This is an opportunity
2012 Annual Report
which can grow
Kimball Hospitality – Bellagio® Las Vegas
Kimball Office – Priority™
We are
prepared
to take
advantage
of the
opportunities
for growth
that we
have been
shaping and
cultivating.
which can grow
Kimball Office – Priority™
National Office Furniture – Confide™ Lounge
The Kimball story is a story of opportunity.
Every interaction, every meeting is not
merely a connection between point A and
point B, but an opportunity to do more, to
advance, to grow.
Since our beginning over sixty years ago,
Kimball has been making connections that
advance not only in a linear fashion, but
have enabled us to expand exponentially.
Every opportunity provides the occasion
to expand our customer base, our product
portfolio, our capabilities, our markets or
our geographic footprint.
Our Kimball Hospitality brand is already
acknowledged as the market leader.
Success has been built on a culture of
customer service, innovative product
solutions, and responsive global
execution. High-profile resort properties
and major hotel brands like the Bellagio®
Las Vegas and MGM Grand® Las
Vegas recognize Kimball Hospitality’s
package of value in product design and
development capabilities, logistics and
unequalled service.
As an unparalleled supplier with both
global and domestic capabilities, Kimball
Hospitality stands ready for opportunities
to serve the hotel, casino and travel
industry marketplace.
Kimball Office provides solutions, for
more productive, efficient and healthy
workspaces. With one of the industry’s
most sustainable product portfolios,
Kimball Office supports architects and
interior designers with opportunities
to earn LEED® certification points
toward green facilities. From classic to
contemporary, the versatile offerings of
Kimball Office integrate easily throughout
entire floor plans of an organization.
National Office Furniture’s advance in
the market continues. A strong product
portfolio delivers modern functional design
that performs in any space, from lobby
to private office to open plan areas. With
an outstanding team culture dedicated
to delivering the ultimate in customer
experience, National helps customers
build success and take advantage of their
own opportunities.
Medical Electronics
2 Kimball 2012 www.kimball.com
Medical Electronics
Public Safety Electronics
Automotive Electronics
Industrial Electronics
As a company and as an
organization, we are uniquely
positioned to seize opportunities
as they arise. We are set in our
capabilities and confident in our
package of value, ready to take
full advantage of each chance to
advance.
We continue to succeed by making
every opportunity an occasion to
expand and diversify.
We are culturally set to view
customer requests as opportunities
for problem-solving; the challenges
presented in quotation requests are
opportunities for growth.
With strong will, leadership, courage
and teamwork, we consistently
make every occasion to collaborate
a chance to build success.
Kimball Electronics’ employees meet
daily challenges with commitment
and discipline, seizing opportunities to
expand capabilities while serving four
key markets. Customers value and
rely upon the Kimball global footprint
of operations and our capability
to transfer production to meet
their needs. Quality, expertise and
performance keep us ranked in the
global top twenty among electronics
manufacturing services companies.
into more opportunities
We know that ever-increasing
demand for advanced
technology and electronics
will reward those who are
positioned to respond.
www.kimball.com Kimball 2012 3 4 Kimball 2012 www.kimball.com
Furniture Manufacturing
We have every
confidence in
our employees,
our capabilities,
our products and
package of value
in building even
more success.
and a bright future.
The Kimball story began as a story of seizing
opportunity.
From building affordable pianos to producing
cabinets for a new technology called television.
Anticipating customer needs and new markets
has been at the heart of our Company’s story.
We continue to live our Company vision
to build success by viewing challenges as
opportunities.
Opportunities that build success ultimately
create opportunities to give back to our
communities. National Office Furniture’s “Gift
of Inspiration” program achieved a milestone
as it surpassed $135,000 in donations
to deserving healthcare and educational
organizations.
We are committed to taking advantage of every
opportunity. Persistence, commitment and a
positive attitude move us forward, bringing
ever more opportunity.
We do not view challenges as aggravation, but
as new opportunities to be explored.
Our passion and perseverance turn
opportunities into profitable business.
We believe in what we do and what we sell.
We have passion in the package of value we
bring to our customers. We are positioned well.
We are capable of executing. Our strategy is
sound and our long-term outlook is bright.
Creating opportunities is something we have
long understood.
Seizing opportunities is how we build success.
Furniture Manufacturing
Corporate Social Responsibility
Electronics Manufacturing
www.kimball.com Kimball 2012 5 To Our Share Owners:
$800,000
$600,000
$400,000
$200,000
$0
s
e
l
a
S
t
e
N
$4,067
‘11
‘12
EMS Segment
Segment Net Sales and Net Income
(In thousands)
$6,572
$6,957
$8,000
$6,000
$4,000
$2,000
e
m
o
c
n
I
t
e
N
$472
$0
‘11
‘12
Furniture Segment
Net Sales
Net Income
6 Kimball 2012 www.kimball.comOpportunities still exist...Opportunities still exist and continue to present themselves despite a volatile macroeconomic environment and global uncertainty. Seizing those opportunities when apparent and creating them when they were less obvious is how we have grown and strengthened your Company over the past year. Financial results for fiscal year 2012 improved during the year. Our costs and operating results reflect our commitment to our priorities of focus, including a concentration on margin improvement and more effective management of our supply chain, both globally and domestically. Inventory reduction initiatives in both business segments were also successful, and contributed to the improved year-end results. Open orders in the Electronic Manufacturing Services (EMS) segment at June 30, 2012, were up 3% over 2011. Orders open in the Furniture segment decreased 20% from the orders open as of year-end 2011, primarily due to lower office furniture orders from the federal government and a large hospitality custom project received near the end of last fiscal year, which was included in the June 30, 2011 open orders. Consolidated Net Sales for fiscal year 2012 were $1,142,061,000, a 5% decrease compared to last fiscal year sales. The consolidated decrease was a result of a 15% decrease in net sales in the EMS segment, which more than offset a 9% net sales increase in the Furniture segment. As reported throughout the year, the comparative results include the expiration of a large contract in late fiscal year 2011 in the EMS medical vertical. Hospitality furniture sales made a notable contribution to the segment’s net sales increase with several large custom projects for major brand customers. Consolidated Selling and Administrative Expenses decreased 1.6% in absolute dollars, but increased as a percent of net sales on the lower revenue.Gross Profit as a percent of sales increased by 2.2 percentage points over the prior year, as margin improvements in both segments made an impact, and due in part to a sales mix shift towards the Furniture segment which typically operates at a higher gross profit percentage than the EMS segment. In the EMS segment, as a result of successful restructuring actions, gross profit as a percent of net sales improved by 1.4 percentage points over fiscal year 2011. In the Furniture segment, gross profit as a percent of net sales improved by 0.7 percentage points compared to fiscal year 2011. Focused attention on inventory reductions and internal operational improvements contributed to cost savings. Offsetting these improvements to a degree were commodity cost increases, higher freight transport and fuel costs, and the effects of excess capacity at certain operating locations. Net Income for fiscal year 2012 was $11.6 million, or $0.31 per Class B diluted share, more than double last year’s income. These results reflect your Company’s efforts in growing its business, improving margins, and increasing Share Owner value in the face of changing customer value relationships between suppliers and consumers on a worldwide basis. Cash management remained a key priority through the year, as the economic landscape remained volatile. Your Company’s balance sheet remains strong, with minimal long-term debt. Cash and cash equivalents improved to $75.2 million, as of the June 30 fiscal year end, compared to $51.4 million at the end of fiscal 2011.
www.kimball.com Kimball 2012 7Electronics: During the fourth quarter of fiscal year 2012, our EMS segment experienced its best quarterly performance from operations in thirty quarters, excluding non-operating and restructuring activities. The results of our U.S. and European restructuring actions began to show definite contributions to the segment’s bottom line. Our Poland operation is now ideally situated to respond to conditions in the European market. The placement of our EMS operational footprint was validated this past year, as customer preference in supply relationships shifted in response to changing world economies.The EMS segment experienced mixed results from various markets and sectors, although overall demand continued to stabilize throughout the year. The automotive market benefitted from relative strength in the U.S. while demand in Europe softened, as a result of the impacts of the European Debt crisis. Sales to the industrial vertical market decreased, reflecting a lower demand for heating, ventilation, and air conditioning (HVAC) products. Despite uncertainties related to the potential tax policy costs and regulatory impacts of then-pending U.S. healthcare reform legislation, demand in the medical market remained stable, as did demand in the public safety vertical market.The EMS segment has successfully dealt with “mega forces” at work in its global markets, amid a highly competitive marketplace with substantial excess production capacity. Kimball Electronics has demonstrated its unique package of value in serving customers as it continues winning both new customers and award programs from existing customers. Furniture: The Furniture segment saw an overall net sales increase of 9%, however, the segment experienced a decline in business volumes from the Federal and State government vertical markets, as these sectors responded to a combination of economic conditions, and revenue shortfalls impacted budgets and expenditures. Project business awards in contract office furniture continued to be hampered by an uncertain, choppy economy, with many deferred decisions or delayed schedules. Projections by the Business and Institutional Furniture Manufacturer’s Association (BIFMA) estimated a modest year-over-year increase in office furniture consumption for calendar year 2012. Both the Kimball Office and National office furniture brands again benefitted from strong brand awareness and market attention during the industry’s premier annual trade show in Chicago. A strategic focus on select vertical markets, as well as targeting new business and professional services sectors, has yielded significant results. The comparable indicator for the hospitality market, RevPAR, or Revenue Per Available Room, is estimated to increase 6% for calendar year 2012. A rise in occupancy rates helped spur refurbishments for at least a portion of an estimated 500,000 guestrooms in pent up demand. Strong recognition as the industry leader positions Kimball Hospitality well for future business opportunities as industry conditions improve. With the results of the past year, we believe it is apparent that we are gaining traction. We have been successfully opportunistic in strengthening customer relationships, product portfolios, and internal processes. Our capabilities are in place and our people are poised to seek out and take advantage of new opportunities. We are absolutely committed to quality, reliability and service. The many actions we have taken over the past two years in support of our strategies position us well for the year ahead. The wild card is the economy.The upside potential of our investments is significant. It should be increasingly apparent that we have the will and the strength to be opportunistic in the markets we serve and the ability to be the winner in those engagements. To understand how Kimball International is positioned to make opportunities and poised to grow our business, 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.James 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
Kimball Hospitality
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.
Bed Headboards, Desks, Tables, Dressers, Entertainment Centers, Chests, Wall Panels, Upholstered
Seating, Task Seating, Cabinets and Vanities.
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.
2012 Sales By
Business Segments
54%
Electronic
Manufacturing Services
46%
Furniture
Financial Highlights
(Amounts in thousands, except for per share data)
2 012
2011
% Change
-5.0%
136.4%
135.5%
176.4%
7.3%
-14.9%
-0.3%
141.7%
121.4%
0.0%
0.0%
$1,142,061
$1,202,597
11,634
2.85%
59,019
190,950
28,266
386,228
0.29
0.31
0.18
0.20
7.84
4.61
7.70
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
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 2012 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, 2012
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, 2011 (the last business day of the
Registrant's most recently completed second fiscal quarter) was $136.9 million, based on 96.7% of Class B Common Stock held by non-affiliates.
The number of shares outstanding of the Registrant's common stock as of August 13, 2012 was:
Class A Common Stock - 10,112,494 shares
Class B Common Stock - 27,788,195 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on October 16, 2012, 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.
Item 4.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
14
15
15
16
16
19
19
30
32
68
68
69
69
69
70
70
70
71
72
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, 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, and
Poland. 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, 2012 were as
follows:
(Amounts in Thousands)
Electronic Manufacturing Services segment . . . . . . $ 616,751
525,310
Furniture segment . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Unallocated Corporate . . . . . . . . . . . . . . . . . . . . . . .
Kimball International, Inc. . . . . . . . . . . . . . . . . . . . $ 1,142,061
2012
2011
2010
54% $ 721,419
481,178
46%
—
—%
100% $ 1,202,597
60% $ 709,133
413,611
40%
64
—%
100% $ 1,122,808
63%
37%
—%
100%
Financial information by segment and geographic area for each of the three years in the period ended June 30, 2012 is included
in Note 14 - Segment and Geographic Area Information of Notes to Consolidated Financial Statements and is incorporated
herein by reference.
Segments
Electronic Manufacturing Services
Overview
The Company 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,
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 five
countries through prototype, new product development and introduction, supply chain management, test development,
complete system assembly, and repair 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:
•
•
•
•
•
•
•
•
design support;
new product launch;
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.
3
Integrated throughout this segment is customer program management over the life cycle of the product along with supply chain
management, which affords customers the opportunity to focus their attention and resources to sales, marketing, and product
development as they sell their unique end products under their brand name into various markets and industries.
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.
Recent Business Changes
During the fourth quarter of fiscal year 2011, the Company approved a plan to exit a 35,000 square foot leased assembly
operation located in Fremont, California. Operations at this facility ceased during the second quarter of fiscal year 2012, and a
majority of the business was transferred to an existing Jasper, Indiana EMS facility.
During the first quarter of fiscal year 2009, the Company acquired privately-held Genesis Electronics Manufacturing of
Tampa, Florida. The acquisition supported the Company's growth and diversification strategy, bringing new customers in the
Company's key medical and industrial 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
consolidated 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 was executed in stages
and was completed during fiscal year 2012.
Additional information regarding the Company's restructuring activities is located in Note 17 - Restructuring Expense of Notes
to Consolidated Financial Statements.
Locations
As of June 30, 2012, the Company's EMS segment consisted of six manufacturing facilities with one located in each of Indiana,
Florida, Poland, China, Mexico, and Thailand. As discussed above, during fiscal year 2012, the Company completed the
consolidations of the EMS facilities located in California and Wales, United Kingdom into other EMS segment facilities. 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 20th largest global EMS provider
for calendar year 2011 by Manufacturing Market Insider in the March 2012 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 natural
disasters can and have disrupted portions of the supply chain. The Company has minimized disruption in the supply chain by
maintaining 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, and public safety industries. Included in this segment prior to fiscal year 2012 were a significant
amount of sales to Bayer AG affiliates which accounted for the following portions of consolidated net sales and EMS segment
net sales:
2012
Bayer AG affiliated sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . . —%
1%
Bayer AG affiliated sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30
2011
11%
19%
2010
15%
24%
As shown in the table above, the Company's sales to Bayer AG declined due to the expiration of the Company's primary
manufacturing contract with this customer in the fourth quarter of fiscal year 2011. This contract accounted for a majority of
the sales to Bayer AG during fiscal years 2011 and 2010. 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
The Company has been in the furniture business since 1950. This segment's core markets include office furniture sold under
the Kimball Office and National brand names and hospitality furniture sold under the Kimball Hospitality brand name.
Throughout all of the brands, the Company offers unlimited possibilities for creating functional environments that convey just
the right image for each unique setting. 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 in room and public space 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, cabinets, and vanities with a broad mix of wood, metal, stone, laminate,
finish, and fabric options. 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.
Recent Business Changes
A production facility in Virginia was opened during fiscal year 2011 to manufacture upholstered seating, headboards, and other
products for the Company's custom, program, and catalog offerings for hospitality guest rooms and public spaces.
During the first quarter of fiscal year 2009, the Company approved a restructuring plan to consolidate production of select
5
office furniture manufacturing departments. The consolidation was substantially completed during fiscal year 2009 with the
remaining items completed during fiscal year 2010. The consolidation reduced manufacturing costs and excess capacity by
eliminating redundant property and equipment, processes, and employee costs.
Locations
The Company's furniture products as of June 30, 2012 were primarily produced at eleven plants: seven located in Indiana, two
in Kentucky, and one each in Idaho and Virginia. 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. 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, sustainability, 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
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
2012
June 30
2011
170.6
72.0
242.6
$
$
165.1
90.4
255.5
Substantially all of the open orders as of June 30, 2012 are expected to be filled within the next fiscal year. Open orders of
furniture products at June 30, 2012 are lower than the June 30, 2011 open orders primarily due to lower office furniture orders
from the U.S. federal government and a large hospitality custom project received near the end of fiscal year 2011 which was
included in the June 30, 2011 open orders. 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
2011
2010
2012
$13
$13
$12
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, Fluent, and Aurora
Trademarks: President, IntegraClear, Exhibit, Priority, Villa, Wish, and Swift
Patents: Wish, Priority, Xsite, Exhibit, Villa, and Fluent (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, 2014, 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
2012
June 30
2011
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Full-Time Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,694
2,601
6,295
3,787
2,575
6,362
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;
•
•
• white-collar unemployment rates;
•
•
•
commercial property vacancy rates;
new office construction and refurbishment rates;
deficit status of many governmental entities which may result in declining purchases of office furniture;
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 risk
of further deterioration in the United States economy is exacerbated by:
•
•
•
general financial instability in the stressed European countries;
uncertainties related to future U.S. tax rates; and
delayed decisions regarding U.S. spending policies until after the November 2012 presidential election.
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 further
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. 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. 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 also
could lower profit margins. 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 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. Suppliers 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
9
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
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.
Future restructuring efforts by the Company may not be successful. The Company continually evaluates its manufacturing
capabilities and capacities in relation to current and anticipated market conditions. If the Company implements further
restructuring plans in the future, the successful execution of those restructuring initiatives will be dependent on various 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.
The Company's international operations involve financial and operational risks. The Company has operations outside the
United States, primarily in China, Thailand, Poland, 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;
10
•
•
•
tariffs and other trade barriers;
potentially adverse tax consequences including the manner in which multinational companies are taxed in the U.S.;
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 sustainability and 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, shifts in customer payment practices, 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
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 options for incorporating International Financial Reporting Standards (IFRS) into the U.S. financial reporting
11
system. 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, 2012, the Company had no short-term borrowings under its credit facilities and had
total cash and cash equivalents of $75.2 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. In addition, the Company's credit facility
expires in April 2013, and the new credit facility terms may be less favorable than the current terms.
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
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
12
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, the use of certain hazardous materials in the
production of select EMS products, 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 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 expended 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, 2012 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.
Imposition of government regulations may significantly increase the Company's operating costs in the United States.
Legislative and regulatory reforms by the U.S. federal government could significantly impact the profitability of the Company
by burdening it with forced cost choices that cannot be recovered by increased pricing.
• The United States healthcare reform legislation passed in 2010 and upheld by the Supreme Court in 2012 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.
13
• 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. 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.
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, 2012, are as follows:
Number of Facilities
Electronic
Manufacturing
Services
Furniture
Unallocated
Corporate
Total
North America
Florida. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia
China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
1
1
1
1
1
6
1
13
2
1
1
18
4
1
1
18
2
1
1
2
1
1
4
28
14
The listed facilities occupy approximately 4,820,000 square feet in aggregate, of which approximately 4,733,000 square feet
are owned and 87,000 square feet are leased. Square footage of these facilities is summarized by segment as follows:
Approximate Square Footage
Electronic
Manufacturing
Services
Furniture
Unallocated
Corporate
Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,011,000
3,491,000
—
67,000
1,011,000
3,558,000
231,000
20,000
251,000
Total
4,733,000
87,000
4,820,000
During fiscal year 2012, the Company exited EMS segment facilities in California and the United Kingdom as previously
announced restructuring consolidation plans were completed.
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 2012.
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
included in the tables above, total 208,000 square feet and expire from fiscal year 2013 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 4 - 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 - Mine Safety Disclosures
Not applicable.
15
Executive Officers of the Registrant
The executive officers of the Registrant as of August 27, 2012 are as follows:
(Age as of August 27, 2012)
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
68
65
51
48
55
64
51
51
47
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.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6.92
6.09
7.19
7.84
$
$
$
$
4.61
4.63
5.15
6.25
$
$
$
$
6.50
7.17
7.73
7.89
$
$
$
$
4.81
5.51
6.09
5.92
2012
2011
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.
16
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 $7.4 million for
fiscal year 2012 and $7.3 million for fiscal year 2011. Dividends per share declared by quarter for fiscal year 2012 compared
to fiscal year 2011 were as follows:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Share Owners
2012
Class A
0.045
0.045
0.045
0.045
0.180
Class B
0.05
0.05
0.05
0.05
0.20
$
$
2011
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 13, 2012, the Company's Class A Common Stock was owned by 549 Share Owners of record, and the Company's
Class B Common Stock was owned by 1,666 Share Owners of record, of which 292 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 2012. At June 30, 2012, two million shares remained available under the repurchase program.
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, 2007 through June 30, 2012, 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 Corporation, 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.
17
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, 2007 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. . . . . . . . . . . . . . . . . . . . . . . $ 100.00
NASDAQ Stock Market (U.S. & Foreign). . . . . . . . . . $ 100.00
Peer Group Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00
$
$
$
62.73
84.54
72.14
$
$
$
49.79
73.03
47.92
$
$
$
45.26
82.88
70.95
$
54.26
$ 110.33
96.05
$
$
67.20
$ 115.30
85.13
$
2007
2008
2009
2010
2011
2012
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,142,061
Income from Continuing Operations . . . . . . . . . $
11,634
Earnings Per Share from Continuing
Operations:
2012
Basic:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Total Assets
Long-Term Debt, Less Current Maturities. . . . . $
Cash Dividends Per Share:
0.29
0.31
0.29
0.31
595,516
273
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.18
0.20
Year Ended June 30
2010
2011
2009
2008
$ 1,202,597
$ 1,122,808
$ 1,207,420
$ 1,351,985
$
$
$
$
$
$
$
$
$
4,922
$
10,803
$
17,328
$
78
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
The income statement activity of discontinued operations in each of the years ended June 30, 2012, 2011, 2010, and 2009 was
zero. The preceding table excludes all income statement activity of discontinued operations in the year ended June 30, 2008.
Fiscal year 2012 income from continuing operations included $2.1 million ($0.06 per diluted share) of after-tax restructuring
expenses.
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.
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, and public safety
industries. The Furniture segment provides furniture for the office and hospitality industries, sold under the Company's family
of brand names.
Projections for calendar year 2012 (by IDC and IHS iSuppli in January 2012) reported a range of projected growth from flat to
19
4% in the EMS industry. In addition, the Semiconductor Industry Association (SIA) reported in January 2012 that
semiconductor sales are projected to have low single-digit growth in calendar year 2012, and although the Company does not
directly serve this market, it may be indicative of the end market demand for products utilizing electronic components. More
recent EMS industry outlooks have not been widely published as there are no clear trends defining the industry this year as the
various markets have mixed outlooks.
The Company focuses on the four key vertical markets of medical, automotive, industrial, and public safety in the EMS
segment. This segment's overall demand continues to stabilize, but is mixed. The automotive end market is benefiting from
relative strength in the U.S. market while demand in other geographies such as Europe is less certain due to the impact of the
European debt crisis. The industrial market demand is improving but continues to reflect a lower demand for heating, cooling,
and ventilation (HVAC) products than historical levels. Demand in the medical and public safety markets remains stable.
As of June 2012, the Business and Institutional Furniture Manufacturer Association (BIFMA) forecasted a year-over-year
increase in the office furniture industry for calendar year 2012 of 5% with improved growth of 7% forecast for calendar year
2013. The hospitality furniture market forecasts (June 2012 reports by Smith Travel Research and PricewaterhouseCoopers
LLP) project an approximate 2% increase in occupancy rates and an approximate 6% increase in revenue per available room
(RevPAR) for calendar year 2012.
Competitive pricing pressures continue to burden the operating margins of select areas within both segments of the Company's
operations.
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 Company's worldwide, group, or business unit performance which adjusts compensation expense as profits change. The
focus on cost control continues. At the same time, the Company plans to continue to invest in capital expenditures prudently for
projects in support of both organic growth and potential acquisitions that would enhance the Company's capabilities and
diversification while providing an opportunity for growth and improved profitability. 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. Managing working capital in conjunction with fluctuating demand levels is likewise key.
The Company continued to maintain a strong balance sheet as of the end of fiscal year 2012, which included minimal long-term
debt of $0.3 million and Share Owners' equity of $386.2 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 $170.9 million at June 30,
2012.
In addition to the above discussion 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:
• While certain sectors are showing signs of economic recovery, the macroeconomic environment remains volatile as a result
of continued uncertainty related to the European debt crisis, the upcoming U.S. elections, and the potential tax increases
and spending cuts looming at the end of calendar year 2012. The uncertainty tends to cause disruption in business strategy,
execution, and timing in many of the markets in which the Company competes.
• The nature of the EMS industry is such that the start-up of new programs to replace departing customers or expiring
programs occurs frequently. As previously announced, 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 Company continues to manufacture
other products for Bayer AG. 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.
•
Inflation has moderated and does not appear to be a significant risk in the near-term, but the Company continues to focus
on mitigating the impact of raw material commodity pricing pressures.
• The healthcare reform legislation that was signed into law in March 2010 and upheld by the Supreme Court in June 2012 is
expected to increase the Company's healthcare and related administrative expenses as the provisions of the law become
effective over the next couple of years.
• Globalization continues to reshape not only the industries in which the Company operates but also its key customers and
competitors.
20
• 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.
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 2012 Results of Operations
Financial Overview - Consolidated
Fiscal year 2012 consolidated net sales were $1.14 billion compared to fiscal year 2011 net sales of $1.20 billion, a 5%
decrease, resulting from a 15% net sales decrease in the EMS segment which more than offset a 9% net sales increase in the
Furniture segment. Fiscal year 2012 net income was $11.6 million, or $0.31 per Class B diluted share, inclusive of $2.1
million, or $0.06 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 2011 of $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.
Consolidated gross profit as a percent of net sales improved to 18.4% for fiscal year 2012 from 16.2% in fiscal year 2011 due to
margin improvement in both the EMS and Furniture segments coupled with 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
2012
54%
46%
2011
60%
40%
Fiscal year 2012 consolidated selling and administrative expenses decreased 1.6% in absolute dollars, but increased as a
percent of net sales, compared to fiscal year 2011, on decreased operating leverage due to lower revenue. The Company
recorded $3.1 million less expense within selling and administrative expenses in fiscal year 2012 than fiscal year 2011 related
to the normal revaluation to fair value of the Company's Supplemental Employee Retirement Plan (SERP) liability. The
revaluation of the SERP liability recorded in selling and administrative expenses is exactly offset by the revaluation of the
SERP investment recorded in Other Income (Expense); therefore, there was no effect on net earnings. Employee contributions
comprise approximately 90% of the SERP investment. Partially offsetting the lower SERP expense was an increase in incentive
compensation expenses in fiscal year 2012 as compared to fiscal year 2011.
Fiscal year 2012 other expense totaled $0.7 million compared to other income of $2.0 million for fiscal year 2011. Other
income (expense) consisted of the following:
Other Income (Expense)
(Amounts in Thousands)
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Currency/Derivative Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (Loss) on Supplemental Employee Retirement Plan Investment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment Loss on Privately-Held Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment Loss on Convertible Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (Loss) on Stock Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Income (Expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended
June 30
2012
2011
$
430
(35)
568
(3)
(715)
—
(526)
(406)
(687) $
820
(121)
(1,208)
3,064
—
(1,216)
1,041
(359)
2,021
The impairment loss on privately-held investment, the impairment loss on convertible debt securities, and the gain (loss) on
stock warrants listed in the table above all relate to the Company's investment in one privately-held company. See the Notes to
Consolidated Financial Statements for more detailed information.
21
The fiscal year 2012 effective tax rate was 34.3%. 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. See Note 8 - Income Taxes of Notes to Consolidated Financial Statements
for more information.
Comparing the balance sheet as of June 30, 2012 to June 30, 2011, the decrease in accounts receivable was a result of the
Company's lower sales levels and a shift in the payment practices of three large EMS segment customers during fiscal year
2012 which favorably impacted the Company's accounts receivable balance. A reduction in the Company's inventory balance
was primarily the result of successful inventory reduction initiatives in both segments, and the Company's accounts payable
balances declined in conjunction with the reduced inventory levels. The decreased accrued expenses balance was primarily
driven by a decline in accrued compensation and a decline in accrued restructuring as the European consolidation plan was
completed during fiscal year 2012.
Electronic Manufacturing Services Segment
EMS segment results follow:
At or For the Year
Ended June 30
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating Income % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restructuring Expense, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Open Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2012
616.8
8.9
1.4%
6.6
1.7
170.6
$
$
$
$
$
2011
% Change
721.4
5.5
0.8%
4.1
0.5
(15)%
62 %
62 %
165.1
3 %
Fiscal year 2012 EMS segment net sales to customers in the medical, industrial, and public safety industries decreased
compared to fiscal year 2011 which more than offset an increase in net sales to customers in the automotive industry. The
decline in net sales to the medical industry was attributable to the expiration of a contract with one medical customer (Bayer
AG) late in fiscal year 2011 which accounted for a $130.7 million decline in net sales in fiscal year 2012. Excluding this
customer, net sales to the medical industry, as well as the overall EMS segment net sales, increased in fiscal year 2012
compared to fiscal year 2011. Open orders as of June 30, 2012 were up 3% compared to June 30, 2011. However, 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 2012 EMS segment gross profit as a percent of net sales improved 1.4 percentage points when compared to fiscal
year 2011. The improvement was primarily driven by the benefit from a sales mix shift toward higher margin product and
benefits realized related to restructuring activities in which two facilities were closed during the second quarter of fiscal year
2012.
EMS segment selling and administrative expenses in absolute dollars decreased 11% in fiscal year 2012 as compared to fiscal
year 2011, but increased as a percent of net sales on the lower sales volumes. The selling and administrative expenses declined
primarily due to benefits realized from restructuring activities within this segment.
The previously announced exit of the Company's small assembly facility located in Fremont, California was completed during
fiscal year 2012 along with the associated move of a majority of that business to the Jasper, Indiana facility. In addition, the
previously announced consolidation of the Company's European EMS facilities was likewise completed during fiscal year
2012. See Note 17 - Restructuring Expense of Notes to Consolidated Financial Statements for more information on
restructuring charges.
EMS segment Other Income/Expense for fiscal year 2012 totaled expense of $0.3 million, compared to expense of $1.9 million
in fiscal year 2011. The variance in Other Income/Expense was primarily related to net foreign currency exchange movement.
22
Included in this segment were a significant amount of sales to Bayer AG affiliates in the prior fiscal year which accounted for
the following portions of consolidated net sales and EMS segment net sales:
2012
Bayer AG affiliated sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . . . —%
1%
Bayer AG affiliated sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . . . . . . . . . .
2011
11%
19%
Year Ended June 30
The Company's sales to Bayer AG declined due to the expiration of the Company's primary manufacturing contract with this
customer. 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, customer order
delays, increased globalization, foreign currency exchange rate fluctuations, rapid technological changes, component
availability, supplier stability, the contract nature of this industry, the concentration of sales to large customers, and the potential
for customers to choose a dual sourcing strategy or 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.
Furniture Segment
Furniture segment results follow:
At or For the Year
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating Income % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Open Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
$
Ended June 30
2011
481.2
1.1
0.2%
0.5
90.4
2012
525.3
11.9
2.3%
7.0
72.0
$
$
% Change
9 %
1,003 %
1,374 %
(20)%
The fiscal year 2012 net sales increase in the Furniture segment compared to fiscal year 2011 resulted primarily from increased
net sales of hospitality furniture and to a lesser extent from increased net sales of office furniture. The increase in net sales of
hospitality furniture was driven by large custom projects during fiscal year 2012. The increase in office furniture net sales was
due to the positive impact of price increases net of incremental discounting which more than offset a decrease in sales volume.
Fiscal year 2012 sales of newly introduced office furniture products which have been sold for less than twelve months
approximated $13.5 million. Open orders of furniture products at June 30, 2012 decreased 20% from the orders open as of
June 30, 2011 primarily due to lower office furniture orders from the U.S. federal government and a large hospitality custom
project received near the end of fiscal year 2011 which was included in the June 30, 2011 open orders. Open orders at a point
in time may not be indicative of future sales trends.
Fiscal year 2012 Furniture segment gross profit as a percent of net sales improved 0.7 percentage points when compared to
fiscal year 2011. Fiscal year 2012 gross profit as a percent of net sales was favorably impacted by sales price increases net of
incremental discounting, by a recovery of previously paid import duties related to a retroactive change in a tariff rate, and by
the favorable impact resulting from a decrease in the LIFO inventory reserve. The improvement in fiscal year 2012 gross profit
as a percent of net sales was partially offset by commodity cost increases, higher freight and fuel costs, and the impact of
excess operating capacity at select locations.
Fiscal year 2012 selling and administrative expenses increased in absolute dollars by 3.9%, but decreased as a percent of net
sales on the higher sales volumes, when compared to fiscal year 2011. The selling and administrative expenses were impacted
by higher salary expenses, higher incentive compensation costs, and increased travel expenses.
23
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 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 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.
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 the 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 impacted 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 8 - Income Taxes of
Notes to Consolidated Financial Statements for more information.
24
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, 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. Open
orders were down 17% as of June 30, 2011 compared to June 30, 2010 primarily due to lower orders from Bayer AG.
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.
The pre-tax restructuring charges recorded during fiscal year 2011 totaled $0.9 million. See Note 17 - 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 . . . . . . . . . . . . . . . . . . . . . . . . .
25
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 years 2011 and 2010.
Furniture Segment
Furniture segment results follow:
At or For the Year
Ended June 30
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Income (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Open Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2011
2010
% 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.
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.
Liquidity and Capital Resources
Working capital at June 30, 2012 was $191.0 million compared to working capital of $178.0 million at June 30, 2011. The
current ratio was 2.0 at June 30, 2012 and 1.8 at June 30, 2011.
The Company's internal measure of accounts receivable performance, also referred to as Days Sales Outstanding (DSO), for
fiscal year 2012 of 45.7 days improved compared to the 48.5 days for fiscal year 2011. 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 2012 declined to 58.9 days from 64.4 days for fiscal year 2011.
The improved PDSOH compared to the prior fiscal year corresponds with successful inventory reduction initiatives in both
segments during the current fiscal year. 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 $170.9 million at June 30, 2012 compared to $146.2 million at June 30, 2011.
The Company's cash and cash equivalents position improved to $75.2 million at June 30, 2012 from $51.4 million at June 30,
2011. The Company had no short-term borrowings outstanding as of June 30, 2012 or June 30, 2011. Operating activities
generated $59.0 million of cash flow in fiscal year 2012 compared to the $21.3 million of cash generated by operating activities
in fiscal year 2011. A shift in the payment practices of three large EMS segment customers during fiscal year 2012 favorably
impacted cash flow by approximately $12.6 million and reduced DSO by one day. During fiscal year 2012, the Company
reinvested $28.3 million into capital investments for the future, largely for manufacturing equipment within both segments.
The Company also paid $7.4 million of dividends in fiscal year 2012. 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
26
year 2013, 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.
At June 30, 2012 and 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, 2012 or June 30, 2011.
At June 30, 2012, the Company had $4.3 million contingently committed in letters of credit against the $100 million credit
facility. Total availability to borrow under the $100 million credit facility was $95.7 million at June 30, 2012.
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, 2012, 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, 2012.
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, 2012
$386,228,000
604.4
Limit As Specified in
Credit Agreement
$362,000,000
3.0
Excess
$24,228,000
601.4
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 $7.6 million U.S. dollars at June 30, 2012 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 2013 and the foreseeable future.
One of the Company's sources of funds is its ability to generate cash from operations to meet its liquidity obligations which
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
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 Company expects to renew or negotiate a
new credit facility to replace the current $100 million credit facility prior to its April 2013 expiration. However, a new or
negotiated renewal of the credit facility may be less favorable in terms of borrowing costs than the current facility due to the
impact that the current economic conditions have had on borrowing in general. In addition, changing conditions in the credit
markets, prohibitive costs, or other unforeseen circumstances could adversely impact the renewal or replacement of this facility.
During fiscal year 2012 there were no borrowings on the credit facility, and costs related to the credit facility were not
significant.
The preceding statements include 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 2012, 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.
27
During fiscal year 2010, the Company purchased convertible debt securities of $2.3 million and stock warrants of $0.4 million
of a privately-held company. 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. Also during fiscal year 2011, the revaluation of stock warrants resulted in a $1.0
million derivative gain as a result of the qualified financing. During fiscal year 2012, the privately-held company experienced
delays in their start-up, and therefore initiated another round of financing that the Company chose not to participate in, which
resulted in the automatic conversion of preferred shares and warrants to common shares and warrants. Upon the conversion,
the equity securities and warrants were revalued, resulting in an impairment loss of $0.7 million on the equity securities and a
$0.5 million derivative loss on the stock warrants during fiscal year 2012.
The investment in non-marketable equity securities is accounted for as a cost-method investment which carries the securities at
cost. In the event of impairment, the valuation uses a probability-weighted Black-Scholes option pricing model. The stock
warrants are classified as derivative instruments and are valued on a recurring basis using a market-based approach which
utilizes a probability-weighted Black-Scholes option pricing model. The fair value measurements for stock warrants and the
impairment of non-marketable equity securities were calculated using unobservable inputs and were classified as level 3
financial assets.
See Note 10 - 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, 2012.
Payments Due During Fiscal Years Ending June 30
Total
2013
2014-2015
2016-2017 Thereafter
0.3
$ —
$ —
$
0.1
$
0.2
(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:
25.2
8.1
Operating Leases (e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Obligations (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 233.5
9.5
198.3
3.5
181.5
—
3.1
4.2
11.1
0.1
3.0
1.3
5.7
—
11.0
0.5
—
0.1
$ 193.1
$ 18.5
$ 10.1
$ 11.8
(a) As of June 30, 2012, the Company had no Capital Lease Obligations.
(b) Refer to Note 5 - 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 2013 amount includes less than $0.1 million of long-term debt obligations due in fiscal
year 2013 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 2013 amount includes $5.9 million for SERP payments
recorded as current liabilities.
• The timing of severance plan payments is estimated based on the average remaining service life of employees.
The fiscal year 2013 amount includes $0.8 million for severance payments recorded as a current liability.
• The timing of warranty payments is estimated based on historical data. The fiscal year 2013 amount includes
$1.4 million for short-term warranty payments recorded as a current liability.
(d)
Excludes $4.2 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.
28
(e)
(f)
Refer to Note 4 - 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 2017. 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 4 - 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, 2012 and June 30, 2011, the reserve
for returns and allowances was $2.5 million and $2.1 million, respectively. The returns and allowances reserve
approximated 1% to 2% of gross trade receivables during fiscal years 2012 and 2011.
• 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, 2012 and June 30, 2011 was $0.8
million and $1.4 million, respectively. This reserve approximated 1% of gross trade accounts receivable during fiscal
years 2012 and 2011.
Excess and obsolete inventory - Inventories were valued using the lower of last-in, first-out (LIFO) cost or market value for
approximately 10% and 11% of consolidated inventories at June 30, 2012 and June 30, 2011, respectively, including
29
approximately 78% and 81% of the Furniture segment inventories at June 30, 2012 and June 30, 2011, 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, 2012 and June 30, 2011, the Company's accrued liabilities for self-insurance exposure were $3.9 million and $3.6
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 $3.8 million at June 30, 2012 and $3.6 million at June 30, 2011.
New Accounting Standards
See Note 1 - Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for information
regarding New Accounting Standards.
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Rate Risk: The Company operates internationally and thus is subject to potentially adverse movements in
foreign currency rate changes. The Company's risk management strategy includes the use of derivative financial instruments to
hedge certain foreign currency exposures. Derivatives are used only to manage underlying exposures of the Company and are
not used in a speculative manner. Further information on derivative financial instruments is provided in Note 11 - Derivative
Instruments of Notes to Consolidated Financial Statements. The Company estimates that a hypothetical 10% adverse change in
foreign currency exchange rates from levels at June 30, 2012 and 2011 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: The Company holds an investment in the non-marketable equity securities and stock warrants of 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.
During fiscal year 2012, the privately-held company experienced delays in their start-up, and therefore initiated another round
of financing that the Company chose not to participate in, which resulted in the automatic conversion of preferred shares and
30
warrants to common shares and warrants. Upon the conversion, the equity securities and warrants were revalued, resulting in
an impairment loss of $0.7 million on the equity securities and a $0.5 million derivative loss on stock warrants. During fiscal
year 2011, the equity securities experienced an other-than-temporary decline in fair market value resulting in a $1.2 million
impairment loss, and the revaluation of stock warrants in conjunction with a qualified financing resulted in a $1.0 million
derivative gain. The non-marketable equity investment had a carrying amount of $1.1 million and $1.8 million as of June 30,
2012 and 2011, respectively, and the stock warrants had a carrying amount of $0.9 million and $1.4 million as of June 30, 2012
and 2011, respectively.
31
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, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2012 . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30, 2012 . . . . . . . . . .
Consolidated Statements of Share Owners' Equity for Each of the Three Years in the Period Ended June 30, 2012 . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page No.
33
34
35
36
37
38
39
32
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, 2012.
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 27, 2012
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 27, 2012
33
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, 2012 and 2011, 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, 2012. 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,
2012, 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, 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, 2012 and 2011, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2012, 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, 2012, 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 27, 2012
34
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receivables, net of allowances of $1,367 and $1,799, respectively. . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and Equipment, net of accumulated depreciation of $357,808 and $360,105,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Intangible Assets, net of accumulated amortization of $65,824 and $65,514,
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 - Shares authorized: 50,000,000
Shares issued: 14,359,000 (14,368,000 in 2011) . . . . . . . . . . . . . . . . . . . . . . . . .
Class B - Shares authorized: 100,000,000
Shares issued: 28,666,000 (28,657,000 in 2011) . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Treasury stock, at cost:
Class A - 4,020,000 shares (3,945,000 in 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B - 1,104,000 shares (1,330,000 in 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Share Owners' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Share Owners' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See Notes to Consolidated Financial Statements
June 30
2012
June 30
2011
$
$
$
75,197
139,467
117,681
44,636
1,709
378,690
186,099
2,480
6,206
22,041
595,516
14
137,423
1,843
48,460
187,740
273
21,275
21,548
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
718
1,433
635
452,093
(4,963)
(49,235)
(14,453)
386,228
595,516
$
1,433
230
450,172
1,618
(49,437)
(17,335)
387,399
626,312
35
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
$
$
Year Ended June 30
2011
1,202,597
1,008,005
194,592
191,167
—
1,009
2,416
2012
1,142,061
932,106
209,955
188,148
—
3,418
18,389
$
$
$
$
$
430
(35)
1,096
(2,178)
(687)
17,702
6,068
11,634
0.29
0.31
0.29
0.31
10,387
27,494
37,881
10,593
27,494
38,087
$
$
$
$
$
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
2010
1,122,808
946,275
176,533
181,771
(9,980)
2,051
2,691
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
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other General Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
36
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
11,634
$
4,922
$
10,803
Year Ended June 30
2012
2011
2010
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,973
31,207
Gain on sales of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax and other deferred charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of capitalized software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and maturities of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28)
439
3,561
1,443
(41)
2,301
6,655
20,472
6,430
(7,081)
(17,739)
59,019
(26,943)
2,566
(1,323)
—
—
(13)
Net cash (used for) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,713)
Cash Flows From Financing Activities:
Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on revolving credit facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on 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 Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents at Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(11)
(7,363)
41
(337)
(7,670)
(1,848)
23,788
51,409
(35)
—
3,658
1,284
—
963
2,975
3,243
(5,004)
(28,524)
6,660
21,349
(31,371)
941
(1,839)
—
—
(1,458)
(33,727)
88,750
(88,750)
(62)
(7,330)
—
(278)
(7,670)
6,115
(13,933)
65,342
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
75,197
$
51,409
$
See Notes to Consolidated Financial Statements
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
65,342
37
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY
(Amounts in Thousands, Except for Share and Per Share Data)
Amounts at June 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
718
$ 1,433
$
343
$
458,180
$
(501)
$
(77,819)
$ 382,354
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 (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
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 (20,000 shares) . . . . . . . . . . . . . . . . . . . . .
Net exchanges of shares of Class A and Class B
common stock (209,000 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense related to stock incentive plans . . . . . . . . . . . . . . .
Performance share issuance (131,000 shares) . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared:
Class A ($0.18 per share). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B ($0.20 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,634
(93)
(529)
(1,720)
(1,869)
(5,502)
(227)
(782)
1,443
(29)
(8,727)
833
172
1,141
243
1,311
1,530
11,634
(8,727)
833
172
1,141
5,053
(77)
—
1,443
(219)
(1,869)
(5,502)
Amounts at June 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
718
$ 1,433
$
635
$
452,093
$
(4,963)
$
(63,688)
$ 386,228
See Notes to Consolidated Financial Statements
38
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 (US GAAP) 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.
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. 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 and Cash Equivalents: 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.
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. Adjustments to the allowance for credit losses are recorded in selling and
administrative expenses.
In the ordinary course of business, customers periodically negotiate extended payment terms on trade accounts receivable. The
Company may utilize accounts receivable factoring arrangements with third-party financial institutions in order to extend terms
for the customer without negatively impacting the Company's cash flow. These arrangements in all cases do not contain
recourse provisions against the Company for its customers' failure to pay. Receivables are considered sold when they are
transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the
receivables, and the Company has surrendered control over the transferred receivables. During the fiscal year ended June 30,
2012, the Company sold, without recourse, $59 million of accounts receivable. There were no receivables sold during the
fiscal year ended June 30, 2011. Factoring fees were not material.
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 10% and 11% of consolidated inventories at June 30, 2012 and June 30, 2011,
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.
39
Impairment of Long-Lived Assets: The Company performs reviews for impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized
when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its
carrying amount. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value.
Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date
management commits to a plan of disposal.
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 may assess qualitative factors to determine if it is more likely than not that the fair
value is less than its carrying amount and if it is necessary to perform the quantitative two-step goodwill impairment test. The
Company also has the option to bypass the qualitative assessment and proceed directly to performing the first step of the
quantitative goodwill impairment test. If the first step is determined to be 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. During fiscal years 2012, 2011, and 2010, no goodwill
impairment loss was recognized.
A summary of the goodwill by segment is as follows:
(Amounts in Thousands)
Balance as of June 30, 2010
Electronic
Manufacturing
Services
Furniture
Consolidated
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Foreign Currency Translation . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2011
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Foreign Currency Translation . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2012
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
15,269
(12,826)
2,443
201
15,470
(12,826)
2,644
(164)
15,306
(12,826)
2,480
$
$
1,733
(1,733)
—
—
1,733
(1,733)
—
—
1,733
(1,733)
— $
17,002
(14,559)
2,443
201
17,203
(14,559)
2,644
(164)
17,039
(14,559)
2,480
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.
40
A summary of other intangible assets subject to amortization by segment is as follows:
(Amounts in Thousands)
Electronic Manufacturing Services:
June 30, 2012
June 30, 2011
Cost
Accumulated
Amortization Net Value
Cost
Accumulated
Amortization Net Value
Capitalized Software . . . . . . . . . . . . . $
Customer Relationships . . . . . . . . . . .
Other Intangible Assets . . . . . . . . .
28,470
1,167
29,637
$
Furniture:
Capitalized Software . . . . . . . . . . . . .
Product Rights . . . . . . . . . . . . . . . . . .
Other Intangible Assets . . . . . . . . .
36,937
372
37,309
Unallocated Corporate:
Capitalized Software . . . . . . . . . . . . .
Other Intangible Assets . . . . . . . . .
Consolidated. . . . . . . . . . . . . . . . . . . . . $
5,084
5,084
72,030
$
26,084
843
26,927
33,889
210
34,099
4,798
4,798
65,824
$
$
2,386
324
2,710
3,048
162
3,210
286
286
6,206
$
$
28,676
1,167
29,843
36,375
1,160
37,535
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
During fiscal years 2012, 2011, and 2010, amortization expense of other intangible assets was, in thousands, $2,669, $2,367,
and $2,484, respectively. Amortization expense in future periods is expected to be, in thousands, $2,140, $1,516, $909, $464,
and $389 in the five years ending June 30, 2017, and $788 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. During fiscal year 2012, the Furniture segment recognized impairment of
$256, in thousands, related to intangible product rights for a product line with volumes much lower than originally forecasted.
The impairment loss was included in the Selling and Administrative Expenses line of the Consolidated Statements of Income.
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, $13, and $12 in fiscal years 2012, 2011, and 2010, respectively.
Advertising: Advertising costs are expensed as incurred. Advertising costs, included in selling and administrative expenses
were, in millions, $4.7, $4.3, and $5.5, in fiscal years 2012, 2011, and 2010, 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 60% 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
41
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 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.
Concentrations of Credit Risk: The Company has business and credit risks concentrated in the medical, automotive, and
furniture industries. Additionally, the Company currently has notes receivable with an electronics engineering services firm, a
note receivable related to the sale of an Indiana facility, and other miscellaneous notes receivable. At June 30, 2012 and 2011,
$3.0 million and $2.8 million, respectively, was outstanding under the notes receivables. The credit risk associated with
receivables is disclosed in Note 19 - Credit Quality and Allowance for Credit Losses of Notes Receivable of Notes to
Consolidated Financial Statements.
Off-Balance Sheet Risk: The Company's off-balance sheet arrangements are limited to operating leases entered into in the
normal course of business as described in Note 4 - Commitments and Contingent Liabilities of Notes to Consolidated Financial
Statements.
Other General Income: No Other General Income was recorded in fiscal years 2012 or 2011. Other General Income, in fiscal
year 2010 of $10.0 million included a gain on the sale of the Company's Poland facility of $6.7 million and land and settlement
proceeds related to a class action lawsuit of which the Company was a class member of $3.3 million.
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 privately-held investments and 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
(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 11 - Derivative Instruments of Notes to Consolidated Financial Statements
for more information on derivative instruments and hedging activities.
Stock-Based Compensation: As described in Note 7 - 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
42
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 December 2011, the Financial Accounting Standards Board (FASB) issued guidance which
creates new disclosure requirements for offsetting assets and liabilities. The guidance requires the Company to disclose
information about offsetting and related arrangements to enable users of its financial statements to understand the effect of
those arrangements on its financial position. The guidance is effective for the Company's first quarter fiscal year 2014 financial
statements on a retrospective basis. The Company is currently evaluating this guidance, but does not expect the adoption will
have a material effect on the Company's consolidated financial statements.
In September 2011, the FASB issued guidance to allow the use of a qualitative approach to test goodwill for impairment. The
guidance permits the Company to first perform a qualitative assessment to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying value. The Company chose to early adopt this standard, therefore the
guidance was effective for the Company's first quarter fiscal year 2012 financial statements. The adoption of this guidance did
not have a material impact on the Company's consolidated financial position, results of operations, or cash flows. At June 30,
2012, the Company's goodwill totaled $2.5 million, which approximates 0.4% of the Company's total assets.
In June 2011, the 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 required additional disclosures,
including disclosures related to the measurement of level 3 assets. The guidance became effective prospectively for the
Company's third quarter fiscal year 2012 financial statements. The adoption did not have a material impact on the Company's
consolidated 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 became effective as of the beginning of the Company's fiscal year 2012. The adoption of this
guidance did not have a material impact on the Company's consolidated financial statements.
Note 2 Inventories
Inventories are valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 10% and 11% of
consolidated inventories at June 30, 2012 and June 30, 2011, respectively, including approximately 78% and 81% of the
Furniture segment inventories at June 30, 2012 and June 30, 2011, 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 $0.4 million lower in fiscal year 2012, $0.2
million higher in fiscal year 2011, and $0.8 million lower in fiscal year 2010. Certain inventory quantity reductions caused
liquidations of LIFO inventory values, which increased income by $1.8 million in fiscal year 2012, $0.9 million in fiscal year
2011, and $1.3 million in fiscal year 2010.
43
2012
2011
26,552
12,582
91,105
130,239
(12,558)
117,681
$
$
$
$
$
$
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
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 3 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2012
12,050
175,574
350,995
5,288
543,907
(357,808)
186,099
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lesser of Useful Life or Term of Lease
Years
5 to 50
2 to 20
Depreciation and amortization of property and equipment, including asset write-downs associated with the Company's
restructuring plans, totaled, in millions, $28.9 for fiscal year 2012, $29.0 for fiscal year 2011, and $32.5 for fiscal year 2010.
During fiscal year 2012, the Furniture segment recognized impairment of $78, in thousands, related to equipment for a product
line with volumes much lower than originally forecasted, which was included in the Cost of Sales line on the Company's
Consolidated Statements of Income.
Due to a decline in the market value of a held for sale EMS facility, the Company recognized in Unallocated Corporate a pre-
tax impairment loss, in thousands, of $572 during fiscal year 2012, which was included in the Restructuring Expense line on
the Company's Consolidated Statements of Income.
At June 30, 2012, in thousands, assets totaling $1,709 were classified as held for sale, and consisted of $588 for a facility and
land related to the Gaylord, Michigan exited operation within the EMS segment and $1,121 for an idle Furniture segment
manufacturing facility and land located in Jasper, Indiana. The Gaylord, Michigan facility and land were reported as
unallocated corporate assets for segment reporting purposes. The idle Jasper, Indiana manufacturing facility and land were
reported as Furniture segment assets for segment reporting purposes.
During fiscal year 2012, the Company sold a tract of land in Poland which was previously classified as held for sale. The sale
had an immaterial effect on the Company's consolidated financial statements.
At June 30, 2011, the Company had, in thousands, assets totaling $2,807 classified as held for sale.
44
Note 4 Commitments and Contingent Liabilities
Leases:
Operating leases for certain office, showroom, manufacturing facilities, land, and equipment, which expire from fiscal year
2013 to 2056, contain provisions under which minimum annual lease payments are, in millions, $3.5, $2.5, $1.7, $0.9, and $0.4
for the five years ended June 30, 2017, respectively, and aggregate $0.5 million from fiscal year 2018 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,
$4.8, $6.2, and $5.4 in fiscal years 2012, 2011, and 2010, respectively, including certain leases requiring contingent lease
payments based on warehouse space utilized, which amounted to expense of, in millions, $0.4, $0.5, and $0.4 in fiscal years
2012, 2011, and 2010, respectively.
As of June 30, 2012 and 2011, the Company had no capital leases.
Guarantees:
As of June 30, 2012 and 2011, 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 $4.3 million as of June 30, 2012 and $5.2 million as
of June 30, 2011. 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, 2012
and 2011 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 2012, 2011, and 2010 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2012
2011
2010
2,109
$
1,818
$
2,176
1,019
(877)
2,251
$
1,060
(769)
2,109
$
59
(417)
1,818
Note 5 Long-Term Debt and Credit Facility
Long-term debt, less current maturities as of June 30, 2012 and 2011, was, in thousands, $273 and $286, respectively, and
current maturities of long-term debt were, in thousands, $14 and $12, 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, $14, $15, $16, $18, and $19, respectively, and aggregate $205 thereafter.
Credit facilities consisted of the following:
(Amounts in Millions, in U.S Dollar Equivalents)
Availability to
Borrow at
June 30, 2012
Borrowings
Outstanding at
June 30, 2012
Borrowings
Outstanding at
June 30, 2011
Primary revolving credit facility (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Poland overdraft credit facility (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
95.7
7.6
103.3
$
$
— $
—
— $
—
—
—
(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,
45
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 2012, 2011, and 2010. 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, 2012. The Company had $4.3 million in letters of credit contingently committed against the credit
facility at June 30, 2012.
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 $7.6 million U.S. dollars at June 30, 2012 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, 2012 and 2011, there were no outstanding short-term borrowings. Cash payments for interest on
borrowings were, in thousands, $37, $121, and $203, in fiscal years 2012, 2011, and 2010, respectively. Capitalized interest
expense was immaterial during fiscal years 2012, 2011, and 2010.
Note 6 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. 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
limits as determined annually by the Compensation and Governance Committee of the Board of Directors. Total expense
related to employer contributions to the domestic retirement plans was, in millions, $5.3, $5.0, and $4.5 for fiscal years 2012,
2011, and 2010, 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 2012, 2011, and 2010 was, in millions, $0.3, $0.5, and $0.6, respectively.
46
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 an allowance
for 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 . . . . . . . . . . $
June 30
2012
2011
5,073
$
5,900
811
189
(1,265)
(88)
4,720
828
3,892
4,720
$
$
$
934
264
(1,501)
(524)
5,073
890
4,183
5,073
June 30
(Amounts in Thousands)
Changes and Components in Accumulated Other Comprehensive Income (Loss) (before tax):
2012
2011
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 (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Accumulated Other Comprehensive Income (Loss) recognized in Share Owners'
Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
$
$
2,771
(286)
(1,898)
587
771
(184)
5,332
(286)
(2,275)
2,771
1,057
1,714
587
$
2,771
(Amounts in Thousands)
Components of Net Periodic Benefit Cost (before tax):
Year Ended June 30
2012
2011
2010
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
811
189
286
633
$
934
264
286
774
854
408
285
753
Net periodic benefit cost recognized in the Consolidated Statements of Income . . . . . . $
1,919
$
2,258
$
2,300
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 17 -
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.
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 (gain) loss on a straight-line basis over the average
47
remaining service period of employees expected to receive benefits under the plan.
The estimated prior service cost and actuarial net (gain) 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
$(32), 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
4.1%
4.0%
2012
3.3%
4.0%
2011
5.0%
4.0%
2011
4.8%
4.0%
2010
6.2%
3.3%
Note 7 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 $1.4 million, $1.3 million, and $1.8 million in fiscal
year 2012, 2011, and 2010, respectively. The total income tax benefit for stock compensation arrangements was $0.6 million,
$0.5 million, and $0.7 million in fiscal year 2012, 2011, and 2010, 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 year 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 2012 is presented below:
Performance shares outstanding at July 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance shares outstanding at June 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of Shares
1,563,278
800,150
(187,915)
(430,113)
1,745,400
Weighted Average
Grant Date
Fair Value
$5.10
$5.46
$5.09
$5.09
$5.45
As of June 30, 2012, there was approximately $2.5 million of unrecognized compensation cost related to performance shares,
48
based on the latest estimated attainment of performance goals. That cost is expected to be recognized over annual performance
periods ending August 2012 through August 2016, with a weighted average vesting period of one year, six months. 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 $5.46; $5.10; and $6.25 for performance share awards granted in fiscal year 2012, 2011, and 2010, respectively.
During fiscal year 2012, 2011, and 2010, respectively, 187,915; 141,049; and 140,832 performance shares vested at a fair value
of $1.0 million, $0.9 million, and $1.1 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
2012, 2011, and 2010, respectively, the Company granted a total of 22,187; 46,977; and 19,662 unrestricted shares of Class B
common stock at an average grant date fair value of $5.95, $6.71, and $7.63, for a total fair value of $0.1 million, $0.3 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 as
consideration for their service to the Company.
Restricted Share Units:
Restricted Share Units (RSU) were awarded to officers and other key employees under the 2003 Plan in fiscal years prior to
fiscal year 2012. As of June 30, 2012, there was no unrecognized compensation cost related to 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 2012, 2011, and 2010 was, in millions, $0, $0, and $3.4, 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 2012, 2011, and 2010. 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 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.
49
A summary of stock option activity during fiscal year 2012 is presented below:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Number of
Shares
Options outstanding at July 1, 2011 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at June 30, 2012 . . . . . . . . . . . . .
Options vested and exercisable at June 30, 2012 . . . .
619,585
$15.10
—
—
(1,500)
(139,585)
478,500
478,500
$—
$—
$15.06
$15.24
$15.06
$15.06
No options were exercised during fiscal years 2012, 2011, and 2010.
Note 8 Income Taxes
4 months
4 months
$—
$—
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, $5,698 expire from fiscal year 2013 to 2034. Income tax benefits associated with tax credit
carryforwards of, in thousands, $2,734, expire from fiscal year 2016 to 2026. As of June 30, 2012, the Company was in a
cumulative three-year domestic income position, after adjustment for permanent items. In evaluating whether a valuation
allowance was warranted for the U.S. federal net deferred tax asset as of June 30, 2012, management weighed both positive and
negative evidence and determined that it was more likely than not that all of the deferred tax asset would be realized, and
accordingly, a valuation allowance for the U.S. federal net deferred tax asset was not required. A valuation reserve was
provided as of June 30, 2012 for deferred tax assets relating to certain foreign and state net operating losses of, in thousands,
$1,761, and, in thousands, $150 related to other deferred tax assets that the Company currently believes are more likely than
not to remain unrealized in the future. During fiscal year ended June 30, 2012, the valuation reserve was reduced primarily due
to the expiration of a state tax credit.
50
The components of the deferred tax assets and liabilities as of June 30, 2012 and 2011, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred Tax Liabilities:
Property & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign currency gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
1,492
$
2,009
640
12,885
1,313
767
2,734
107
3,510
5,698
4,322
(1,911)
33,566
10,075
62
—
494
$
$
$
$
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
Total liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10,631
Net Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
22,935
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
17,702
Year Ended June 30
2012
2011
2010
7,831
9,871
$
$
(2,966) $
7,403
(8,434)
14,402
4,437
$
5,968
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 $80.3
million as of June 30, 2012. Determination of the amount of unrecognized deferred tax liability on unremitted earnings is not
practicable.
51
The provision (benefit) for income taxes is composed of the following items:
(Amounts in Thousands)
Currently Payable (Refundable):
Year Ended June 30
2012
2011
2010
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision (benefit) for income taxes . . . . $
954
$
1,849
877
3,680
1,784
970
(366)
2,388
6,068
$
(2,527) $
(130)
150
(2,507)
1,090
1,509
(577)
2,022
(485) $
(6,768)
3,474
(305)
(3,599)
1,407
(1,553)
(1,090)
(1,236)
(4,835)
A reconciliation of the statutory U.S. income tax rate to the Company's effective income tax rate follows:
Year Ended June 30
2012
2011
2010
(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. . . . . . . . . . . . . . . . . .
Research credit. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign subsidiary land and building gain. . . . . . .
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
%
Amount
%
Amount
%
6,196
35.0% $
1,553
35.0 % $
2,089
35.0 %
332
(639)
—
(247)
—
426
1.9
(3.6)
—
(1.4)
—
2.4
(277)
(1,213)
—
(751)
—
203
(485)
—
(6.3)
(27.3)
(907)
(3,120)
(169)
(674)
(2,236)
182
(10.9)% $ (4,835)
(16.9)
4.6
—
(15.2)
(52.3)
(2.8)
(11.3)
(37.5)
3.1
(81.0)%
Total provision (benefit) for income taxes . . . . $
6,068
34.3% $
Net cash payments (refunds) for income taxes were, in thousands, $1,504, $(2,851), and $8,866 in fiscal years 2012, 2011, and
2010, respectively.
Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 2012, 2011, and 2010
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2012
2011
2010
2,499
$
2,466
$
2,165
250
(84)
—
—
—
(41)
2,624
312
(77)
96
(42)
(74)
(182)
2,499
2,125
$
$
532
(130)
74
—
(36)
(139)
2,466
2,097
$
$
Portion that, if recognized, would reduce tax expense and effective tax rate . . . . . . . . . . $
2,190
52
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:
2012
As of June 30
2011
2010
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
256
85
$
230
86
311
117
Accrued interest and penalties are not included in the tabular roll forward of unrecognized tax benefits above. Interest and
penalties income/(expense) recognized for fiscal years 2012, 2011, and 2010 were, in thousands, $(2), $107, and $72,
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 9 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
equal rights to receive dividends as and if declared by the Board of Directors.
Note 10 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.
The Company's policy is to recognize transfers between these levels as of the end of each quarterly reporting period. There
were no transfers between these levels during fiscal year 2012.
53
Financial Instruments Recognized at Fair Value
The following methods and assumptions were used to measure fair value:
Financial Instrument
Cash Equivalents
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
Recurring Fair Value Measurements:
Level
1
Valuation Technique/Inputs Used
Market - Quoted market prices
2
3
1
2
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 probability-weighted Black-Scholes option
pricing model with the following inputs (level 3 input values
indicated in parenthesis): risk-free interest rate (0.69%), historical
stock price volatility (97.1%) and weighted average expected term
(4 years, 5 months). Enterprise value was estimated using a
discounted cash flow calculation.
Stock warrants are revalued and analyzed for reasonableness on a
quarterly basis. The level 3 inputs used are the standard inputs used
in the Black-Scholes model. Input values are based on publicly
available information (Federal Reserve interest rates) and
internally-developed information (historical stock price volatility of
comparable investments) and remaining expected term of warrants.
Significant increases (decreases) in the historical stock price
volatility, expected life, and enterprise value in isolation would
result in a significantly higher (lower) fair value measurement. The
inputs do not have any interrelationships.
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
As of June 30, 2012 and 2011, 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, 2012
Level 1
Level 2
Level 3
Total
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives: Stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading Securities: Mutual funds held by nonqualified supplemental
employee retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
—
16,922
16,922
$
2,278
—
—
2,278
Liabilities
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
799
799
—
911
—
911
2,278
911
16,922
20,111
$
— $
— $
799
799
$
$
$
54
June 30, 2011
Level 1
Level 2
Level 3
Total
32,021
$
— $
— $
32,021
(Amounts in Thousands)
Assets
Cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives: Stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading Securities: Mutual funds held by nonqualified supplemental
employee retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
16,138
1,044
—
—
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
48,159
$
1,044
Liabilities
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
1,684
1,684
—
1,437
1,044
1,437
—
16,138
1,437
$
50,640
— $
— $
1,684
1,684
$
$
$
During fiscal year 2010, the Company purchased convertible debt securities of $2.3 million and stock warrants of $0.4 million
of a privately-held company. 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 Financial Instruments Not Carried At Fair Value section that follows. The revaluation
of stock warrants resulted in a $1.0 million derivative gain as a result of the qualified financing. During fiscal year 2012, the
privately-held company experienced delays in their start-up, and therefore initiated another round of financing that the
Company chose not to participate in, which resulted in the automatic conversion of preferred shares and warrants to common
shares and warrants. Upon the conversion, the equity securities and warrants were revalued, resulting in an impairment loss of
$0.7 million on the equity securities and a $0.5 million derivative loss on the stock warrants during fiscal year 2012.
See Note 11 - Derivative Instruments of Notes to Consolidated Financial Statements for further information regarding the stock
warrants. See Note 12 - Investments of Notes to Consolidated Financial Statements for further information regarding the
convertible debt securities and non-marketable equity securities.
The other changes in fair value of Level 3 investment assets during fiscal year 2012 were immaterial, and no purchases or sales
of Level 3 assets occurred during the period.
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 12 - Investments of Notes to Consolidated Financial Statements
for further information regarding the SERP.
Non-Recurring Fair Value Measurements:
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing
basis, but are subject to fair value adjustments when events or circumstances indicate a significant adverse effect on the fair
value of the asset. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless
further impairment occurs.
Non-recurring fair value adjustment
Impairment of assets held for sale (real
estate)
Impairment of long-lived assets (intangible
asset and property & equipment)
Level
3
3
Valuation Technique/Inputs Used
Market - Probability-weighted cash flow calculation using
estimated potential selling prices.
Market - Probability-weighted discounted cash flow calculation
using estimated future cash flows.
Due to a decline in the market value of the held for sale EMS facility, the Company recognized a pre-tax impairment loss of
$0.6 million during fiscal year 2012. Also during fiscal year 2012, the Company recognized impairment of, in millions, $0.3
and $0.1 related to intangible product rights and equipment, respectively, for a product line which is near the end of its
production period.
55
Financial Instruments Not Carried At Fair Value:
Financial instruments that are not reflected in the Consolidated Balance Sheets at fair value that have carrying amounts which
approximate fair value include the following:
Financial Instrument
Notes receivable
Non-marketable equity securities (cost-
method investments, which carry shares at
cost except in the event of impairment)
Level
2
3
Long-term debt (carried at amortized cost)
3
Valuation Technique/Inputs Used
Market - Price approximated based on the assumed collection of
receivables in the normal course of business, taking into account the
customer's non-performance risk
Cost Method, with Impairment Recognized Using a Market-Based
Valuation Technique - See the explanation below the table
regarding the method used to periodically estimate the fair value of
cost-method investments.
In the event of impairment, the valuation is based on a probability-
weighted Black-Scholes option pricing model with the following
inputs (level 3 input values indicated in parenthesis): risk-free
interest rate (0.69%), historical stock price volatility (97.1%) and
weighted average expected term (4 years, 5 months). Enterprise
value was estimated using a discounted cash flow calculation.
The level 3 inputs used are the standard inputs used in the Black-
Scholes model. Input values are based on publicly available
information (Federal Reserve interest rates) and internally-
developed information (historical stock price volatility of
comparable investments) and remaining expected holding period of
securities.
Significant increases (decreases) in the historical stock price
volatility, expected life, and enterprise value in isolation would
result in a significantly higher (lower) fair value measurement. The
inputs do not have any interrelationships.
Income - Price estimated using a discounted cash flow analysis
based on quoted long-term debt market rates, taking into account
the Company's non-performance risk
Investments in non-marketable equity securities are accounted for using the cost method if the Company does not have the
ability to exercise significant influence over the operating and financial policies of the investee. On a periodic basis, but no less
frequently than quarterly, these investments are assessed for impairment when there are events or changes in circumstances that
may have a significant adverse effect on the fair value of the investment. If a significant adverse effect on the fair value of the
investment has occurred and is deemed to be other-than-temporary, the fair value of the investment is estimated, and the
amount by which the carrying value of the cost-method investment exceeds its fair value is recorded as an impairment loss.
The carrying value of the Company's short-term financial instruments, including cash deposit accounts, trade accounts
receivable, prepaid and deposit accounts, trade accounts payable, accrued expenses and dividends payable, approximate fair
value due to the relatively short maturity and immaterial non-performance risk of such instruments. These financial
instruments are categorized as Level 2 financial instruments.
Note 11 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
56
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, 2012, the Company had outstanding foreign exchange contracts to hedge currencies
against the U.S. dollar in the aggregate notional amount of $25.3 million and to hedge currencies against the Euro in the
aggregate notional amount of 34.7 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, 2012, the Company estimates that approximately $0.1 million of pre-tax derivative losses
deferred in Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings, along with the earnings effects
of related forecasted transactions, within the fiscal year ending June 30, 2013. Losses on foreign exchange contracts are
generally offset by gains in operating costs in the income statement when the underlying hedged transaction is recognized in
earnings. Because gains or losses on 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 months as of both June 30, 2012 and June 30, 2011.
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 revaluation of warrants due to
the change in terms and the valuation of the 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.
During fiscal year 2012, the privately-held company experienced delays in their start-up, and therefore initiated another round
of financing that the Company chose not to participate in, which resulted in the automatic conversion of the preferred warrants
to common warrants. Upon the conversion, the stock warrants were revalued resulting in a $0.5 million derivative loss on
stock warrants during fiscal year 2012.
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 10 - Fair Value of Notes to Consolidated Financial Statements for further information regarding the fair value of
derivative assets and liabilities and Note 16 - 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).
57
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
2012
June 30
2011
Balance Sheet Location
Fair Value As of
June 30
2012
June 30
2011
Foreign exchange contracts. . . Prepaid expenses and other current assets. . . .
$ 1,058
$
644 Accrued expenses . . . . . .
$
799
$
415
Derivatives not designated as hedging instruments:
Foreign exchange contracts. . . Prepaid expenses and other current assets. . . .
Stock warrants. . . . . . . . . . . . . Other assets (long-term) . . . . . . . . . . . . . . . . .
1,220
911
400 Accrued expenses . . . . . .
—
1,269
1,437
Total derivatives. . . . . . . . . . . .
$ 3,189
$ 2,481
$
799
$ 1,684
The Effect of Derivative Instruments on Other Comprehensive Income (Loss)
(Amounts in Thousands)
2012
June 30
2011
2010
Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(192) $
1,063
$
2,494
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)
2012
2011
2,010
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Sales . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
— $
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Sales . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income/expense. . . . . . . .
(1,415)
363
1,674
(121)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(1,052) $
1,553
$
15
143
36
194
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income/expense. . . . . . . .
$
(17) $
2
$
44
Derivatives Not Designated as Hedging Instruments
Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives:
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income/expense. . . . . . . .
Stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income/expense. . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Derivative Pre-Tax Gain (Loss) Recognized in Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2,513
(526)
1,987
918
$
$
$
(4,322) $
1,355
1,041
(7)
(3,281) $
1,348
(1,726) $
1,586
Note 12 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, 2012 and 2011.
58
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 . . . . . .
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
2010
2011
2012
— $
— $ 28,937
—
—
—
—
—
—
639
(131)
(639)
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 2012, 2011, and 2010.
Convertible Debt and Non-marketable Equity Securities:
During fiscal year 2010, the Company purchased convertible debt securities of a privately-held company, which were initially
allocated a value of $2.3 million. Interest accrued on the debt securities at a rate of 8.00% per annum and was due with the
principal in June 2011. The Company also received stock warrants to purchase the common and preferred stock of the
privately-held company at a specified exercise price, which are discussed in Note 11 - Derivative Instruments of Notes to
Consolidated Financial Statements.
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 preferred shares.
The conversion of the convertible notes to preferred shares had no earnings impact. The preferred shares are non-marketable
and are accounted for as a cost-method investment, which carries the shares at cost except in the event of impairment. The
preferred shares had a carrying value of $1.8 million at June 30, 2011.
During fiscal year 2012, the privately-held company experienced delays in their start-up, and therefore initiated another round
of financing that the Company chose not to participate in, which resulted in the automatic conversion of preferred shares to
common shares. Upon the conversion, the equity securities were revalued which resulted in an impairment loss of $0.7 million
during fiscal year 2012. The common shares had a carrying value of $1.1 million at June 30, 2012.
The privately-held investment is included in the Other Assets line of the Consolidated Balance Sheets. See Note 10 - Fair
Value of Notes to Consolidated Financial Statements for more information on the valuation of these securities. The investment
does 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 (losses) for the fiscal years ended June 30, 2012, 2011, and 2010 was, in thousands, $(483), $2,611,
and $1,385, 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
2012
2011
5,899
11,023
16,922
5,899
11,023
16,922
$
$
$
$
5,604
10,534
16,138
5,604
10,534
16,138
59
Note 13 Accrued Expenses
Accrued expenses consisted of:
(Amounts in Thousands)
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
June 30
2012
2011
4,193
22,601
5,189
3,875
269
12,333
48,460
$
$
8,290
26,445
4,809
3,598
7,958
15,216
66,316
Note 14 Segment and Geographic Area Information
Management organizes the Company into segments based upon differences in products and services offered in each segment.
The segments and their principal products and services are as follows. The 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,
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 were sales to one major customer. Sales to Bayer AG affiliates totaled, in millions, $5.0, $135.7,
and $169.6 in fiscal years 2012, 2011, and 2010, respectively, representing 0%, 11%, and 15% 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.
60
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and Amortization . . . . . . . . . . . . . .
Operating Income (Loss). . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes . . . . . . . . .
Net Income (Loss) (1) . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . .
Electronic
Manufacturing
Services
At or For the Year Ended June 30, 2012
Furniture
Unallocated
Corporate and
Eliminations
Consolidated
$
616,751
17,590
8,904
—
6
2,042
6,572
332,115
2,480
13,485
$
525,310
13,383
11,874
—
2
4,837
6,957
183,415
—
13,458
— $
—
(2,389)
430
27
(811)
(1,895)
79,986
—
—
1,142,061
30,973
18,389
430
35
6,068
11,634
595,516
2,480
26,943
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and Amortization . . . . . . . . . . . . . .
Operating Income (Loss). . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes . . . . . . . . .
Net Income (2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . .
Electronic
Manufacturing
Services
At or For the Year Ended June 30, 2011
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
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and Amortization . . . . . . . . . . . . . .
Operating Income (Loss). . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes . . . . . . . . .
Net Income (Loss) (3) . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . .
Electronic
Manufacturing
Services
At or For the Year Ended June 30, 2010
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
(1)
(2)
Includes after-tax restructuring charges of $2.1 million in fiscal year 2012. The EMS segment and Unallocated
Corporate and Eliminations recorded, respectively, $1.7 million expense and $0.4 million expense. See Note 17 -
Restructuring Expense of Notes to the Consolidated Financial Statements for further discussion.
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 17 -
Restructuring Expense of Notes to the Consolidated Financial Statements for further discussion.
(3)
Includes after-tax restructuring charges of $1.2 million in fiscal year 2010. The EMS segment, the Furniture segment,
61
and Unallocated Corporate and Eliminations recorded, respectively, $1.2 million expense, $0.1 million income, and $0.1
million expense. See Note 17 - Restructuring Expense of Notes to 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 million after-tax gain from the sale
of the facility and land in Poland.
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
2011
2010
2012
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Poland (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Long-Lived Assets:
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
870,080
3,412
15,603
252,966
1,142,061
129,258
44,427
18,899
192,584
$
$
$
$
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
(4)
The decrease in net sales to Poland in fiscal year 2012 compared to fiscal year 2011 was attributable to the expiration of
a contract with one medical customer (Bayer AG). The increase in Poland net sales and the decline in United Kingdom
net sales in fiscal year 2011 compared to fiscal year 2010 was due to the transfer of production between these locations
which resulted in a change in the shipping destination to Poland.
62
Note 15 Earnings Per Share
Earnings per share are computed using the two-class common stock method due to the dividend preference of Class B Common Stock.
Basic earnings per share are based on the weighted average number of shares outstanding during the period. Diluted earnings per
share are based on the weighted average number of shares outstanding plus the assumed issuance of common shares and related
payment of assumed dividends for all potentially dilutive securities. Earnings per share of Class A and Class B Common Stock are as
follows:
EARNINGS PER SHARE
(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, 2012
Year Ended June 30, 2011
Year Ended June 30, 2010
Basic Earnings Per Share:
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,869
$ 5,502
$ 7,371
$ 1,889
$ 5,448
$ 7,337
$ 1,955
$ 5,376
$ 7,331
Less: Unvested Participating Dividends . . . . . . . . . . . . . . . . . . . .
—
—
Dividends to Common Share Owners . . . . . . . . . . . . . . . . . . . . . .
1,869
5,502
Undistributed Earnings (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Earnings (Loss) Allocated to Participating Securities . . . . .
Undistributed Earnings (Loss) Allocated to Common
Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
7,371
4,263
—
—
—
—
(9)
—
(9)
1,889
5,448
7,337
1,946
5,376
(2,415)
—
7,322
3,472
(4)
1,169
3,094
4,263
(672)
(1,743)
(2,415)
990
2,478
3,468
Income Available to Common Share Owners . . . . . . . . . . . . . . . . $ 3,038
$ 8,596
$11,634
$ 1,217
$ 3,705
$ 4,922
$ 2,936
$ 7,854
$10,790
Average Basic Common Shares Outstanding . . . . . . . . . . . . . . . .
10,387
27,494
37,881
10,493
27,233
37,726
10,694
26,765
37,459
Basic Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.29
$
0.31
$
0.12
$
0.14
$
0.27
$
0.29
Diluted Earnings Per Share:
Dividends Declared and Assumed Dividends on Dilutive Shares. $ 1,906
$ 5,502
$ 7,408
$ 1,916
$ 5,448
$ 7,364
$ 1,972
$ 5,377
$ 7,349
Less: Unvested Participating Dividends . . . . . . . . . . . . . . . . . . . .
—
—
Dividends and Assumed Dividends to Common Share Owners . .
1,906
5,502
Undistributed Earnings (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Earnings (Loss) Allocated to Participating Securities . . . . .
Undistributed Earnings (Loss) Allocated to Common
Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
7,408
4,226
—
—
—
—
(9)
—
(9)
1,916
5,448
7,364
1,963
5,377
(2,442)
—
7,340
3,454
(4)
1,175
3,051
4,226
(686)
(1,756)
(2,442)
991
2,459
3,450
Income Available to Common Share Owners . . . . . . . . . . . . . . . . $ 3,081
$ 8,553
$11,634
$ 1,230
$ 3,692
$ 4,922
$ 2,954
$ 7,836
$10,790
Average Diluted Common Shares Outstanding. . . . . . . . . . . . . . .
10,593
27,494
38,087
10,639
27,234
37,873
10,791
26,770
37,561
Diluted Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.29
$
0.31
$
0.12
$
0.14
$
0.27
$
0.29
Reconciliation of Basic and Diluted EPS Calculations:
Income Used for Basic EPS Calculation . . . . . . . . . . . . . . . . . . . . $ 3,038
$ 8,596
$11,634
$ 1,217
$ 3,705
$ 4,922
$ 2,936
$ 7,854
$10,790
Assumed Dividends Payable on Dilutive Shares: . . . . . . . . . . . . .
Performance shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (Reduction) of Undistributed Earnings (Loss) -
allocated based on Class A and Class B shares . . . . . . . . . . . .
37
6
—
37
27
—
27
(43)
(37)
(14)
(13)
(27)
17
1
1
18
(19)
(18)
Income Used for Diluted EPS Calculation . . . . . . . . . . . . . . . . . . $ 3,081
$ 8,553
$11,634
$ 1,230
$ 3,692
$ 4,922
$ 2,954
$ 7,836
$10,790
Average Shares Outstanding for Basic
EPS Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive Effect of Average Outstanding: . . . . . . . . . . . . . . . . . . . .
10,387
27,494
37,881
10,493
27,233
37,726
10,694
26,765
37,459
Performance shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
206
—
206
146
1
147
97
5
102
Average Shares Outstanding for Diluted
EPS Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,593
27,494
38,087
10,639
27,234
37,873
10,791
26,770
37,561
Included in dividends declared for the basic and diluted earnings per share computation 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. 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 2012, 2011, and 2010, respectively, all 508,000, 625,000, and 693,000 average stock options outstanding were
antidilutive and were excluded from the dilutive calculation.
63
Note 16 Comprehensive Income
Comprehensive income includes all changes in equity during a period except those resulting from investments by, and
distributions to, Share Owners. Comprehensive income consists of net income and other comprehensive income (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, 2012
Year Ended June 30, 2011
Year Ended June 30, 2010
(Amounts in Thousands)
Pre-tax
Tax
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Net of
Tax
$ 11,634
Pre-tax
Tax
Net of
Tax
$
4,922
Pre-tax
Tax
Net of
Tax
$ 10,803
Foreign currency translation adjustments . . . . $ (10,156) $ 1,922
$ (8,234) $ 13,218
$ (2,905) $ 10,313
$ (12,672) $ 2,288
$ (10,384)
Postemployment severance actuarial change .
1,265
(505)
760
1,501
(599)
902
(1,292)
515
(777)
Other fair value changes:
Available-for-sale securities. . . . . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to (earnings) loss:
Foreign currency translation adjustments (1).
Available-for-sale securities. . . . . . . . . . . . .
—
(192)
(493)
—
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . .
1,069
Amortization of prior service costs . . . . . . .
Amortization of actuarial change . . . . . . . . .
286
633
—
302
—
—
(346)
(114)
(252)
—
110
(493)
—
723
172
381
—
1,063
—
—
(1,555)
286
774
—
(489)
—
—
523
(115)
(309)
—
574
—
—
(1,032)
171
465
(131)
2,494
52
(79)
(587)
1,907
—
(639)
(238)
285
753
—
255
55
(112)
(300)
—
(384)
(183)
173
453
Other comprehensive income (loss) . . . . . . . . . . $ (7,588) $ 1,007
$ (6,581) $ 15,287
$ (3,894) $ 11,393
$ (11,440) $ 2,166
$ (9,274)
Total comprehensive income . . . . . . . . . . . . . . .
$
5,053
$ 16,315
$
1,529
(1) The reclassification of foreign currency translation adjustments to earnings relates to the final liquidation of a foreign subsidiary.
Accumulated other comprehensive income (loss), net of tax effects, was as follows:
(Amounts in Thousands)
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net unrealized loss on derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postemployment benefits:
Year Ended June 30
2012
2011
2010
(977) $
(3,632)
$
7,750
(4,465)
(2,563)
(4,007)
Prior service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(464)
110
(4,963) $
(636)
(1,031)
1,618
$
(807)
(2,398)
(9,775)
Note 17 Restructuring Expense
The Company recognized consolidated pre-tax restructuring expense of $3.4 million, $1.0 million, and $2.1 million in fiscal
years 2012, 2011, and 2010, respectively. Restructuring plans which were active during fiscal year 2012 are discussed in the
sections below.
The EMS Gaylord restructuring plan and the Furniture segment office furniture manufacturing consolidation plan, which were
substantially complete prior to fiscal year 2012, are included in the summary table on the following page under the Other
Restructuring Plan caption. Due to a decline in the market value of the EMS Gaylord facility, the Company recognized a pre-
tax impairment loss, in thousands, of $572 during fiscal year 2012.
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.
64
Fremont Restructuring Plan:
During the second quarter of fiscal year 2012, the Company completed a plan to exit a small leased EMS assembly facility
located in Fremont, California. This plan had been approved in the fourth quarter of fiscal year 2011. The Company is
contractually obligated on the lease of this facility until August 2013. The Company expects total pre-tax restructuring charges,
exclusive of future costs if the Company is unable to sub-lease the facility, to be approximately $1.1 million, including $0.2
million related to severance and other employee transition costs, and $0.9 million related to lease and other exit costs.
European Consolidation Plan:
During the second quarter of fiscal year 2012, the Company completed a plan to expand its European automotive electronics
capabilities and to establish a European Medical Center of Expertise near Poznan, Poland. This plan had been approved in the
fourth quarter of fiscal year 2008. The plan was executed in stages as follows:
• 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 in the fourth quarter of fiscal year 2009.
• The Company sold the former Poland facility and land during fiscal year 2010 and recorded a $6.7 million pre-tax
gain which was 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 completed the consolidation of its EMS facility located in Wales, United Kingdom into the new facility.
Production in Wales ceased and was transferred to the Poland facility in the second quarter of fiscal year 2012. The
lease for the Wales facility terminated in the third quarter of fiscal year 2012.
Total pre-tax restructuring charges, excluding the gain on the sale of the former facility and construction of the new facility,
related to the consolidation activities were approximately, in millions, $23.0 consisting of $20.8 of severance and other
employee costs, $0.4 of property and equipment asset impairment, $0.4 of lease exit costs, and $1.4 of other exit costs.
Summary of All Plans
(Amounts in Thousands)
EMS Segment
Fiscal Year Ended June 30, 2012
Accrued
June 30,
2011 (3)
Amounts
Charged
Cash
Amounts
Charged
(Income)
Non-cash
Amounts
Utilized/
Cash Paid Adjustments
Accrued
June 30,
2012 (3)
Total Charges
Incurred
Since Plan
Announcement (4)
Total
Expected
Plan
Costs (4)
FY 2011 Fremont Restructuring Plan
Transition and Other
Employee Costs . . . . . . . . . . . . $
264
$
— $
15
$
(236) $
Plant Closure and Other Exit
Costs. . . . . . . . . . . . . . . . . . . . .
—
Total. . . . . . . . . . . . . . . . . . . . . $
264
$
FY 2008 European Consolidation Plan
830
830
$
—
15
(561)
$
(797) $
(43)
—
(43)
$
$
— $
269
269
$
236
$
236
850
890
1,086
$
1,126
7,694
$
937
$
— $
(8,506) $
(125) (5) $
— $
20,831
$ 20,831
Transition and Other
Employee Costs . . . . . . . . . . . . $
Asset Write-downs (Gain on
Sale) . . . . . . . . . . . . . . . . . . . . .
Plant Closure and Other Exit
Costs. . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . $
7,694
Total EMS Segment . . . . . . . . . . . $
7,958
—
—
—
(148)
148
1,156
2,093
2,923
$
$
(1,156)
$
$
(148) $
(9,514) $
(133) $ (10,311) $
Unallocated Corporate
Other Restructuring Plan (1) . . . . .
Consolidated Total of All Plans . . . $
—
99
7,958
$
3,022
$
572
439
(671)
$ (10,982) $
65
—
—
(125)
(168)
—
(168)
$
$
$
—
—
— $
269
$
—
269
$
374
374
1,814
1,814
23,019
$ 23,019
24,105
$ 24,145
1,436
1,557
25,541
$ 25,702
(Amounts in Thousands)
EMS Segment
FY 2011 Fremont Restructuring Plan
Fiscal Year Ended June 30, 2011
Accrued
June 30,
2010 (3)
Amounts
Charged
Cash
Amounts
Charged
Non-cash
Amounts
Utilized/
Cash Paid
Adjustments
Accrued
June 30,
2011 (3)
Transition and Other Employee Costs. . . . . . . . . . . . . . . . . . . . $
— $
Plant Closure and Other Exit Costs. . . . . . . . . . . . . . . . . . . . . .
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
FY 2008 European Consolidation Plan
Transition and Other Employee Costs. . . . . . . . . . . . . . . . . . . . $
9,181
Plant Closure and Other Exit Costs. . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total EMS Segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
9,181
9,181
$
$
$
Unallocated Corporate
Other Restructuring Plan (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Total of All Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
9,181
$
246
20
266
619
2
621
887
104
991
$
$
$
$
$
$
18
—
18
$
$
— $
(20)
(20) $
—
—
—
$
$
264
—
264
— $
(2,776) $
670 (5) $
7,694
—
— $
18
$
(2)
(2,778) $
(2,798) $
—
18
(104)
$
(2,902) $
—
670
670
—
670
—
7,694
7,958
$
$
—
$
7,958
(Amounts in Thousands)
EMS Segment
FY 2008 European Consolidation Plan
Fiscal Year Ended June 30, 2010
Accrued
June 30,
2009 (3)
Amounts
Charged
(Income)
Cash
Amounts
Charged
Non-cash
Amounts
Utilized/
Cash Paid
Adjustments
Accrued
June 30,
2010 (3)
Transition and Other Employee Costs. . . . . . . . . . . . . . . . . . . . $
12,288
$
1,673
$
— $
(3,681) $
(1,099) (5) $
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 Plan (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated Corporate
Other Restructuring Plan (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Total of All Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
—
(83)
85
—
—
83
(85)
—
—
—
—
12,288
$
1,875
$
176
$
(4,059) $
(1,099)
$
9,181
(1) The Other Restructuring Plan with charges during fiscal years 2012 and 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) Accrued restructuring at June 30, 2012 was $0.3 million recorded in current liabilities. At June 30, 2011 accrued
restructuring 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.
(4) These columns include restructuring plans that were active during fiscal year 2012, 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.
(5) 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.
66
Note 18 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 common 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 12 - Investments and Note 11 - Derivative Instruments of Notes to Consolidated Financial Statements.
The combined carrying value of the notes receivable was $2.6 million and $2.8 million as of June 30, 2012 and June 30, 2011,
respectively, with no reserve, 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 obligation to provide additional
funding to the VIEs, and thus its exposure and risk of loss related to the VIEs is limited to the carrying value of the investments
and notes receivable. Financial support provided by the Company to the VIEs was limited to the items discussed above during
the fiscal year ended June 30, 2012.
Note 19 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 due
date for the note receivable from the sale of an Indiana facility was extended until June 30, 2014, and the Company continues
to hold collateral for this note receivable thereby mitigating the risk of loss. As of June 30, 2012 and 2011, none of the
outstanding notes receivable were past due.
(Amounts in Thousands)
As of June 30, 2012
As of June 30, 2011
Unpaid
Balance
Related
Allowance
Receivable
Net of
Allowance
Unpaid
Balance
Related
Allowance
Receivable
Net of
Allowance
Note Receivable from Sale of Indiana
Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,409
Notes Receivable from an Electronics
Engineering Services Firm . . . . . . . . . . . . . . .
Other Notes Receivable . . . . . . . . . . . . . . . . .
322
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,952
1,221
$
$
— $
1,409
$ 1,334
$
— $
1,334
—
214
214
1,221
108
1,420
—
—
—
1,420
—
$
2,738
$ 2,754
$
— $
2,754
67
Note 20 Quarterly Financial Information (Unaudited)
(Amounts in Thousands, Except for Per Share Data)
Fiscal Year 2012:
September 30 December 31
March 31
June 30
Three Months Ended
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings (Loss) Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings (Loss) Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
270,635
46,970
113
(146)
296,904
54,320
1,480
3,197
(0.01) $
— $
(0.01) $
— $
294,676
47,147
117
456
0.01
0.01
0.01
0.01
$
$
$
$
$
0.08
0.09
0.08
0.09
310,632
49,576
368
876
0.02
0.02
0.02
0.02
$
$
$
$
$
$
$
$
$
$
284,414
50,639
895
2,506
0.06
0.07
0.06
0.07
314,466
50,691
68
3,306
0.08
0.09
0.08
0.09
$
$
$
$
$
$
$
$
$
$
290,108
58,026
930
6,077
0.16
0.16
0.16
0.16
282,823
47,178
456
284
—
0.01
—
0.01
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, 2012, 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, 2012 has been audited by the Company's independent registered public accounting firm. Management's
report and the independent registered public accounting firm's attestation report are included in the Company's
Consolidated Financial Statements under the captions entitled "Management's Report on Internal Control Over
Financial Reporting" and "Report of Independent Registered Public Accounting Firm" and are incorporated herein by
reference.
68
(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, 2012 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 16, 2012 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 16, 2012 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 16, 2012 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 16, 2012 under the captions "Information Concerning the Board of
Directors and Committees," "Compensation Discussion and Analysis," "Compensation Committee Report," "Compensation
Related Risk Assessment," and "Executive Officer and Director Compensation."
69
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 16, 2012 under the caption "Share Ownership Information."
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 16, 2012 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 16, 2012 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 16, 2012 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 16, 2012 under the caption "Independent Registered Public
Accounting Firm" and "Appendix A — Approval Process for Services Performed by the Independent Registered Public
Accounting Firm."
70
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
Consolidated Balance Sheets as of June 30, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2012 . .
36
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended
June 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Share Owners' Equity for Each of the Three Years in the Period Ended
June 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37
38
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
(2) Financial Statement Schedules:
II. Valuation and Qualifying Accounts for Each of the Three Years in the Period Ended June 30,
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
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 75 for a list of the exhibits filed or incorporated herein as a part of this report.
71
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 27, 2012
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 27, 2012
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 27, 2012
/s/ MICHELLE R. SCHROEDER
Michelle R. Schroeder
Vice President,
Chief Accounting Officer
August 27, 2012
72
Signature
Signature
DOUGLAS A. HABIG *
Douglas A. Habig
Chairman of the Board
THOMAS J. TISCHHAUSER *
Thomas J. Tischhauser
Director
CHRISTINE M. VUJOVICH *
Christine M. Vujovich
Director
HARRY W. BOWMAN *
Harry W. Bowman
Director
GEOFFREY L. STRINGER *
Geoffrey L. Stringer
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 27, 2012
/s/ JAMES C. THYEN
James C. Thyen
President, Chief Executive Officer, Director
Individually and as Attorney-In-Fact
73
Schedule II. - Valuation and Qualifying Accounts
KIMBALL INTERNATIONAL, INC.
Description
(Amounts in Thousands)
Year Ended June 30, 2012
Valuation Allowances:
Short-Term Receivables . . . . . . . . . . . . . .
Deferred Tax Asset. . . . . . . . . . . . . . . . . .
Year Ended June 30, 2011
Valuation Allowances:
Short-Term Receivables . . . . . . . . . . . . . .
Long-Term Notes Receivable. . . . . . . . . .
Deferred Tax Asset. . . . . . . . . . . . . . . . . .
Year Ended June 30, 2010
Valuation Allowances:
Short-Term Receivables . . . . . . . . . . . . . .
Long-Term Notes Receivable. . . . . . . . . .
Deferred Tax Asset. . . . . . . . . . . . . . . . . .
Balance at
Beginning
of Year
Additions
to Expense
Adjustments
to Other
Accounts
Write-offs
and
Recoveries
Balance at
End of
Year
$ 1,799
$ 6,698
$
$
267
355
$ 3,349
$
69
$ 5,777
$
476
$ —
$ 1,297
$ 4,366
$
—
$ 5,132
$
$
$
232
69
814
$
$
$
$
$
$
$
$
(83)
—
(616)
$
$ (5,142)
195
—
—
(45)
—
—
$ (2,221)
(69)
$
(376)
$
$ (1,204)
—
$
(169)
$
$
$
$
$
$
$
$
$
1,367
1,911
1,799
—
6,698
3,349
69
5,777
74
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
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 (Incorporated by reference to Exhibit 10(e) to the Company's
Form 10-K for the year ended June 30, 2011)
Form of Annual Performance Share Award Agreement, as amended on August 22, 2006
(Incorporated by reference to Exhibit 10(a) to the Company's Form 10-Q for the period ended
September 30, 2011)
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 (Incorporated by reference to Exhibit 10(h) to the Company's Form 10-K for
the year ended June 30, 2011)
Form of Long Term Performance Share Award, 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,
2011)
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 15 - Earnings Per Share
of Notes to Consolidated Financial Statements)
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification furnished by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document **
XBRL Taxonomy Extension Schema Document **
XBRL Taxonomy Extension Calculation Linkbase Document **
XBRL Taxonomy Extension Definition Linkbase Document **
XBRL Taxonomy Extension Label Linkbase Document **
XBRL Taxonomy Extension Presentation Linkbase Document **
* Constitutes management contract or compensatory arrangement
** These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933 or
Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.
75
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 27, 2012
/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 27, 2012
/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, 2012 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 27, 2012
/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, 2012 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 27, 2012
/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 12 years
Douglas A. Habig *
Chairman of the Board of Directors,
Kimball International
Director 39 years
Geoffrey L. Stringer + # *
Retired; Former Executive Vice President,
Bank One Corporation and Chief Executive Officer,
Bank One Capital Corporation
Director 9 years
James C. Thyen *
President, Chief Executive Officer,
Kimball International
Director 30 years
Thomas J. Tischhauser +
Executive Consultant, Leadership Development,
Former Corporate Vice President,
Continental Automotive and Motorola, Inc.
Director 4 years
Christine M. Vujovich # *
Retired; Former Vice President,
Marketing and Environmental Policy,
Cummins, Inc.
Director 18 years
Dr. Jack R. Wentworth #
Retired; Arthur M. Weimer Professor Emeritus,
Business Administration,
Indiana University;
Former Dean, Kelley School of Business,
Indiana University
Director 28 years
+ Member of the Audit Committee of the Board
# Member of the Compensation and Governance
Committee of the Board
* Member of the Strategic Planning Committee of
the Board
Other Corporate Data
Kimball International, Inc. and Subsidiaries
10-K Report
A copy of the Company’s annual report to the Securities and
Exchange Commission on Form 10-K is available, without
charge, upon written request directed to Robert F. Schneider,
Executive Vice President, Chief Financial Officer, at our corporate
headquarters 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)
781-575-4735 (non-U.S.)
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.
Corporate Sustainability Report
To view our Corporate Sustainability Report please
go to http://www.kimball.com/corporate_social_responsibility.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
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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.
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1600 Royal Street
Jasper, IN 47549
812-482-1600
812-482-8500 TDD
www.kimball.com
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