2 2013 Annual Report13
Strategies Evolve,
Markets Expand,
Values Endure
Team Members Around the World
Kimball International
employs
6,426
people
worldwide.
This year,
64
35
Kimball employees reached
years of service.
Since 1990, 677
employees have achieved
this personal
milestone.
31%
of Kimball’s U.S.
senior management,
mid-management and
front-line leaders
are women and
5%
are minorities.
49%
of Kimball’s total
employees are Gen X
and Gen Y.
15
years is the average
longevity of Kimball
employees.
64%
of Kimball’s
technical and professional
employees are women and
11%
are minorities.
In 2012,
Corporate Trainers presented
hours of educational training
and employees filled
488
2,039
seats during training.
STRATEGIES
Kimball has proven to be a
responsive and flexible company with a record of anticipating changes and the
ability to meet the challenges of change by evolving its strategies.
Kimball strategies succeed because of our dedicated people. From the
third generation woodworker in Jasper, Indiana to the fresh-out-of-college
engineer in Poznan, Poland, our people are committed to effective execution of
our strategies. Our people are the Company.
Kimball prides itself on creating a culture of teamwork. It is the foundation for generating products in a safe, ethical
and enriching work environment. Relationships with management and fellow team members are at the core of Kimball
International’s product innovation and consistent quality. We connect through relationships to meet customer needs,
address market challenges, or adapt strategies and tactics. Connecting via shared values is the glue that enables our
strategies to stick, making the global Kimball team not only successful, but truly outstanding.
www.kimball.com Kimball 2013 1
MARKETS
Kimball continues to expand its
market presence by listening to customers and providing real solutions to
need-based problems.
Finding answers to complex problems, meeting difficult deadlines,
exceeding customer expectations – these are why our customers choose Kimball
and why they remain with us. We approach our chosen markets with a different
mindset, one focused on customers’ wants and needs, providing solutions instead
of just products.
Kimball Office Furniture: Priority™
Furniture Segment: Our Furniture segment brands each addressed
key market needs. Our Kimball Office brand saw solid growth with its
Priority desking line as demand for collaborative work solutions increased.
Promotional marketing helped expand sales in key vertical markets of
Finance and Healthcare. Our National Office Furniture brand saw new
seating products drive growth, especially those with designs appropriate
to the Healthcare and Education markets. Our Kimball Hospitality brand
experienced positive market response to shorter lead times made possible by
its new domestic casegoods manufacturing facility in Indiana.
EMS Segment: Our Kimball
Electronics customers embraced the
solutions provided by a global footprint
of operations. A universal culture
of shared Kimball values enabled
seamless transfers of work between our
manufacturing facilities to fill geographic
market needs.
Kimball Electronics:
Global capabilities - From Thailand to Tampa
Kimball Hospitality:
JW Marriot Marquis - Miami
National Office Furniture:
Confide lounge seating
2 Kimball 2013 www.kimball.com
75%
of our EMS customers
have been customers
for over 6 years.
Kimball U.S.
employees:
3,726
Kimball Global
employees:
2,700
Kimball aircraft
flew in
800
visitors to Jasper
during the year.
They represented
230
customer
businesses.
Kimball Electronics made
components for
15.4
million
vehicles around the globe.
100%
of Kimball Office and
National Office
Furniture products
are environmentally
certified to BIFMA
level® 2 or
3 standards.
Kimball International Manufacturing Facilities
Kimball Office Furniture: Priority™
Idaho
PoLaNd
INdIaNa (18)
VIRGINIa
KENTUCKY (2)
FLoRIda
MEXICo
ChINa (2)
ThaILaNd
2013 Sales By Business Segments
58% 42%
Electronics
Manufacturing
Services
Furniture
www.kimball.com Kimball 2013 3
Kimball has donated nearly
$13
million
to various local charities
and projects in our communities
during the last 60 years.
Since 2000, safety
incidents and claims
were reduced by
90%
Kimball Office
employees donated
hundreds of
volunteer service
hours in
65
community events
in 2012.
4 Kimball 2013 www.kimball.com
Kimball Corporate
Recycling programs
recycled or reused
4.4
million
pounds of materials,
or the equivalent of
91%
of all solid waste generated
in the past year.
VAluES
Kimball today is still the same value-based
company that started in a small Indiana town decades ago. Our values are the
bedrock of our company.
Even as we have expanded into a diverse global company, our relationships
with our customers, our employees, our investors and our communities are based
on the values we formed long ago – work hard, treat people like you want to be
treated, be honest, give to those who need your help, and provide products and
services that enhance people’s lives.
We may have changed, evolved, adapted and expanded, but we have remained true to our values. These same enduring
values hold the promise to lead us into many more years of building success.
Safety, environmental protection, community service, high ethical behavior and trust
are staples among Kimball company values. Our values-focused culture, ethics and integrity
are recognized by employees and business partners alike. This year Kimball was named to the
Forbes list of “America’s Most Trustworthy Companies”, based on assessments of financial
transparency, conservative accounting practices, sound management and corporate governance.
Kimball paid out
$43,800
in college scholarships
to employees’ children
in 2013.
Kimball
Electronics-Thailand
has worked
3,683
days without a
lost time accident.
7
Kimball facilities have
earned the OSHA
VPP Star for
outstanding safety.
Worldwide, Kimball
has over
100Behavior Based
Safety (BBS)
Site Champions
across all
Kimball locations.
www.kimball.com Kimball 2013 5
TO Our SHArE OWNErS:
Change is inevitable. Strategies may change over time, to address
market conditions, evolving customer needs, product innovations,
or technological advances. Markets expand as others contract,
offering new opportunities to those with the insights to see them.
Your Company embraces change and successfully navigated
through the challenges of a volatile business climate during fiscal
year 2013 while remaining true to its enduring values.
Net Income
was up
71%
for fiscal 2013.
Open Orders for the
Furniture segment at
year end increased
33%
6 Kimball 2013 www.kimball.com
Consolidated financial results for fiscal year 2013 improved significantly compared to the prior year. Our improved operational performance, combined with careful management of working capital, produced strong cash flow from operations. Areas remain within your Company which have room for improvement. However, we are largely past the volatile economic downturn which we weathered over the last several years; our restructuring plans have drawn to a close and we are now much stronger and more focused than ever. Consolidated Net Sales for fiscal year 2013 were $1,203,134,000, a 5% increase compared to last fiscal year sales. The consolidated increase was a result of a 14% net sales increase in the Electronic Manufacturing Services (EMS) segment, which more than offset a 5% net sales decline in the Furniture segment. Despite lower fiscal year 2013 sales, the Furniture segment’s open orders at June 30, 2013 increased 33% compared to June 30, 2012, as open orders for both office furniture and hospitality furniture improved. Open orders in the EMS segment at the end of fiscal year 2013 were up 2% over 2012.Consolidated Net Income for fiscal year 2013 was $19.9 million, or $0.52 per Class B diluted share, compared to the prior year net income of $11.6 million, or $0.31 per Class B diluted share. Increased net income in the EMS segment related to sales growth and margin improvement was partially offset by a decline in net income in the Furniture segment on lower volumes. The 71% increase in consolidated net income confirmed that our strategies are working and our process discipline is paying rewards.Cash management continues to be a key priority. Cash and cash equivalents improved to $103.6 million as of the June 30 fiscal year end, compared to $75.2 million as of the prior year end. Your Company’s balance sheet remains strong, with minimal long-term debt. We have prudently controlled working capital levels during this period of growth which enables us to stay focused on long-term strategies, make wise capital investments, and continue our trend of dividend distributions.One of the top priorities for our EMS segment coming into fiscal year 2013 was growth and diversification of our customer base. The team’s intense focus throughout the year resulted in extraordinary execution around this strategy, as evidenced by a 14% sales increase compared to last year. The growth has come from both existing customers and new customers, and within all four of the vertical markets in which we compete. We are pleased with the accomplishments our EMS team achieved over the past year and look forward to continued success in fiscal year 2014.The Furniture segment experienced mixed results from the various markets in which it operates, ending fiscal year 2013 with a 5% decline in net sales and approximately break-even net income. In particular, sales to the federal government declined substantially compared to last year and the hospitality sector did not recover as rapidly as the industry forecasted. Net income was lower than the prior year due to the lower sales volumes, an unfavorable sales mix, higher incentive compensation, and prior year favorable impacts including LIFO inventory reserve adjustments and import duty refunds. Douglas A. Habig
James C. Thyen
Total sales for Kimball
International were
$1.2
billion
Sales for the EMS
segment increased
14%
©2013, Forbes Media LLC. Used With PerMission.
www.kimball.com Kimball 2013 7
Projections by the Business and Institutional Furniture Manufacturer Association (BIFMA) estimated an approximate 4% year-over-year increase in office furniture consumption for calendar year 2013, driven by stronger growth forecasted in the latter half of calendar year 2013. Improved year-over-year growth of 8% is projected for calendar year 2014. Our Kimball Office and National brands are strengthening their positions as market leaders. The comparable indicator for the hospitality market, RevPAR, or Revenue Per Available Room, is projected to increase 6% for calendar year 2013 and is forecast to increase another 6% to 8% for calendar year 2014. As the effects of the recession begin to recede in the hospitality market, our Kimball Hospitality brand will take advantage of the opportunities for refurbishment projects and new hotel construction.We remain committed to the strategies we have set and confident in the markets that we have chosen to pursue. We take great pride in the global team of employees who embrace and strengthen the Kimball values that form the solid bedrock of your Company’s success. We will continue to evolve, expand and endure.We are particularly proud to announce that your Company was honored to be named to the Forbes 2013 list of “America’s 100 Most Trustworthy Companies”, a nod to our record of financial transparency, conservative accounting practices, sound management, and corporate governance. We would be remiss not to mention the passing of our friend and colleague, Harry “Hank” Bowman, who served as a member of the Board of Directors for the past thirteen years. His leadership and guidance have been invaluable throughout the time of his service, and his wit, humor and common sense will be sorely missed. We are grateful for his time and service, and extend our deepest condolences to his family.To appreciate how Kimball International is remaining true to our values as we pursue expanding markets and grow our business, we invite you to 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
Kimball International, Inc. is a
preeminent manufacturer of furniture
and electronic assemblies, serving
customers around the world. Our
customers, both large and small,
receive our undivided attention, as
we treat every one as the only one.
Our touch is felt throughout daily life
in both the workplace and in
the home.
Recognized with a reputation for
excellence, Kimball International is
committed to a high performance
culture that values personal and
organizational commitment to quality,
reliability, value, speed, and
ethical behavior. Kimball employees
know they are part of a corporate
culture that builds success for
customers while enabling employees
to share in the Company’s success
through personal, professional, and
financial growth.
WHAT WE DO
Kimball International, Inc. provides
a variety of products from its two
business segments: the 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.
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.
Furniture
Manufacturing, Product Design, Marketing, Sales.
Kimball Office
National
Casegoods, Desks, Seating, Tables, Filing Cabinets, Book Cases,
Office Systems, Accessories.
Casegoods, Desks, Seating, Tables, Dividers, Filing Cabinets,
Book Cases, Accessories.
Kimball Hospitality
Casegoods, Desks, Seating, Tables, Bed Headboards, Dressers,
Entertainment Centers, Chests, Wall Panels, Cabinets, and Vanities.
FINANCIAl HIGHlIGHTS
(Amounts in thousands, except for per share data)
2013
2012
% Change
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
5.3%
70.9%
66.7%
8.2%
12.3%
1.7%
4.7%
69.0%
67.7%
0.0%
0.0%
$1,203,134
$1,142,061
19,879
4.75%
63,861
214,448
28,755
404,506
0.49
0.52
0.18
0.20
13.25
7.70
9.71
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
8 Kimball 2013 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, 2013
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
Securities registered pursuant to Section 12(b) of the Act:
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
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, 2012 (the last business day of the
Registrant's most recently completed second fiscal quarter) was $330.1 million, based on 96.9% of Class B Common Stock held by non-affiliates.
The number of shares outstanding of the Registrant's common stock as of August 12, 2013 was:
Class A Common Stock - 8,154,429 shares
Class B Common Stock - 29,925,509 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on October 15, 2013, 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
15
16
18
18
29
31
66
67
67
67
68
68
68
68
69
70
2
Item 1 - Business
General
PART I
As used herein, the terms "Company," "Kimball," "we," "us," or "our" refer 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.
Kimball was incorporated in Indiana in 1939. Our corporate headquarters is located at 1600 Royal Street, Jasper, Indiana.
Kimball 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 automotive, medical, industrial, and public safety industries. The Furniture
segment provides furniture for the office and hospitality industries, sold under Kimball'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, we have 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, 2013 were as
follows:
(Amounts in Thousands)
Electronic Manufacturing Services segment . . . . . . $ 703,129
500,005
Furniture segment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kimball International, Inc. . . . . . . . . . . . . . . . . . . . $ 1,203,134
2013
2012
2011
58% $ 616,751
525,310
42%
100% $ 1,142,061
54% $ 721,419
481,178
46%
100% $ 1,202,597
60%
40%
100%
Financial information by segment and geographic area for each of the three years in the period ended June 30, 2013 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
Kimball 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. Our current focus is on electronic assemblies that have high
durability, quality, reliability, and regulatory compliance requirements primarily in automotive, medical, industrial, and public
safety applications. Our 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. Kimball'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 extreme environmental 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 through the life cycle of the products along with supply
chain management, which affords customers the opportunity to focus their attention and resources on sales, marketing, and
product development as they sell their unique branded end products into various markets and industries.
Sales revenue of our EMS segment is generally not affected by seasonality.
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 fiscal year 2012, and a majority of the
business was transferred to our 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 our growth and diversification strategy, bringing new customers in our key medical and
industrial markets.
During the fourth quarter of fiscal year 2008, the Company approved a plan to expand our European automotive electronics
capabilities and to establish a European Medical Center of Expertise near Poznan, Poland. As part of the plan, we consolidated
our EMS facilities located in Wales, United Kingdom, and Poznan, Poland, into a new larger facility near Poznan. The plan
was executed in stages and was completed during fiscal year 2012.
Additional information regarding our restructuring activities is located in Note 17 - Restructuring Expense of Notes to
Consolidated Financial Statements.
Locations
As of June 30, 2013, our EMS segment consisted of six manufacturing facilities with one located in each of Indiana, Florida,
Poland, China, Mexico, and Thailand. We continually assess our capacity needs and evaluate our operations to optimize our
service levels by geographic region. Operations located outside of the United States continue to be an integral part of our EMS
segment. See Item 1A - Risk Factors for information regarding financial and operational risks related to our 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 and the continuing trend of original
equipment manufacturers in the electronics industry subcontracting 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 our 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.
Our competition includes EMS companies such as Benchmark Electronics, Inc., Jabil Circuit, Inc., and Plexus Corp. The
Company does not have a significant share of the EMS market and was ranked the 18th largest global EMS provider for
calendar year 2012 by Manufacturing Market Insider in the March 2013 edition.
4
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
automotive, medical, industrial, and public safety industries. Included in this segment were a significant amount of sales to
Johnson Controls, Inc. and, prior to fiscal year 2012, Bayer AG affiliates which accounted for the following portions of
consolidated net sales and EMS segment net sales:
2013
10%
Johnson Controls, Inc. sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . . . . . . .
Johnson Controls, Inc. sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . . . . . . .
17%
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
2012
9%
17%
—%
1%
2011
7%
12%
11%
19%
As shown in the table above, the Company's sales to Bayer AG declined due to the expiration of our 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 year 2011. Margins on the Bayer AG product were generally lower than our other EMS products. The
nature of the contract business is such that start-up of new customers to replace expiring customers occurs frequently. We
continue to focus on diversification of the EMS segment customer base.
Furniture
Overview
Kimball has been in the furniture business since 1950. This segment's core markets include furniture sold under the Kimball
Office, National, and Kimball Hospitality brand names. 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 furniture solutions for private offices, open floor plan areas, conference rooms, training rooms, lobby/
reception areas, and dining/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 our 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 our product
are generally higher in the first half of the Company's fiscal year.
Recent Business Changes
Production within one of our Indiana facilities was expanded during fiscal year 2013 to manufacture select hospitality furniture
products domestically which improves our flexibility in instances such as customer requests for shorter lead times.
5
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.
Locations
The Company's furniture products as of June 30, 2013 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 adjusts such capacity as necessary.
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
Our furniture is marketed by sales representatives to end users, office furniture dealers, wholesalers, rental companies, and
catalog houses throughout North America and on an international basis.
Major Competitive Factors
Our 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. We offer 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
our own lines of hospitality furniture. In addition to the many options available on our standard furniture products, custom
furniture is produced to customer specifications and shipping timelines on a project basis. Many of our office furniture
products are shipped through our delivery system, which we believe offers 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 our furniture business. The Company does receive advance
payments from customers on select furniture projects primarily in the hospitality industry.
Competitors
There are numerous furniture manufacturers competing within the marketplace, with a significant number of competitors
offering similar products. The Company believes, however, that there are a limited number of relatively large manufacturers of
wood office and hospitality furniture.
Our competition includes furniture manufacturers such as Steelcase Inc., Herman Miller, Inc., Knoll, Inc., Haworth, Inc., 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
2013
June 30
2012
174.5
95.7
270.2
$
$
170.6
72.0
242.6
Substantially all of the open orders as of June 30, 2013 are expected to be filled within the next fiscal year. Open orders may
not be indicative of future sales trends.
Research, Patents, and Trademarks
Research and development activities include the development of manufacturing processes, major process improvements, new
product development and product redesign, information technology initiatives, and electronic and wood related technologies.
Research and development costs were approximately:
(Amounts in Millions)
Research and Development Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30
2012
2011
2013
$14
$13
$13
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, Aurora, Mix-It, Jiminy, IntegraClear,
Epicenter, National, and Beo
Trademarks: President, Exhibit, Priority, Villa, Wish, Swift, Epic, Itsa, and Scenario
Patents: Wish, Priority, Xsite, Exhibit, Villa, Aurora, and Fluent
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, 2015, 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
2013
June 30
2012
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,710
2,716
6,426
3,694
2,601
6,295
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. Additional risks and uncertainties that we do
not currently know about, we currently believe are immaterial or we have not predicted may also affect our actual results.
Because of these and other factors, past performance should not be considered an indication of future performance.
Uncertain macroeconomic and industry conditions could adversely impact demand for the Company's products and
adversely affect operating results. Market demand for our 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;
new hotel and casino construction and refurbishment rates;
automotive industry fluctuations;
8
•
•
•
•
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.
We 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. We must constantly monitor the changing economic
landscape and may modify our strategic direction based upon the changing business environment. If we do not react quickly
enough to the changes in market or economic conditions, it could result in lost customers, decreased market share, and
increased operating costs.
The Company is exposed to the credit risk of its customers. The instability of market conditions drives an elevated risk of
potential bankruptcy of customers resulting in a greater risk of uncollectible outstanding accounts receivable. Accordingly, we
intensely monitor our receivables and related credit risks. The realization of these risks could have a negative impact on our
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, we
could lose future revenues. Our continuing success is dependent upon replacing expiring contract customers/programs with
new customers/programs. In particular, sales to Johnson Controls, Inc. accounted for 10%, 9%, and 7% of consolidated net
sales in fiscal years 2013, 2012, and 2011, respectively. Significant declines in the level of purchases by this customer or other
key customers in either of the Company's segments, or the loss of a significant number of customers, could have a material
adverse effect on business. In addition, the nature of the contract electronics manufacturing industry is such that the start-up of
new customers and new programs to replace expiring programs occurs frequently, and new customer and program start-ups
generally cause losses early in the life of a program. In our Furniture segment, a reduction of government spending could also
have an adverse impact on our sales levels. We can provide no assurance that we will be able to fully replace any lost sales,
which could have an adverse effect on our financial position, results of operations, or cash flows.
The Company operates in a highly competitive environment and may not be able to compete successfully. 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 our products. While the Company works toward
reducing costs to respond to pricing pressures, if we cannot achieve the proportionate reductions in costs, profit margins may
suffer. The high level of competition in these industries impacts our ability to implement price increases or, in some cases,
even maintain prices, which also could lower profit margins. In addition, as end markets dictate, we are 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 our 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
manufacturing process is essential. Price increases of commodity components could have an adverse impact on our
profitability if we 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 our 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
our operations and negatively impact our 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 our profitability.
The Company could be impacted by manufacturing inefficiencies at certain locations. At times we may experience labor
or other manufacturing inefficiencies due to factors such as new product introductions, transfers of production among our
9
manufacturing facilities, a sudden decline in sales, a new operating system, or turnover in personnel. Manufacturing
inefficiencies could have an adverse impact on our 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 our gross margin as margins of different products vary. We strive 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, our EMS segment has historically operated at a lower gross profit
percentage than our Furniture segment, and if the sales mix continues to trend toward the EMS segment, our 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 our financial position, results of operations, or cash flows.
Future restructuring efforts by the Company may not be successful. We continually evaluate our manufacturing
capabilities and capacities in relation to current and anticipated market conditions. If we implement 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 us;
difficulties in the assimilation of the operations of the acquired company;
the diversion of resources, including diverting management's attention from our current operations;
risks of entering new geographic or product markets in which we have 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
our 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. We are committed to growing our business,
and therefore from time to time, we may determine that it would be in our 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 our financial position, results of
operations, or cash flows.
The Company's international operations involve financial and operational risks. We have operations outside the United
States, primarily in China, Thailand, Poland, and Mexico. Our international operations are subject to a number of risks, which
may include the following:
•
•
•
•
•
•
economic and political instability;
compliance with laws, such as the Foreign Corrupt Practices Act, applicable to U.S. companies doing business outside
the United States;
changes in foreign regulatory requirements and laws;
tariffs and other trade barriers;
potentially adverse tax consequences 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 our financial position, results of operations, or cash flows. In addition, fluctuations
in exchange rates could impact our operating results. The Company's risk management strategy includes the use of derivative
financial instruments to hedge certain foreign currency exposures. Any hedging techniques we implement contain risks and
may not be entirely effective. Exchange rate fluctuations could also make our products more expensive than competitor's
products not subject to these fluctuations, which could adversely affect our revenues and profitability in international markets.
10
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. Shifts in workforce demographics,
working styles, and technology may impact the types of office furniture products purchased by our customers as smaller and
more collaborative workstations gain popularity. 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 may be less successful than we originally anticipated. 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. We 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. We believe that establishing and maintaining brand and name recognition is critical to our
business. Promotion and enhancement of our 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 our
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 our 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. Our office furniture is marketed primarily through Company salespersons to
end users, office furniture dealers, wholesalers, rental companies, and catalog houses. Our 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 our financial position, results of operations, or cash flows.
The Company must effectively manage working capital. We closely monitor inventory and receivable efficiencies and
continuously strive 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 our manufacturing facilities, or
manufacturing delays could cause deteriorating working capital trends.
The Company's assets could become impaired. As business conditions change, we 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 our 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. Our 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 our 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
system. The implementation of new accounting standards or changes to U.S. GAAP could adversely impact our 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 we operate that
have varying tax rates could impact our 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. We have 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 our income tax provisions and
accruals.
11
A failure to comply with the financial covenants under the Company's $75 million credit facility could adversely impact
the Company. Our credit facility requires the Company to comply with certain financial covenants. We believe the most
significant covenants under this credit facility are the ratio of consolidated indebtedness to consolidated EBITDA (debt to
EBITDA) and minimum net worth (excluding accumulated other comprehensive income). 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, 2013, we had no short-term borrowings under this credit facility and had total cash and cash equivalents of
$103.6 million. In the future, a default on the financial covenants under our credit facility could cause an increase in the
borrowing rates or could make it more difficult for us to secure future financing which could adversely affect the financial
condition of the Company.
A failure to successfully implement information technology solutions or a lack of reasonable safeguards to maintain data
security could adversely affect the Company. Our business depends on effective information technology systems which also
are intended to minimize the risk of a security breach. 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, poor execution, or a breach of information
technology systems could disrupt our operations, damage our reputation, or increase costs related to the mitigation of, response
to, or litigation arising from any such issue.
An inability to protect the Company's intellectual property could have a significant impact on business. We attempt to
protect our 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, our 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, we have limited protections, if any, for our intellectual property. Competing effectively depends, to a significant
extent, on maintaining the proprietary nature of our 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 our products are covered by patents. It is also possible that our 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. We 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. We
maintain product liability and other insurance coverage that we believe to be generally in accordance with industry practices.
However, our insurance coverage may not be adequate to protect us fully against substantial claims and costs that may arise
from liabilities related to product defects, particularly if we have 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 our reputation in addition to an adverse impact on our financial position, results of operations,
or cash flows.
The Company is subject to extensive environmental regulation and significant potential environmental liabilities. The
past and present operation and ownership by the Company of manufacturing plants and real property are subject to extensive
and changing federal, state, local, and foreign environmental laws and regulations, including those relating to discharges in air,
water, and land, the handling and disposal of solid and hazardous waste, 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 us. We
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. Our
12
success is dependent on keeping pace with technological advancements and adapting services to provide manufacturing
capabilities which meet customers' changing needs. In addition, we must retain our qualified engineering and technical
personnel and successfully anticipate and respond to technological changes in a cost effective and timely manner. Our culture
and guiding principles focus on continuous training, motivating, and development of employees, and we strive to attract,
motivate, and retain qualified personnel. Failure to retain and attract qualified personnel could adversely affect our 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 our 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. Our
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 our business and events such as a
pandemic could reduce the availability of employees reporting for work. In the event we experience a temporary or permanent
interruption in our 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 our 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. We maintain insurance to help protect us from costs relating to some of these matters, but such may not be
sufficient or paid in a timely manner to us 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 we 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, 2013 resulted in the conclusion that the Company's internal control over financial reporting was effective as of that
date, we cannot predict the outcome of testing in future periods. If we conclude in future periods that our internal control over
financial reporting is not effective, or if our 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 us 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 our total healthcare and related administrative expenses as the provisions of the law become effective.
Governmental changes or delays to the provisions may likewise drive changes in our implementation plan causing
inefficiencies and increasing our implementation costs even further. The changes resulting from this healthcare reform
legislation could have a significant impact on our employment practices in the U.S., our financial position, results of
operations, 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 our financial condition, results of
operations, or cash flows.
• The Company imports a portion of its wood furniture products and is thus subject to an antidumping tariff on wooden
bedroom furniture supplied from China. The tariffs are subject to review and could result in retroactive and
prospective tariff rate increases which could have an adverse impact on our financial condition, results of operations,
or cash flows.
Provisions of the Dodd-Frank Act relating to “Conflict Minerals” may increase the Company's costs and reduce the
Company's sales levels. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve
transparency and accountability concerning the supply of certain minerals originating from the Democratic Republic of Congo
(DRC) and adjoining countries that are believed to benefit armed groups. As a result, the SEC has adopted new due diligence,
disclosure, and reporting requirements for companies which manufacture products that include components containing such
minerals, regardless of whether the minerals are actually mined in the DRC or adjoining countries. Such regulations could
13
decrease the availability and increase the prices of components used in our products, particularly if we choose (or are required
by our customers) to source such components from different suppliers than we use now. In addition, as our supply chain is
complex and the process to comply with the new SEC rules will be cumbersome, we expect that the compliance process will be
both time-consuming and costly. We may face reduced sales if we are unable to timely verify the origins of minerals contained
in the components included in our products, or supply disruptions if our due diligence process reveals that materials we source
originate in the DRC or adjoining countries.
The value of the Company's common stock may experience substantial fluctuations for reasons over which the
Company may have 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, 2013, 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 4,823,000 square feet in aggregate, of which approximately 4,733,000 square feet
are owned and 90,000 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
—
70,000
1,011,000
3,561,000
231,000
20,000
251,000
Total
4,733,000
90,000
4,823,000
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 2013.
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 twelve leased office furniture showroom facilities which are not
included in the tables above, total 218,000 square feet and expire from fiscal year 2014 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.
We own 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.
Executive Officers of the Registrant
The executive officers of the Registrant as of August 26, 2013 are as follows:
(Age as of August 26, 2013)
Name
James C. Thyen . . . . . . . . . . .
Douglas A. Habig . . . . . . . . .
Donald D. Charron . . . . . . . .
Robert F. Schneider. . . . . . . .
John H. Kahle . . . . . . . . . . . .
Gary W. Schwartz . . . . . . . . .
Donald W. Van Winkle. . . . .
Michelle R. Schroeder. . . . . .
Age
69
66
49
52
56
65
52
48
Office and
Area of Responsibility
Executive Officer
Since
President, Chief Executive Officer, Director
Chairman of the Board
Executive Vice President, President-Kimball Electronics
Group, Director
Executive Vice President, Chief Financial Officer
Executive Vice President, General Counsel, Secretary
Executive Vice President, Chief Information Officer
Vice President, President-Office Furniture Group
Vice President, Chief Accounting Officer
1974
1975
1999
1992
2004
2004
2010
2003
15
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. Mr. Charron was appointed
to our Board of Directors in February 2013.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2013
High
13.25
13.10
12.59
10.80
Low
7.70
10.95
8.48
8.63
$
$
$
$
2012
High
Low
$
$
$
$
6.92
6.09
7.19
7.84
$
$
$
$
4.61
4.63
5.15
6.25
There is no established public trading market for the Company's Class A Common Stock. However, Class A shares are
convertible on a one-for-one basis to Class B shares.
Dividends
Our charter provisions require that, on a fiscal year basis, 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 $7.5 million for fiscal year 2013 and $7.4 million for fiscal year 2012.
Dividends per share declared by quarter for fiscal year 2013 compared to fiscal year 2012 were as follows:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Share Owners
2013
Class A
0.045
0.045
0.045
0.045
0.180
Class B
0.05
0.05
0.05
0.05
0.20
$
$
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
$
$
On August 12, 2013, the Company's Class A Common Stock was owned by 498 Share Owners of record, and the Company's
Class B Common Stock was owned by 1,445 Share Owners of record, of which 265 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
16
all shares authorized have been repurchased. The Company did not repurchase any shares under the repurchase program during
the fourth quarter of fiscal year 2013. At June 30, 2013, 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, 2008 through June 30, 2013, 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 our business segments.
The graph assumes $100 is invested in the Company's stock and each of the two indexes at the closing market quotations on
June 30, 2008 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 $
79.37 $
80.85 $
66.43 $
72.15 $
86.50 $ 107.14 $ 137.70
93.76 $ 124.45 $ 133.15 $ 156.59
98.35 $ 133.15 $ 118.01 $ 145.34
2008
2009
2010
2011
2012
2013
17
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,203,134
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
19,879
Earnings Per Share:
2013
Basic:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total Assets
$
Long-Term Debt, Less Current Maturities. . . . . $
Cash Dividends Per Share:
0.50
0.53
0.49
0.52
644,519
294
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.18
0.20
Year Ended June 30
2011
2012
2010
2009
$ 1,142,061
$ 1,202,597
$ 1,122,808
$ 1,207,420
$
$
$
$
$
$
$
$
$
11,634
$
4,922
$
10,803
$
17,328
0.29
0.31
0.29
0.31
595,516
273
0.18
0.20
$
$
$
$
$
$
$
$
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
Fiscal year 2013 net income included $0.3 million ($0.01 per diluted share) of after-tax restructuring expenses.
Fiscal year 2012 net income included $2.1 million ($0.06 per diluted share) of after-tax restructuring expenses.
Fiscal year 2011 net income included $0.6 million ($0.01 per diluted share) of after-tax restructuring expenses.
Fiscal year 2010 net income 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 net income 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.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Kimball International, Inc. ("the Company," "Kimball," "we," us," or "our") provides a variety of products from our 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
automotive, medical, industrial, and public safety industries. The Furniture segment provides furniture for the office and
hospitality industries, sold under Kimball's family of brand names.
The pace of the economic recovery has been slow, and key economic indicators are showing mixed trends. The uncertainty has
the tendency to cause disruption in business strategy, execution, and timing in many of the markets in which we compete.
EMS industry projections (by IDC and IHS in the February 2013 MMI publication) are forecasting growth for calendar year
2013 over 2012 in the 5% to 6% range. Growth projections for calendar year 2014 are in the 4% to 8% range. Additionally, in
June 2013 the Semiconductor Industry Association (SIA) endorsed a forecast for year-over-year semiconductor sales growth of
2% for calendar year 2013 and 5% for calendar year 2014, and although the Company does not directly serve this market, it
may be indicative of the end market demand for products utilizing electronic components. Kimball's focus is on the four key
18
vertical markets of automotive, medical, industrial, and public safety within our EMS segment. Our overall expectation for the
EMS market is that of moderate growth, but with mixed demand. The automotive end market is benefiting from relative
strength in the U.S. market and an uptick in the Chinese automotive market, while demand in other geographies such as Europe
continues to be less certain due to the lingering 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.
The Business and Institutional Furniture Manufacturer Association (BIFMA) forecast (by IHS as of May 2013) projects a year-
over-year increase in the office furniture industry for calendar year 2013 of 4% driven by stronger growth in the latter half of
calendar year 2013. Improved year-over-year growth of 8% is projected for calendar year 2014. The hospitality furniture
market forecast (June 2013 PwC and PKF Hospitality Research reports) projects an increase in occupancy rates of 1% and an
increase in RevPAR (Revenue Per Available Room) of 6% for calendar year 2013 over calendar year 2012. For calendar year
2014, occupancy is forecast to increase 1% to 2%, and RevPAR is forecast to increase in the range of 6% to 8%.
The Company's focus on cost control continues. At the same time, we plan to continue to invest in capital expenditures
prudently for projects in support of both organic growth and potential acquisitions that would enhance our capabilities and
diversification while providing an opportunity for growth and improved profitability. We also continue to closely monitor
market changes and our liquidity in order to proactively adjust our operating costs, discretionary capital spending, and dividend
levels as needed. Managing working capital in conjunction with fluctuating demand levels is likewise key. In addition, a long-
standing component of Kimball's profit sharing incentive bonus plan is that it is linked to our worldwide, group, or business
unit performance which is designed to adjust compensation expense as profits change.
We continue to maintain a strong balance sheet, which included minimal long-term debt of $0.3 million and Share Owners'
equity of $404.5 million as of June 30, 2013. Our short-term liquidity available, represented as cash and cash equivalents plus
the unused amount of our credit facilities, was $185.2 million at June 30, 2013.
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 Kimball's financial condition and operating
performance:
•
•
•
•
•
Inflation has moderated and does not appear to be a significant risk in the near-term, but we continue to focus on
mitigating the impact of raw material commodity pricing pressures.
Due to the contract and project nature of the EMS and Furniture industries, fluctuation in the demand for the Company's
products and variation in the gross margin on those projects is inherent to our business. Effective management of the
manufacturing capacity is and will continue to be critical to our success.
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 our 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 we operate but also our key customers and
competitors.
Kimball's employees throughout the business operations are an integral part of our ability to compete successfully, and the
stability of the management team is critical to long-term Share Owner value. Our 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 2013 Results of Operations
Financial Overview - Consolidated
Fiscal year 2013 consolidated net sales were $1.20 billion compared to fiscal year 2012 net sales of $1.14 billion, a 5%
increase, resulting from a 14% net sales increase in the EMS segment which more than offset a 5% net sales decrease in the
Furniture segment. Fiscal year 2013 net income was $19.9 million, or $0.52 per Class B diluted share, inclusive of $0.3
million, or $0.01 per Class B diluted share, of after-tax restructuring costs. The Company recorded net income for fiscal year
2012 of $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.
19
Consolidated gross profit as a percent of net sales improved to 18.6% for fiscal year 2013 from 18.4% in fiscal year 2012 due
to margin improvement in the EMS segment, which was partially offset by a decline in Furniture segment margin coupled with
a shift in sales mix (as depicted in the table below) toward the EMS segment which operates at a lower gross profit percentage
than the Furniture segment. Gross profit is discussed in more detail in the segment discussions below.
Segment Net Sales as a % of Consolidated Net Sales
EMS segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
June 30
2013
58%
42%
2012
54%
46%
Fiscal year 2013 consolidated selling and administrative expenses as a percent of net sales increased 0.2 of a percentage point
compared to fiscal year 2012, and increased 6.5% in absolute dollars primarily due to increased incentive compensation costs.
In addition, we recorded $2.0 million more expense within selling and administrative expenses in fiscal year 2013 than fiscal
year 2012 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), and thus there was no effect on net income.
Employee contributions comprise approximately 90% of the SERP investment.
Fiscal year 2013 other expense, net totaled $0.3 million compared to $0.7 million for fiscal year 2012. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on Stock Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended
June 30
2013
2012
$
404
(35)
(112)
2,000
(1,019)
(885)
(691)
(338) $
430
(35)
568
(3)
(715)
(526)
(406)
(687)
The impairment loss on privately-held investment and the loss on stock warrants listed in the table above both relate to the
Company's investment in one privately-held company. See the Notes to Consolidated Financial Statements for more detailed
information.
The fiscal year 2013 effective tax rate of 12.3% was favorably impacted by a high mix of earnings in foreign jurisdictions
which have lower statutory tax rates than the U.S. The fiscal year 2012 effective tax rate was 34.3%. See Note 8 - Income
Taxes of Notes to Consolidated Financial Statements for more information.
Comparing the balance sheet as of June 30, 2013 to June 30, 2012, the increase in accounts receivable was primarily a result of
higher EMS segment sales volumes and a shift in the mix of EMS segment sales at the end of fiscal year 2013 toward
customers with longer payment terms. Kimball's accounts payable balance increased primarily due to higher costs resulting
from increased EMS segment production volumes.
20
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2013
703.1
27.5
3.9%
21.1
0.1
174.5
$
$
$
$
$
2012
% Change
616.8
8.9
1.4%
6.6
1.7
14%
209%
222%
170.6
2%
Fiscal year 2013 EMS segment net sales to customers in the automotive, medical, industrial, and public safety industries all
increased compared to fiscal year 2012. Open orders as of June 30, 2013 were up 2% compared to June 30, 2012. 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 2013 EMS segment gross profit as a percent of net sales improved 2.0 percentage points when compared to fiscal
year 2012. The improvement in gross profit as a percent of net sales was primarily the result of leverage gained on higher
revenue as well as benefits gained from global purchasing efforts and operating efficiencies related to continuous improvement
initiatives. The EMS segment fiscal year 2013 gross profit was also favorably impacted by the benefits realized from
restructuring activities in which two facilities were closed during the second quarter of fiscal year 2012. EMS segment fiscal
year 2013 gross profit was unfavorably impacted by a $1.4 million inventory reserve recorded relating to a customer that
notified us they are going out of business.
EMS segment selling and administrative expenses in absolute dollars increased 15% in fiscal year 2013 as compared to fiscal
year 2012, and were flat as a percent of net sales due to the higher sales volumes. The selling and administrative expenses
increased primarily due to higher incentive compensation costs related to the significant improvement in the EMS segment
earnings.
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 2013 totaled expense of $0.9 million, compared to expense of $0.3
million in fiscal year 2012. The variance in Other Income (Expense) was primarily related to net foreign currency exchange
movement.
Included in this segment were a significant amount of sales to Johnson Controls, Inc. which accounted for the following
portions of consolidated net sales and EMS segment net sales:
Johnson Controls, Inc. sales as a percent of consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . .
Johnson Controls, Inc. sales as a percent of EMS segment net sales . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30
2013
10%
17%
2012
9%
17%
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 customers 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.
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 and customer financial 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
21
electronics manufacturing. The continuing success of this segment is dependent upon our ability to replace expiring customers/
programs with new customers/programs. Additional risk factors that could have an effect on our performance are located
within Item 1A - Risk Factors.
Furniture Segment
Furniture segment results follow:
At or For the Year
2013
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500.0
(0.4)
Operating Income (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(0.1)%
Operating Income (Loss) %. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
95.7
Open Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
$
Ended June 30
2012
525.3
11.9
2.3%
7.0
72.0
$
$
% Change
(5)%
(103)%
(99)%
33 %
The fiscal year 2013 net sales decrease in the Furniture segment compared to fiscal year 2012 resulted primarily from
decreased net sales of hospitality furniture and to a lesser extent from decreased net sales of office furniture. The lower
hospitality furniture net sales were due to two unusually large custom projects that were completed during fiscal year 2012.
The decrease in office furniture net sales was due to decreased sales volumes which more than offset the positive impact of
price increases net of incremental discounting. The largest driver of the decreased office furniture sales volumes was lower
sales to the federal government.
Fiscal year 2013 sales of newly introduced office furniture products which have been sold for less than twelve months
approximated $8.9 million. Open orders of furniture products at June 30, 2013 increased 33% from the orders open as of
June 30, 2012 on higher orders of both office furniture and hospitality furniture. Open orders at a point in time may not be
indicative of future sales trends.
Fiscal year 2013 Furniture segment gross profit as a percent of net sales declined 0.4 of a percentage point when compared to
fiscal year 2012. Items unfavorably impacting the year-over-year gross margin comparison were the loss of leverage due to
lower current year sales volumes, an unfavorable sales mix, a prior year favorable impact resulting from a decrease in the LIFO
inventory reserve, and a prior year recovery of previously paid import duties related to a retroactive change in a tariff rate.
Fiscal year 2013 gross profit as a percent of net sales was favorably impacted by sales price increases net of incremental
discounting and by lower commodity costs.
Compared to fiscal year 2012, fiscal year 2013 selling and administrative expenses as a percent of net sales increased 1.9
percentage points largely due to the lower sales volumes and also due to a 2.1% absolute dollar increase in selling and
administrative expenses driven by higher incentive compensation costs which were partially offset by decreased sales and
marketing costs and decreased commission expense.
Risk factors within this segment include, but are not limited to, general economic and market conditions, increased global
competition, financial stability of customers and suppliers, supply chain cost pressures, and relationships with strategic
customers and product distributors. Additional risk factors that could have an effect on our performance are located within
Item 1A - Risk Factors.
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.
22
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. We 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 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. 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, net totaled $0.7 million compared to other income, net 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 Kimball's investment in one privately-held company. See the Notes to
Consolidated Financial Statements for more detailed information.
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 our 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 our foreign operations which were
profitable in fiscal year 2011. See Note 8 - Income Taxes of Notes to Consolidated Financial Statements for more information.
23
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.
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.
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.
Included in this segment were a significant amount of sales to Bayer AG affiliates in fiscal year 2011 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
Kimball's sales to Bayer AG declined due to the expiration of our 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.
24
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.
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.
Liquidity and Capital Resources
Working capital at June 30, 2013 was $214.4 million compared to working capital of $191.0 million at June 30, 2012. The
current ratio was 2.0 at both June 30, 2013 and June 30, 2012.
Our measure of accounts receivable performance, also referred to as Days Sales Outstanding (DSO), for fiscal year 2013 of
44.0 days improved compared to the 45.7 days for fiscal year 2012. We define DSO as the average of monthly accounts and
notes receivable divided by an average day's net sales. Our Production Days Supply on Hand (PDSOH) of inventory measure
for fiscal year 2013 declined to 55.6 days from 58.9 days for fiscal year 2012. The improved PDSOH compared to the prior
fiscal year resulted from ongoing successful initiatives to reduce or maintain EMS segment inventory levels as the business
grows. We define PDSOH as the average of the monthly gross inventory divided by an average day's cost of sales.
Kimball's short-term liquidity available, represented as cash and cash equivalents plus the unused amounts of our credit
facilities, totaled $185.2 million at June 30, 2013 compared to $181.2 million at June 30, 2012.
Our cash and cash equivalents position improved to $103.6 million at June 30, 2013 from $75.2 million at June 30, 2012. We
had no short-term borrowings outstanding as of June 30, 2013 or June 30, 2012. Operating activities generated $63.9 million
of cash flow in fiscal year 2013 compared to the $59.0 million of cash generated by operating activities in fiscal year 2012.
During fiscal year 2013, we reinvested $28.8 million into capital investments for the future with the largest investments being
made for manufacturing equipment and facility improvements within both segments. Kimball also paid $7.4 million of
dividends in fiscal year 2013. Consistent with our historical dividend policy, the Company's Board of Directors will evaluate
the appropriate dividend payment on a quarterly basis. During fiscal year 2014, we expect to continue to invest in capital
expenditures prudently, particularly for projects including potential acquisitions that would enhance our capabilities and
diversification while providing an opportunity for growth and improved profitability.
25
During fiscal year 2013, Kimball entered into a credit agreement which amended, restated, and extended the Company's
previously existing primary five-year credit facility. Kimball elected to decrease the borrowing limit on our primary credit
facility to $75 million from the $100 million under the previous agreement. We believe our principal sources of liquidity from
available funds on hand, cash generated from operations, and the availability of borrowing under our credit facilities will be
sufficient for the foreseeable future.
At both June 30, 2013 and June 30, 2012, we had no short-term borrowings outstanding under either the $75 million credit
facility or the former $100 million credit facility. At June 30, 2013, the Company had $3.9 million in letters of credit against
the $75 million credit facility.
The $75 million credit facility has a maturity date of December 2017, and allows for both issuances of letters of credit and cash
borrowings. The $75 million credit facility provides an option to increase the amount available for borrowing to $115 million
at our request, subject to the consent of the participating banks. The $75 million credit facility requires us to comply with
certain debt covenants, the most significant of which are the ratio of consolidated indebtedness to consolidated EBITDA (debt
to EBITDA) and minimum net worth (excluding accumulated other comprehensive income). We were in compliance with the
respective debt covenants of both the $75 million credit facility and the previous $100 million credit facility during the fiscal
year ended June 30, 2013.
The table below compares the actual net worth and debt to EBITDA ratio with the limits specified in the credit agreement.
Covenant
Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . .
Debt to EBITDA Ratio . . . . . . . . . . . . . . . . . . . .
At or For the Period
Ended June 30, 2013
$407,982,000
0.08
Limit As Specified in
Credit Agreement
$362,000,000
3.00
Excess
$45,982,000
2.92
The debt to EBITDA Ratio is calculated on a rolling four-quarter basis as defined in the credit agreement.
In addition to the $75 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. We maintain a $2.7
million foreign credit facility for our EMS segment operation in Thailand which is backed by the $75 million revolving credit
facility via a letter of credit. We have a credit facility for our EMS segment operation in Poland, which allows for multi-
currency borrowings up to 6.0 million Euro equivalent (approximately $7.8 million U.S. dollars at June 30, 2013 exchange
rates). These foreign credit facilities can be canceled at any time by either the bank or by us. We had no borrowings
outstanding under these foreign credit facilities as of June 30, 2013 or June 30, 2012.
Total availability to borrow in USD equivalent under all of our credit facilities totaled $81.6 million at June 30, 2013.
Another source of funds in addition to our credit facilities has been our ability to generate cash from operations to meet our
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 our products, loss of
key contract customers, the ability of Kimball to generate profits, and other unforeseen circumstances. In particular, should
demand for our products decrease significantly over the next 12 months, the available cash provided by operations could be
adversely impacted.
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 2013, 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.
During fiscal year 2010, we purchased the convertible debt securities of a privately-held company with the principal and
interest due in June 2011. We also received stock warrants to purchase the common and preferred stock of the privately-held
company at a specified exercise price. During fiscal year 2011, the convertible debt securities experienced an other-than-
temporary decline in fair value resulting in a $1.2 million impairment loss and, upon a qualified financing, were subsequently
26
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 we 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. During fiscal year 2013, due to certain events and changes in
circumstances that had an adverse effect on the fair value of the investment in the privately-held company, we revalued the
investment which resulted in a $1.0 million impairment loss on the equity securities and a $0.9 million derivative loss on the
stock warrants.
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, 2013.
Payments Due During Fiscal Years Ending June 30
Total
2014
2015-2016
2017-2018 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:
29.1
8.5
Operating Leases (e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Obligations (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 237.2
12.3
195.3
3.2
181.6
—
3.8
4.0
8.0
0.1
4.2
1.8
5.7
—
12.6
3.3
—
0.1
$ 193.3
$ 15.9
$ 11.8
$ 16.2
(a) As of June 30, 2013, the Company had less than $0.1 million of Capital Lease Obligations.
(b) Refer to Note 5 - Long-Term Debt and Credit Facilities 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 2014 amount includes less than $0.1 million of long-term debt obligations due in fiscal
year 2014 which were 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 2014 amount includes $7.0 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 2014 amount includes $1.0 million for severance payments recorded as a current liability.
• The timing of warranty payments is estimated based on historical data. The fiscal year 2014 amount includes
$0.5 million for short-term warranty payments recorded as a current liability.
27
(d)
(e)
(f)
Excludes $4.7 million of long-term unrecognized tax benefits and associated accrued interest and penalties along with
deferred tax liabilities and miscellaneous other long-term tax liabilities which are not tied to a contractual obligation and
for which the Company cannot make a reasonably reliable estimate of the period of future payments.
Refer to Note 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 2018. 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
We have 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 Kimball'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
Kimball'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. 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 our
consolidated financial statements and are the policies that are most critical in the portrayal of Kimball'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 - Kimball 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. We recognize 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, 2013 and June 30, 2012, the reserve
for returns and allowances was $1.7 million and $2.5 million, respectively. The returns and allowances reserve
approximated 1% to 2% of gross trade receivables during fiscal years 2013 and 2012.
• 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, 2013 and June 30, 2012 was $1.8
million and $0.8 million, respectively, with a large portion of the increase attributable to one Furniture segment
customer. This reserve approximated 1% of gross trade accounts receivable during fiscal years 2013 and 2012.
28
Excess and obsolete inventory - Inventories were valued using the lower of last-in, first-out (LIFO) cost or market value for
approximately 16% and 10% of consolidated inventories at June 30, 2013 and June 30, 2012, respectively, including
approximately 87% and 78% of the Furniture segment inventories at June 30, 2013 and June 30, 2012, respectively. The
remaining inventories were valued at lower of first-in, first-out (FIFO) cost or market value. Inventories recorded on our
balance sheet are adjusted for excess and obsolete inventory. In general, we purchase materials and finished goods for contract-
based business from customer orders and projections, primarily in the case of long lead time items, and we have a general
philosophy to only purchase materials to the extent covered by a written commitment from our customers. However, there are
times when inventory is purchased beyond customer commitments due to minimum lot sizes and inventory lead time
requirements, or where component allocation or other procurement issues may exist. We 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 - Kimball 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. Our 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, 2013 and June 30,
2012, our accrued liabilities for self-insurance exposure were $3.5 million and $3.9 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. We evaluate the recoverability of our deferred tax assets each quarter
by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our
deferred tax assets. If recovery is not likely, we provide a valuation allowance based on our 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.
We operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve
complex issues, which may require an extended period of time to resolve. However, we believe we have 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 $3.9 million at June 30, 2013 and $3.8 million at June 30, 2012.
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: Kimball operates internationally and thus is subject to potentially adverse movements in foreign
currency rate changes. Our risk management strategy includes the use of derivative financial instruments to hedge certain
foreign currency exposures. Derivatives are used only to manage underlying exposures 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. We estimate that a hypothetical 10% adverse change in foreign currency exchange rates
from levels at June 30, 2013 and 2012 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: Kimball 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.
29
During fiscal year 2013, due to certain events and changes in circumstances that had an adverse effect on the fair value of the
investment in the privately-held company, we revalued the investment which resulted in a $1.0 million impairment loss on the
equity securities and a $0.9 million derivative loss on the stock warrants. 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 stock warrants. The non-marketable equity investment had a carrying
amount of $0.1 million and $1.1 million as of June 30, 2013 and 2012, respectively, and the stock warrants had a carrying
amount of $0.0 million and $0.9 million as of June 30, 2013 and 2012, respectively.
30
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, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2013 . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for Each of the Three Years in the Period Ended June 30, 2013
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30, 2013 . . . . . . . . . .
Consolidated Statements of Share Owners' Equity for Each of the Three Years in the Period Ended June 30, 2013 . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page No.
32
33
34
35
36
37
38
39
31
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. We maintain 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 our 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, our internal auditors, and the independent registered public accounting firm to review our financial
policies and procedures, our internal control structure, the objectivity of our financial reporting, and the independence of the
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 (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, management concluded that our internal control
over financial reporting was effective as of June 30, 2013.
Deloitte & Touche LLP, our independent registered public accounting firm, has issued an audit report on our internal control
over financial reporting which is included herein.
/s/ JAMES C. THYEN
James C. Thyen
President,
Chief Executive Officer
August 26, 2013
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 26, 2013
32
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, 2013 and 2012, and the related consolidated statements of income, comprehensive income, share
owners' equity, and cash flows for each of the three years in the period ended June 30, 2013. 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, 2013, based on criteria established in Internal Control — Integrated Framework (1992) 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, 2013 and 2012, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2013, 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, 2013, based on the criteria established in Internal Control — Integrated Framework
(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 26, 2013
33
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 $2,791 and $1,367, respectively. . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and Equipment, net of accumulated depreciation of $371,232 and $357,808,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Intangible Assets, net of accumulated amortization of $62,147 and $65,824,
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: 12,025,000 (14,359,000 in 2012) . . . . . . . . . . . . . . . . . . . . . . . . .
Class B - Shares authorized: 100,000,000
Shares issued: 31,000,000 (28,666,000 in 2012) . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Treasury stock, at cost:
Class A - 3,843,000 shares (4,020,000 in 2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B - 1,101,000 shares (1,104,000 in 2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Share Owners' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Share Owners' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See Notes to Consolidated Financial Statements
June 30,
2013
June 30,
2012
$
$
$
103,600
160,767
123,998
39,013
1,521
428,899
185,744
2,511
5,276
22,089
644,519
23
155,709
1,863
56,856
214,451
294
25,268
25,562
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
601
718
1,550
4,448
462,957
(3,477)
(47,152)
(14,421)
404,506
644,519
$
1,433
635
452,093
(4,963)
(49,235)
(14,453)
386,228
595,516
34
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
$
$
Year Ended June 30
2012
1,142,061
932,106
209,955
188,148
3,418
18,389
2013
1,203,134
979,386
223,748
200,331
416
23,001
$
$
$
$
$
404
(35)
2,381
(3,088)
(338)
22,663
2,784
19,879
0.50
0.53
0.49
0.52
8,584
29,479
38,063
9,043
29,479
38,522
$
$
$
$
$
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
2011
1,202,597
1,008,005
194,592
191,167
1,009
2,416
820
(121)
4,542
(3,220)
2,021
4,437
(485)
4,922
0.12
0.14
0.12
0.14
10,493
27,233
37,726
10,639
27,234
37,873
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
35
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Year Ended June 30, 2013
Year Ended June 30, 2012
Year Ended June 30, 2011
Pre-tax
Tax
Net of
Tax
$ 19,879
Pre-tax
Tax
Net of
Tax
$ 11,634
Pre-tax
Tax
Net of
Tax
$
4,922
Foreign currency translation adjustments . . . . $
1,952
$
(120) $
1,832
$ (10,156) $ 1,922
$ (8,234) $ 13,218
$ (2,905) $ 10,313
Postemployment severance actuarial change .
1
Derivative gain (loss) . . . . . . . . . . . . . . . . . . .
1,206
Reclassification to (earnings) loss:
Foreign currency translation adjustments. . .
—
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,136)
Amortization of prior service costs . . . . . . .
Amortization of actuarial change . . . . . . . . .
286
344
—
(380)
—
583
(114)
(136)
1
826
—
(1,553)
172
208
1,265
(192)
(493)
1,069
286
633
(505)
302
—
(346)
(114)
(252)
760
110
(493)
723
172
381
1,501
1,063
—
(1,555)
286
774
(599)
(489)
—
523
(115)
(309)
902
574
—
(1,032)
171
465
Other comprehensive income (loss) . . . . . . . . . . $
1,653
$
(167) $
1,486
$ (7,588) $ 1,007
$ (6,581) $ 15,287
$ (3,894) $ 11,393
Total comprehensive income . . . . . . . . . . . . . . .
$ 21,365
$
5,053
$ 16,315
See Notes to Consolidated Financial Statements
36
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended June 30
2013
2012
2011
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
19,879
$
11,634
$
4,922
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,758
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(181)
188
(962)
5,023
(567)
3,362
(19,549)
(5,844)
6,207
17,693
7,854
63,861
(28)
439
3,561
1,443
(41)
2,301
6,655
20,472
6,430
(7,081)
(17,739)
59,019
(35)
—
3,658
1,284
—
963
2,975
3,243
(5,004)
(28,524)
6,660
21,349
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27,555)
(26,943)
(31,371)
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of capitalized software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
786
(1,200)
(62)
2,566
(1,323)
(13)
941
(1,839)
(1,458)
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28,031)
(25,713)
(33,727)
Cash Flows From Financing Activities:
Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on revolving credit facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in capital leases and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of employee shares for tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Exchange Rate Change on Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . .
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents at Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
30
(7,430)
567
(875)
(7,708)
281
28,403
75,197
—
—
(11)
(7,363)
41
(337)
(7,670)
(1,848)
23,788
51,409
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
103,600
$
75,197
$
See Notes to Consolidated Financial Statements
88,750
(88,750)
(62)
(7,330)
—
(278)
(7,670)
6,115
(13,933)
65,342
51,409
37
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY
(Amounts in Thousands, Except for Share and Per Share Data)
Amounts at June 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
718
$ 1,433
$
119
$
454,800
$
(9,775)
$
(69,867)
$ 377,428
Common Stock
Class A Class B
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Share
Owners'
Equity
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(556)
(551)
1,284
(66)
4,922
(107)
(728)
(1,378)
(1,889)
(5,448)
11,393
499
1,279
1,317
4,922
11,393
(164)
—
1,284
(127)
(1,889)
(5,448)
Amounts at June 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
718
$ 1,433
$
230
$
450,172
$
1,618
$
(66,772)
$ 387,399
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(227)
(782)
1,443
(29)
11,634
(93)
(529)
(1,720)
(1,869)
(5,502)
(6,581)
243
1,311
1,530
11,634
(6,581)
(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
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of non-restricted stock (3,000 shares) . . . . . . . . . . . . . . . . . . . . . .
Conversion of Class A to Class B
common stock (2,334,000 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense related to stock incentive plans. . . . . . . . . . . . . . . .
Performance share issuance (177,000 shares) . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared:
Class A ($0.18 per share). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B ($0.20 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(117)
117
(62)
5,023
(1,148)
19,879
1,486
(1,565)
(1,495)
(5,955)
31
2,084
19,879
1,486
(31)
—
5,023
(629)
(1,495)
(5,955)
Amounts at June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
601
$ 1,550
$
4,448
$
462,957
$
(3,477)
$
(61,573)
$ 404,506
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. We recognize 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: Kimball's notes receivable and trade accounts receivable are recorded per
the terms of the agreement or sale, and accrued interest is recognized when earned. We determine 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 our limited number of notes receivable.
Our 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. Our 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. We
may utilize accounts receivable factoring arrangements with third-party financial institutions in order to extend terms for the
customer without negatively impacting our cash flow. These arrangements in all cases do not contain recourse provisions
which would obligate us in the event of our customers' failure to pay. Receivables are considered sold when they are
transferred beyond the reach of Kimball and its creditors, the purchaser has the right to pledge or exchange the receivables, and
we have surrendered control over the transferred receivables. During the fiscal years ended June 30, 2013 and 2012, we sold,
without recourse, $207.0 million and $58.6 million of accounts receivable, respectively. 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 16% and 10% of consolidated inventories at June 30, 2013 and June 30, 2012,
respectively, and remaining inventories were valued using the first-in, first-out (FIFO) method. Inventories are adjusted for
excess and obsolete inventory. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover,
inventory levels, and product demand levels. Factors considered when evaluating obsolescence include the age of on-hand
inventory and reduction in value due to damage, use as showroom samples, design changes, or cessation of product lines.
Property, Equipment, and Depreciation: Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful life of the assets using the straight-line method for financial reporting
purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement
or the term of the lease. Major maintenance activities and improvements are capitalized; other maintenance, repairs, and minor
renewals and betterments are expensed.
Impairment of Long-Lived Assets: We perform 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
39
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, we 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. We also have
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, we compare 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 2013, 2012, and 2011, no goodwill impairment loss was
recognized.
A summary of the goodwill by segment is as follows:
(Amounts in Thousands)
Balance as of June 30, 2011
Electronic
Manufacturing
Services
Furniture
Consolidated
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Foreign Currency Translation . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2012
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Foreign Currency Translation . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2013
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
15,470
(12,826)
2,644
(164)
15,306
(12,826)
2,480
31
15,337
(12,826)
2,511
$
$
1,733
(1,733)
—
—
1,733
(1,733)
—
—
1,733
(1,733)
— $
17,203
(14,559)
2,644
(164)
17,039
(14,559)
2,480
31
17,070
(14,559)
2,511
In addition to performing the required annual testing, we will continue to monitor circumstances and events in future periods to
determine whether additional goodwill impairment testing is warranted on an interim basis. We 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, 2013
June 30, 2012
Cost
Accumulated
Amortization Net Value
Cost
Accumulated
Amortization Net Value
Capitalized Software . . . . . . . . . . . . . $
Customer Relationships . . . . . . . . . . .
Other Intangible Assets . . . . . . . . .
29,072
1,167
30,239
$
Furniture:
Capitalized Software . . . . . . . . . . . . .
Product Rights . . . . . . . . . . . . . . . . . .
Other Intangible Assets . . . . . . . . .
32,313
372
32,685
Unallocated Corporate:
Capitalized Software . . . . . . . . . . . . .
Other Intangible Assets . . . . . . . . .
Consolidated. . . . . . . . . . . . . . . . . . . . . $
4,499
4,499
67,423
$
27,072
919
27,991
29,823
222
30,045
4,111
4,111
62,147
$
$
2,000
248
2,248
2,490
150
2,640
388
388
5,276
$
$
28,470
1,167
29,637
36,937
372
37,309
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
During fiscal years 2013, 2012, and 2011, amortization expense of other intangible assets was, in thousands, $2,132, $2,669,
and $2,367, respectively. Amortization expense in future periods is expected to be, in thousands, $1,749, $1,133, $636, $521,
and $386 in the five years ending June 30, 2018, and $851 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. We have 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, $14, $13, and $13 in fiscal years 2013, 2012, and 2011, respectively.
Advertising: Advertising costs are expensed as incurred. Advertising costs, included in selling and administrative expenses
were, in millions, $3.2, $4.7, and $4.3, in fiscal years 2013, 2012, and 2011, respectively.
Insurance and Self-insurance: We are 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. Our 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.
We carry external medical and disability insurance coverage for the remainder of our 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. We evaluate the recoverability of deferred tax assets each quarter by
assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our
41
deferred tax assets. If recovery is not likely, we provide a valuation allowance based on our 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.
We operate within multiple taxing jurisdictions and are 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. We maintain 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. We recognize 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: We have business and credit risks concentrated in the automotive, medical, industrial, public
safety, and furniture industries. Additionally, we currently have 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, 2013 and 2012,
$2.1 million and $3.0 million, respectively, were 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: Kimball'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.
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. The gain or loss on SERP investments is exactly
offset by a change in the SERP liability that is recognized in selling and administrative expenses.
Foreign Currency Translation: Kimball 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. We use 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, we have 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, Kimball maintains a stock-based compensation plan which allows 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 and to members of the Board of Directors who
are not employees. We recognize the cost resulting from share-based payment transactions using a fair-value-based method.
The estimated fair value of outstanding performance shares is based on the stock price at the date of the grant. For performance
shares, the price is reduced by the present value of dividends normally paid over the vesting period which are not payable on
42
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 July 2013, the Financial Accounting Standards Board (FASB) issued guidance to eliminate the
diversity in practice related to the financial statement presentation of unrecognized tax benefits when a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The guidance is effective prospectively
for our first quarter fiscal year 2015 financial statements. We are currently evaluating this guidance, but we do not expect it to
have a material effect on our consolidated financial statements.
In February 2013, the FASB issued additional guidance on the presentation of comprehensive income. This guidance requires
an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.
In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes,
significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but
only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting
period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is
required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts.
The amendments will be effective prospectively for our first quarter fiscal year 2014 financial statements. As this guidance only
impacts how comprehensive income is disclosed, the adoption will not impact our consolidated financial position, results of
operations, or cash flows.
In June 2011, the FASB issued guidance on the presentation of comprehensive income. This guidance eliminated the option to
present the components of other comprehensive income as part of the Statement of Share Owners' Equity. Instead, we 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 changed
the presentation of comprehensive income, there were no changes to the components that are recognized in net income or other
comprehensive income under current accounting guidance. The guidance became effective for our first quarter fiscal year 2013
financial statements on a retrospective basis. As this guidance only amended the presentation of the components of
comprehensive income, the adoption did not impact our consolidated financial position, results of operations, or cash flows.
Note 2 Inventories
Inventories are valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 16% and 10% of
consolidated inventories at June 30, 2013 and June 30, 2012, respectively, including approximately 87% and 78% of the
Furniture segment inventories at June 30, 2013 and June 30, 2012, respectively. The EMS segment inventories and the
remaining inventories in the Furniture segment are valued using the lower of first-in, first-out (FIFO) cost or market value.
Had the FIFO method been used for all inventories, income would have been $0.2 million higher in fiscal year 2013, $0.4
million lower in fiscal year 2012, and $0.2 million higher in fiscal year 2011. Certain inventory quantity reductions caused
liquidations of LIFO inventory values, which increased income by $1.8 million in fiscal year 2012 and $0.9 million in fiscal
year 2011. There were no LIFO inventory liquidations in fiscal year 2013.
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2013
2012
33,956
12,746
90,167
136,869
(12,871)
123,998
$
$
$
26,552
12,582
91,105
130,239
(12,558)
117,681
43
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2013
12,152
179,719
361,557
3,548
556,976
(371,232)
185,744
$
$
$
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 estimated service lives for 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 restructuring plans,
totaled, in millions, $28.8 for fiscal year 2013, $28.9 for fiscal year 2012, and $29.0 for fiscal year 2011.
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 of the Consolidated
Statements of Income.
At June 30, 2013, in thousands, assets totaling $1,521 were classified as held for sale, and consisted of $400 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. Related to the Gaylord, Michigan facility, we recognized
in Unallocated Corporate pre-tax impairment losses, in thousands, of $188 and $572 during fiscal years 2013 and 2012,
respectively, which were included in the Restructuring Expense line of the Consolidated Statements of Income.
At June 30, 2012, Kimball had, in thousands, assets totaling $1,709 classified as held for sale. During fiscal year 2012, we sold
a tract of land in Poland which was previously classified as held for sale. The sale had an immaterial effect on the consolidated
financial statements.
Note 4 Commitments and Contingent Liabilities
Leases:
Operating leases for certain office, showroom, manufacturing facilities, land, and equipment, which expire from fiscal year
2014 to 2056, contain provisions under which minimum annual lease payments are, in millions, $3.2, $2.4, $1.6, $1.1, and $0.7
for the five years ending June 30, 2018, respectively, and aggregate $3.3 million from fiscal year 2019 to the expiration of the
leases in fiscal year 2056. We are 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, $4.7, $4.8, and
$6.2 in fiscal years 2013, 2012, and 2011, respectively, including certain leases requiring contingent lease payments based on
warehouse space utilized, which amounted to expense of, in millions, $0.9, $0.4, and $0.5 in fiscal years 2013, 2012, and 2011,
respectively.
As of June 30, 2013 and 2012, capital leases were not material.
Guarantees:
As of June 30, 2013 and 2012, we 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 Kimball's failure to pay its obligations to the beneficiary. We had a maximum financial exposure
44
from unused standby letters of credit totaling $1.2 million as of June 30, 2013 and $1.6 million as of June 30, 2012. We are not
aware of circumstances that would require us to perform under any of these arrangements and believe that the resolution of any
claims that might arise in the future, either individually or in the aggregate, would not materially affect our consolidated
financial statements. Accordingly, no liability has been recorded as of June 30, 2013 and 2012 with respect to the standby
letters of credit. Kimball also enters into commercial letters of credit to facilitate payments to vendors and from customers.
Product Warranties:
We estimate product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction
with the length of the warranty offered. Management refines the warranty liability in cases where specific warranty issues
become known.
Changes in the product warranty accrual during fiscal years 2013, 2012, and 2011 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2013
2012
2011
2,251
$
2,109
$
1,818
1,040
(907)
2,384
$
1,019
(877)
2,251
$
1,060
(769)
2,109
Note 5 Long-Term Debt and Credit Facilities
Long-term debt, less current maturities as of June 30, 2013 and 2012, was, in thousands, $294 and $273, respectively, and
current maturities of long-term debt were, in thousands, $23 and $14, respectively. Long-term debt consists of a long-term note
payable and capitalized leases. Interest rates range from 2.50% to 9.25% and maturities occur in fiscal years 2018 and 2025.
Aggregate maturities of long-term debt for the next five years are, in thousands, $23, $26, $27, $30, and $27, respectively, and
aggregate $184 thereafter.
Credit facilities consisted of the following:
(Amounts in Millions, in U.S Dollar Equivalents)
Availability to
Borrow at
June 30, 2013
Borrowings
Outstanding at
June 30, 2013
Borrowings
Outstanding at
June 30, 2012
Primary revolving credit facility (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Thailand revolving credit facility (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland overdraft credit facility (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
71.1
2.7
7.8
81.6
$
$
— $
—
—
— $
—
—
—
—
(1) Kimball's primary revolving credit facility, which expires in December 2017, provides for up to $75 million in borrowings,
with an option to increase the amount available for borrowing to $115 million upon request, subject to participating banks'
consent. We use 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 our operating results for fiscal years 2013, 2012, and 2011. The
commitment fee on the unused portion of principal amount of the credit facility is payable at a rate that ranges from 20.0 to
25.0 basis points per annum as determined by our leverage ratio. Borrowings under the credit agreement bear interest at a
floating rate based, at Kimball'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 that we
comply with certain debt covenants including consolidated indebtedness to consolidated EBITDA (debt to EBITDA) and
minimum net worth (excluding accumulated other comprehensive income). We were in compliance with these covenants
during the fiscal year ended June 30, 2013. Kimball had $3.9 million in letters of credit contingently committed against
the credit facility at June 30, 2013 including the $2.7 million letter of credit supporting the Thailand revolving credit
facility.
(2) Kimball also maintains a $2.7 million foreign credit facility for its EMS segment operation in Thailand which is backed by
the $75 million revolving credit facility via a letter of credit. This foreign credit facility is reviewed for renewal annually
and can be canceled at any time by either the bank or Kimball. 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.
45
(3) The credit facility for the EMS segment operation in Poland allows for multi-currency borrowings up to a 6 million Euro
equivalent (approximately $7.8 million U.S. dollars at June 30, 2013 exchange rates) and is available to cover bank
overdrafts. Bank overdrafts may be deemed necessary to satisfy short-term cash needs at our 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 Kimball. Interest on the overdraft is charged at 1.75% over the Euro Overnight Index Average
(EONIA).
Cash payments for interest on borrowings were, in thousands, $36, $37, and $121, in fiscal years 2013, 2012, and 2011,
respectively. Capitalized interest expense was immaterial during fiscal years 2013, 2012, and 2011.
Note 6 Employee Benefit Plans
Retirement Plans:
Kimball has a trusteed defined contribution retirement plan in effect for substantially all domestic employees meeting the
eligibility requirements. Company contributions to the trusteed plan have a five-year vesting schedule and are held for the sole
benefit of participants. Kimball 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.
The discretionary Company contribution for domestic employees is 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, $5.1, $5.3, and $5.0 for fiscal years 2013, 2012, and 2011, 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 2013, 2012, and 2011 was, in millions, $0.2, $0.3, and $0.5, respectively.
Severance Plans:
Kimball 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 Kimball 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:
June 30
2013
2012
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 . . . . . . . . . . $
4,720
$
5,073
825
179
(1)
(144)
5,579
979
4,600
5,579
$
$
$
811
189
(1,265)
(88)
4,720
828
3,892
4,720
46
June 30
(Amounts in Thousands)
Changes and Components in Accumulated Other Comprehensive Income (Loss) (before tax):
2013
2012
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
587
(286)
(345)
(44) $
485
$
(529)
2,771
(286)
(1,898)
587
771
(184)
(44) $
587
(Amounts in Thousands)
Components of Net Periodic Benefit Cost (before tax):
Year Ended June 30
2013
2012
2011
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
825
179
286
344
$
811
189
286
633
934
264
286
774
Net periodic benefit cost recognized in the Consolidated Statements of Income . . . . . . $
1,634
$
1,919
$
2,258
The benefit cost in the above table includes only normal recurring levels of severance activity, as estimated using an actuarial
method. Unusual or non-recurring severance actions, such as those disclosed in Note 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.
We amortize 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 amortize actuarial (gain) loss on a straight-line basis over the average remaining service
period of employees expected to receive benefits under the plan.
The estimated prior service cost and actuarial net (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
$522, respectively.
Assumptions used to determine fiscal year end benefit obligations are as follows:
Discount Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of Compensation Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2.5%
3.0%
Weighted average assumptions used to determine fiscal year net periodic benefit costs are as follows:
Discount Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of Compensation Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
3.8%
3.8%
2012
3.3%
4.0%
2012
4.1%
4.0%
2011
5.0%
4.0%
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 Kimball'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 and
to members of the Board of Directors who are not employees. The 2003 Plan is a ten-year plan. Kimball also had stock
options outstanding under a former stock incentive plan, which is described below. The pre-tax compensation cost that was
47
charged against income for all of the plans was $5.0 million, $1.4 million, and $1.3 million in fiscal year 2013, 2012, and 2011,
respectively. The total income tax benefit for stock compensation arrangements was $2.0 million, $0.6 million, and $0.5
million in fiscal year 2013, 2012, and 2011, respectively. We generally use treasury shares for fulfillment of option exercises
and issuance of performance shares.
Performance Shares:
Kimball 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
Kimball'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 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 Kimball 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 Kimball's employment policy. 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 2013 is presented below:
Performance shares outstanding at July 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance shares outstanding at June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of Shares
1,745,400
685,393
(254,393)
(614,687)
1,561,713
Weighted Average
Grant Date
Fair Value
$5.45
$10.91
$5.45
$5.32
$10.92
As of June 30, 2013, there was approximately $9.9 million of unrecognized compensation cost related to performance shares,
based on the latest estimated attainment of performance goals. That cost is expected to be recognized over annual performance
periods ending August 2013 through August 2017, with a weighted average vesting period of one year, five 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 $10.91; $5.46; and $5.10 for performance share awards granted in fiscal year 2013, 2012, and 2011, respectively.
During fiscal year 2013, 2012, and 2011, respectively, 254,393; 187,915; and 141,049 performance shares vested at a fair value
of $1.4 million, $1.0 million, and $0.9 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 Kimball. 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 2013,
2012, and 2011, respectively, Kimball granted a total of 2,843; 22,187; and 46,977 unrestricted shares of Class B common
stock at an average grant date fair value of $11.78, $5.95, and $6.71, for a total fair value, in thousands, of $33, $132 and $315.
These shares are the total number of shares granted, prior to the reduction of shares withheld to satisfy tax withholding
obligations. Unrestricted shares were awarded to officers and other key employees, and 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.
48
Stock Options:
During fiscal year 2013, all outstanding stock options which had been granted under a former stock incentive plan expired. The
1996 Stock Incentive Program, which was approved by Kimball'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 and to members of the Board of Directors who were not employees. No shares remain available for new
grants under the 1996 Stock Incentive Program. There were no stock option grants awarded during fiscal years 2013, 2012, and
2011.
For the previously outstanding awards, the fair value at the date of the grant was estimated using the Black-Scholes option
pricing model. Options outstanding were exercisable five years after the date of grant and expired ten years after the date of
grant. Stock options were forfeited when employment terminated, except in the case of retirement at age 62 or older, death,
permanent disability, or certain other circumstances described in Kimball's employment policy.
A summary of stock option activity during fiscal year 2013 is presented below:
Options outstanding at July 1, 2012 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at June 30, 2013 . . . . . . . . . . . . .
Options vested and exercisable at June 30, 2013 . . . .
Number of
Shares
Weighted
Average
Exercise
Price
478,500
$15.06
—
—
—
(478,500)
—
—
$—
$—
$—
$15.06
$—
$—
No options were exercised during fiscal years 2013, 2012, and 2011.
Note 8 Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Income tax benefits associated with net
operating losses of, in thousands, $4,114 expire from fiscal year 2013 to 2033. Income tax benefits associated with tax credit
carryforwards of, in thousands, $1,768, expire from fiscal year 2013 to 2026. A valuation allowance was provided as of
June 30, 2013 for deferred tax assets relating to certain foreign and state net operating losses of, in thousands, $2,160, and, in
thousands, $155 related to other deferred tax assets that we currently believe are more likely than not to remain unrealized in
the future.
49
The components of the deferred tax assets and liabilities as of June 30, 2013 and 2012, were as follows:
(Amounts in Thousands)
Deferred Tax Assets:
2013
2012
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign currency losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,775
$
2,521
601
18,076
514
749
1,768
15
3,011
4,114
480
4,818
(2,315)
36,127
Deferred Tax Liabilities:
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,017
141
607
Total liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
9,765
Net Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
26,362
$
$
$
$
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
10,631
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended June 30
2013
2012
2011
2,525
20,138
22,663
$
$
7,831
9,871
17,702
$
$
(2,966)
7,403
4,437
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
Kimball's foreign subsidiaries for which a deferred income tax liability has not been recorded was approximately $103.7
million as of June 30, 2013. Determination of the amount of unrecognized deferred tax liability on unremitted earnings is not
practicable.
50
The provision (benefit) for income taxes is composed of the following items:
(Amounts in Thousands)
Currently Payable (Refundable):
Year Ended June 30
2013
2012
2011
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,673
$
954
$
2,861
1,051
1,849
877
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,585
$
3,680
Deferred Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total provision (benefit) for income taxes . . . . $
(2,631) $
1,784
542
(1,712)
(3,801) $
970
(366)
2,388
2,784
$
6,068
$
$
$
$
(2,527)
(130)
150
(2,507)
1,090
1,509
(577)
2,022
(485)
A reconciliation of the statutory U.S. income tax rate to Kimball's effective income tax rate follows:
Year Ended June 30
2013
2012
2011
(Amounts in Thousands)
Tax computed at U.S. federal statutory rate. . . . . . $
State income taxes, net of federal income tax
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax effect . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic manufacturing deduction . . . . . . . . . . . .
Research credit. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
%
Amount
%
Amount
%
7,932
35.0% $
6,196
35.0% $
1,553
35.0 %
(430)
(3,645)
(549)
(729)
205
(1.9)
(16.1)
(2.4)
(3.2)
0.9
332
(639)
—
(247)
426
1.9
(3.6)
—
(1.4)
2.4
(277)
(1,213)
—
(751)
203
(485)
(6.3)
(27.3)
—
(16.9)
4.6
(10.9)%
Total provision (benefit) for income taxes . . . . $
2,784
12.3% $
6,068
34.3% $
Net cash payments (refunds) for income taxes were, in thousands, $(551), $1,504, and $(2,851) in fiscal years 2013, 2012, and
2011, respectively.
Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 2013, 2012, and 2011
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2013
2012
2011
2,624
$
2,499
$
2,466
207
—
—
—
—
(79)
2,752
250
(84)
—
—
—
(41)
2,624
2,190
$
$
312
(77)
96
(42)
(74)
(182)
2,499
2,125
$
$
Portion that, if recognized, would reduce tax expense and effective tax rate . . . . . . . . . . $
2,286
51
We recognize 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:
2013
As of June 30
2012
2011
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
278
78
$
$
256
85
$
$
230
86
Interest and penalties income/(expense) recognized for fiscal years 2013, 2012, and 2011 were, in thousands, $22, $(2), and
$107, respectively.
Kimball, 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. We are no longer subject to any significant U.S. federal tax examinations by tax authorities for
years before fiscal year 2008. We are subject to various state and local income tax examinations by tax authorities for years
after June 30, 2006 and various foreign jurisdictions for years after June 30, 2004. We do not expect the change in the amount
of unrecognized tax benefits in the next 12 months to have a significant impact on our results of operations or financial
position.
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 Kimball'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 Kimball's
available assets upon dissolution.
Owners of Class B Common Stock are entitled to elect, as a class, one member of Kimball'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 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 Kimball'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
Kimball 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.
Our 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 years 2013 and 2012.
52
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 (0.09%), historical
stock price volatility (93.2%) and weighted average expected term
(6 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 Kimball's non-performance risk
As of June 30, 2013 and 2012, 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, 2013
Level 1
Level 2
Level 3
Total
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives: Stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading Securities: Mutual funds held by nonqualified supplemental
employee retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,600
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,116
83,516
—
—
$
$
Liabilities
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
1,662
1,662
53
— $
273
—
—
273
$
$
$
— $
—
25
83,516
273
25
—
25
19,600
$ 103,414
— $
— $
1,662
1,662
June 30, 2012
Level 1
Level 2
Level 3
Total
— $
2,278
$
— $
2,278
(Amounts in Thousands)
Assets
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . $
Derivatives: Stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading Securities: Mutual funds held by nonqualified supplemental
employee retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
16,922
—
—
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
16,922
$
2,278
Liabilities
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
799
799
911
911
—
16,922
911
$
20,111
— $
— $
799
799
$
$
$
During fiscal year 2010, we purchased the convertible debt securities of a privately-held company with the principal and
interest due in June 2011. We also received stock warrants to purchase the common and preferred stock of the privately-held
company at a specified exercise price. During fiscal year 2011, the convertible debt securities experienced an other-than-
temporary decline in fair 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. 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.
During fiscal year 2012, the privately-held company experienced delays in their start-up, and therefore initiated another round
of financing that we 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. During fiscal year 2013, due to certain events and changes in circumstances that had an adverse effect on the fair
value of the investment in the privately-held company, we revalued the investment which resulted in a $1.0 million impairment
loss on the equity securities and a $0.9 million derivative loss on the stock warrants.
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.
No purchases or sales of Level 3 assets occurred during the period.
The nonqualified supplemental employee retirement plan (SERP) assets consist primarily 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
Kimball'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)
Level
3
Valuation Technique/Inputs Used
Market - Estimated potential net selling price.
Impairment of long-lived assets (intangible
asset and property & equipment)
3
Market - Probability-weighted discounted cash flow calculation
using estimated future cash flows.
Due to declines in the market value of the held for sale EMS facility, we recognized pre-tax impairment losses of, in millions,
$0.2 and $0.6 during fiscal years 2013 and 2012, respectively. Also during fiscal year 2012, we recognized impairment of, in
millions, $0.3 and $0.1 related to intangible product rights and equipment, respectively, for a product line which was near the
end of its production period.
54
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
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.
For the impairment recognized during fiscal year 2013, the
valuation was 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 (0.09%), historical
stock price volatility (93.2%) and weighted average expected term
(6 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
Kimball's non-performance risk
Long-term debt (carried at amortized cost)
3
Investments in non-marketable equity securities are accounted for using the cost method if Kimball 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 our 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:
We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our
business. Our 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, we use
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.
We use forward contracts designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in
forecasted transactions denominated in a foreign currency. Foreign exchange contracts are also used to hedge against foreign
55
currency exchange rate risks related to intercompany balances denominated in currencies other than the functional currencies.
As of June 30, 2013, we had outstanding foreign exchange contracts to hedge currencies against the U.S. dollar in the aggregate
notional amount of $26.2 million and to hedge currencies against the Euro in the aggregate notional amount of 43.1 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, we 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, 2013, we estimate that approximately $1.1 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, 2014. 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 we had hedged our exposure to the variability in future
cash flows was 12 months as of both June 30, 2013 and June 30, 2012.
Stock Warrants:
In conjunction with our investments in convertible debt securities of a privately-held company during fiscal year 2010, we
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 a June 2011 qualified financing related to the convertible debt securities, stock warrants were revalued which
resulted in a $1.0 million derivative gain during fiscal year 2011, which was recognized in the Non-operating income line item
on the Consolidated Statements of Income. The warrants were revalued due to changes in the exercise price and number of
warrants and a valuation of the underlying business. During fiscal year 2012, the privately-held company experienced delays
in their start-up, and therefore initiated another round of financing that we 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. During fiscal year 2013, due to certain
events and changes in circumstances that had an adverse effect on the fair value of the investment in the privately-held
company, we revalued the investment which resulted in a $0.9 million derivative loss on the stock warrants.
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).
56
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:
Foreign exchange contracts. . .
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . . . . . . . .
$
Fair Value As of
Fair Value As of
June 30
2013
June 30
2012
Balance Sheet
Location
June 30
2013
June 30
2012
265
$ 1,058 Accrued expenses . .
$
1,097
$
799
Derivatives not designated as hedging instruments:
Foreign exchange contracts. . .
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . . . . . . . .
Stock warrants. . . . . . . . . . . . . Other assets (long-term). . . . . . . . . . .
8
25
1,220 Accrued expenses . .
565
—
911
Total derivatives. . . . . . . . . . . .
$
298
$ 3,189
$
1,662
$
799
The Effect of Derivative Instruments on Other Comprehensive Income (Loss)
(Amounts in Thousands)
2013
June 30
2012
2011
Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,206
$
(192) $
1,063
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)
2013
2012
2011
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Sales . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income (expense) . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2,212
(73)
2,139
$
$
(1,415) $
1,674
363
(121)
(1,052) $
1,553
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income (expense) . . . . . .
$
(3) $
(17) $
2
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
(322) $
2,513
(885)
(526)
(1,207) $
1,987
929
$
918
$
$
$
(4,322)
1,041
(3,281)
(1,726)
Note 12 Investments
Convertible Debt and Non-marketable Equity Securities:
During fiscal year 2010, we purchased the convertible debt securities of a privately-held company with the principal and
interest due in June 2011. We 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.
57
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. During fiscal year 2012, the privately-held
company experienced delays in their start-up, and therefore initiated another round of financing that we 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. During fiscal year 2013,
due to certain events and changes in circumstances that had an adverse effect on the fair value of the investment in the
privately-held company, we revalued the investment which resulted in a $1.0 million impairment loss on the equity securities.
The common shares had a carrying value of $0.1 million and $1.1 million at June 30, 2013 and 2012, respectively.
The equity securities 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 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:
Kimball 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. Kimball
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 an 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, 2013, 2012, and 2011 was, in thousands, $1,243, $(483), and $2,611,
respectively. SERP asset and liability balances were as follows:
(Amounts in Thousands)
SERP investment - current asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
SERP investment - other long-term asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total SERP investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
SERP obligation - current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
SERP obligation - other long-term liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total SERP obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Note 13 Accrued Expenses
Accrued expenses consisted of:
(Amounts in Thousands)
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
June 30
2013
2012
7,031
12,569
19,600
7,031
12,569
19,600
$
$
$
$
5,899
11,023
16,922
5,899
11,023
16,922
June 30
2013
2012
3,635
32,268
5,050
3,500
38
12,365
56,856
$
$
4,193
22,601
5,189
3,875
269
12,333
48,460
Note 14 Segment and Geographic Area Information
Management organizes Kimball 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
58
customers' specifications. The EMS segment currently sells primarily to customers in the automotive, medical, 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.
The EMS segment sold to major customers that represented more than 10% of consolidated net sales. Sales to Johnson
Controls, Inc. totaled, in millions, $122.1, $104.6, and $84.5 in fiscal years 2013, 2012, and 2011, respectively, representing
10%, 9%, and 7% of consolidated net sales, respectively, for such periods. Sales to Bayer AG affiliates totaled, in millions,
$4.1, $5.0, and $135.7 in fiscal years 2013, 2012, and 2011, respectively, representing 0%, 0%, and 11% 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.
We evaluate 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 our
consolidated financial statements.
We aggregate 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.
(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, 2013
Furniture
Unallocated
Corporate and
Eliminations
Consolidated
$
703,129
18,195
27,483
—
9
5,499
21,133
353,425
2,511
14,145
$
500,005
12,563
(367)
—
1
(503)
75
185,925
—
13,410
— $
—
(4,115)
404
25
(2,212)
(1,329)
105,169
—
—
1,203,134
30,758
23,001
404
35
2,784
19,879
644,519
2,511
27,555
59
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and Amortization . . . . . . . . . . . . . .
Operating Income (Loss). . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (Benefit) for Income Taxes . . . . . . . . .
Net Income (Loss) (2) . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . .
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 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . .
At or For the Year Ended June 30, 2011
Electronic
Manufacturing
Services
Furniture
Unallocated
Corporate and
Eliminations
Consolidated
721,419
17,153
5,487
—
22
(452)
4,067
377,067
2,644
24,863
481,178
14,054
1,077
—
—
256
472
191,275
—
6,508
— $
—
(4,148)
820
99
(289)
383
57,970
—
—
1,202,597
31,207
2,416
820
121
(485)
4,922
626,312
2,644
31,371
(1)
(2)
(3)
Includes after-tax restructuring charges of $0.3 million in fiscal year 2013. The EMS segment and Unallocated
Corporate and Eliminations recorded, respectively, $0.1 million expense and $0.2 million expense. See Note 17 -
Restructuring Expense of Notes to the Consolidated Financial Statements for further discussion.
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 Consolidated Financial Statements for further discussion.
60
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
2012
2011
2013
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Poland (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Long-Lived Assets:
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
883,680
7,736
311,718
1,203,134
126,364
45,971
19,020
191,355
$
$
$
$
870,080
3,412
268,569
1,142,061
129,258
44,427
18,899
192,584
$
$
$
$
817,252
132,518
252,827
1,202,597
134,639
47,765
21,630
204,034
(4)
The decrease in net sales having a destination of Poland in fiscal year 2012 compared to fiscal year 2011 was attributable
to the expiration of a contract with one medical customer (Bayer AG).
61
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, 2013
Year Ended June 30, 2012
Year Ended June 30, 2011
Basic Earnings Per Share:
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,495
$ 5,955
$ 7,450
$ 1,869
$ 5,502
$ 7,371
$ 1,889
$ 5,448
$ 7,337
Undistributed Earnings (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,803
9,626
12,429
1,169
3,094
4,263
(672)
(1,743)
(2,415)
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,298
$15,581
$19,879
$ 3,038
$ 8,596
$11,634
$ 1,217
$ 3,705
$ 4,922
Average Basic Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . .
8,584
29,479
38,063
10,387
27,494
37,881
10,493
27,233
37,726
Basic Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.50
$
0.53
$
0.29
$
0.31
$
0.12
$
0.14
Diluted Earnings Per Share:
Dividends Declared and Assumed Dividends on Dilutive Shares. $ 1,577
$ 5,955
$ 7,532
$ 1,906
$ 5,502
$ 7,408
$ 1,916
$ 5,448
$ 7,364
Undistributed Earnings (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,898
9,449
12,347
1,175
3,051
4,226
(686)
(1,756)
(2,442)
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,475
$15,404
$19,879
$ 3,081
$ 8,553
$11,634
$ 1,230
$ 3,692
$ 4,922
Average Diluted Shares Outstanding. . . . . . . . . . . . . . . . . . . . . . .
9,043
29,479
38,522
10,593
27,494
38,087
10,639
27,234
37,873
Diluted Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.49
$
0.52
$
0.29
$
0.31
$
0.12
$
0.14
Reconciliation of Basic and Diluted EPS Calculations:
Income Used for Basic EPS Calculation . . . . . . . . . . . . . . . . . . . . $ 4,298
$15,581
$19,879
$ 3,038
$ 8,596
$11,634
$ 1,217
$ 3,705
$ 4,922
Assumed Dividends Payable on Dilutive Performance Shares . . .
Increase (Reduction) of Undistributed Earnings (Loss) -
allocated based on Class A and Class B shares . . . . . . . . . . . .
82
95
—
82
(177)
(82)
37
6
—
37
27
—
27
(43)
(37)
(14)
(13)
(27)
Net Income Used for Diluted EPS Calculation . . . . . . . . . . . . . . . $ 4,475
$15,404
$19,879
$ 3,081
$ 8,553
$11,634
$ 1,230
$ 3,692
$ 4,922
Average Shares Outstanding for Basic
EPS Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,584
29,479
38,063
10,387
27,494
37,881
10,493
27,233
37,726
Dilutive Effect of Average Outstanding Performance shares . . . .
459
—
459
206
—
206
146
1
147
Average Shares Outstanding for Diluted
EPS Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,043
29,479
38,522
10,593
27,494
38,087
10,639
27,234
37,873
In fiscal year 2013, 2012, and 2011, respectively, all 190,000, 508,000, and 625,000 average stock options outstanding were
antidilutive and were excluded from the dilutive calculation.
62
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 foreign currency translation adjustments, the net change in derivative gains and losses, postemployment severance
prior service cost, and the net actuarial change in postemployment severance.
The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, were as follows:
(Amounts in Thousands)
Balance at June 30, 2011. . . . . . . . . . . . . . . . . . . . . . $
Current-period other comprehensive income (loss) .
Balance at June 30, 2012. . . . . . . . . . . . . . . . . . . . . . $
Current-period other comprehensive income (loss) .
Balance at June 30, 2013. . . . . . . . . . . . . . . . . . . . . . $
Postemployment
Benefits
Derivative
Gain
(Loss)
Prior
Service
Costs
Net
Actuarial
Gain
(Loss)
Accumulated
Other
Comprehensive
Income (Loss)
Foreign
Currency
Translation
Adjustments
$
7,750
(8,727)
(977) $
1,832
855
$
(4,465) $
833
(3,632) $
(727)
(4,359) $
(636) $
172
(464) $
172
(292) $
(1,031) $
1,141
110
209
319
$
$
1,618
(6,581)
(4,963)
1,486
(3,477)
Note 17 Restructuring Expense
We recognized consolidated pre-tax restructuring expense of $0.4 million, $3.4 million, and $1.0 million in fiscal years 2013,
2012, and 2011, respectively. All restructuring plans were completed prior to fiscal year 2013 but continued to incur
miscellaneous exit costs related to the facility clean up or market value adjustments. Completed restructuring plans include the
European Consolidation, Fremont, and Gaylord plans which were all related to the EMS segment. We do not expect these
plans to have a significant amount of restructuring charges in the future.
The Gaylord restructuring plan, initiated in fiscal year 2007, is included in the summary tables on the following page under the
Other Restructuring Plan caption. Due to declines in the market value of the Gaylord facility, we recognized pre-tax
impairment losses, in thousands, of $188 and $572 during fiscal years 2013 and 2012, respectively.
We utilize 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.
Fremont Restructuring Plan:
During the second quarter of fiscal year 2012, we completed a plan to exit a small leased EMS assembly facility located in
Fremont, California. This plan was approved in the fourth quarter of fiscal year 2011. We are contractually obligated on the
lease of this facility until August 2013. We expect total pre-tax restructuring charges to be approximately $1.3 million,
including $0.2 million related to severance and other employee transition costs, and $1.1 million related to lease and other exit
costs.
European Consolidation Plan:
During the second quarter of fiscal year 2012, we completed a plan to expand our European automotive electronics capabilities
and to establish a European Medical Center of Expertise near Poznan, Poland. This plan was approved in the fourth quarter of
fiscal year 2008. The plan was executed in stages as follows:
• We 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.
• We 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 of our 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.
63
• We completed the consolidation of the 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, 2013
Accrued
June 30,
2012 (2)
Amounts
Charged
Cash
Amounts
Charged
(Income)
Non-cash
Amounts
Utilized/
Cash Paid Adjustments
Accrued
June 30,
2013 (2)
Total Charges
Incurred
Since Plan
Announcement
Total
Expected
Plan
Costs
FY 2011 Fremont Restructuring Plan
Transition and Other Employee
Costs. . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
— $
— $
— $
— $
236
$
236
Plant Closure and Other Exit Costs . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . $
269
269
$
145
145
—
(376)
$
— $
(376) $
—
— $
38
38
$
995
1,050
1,231
$
1,286
FY 2008 European Consolidation Plan
Transition and Other Employee
Costs. . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
6
$
— $
(6) $
— $
— $
20,837
$ 20,837
Asset Write-downs. . . . . . . . . . . . . . .
Plant Closure and Other Exit Costs . .
—
—
Total. . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
—
15
21
Total EMS Segment . . . . . . . . . . . . . . . . $
269
$
166
—
—
—
(15)
$
$
— $
— $
(21) $
(397) $
Unallocated Corporate
Other Restructuring Plan (1) . . . . . . . . . .
Consolidated Total of All Plans . . . . . . . . $
—
62
269
$
228
$
188
188
(250)
$
(647) $
—
—
— $
— $
—
— $
—
—
— $
38
$
374
374
1,829
1,829
23,040
$ 23,040
24,271
$ 24,326
—
38
1,686
1,699
$
25,957
$ 26,025
(Amounts in Thousands)
EMS Segment
FY 2011 Fremont Restructuring Plan
Fiscal Year Ended June 30, 2012
Accrued
June 30,
2011 (2)
Amounts
Charged
Cash
Amounts
Charged
Non-cash
Amounts
Utilized/
Cash Paid
Adjustments
Accrued
June 30,
2012 (2)
Transition and Other Employee Costs. . . . . . . . . . . . . . . . . . . . $
Plant Closure and Other Exit Costs. . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
264
—
264
FY 2008 European Consolidation Plan
Transition and Other Employee Costs. . . . . . . . . . . . . . . . . . . . $
7,694
Asset Write-downs (Gain on Sale) . . . . . . . . . . . . . . . . . . . . . .
Plant Closure and Other Exit Costs. . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total EMS Segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Unallocated Corporate
Other Restructuring Plan (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Total of All Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
—
7,694
7,958
$
$
$
$
$
— $
830
830
937
—
1,156
2,093
2,923
$
$
$
$
15
—
15
$
$
(236) $
(561)
(797) $
(43)
—
(43)
$
$
— $
(8,506) $
(125) (3) $
(148)
—
148
(1,156)
(148) $
(9,514) $
(133) $
(10,311) $
—
—
(125)
(168)
—
(168)
$
$
$
—
99
7,958
$
3,022
$
572
439
(671)
$
(10,982) $
64
—
269
269
—
—
—
—
269
—
269
(Amounts in Thousands)
EMS Segment
FY 2011 Fremont Restructuring Plan
Fiscal Year Ended June 30, 2011
Accrued
June 30,
2010 (2)
Amounts
Charged
(Income)
Cash
Amounts
Charged
Non-cash
Amounts
Utilized/
Cash Paid
Adjustments
Accrued
June 30,
2011 (2)
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 (3) $
7,694
—
— $
18
$
(2)
(2,778) $
(2,798) $
—
18
(104)
$
(2,902) $
—
670
670
—
670
—
7,694
7,958
$
$
—
$
7,958
(1) The Other Restructuring Plan with charges during fiscal years 2013, 2012, and 2011 is the Unallocated Corporate Gaylord
restructuring plan initiated in fiscal year 2007.
(2) Accrued restructuring was recorded in current liabilities.
(3) 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.
Note 18 Variable Interest Entities
Kimball's involvement with variable interest entities (VIEs) is limited to situations in which we are not the primary beneficiary
as we lack the power to direct the activities that most significantly impact the VIE's economic performance. Thus,
consolidation is not required.
We are 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. Kimball also has a business development cooperation agreement with the electronic engineering
services firm. For information related to our investment in the privately-held company, see Note 12 - Investments and Note 11
- Derivative Instruments of Notes to Consolidated Financial Statements. As of June 30, 2013, the combined carrying value of
the notes receivable, net of a $0.4 million allowance, was $1.5 million, and was included on the Receivables line of our
Consolidated Balance Sheet as the entire balance is classified as short-term. As of June 30, 2012, the combined carrying value
of the notes receivable was $2.6 million, 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 our Consolidated Balance Sheet.
We have no obligation to provide additional funding to the VIEs, and thus our exposure and risk of loss related to the VIEs is
limited to the carrying value of the investments and notes receivable. Kimball did not provide additional financial support to
the VIEs during the fiscal year ended June 30, 2013.
Note 19 Credit Quality and Allowance for Credit Losses of Notes Receivable
Kimball 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. As of
June 30, 2013 an allowance was recorded on the notes receivable from an electronics engineering services firm as we
determined based on our credit quality analysis that the collectability of the amount in full was not probable. We hold collateral
for the note receivable from the sale of an Indiana facility thereby mitigating the risk of loss. As of June 30, 2013 and 2012,
Kimball had no material past due outstanding notes receivable.
65
(Amounts in Thousands)
As of June 30, 2013
As of June 30, 2012
Unpaid
Balance
Related
Allowance
Receivable
Net of
Allowance
Unpaid
Balance
Related
Allowance
Receivable
Net of
Allowance
Note Receivable from Sale of Indiana
Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,413
Notes Receivable from an Electronics
Engineering Services Firm . . . . . . . . . . . . . . .
Other Notes Receivable . . . . . . . . . . . . . . . . .
127
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,061
521
$
$
— $
1,413
$ 1,409
$
— $
1,409
440
85
81
42
1,221
322
525
$
1,536
$ 2,952
$
—
214
214
$
1,221
108
2,738
Note 20 Subsequent Events
Kimball was a party to two class action lawsuits from which we received pre-tax distributions of $5.0 million subsequent to
June 30, 2013. The lawsuits alleged that certain suppliers of the EMS segment conspired over a number of years to raise and
fix the prices of electronic components, resulting in overcharges to purchasers of those components.
Note 21 Quarterly Financial Information (Unaudited)
(Amounts in Thousands, Except for Per Share Data)
Fiscal Year 2013:
September 30 December 31
March 31
June 30
Three Months Ended
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal Year 2012:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
$
$
$
$
$
288,190
55,205
60
4,961
0.12
0.13
0.12
0.13
270,635
46,970
113
(146)
(0.01) $
— $
(0.01) $
— $
295,136
55,157
31
4,179
0.11
0.11
0.11
0.11
296,904
54,320
1,480
3,197
0.08
0.09
0.08
0.09
$
$
$
$
$
$
$
$
$
$
301,486
53,809
47
3,678
0.09
0.10
0.09
0.10
284,414
50,639
895
2,506
0.06
0.07
0.06
0.07
$
$
$
$
$
$
$
$
$
$
318,322
59,577
278
7,061
0.18
0.19
0.18
0.18
290,108
58,026
930
6,077
0.16
0.16
0.16
0.16
Item 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
66
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, 2013, 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, 2013 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.
(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, 2013 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 15, 2013 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 15, 2013 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 of this
Annual Report on Form 10-K 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 15, 2013 under the caption "Section 16(a) Beneficial Ownership Reporting Compliance."
67
Code of Ethics
Kimball 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 Kimball's website at www.ir.kimball.com. It is our
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 15, 2013 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."
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 15, 2013 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 15, 2013 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 15, 2013 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 15, 2013 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 15, 2013 under the caption "Independent Registered Public
Accounting Firm" and "Appendix B — Approval Process for Services Performed by the Independent Registered Public
Accounting Firm."
68
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
Consolidated Balance Sheets as of June 30, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2013 . .
35
Consolidated Statements of Comprehensive Income for Each of the Three Years in the Period Ended
June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended
June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Share Owners' Equity for Each of the Three Years in the Period Ended
June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
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,
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72
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 73 for a list of the exhibits filed or incorporated herein as a part of this report.
69
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 26, 2013
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 26, 2013
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Executive Vice President,
Chief Financial Officer
August 26, 2013
/s/ MICHELLE R. SCHROEDER
Michelle R. Schroeder
Vice President,
Chief Accounting Officer
August 26, 2013
70
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
DONALD D. CHARRON *
Donald D. Charron
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 26, 2013
/s/ JAMES C. THYEN
James C. Thyen
President, Chief Executive Officer, Director
Individually and as Attorney-In-Fact
71
Schedule II. - Valuation and Qualifying Accounts
KIMBALL INTERNATIONAL, INC.
Description
(Amounts in Thousands)
Year Ended June 30, 2013
Valuation Allowances:
Short-Term Receivables . . . . . . . . . . . . . .
Deferred Tax Asset. . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . .
Balance at
Beginning
of Year
Additions
to Expense
Adjustments
to Other
Accounts
Write-offs
and
Recoveries
Balance at
End of
Year
$ 1,367
$ 1,911
$ 1,663
$
408
$ 1,799
$ 6,698
$
$
267
355
$ 3,349
$
69
$ 5,777
$
476
$ —
$ 1,297
$
$
$
$
$
$
$
15
—
$
$
(254)
(4)
(83)
—
(616)
$
$ (5,142)
195
—
—
$ (2,221)
(69)
$
(376)
$
$
$
$
$
$
$
$
2,791
2,315
1,367
1,911
1,799
—
6,698
72
KIMBALL INTERNATIONAL, INC.
INDEX OF EXHIBITS
Exhibit No.
3(a)
Description
Amended and Restated Articles of Incorporation of the Company (Incorporated by reference to
Exhibit 3(a) to the Company's Form 10-K for the fiscal year ended June 30, 2012)
3(b)
10(a)*
10(b)*
10(c)*
10(d)*
10(e)*
10(f)
10(g)*
10(h)*
10(i)*
11
21
23
24
31.1
31.2
32.1
32.2
Restated By-laws of the Company (Incorporated by reference to Exhibit 3(b) to the Company's
Form 8-K filed February 25, 2013)
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 (2012 Revision) (Incorporated by reference to Exhibit
10.1 to the Company's Form 8-K filed November 29, 2012)
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)
Amended and Restated Credit Agreement, dated as of December 18, 2012, 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 December 20, 2012)
Form of Employment Agreement dated March 8, 2010 between the Company and Donald W. Van
Winkle 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.
73
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 26, 2013
/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 26, 2013
/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, 2013 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 26, 2013
/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, 2013 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 26, 2013
/s/ ROBERT F. SCHNEIDER
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer
BOArD OF DIrECTOrS
Douglas A. Habig
Chairman of the Board of Directors,
Kimball International
Director 40 years
James C. Thyen
President, Chief Executive Officer,
Kimball International
Director 31 years
Geoffrey l. Stringer + #
Retired; Former Executive Vice President,
Bank One Corporation and Chief Executive Officer,
Bank One Capital Corporation
Director 10 years
Thomas J. Tischhauser +
Executive Consultant, Leadership Development,
Former Corporate Vice President,
Continental Automotive and Motorola, Inc.
Director 5 years
Christine M. Vujovich # +
Retired; Former Vice President,
Marketing and Environmental Policy,
Cummins, Inc.
Director 19 years
+ Member of the Audit Committee of the Board
# Member of the Compensation and Governance Committee of the Board
Donald D. Charron
Executive Vice President, Kimball International
President-Kimball Electronics Group
Director 5 months
Dr. Jack r. Wentworth #
Retired; Arthur M. Weimer Professor Emeritus,
Business Administration,
Indiana University;
Former Dean, Kelley School of Business,
Indiana University
Director 29 years
OFFICErS
Corporate Officers
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
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
lonnie P. Nicholson
Vice President,
Business Analytics
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
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
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
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.
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
1600 Royal Street, Jasper, IN 47549
812-482-1600 812-482-8500 TDD
www.kimball.com
To learn more about Kimball International
scan this with your smartphone.
This report is printed on FSC-certified paper made with 10%
post-consumer waste. The FSC sets standards to ensure the
wood and pulp used in the production process are grown,
harvested and manufactured to high environmental standards.
All parts of the manufacturing process are audited to ensure
adherence to these standards.
The inks used in the printing of this report contain an average
of 25%-35% vegetable oils from plant derivatives, a renewable
resource. They replace petroleum inks as an effort to also reduce
volatile organic compounds (VOC’s).
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.
SM
Kimball International urges you to help
the environment – please recycle.