
Weighted Average
Grant Date
Fair Value
Performance shares outstanding at July 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance shares outstanding at June 30, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,439,253
723,788
(141,049)
(458,714)
1,563,278
$
$
$
$
$
6.25
5.10
6.25
6.24
5.10
49
As of June 30, 2011, there was approximately $2.0 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 2011 through August 2015, with a weighted average vesting period of 1.6 years. The fair value of
performance shares is based on the stock price at the date of grant, 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 $5.10; $6.25; and $10.37 for performance share awards granted in fiscal year 2011, 2010, and 2009, respectively.
During fiscal year 2011, 2010, and 2009, respectively, 141,049; 140,832; and 109,197 performance shares vested at a fair value
of $0.9 million, $1.1 million, and $1.3 million. These shares are the total number of shares vested, prior to the reduction of
shares withheld to satisfy tax withholding obligations. 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.
Unrestricted Share Grants:
Under the 2003 Plan, unrestricted shares may be granted to employees and members of the Board of Directors 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
2011, 2010, and 2009, respectively, the Company granted a total of 46,977; 19,662; and 29,545 unrestricted shares of Class B
common stock at an average grant date fair value of $6.71, $7.63, and $6.45, for a total fair value of $0.3 million, $0.2 million
and $0.2 million. These shares are the total number of shares granted, prior to the reduction of shares withheld to satisfy tax
withholding obligations. These shares were awarded to non-employee members of the Board of Directors as compensation for
director's fees, as a result of directors' elections to receive unrestricted shares in lieu of cash payment. Director's fees are
expensed over the period that directors earn the compensation. Other unrestricted shares were awarded to officers and other
key employees as consideration for their service to the Company.
Restricted Share Units:
Nonvested Restricted Share Units (RSU) were awarded to officers and other key employees under the 2003 Plan in fiscal years
prior to fiscal year 2011. As of June 30, 2011, there was no unrecognized compensation cost related to nonvested RSU
compensation arrangements awarded under the 2003 Plan as all RSU's had vested. The total fair value of RSU awards vested
during fiscal year 2011, 2010, and 2009 was, in thousands, $0, $3,366, and $4,137, respectively.
Stock Options:
The Company has stock options outstanding under a former stock incentive plan. 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. No shares remain available for new grants under the 1996 Stock
Incentive Program.
There were no stock option grants awarded during fiscal years 2011, 2010, and 2009. 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 two to
five years after the date of grant and expire 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.
50
A summary of stock option activity during fiscal year 2011 is presented below:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Number of
Shares
Options outstanding at July 1, 2010 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at June 30, 2011 . . . . . . . . . . . . .
Options vested and exercisable at June 30, 2011 . . . .
648,460
—
—
(9,375)
(19,500)
619,585
619,585
$
$
$
$
$
$
$
15.13
—
—
15.09
16.17
15.10
15.10
No options were exercised during fiscal years 2011, 2010, and 2009.
Note 9 Income Taxes
1.1 years
$
1.1 years
$
—
—
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 associated with net
operating losses of, in thousands, $5,749 expire from fiscal year 2013 to 2031. Income tax benefits associated with tax credit
carryforwards of, in thousands, $6,272, expire from fiscal year 2012 to 2025. A valuation reserve was provided as of June 30,
2011 for deferred tax assets relating to certain foreign and state net operating losses of, in thousands, $1,967, certain state tax
credit carryforwards of, in thousands, $4,560, and, in thousands, $171 related to other deferred tax assets that the Company
currently believes are more likely than not to remain unrealized in the future.
51
The components of the deferred tax assets and liabilities as of June 30, 2011 and 2010, were as follows:
(Amounts in Thousands)
Deferred Tax Assets:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign currency losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Liabilities:
Property & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign currency gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The components of income (loss) before taxes on income are as follows:
(Amounts in Thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income before income taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
2011
2010
$
1,420
$
2,409
608
12,092
1,583
698
6,272
3,173
4,011
5,749
—
2,698
(6,698)
34,015
6,986
115
1,677
597
9,375
24,640
$
$
$
$
2,337
3,007
960
10,819
1,513
674
4,279
3,661
4,508
6,403
1,082
3,136
(5,777)
36,602
5,630
136
—
590
6,356
30,246
Year Ended June 30
2011
2010
2009
(2,966)
7,403
4,437
$
$
(8,434)
14,402
5,968
$
$
30,658
(5,332)
25,326
Foreign unremitted earnings of entities not included in the United States tax return 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. The aggregate unremitted earnings of the
Company's foreign subsidiaries for which a deferred income tax liability has not been recorded was approximately $72.8
million as of June 30, 2011. Determination of the amount of unrecognized deferred tax liability on unremitted earnings is not
practicable.
52
The provision (benefit) for income taxes is composed of the following items:
(Amounts in Thousands)
Currently Payable (Refundable):
Year Ended June 30
2011
2010
2009
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(2,527)
$ (6,768)
$
(130)
150
3,474
(305)
9,457
1,521
1,713
(2,507)
(3,599)
12,691
Deferred Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision (benefit) for income taxes . . . .
1,090
1,509
(577)
2,022
1,407
(1,553)
(1,090)
(1,236)
$
(485)
$ (4,835)
$
(2,554)
(1,294)
(845)
(4,693)
7,998
A reconciliation of the statutory U.S. income tax rate to the Company's effective income tax rate follows:
(Amounts in Thousands)
Tax computed at U.S. federal statutory rate. . . . . .
State income taxes, net of federal income tax
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax effect . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt interest income. . . . . . . . . . . . . . . . . .
Domestic manufacturing deduction . . . . . . . . . . . .
Research credit. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign subsidiary bad debt deduction . . . . . . . . .
Foreign subsidiary land and building gain. . . . . . .
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision (benefit) for income taxes . . . .
2011
Amount
$
1,553
Year Ended June 30
2010
2009
%
Amount
%
Amount
%
35.0 %
$
2,089
35.0 %
$
8,864
35.0%
(277)
(1,213)
—
—
(6.3)
(27.3)
—
—
(751)
(16.9)
—
—
203
(485)
$
—
—
4.6
(10.9)%
$
(907)
(3,120)
(169)
—
(674)
—
(2,236)
182
(4,835)
(15.2)
(52.3)
(2.8)
—
(11.3)
—
(37.5)
3.1
565
2,093
(559)
86
(753)
(2,411)
—
113
2.2
8.3
(2.2)
0.3
(3.0)
(9.5)
—
0.5
(81.0)%
$
7,998
31.6%
Net cash payments (refunds) for income taxes were, in thousands, $(2,851), $8,866, and $2,848 in fiscal years 2011, 2010, and
2009, respectively.
53
Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 2011, 2010, and 2009
were as follows:
(Amounts in Thousands)
Beginning balance - July 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax positions related to prior fiscal years:
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax positions related to current fiscal year:
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapses in statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance - June 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2011
2010
2009
$
2,466
$
2,165
$
1,020
312
(77)
96
(42)
(74)
(182)
2,499
532
(130)
74
—
(36)
(139)
2,466
2,097
$
$
341
—
985
(3)
(3)
(175)
2,165
1,905
$
$
Portion that, if recognized, would reduce tax expense and effective tax rate . . . . . . . . . .
$
2,125
The Company recognizes interest and penalties related to unrecognized tax benefits in the Provision (Benefit) for Income Taxes
line of the Consolidated Statements of Income. Amounts accrued for interest and penalties were as follows:
(Amounts in Thousands)
Accrued Interest and Penalties:
As of
June 30, 2011
As of
June 30, 2010
As of
June 30, 2009
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
230
86
$
311
117
344
146
Accrued interest and penalties are not included in the tabular roll forward of unrecognized tax benefits above. Interest and
penalties recognized for fiscal years 2011, 2010, and 2009 were, in thousands, income of $107, $72, and $10, respectively.
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 2008. The Company is subject to various state and local income tax examinations by tax
authorities for years after June 30, 2002 and various foreign jurisdictions for years after June 30, 2004. 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.
If 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
54
equal rights to receive dividends as and if declared by the Board of Directors.
Note 11 Fair Value
The Company categorizes assets and liabilities measured at fair value into three levels based upon the assumptions (inputs)
used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas level 3 generally
requires significant management judgment. The three levels are defined as follows:
• Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
• Level 2: Observable inputs other than those included in level 1. For example, quoted prices for similar assets or
liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
• Level 3: Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or
liability.
Financial Instruments Recognized at Fair Value
The following methods and assumptions were used to measure fair value:
Financial Instrument
Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation Technique/Inputs Used
Market - Quoted market prices
Available-for-sale securities: Convertible debt securities . . . . .
Derivative Assets: Foreign exchange contracts . . . . . . . . . . . . .
Derivative Assets: Stock warrants . . . . . . . . . . . . . . . . . . . . . . .
Trading securities: Mutual funds held by nonqualified
supplemental employee retirement plan . . . . . . . . . . . . . . . .
Derivative Liabilities: Foreign exchange contracts . . . . . . . . . .
Market - Fair value approximated using the amortized cost
basis of promissory notes, with the discount amortized to
interest income over the term of the notes
Market - Based on observable market inputs using standard
calculations, such as time value, forward interest rate yield
curves, and current spot rates, considering counterparty credit
risk
Market - Based on a Black-Scholes valuation model with the
following inputs: risk-free interest rate, volatility, expected
life, and estimated stock price
Market - Quoted market prices
Market - Based on observable market inputs using standard
calculations, such as time value, forward interest rate yield
curves, and current spot rates adjusted for the Company's non-
performance risk
55
Recurring Fair Value Measurements:
As of June 30, 2011 and 2010, the fair values of financial assets and liabilities that are measured at fair value on a recurring
basis using the market approach are categorized as follows:
(Amounts in Thousands)
Assets
June 30, 2011
Level 1
Level 2
Level 3
Total
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives: Stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading Securities: Mutual funds held by nonqualified supplemental
employee retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
32,021
—
—
16,138
48,159
—
—
$
$
$
$
—
1,044
—
—
1,044
1,684
1,684
$
$
$
$
—
—
1,437
—
1,437
—
—
$
$
$
$
32,021
1,044
1,437
16,138
50,640
1,684
1,684
(Amounts in Thousands)
Assets
June 30, 2010
Level 1
Level 2
Level 3
Total
Cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities: Convertible debt securities . . . . . . . . . . .
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives: Stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading Securities: Mutual funds held by nonqualified supplemental
employee retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
32,706
$
—
—
—
13,071
45,777
—
—
$
$
$
$
$
$
—
—
2,223
—
—
2,223
392
392
$
—
$
32,706
2,496
—
395
—
2,891
—
—
$
$
$
2,496
2,223
395
13,071
50,891
392
392
$
$
$
During fiscal year 2010, the Company purchased convertible debt securities of $2.3 million and stock warrants of $0.4 million.
During fiscal year 2011, the convertible debt securities experienced an other-than-temporary decline in fair market value
resulting in a $1.2 million impairment loss and, upon a qualified financing, were subsequently converted to non-marketable
equity securities. The investment in non-marketable equity securities is accounted for as a cost-method investment and is
included in the Disclosure of Other Financial Instruments section that follows. See Note 13 - Investments of Notes to
Consolidated Financial Statements for further information regarding the convertible debt securities and non-marketable equity
securities. The revaluation of stock warrants resulted in a $1.0 million derivative gain as a result of the qualified financing.
See Note 12 - Derivative Instruments of Notes to Consolidated Financial Statements for further information regarding the stock
warrants.
The nonqualified supplemental employee retirement plan (SERP) assets consist of equity funds, balanced funds, a bond fund,
and a money market fund. The SERP investment assets are exactly offset by a SERP liability which represents the Company's
obligation to distribute SERP funds to participants. See Note 13 - Investments of Notes to Consolidated Financial Statements
for further information regarding the SERP.
Non-Recurring Fair Value Measurements:
During fiscal year 2011, the Company had no fair value adjustments applicable to items that are subject to non-recurring fair
value measurement after the initial measurement date.
56
Disclosure of Other Financial Instruments:
Other financial instruments that are not reflected in the Consolidated Balance Sheets at fair value have carrying amounts that
approximate fair value as follows:
Assets
Certain cash and cash equivalents
Receivables
Other assets not recorded at fair value
Liabilities
Accounts payable
Dividends payable
Accrued expenses
The fair value of long-term debt, excluding capital leases, was estimated using a discounted cash flow analysis based on quoted
long-term debt market rates adjusted for the Company's non-performance risk. There was an immaterial difference between the
carrying value and estimated fair value of long-term debt as of June 30, 2011 and 2010.
Non-marketable equity securities are accounted for under the cost method of accounting, which carries the shares at cost except
in the event of impairment. These securities were received in June 2011 as a result of a conversion of convertible notes, which
had been adjusted to fair value prior to the conversion. The $1.8 million carrying value of non-marketable securities as of
June 30, 2011 is approximately equal to the fair value.
Note 12 Derivative Instruments
Foreign Exchange Contracts:
The Company operates internationally and is therefore exposed to foreign currency exchange rate fluctuations in the normal
course of its business. The Company's primary means of managing this exposure is to utilize natural hedges, such as aligning
currencies used in the supply chain with the sale currency. To the extent natural hedging techniques do not fully offset currency
risk, the Company uses derivative instruments with the objective of reducing the residual exposure to certain foreign currency
rate movements. Factors considered in the decision to hedge an underlying market exposure include the materiality of the risk,
the volatility of the market, the duration of the hedge, the degree to which the underlying exposure is committed to, and the
availability, effectiveness, and cost of derivative instruments. Derivative instruments are only utilized for risk management
purposes and are not used for speculative or trading purposes.
The Company uses forward contracts designated as cash flow hedges to protect against foreign currency exchange rate risks
inherent in forecasted transactions denominated in a foreign currency. Foreign exchange contracts are also used to hedge
against foreign currency exchange rate risks related to intercompany balances denominated in currencies other than the
functional currencies. As of June 30, 2011, the Company had outstanding foreign exchange contracts to hedge currencies
against the U.S. dollar in the aggregate notional amount of $16.9 million and to hedge currencies against the Euro in the
aggregate notional amount of 27.5 million EUR. The notional amounts are indicators of the volume of derivative activities but
are not indicators of the potential gain or loss on the derivatives.
In limited cases due to unexpected changes in forecasted transactions, cash flow hedges may cease to meet the criteria to be
designated as cash flow hedges. Depending on the type of exposure hedged, the Company may either purchase a derivative
contract in the opposite position of the undesignated hedge or may retain the hedge until it matures if the hedge continues to
provide an adequate offset in earnings against the currency revaluation impact of foreign currency denominated liabilities.
The fair value of outstanding derivative instruments is recognized on the balance sheet as a derivative asset or liability. When
derivatives are settled with the counterparty, the derivative asset or liability is relieved and cash flow is impacted for the net
settlement. For derivative instruments that meet the criteria of hedging instruments under FASB guidance, the effective
portions of the gain or loss on the derivative instrument are initially recorded net of related tax effect in Accumulated Other
Comprehensive Income (Loss), a component of Share Owners' Equity, and are subsequently reclassified into earnings in the
period or periods during which the hedged transaction is recognized in earnings. The ineffective portion of the derivative gain
or loss is reported in the Non-operating income or expense line item on the Consolidated Statements of Income immediately.
The gain or loss associated with derivative instruments that are not designated as hedging instruments or that cease to meet the
criteria for hedging under FASB guidance is also reported in the Non-operating income or expense line item on the
Consolidated Statements of Income immediately.
Based on fair values as of June 30, 2011, the Company estimates that $0.1 million of pre-tax derivative gains deferred in
Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings, along with the earnings effects of related
forecasted transactions, within the fiscal year ending June 30, 2012. Gains on foreign exchange contracts are generally offset
by losses in operating costs in the income statement when the underlying hedged transaction is recognized in earnings.
57
Because gains or losses on foreign exchange contracts fluctuate partially based on currency spot rates, the future effect on
earnings of the cash flow hedges alone is not determinable, but in conjunction with the underlying hedged transactions, the
result is expected to be a decline in currency risk. The maximum length of time the Company had hedged its exposure to the
variability in future cash flows was 12 and 11 months as of June 30, 2011 and June 30, 2010, respectively.
Stock Warrants:
In conjunction with the Company's investments in convertible debt securities of a privately-held company during fiscal year
2010, the Company received common and preferred stock warrants which provide the right to purchase the privately-held
company's equity securities at a specified exercise price.
As part of the June 2011 qualified financing related to the convertible debt securities, the latest preferred stock offering price of
warrants was modified to a $0.25 per share exercise price (originally based on the previous offering price of $1.50), and the
number of warrants was modified to 11 million shares (originally 1,833,000 shares). The qualified financing did not impact the
common warrants, which remained at a $0.15 per share exercise price (2,750,000 shares). The current market value of the
underlying securities was estimated based on the per share valuation of the underlying privately-held company, using a
discounted cash flow method. The revaluation of warrants due to the change in terms and the valuation of underlying business
resulted in a $1.0 million gain during fiscal year 2011, recognized in the Non-operating income line item on the Consolidated
Statements of Income. See Note 13 - Investments of Notes to Consolidated Financial Statements for further information
regarding the qualified financing and conversion of debt securities.
The value of the stock warrants fluctuates primarily in relation to the value of the privately-held company's underlying
securities, either providing an appreciation in value or potentially expiring with no value. The stock warrants expire in June
2017.
See Note 11 - Fair Value of Notes to Consolidated Financial Statements for further information regarding the fair value of
derivative assets and liabilities and Note 17 - Comprehensive Income of Notes to Consolidated Financial Statements for the
amount and changes in derivative gains and losses deferred in Accumulated Other Comprehensive Income (Loss).
Information on the location and amounts of derivative fair values in the Consolidated Balance Sheets and derivative gains and
losses in the Consolidated Statements of Income are presented below.
Fair Values of Derivative Instruments on the Consolidated Balance Sheets
Asset Derivatives
Liability Derivatives
(Amounts in Thousands)
Balance Sheet Location
Derivatives designated as hedging instruments:
Fair Value As of
June 30
2011
June 30
2010
Balance Sheet Location
Fair Value As of
June 30
2011
June 30
2010
Foreign exchange contracts. . .
Prepaid expenses and other current assets. . . .
$
644
$
525
Accrued expenses . . . . . .
$
415
$
339
Derivatives not designated as hedging instruments:
Foreign exchange contracts. . .
Prepaid expenses and other current assets. . . .
Stock warrants. . . . . . . . . . . . .
Other assets (long-term) . . . . . . . . . . . . . . . . .
400
1,437
1,698
Accrued expenses . . . . . .
1,269
53
395
Total derivatives. . . . . . . . . . . .
$ 2,481
$ 2,618
$ 1,684
$
392
58
The Effect of Derivative Instruments on Other Comprehensive Income (Loss)
(Amounts in Thousands)
Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on
Derivatives (Effective Portion):
2011
June 30
2010
2009
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,063
$
2,494
$
(13,832)
The Effect of Derivative Instruments on Consolidated Statements of Income
(Amounts in Thousands)
Fiscal Year Ended June 30
Derivatives in Cash Flow Hedging Relationships
Location of Gain or (Loss)
2011
2010
2009
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective
Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
15
$
(280)
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Sales . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income. . . . . . . . . . . . . . .
1,674
(121)
143
36
(5,749)
(1,878)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,553
$
194
$
(7,907)
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Ineffective
Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income. . . . . . . . . . . . . . .
$
2
$
44
$
165
Derivatives Not Designated as Hedging Instruments
Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives:
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income. . . . . . . . . . . . . . .
Stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income. . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Derivative Pre-Tax Gain (Loss) Recognized in Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
(4,322)
$
1,355
1,041
(7)
(3,281)
$
1,348
(1,726)
$
1,586
$
$
$
1,274
—
1,274
(6,468)
Note 13 Investments
Municipal Securities:
The Company's investment portfolio included available-for-sale securities which were comprised of exempt securities issued
by municipalities ("Municipal Securities"). During fiscal year 2010, the Company sold all of its municipal securities and thus
had no municipal securities outstanding as of June 30, 2011 and 2010.
Activity for the municipal securities that were classified as available-for-sale was as follows:
(Amounts in Thousands)
Proceeds from sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized gains from sale of available-for-sale securities included in earnings . . . . . .
Gross realized losses from sale of available-for-sale securities included in earnings . . . . .
Net unrealized holding gain (loss) included in Other Comprehensive Income (Loss) . . . . .
Net (gains) losses reclassified out of Other Comprehensive Income (Loss) . . . . . . . . . . . .
$
For the Year Ended June 30
2009
2010
2011
—
—
—
—
—
$ 28,937
$ 34,337
639
—
(131)
(639)
1,114
(88)
1,377
(1,026)
Realized gains and losses are reported in the Other Income (Expense) category of the Consolidated Statements of Income. The
cost of each individual security was used in computing the realized gains and losses. No other-than-temporary impairment was
recorded on municipal securities during fiscal years 2011, 2010, and 2009.
Convertible Debt and Non-marketable Equity Securities:
During fiscal year 2010, the Company purchased secured convertible promissory notes from a privately-held company. The
convertible notes were accounted for as available-for-sale debt securities and were recorded at fair value, approximated using
59
the amortized cost basis of the notes. See Note 11 - Fair Value of Notes to Consolidated Financial Statements for more
information on the fair value of available-for-sale securities. Available-for-sale securities were included in the Short-Term
Investments line of the Consolidated Balance Sheets. At June 30, 2010, the fair value of the convertible notes was $2.5 million,
excluding accrued interest. Interest accrued on the debt securities at a rate of 8.00% per annum and was due with the principal
in June 2011. In connection with the purchase of the debt securities, the Company also received stock warrants to purchase the
common and preferred stock of the privately-held company at a specified exercise price. See Note 12 - Derivative Instruments
of Notes to Consolidated Financial Statements for further information regarding the stock warrants.
In June 2011, the privately-held company completed a qualified financing, resulting in the conversion of the convertible notes
into 12.2 million preferred shares. Prior to the conversion, the Company determined that its investment in convertible notes
had experienced an other-than-temporary decline in fair market value. Because there was no active market for the convertible
notes, the fair market value of the convertible notes was calculated using a discounted cash flow method, resulting in a new
cost basis, including accrued interest, of $1.8 million. The valuation of the convertible notes resulted in a $1.2 million
impairment loss recognized in earnings during fiscal year 2011. The subsequent conversion of the convertible notes to shares
had no earnings impact. The new shares are classified as non-marketable equity securities accounted for under the cost method
of accounting, which carries the shares at cost except in the event of impairment. The new shares had a carrying value of $1.8
million at June 30, 2011, and are included in the Other Assets line of the Consolidated Balance Sheets.
In the aggregate, the former investment in convertible notes and the current investment in private equity do not rise to the level
of a material variable interest or a controlling interest in the privately-held company which would require consolidation.
Supplemental Employee Retirement Plan Investments:
The Company maintains a self-directed supplemental employee retirement plan (SERP) for executive employees. The SERP
utilizes 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
in the Other Income (Expense) category. Adjustments made to revalue the SERP liability are also recognized in income as
selling and administrative expenses and exactly offset valuation adjustments on SERP investment assets. The change in net
unrealized holding gains and (losses) for the fiscal years ended June 30, 2011, 2010, and 2009 was, in thousands, $2,611,
$1,385, and $(2,739), 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30
2011
2010
$
$
$
$
5,604
10,534
16,138
5,604
10,534
16,138
$
$
$
$
4,822
8,249
13,071
4,822
8,249
13,071
Note 14 Accrued Expenses
Accrued expenses consisted of:
(Amounts in Thousands)
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
June 30
2011
2010
8,290
26,445
4,809
3,598
7,958
15,216
66,316
$
$
6,799
23,197
4,344
4,821
2,500
11,262
52,923
60
Note 15 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 EMS segment provides engineering and
manufacturing services which utilize common production and support capabilities to a variety of industries globally. The EMS
segment focuses on electronic assemblies that have high durability requirements and are sold on a contract basis and produced
to customers' specifications. The EMS segment currently sells primarily to customers in the medical, automotive, industrial
control, and public safety industries. The Furniture segment provides furniture for the office and hospitality industries, sold
under the Company's family of brand names. Each segment's product line offerings consist of similar products and services
sold within various industries.
Included in the EMS segment are sales to one major customer. Sales to Bayer AG affiliates totaled, in millions, $135.7, $169.6,
and $149.5 in fiscal years 2011, 2010, and 2009, respectively, representing 11%, 15%, 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, investments, and other assets not
allocated to segments. Unallocated corporate income consists of income not allocated to segments for purposes of evaluating
segment performance and includes income from corporate investments and other non-operational items. Sales between the
Furniture segment and EMS segment are not material.
The Company evaluates segment performance based upon several financial measures, including economic profit, which
incorporates a segment's cost of capital when evaluating financial performance, operating income, and net income. Operating
income and net income are reported for each segment as they are the measures 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 U.S. GAAP.
61
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and Amortization . . . . . . . . . . . . . .
Operating Income (Loss). . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes . . . . . . . . .
Net Income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . .
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and Amortization . . . . . . . . . . . . . .
Operating Income (Loss). . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes . . . . . . . . .
Net Income (Loss) (2) . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . .
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and Amortization . . . . . . . . . . . . . .
Goodwill Impairment . . . . . . . . . . . . . . . . . . . . .
Operating Income (Loss). . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes . . . . . . . . .
Net Income (Loss) (3) . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . .
At or For the Year Ended June 30, 2011
Electronic
Manufacturing
Services
Furniture
Unallocated
Corporate and
Eliminations
Consolidated
$
$
721,419
17,153
5,487
—
22
(452)
4,067
377,067
2,644
24,863
$
481,178
14,054
1,077
—
—
256
472
191,275
—
6,508
$
—
—
(4,148)
820
99
(289)
383
57,970
—
—
1,202,597
31,207
2,416
820
121
(485)
4,922
626,312
2,644
31,371
At or For the Year Ended June 30, 2010
Electronic
Manufacturing
Services
Furniture
Unallocated
Corporate and
Eliminations
Consolidated
$
$
709,133
20,570
15,291
—
77
(361)
15,731
384,491
2,443
22,455
$
413,611
14,190
(9,374)
—
—
(4,104)
(5,751)
182,396
—
12,336
$
64
—
(3,226)
1,188
65
(370)
823
69,864
—
—
1,122,808
34,760
2,691
1,188
142
(4,835)
10,803
636,751
2,443
34,791
At or For the Year Ended June 30, 2009
Electronic
Manufacturing
Services
Furniture
Unallocated
Corporate and
Eliminations
Consolidated
$
$
642,802
22,181
12,826
(21,981)
—
320
(9,150)
(11,768)
351,506
2,608
36,958
$
564,618
15,437
1,733
13,826
—
—
5,054
8,285
184,755
—
10,721
$
—
—
—
33,840
2,499
1,245
12,094
20,811
106,008
—
—
1,207,420
37,618
14,559
25,685
2,499
1,565
7,998
17,328
642,269
2,608
47,679
(1)
(2)
Includes after-tax restructuring charges of $0.6 million in fiscal year 2011. The EMS segment and Unallocated
Corporate and Eliminations recorded, respectively, $0.5 million expense and $0.1 million expense. See Note 18 -
Restructuring Expense of Notes to the Consolidated Financial Statements for further discussion.
Includes after-tax restructuring charges of $1.2 million in fiscal year 2010. The EMS segment, the Furniture segment,
and Unallocated Corporate and Eliminations recorded, respectively, $1.2 million expense, $0.1 million income, and $0.1
62
million expense. See Note 18 - Restructuring Expense of Notes to the Consolidated Financial Statements for further
discussion. The EMS segment also recorded $2.0 million of after-tax income resulting from settlement proceeds related
to an antitrust lawsuit of which the Company was a class member and a $7.7 million after-tax gain from the sale of the
facility and land in Poland.
(3)
Includes after-tax restructuring charges of $1.8 million in fiscal year 2009. The EMS segment, the Furniture segment,
and Unallocated Corporate and Eliminations recorded, respectively, $1.5 million expense, $0.1 million expense, and
$0.2 million expense. See Note 18 - Restructuring Expense of Notes to Consolidated Financial Statements for further
discussion. Additionally, in fiscal year 2009, the EMS segment recorded $1.6 million of after-tax income for earnest
money deposits retained by the Company resulting from the termination of the contract to sell the Company's Poland
facility and land. Unallocated Corporate and Eliminations also recorded in fiscal year 2009 $18.9 million of after-tax
gains on the sale of undeveloped land holdings and timberlands. Also, during fiscal year 2009, the Company recorded
$9.1 million of after-tax costs related to goodwill impairment, consisting of $8.0 million in the EMS segment and $1.1
million in the Furniture segment. See the Goodwill and Other Intangible Assets section of Note 1 - Summary of
Significant Accounting Policies of Notes to Consolidated Financial Statements for further discussion.
Geographic Area:
The following geographic area data includes net sales based on the location where title transfers 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
2010
2009
2011
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Lived Assets:
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
817,252
132,518
26,723
226,104
1,202,597
134,639
47,765
21,630
204,034
$
$
$
$
699,620
3,877
113,576
305,735
1,122,808
134,115
40,905
19,563
194,583
$
$
$
$
795,861
25
211,766
199,768
1,207,420
142,187
44,807
22,806
209,800
(4)
The increase in Poland net sales and the decline in United Kingdom net sales in fiscal year 2011 compared to fiscal
year 2010 are due to the transfer of production between these locations which resulted in a change in the shipping
destination to Poland.
63
(2,415)
—
(2,442)
—
Note 16 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
(Amounts in Thousands, Except for Per Share Data)
Class A
Class B
Total
Class A
Class B
Total
Class A
Class B
Total
Year Ended June 30, 2011
Year Ended June 30, 2010
Year Ended June 30, 2009
Basic Earnings Per Share:
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,889
$ 5,448
$ 7,337
$ 1,955
$ 5,376
$ 7,331
$ 4,617
$10,944
$15,561
Less: Unvested Participating Dividends . . . . . . . . . . . . . . . . . . . .
—
—
—
(9)
—
(9)
(67)
—
(67)
Dividends to Common Share Owners . . . . . . . . . . . . . . . . . . . . . .
1,889
5,448
7,337
1,946
5,376
Undistributed Earnings (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Earnings (Loss) Allocated to Participating Securities . . . . .
Undistributed Earnings (Loss) Allocated to Common
Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(672)
(1,743)
(2,415)
990
2,478
3,468
523
1,237
1,760
Income Available to Common Share Owners. . . . . . . . . . . . . . . .
$ 1,217
$ 3,705
$ 4,922
$ 2,936
$ 7,854
$10,790
$ 5,073
$12,181
$17,254
Average Basic Common Shares Outstanding . . . . . . . . . . . . . . . .
10,493
27,233
37,726
10,694
26,765
37,459
11,036
26,125
37,161
Basic Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.12
$
0.14
$
0.27
$
0.29
$
0.46
$
0.47
Diluted Earnings Per Share:
Dividends Declared and Assumed Dividends on Dilutive Shares.
$ 1,916
$ 5,448
$ 7,364
$ 1,972
$ 5,377
$ 7,349
$ 4,632
$10,945
$15,577
Less: Unvested Participating Dividends . . . . . . . . . . . . . . . . . . . .
—
—
—
(9)
—
(9)
(67)
—
(67)
Dividends and Assumed Dividends to Common Share Owners . .
1,916
5,448
7,364
1,963
5,377
7,322
3,472
(4)
4,550
10,944
15,494
1,767
(7)
7,340
3,454
(4)
4,565
10,945
15,510
1,751
(7)
Undistributed Earnings (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Earnings (Loss) Allocated to Participating Securities . . . . .
Undistributed Earnings (Loss) Allocated to Common
Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(686)
(1,756)
(2,442)
991
2,459
3,450
520
1,224
1,744
Income Available to Common Share Owners. . . . . . . . . . . . . . . .
$ 1,230
$ 3,692
$ 4,922
$ 2,954
$ 7,836
$10,790
$ 5,085
$12,169
$17,254
Average Diluted Common Shares Outstanding. . . . . . . . . . . . . . .
10,639
27,234
37,873
10,791
26,770
37,561
11,121
26,151
37,272
Diluted Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.12
$
0.14
$
0.27
$
0.29
$
0.46
$
0.47
Reconciliation of Basic and Diluted EPS Calculations:
Income Used for Basic EPS Calculation . . . . . . . . . . . . . . . . . . .
$ 1,217
$ 3,705
$ 4,922
$ 2,936
$ 7,854
$10,790
$ 5,073
$12,181
$17,254
Assumed Dividends Payable on Dilutive Shares: . . . . . . . . . . . . .
Performance shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
—
27
Increase (Reduction) of Undistributed Earnings (Loss) -
allocated based on Class A and Class B shares. . . . . . . . . . . . . .
(14)
(13)
(27)
17
1
1
18
(19)
(18)
15
(3)
1
16
(13)
(16)
Income Used for Diluted EPS Calculation . . . . . . . . . . . . . . . . . .
$ 1,230
$ 3,692
$ 4,922
$ 2,954
$ 7,836
$10,790
$ 5,085
$12,169
$17,254
Average Shares Outstanding for Basic
EPS Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive Effect of Average Outstanding:
10,493
27,233
37,726
10,694
26,765
37,459
11,036
26,125
37,161
Performance shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted share units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146
—
1
—
147
—
97
—
5
—
102
—
38
47
2
24
40
71
Average Shares Outstanding for Diluted
EPS Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,639
27,234
37,873
10,791
26,770
37,561
11,121
26,151
37,272
Included in dividends declared for the basic and diluted earnings per share computation for fiscal year 2010 and 2009 are dividends
computed and accrued on unvested Class A and Class B restricted share units, which were paid by a conversion to the equivalent value
of common shares on the vesting date. Restricted share units held by retirement-age participants had a nonforfeitable right to
dividends and were deducted from the above dividends and undistributed earnings figures allocable to common Share Owners. All
restricted share units vested during fiscal year 2010.
In fiscal year 2011, 2010, and 2009, respectively, all 625,000, 693,000, and 755,000 average stock options outstanding were
antidilutive and were excluded from the dilutive calculation.
64
Note 17 Comprehensive Income
Comprehensive income includes all changes in equity during a period except those resulting from investments by, and
distributions to, Share Owners. Comprehensive income consists of net income and other comprehensive income (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 postemployment severance, and postemployment severance prior service
cost.
Year Ended June 30, 2011
Year Ended June 30, 2010
Year Ended June 30, 2009
(Amounts in Thousands)
Pre-tax
Tax
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Net of
Tax
$
4,922
Pre-tax
Tax
Net of
Tax
$ 10,803
Pre-tax
Tax
Net of
Tax
$ 17,328
Foreign currency translation adjustments . . . .
$ 13,218
$ (2,905)
$ 10,313
$ (12,672)
$ 2,288
$ (10,384)
$ (4,143)
$ (1,891)
$ (6,034)
Postemployment severance actuarial change .
1,501
(599)
902
(1,292)
515
(777)
(3,853)
1,536
(2,317)
Other fair value changes:
Available-for-sale securities . . . . . . . . . . .
—
Derivatives. . . . . . . . . . . . . . . . . . . . . . . . .
1,063
Reclassification to (earnings) loss:
Available-for-sale securities . . . . . . . . . . .
—
Derivatives. . . . . . . . . . . . . . . . . . . . . . . . .
(1,555)
Amortization of prior service costs . . . . . .
Amortization of actuarial change . . . . . . .
286
774
—
(489)
—
523
(115)
(309)
—
574
(131)
2,494
52
(79)
1,377
(549)
828
(587)
1,907
(13,832)
3,962
(9,870)
—
(1,032)
171
465
(639)
(238)
285
753
255
55
(112)
(300)
(384)
(183)
173
453
(1,026)
409
7,742
(3,023)
285
517
(114)
(206)
(617)
4,719
171
311
Other comprehensive income (loss) . . . . . . . . . .
$ 15,287
$ (3,894)
$ 11,393
$ (11,440)
$ 2,166
$ (9,274)
$ (12,933)
$
124
$ (12,809)
Total comprehensive income . . . . . . . . . . . . . . .
$ 16,315
$
1,529
$
4,519
Accumulated other comprehensive income (loss), net of tax effects, was as follows:
(Amounts in Thousands)
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) from:
Year Ended June 30
2011
2010
2009
$
7,750
$
(2,563)
$
7,821
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(4,465)
—
(4,007)
Postemployment benefits:
Prior service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(636)
(1,031)
1,618
$
(807)
(2,398)
(9,775)
$
463
(5,731)
(980)
(2,074)
(501)
Note 18 Restructuring Expense
The Company recognized consolidated pre-tax restructuring expense of $1.0 million, $2.1 million, and $3.0 million in fiscal
years 2011, 2010, and 2009, respectively. The actions discussed below represent the majority of the restructuring costs during
the fiscal years presented in the summary table on the following page. Former restructuring plans that are substantially
complete and did not have significant expense during the fiscal years presented are included in the summary table on the
following page under the Other Restructuring Plans captions and include the Company-wide workforce restructuring plan, the
Furniture segment office furniture manufacturing consolidation plan, and the EMS Gaylord and Hibbing restructuring plans.
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.
65
Fremont Restructuring Plan:
During the fourth quarter of fiscal year 2011, the Company approved a plan to exit a small leased EMS assembly facility
located in Fremont, California. A majority of the business will be transferred to an existing Jasper, Indiana EMS facility by
mid-fiscal year 2012. The Company expects total pre-tax restructuring charges to be approximately $0.9 million, including
$0.3 million related to severance and other employee transition costs, and $0.6 million related to lease and other exit costs.
European Consolidation Plan:
During the fourth quarter of fiscal year 2008, the Company approved a plan to expand its European automotive electronics
capabilities and to establish a European Medical Center of Expertise near Poznan, Poland. The plan is being executed in stages
with a projected final completion date of mid-fiscal year 2012. As part of the plan:
• The Company successfully completed the move of production from Longford, Ireland, into a former Poznan, Poland
facility during the fiscal year 2009 second quarter.
• Construction of a new, larger facility in Poland was completed.
• The Company sold the former Poland facility and land during fiscal year 2010 and recorded a $6.7 million pre-tax
gain which is included in the Other General Income line on the Company's Consolidated Statements of Income.
• The former Poland facility was leased back until the transfer of the remaining production to the new facility was
completed in fiscal year 2011.
• The Company is in the process of consolidating its EMS facility located in Wales, United Kingdom into the new
facility, which is expected to improve the Company's margins in the very competitive EMS market.
The Company currently estimates that the total pre-tax charges, excluding the gain on the sale of the former facility and
construction of the new facility, related to the consolidation activities will be approximately, in millions, $21.4 consisting of
$20.0 of severance and other employee costs, $0.5 of property and equipment asset impairment, $0.4 of lease exit costs, and
$0.5 of other exit costs.
Summary of All Plans
(Amounts in Thousands)
EMS Segment
Fiscal Year Ended June 30, 2011
Accrued
June 30,
2010 (4)
Amounts
Charged
Cash
Amounts
Charged
Non-cash
Amounts
Utilized/
Cash Paid
Adjustments
Accrued
June 30,
2011 (4)
Total Charges
Incurred
Since Plan
Announcement (5)
Total
Expected
Plan
Costs (5)
—
$
246
$
18
$
—
$
—
—
20
$
266
$
(20)
$
(20)
$
—
—
—
$
$
264
$
—
264
$
264
$
264
20
284
$
594
858
FY 2011 Fremont Restructuring Plan
Transition and Other
Employee Costs . . . . . . . . . . . .
$
Plant Closure and Other Exit
Costs. . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . .
$
FY 2008 European Consolidation Plan
Transition and Other
Employee Costs . . . . . . . . . . . .
Asset Write-downs. . . . . . . . . .
Plant Closure and Other Exit
Costs. . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . .
Total EMS Segment . . . . . . . . . . .
Unallocated Corporate
Other Restructuring Plans (1) . . . . .
Consolidated Total of All Plans . . .
$
9,181
$
619
$
—
—
$
$
9,181
9,181
$
$
—
$
9,181
$
—
2
621
887
104
991
$
$
$
—
18
—
—
—
—
18
—
18
$
(2,776)
$
670
(6)
$
7,694
$
19,894
$ 20,005
—
(2)
$
$
(2,778)
(2,798)
$
$
(104)
$
(2,902)
$
—
—
670
670
—
670
—
—
522
658
522
891
$
$
7,694
7,958
$
$
21,074
$ 21,418
21,358
$ 22,276
—
765
892
$
7,958
$
22,123
$ 23,168
66
(Amounts in Thousands)
EMS Segment
FY 2008 European Consolidation Plan
Fiscal Year Ended June 30, 2010
Accrued
June 30,
2009 (4)
Amounts
Charged
(Income)
Cash
Amounts
Charged
Non-cash
Amounts
Utilized/
Cash Paid
Adjustments
Accrued
June 30,
2010 (4)
Transition and Other Employee Costs . . . . . . . . . . . . . . . . . . . .
$
12,288
$
1,673
$
—
$
(3,681)
$
(1,099)
(6)
$
9,181
Asset Write-downs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plant Closure and Other Exit Costs . . . . . . . . . . . . . . . . . . . . . .
—
—
—
200
176
—
(176)
(200)
—
—
—
—
Total EMS Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12,288
$
1,873
$
176
$
(4,057)
$
(1,099)
$
9,181
Furniture Segment
Other Restructuring Plans (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated Corporate
Other Restructuring Plans (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Total of All Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(83)
85
—
—
83
(85)
—
—
—
—
$
12,288
$
1,875
$
176
$
(4,059)
$
(1,099)
$
9,181
(Amounts in Thousands)
EMS Segment
FY 2008 European Consolidation Plan
Fiscal Year Ended June 30, 2009
Accrued
June 30,
2008 (4)
Amounts
Charged
(Income)
Cash
Amounts
Charged
(Income)
Non-cash
Amounts
Utilized/
Cash Paid
Adjustments
Accrued
June 30,
2009 (4)
Transition and Other Employee Costs. . . . . . . . . . . . . . . . . . . .
$
15,117
$
1,851
$
—
$
(2,498)
$
(2,182)
(6)
$
12,288
Asset Write-downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plant Closure and Other Exit Costs. . . . . . . . . . . . . . . . . . . . . .
—
—
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Restructuring Plans (3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total EMS Segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
15,117
521
$
15,638
$
$
—
394
2,245
252
2,497
$
$
(63)
—
63
(394)
—
—
—
—
(63)
$
(2,829)
$
(2,182)
$
12,288
(41)
(732)
—
—
(104)
$
(3,561)
$
(2,182)
$
12,288
Furniture Segment
Other Restructuring Plans (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated Corporate
Other Restructuring Plans (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Total of All Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . .
487
183
(26)
232
$
16,308
$
2,703
$
168
214
278
(629)
(629)
—
—
—
—
$
(4,819)
$
(2,182)
$
12,288
(1) The Other Restructuring Plan with charges during fiscal year 2011 is the Unallocated Corporate Gaylord restructuring plan
initiated in fiscal year 2007.
(2) Other Restructuring Plans with charges during fiscal year 2010 include the Furniture segment office furniture
manufacturing consolidation plan initiated in fiscal year 2009 and the Unallocated Corporate Gaylord restructuring plan
initiated in fiscal year 2007.
(3) Other Restructuring Plans with charges during fiscal year 2009 include the Furniture segment office furniture
manufacturing consolidation plan initiated in fiscal year 2009, the EMS segment Hibbing plan initiated in fiscal year 2008,
the EMS segment and Unallocated Corporate Gaylord restructuring plan initiated in fiscal year 2007, and the company-
wide workforce restructuring plan initiated in fiscal year 2008.
(4) Accrued restructuring at June 30, 2011 was $8.0 million recorded in current liabilities. At June 30, 2010 accrued
restructuring was $9.2 million consisting of $2.5 million recorded in current liabilities and $6.7 million recorded in other
long-term liabilities. At June 30, 2009 accrued restructuring was $12.3 million consisting of $3.8 million recorded in
current liabilities and $8.5 million recorded in other long-term liabilities.
(5) These columns include restructuring plans that were active during fiscal year 2011, including the EMS segment European
Consolidation Plan initiated in fiscal year 2008, the EMS segment Fremont Restructuring Plan initiated in fiscal year 2011,
and the Unallocated Corporate Gaylord restructuring plan initiated in fiscal year 2007.
(6) The effect of changes in foreign currency exchange rates within the EMS segment due to revaluation of the restructuring
liability is included in this amount.
67
Note 19 Variable Interest Entities
The Company's involvement with variable interest entities (VIEs) is limited to situations in which the Company is not the
primary beneficiary as the Company lacks the power to direct the activities that most significantly impact the VIE's
economic performance. Thus, consolidation is not required.
The Company is involved with VIEs consisting of an investment in preferred stock and stock warrants of a privately-held
company, a note receivable related to the sale of an Indiana facility, and notes receivable resulting from loans provided to
an electronics engineering services firm during fiscal year 2011. The Company also has a business development
cooperation agreement with the electronic engineering services firm. For information related to the Company's investment
in the privately-held company, see Note 13 - Investments and Note 12 - Derivative Instruments of Notes to Consolidated
Financial Statements. The combined carrying value of the notes receivable is $2.8 million, with no reserve, as of June 30,
2011, with the short-term portion recorded on the Receivables line and the long-term portion recorded on the Other Assets
line of the Company's Consolidated Balance Sheet. The Company has no material exposure related to the VIEs in addition
to the items recorded on its Consolidated Balance Sheet.
The Company has no obligation to provide additional funding to the VIEs, and thus its risk of loss related to the VIEs is
limited to the carrying value of the investments and notes receivable. The Company did not provide any financial support
in addition to the items discussed above to the VIEs during the fiscal year ended June 30, 2011.
Note 20 Credit Quality and Allowance for Credit Losses of Notes Receivable
The Company monitors credit quality and associated risks of notes receivable on an individual basis based on criteria such
as financial stability of the party and collection experience in conjunction with general economic and market conditions.
The Company holds collateral for the note receivable from the sale of an Indiana facility thereby mitigating the risk of loss.
As of June 30, 2011, none of the outstanding notes receivable are past due.
(Amounts in Thousands)
Note Receivable from Sale of Indiana Facility . . . . .
Notes Receivable from an Electronics Engineering
Services Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of June 30, 2011
Unpaid
Balance
Related
Allowance
Receivable
Net of
Allowance
$ 1,334
$
—
$
1,334
1,420
$ 2,754
$
—
—
$
1,420
2,754
68
Note 21 Quarterly Financial Information (Unaudited)
(Amounts in Thousands, Except for Per Share Data)
Fiscal Year 2011:
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2010:
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other General Income (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
$
$
$
$
$
$
$
$
$
$
294,676
47,147
117
456
0.01
0.01
0.01
0.01
274,659
47,184
—
486
1,774
0.04
0.05
0.04
0.05
$
$
$
$
$
$
$
$
$
$
310,632
49,576
368
876
0.02
0.02
0.02
0.02
275,161
44,141
(3,256)
291
1,906
0.05
0.05
0.05
0.05
$
$
$
$
$
$
$
$
$
$
314,466
50,691
68
3,306
0.08
0.09
0.08
0.09
282,347
40,377
(6,724)
933
6,330
0.17
0.17
0.17
0.17
$
$
$
$
$
$
$
$
$
$
282,823
47,178
456
284
—
0.01
—
0.01
290,641
44,831
—
341
793
0.02
0.02
0.02
0.02
(1) Other General Income included $3.3 million, pre-tax, for the quarter ended December 31, 2009 for the settlement proceeds
related to an antitrust class action lawsuit of which the Company was a member and $6.7 million pre-tax gain for the
quarter ended March 31, 2010 on the sale of the Company's Poland facility and land.
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, 2011, 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, 2011 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
69
Financial Reporting" and "Report of Independent Registered Public Accounting Firm" and are incorporated herein by
reference.
(c) Changes in internal control over financial reporting.
There have been no changes in the Company's internal control over financial reporting that occurred during the quarter
ended June 30, 2011 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 18, 2011 under the caption "Election of
Directors."
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 18, 2011 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 Securities Exchange Act of 1934 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 18, 2011 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, the Chief
Financial Officer, and the Chief 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 18, 2011 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 18, 2011 under the caption "Share Ownership Information."
70
Securities Authorized for Issuance Under Equity Compensation Plans
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 18, 2011 under the caption "Executive Officer and Director
Compensation — Securities Authorized for Issuance Under Equity Compensation 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 18, 2011 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 18, 2011 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 18, 2011 under the caption "Independent Registered Public
Accounting Firm" and "Appendix A — Approval Process for Services Performed by the Independent Registered Public
Accounting Firm."
71
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
Consolidated Balance Sheets as of June 30, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2011. . .
37
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended
June 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Share Owners' Equity for Each of the Three Years in the Period Ended
June 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
39
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
(2) Financial Statement Schedules:
II. Valuation and Qualifying Accounts for Each of the Three Years in the Period Ended June 30, 2011
75
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 76 for a list of the exhibits filed or incorporated herein as a part of this report.
72
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
KIMBALL INTERNATIONAL, INC.
By:
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 29, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated:
/s/ JAMES C. THYEN
James C. Thyen
President,
Chief Executive Officer
August 29, 2011
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 29, 2011
/s/ MICHELLE R. SCHROEDER
Michelle R. Schroeder
Vice President,
Chief Accounting Officer
August 29, 2011
73
Signature
Signature
GEOFFREY L. STRINGER *
Geoffrey L. Stringer
Director
THOMAS J. TISCHHAUSER *
Thomas J. Tischhauser
Director
CHRISTINE M. VUJOVICH *
Christine M. Vujovich
Director
HARRY W. BOWMAN *
Harry W. Bowman
Director
JAMES C. THYEN *
James C. Thyen
Director
JACK R. WENTWORTH *
Jack R. Wentworth
Director
* The undersigned does hereby sign this document on my behalf pursuant to powers of attorney duly executed and filed
with the Securities and Exchange Commission, all in the capacities as indicated:
Date
August 29, 2011
/s/ DOUGLAS A. HABIG
Douglas A. Habig
Director
Individually and as Attorney-In-Fact
74
Schedule II. - Valuation and Qualifying Accounts
KIMBALL INTERNATIONAL, INC.
Description
(Amounts in Thousands)
Year Ended June 30, 2011
Valuation Allowances:
Short-Term Receivables . . . . . . . . . . . . . .
Long-Term Note Receivables. . . . . . . . . .
Deferred Tax Asset. . . . . . . . . . . . . . . . . .
Year Ended June 30, 2010
Valuation Allowances:
Short-Term Receivables . . . . . . . . . . . . . .
Long-Term Note Receivables. . . . . . . . . .
Deferred Tax Asset. . . . . . . . . . . . . . . . . .
Year Ended June 30, 2009
Valuation Allowances:
Short-Term Receivables . . . . . . . . . . . . . .
Long-Term Note Receivables. . . . . . . . . .
Deferred Tax Asset. . . . . . . . . . . . . . . . . .
Balance at
Beginning
of Year
Additions
to Expense
Adjustments
to Other
Accounts
Write-offs
and
Recoveries
Balance at
End of
Year
$ 3,349
$
69
$ 5,777
$
476
$ —
$ 1,297
$ 4,366
$
—
$ 5,132
$
$
$
232
69
814
$ 1,057
$
—
$ 4,966
$ 4,137
$ —
$
288
$
$
$
$
$
$
$
$
$
195
—
—
(45)
—
—
93
—
—
$ (2,221)
(69)
$
(376)
$
$ (1,204)
—
$
(169)
$
$
$
$
(921)
—
(122)
$
$
$
$
$
$
$
$
$
1,799
—
6,698
3,349
69
5,777
4,366
—
5,132
75
KIMBALL INTERNATIONAL, INC.
INDEX OF EXHIBITS
Exhibit No.
3(a)
3(b)
10(a)*
10(b)*
10(c)*
10(d)*
10(e)*
10(f)*
10(g)
10(h)*
10(i)*
10(j)*
11
21
23
24
31.1
31.2
32.1
32.2
Description
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 October 23, 2009)
Summary of Director and Named Executive Officer Compensation
Discretionary Compensation
2003 Stock Option and Incentive Plan (Incorporated by reference to Exhibit 10(d) to the
Company's Form 10-Q for the period ended December 31, 2008)
Supplemental Employee Retirement Plan (2009 Revision) (Incorporated by reference to Exhibit
10(c) to the Company's Form 10-Q for the period ended December 31, 2008)
1996 Stock Incentive Program
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 March 8, 2010 between the Company and each of Donald
W. Van Winkle and Stanley C. Sapp and dated May 1, 2006 between the Company and each of
James C. Thyen, Douglas A. Habig, Robert F. Schneider, Donald D. Charron, John H. Kahle and
Gary W. Schwartz
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 2010 Profit Sharing Incentive Bonus Plan (Incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed October 25, 2010)
Computation of Earnings Per Share (Incorporated by reference to Note 16 - Earnings Per Share
of Notes to Consolidated Financial Statements)
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification furnished by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*=constitutes management contract or compensatory arrangement
76
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James C. Thyen, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Kimball International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: August 29, 2011
/s/ JAMES C. THYEN
JAMES C. THYEN
President,
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert F. Schneider, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Kimball International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date:
August 29, 2011
/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, 2011 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 results of
operations of the Company.
Date: August 29, 2011
/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, 2011 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 results of
operations of the Company.
Date: August 29, 2011
/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 11 years
Douglas A. Habig *
Chairman of the Board of Directors,
Kimball International
Director 38 years
Geoffrey L. Stringer + # *
Retired; Former Executive Vice President,
Bank One Corporation and Chief Executive Officer,
Bank One Capital Corporation
Director 8 years
James C. Thyen *
President, Chief Executive Officer,
Kimball International
Director 29 years
Thomas J. Tischhauser +
Executive Consultant, Leadership Development,
Former Corporate Vice President,
Continental Automotive and Motorola, Inc.
Director 3 years
Christine M. Vujovich # *
Retired; Former Vice President,
Marketing and Environmental Policy,
Cummins, Inc.
Director 17 years
Dr. Jack R. Wentworth #
Retired; Arthur M. Weimer Professor Emeritus,
Business Administration,
Indiana University;
Former Dean, Kelley School of Business,
Indiana University
Director 27 years
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 and is available on our website at:
www.kimball.com.
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:
Computershare
P.O. Box 43078, Providence, RI 02940 (written requests)
250 Royall Street, Canton, MA 02021 (overnight delivery)
Phones: 800-622-6757 (U.S., Canada, Puerto Rico)
+ Member of the Audit Committee of the Board
781-575-4735 (non-U.S.)
# Member of the Compensation and Governance
Committee of the Board
* Member of the Strategic Planning Committee of
the Board
Email inquiries: web.queries@computershare.com
Investor CentreTM website: www.computershare.com/investor
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)
Internet Address: www.kimball.com
Officers
Corporate Officers
Donald D. Charron
Executive Vice President,
President-Kimball Electronics Group
John H. Kahle
Executive Vice President,
General Counsel, Secretary
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
Gary W. Schwartz
Executive Vice President,
Chief Information Officer
Stanley C. Sapp
Vice President,
President-Kimball Hospitality
Donald W. Van Winkle
Vice President,
President-Office Furniture Group
R. Gregory Kincer
Vice President,
Business Development, Treasurer
Michelle R. Schroeder
Vice President,
Chief Accounting Officer
Dean M. Vonderheide
Vice President,
Organizational Effectiveness
Domestic Subsidiary Officers:
Robert W. Bomholt
Vice President,
General Manager,
Kimball Hospitality
Roger Chang (Chang Shang Yu)
Vice President,
Asian Operations,
Kimball Electronics Group
Richard C. Farr
Vice President,
Global Operations,
National Office Furniture
Jeffrey L. Fenwick
Vice President,
General Manager,
Kimball Office
Steven T. Korn
Vice President,
North American Operations,
Kimball Electronics Group
John C. Manchir
Vice President,
Operations,
Kimball Office
Kevin D. McCoy
Vice President,
General Manager,
National Office Furniture
C. Allen Parker
Vice President,
Marketing and Sales,
Kimball Office
Robert E. Rohlman
Vice President,
Sales,
National Office Furniture
Michael K. Sergesketter
Vice President,
Chief Financial Officer,
Kimball Electronics Group
Kourtney L. Smith
Vice President,
Marketing,
National Office Furniture
Christopher J. Thyen
Vice President,
Business Development,
Kimball Electronics Group
Zygmunt Witort
Vice President,
European Operations,
Kimball Electronics Group
Foreign Subsidiary Managers:
Janusz F. Kasprzyk
General Manager,
Kimball Electronics Poland,
Sp. zo. o.
Meechai Charatpattanawong
General Manager,
Kimball Electronics (Thailand), Ltd.
Robert O. Burre
General Manager,
Kimball Electronics-Mexico,
S.A. de C.V.
Daniel Gu (LuYin Gu)
General Manager,
Kimball Electronics (Nanjing) Co., Ltd.
Meirion Evans
General Manager,
Kimball Electronics (Wales) Limited
Corporate Sustainability Report
To view our Corporate Sustainability Report please
go to http://www.kimball.com/sustainability.aspx
We are pleased to offer materials to our Share Owners over the Internet. As a
result, we are printing far fewer copies, thus conserving natural resources and
reducing energy use in printing and shipping materials.
Kimball International urges you to help
the environment – please recycle.
SM
This report is printed on FSC-certified 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).
1600 Royal Street
Jasper, IN 47549
812-482-1600
812-482-8500 TDD
www.kimball.com
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