2 0 1 5
A N N U A L
R E P O R T
It’s a new day.
T O O U R
S H A R E
O W N E R S
“It’s a new day, and it is very bright!”
immediately subsequent to the spin-off, as investors gain
better insight and settle in on the perceived intrinsic value of the
remaining business of the company. We experienced that
phenomenon over the first 30 trading days after the spin-off.
Our Volume Weighted Average Price (VWAP) for the 30 trading days
post-spin ending December 15, 2014 was $9.89. With improving
operating results as the year progressed, KBAL closed at $12.16 on
June 30, 2015, an increase of 23%. I am very pleased with both the
operating performance and improvement in Share Owner value.
Governance
Fiscal year 2015 brought many changes to your Company.
With completion of the spin-off on October 31, 2014, Kimball
International’s two classes of stock became equal in voting rights,
a change widely viewed as excellent governance. Upon this
foundation, your Board adopted best practice governance
policies including: the establishment of a Lead Independent Director
role on the Board; the implementation of a resignation policy for
Board members not receiving majority vote in an uncontested
election; the implementation of restrictions on hedging/pledging of
Company shares held by Board members and executives; and the
approval of the use of a Relative Total Shareholder Return metric as
a measure for the award of performance shares to key senior-
level executives. Lastly, the Board modernized our Change-
in-Control agreements to add a double trigger, eliminate a tax
gross-up element, cap payout to ensure Kimball does not lose a
tax deduction, and reduce the CEO severance payout to be in-line
with other executive officers. I am very proud of the best practice
governance actions taken by your Board.
Strategy
Kimball International has always been focused on building the
success of our customers, employees, supply partners and Share
Owners, and this continues to this day. We hear from customers the
need for more innovative, contemporary product offerings and have
hit the gas pedal on new product introductions. Some examples:
• We are excited about our expansion in the healthcare vertical with
new products we are calling Kimball Health. This includes many
new healthcare products that are directed to the full continuum
of care: from furniture in health organizations’ lobby areas to
hospital patient rooms to long-term care facilities. We believe
the healthcare vertical provides significant growth opportunities
for the future.
• We also expanded our offerings in the education vertical with
our first products focused specifically for use in the classroom,
complementing our product offering directed to other areas
of education facilities.
Bob Schneider
Chairman and CEO
Let me start by saying how honored I am to be leading your
Company, with such a rich history, outstanding brands, and talented
and dedicated employees. Kimball International is truly a great
Company with employees so very focused on building long-term
success for our customers and our Share Owners.
As you know, we announced our intention to spin off Electronics
on January 20, 2014, which began a trend of increasing stock
prices. Those investors that owned Kimball International, Inc. stock
the day immediately prior to the January 20, 2014 announcement,
and continued to hold their shares in Kimball International, and also
held their shares of Kimball Electronics (NASDAQ ticker symbol of
KE) after the spin, saw their total investment increase 66% as of the
end of our fiscal year 2015 (June 30, 2015). It is great to see the
Share Owner value created by the spin-off and is a real tribute to the
vision of Doug Habig, our former Chairman of the Board, Jim Thyen,
our former CEO, and the rest of the Board and Executive Officers.
They clearly saw the Share Owner value potential.
KBAL Post Spin-off Stock Price
$12.16
$9.89
$13
$12
$11
$10
$9
$8
$7
$6
$5
$4
Dec 15*
Dec 31
Jan 30 Feb 27 Mar 31
Apr 30 May 29 Jun 30
2014
2015
*30 Day VWAP Ending 12/15/14
Your Company’s operating results and stock performance have
shown nice improvement since the spin-off of the electronics
business on October 31, 2014. When companies spin off a
significant portion of their business, it is common for stock price
volatility and heavy trading of the parent company’s stock to occur
1
“We hear from customers the need for more innovative,
contemporary product offerings and have hit the gas
pedal on new product introductions.”
• Further, we introduced new products during the last 18 months
focused on other market verticals that far exceeds any period in
the recent history of Kimball.
Innovative new products are the life blood of any company, and I
am pleased with the efforts by our team and the reaction from our
customers. We strategically positioned Kimball as a fast innovator of
new products that meet the ever-changing market needs.
The hospitality market is another important area of focus.
Our efforts have paid off with sales in this vertical hitting record
levels in fiscal year 2015, which is great, but we see much more
opportunity in this market for product that can be made in North
America and shipped within six to eight weeks. The majority of our
current hospitality product has been manufactured in Asia, but this
year we took advantage of this market opportunity and expanded
our domestic manufacturing of hospitality products in a dedicated
hospitality facility and began manufacturing in an existing office
furniture-focused manufacturing facility. This helps with utilizing
excess capacity and will allow us to capture more of the fast-
growing hospitality market that requires shorter lead times.
Operating Results
We have a goal to earn an operating income of 8% of sales,
which over time is roughly what competitors in our markets achieve.
Our furniture operations have historically performed considerably
below that level. We made some difficult decisions to address our
Goal
4.9%
2.0%
1.3%
Operating Income % Journey
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
cost structure with the
announcement of our
plans to exit the Post
Falls, Idaho facility
and consolidate its
production into existing
facilities in Indiana, and
the announcement to
sell our corporate jet
focused on executive
travel. Both decisions,
while difficult because
they impacted our very
dedicated employees,
were necessary to
position Kimball for
long-term success.
The plane has been
sold and the Post Falls
restructuring is
continuing according
to plan and will be finished by the September 30, 2016 previously
announced completion date. Together these important decisions
are estimated to save Kimball $5.8 million on a pre-tax basis per
year once completed, freeing up funds that can be invested in new
Reflects Adjusted Pro Forma Operating Income %.
See reconciliation to GAAP Operating Income %
on page 5.
2012 2013 2014 2015
(-0.8%)
(-1.0%)
2011
Net Sales
$601
$544
$525
$500
$481
2011
2012
2013 2014 2015
$625
$600
$575
$550
$525
$500
$475
$450
$425
$400
products and marketing
efforts in future years.
With cost control
efforts, execution of
the above strategies
and our increased
sales in fiscal year
2015, we are seeing
strong improvement in
operating results. Our
sales increased 10% in
fiscal year 2015 while
our operating income
percent to sales of 4.9%
more than doubled from
the 2.0% in fiscal year 2014. Our operating performance in fiscal
year 2015 was the highest in the last decade. However, we have a
long way to go to reach our operating income goal of 8%, but I am
pleased with the traction we are seeing.
Living Our Values and Looking Ahead
Our markets have changed significantly, and I am confident
the rate of change will continue to accelerate. This has driven the
need for changes in our culture to be much more responsive to the
market. While our culture is evolving, our values are not changing.
These values are embodied in our Guiding Principles, which you can
review on our website at www.kimball.com. These were written in
1993 to capture what has made Kimball great since the start of the
Company in 1950. Throughout the history of Kimball, our Guiding
Principles have stood the test of time as an excellent way to run a
successful company. I am committed to these principles as I believe
they are a competitive advantage. I am proud that your Company
was recognized with the Great Place to Work® designation following
an independent review by that organization. It is the daily living of our
Guiding Principles by all of our employees that makes this type of
designation happen. We are committed to continuous improvement
by acting upon employee feedback received as part of this process.
As I look to the future, I am confident of the success of Kimball
because of the great foundation of our Company, our employees
that are so passionate about serving the customer, our outstanding
Board that gives our leadership team wise counsel and direction
based on their diverse backgrounds, and you, our Share Owners.
Thank you for your confidence in Kimball. It’s a new day,
and it is very bright!
Bob Schneider
Chairman and CEO
2
O U R
M A R K E T S
Kimball International, Inc. is a leading manufacturer
of high quality furnishings sold under the Company’s
family of brands: National, Kimball Office, and
Kimball Hospitality.
Education
Whether K-12, higher education,
vocational training or any other
learning institution, we understand that
furniture for education needs
to enhance learning and social
environments. We offer quality, stylish
solutions at an exceptional value that
will make students and faculty more
productive and comfortable.
Definition® by Kimball Office
Government
We supply office furniture including
desks, tables, seating, bookcases
and filing and storage units for federal,
state, and local government offices.
We hold a GSA Multiple Award
Schedule with the General Services
Administration Federal Supply Service.
Essay™ by National
Finance
Banking and financial offices require
affordable, functional, and stylish
environments. Our versatile and
flexible furnishings offer a wealth of
sophisticated styles that are perfect
for reception areas, employee work
spaces, executive offices, and
boardrooms that convey stability
and a trustworthy image.
Epic™ & Mio™ by National
3
Our diverse portfolio provides solutions for
the workplace, learning, healing, and hospitality
environments.
Sycamore™ by Kimball Health
Hospitality
We are the leader in providing
hospitality furniture solutions,
offering a product and service
package second to none. We partner
with the most recognized hotel brands
to meet their specific requirements
for properties throughout the world.
Stow™ & Bloom™ by Kimball Office
Healthcare
We offer exceptional products
to value-conscious healthcare
customers. Hospitals, clinics,
physician office buildings, long-
term care facilities, and assisted living
facilities throughout the country have
discovered that our high quality
products offer a perfect solution
for their furniture needs.
Hotel Beaux Arts by Kimball Hospitality
Commercial
The largest portion of our business is
in the commercial market. We are a
full-facility provider offering products for
a variety of office applications including:
private office, open plan, lobby-lounge,
conferencing, dining, and everything
in between. Our high quality products
offer solutions for all areas.
4
F I N A N C I A L H I G H L I G H T S
Amounts in thousands, except for per share data
2015
2014
% CHANGE
Net Sales
$600,868
$543,817
10.5%
Operating Income – Non-GAAP 1
29,316
11,077
164.7%
Operating Income % of Sales – Non-GAAP 1
4.9%
2.0%
145.0%
Income from Continuing Operations – Non-GAAP 1
19,383
7,063
174.4%
Cash Flow from Operations 2
13,843
69,871
-80.2%
Earnings Per Share from Continuing Operations (Diluted) –
Non-GAAP 1 3
Dividends Declared Per Share 3
Market Price Per Share 4
High
Low
Close
0.50
0.20
13.85
8.38
12.16
0.19
163.2%
0.20
0.0%
35%
2015 Net Sales by Vertical Market
6%
9%
16%
10%
Net Sales and Income measurements represent the continuing operations of Kimball International, Inc, and exclude the results of the
discontinued Kimball Electronics, Inc. operation.
1: Non-GAAP measurements exclude nonoperational and nonrecurring items related to the spin-off. The unadjusted GAAP equivalents
of these figures are reconciled in the tables below.
2: Cash flow from operations includes Kimball Electronics cash flows through the October 31, 2014 spin-off date, as cash manage-
ment was centralized prior to the spin-off.
3: Earnings per share and dividends declared per share are applicable to Class B Common Stock.
4: Market prices are for the period after the October 31, 2014 spin-off of Kimball Electronics, Inc.
Reconciliation from GAAP to Non-GAAP
2015
OPERATING
INCOME
OPERATING
INCOME %
OF SALES
INCOME FROM
CONTINUING
OPERATIONS
EARNINGS
PER SHARE
Unadjusted GAAP Measurement
$17,322
2.9%
$11,143
$0.29
24%
Education
Healthcare
Finance
Hospitality
Government
Commercial
Add: Spin-off Expenses/Restructuring
Charges
Add: SERP Expense 5
Add: Employee Retirements 6
Subtract: Reverse Synergies 7
Adjusted Non-GAAP Measurement
$29,316
8,509
1.4%
6,428
0.16
A B O U T U S
603
3,282
(400)
0.1%
0.6%
-0.1%
4.9%
-
-
2,056
0.06
Kimball International, Inc. is a leading
manufacturer of design driven, technology
(244)
(0.01)
savvy, high quality furnishings sold under
$19,383
$0.50
the Company’s family of brands: National,
2014
OPERATING
INCOME
OPERATING
INCOME %
OF SALES
INCOME FROM
CONTINUING
OPERATIONS
EARNINGS
PER SHARE
Unadjusted GAAP Measurement
$1,944
0.4%
$3,419
$0.09
Add: Spin-off Expenses/Restructuring
Charges
1,523
0.3%
1,353
0.04
Add: SERP Expense 5
Add: Employee Retirements 6
Add: Aircraft Impairment
Subtract: Gain on Sale of Facility
Subtract: Reverse Synergies 7
2,579
6,801
1,198
(1,749)
(1,219)
Adjusted Non-GAAP Measurement
$11,077
0.4%
1.2%
0.2%
-0.3%
-0.2%
2.0%
-
3,369
732
(1,069)
(741)
-
0.09
0.02
(0.03)
(0.02)
Kimball Office, and Kimball Hospitality.
Our diverse portfolio provides solutions for
the workplace, learning, healing, and
hospitality environments. Customers can
access our products globally through
a variety of distribution channels.
Recognized with a reputation for excellence
as a trustworthy company and recognized
with the Great Place to Work® designation,
Kimball International is committed to a high
performance culture with a foundation of
sound ethics, continuous improvement,
$7,063
$0.19
and social responsibility.
5: Supplemental Employee Retirement Plan (SERP) expense is added back to adjusted operating profit because the amount is offset in
the other income (expense) section of income statement. Net Income is not affected by SERP.
6: The Non-GAAP measurements adjust pre-spin periods to remove estimated cost associated with employees who retired or
separated due to the spin-off to get comparable historical results. Costs include salary, incentive compensation, performance shares,
retirement contribution, and payroll tax.
7: The Non-GAAP measurements adjust pre-spin periods for external reverse synergies representing estimated increases to the cost
structure necessitated by the split into two companies. Prior years were adjusted to get comparable historical results.
To learn more about Kimball International, Inc.
(NASDAQ: KBAL) visit: www.kimball.com.
5
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, 2015
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, 2014 (the last business day of the
Registrant's most recently completed second fiscal quarter) was $340.0 million, based on 98.5% of Class B Common Stock held by non-affiliates.
The number of shares outstanding of the Registrant's common stock as of August 17, 2015 was:
Class A Common Stock - 336,657 shares
Class B Common Stock - 37,219,426 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on October 20, 2015, 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
13
13
14
14
14
16
19
19
29
30
64
64
64
64
65
65
65
65
66
67
2
Forward-Looking Statements
PART I
This document contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). 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 as actual results may differ materially from those expressed in these forward-looking statements. The statements
may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,”
“forecasts,” “seeks,” “likely,” “future,” “may,” “might,” “should,” “would,” “will,” 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. We make 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 Securities and Exchange
Commission (“SEC”) or otherwise by law.
The risk factors discussed in Item 1A - Risk Factors of this report could cause our results to differ materially from those
expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time
or that we currently do not expect to have a material adverse effect on our business. Any such risks could cause our results to
differ materially from those expressed in forward-looking statements.
At any time when we make forward-looking statements, we desire 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 1 - Business
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.
Spin-Off of Kimball Electronics reported as Discontinued Operations
On October 31, 2014 (“Distribution Date”), we completed the spin-off of our Electronic Manufacturing Services (“EMS”)
segment by distributing the related shares of Kimball Electronics, Inc. (“Kimball Electronics”), on a pro rata basis, to the
Company's Share Owners of record as of October 22, 2014 (“the Record Date”). On the Distribution Date, each of the
Company's Share Owners received three shares of Kimball Electronics for every four shares of the Company held by such
Share Owner on the Record Date. After the Distribution Date, the Company does not beneficially own any Kimball Electronics
shares and Kimball Electronics is an independent publicly traded company. Kimball International, Inc. trades on the NASDAQ
under the ticker symbol “KBAL” and Kimball Electronics, Inc. trades on the NASDAQ under the ticker symbol “KE”.
In connection with the spin-off of Kimball Electronics, the Company and Kimball Electronics entered into several agreements
covering administrative and tax matters to provide or obtain services on a transitional basis, as needed, for varying periods after
the spin-off, including a separation and distribution agreement, a tax matters agreement, an employee matters agreement, and a
transition services agreement. The administrative agreements cover various services such as information technology, human
resources, taxation, and finance. The Company expects all transition services to be substantially complete within one year after
the spin-off. The Company has retained all liabilities for U.S. federal, state, and local income taxes on income prior to the spin-
off, as well as certain non-income taxes attributable to Kimball Electronics’ business. Kimball Electronics generally will be
liable for all other taxes attributable to its business. In connection with the spin-off, the Company has adjusted its employee
stock compensation awards and separated its retirement and post-employment benefit plans. The agreements listed above have
been incorporated by reference as exhibits to this Annual Report on Form 10-K. The above summary of the agreements is
qualified in its entirety by reference to the full text of the applicable agreements.
On October 30, 2014, holders of a sufficient number of shares of Class A common stock converted such shares into Class B
common stock such that the number of outstanding shares of Class A common stock is, after such conversions, less than 15% of
the total number of issued and outstanding shares of both Class A common stock and Class B common stock. Pursuant to the
Company’s Amended and Restated Articles of Incorporation 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 common stock and
Class B common stock, then all of the rights, preferences, limitations and restrictions relating to Class B common stock shall
3
become the same as the rights, preferences, limitations and restrictions of Class A common stock, without any further action of
or by its Share Owners, and all distinctions between Class A common stock and Class B common stock shall be eliminated so
that all shares of Class B common stock are equal to shares of Class A common stock with respect to all matters, including
without limitation, dividend payments and voting rights. The elimination of such distinctions, which occurred on October 30,
2014, is referred to as the “stock unification.” As a result of the stock unification, Class A common stock and Class B common
stock now vote as a single class (except as otherwise required by applicable law) on all matters submitted to a vote of the
Company’s Share Owners. We have filed to deregister the shares of Class A Common Stock under the Exchange Act. It is
expected that deregistration will become effective in September 2015. Deregistration will not affect the rights of Share Owners
who choose to continue to hold their Class A shares. See Note 2 - Spin-Off Transaction of Notes to Consolidated Financial
Statements for more information on the spin-off of our EMS segment.
The following disclosures within this Part I, have been recast to describe the continuing operations of Kimball International,
Inc. after the spin-off.
Overview
Kimball was incorporated in Indiana in 1939. Our corporate headquarters is located at 1600 Royal Street, Jasper, Indiana.
Kimball is a leading manufacturer of design driven, technology savvy, high quality furnishings sold under the Company’s
family of brands: National, Kimball Office, and Kimball Hospitality. Our diverse portfolio provides solutions for the
workplace, learning, healing, and hospitality environments. Customers can access our products globally through a variety of
distribution channels. Recognized with a reputation for excellence as a trustworthy company and recognized with the Great
Place to Work® designation, Kimball International is committed to a high performance culture with a foundation of sound
ethics, continuous improvement, and social responsibility.
Kimball has been in the furniture business since 1950. Our 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 as furniture solutions are tailored to
the end user's needs and demands. The workplace model is evolving to optimize human interaction, and Kimball Office and
National provide furniture solutions which create spaces where people can connect. Our rich wood heritage and craftsmanship
remain, while new products and mixed materials integrate into our product portfolio, satisfying the marketplace's need for
multi-functional, open accommodations throughout all industries. Our furniture solutions are used in open floor plan areas,
conference rooms, training rooms, private offices, lobby/reception areas, and dining/lounge areas with a vast mix of wood,
metal, laminate, paint, and fabric options. Products include modern and classic desks, credenzas, seating, tables, collaborative
workstations, contemporary cubicle systems, filing and storage units, and accessories. In addition, the Company introduced
several new products designed specifically for the growing healthcare market. In the hospitality industry, Kimball Hospitality
works with designers to create furniture which extends the unique ambiance of a property into guest rooms and public spaces
by providing furniture solutions for hotel properties and mixed use developments. Products include, but are not limited to,
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. The Company also has a trucking fleet
and customer fulfillment centers to facilitate prompt delivery of products. Certain logistics services, such as backhauls, are
sold on a contract basis, but the sales level is immaterial.
Production currently occurs in Company-owned or leased facilities located in the United States. In the United States, we have
manufacturing facilities and showrooms in ten states and the District of Columbia. Financial information by geographic area
for each of the three years in the period ended June 30, 2015 is included in Note 15 - Geographic Area Information of Notes to
Consolidated Financial Statements and is incorporated herein by reference.
Recent Business Changes
Capacity Utilization Restructuring Plan
In November 2014, we announced a capacity utilization restructuring plan which includes the consolidation of our metal
fabrication production from an operation located in Post Falls, Idaho, into existing production facilities in Indiana, and the
reduction of our Company plane fleet from two jets to one.
Key factors in the decision to consolidate the Post Falls operation into the Indiana facilities include the improvement of
customer delivery, supply chain dynamics, and transportation costs. The transfer of work involves the start-up of metal
fabrication capabilities in a Company-owned facility, along with the transfer of certain assembly operations into two additional
Company-owned facilities, all located in southern Indiana. The manufacturing capacity realignment will be carefully managed
to mitigate customer disruptions. The consolidation activities began immediately after the announcement in November 2014,
4
and we are actively marketing for sale the Post Falls, Idaho facility. We anticipate pre-tax savings of approximately $5 million
per year after the plan is fully implemented which is expected to occur by September 2016.
The reduction of our plane fleet from two jets to one reduces our cost structure while aligning the plane fleet size with our
needs following the spin-off of Kimball Electronics. Previously, one of our jets was used primarily for the successful strategy
of transporting customers to visit our showrooms, offices, research and development center, and manufacturing locations, while
the remaining jet was used primarily for management travel. The plane used primarily for management travel was sold in the
third quarter of fiscal year 2015, and as a result, we began realizing the expected annual pre-tax savings of $0.8 million. In
regards to the remaining jet, we believe that our location in rural Jasper, Indiana and the location of our manufacturing
locations in small towns away from major metropolitan areas necessitates the need for the remaining jet to efficiently transport
customers.
Other Recent Business Changes
Production within our existing facilities was expanded in fiscal years 2015 and 2013 to manufacture select hospitality furniture
products domestically, improving our ability to meet customer requests for shorter lead times.
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.
Seasonality
The impact of seasonality on our sales revenue includes lower sales in the third quarter of our fiscal year due to the buying
season of the government and lower sales of hospitality furniture during times of high hotel occupancy such as the summer
months.
Locations
The Company's products as of June 30, 2015 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 (American Association for Laboratory Accreditation certified), and a product showroom. Furniture showrooms are
maintained in eight additional cities in the United States. Office space is leased in Dongguan, Guangdong, China and Ho Chi
Minh City, Vietnam 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, brokers, designers,
purchasing companies, and catalog houses throughout North America and on an international basis.
We categorize our sales by the following vertical markets:
Education - Whether K-12, higher education, vocational training or any other learning institution, we understand that furniture
for education needs to enhance learning and social environments. We offer quality, stylish solutions that we believe will make
students and faculty more productive and comfortable.
Finance - Banking and financial offices require affordable, functional, and stylish environments. Our versatile and flexible
furnishings offer sophisticated styles for reception areas, employee work spaces, executive offices, and boardrooms.
Government - We supply office furniture including desks, tables, seating, bookcases and filing and storage units for federal,
state, and local government offices. We hold a GSA Multiple Award Schedule with General Services Administration Federal
Supply Service. We also partner with multiple general purchasing organizations which assist public agencies such as state and
local governments with office furniture purchases.
Healthcare - We offer products to value-conscious healthcare customers, including hospitals, clinics, physician office buildings,
long-term care facilities, and assisted living facilities throughout the country.
Hospitality - We offer a complete package of product and service support to the hospitality industry. We partner with the most
recognized hotel brands to meet their specific requirements for properties throughout the world.
Commercial - The largest portion of our business is in the commercial market. We are a full-facility provider offering products
for a variety of office applications including: private office, open plan, lobby-lounge, conferencing, dining, and everything in
between.
5
A table showing our net sales by end market vertical is included in Part II, Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Major Competitive Factors
Our products are 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 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.
Competitors
There are numerous furniture manufacturers competing within the marketplace, with a significant number of competitors
offering similar products.
Our competition includes furniture manufacturers such as Steelcase Inc., Herman Miller, Inc., Knoll, Inc., HNI Corporation,
and several other privately-owned furniture manufacturers.
Working Capital
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.
Raw Material Availability
Certain components used in the production of furniture are manufactured internally and are generally readily available, as are
other raw materials used in the production of wood and non-wood 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.
Order Backlog
The aggregate sales price of products pursuant to worldwide open orders, which may be canceled by the customer, was as
follows:
(Amounts in Millions)
Order Backlog of Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
June 30,
2015
June 30,
2014
111.9
$
97.2
Substantially all of the open orders as of June 30, 2015 are expected to be filled within the next fiscal year. Open orders may
not be indicative of future sales trends.
Research and Development
Research and development activities include the development of manufacturing processes, engineering and testing procedures,
major process improvements, new product development and product redesign, information technology initiatives, and wood
related technologies.
Research and development costs were approximately:
(Amounts in Millions)
Research and Development Costs of Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
Year Ended June 30
2014
2013
2015
$7
$7
$6
Intellectual Property
We own the Kimball (registered trademark) trademark and we own the following trademarks which we believe are significant
to the Company:
Registered Trademarks: Acquaint, Beo, Bingo, Boyd, Cetra, Definition, Dock, Eloquence, Epicenter, Footprint,
Fringe, Hum. Minds at Work, IntegraClear, Interworks, Jiminy, Mix-It, National, National. Furniture with Personality,
Perks, Pura, Staccato, Traxx, WaveWorks, Xsite
Trademarks: Aurora, Fold, Jewel, Lavoro, Mio, Myriad, Priority, Swift, Villa, Wish, Bloom (pending), Canopy
(pending), Epic (pending), Essay (pending), Flip (pending), Kimball Health (pending), Kore (pending), Pairings
(pending), Whimsy (pending), Xsede (pending)
We also own patents for the following products which we believe are significant to the Company:
Patents: Acquaint, Aurora, Davari, Epic, Exhibit, Fluent, Mix-It, Priority, Swift, Villa, Wish, Xsite, Xsede (pending)
We also own other patents and trademarks and have certain other trademark and patent applications pending, which in our
opinion are not significant to our business. Patents expire at various times depending on the patent's date of issuance.
Environment and Energy Matters
Our operations are subject to various federal, state, local, and foreign laws and regulations with respect to environmental
matters. We believe that we are in substantial compliance with present laws and regulations and that there are no material
liabilities related to such items.
We are dedicated to excellence, leadership, and stewardship in matters of protecting the environment and communities in which
we have operations. Reinforcing our commitment to the environment, seven of our showrooms and two non-manufacturing
locations were designed under the guidelines of the U.S. Green Building Council's LEED (Leadership in Energy and
Environmental Design) for Commercial Interiors program. One manufacturing facility was designed under the LEED
Operations and Maintenance program guidelines. We believe 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
our capital expenditures, earnings, or competitive position. We believe capital expenditures for environmental control
equipment during the two fiscal years ending June 30, 2017, will not represent a material portion of total capital expenditures
during those years.
Our manufacturing operations require the use of natural gas and electricity. Federal and state regulations may control the
allocation of fuels available to us, but to date we have experienced no interruption of production due to such regulations. In our
wood furniture manufacturing plants a portion of energy requirements are satisfied internally by the use of our own scrap wood
produced during the manufacturing of product.
Employees
June 30
2015
June 30
2014
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Employees of Continuing Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,828
66
2,894
2,783
61
2,844
Our U.S. operations and foreign sites are not subject to collective bargaining arrangements. We believe that our 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 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.
7
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 our 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 business, financial
condition, or results of operations. Because of these and other factors, past performance should not be considered an indication
of future performance.
We may not realize the potential benefits that we expect to achieve subsequent to the spin-off of our EMS segment into a
new independent publicly traded company. The spin-off was completed on October 31, 2014, but spin-off related matters
will likely continue to require time and attention of our management for the first half of fiscal year 2016. We may not realize
the anticipated benefits from the spin-off as quickly as expected or at all. Any such difficulties or distractions could adversely
affect our financial position, results of operations, or cash flows.
If the distribution or certain internal transactions undertaken relating to the spin-off do not qualify as tax-free
transactions, the Company, its Share Owners as of the distribution date, and Kimball Electronics could be subject to
substantial tax liabilities. On October 10, 2014 the Company received a favorable written tax ruling from the Internal
Revenue Service (“IRS”) that the Company’s stock unification in connection with the spin-off will not cause the Company to
recognize income or gain as a result of the unification. In addition, the Company has also received an opinion of Squire Patton
Boggs (US) LLP to the effect that the distribution satisfies the requirements to qualify as a tax-free transaction (except for cash
received in lieu of fractional shares) for U.S. federal income tax purposes to the Company, the Company’s Share Owners and
Kimball Electronics under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”).
The tax ruling and the tax opinion rely on the accuracy of certain factual representations and assumptions provided by the
Company and Kimball Electronics in connection with obtaining the tax ruling and tax opinion, including with respect to post-
spin-off operations and conduct of the parties. If these factual representations and assumptions are inaccurate or incomplete in
any material respect, we will not be able to rely on the tax ruling and/or the tax opinion.
Furthermore, the tax opinion will not be binding on the IRS or the courts. Accordingly, the IRS or the courts may reach
conclusions with respect to the spin-off that are different from the conclusions reached in the tax opinion. If, notwithstanding
our receipt of the tax opinion, the spin-off is determined to be taxable, then (i) the Company would be subject to tax as if it sold
the Kimball Electronics common stock in a taxable sale for its fair market value; and (ii) each Share Owner who received
Kimball Electronics common stock would be treated as receiving a distribution of property in an amount equal to the fair
market value of the Kimball Electronics common stock that would generally result in varied tax liabilities for each Share
Owner depending on the facts and circumstances.
Even if the spin-off does qualify as a tax-free transaction for U.S. federal income tax purposes, the distribution will be taxable
to the Company (but not to the Company’s Share Owners) pursuant to Section 355(e) of the Code if there are one or more
acquisitions (including issuances) of the stock of either the Company or Kimball Electronics, representing 50% or more,
measured by vote or value, of the then-outstanding stock of either the Company or Kimball Electronics and the acquisition or
acquisitions are deemed to be part of a plan or series of related transactions that include the distribution. Any acquisition of our
common stock within two years before or after the distribution (with exceptions, including public trading by less-than-5%
Share Owners and certain compensatory stock issuances) generally will be presumed to be part of such a plan unless that
presumption is rebutted. The resulting tax liability may have a material adverse effect on our business, financial condition,
results of operations and cash flows.
We entered into a Tax Matters Agreement with Kimball Electronics that governs the respective rights, responsibilities and
obligations of us and Kimball Electronics after the spin-off with respect to tax liabilities and benefits, tax attributes, tax contests
and other tax sharing regarding U.S. federal, state, local and foreign income taxes, other tax matters and related tax returns.
The Tax Matters Agreement also provides special rules for allocating tax liabilities in the event that the spin-off or certain
internal transactions undertaken in anticipation of the spin-off do not qualify as tax-free transactions. Though valid as between
us and Kimball Electronics, the Tax Matters Agreement will not be binding on the IRS.
Pursuant to the Tax Matters Agreement, (i) we have agreed (a) not to enter into any transaction that could cause any portion of
the spin-off to be taxable to Kimball Electronics, including under Section 355(e) of the Code; (b) to indemnify Kimball
Electronics for any tax liabilities resulting from such transactions entered into by us; and (ii) Kimball Electronics has agreed to
indemnify us for any tax liabilities resulting from such transactions entered into by Kimball Electronics. In addition, under
U.S. Treasury regulations, each member of the Company’s consolidated group at the time of the spin-off (including Kimball
Electronics) would be jointly and severally liable for the resulting U.S. federal income tax liability if all or a portion of the
spin-off does not or certain internal transactions undertaken in anticipation of the spin-off do not qualify as tax-free
transactions. These obligations may discourage, delay or prevent a change of control of our Company.
8
If Kimball Electronics were to default in its obligation to us to pay taxes under the Tax Matters Agreement, we could be legally
liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain
circumstances, we may be obligated to pay amounts in excess of our agreed-upon share of tax liabilities. To the extent we are
responsible for any liability under the Tax Matters Agreement, there could be a material adverse impact on our business,
financial condition, results or operations and cash flows.
Uncertain macroeconomic and industry conditions could adversely impact demand for our 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:
volatility and the cyclical nature of worldwide economic conditions;
global consumer confidence;
general corporate profitability of the end markets to which we sell;
credit availability to the end markets to which we sell;
• weakness in the global financial 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.
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.
We may be exposed to the credit risk of our customers who are adversely affected by weakness in market conditions.
Weakness in market conditions may drive 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 a significant number of customers could reduce revenues and profitability.
Significant declines in the level of purchases by customers or the loss of a significant number of customers, could have a
material adverse effect on our business. 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.
We operate in a highly competitive environment and may not be able to compete successfully. The office and hospitality
furniture industries are 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 we work toward reducing costs to respond to
pricing pressures, if we cannot achieve the proportionate reductions in costs, profit margins may suffer. In addition, as end
markets dictate, we are continually assessing excess capacity and developing plans to better utilize manufacturing operations.
We may be unable to purchase a sufficient amount of materials, parts, and components for use in our products at a
competitive price, in a timely manner, or at all. We depend on suppliers globally to provide timely delivery of materials,
parts, and components for use in our products. We monitor the financial stability of suppliers when feasible as the loss of a
significant supplier could have an adverse impact on our operations. Certain finished products and components we purchase
are primarily manufactured in select regions of the world and issues in those regions could cause manufacturing delays. In
addition, delays can occur related to the transport of products and components via container ships, which load and unload
through various U.S. ports which sometimes experience congestion. Maintaining strong relationships with key suppliers 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 we utilize 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 us in terms of price, delivery, or quality, it could interrupt our operations and negatively impact our ability to
meet commitments to customers.
Our operating results could be adversely affected by increases in 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.
9
We are subject to manufacturing inefficiencies due to the transfer of production and other factors. At times we may
experience labor or other manufacturing inefficiencies due to factors such as new product introductions, transfers of production
among our 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 our 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. 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.
Our restructuring efforts may not be successful. We continually evaluate our manufacturing capabilities and capacities in
relation to current and anticipated market conditions. A critical component of our restructuring initiatives is the transfer of
production among facilities which may result in some manufacturing inefficiencies and excess working capital during the
transition period. The successful execution of restructuring initiatives is dependent on various factors and may not be
accomplished as quickly or effectively as anticipated.
We will face risks commonly encountered with growth through acquisitions. Our 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 Share Owners;
the acquired business not achieving anticipated revenues, earnings, cash flow, or market share;
excess capacity;
the assumption of undisclosed liabilities; and
dilution of earnings.
If efforts to introduce new products are not successful, this could limit sales growth or cause sales to decline. We
regularly introduce 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 required for certain new products can take an extended period of time, 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.
If customers do not perceive our products and services to be innovative and of high quality, our brand and name
recognition and reputation could suffer. We believe that establishing and maintaining good brand and name recognition and
a good reputation is critical to our business. Promotion and enhancement of our name and 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, our reputation,
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.
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.
Failure to effectively manage working capital may adversely affect our cash flow from operations. We closely monitor
inventory and receivable efficiencies and continuously strive to improve these measures of working capital, but customer
10
financial difficulties, cancellation or delay of customer orders, transfers of production among our manufacturing facilities, or
manufacturing delays could adversely affect our cash flow from operations.
We may not be able to achieve maximum utilization of our manufacturing capacity. Fluctuations and deferrals of
customer orders may have a material adverse effect on our ability to utilize our fixed capacity and thus negatively impact our
operating margins.
We could incur losses due to asset impairment. 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, or intangible
assets, could be impaired at some point in the future depending on changing business conditions. Such impairment could have
an adverse impact on our financial position and results of operations.
Fluctuations in our effective tax rate could have a significant impact on our financial position, results of operations, or
cash flows. We are subject to income taxes as well as non-income based taxes, mainly in the United States. Judgment is
required in determining the worldwide provision for income taxes, other tax liabilities, interest, and penalties. 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. 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.
A failure to comply with the financial covenants under the Company's $30 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 adjusted leverage ratio and the fixed charge coverage ratio. More detail
on these financial covenants is discussed in Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations. As of June 30, 2015, we had no short-term borrowings under this credit facility and had total cash and cash
equivalents of $34.7 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.
Our business may be harmed due to failure to successfully implement information technology solutions or a lack of
reasonable safeguards to maintain data security. Our business depends on effective information technology systems which
also are intended to minimize the risk of a security breach or cybersecurity threat, including the misappropriation of assets or
other sensitive information, or data corruption which could cause operational disruption. 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.
Failure to protect our intellectual property could undermine our competitive position. 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.
We may be sued by third parties for alleged infringement of their intellectual property rights and incur substantial
litigation or other costs. We could be notified of a claim regarding intellectual property rights which could lead us to spend
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.
Our insurance may not adequately protect us 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, but our insurance coverage does
not extend to field visits to repair, retrofit or replace defective products, or to product recalls. As a result, 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 that we must repair, retrofit, replace, or recall.
11
We are subject to extensive environmental regulation and significant potential environmental liabilities. Our past and
present operation and ownership of manufacturing plants and real property are subject to extensive and changing federal, state,
local, and foreign environmental laws and regulations, including those relating to discharges in air, water, and land, the
handling and disposal of solid and hazardous waste, and the remediation of contamination associated with releases of
hazardous substances. In addition, the increased prevalence of global climate issues may result in new regulations that may
negatively impact 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, 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.
Our success will continue to depend to a significant extent on our key personnel. We depend significantly on our executive
officers and other key personnel. The unexpected loss of the services of any of our executive officers or other key personnel
would have an adverse effect on us.
Our failure to retain the existing management team, maintain our engineering, technical, and manufacturing process
expertise, or continue to attract qualified personnel could adversely affect our business. Our 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 our 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 our ability to produce or deliver products. Our manufacturing operations
require significant amounts of energy, including natural gas and oil, and governmental regulations may control the allocation of
such fuels. 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 our
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.
Imposition of government regulations may significantly increase our operating costs in the United States and abroad.
Legislative and regulatory reforms by the U.S. federal and foreign governments could significantly impact our profitability by
burdening us with forced cost choices that cannot be recovered by increased pricing. For example:
• We import a portion of our wooden furniture products and are 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.
•
Foreign regulations are increasing in many areas such as data privacy, hazardous waste disposal, labor relations and
employment practices. Compliance with these regulations 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 our costs and reduce our 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 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. We have determined that certain of
our products contain such specified minerals, and we have developed a process to comply with the SEC regulations. Such
12
regulations could 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 SEC rules is cumbersome, the ongoing compliance process is 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.
The value of our common stock may experience substantial fluctuations for reasons over which we 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 our Company, competitors, or industry;
overall volatility of the stock market;
changes in the financial estimates of securities analysts or investors regarding our 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 our Company's common stock.
Item 1B - Unresolved Staff Comments
None.
Item 2 - Properties
The location and number of our major manufacturing, warehousing, and service facilities, including our executive and
administrative offices, as of June 30, 2015, are as follows:
North America
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia
China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vietnam. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Facilities
1
16
2
1
1
1
22
The listed facilities occupy approximately 3,770,000 square feet in aggregate, of which approximately 3,653,000 square feet
are owned and 117,000 square feet are leased.
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 2015. We
continually assess our capacity needs and evaluate our operations to optimize our service levels by geographic region.
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 204,000 square feet and expire from fiscal year 2016 to 2026 with many of the leases subject
to renewal options. The leased showroom facilities are in six states and the District of Columbia. See Note 5 - Commitments
and Contingent Liabilities of Notes to Consolidated Financial Statements for additional information concerning leases.
We own approximately 400 acres of land which includes land where various facilities reside, including approximately 155
acres of land in the Kimball Industrial Park, Jasper, Indiana (a site for certain production and other facilities, and for possible
future expansions).
13
Item 3 - Legal Proceedings
We and our 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.
Item 4 - Mine Safety Disclosures
Not applicable.
Executive Officers of the Registrant
Our executive officers as of August 26, 2015 are as follows:
(Age as of August 26, 2015)
Name
Robert F. Schneider. . . . . . . .
Donald W. Van Winkle. . . . .
Michelle R. Schroeder. . . . . .
Kevin D. McCoy . . . . . . . . . .
Michael S. Wagner . . . . . . . .
R. Gregory Kincer. . . . . . . . .
Julia E. Heitz Cassidy . . . . . .
Lonnie P. Nicholson . . . . . . .
Age
54
54
50
44
43
57
50
51
Office and
Area of Responsibility
Chairman of the Board, Chief Executive Officer
President, Chief Operating Officer
Vice President, Chief Financial Officer
Vice President; President, National Office Furniture
Vice President; President, Kimball Office
Vice President, Corporate Development
Vice President, General Counsel and Secretary
Vice President, Chief Administrative Officer
Executive officers are elected annually by the Board of Directors.
Executive Officer
Since Calendar
Year
1992
2010
2003
2014
2014
2014
2014
2014
Mr. Schneider was appointed Chairman of the Board, Chief Executive Officer in November 2014 and was appointed to our
Board of Directors in February 2014. He led the Kimball Hospitality subsidiary in 2013 and 2014, and was Executive Vice
President, Chief Financial Officer (“CFO”) from July 1997 to November 2014. He has been with the Company for 27 years in
various financial and executive positions. As leader of Kimball Hospitality, he oversaw the business as it returned to
profitability in fiscal year 2014. He was also responsible for strategic planning, SEC reporting, finance, capital structure,
insurance, tax, internal audit, and treasury services as CFO of your Company.
Mr. Van Winkle was appointed President, Chief Operating Officer in November 2014. He previously served as Executive Vice
President, President — Furniture Group since March 2014. He also served as Vice President, President — Office Furniture
Group from February 2010 until November 2013 when he was appointed Executive Vice President, President — Office
Furniture Group. 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 our Furniture business since joining the Company in January 1991.
Ms. Schroeder was appointed Vice President, CFO in November 2014. She previously served as Vice President and Chief
Accounting Officer, a position she assumed in May 2009. She was appointed to Vice President in December 2004, served as
Corporate Controller from August 2002 until May 2009, and prior to that served as Assistant Corporate Controller and Director
of Financial Analysis. As CFO, Ms. Schroeder has responsibility for the accounting, internal audit, investor relations, tax and
treasury functions, as well as setting financial strategy and policies for the Company.
Mr. McCoy was appointed President, National Office Furniture in November 2014 and was also appointed to Vice President,
Kimball International, Inc. in February 2015. Previously, he served as Vice President, General Manager of National Office
Furniture, a position he assumed in 2010. He joined Kimball in 1996 and spent nine years with National and Kimball Office,
building a solid background in both front line and management sales experience. He became Vice President of Sales for
National Office Furniture in 2005 with responsibility for the field sales organization, distribution strategy and execution, and
the achievement of National’s profitable growth goals.
Mr. Wagner was appointed President, Kimball Office in November 2014 and was also appointed to Vice President, Kimball
International, Inc. in February 2015. He previously served as Vice President, General Manager of Kimball Office. Since joining
Kimball in October 2013, Mr. Wagner has led the extensive sales growth and aggressive cost reductions at Kimball Office.
Prior to joining Kimball, he most recently served as Senior Vice President of Sales and Marketing with OFS Brands (an office
14
furniture manufacturing company) since 2004. His career spans over 20 years of experience in the office furniture industry
with leadership positions in sales, sales management, marketing, and strategic planning.
Mr. Kincer was appointed Vice President, Corporate Development in November 2014. Since 2006, he served as Vice President,
Business Development, Treasurer with responsibility for global treasury operations managing Company-wide liquidity,
commercial banking relationships, corporate debt facilities, foreign exchange risk, and insurance programs as well as the
evaluation of acquisition opportunities. He also served in various finance and leadership roles of progressing responsibility
since joining the Company in 1994.
Ms. Heitz Cassidy was appointed Vice President, General Counsel and Secretary in November 2014. She provides strategic-
thinking leadership, advice and counsel to the Company’s executive management as well as oversees the Company’s legal
functions, and as Corporate Secretary, assists the Board of Directors. She previously served as Deputy General Counsel since
August 2009, with responsibility for handling all day-to-day legal activities of the Company and was appointed to Vice
President in October 2013. She joined Kimball in 1996 as an associate corporate counsel and has held positions of increasing
responsibility within the legal department during her career.
Mr. Nicholson was appointed Vice President, Chief Administrative Officer in February 2015. He also served as Vice President,
Chief Information Officer from January 2014 until March 2015. Throughout 2013 he served as Director, Business Analytics
and then Vice President, Business Analytics, with oversight of strategic application of data analysis, social media and mobile
computing in support of the Company's growth of information management into more predictive analysis in order to build
greater responsiveness to customer needs and improvement of operational decision making. He also served as Director of
Organizational Development from November 2011 until January 2013, and Director of Employee Engagement from November
2008 until November 2011 following other roles of advancing responsibility in the areas of application development, systems
analysis, process reengineering, lean/continuous improvement and enterprise resource planning (“ERP”) since joining the
Company in 1986.
15
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: KBAL. 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
17.95
Second Quarter — Prior to Spin-Off. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter — After Spin-Off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
18.70
13.85
10.75
12.83
Low
14.15
14.56
8.38
8.51
10.01
$
$
$
$
$
High
12.00
15.39
20.10
18.97
$
$
$
$
Low
9.61
10.20
13.60
15.35
$
$
$
$
2015
2014
On October 31, 2014 (“Distribution Date”), we completed the spin-off of our EMS segment by distributing the related shares of
Kimball Electronics, Inc., on a pro rata basis, to the Company's Share Owners of record as of October 22, 2014 (“the Record
Date”). On the Distribution Date, each of the Company's Share Owners received three shares of Kimball Electronics for every
four shares of the Company held by such Share Owner on the Record Date. After the Distribution Date, the Company does not
beneficially own any Kimball Electronics shares and Kimball Electronics is an independent publicly traded company. Kimball
International, Inc. trades on the NASDAQ under the ticker symbol “KBAL” and Kimball Electronics, Inc. trades on the
NASDAQ under the ticker symbol “KE”. Prior to the Distribution Date, the Company's Class B Common Stock traded under
the symbol: KBALB. On the Distribution Date, the closing price of our Class B Common Stock was $17.98 per share. After the
Distribution Date, on a 30-day volume weighted average price basis to eliminate the impact of stock price volatility
immediately after Distribution Date, the average price of our Common Stock was $9.89 per share and the average price of
Kimball Electronics common stock was $10.32 per share, which equates to a split-adjusted price of $7.74.
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
As a result of the stock unification which occurred on October 30, 2014 as described in Note 10 - Common Stock, Class A
Common Stock and Class B Common Stock now vote as a single class on all matters submitted to a vote of the Company’s
Share Owners. Prior to the October 30, 2014 stock unification, on a fiscal year basis, shares of Class B Common Stock were
entitled to $0.02 per share dividend more than the annual dividends paid on Class A Common Stock, provided that dividends
were paid on the Company's Class A Common Stock.
Dividends declared totaled $7.7 million and $7.5 million for fiscal years 2015 and 2014, respectively. Included in the fiscal
year 2015 figure are dividends computed and accrued on unvested restricted share units. Dividends on these restricted share
units accumulate and, when the restricted share units vest, are paid in shares of Common Stock, with the number of shares
determined based on the closing price of our Common Stock on the vesting date. Dividends per share declared by quarter for
fiscal year 2015 compared to fiscal year 2014 were as follows:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015
Class A
0.045
0.05
0.05
0.05
0.195
Class B
0.05
0.05
0.05
0.05
0.20
$
$
2014
Class A
0.045
0.045
0.045
0.045
0.180
$
$
Class B
0.05
0.05
0.05
0.05
0.20
$
$
During the first quarter of fiscal year 2016, a quarterly dividend of $0.055 per share was declared for all outstanding shares of
common stock payable October 15, 2015 to Share Owners of record on September 25, 2015. This dividend is a 10% increase
over the previous quarter dividend.
16
Share Owners
On August 17, 2015, the Company's Class A Common Stock was owned by 124 Share Owners of record, and the Company's
Class B Common Stock was owned by 1,436 Share Owners of record, of which 63 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 common stock and will remain in effect until all shares authorized have been
repurchased. At June 30, 2015, 1.0 million shares remained available under the repurchase program.
During fiscal 2015, we repurchased 1.0 million shares of our common stock. The following table presents a summary of share
repurchases made by the Company during the fourth quarter of fiscal year 2015:
Period
Month #1 (April 1 - April 30, 2015). . . . . .
Month #2 (May 1 - May 31, 2015) . . . . . . .
Month #3 (June 1 - June 30, 2015) . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Graph
Total
Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs
— $
254,893
420,114
675,007
$
$
$
—
12.08
12.23
12.18
—
254,893
420,114
675,007
1,684,090
1,429,197
1,009,083
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 Exchange Act or to the liabilities of Section 18 of the Exchange Act and will not be deemed to
be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent we specifically
incorporate it by reference into such a filing.
The graph below compares the cumulative total return to Share Owners of our common stock from June 30, 2010 through
June 30, 2015, 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.
The spin-off of Kimball Electronics is reflected as an increase in the total cumulative return to Share Owners as a result of each
Share Owner receiving a distribution of three shares of Kimball Electronics for every four shares of the Company. The increase
in the total cumulative return was calculated based on the value of Kimball Electronics stock, using a 30-day volume weighted
average price calculation to eliminate the impact of stock price volatility immediately after the October 31, 2014 spin-off date.
Due to the diversity of our operations prior to the spin-off date, we are not aware of any public companies that are directly
comparable. Therefore, the peer group index is comprised of publicly traded companies in both the furniture industry and in
our former EMS segment, as follows:
Furniture peers: HNI Corporation, Knoll, Inc., Steelcase Inc., Herman Miller, Inc.
EMS peers (applicable through the October 31, 2014 spin-off): Benchmark Electronics, Inc., Jabil Circuit, Inc., Plexus
Corp.
In order to reflect the segment allocation of Kimball International, Inc. prior to the October 31, 2014 spin-off date, a market
capitalization-weighted index was first computed for each peer group, then a composite peer group index was calculated based
on each segment's proportion of net sales to total consolidated sales for fiscal years 2010 through 2014 and for fiscal year 2015
through the October 31, 2014 spin-off date. After the spin-off date, only the Furniture peer companies were used in the
capitalization-weighted peer group index. The public companies included in the peer groups have a larger revenue base than
each of our business segments.
17
The graph assumes $100 is invested in our common stock and each of the two indexes at the closing market quotations on June
30, 2010, and that dividends and the Kimball Electronics spin-off stock distribution are reinvested. The performances shown
on the graph are not necessarily indicative of future price performance.
2010
Kimball International, Inc. . . . . . . . . . . . . . . . . . . . . . . $ 100.00 $ 119.89 $ 148.50 $ 190.85 $ 333.13 $ 439.63
NASDAQ Stock Market (U.S. & Foreign). . . . . . . . . . $ 100.00 $ 132.73 $ 142.01 $ 167.01 $ 219.06 $ 250.68
Peer Group Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00 $ 135.39 $ 119.99 $ 147.78 $ 168.23 $ 188.99
2013
2014
2012
2015
2011
18
Item 6 - Selected Financial Data
This information should be read in conjunction with Item 8 - Financial Statements and Supplementary Data and Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Amounts in Thousands, Except for Per Share Data)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (Loss) from Continuing Operations . . . $
Earnings (Loss) Per Share from Continuing Operations:
2015
600,868
11,143
Basic:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total Assets
$
Long-Term Debt, Less Current Maturities. . . . . $
Cash Dividends Per Share:
0.25
0.29
0.25
0.29
266,129
241
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.195
0.20
Year Ended June 30
2013
2014
2012
2011
$
$
$
$
$
$
$
$
$
$
543,817
3,419
0.07
0.09
0.07
0.09
722,146
268
0.18
0.20
$
$
$
$
$
$
$
$
$
$
500,005
$
(6,616) $
525,310
1,749
(0.20) $
(0.17) $
(0.20) $
(0.17) $
$
644,519
294
0.18
0.20
$
$
$
0.03
0.05
0.03
0.05
595,516
273
0.18
0.20
$
$
$
$
$
$
$
$
$
$
481,178
(3,180)
(0.10)
(0.08)
(0.10)
(0.08)
626,312
286
0.18
0.20
The preceding table excludes all income statement activity of the discontinued operations. The balance sheet data in the
preceding table includes the EMS segment for fiscal years prior to 2015.
Fiscal year 2015 income from continuing operations included $3.2 million ($0.08 per diluted share) of after-tax restructuring
expenses and $3.2 million ($0.08 per diluted share) of after-tax expense related to the spin-off.
Fiscal year 2014 income from continuing operations included an after-tax gain of $1.1 million ($0.03 per diluted share) for the
sale of an idle Furniture segment manufacturing facility and land located in Jasper, Indiana, after-tax impairment of $0.7
million ($0.02 per diluted share) for an aircraft which was subsequently sold, and $1.4 million ($0.04 per diluted share) of
after-tax expense related to the spin-off.
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”) is a leading manufacturer of design driven,
technology savvy, high quality furnishings sold under the Company’s family of brands: National, Kimball Office, and Kimball
Hospitality. Our diverse portfolio provides solutions for the workplace, learning, healing, and hospitality environments.
Customers can access our products globally through a variety of distribution channels. Recognized with a reputation for
excellence as a trustworthy company and recognized with the Great Place to Work® designation, Kimball International is
committed to a high performance culture with a foundation of sound ethics, continuous improvement, and social responsibility.
Key economic indicators currently point toward continued strengthening in the overall economy. However, events such as the
strengthening of the U.S. dollar, the uncertainty about Greece staying in the Eurozone, and the growing signs of weakness in
China's economy as well as other uncertainties may pose a threat to our future growth as they have the tendency to cause
disruption in business strategy, execution, and timing in many of the markets in which we compete.
In relation to the office furniture industry, the Business and Institutional Furniture Manufacturer Association (“BIFMA”)
forecast (by IHS as of May 2015) projects a year-over-year increase of 8.1% for calendar year 2015 and 12.9% for calendar
year 2016. The forecast for two of the leading indicators for the hospitality furniture market (May 2015 PwC and June 2015
STR, Inc. reports) indicate an increase in occupancy rates of 1% to 2% for calendar year 2015 and an increase of less than 1%
for calendar year 2016 and an increase in RevPAR (Revenue Per Available Room) of 7% for calendar year 2015 and 6% for
calendar year 2016.
We 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 have a
19
strong focus on cost control and 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 our profit sharing incentive bonus plan is that it is
linked to our worldwide and business unit performance which is designed to adjust compensation expense as profits change.
We continue to maintain a strong balance sheet. Our short-term liquidity available, represented as cash and cash equivalents
plus the unused amount of our credit facility, was $63.7 million at June 30, 2015.
In addition to the above discussion, management currently considers the following events, trends, and uncertainties to be most
important to understanding our financial condition and operating performance:
•
Successful execution of the Company's restructuring plan is critical to the Company's future performance. The success of
the restructuring initiatives is dependent on accomplishing the plan in a timely and effective manner. A critical
component of the restructuring initiatives is the transfer of production among facilities which will result in some
manufacturing inefficiencies and excess working capital during the transition period. The Company's restructuring plan is
discussed below.
• We continue to focus on mitigating the impact of raw material commodity pricing pressures.
•
Due to the contract and project nature of the furniture markets, fluctuation in the demand for our products and variation in
the gross margin on those projects is inherent to our business. Effective management of our manufacturing capacity is
and will continue to be critical to our success. See below for further details regarding current sales and open order trends.
• While both the hospitality and office furniture markets are expanding, we continue to see volatility in order rates which in
turn can impact our operating results.
•
•
Globalization continues to reshape not only the markets in which we operate but also our key customers and competitors.
In addition, demand is increasing for hospitality furniture manufactured in the U.S., and we are shifting focus of
underutilized manufacturing capacity to fill this need.
Employees throughout our 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.
Spin-Off of Kimball Electronics reported as Discontinued Operations
On October 31, 2014 (“Distribution Date”), we completed the previously announced spin-off of our Electronic Manufacturing
Services (“EMS”) segment by distributing the related shares of Kimball Electronics, Inc. (“Kimball Electronics”), on a pro rata
basis, to the Company's Share Owners of record as of October 22, 2014 (the “Record Date”). On the Distribution Date, each of
the Company's Share Owners received three shares of Kimball Electronics for every four shares of the Company held by such
Share Owner on the Record Date. After the Distribution Date, the Company does not beneficially own any Kimball Electronics
shares and Kimball Electronics is an independent publicly traded company.
In connection with the spin-off of Kimball Electronics, the Company and Kimball Electronics entered into several agreements
covering administrative and tax matters to provide or obtain services on a transitional basis, as needed, for varying periods after
the spin-off. The administrative agreements cover various services such as information technology, human resources, taxation,
and finance. The Company expects all services to be substantially complete within one year after the spin-off.
The Company distributed $63 million of cash to Kimball Electronics, including the cash held by its foreign facilities, as
Kimball Electronics began operation as an independent company. The cash distribution occurred in several installments
immediately preceding the October 31, 2014 spin-off date or shortly thereafter.
The EMS business was reclassified to discontinued operations for all periods presented. Financial results of the discontinued
operations were as follows:
Year Ended June 30
(Amounts in Thousands, Except Per Share Data)
Net Sales of Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,551
9,157
Income from Discontinued Operations, Net of Tax . . . . . . . . . . . . . . . $
Income From Discontinued Operations per Class B Diluted Share . . . $
0.23
2015
2014
2013
$ 741,530
$ 703,129
$
$
30,042
$ 26,495
0.77
$
0.70
20
Fiscal Year 2015 Results of Operations
The following discussion of operating results is based on income from continuing operations and therefore excludes all income
statement activity of the discontinued operations.
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and Administrative Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Sales by End Market Vertical
At or for the
Year Ended
June 30
2015
2014
% Change
600.9
188.9
166.3
5.3
17.3
$
543.8
166.7
164.8
—
1.9
0.4%
3.4
97.2
10.5%
13.3%
0.9%
791.0%
225.9%
15.1%
2.9%
11.1
111.9
$
Year Ended
June 30
(Amounts in Millions)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hospitality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015
2014
% Change
$
$
206.5
38.5
56.3
96.0
60.4
143.2
600.9
$
173.8
39.9
62.2
90.5
59.3
118.1
543.8
19%
(4%)
(9%)
6%
2%
21%
11%
Fiscal year 2015 net sales were $600.9 million compared to fiscal year 2014 net sales of $543.8 million, or a 10.5% increase.
Increased sales within the commercial, hospitality, government, and healthcare vertical markets more than offset lower sales
within the finance and education vertical markets. Increased volume and to a lesser extent the positive impact of price
increases drove the net sales increase. Our hospitality vertical market sales improved over the prior year on strength in sales of
both custom and non-custom hospitality furniture. The sales increase in our commercial vertical market was broad based as
business conditions remain strong in both day-to-day and project business fueled in part by new product and marketing
initiatives. The government vertical market continued to show momentum as government sales steadily recover from recession
levels. The sales decline in the finance vertical market was due in part to the trend toward smaller footprint offices and lower
cost products being selected. Vertical market sales levels can fluctuate depending on the mix of projects in a given year.
In fiscal year 2015 we recorded income from continuing operations of $11.1 million, or $0.29 per Class B diluted share,
inclusive of $3.2 million, or $0.08 per Class B diluted share, of after-tax restructuring charges, and $3.2 million, or $0.08 per
Class B diluted share, of after-tax external costs related to the spin-off of our EMS segment. In fiscal year 2014 we recorded
income from continuing operations of $3.4 million, or $0.09 per Class B diluted share, inclusive of $1.4 million, or $0.04 per
Class B diluted share, of after-tax external costs related to the spin-off of our EMS segment.
Open orders at June 30, 2015 increased 15% when compared to the open order level as of June 30, 2014 as demand for both
office furniture and hospitality furniture products remained strong. Open orders at a point in time may not be indicative of
future sales trends.
21
Gross profit as a percent of net sales increased 0.7 of a percentage point in fiscal year 2015 compared to fiscal year 2014. The
increase in gross profit as a percent of net sales was driven by the favorable impact of price increases and the benefit of
leverage gained on higher sales volumes. The aforementioned improvements were partially offset by higher product
discounting and an unfavorable shift in sales mix to lower margin product.
As a percent of net sales, selling and administrative expenses in fiscal year 2015 compared to fiscal year 2014 decreased 2.7
percentage points, due to the increased sales volumes. In absolute dollars, selling and administrative expenses in fiscal year
2015 compared to fiscal year 2014 increased 0.9%. Expenses of $3.2 million were incurred in fiscal year 2015 related to the
spin-off of our EMS business, a majority of which were for legal services and asset impairment as compared to $1.5 million of
spin-off related expenses in fiscal year 2014. In addition, higher sales and marketing expenses, and higher commission expense
related to the increased sales volumes contributed to the higher selling and administrative expenses. The year-over-year
comparison was also negatively impacted by a $1.7 million gain on the sale of an idled manufacturing facility which occurred
in fiscal year 2014. Partially offsetting the above, we had a year-over-year favorable variance within selling and administrative
expenses of $2.0 million related to the normal revaluation to fair value of our Supplemental Employee Retirement Plan
(“SERP”) liability. The impact from the change in the SERP liability that was recognized in selling and administrative
expenses was offset with the change in fair value of the SERP investments which was recorded in Other Income (Expense), and
thus there was no effect on income from continuing operations. Employee contributions comprise approximately 90% of the
SERP investment. In addition, fiscal year 2015 incentive compensation costs declined compared to fiscal year 2014 due to the
retirement of key executives as of the spin-off date. We also had a favorable year-over-year variance driven by a $1.2 million
impairment charge recorded in fiscal year 2014 related to the decision to downsize the plane fleet from three jets to two during
fiscal year 2014.
In November 2014, we approved a capacity utilization restructuring plan which includes the consolidation of our metal
fabrication production from an operation located in Post Falls, Idaho, into existing production facilities in Indiana, and the
further reduction of our Company plane fleet from two jets to one. The jet was sold in the third quarter of fiscal year 2015, and
as a result of the aircraft fleet reduction, we began realizing the expected pre-tax annual savings of $0.8 million. The remaining
jet is primarily used for transporting customers to visit our showrooms, offices, research and development center, and
manufacturing locations. We recognized pre-tax restructuring expense related to continuing operations of $5.3 million in fiscal
year 2015 and recognized no restructuring expense in fiscal year 2014. See Note 18 - Restructuring Expense of Notes to
Consolidated Financial Statements for further information on restructuring.
Other Income (Expense) consisted of the following:
Other Income (Expense)
(Amounts in Thousands)
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Currency/Derivative Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on Supplemental Employee Retirement Plan Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended
June 30
2015
2014
213
(24)
(48)
603
(387)
357
$
$
179
(26)
(59)
2,579
(405)
2,268
Our fiscal year 2015 effective tax rate was 37.0%, as the favorable impact of a $0.9 million net reduction in our unrecognized
tax benefit driven by the expiration of statutes of limitations more than offset the $0.8 million unfavorable impact of
nondeductible spin-off expenses in the U.S. Our effective tax rate of 18.8% for fiscal year 2014 which was favorably impacted
by a decrease in a foreign deferred tax asset valuation allowance.
Our June 30, 2014 balance sheet was prior to the spin-off transaction which was completed on October 31, 2014, and thus
includes the Kimball Electronics balances. Comparing the balance sheet as of June 30, 2015 to June 30, 2014, excluding the
impact of the spin-off of Kimball Electronics, inventory levels increased due to lead time requirements of select hospitality
customers and in conjunction with office furniture product introductions.
22
Fiscal Year 2014 Results of Operations
The following discussion of operating results is based on income from continuing operations and therefore has been recast to
exclude all income statement activity of the discontinued operations.
(Amounts in Millions)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and Administrative Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income (Loss) % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
At or for the
Year Ended
June 30
2014
2013
% Change
$
500.0
543.8
166.7
164.8
1.9
0.4%
3.4
97.2
$
140.4
151.0
(10.6)
(2.1%)
(6.6)
95.7
8.8%
18.8%
9.1%
118.3%
151.7%
1.6%
Fiscal year 2014 consolidated net sales were $543.8 million compared to fiscal year 2013 net sales of $500.0 million, or an
8.8% increase. The increase in sales during fiscal year 2014 was driven by the positive impact of increased sales volumes and
price increases. Sales to all vertical markets in fiscal year 2014 increased compared to fiscal year 2013 except for a small
decline in government sales as lower federal government sales more than offset the improved state government sales.
In fiscal year 2014 we recorded income from continuing operations of $3.4 million, or $0.09 per Class B diluted share,
inclusive of $1.4 million, or $0.04 per Class B diluted share, of after-tax external costs related to the spin-off of our EMS
segment. In fiscal year 2013 we recorded a loss from continuing operations of $6.6 million, or $0.17 per Class B diluted share.
Open orders at June 30, 2014 increased 1.6% when compared to the open order level as of June 30, 2013 on higher orders of
hospitality furniture which more than offset a decline in office furniture open orders.
Gross profit as a percent of net sales increased 2.6 percentage points in fiscal year 2014 compared to fiscal year 2013. Benefits
realized in fiscal year 2014 from sales price increases, higher margin projects that shipped during fiscal year 2014, our
increased focus on project execution and process discipline, and operational improvements, and fixed cost leverage associated
with the higher revenue were partially offset by an unfavorable shift in sales mix.
Fiscal year 2014 selling and administrative expenses as a percent of net sales increased 0.1 of a percentage point compared to
fiscal year 2013, and increased 9.1% in absolute dollars primarily due to increased profit-based incentive compensation costs,
along with higher salary and employee benefits expense and higher commissions resulting from the higher sales. During fiscal
year 2014 selling and administrative expenses were also impacted by $1.5 million of external expenses incurred related to the
planned spin-off of our EMS segment a majority of which were for professional services such as legal consulting and a $1.2
million pre-tax loss on the sale of an aircraft. In addition, we had an unfavorable year-over-year variance within selling and
administrative expenses of $0.9 million related to the normal revaluation to fair value of our SERP liability. The impact from
the change in the SERP liability that was recognized in selling and administrative expenses was offset with the change in fair
value of the SERP investments which was recorded in Other Income (Expense), and thus there was no effect on income from
continuing operations. Partially offsetting the aforementioned increases was a $1.7 million pre-tax gain recognized on the sale
of an idle facility in the Furniture segment during fiscal year 2014.
23
Other Income (Expense) consisted of the following:
Other Income (Expense)
(Amounts in Thousands)
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Currency/Derivative Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on Supplemental Employee Retirement Plan Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment on Privately-Held Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on Stock Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Income (Expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended
June 30
2014
2013
179
(26)
(59)
2,579
(91)
(25)
(289)
2,268
$
$
308
(26)
(73)
1,680
(1,019)
(885)
(371)
(386)
The impairment on the privately-held investment and the loss on stock warrants listed in the table above both relate to our
investment in one privately-held company which as of June 30, 2014 had no remaining value on our balance sheet.
The fiscal year 2014 effective tax rate of 18.8% was favorably impacted by adjustments related to a decrease in a foreign
deferred tax asset valuation allowance. The effective tax rate was 39.8% for fiscal year 2013.
Liquidity and Capital Resources
Our June 30, 2014 balance sheet includes the discontinued operations resulting from the spin-off of Kimball Electronics while
the June 30, 2015 is post-spin and thus does not include the discontinued operations. Likewise the cash flow statement
includes Kimball Electronics activity up to the October 31, 2014 completion date of the spin-off.
Our cash and cash equivalents position declined to $34.7 million at June 30, 2015 from $136.6 million at June 30, 2014,
primarily due to the transfer of $63.0 million of cash to Kimball Electronics in conjunction with the spin-off. The remaining
decline in cash and cash equivalents was driven by capital expenditures, share repurchases, and dividends as discussed below.
Working capital at June 30, 2015 was $44.4 million compared to working capital of $246.2 million at June 30, 2014. The
current ratio was 1.4 at June 30, 2015 and 2.0 at June 30, 2014. The change in working capital and current ratio was primarily
driven by the spin-off of Kimball Electronics.
Kimball's short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facility,
totaled $63.7 million at June 30, 2015.
Cash Flows
As cash management was centralized prior to the spin-off, cash flows include Kimball Electronics cash flows through the
October 31, 2014 spin-off date for each cash flow statement category on the Company’s Consolidated Statements of Cash
Flows.
The following table reflects the major categories of cash flows for fiscal years 2015, 2014, and 2013.
(Amounts in millions)
Net cash provided by operating activities . . . . . . . . . . . . . . . .
Net cash used for investing activities . . . . . . . . . . . . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . . . . .
$
$
$
Cash Flows from Operating Activities
Year Ended
June 30
2014
2015
13,843
$
(30,657) $
(83,895) $
69,871
$
(27,546) $
(9,441) $
2013
63,861
(28,031)
(7,708)
For fiscal years 2015 and 2014, net cash provided by operating activities was $13.8 million and $69.9 million, respectively.
Changes in working capital balances used $33.2 million of cash in fiscal year 2015 and provided $5.4 million in fiscal year
2014. Cash generated from operating activities in fiscal year 2013 totaled $63.9 million and changes in working capital
balances provided $6.4 million of cash.
24
The $33.2 million usage of cash from changes in working capital balances in fiscal year 2015 was primarily driven by increases
in our inventory balance and accounts receivable balance. Slightly more than half of the $21.9 million usage of cash for
inventory was driven by increased inventory levels in our furniture operations while the remainder was related to inventory
fluctuations of the discontinued EMS business prior to the spin date. The $15.3 million usage of cash for receivables was
primarily driven by increased receivables levels in our furniture operations and to a lesser extent increased receivables levels of
the discontinued EMS business prior to the spin date.
The $5.4 million of cash provided by changes in working capital balances in fiscal year 2014 was primarily driven by a $19.5
million increase in accrued expenses largely due to higher accrued profit-based incentive compensation and a $15.7 million
increase in accounts payable related to increased inventory purchases and an increase in customer deposits received on custom
orders. These sources of cash were partially offset by a $14.9 million inventory increase during fiscal year 2014 to support
increased sales volumes and a $14.6 million increase in accounts receivable driven by the increased sales levels and a shift in
the payment practices of several customers of our former EMS segment.
The $6.4 million of cash provided by changes in working capital balances in fiscal year 2013 was driven by a $17.7 million
accounts payable increase primarily resulting from increased production volumes within our former EMS segment and a $7.9
million increase in accrued expenses due to higher accrued profit-based incentive compensation. These sources of cash were
offset partially by a $19.5 million increase in accounts receivable primarily resulting from higher fiscal year 2013 sales
volumes of our former EMS segment and a shift in the mix of sales at the end of fiscal year 2013 of our former EMS segment
toward customers with longer payment terms.
As estimated on a continuing operations basis, our measure of accounts receivable performance, also referred to as Days Sales
Outstanding (“DSO”), for the fiscal years ended June 30, 2015 and June 30, 2014 was approximately 30 days and 31 days,
respectively. We define DSO as the average of monthly trade accounts and notes receivable divided by an average day's net
sales. As estimated on a continuing operations basis, our Production Days Supply on Hand (“PDSOH”) of inventory measure
for the fiscal year ended June 30, 2015 increased to approximately 45 days from approximately 40 days from the fiscal year
ended June 30, 2014. The PDSOH increase was driven by increased inventory levels to support growth of our business and
resulting from port congestion which began to alleviate towards the end of fiscal year 2015. We define PDSOH as the average
of the monthly gross inventory divided by an average day's cost of sales.
Cash Flows from Investing Activities
During fiscal years 2015, 2014, and 2013 we reinvested $33.1 million, $33.7 million, and $28.8 million, respectively, into
capital investments for the future. The fiscal year 2015 capital investments were primarily for improvements to a sales and
marketing facility which will showcase product in a working environment, improvements to showrooms and manufacturing
facilities, and manufacturing equipment in our continuing furniture business and to a lesser extent for manufacturing equipment
in our discontinued EMS business prior to spin-off. The fiscal year 2014 and 2013 capital investments were primarily for
manufacturing equipment in our discontinued EMS business and to a lesser extent the continuing furniture business.
Cash Flows from Financing Activities
Kimball transferred $63.0 million of cash to Kimball Electronics in conjunction with the spin-off and paid $7.7 million of
dividends in fiscal year 2015 compared to paying $7.5 million of dividends in fiscal year 2014 and $7.4 million of dividends in
fiscal year 2013. Consistent with our historical dividend policy, the Company's Board of Directors evaluates the appropriate
dividend payment on a quarterly basis. During fiscal year 2015, we repurchased shares pursuant to a previously announced
stock repurchase program which drove cash outflow of $10.3 million. We had not repurchased shares under this stock
repurchase program in prior fiscal years.
Credit Facility
On the October 31, 2014 spin-off date, we entered into a new $30.0 million credit facility with a maturity date of October 2019
that allows for both issuances of letters of credit and cash borrowings. This facility provides an option to increase the amount
available for borrowing to $55.0 million at our request, subject to the consent of the participating banks. At both June 30, 2015
and June 30, 2014, we had no short-term borrowings outstanding. At June 30, 2015, we had $1.0 million in letters of credit
outstanding, which reduced our borrowing capacity on the credit facility. The complete credit agreement was filed as Exhibit
10.4 to our Current Report on Form 8-K filed on November 3, 2014.
The credit facility requires us to comply with certain debt covenants, the most significant of which are the adjusted leverage
ratio and the fixed charge coverage ratio. The adjusted leverage ratio is defined as (a) consolidated total indebtedness minus
unencumbered U.S. cash on hand in the U.S. in excess of $15,000,000 to (b) consolidated EBITDA, determined as of the end
of each of our fiscal quarters for the then most recently ended four fiscal quarters, and may not be greater than 3.0 to 1.0. The
fixed charge coverage ratio is defined as (a) the sum of (i) consolidated EBITDA, minus (ii) 50% of depreciation expense,
25
minus (iii) taxes paid, minus (iv) dividends and distributions paid, to (b) the sum of (i) scheduled principal payments on
indebtedness due and/or paid, plus (ii) interest expense, calculated on a consolidated basis in accordance with GAAP,
determined as of the end of each of our fiscal quarters for the trailing four fiscal quarters then ending, and may not be less than
1.10 to 1.00.
We were in compliance with all debt covenants of this current credit facility from October 31, 2014 through June 30, 2015, and
prior to October 31, 2014 we were also in compliance with the debt covenants of the credit facilities in effect at that time.
The table below compares the adjusted leverage ratio and fixed charge coverage ratio with the limits specified in the credit
agreement.
Covenant
Adjusted Leverage Ratio . . . . . . . . . . . . . . . . . . . . . .
Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . .
Future Liquidity
At or For the
Period Ended
June 30, 2015
Limit As Specified in
Credit Agreement
(0.47)
760.33
3.00
1.10
Excess
3.47
759.23
We believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability
of borrowing under our credit facility will be sufficient to meet our working capital and other operating needs for at least the
next 12 months. During fiscal year 2016, we anticipate cash outflow of approximately $14.6 million for deferred incentive
compensation related to our fiscal year 2015 performance. We also may continue to repurchase shares if conditions are
favorable, and 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.
Our ability to generate cash from operations to meet our liquidity obligations 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 services, loss of key contract customers, 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.
Fair Value
During fiscal year 2015, 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. Foreign currency derivatives held
by our discontinued EMS segment operation were classified as level 2 assets/liabilities and 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. Our own credit risk and counterparty credit risk had an immaterial impact on the valuation of the
foreign currency derivatives.
See Note 11 - Fair Value of Notes to Consolidated Financial Statements for more information.
26
Contractual Obligations
The following table summarizes the Company's contractual obligations as of June 30, 2015.
(Amounts in Millions)
Recorded Contractual Obligations: (a)
Long-Term Debt Obligations (b) . . . . . . . . . . . . . . . . . . . . . . . $
Other Long-Term Liabilities Reflected on the Balance
Sheet (c) (d) (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecorded Contractual Obligations:
Operating Leases (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Obligations (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Payments Due During Fiscal Years Ending June 30
Total
2016
2017-2018
2019-2020 Thereafter
0.3
$ —
$ —
$
0.1
$
0.2
19.0
6.1
21.6
49.3
0.1
3.4
39.3
—
3.2
5.8
5.0
—
2.9
4.5
5.0
—
6.8
7.9
—
0.1
90.3
$
48.8
$ 14.0
$ 12.5
$ 15.0
(a) As of June 30, 2015, the Company had less than $0.1 million of Capital Lease Obligations.
(b) Refer to Note 6 - 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 2016 amount includes less than $0.1 million of long-term debt obligations due in fiscal
year 2016 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 2016 amount includes $1.3 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 2016 amount includes $0.7 million for severance payments recorded as a current liability.
• The timing of warranty payments is estimated based on historical data. The fiscal year 2016 amount includes
$0.8 million for short-term warranty payments recorded as a current liability.
(d)
(e)
(f)
Excludes $3.5 million of long-term unrecognized tax benefits and associated accrued interest and penalties along with
deferred tax liabilities and miscellaneous other long-term tax liabilities which are not tied to a contractual obligation and
for which the Company cannot make a reasonably reliable estimate of the period of future payments.
Refer to Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for more
information regarding Operating Leases and certain Other Long-Term Liabilities.
Purchase Obligations are defined as agreements to purchase goods or services that are enforceable and legally binding
and that specify all significant terms. The amounts listed above for purchase obligations include contractual
commitments for items such as raw materials, supplies, capital expenditures, services, and software acquisitions/license
commitments. Cancellable purchase obligations that we intend to fulfill are also included in the purchase obligations
amount listed above through fiscal year 2020.
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 our financial condition, results of operations, liquidity, capital expenditures, or capital resources. See Note 5 -
Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for more information on standby letters
of credit. We do not have material exposures to trading activities of non-exchange traded contracts.
27
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 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 our 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 - We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until
the title and the risk of loss passes to the customer according to the terms of the contract. Title and risk of loss are transferred
upon shipment to or receipt at our customers’ locations, or in limited circumstances, as determined by other specific sales terms
of the transaction. 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 - Based on estimated product returns and price concessions, a reserve for returns and
allowances is recorded at the time of the sales, resulting in a reduction of revenue. These estimates may change over
time causing the provisions to be adjusted accordingly. At June 30, 2015 and June 30, 2014, the reserve for returns
and allowances was $0.8 million and $1.3 million (inclusive of Kimball Electronics), respectively. The returns and
allowances reserve approximated 1% to 2% of gross trade receivables during fiscal years 2015 and 2014.
• Allowance for doubtful accounts - Our estimate for the allowance for credit losses on trade accounts receivable and
notes receivable includes analysis of such items as aging, 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. The allowance for doubtful accounts at June 30, 2015 and June 30, 2014 was $1.0 million and $1.8 million
(inclusive of Kimball Electronics), respectively. During the two year period preceding June 30, 2015, this reserve
approximated 1% of gross trade accounts receivable prior to the spin-off, and approximated 2% to 4% of post-spin
gross trade accounts receivable.
Self-insurance reserves - We are 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, 2015 and June 30,
2014, our accrued liabilities for self-insurance exposure were $2.8 million and $4.2 million (inclusive of Kimball Electronics),
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 taxable income 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 positions are effectively settled, the tax
provision will be adjusted accordingly. The liability for uncertain income tax and other tax positions, including accrued interest
and penalties on those positions, was $2.9 million at June 30, 2015 and $3.8 million at June 30, 2014. The reduction was
driven by releases of reserves upon the expiration of statutes of limitation.
28
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
Commodity Risk: We are exposed to market risk with respect to commodity price fluctuations for components used in the
manufacture of our products, primarily related to wood and wood-related components, steel, plastics, and aluminum. These
components are impacted by global pricing pressures and general economic conditions. We strive to offset increases in the cost
of these materials through global sourcing initiatives, product re-engineering and parts standardization, and price increases on
our products. We are also exposed to fluctuation in transportation costs, such as fuel used to operate our trucking fleet to
transport product to our customers, and external shipping costs which fluctuate primarily based upon fuel prices. Fuel prices
are managed by optimizing logistics and supply chain planning, and increasing prices on our products.
Foreign Exchange Rate Risk: Our former EMS segment, classified as a discontinued operation, operated internationally and
was therefore exposed to potentially adverse movements in foreign currency rate changes. Our risk management strategy
included the use of derivative financial instruments to hedge certain foreign currency exposures. Derivatives were used only to
manage underlying exposures and were not used in a speculative manner. Further information on derivative financial
instruments is provided in Note 12 - Derivative Instruments of Notes to Consolidated Financial Statements. As of June 30,
2015, our continuing operations hold no derivative instruments and have minimal foreign currency risk.
29
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, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2015 . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for Each of the Three Years in the Period Ended June 30, 2015
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30, 2015 . . . . . . . . . .
Consolidated Statements of Share Owners' Equity for Each of the Three Years in the Period Ended June 30, 2015 . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page No.
31
32
33
34
35
36
37
38
30
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 (2013) 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, 2015.
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/ ROBERT F. SCHNEIDER
Robert F. Schneider
Chairman of the Board,
Chief Executive Officer
August 26, 2015
/s/MICHELLE R. SCHROEDER
Michelle R. Schroeder
Vice President,
Chief Financial Officer
August 26, 2015
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Share Owners of Kimball International, Inc.
Jasper, Indiana
We have audited the accompanying consolidated balance sheets of Kimball International, Inc. and subsidiaries (the “Company”) as of
June 30, 2015 and 2014, and the related consolidated statements of income, comprehensive income, cash flows, and share owners' equity for
each of the three years in the period ended June 30, 2015. 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, 2015, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these
financial statements and financial statement schedule and an opinion on the Company's internal control over financial reporting based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive
and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As discussed in Note 2 to the consolidated financial statements, on October 31, 2014, the Company completed the spin-off of its Electronics
Manufacturing Services segment through the distribution of the shares of Kimball Electronics, Inc. to the Company’s shareholders. The
operating results of Kimball Electronics, Inc. have been reclassified as discontinued operations in the consolidated financial statements.
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, 2015 and 2014, and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 2015, 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, 2015, based on the criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 26, 2015
32
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receivables, net of allowances of $1,522 and $2,345, respectively. . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and Equipment, net of accumulated depreciation of $197,500 and $358,493,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Intangible Assets, net of accumulated amortization of $35,447 and $61,912,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND SHARE OWNERS' EQUITY
Current Liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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: 386,000 (11,212,000 in 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B - Shares authorized: 100,000,000
Shares issued: 42,639,000 (31,813,000 in 2014) . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Treasury stock, at cost:
Class A - 0 shares (3,505,000 in 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B - 5,111,000 shares (1,082,000 in 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Share Owners' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Share Owners' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See Notes to Consolidated Financial Statements
June 30,
2015
June 30,
2014
$
$
$
34,661
55,710
37,634
23,548
151,553
97,163
—
2,669
14,744
266,129
27
41,170
18,618
1,921
45,425
107,161
241
17,222
17,463
136,624
175,695
140,475
46,998
499,792
188,833
2,564
4,191
26,766
722,146
25
160,306
14,130
1,883
77,256
253,600
268
26,745
27,013
19
560
2,132
3,445
194,372
1,229
—
(59,692)
141,505
266,129
$
1,591
6,269
487,040
2,440
(42,198)
(14,169)
441,533
722,146
33
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and Administrative Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Income (Expense):
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) from Continuing Operations Before Taxes on Income . .
Provision (Benefit) for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) from Continuing Operations . . . . . . . . . . . . . . . . . . . . . .
Income from Discontinued Operations, Net of Tax . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings Per Share of Common Stock:
Basic Earnings (Loss) Per Share from Continuing Operations:
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings (Loss) Per Share from Continuing Operations:
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic Earnings Per Share:
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings Per Share:
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Average Number of Shares Outstanding:
Class A and B Common Stock:
Year Ended June 30
2014
2013
2015
600,868
412,003
188,865
166,253
5,290
17,322
213
(24)
709
(541)
357
17,679
6,536
11,143
9,157
20,300
0.25
0.29
0.25
0.29
0.49
0.53
0.49
0.52
$
$
$
$
$
$
$
$
$
$
543,817
377,092
166,725
164,781
—
1,944
179
(26)
2,856
(741)
2,268
4,212
793
3,419
30,042
33,461
0.07
0.09
0.07
0.09
0.85
0.88
0.84
0.86
$
$
$
$
$
$
$
$
$
$
500,005
359,629
140,376
150,986
—
(10,610)
308
(26)
2,019
(2,687)
(386)
(10,996)
(4,380)
(6,616)
26,495
19,879
(0.20)
(0.17)
(0.20)
(0.17)
0.50
0.53
0.50
0.53
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,645
38,971
38,404
39,037
38,063
38,063
See Notes to Consolidated Financial Statements
34
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Year Ended June 30, 2015
Year Ended June 30, 2014
Year Ended June 30, 2013
Pre-tax
Tax
Net of
Tax
$ 20,300
Pre-tax
Tax
Net of
Tax
$ 33,461
Pre-tax
Tax
Net of
Tax
$ 19,879
Foreign currency translation adjustments . . . . $ (6,070) $
— $ (6,070) $
4,358
$
(304) $
4,054
$
1,952
$
(120) $
1,832
Postemployment severance actuarial change .
Derivative gain (loss) . . . . . . . . . . . . . . . . . . .
895
2,513
Reclassification to (earnings) loss:
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,484)
Amortization of prior service costs . . . . . . .
Amortization of actuarial change . . . . . . . . .
185
(292)
(356)
(416)
291
(73)
117
539
2,097
899
73
(1,193)
1,187
112
(175)
286
338
(360)
(86)
(226)
(114)
(134)
539
(13)
961
172
204
1
1,206
(2,136)
286
344
—
(380)
583
(114)
(136)
1
826
(1,553)
172
208
Other comprehensive income (loss) . . . . . . . . . . $ (4,253) $
(437) $ (4,690) $
7,141
$ (1,224) $
5,917
$
1,653
$
(167) $
1,486
Total comprehensive income . . . . . . . . . . . . . . .
$ 15,610
$ 39,378
$ 21,365
See Notes to Consolidated Financial Statements
35
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended June 30
2015
2014
2013
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
20,300
$
33,461
$
19,879
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,114
Loss (Gain) on sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and asset impairment charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 and customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
912
953
(537)
6,414
(1,157)
38
(15,266)
(21,934)
(4,870)
10,120
(1,244)
13,843
Cash Flows From Investing Activities:
31,885
(1,484)
1,509
(8,893)
7,018
(43)
1,007
(14,635)
(14,894)
(256)
15,738
19,458
69,871
30,758
(181)
188
(962)
5,023
(567)
3,362
(19,549)
(5,844)
6,207
17,693
7,854
63,861
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(31,708)
(32,897)
(27,555)
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of capitalized software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,524
(1,407)
(66)
4,761
(756)
1,346
786
(1,200)
(62)
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(30,657)
(27,546)
(28,031)
Cash Flows From Financing Activities:
Transfer of cash and cash equivalents to Kimball Electronics, Inc.. . . . . . . . . . . . . . . . .
Net change in capital leases and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of employee shares for tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Exchange Rate Change on Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . .
Net (Decrease) Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents at Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(63,006)
(25)
(7,660)
(10,342)
1,157
(4,019)
(83,895)
(1,254)
(101,963)
136,624
—
(24)
—
30
(7,507)
(7,430)
—
43
(1,953)
(9,441)
140
33,024
103,600
—
567
(875)
(7,708)
281
28,403
75,197
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
34,661
$
136,624
$
103,600
See Notes to Consolidated Financial Statements
36
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY
(Amounts in Thousands, Except for Share and Per Share Data)
Common Stock
Class A
Class B
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Share
Owners'
Equity
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
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of non-restricted stock (20,000 shares). . . . . . . . . . . . . . . . . . . . .
Conversion of Class A to Class B
common stock (813,000 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense related to stock incentive plans . . . . . . . . . . . . . . .
Performance share issuance (337,000 shares) . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared:
Class A ($0.18 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B ($0.20 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,461
5,917
(41)
41
(196)
7,018
(5,001)
(1,851)
(1,437)
(6,090)
253
4,953
33,461
5,917
57
—
7,018
(1,899)
(1,437)
(6,090)
Amounts at June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
560
$ 1,591
$
6,269
$
487,040
$
2,440
$
(56,367)
$ 441,533
Distribution to Kimball Electronics, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . .
(508)
(303,215)
3,479
(300,244)
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of non-restricted stock (29,000 shares). . . . . . . . . . . . . . . . . . . . .
Conversion of Class A to Class B
common stock (10,826,000 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense related to stock incentive plans . . . . . . . . . . . . . . .
Performance share issuance (407,000 shares) . . . . . . . . . . . . . . . . . . . . . . .
Vesting of restricted share unit (31,000 shares). . . . . . . . . . . . . . . . . . . . . .
Repurchase of Common Stock (991,000 shares)
Dividends declared:
Class A ($0.195 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B ($0.20 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(541)
541
(605)
6,414
(7,452)
(673)
20,300
(4,690)
(2,048)
(536)
(7,169)
20,300
(4,690)
(169)
—
6,414
(2,498)
(115)
436
7,002
558
(11,321)
(11,321)
(536)
(7,169)
Amounts at June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
19
$ 2,132
$
3,445
$
194,372
$
1,229
$
(59,692)
$ 141,505
See Notes to Consolidated Financial Statements
37
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 subsidiaries. All intercompany
balances and transactions have been eliminated in the consolidation.
Operating Segments: We sell a portfolio of furniture products and services under three brands: National, Kimball Office, and
Kimball Hospitality. We consider each of the three brands to be operating segments which aggregate into one reportable
segment. The brands operate within six market verticals, selling to similar types of customers. Our products and services are
similar in nature and utilize similar production and distribution processes. Our three brands share similar long-term economic
characteristics.
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: We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until
the title and the risk of loss passes to the customer according to the terms of the contract. Title and risk of loss are transferred
upon shipment to or receipt at our customers’ locations, or in limited circumstances, as determined by other specific sales terms
of the transaction. 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 aging, 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 amount 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. Customary terms
require payment within 30 days, with terms beyond 30 days being considered extended.
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 91% of consolidated inventories at June 30, 2015. As of June 30, 2014, prior to
the spin-off of Kimball Electronics, inventories valued using the lower of LIFO cost or market value were approximately 16%
of consolidated inventories. The 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 are expensed. Depreciation and expenses for maintenance, repairs and minor renewals are included in both the Cost
of Sales line and the Selling and Administrative Expense line of the Consolidated Statements of Income.
38
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. Impairment is recognized when estimated
future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Assets to be disposed
of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of
disposal.
Other Intangible Assets: 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. A summary of other intangible
assets subject to amortization is as follows:
June 30, 2015
June 30, 2014
(Amounts in Thousands)
Capitalized Software . . . . . . . . . . . . . . $
Product Rights . . . . . . . . . . . . . . . . . . .
Customer Relationships . . . . . . . . . . . .
Other Intangible Assets . . . . . . . . . . $
Cost
37,744
372
—
38,116
Accumulated
Amortization Net Value
2,663
$
6
—
2,669
35,081
366
—
35,447
$
$
$
Cost
64,564
372
1,167
66,103
$
$
Accumulated
Amortization Net Value
3,927
$
78
186
4,191
60,637
294
981
61,912
$
$
$
The decline in capitalized software and customer relationships is primarily the result of the spin-off of our EMS segment.
During fiscal years 2015, 2014, and 2013, amortization expense of other intangible assets from continuing operations was, in
thousands, $898, $992, and $1,039, respectively. Amortization expense in future periods is expected to be, in thousands, $720,
$653, $454, $334, and $304 in the five years ending June 30, 2020, and $204 thereafter. The estimated useful life of internal-
use software ranges from 3 to 10 years.
Internal-use software is stated at cost less accumulated amortization and is amortized using the straight-line method. During
the software application development stage, capitalized costs include external consulting costs, cost of software licenses, and
internal payroll and payroll-related costs for employees who are directly associated with a software project. Upgrades and
enhancements are capitalized if they result in added functionality which enable the software to perform tasks it was previously
incapable of performing. Software maintenance, training, data conversion, and business process reengineering costs are
expensed in the period in which they are incurred.
Product rights to produce and sell certain products are amortized on a straight-line basis over their estimated useful lives, and
capitalized customer relationships were 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 from continuing operations were approximately, in millions, $7, $7, and $6 in fiscal years 2015, 2014, and 2013,
respectively.
Advertising: Advertising costs are expensed as incurred. Advertising costs from continuing operations, included in selling and
administrative expenses were, in millions, $4.0, $3.7, and $3.2, in fiscal years 2015, 2014, and 2013, 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. 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 taxable income 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.
39
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 positions are effectively settled, the tax 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.
In September 2013, the United States Treasury Department and the Internal Revenue Service (“IRS”) issued final regulations
effective for our first quarter of fiscal year 2015, that provide guidance on a number of matters with regard to tangible property,
including whether expenditures qualify as deductible repairs, the treatment of materials and supplies, capitalization of tangible
property, dispositions of property, and related elections. We have implemented the regulations as issued and there was an
immaterial effect on our consolidated financial statements.
Concentrations of Credit Risk: Certain business and credit risks are inherent in our business. Additionally, we currently have
a note receivable related to the sale of an Indiana facility and other miscellaneous notes receivable. At June 30, 2015 and 2014,
$1.8 million and $1.6 million, respectively, were outstanding under the notes receivables. The credit risk associated with
receivables is disclosed in Note 20 - Credit Quality and Allowance for Credit Losses of Notes Receivable of Notes to
Consolidated Financial Statements.
Off-Balance Sheet Risk: Our off-balance sheet arrangements are limited to standby letters of credit and operating leases entered
into in the normal course of business as described in Note 5 - Commitments and Contingent Liabilities of Notes to
Consolidated Financial Statements.
Non-operating Income and Expense: Non-operating income and expense include the impact of such items as fair value
adjustments on Supplemental Employee Retirement Plan (“SERP”) investments, foreign currency rate movements, investment
gain or loss, 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 offset by a change in the SERP liability that is
recognized in selling and administrative expenses.
Foreign Currency Translation: Kimball's continuing foreign operation, a non-manufacturing office in China, uses the Chinese
Yuan Renminbi as its functional currency. 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, as a
component of Share Owners' Equity. Gains and losses from foreign currency remeasurement into EUR and USD functional
currencies related to our former EMS segment are included in the Income from Discontinued Operations, Net of Tax line item
of the Consolidated Statements of Income.
Derivative Instruments and Hedging Activities: Our former EMS segment, classified as a discontinued operation, operated
internationally and utilized derivative instruments to hedge the exposure to foreign currency exchange rate fluctuations. See
Note 12 - Derivative Instruments of Notes to Consolidated Financial Statements for more information on derivative instruments
and hedging activities.
Stock-Based Compensation: As described in Note 8 - Stock Compensation Plans of Notes to Consolidated Financial
Statements, 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 and restricted share units is based on the stock price at the date of
the grant. For performance shares, the price is reduced by the present value of dividends normally paid over the vesting period
which are not payable on outstanding performance share awards. The estimated fair value of outstanding relative total
shareholder return performance units (“RTSR”) is based on the grant date fair value of RTSR awards using a Monte Carlo
simulation which includes estimating the movement of stock prices and the effects of volatility, interest rates, and dividends.
Stock-based compensation expense is recognized for the portion of the awards that are 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.
Recent Accounting Pronouncements: In July 2015, the Financial Accounting Standards Board (“FASB”) issued guidance on
simplifying the measurement of inventory which applies to inventory that is measured using first-in, first-out (“FIFO”) or
average cost. Inventory within the scope of this update is required to be measured at the lower of cost or net realizable value,
which is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal,
40
and transportation. The guidance does not impact inventory measured on a last-in, last-out (“LIFO”) basis. The standards
update is effective prospectively for our first quarter fiscal year 2018 financial statements with early adoption permitted. We do
not expect the adoption to have a material effect on our consolidated financial statements.
In April 2015, the FASB issued guidance that requires debt issuance costs be presented in the balance sheet as a direct
deduction from the carrying amount of the related debt liability and further clarification guidance allows the cost of securing a
revolving line of credit to be recorded as a deferred asset regardless of whether a balance is outstanding. This guidance is
effective for our first quarter fiscal year 2017 financial statements. We currently comply with this method thus we do not
expect the adoption to have a material effect on our consolidated financial statements.
In April 2015, the FASB issued guidance on customer’s accounting for cloud computing fees and provided criteria for
customers in a cloud computing arrangement to use to determine whether the arrangement includes a license of software. The
guidance clarifies that a software license included in a cloud computing arrangement should be accounted for consistent with
the acquisition of other software licenses, whereas a cloud computing arrangement that does not include a software license
should be accounted for as a service contract. The guidance is effective for our first quarter of fiscal year 2017 financial
statements, and allows for the use of either a prospective or retrospective transition method. We have not yet selected a
transition method nor determined the effect of this guidance on our consolidated financial statements.
In June 2014, the FASB provided explicit guidance on how to account for share-based payments granted to employees in which
the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period.
The guidance will be applied prospectively for our first quarter fiscal year 2017 financial statements. We do not expect the
adoption to have a material effect on our consolidated financial statements.
In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers. The core principle of the
guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration which the company expects to receive in exchange for those goods or services. To
achieve this core principle, the guidance provides a five-step analysis of transactions to determine when and how revenue is
recognized. The guidance addresses several areas including transfer of control, contracts with multiple performance
obligations, and costs to obtain and fulfill contracts. The guidance also requires additional disclosure about the nature, amount,
timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes
in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB decided to defer
the effective date for this new revenue standard by one year, which will make the guidance effective for our first quarter fiscal
year 2019 financial statements using either of two acceptable adoption methods: (i) retrospective adoption to each prior
reporting period presented with the option to elect certain practical expedients; or (ii) adoption with the cumulative effect of
initially applying the guidance recognized at the date of initial application and providing certain additional disclosures. We
have not yet selected a transition method nor determined the effect of this guidance on our consolidated financial statements.
In April 2014, the FASB issued guidance on reporting discontinued operations and disclosures of disposals of components of an
entity. Under the new guidance, a disposal that represents a strategic shift that has or will have a major effect on an entity's
operations and financial results is a discontinued operation. The new guidance requires expanded disclosures that will provide
more information about the assets, liabilities, income, and expenses of discontinued operations, and also requires disclosures of
significant disposals that do not qualify for discontinued operations reporting. The guidance is effective prospectively for
disposals or components of our business classified as held for sale during the first quarter of fiscal year 2016. We do not expect
the adoption of this guidance to have a material effect on our financial results, although it may require additional disclosures for
significant disposals in the future.
In July 2013, the 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 was effective prospectively for our first quarter fiscal year 2015 financial statements. The
adoption did not have a material effect on our consolidated financial statements.
41
Note 2. Spin-Off Transaction
On October 31, 2014 (“Distribution Date”), we completed the spin-off of our Electronic Manufacturing Services (“EMS”)
segment by distributing the related shares of Kimball Electronics, Inc. (“Kimball Electronics”), on a pro rata basis, to the
Company's Share Owners of record as of October 22, 2014 (“the Record Date”). On the Distribution Date, each of the
Company's Share Owners received three shares of Kimball Electronics for every four shares of the Company held by such
Share Owner on the Record Date. After the Distribution Date, the Company does not beneficially own any Kimball Electronics
shares and Kimball Electronics is an independent publicly traded company. Kimball International, Inc. trades on the NASDAQ
under the ticker symbol “KBAL” and Kimball Electronics, Inc. trades on the NASDAQ under the ticker symbol “KE”.
The following is a summary of the assets and liabilities distributed to Kimball Electronics on the Distribution Date or shortly
thereafter:
(Amounts in Millions)
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Assets Distributed to Kimball Electronics, Inc. . . . . . . . . . . . . . . . . . .
$
$
$
$
$
63
133
124
19
98
3
1
15
456
125
22
9
156
300
The Company distributed $63 million of cash to Kimball Electronics, including the cash held by its foreign facilities, as
Kimball Electronics began operation as an independent company. The cash distribution occurred in several installments
immediately preceding the Distribution Date or shortly thereafter. In addition, $3.5 million of accumulated other
comprehensive losses, net of tax, related to foreign translation, derivatives, and the postemployment severance benefit plan was
transferred to Kimball Electronics.
The EMS segment was reclassified to discontinued operations in the Consolidated Statements of Income for all periods
presented. Summarized financial results of discontinued operations through the October 31, 2014 spin-off date, were as
follows:
Fiscal Year Ended
June 30
(Amounts in Thousands, Except Per Share Data)
Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,551
Income Before Taxes on Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,098
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Discontinued Operations, Net of Tax . . . . . . . . . . . . . . . $
Income From Discontinued Operations per Class B Diluted Share. . . $
3,941
9,157
0.23
2015
2014
2013
$ 741,530
$ 703,129
38,961
33,659
8,919
$ 30,042
7,164
$ 26,495
$
0.77
$
0.70
In connection with the spin-off of Kimball Electronics, the Company and Kimball Electronics entered into several agreements
covering administrative and tax matters to provide or obtain services on a transitional basis, as needed, for varying periods after
the spin-off. The administrative agreements cover various services such as information technology, human resources, taxation,
42
and finance. The Company expects all services to be substantially complete within one year after the spin-off. The Company
has retained all liabilities for U.S. federal, state, and local income taxes on income prior to the spin-off, as well as certain non-
income taxes attributable to Kimball Electronics’ business. Kimball Electronics generally will be liable for all other taxes
attributable to its business. In connection with the spin-off, the Company has adjusted its employee stock compensation awards
and separated its retirement and post-employment severance benefit plans.
Note 3 Inventories
Inventories are valued using the lower of last-in, first-out (“LIFO”) cost or market value for approximately 91% of consolidated
inventories at June 30, 2015. As of June 30, 2014, prior to the spin-off of Kimball Electronics, inventories valued using the
lower of LIFO cost or market value were approximately 16% of consolidated inventories. The remaining inventories are valued
using the lower of first-in, first-out (“FIFO”) cost or market value.
Had the FIFO method been used for all inventories, income from continuing operations would have been $0.2 million higher in
fiscal year 2015, $0.6 million higher in fiscal year 2014, and $0.2 million higher in fiscal year 2013. Certain inventory quantity
reductions caused liquidations of LIFO inventory values, which increased income from continuing operations by an immaterial
amount in both 2015 and 2014. 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015
2014
26,634
1,952
23,201
51,787
(14,153)
37,634
$
$
$
37,373
13,808
103,083
154,264
(13,789)
140,475
The reduction in FIFO inventory from June 30, 2014 to June 30, 2015 was due primarily to the spin-off of Kimball Electronics
on October 31, 2014.
Note 4 Property and Equipment
Major classes of property and equipment at June 30 consist of the following:
(Amounts in Thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015
2,849
124,709
159,648
7,457
294,663
(197,500)
97,163
$
$
$
2014
12,308
183,735
341,525
9,758
547,326
(358,493)
188,833
The reduction in property and equipment from June 30, 2014 to June 30, 2015 was due primarily to the spin-off of Kimball
Electronics on October 31, 2014.
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
43
Depreciation and amortization of property and equipment from continuing operations, including asset write-downs associated
with restructuring plans, totaled, in millions, $13.1 for fiscal year 2015, $13.5 for fiscal year 2014, and $12.0 for fiscal year
2013.
At June 30, 2015, no assets were classified as held for sale. Assets held for sale that were sold during fiscal year 2015
included:
• An aircraft which had been used primarily for management travel totaling $1.3 million was classified as held for sale
during the second quarter of fiscal year 2015, and was subsequently sold during the third quarter of fiscal year 2015.
We recognized a pre-tax gain of $0.2 million related to the sale of the aircraft during the third quarter of fiscal year
2015 which partially offsets the pre-tax impairment charge recorded in the second quarter of fiscal year 2015 of $1.1
million, due to the book value of the aircraft exceeding current fair market value estimates less selling costs. The
impairment and gain were both recorded on the Restructuring Expense line of the Consolidated Statements of Income.
At June 30, 2014, Kimball had no assets classified as held for sale. Assets held for sale that were sold during fiscal year 2014
included:
• An underutilized aircraft totaling $1.5 million was classified as held for sale during the first quarter of fiscal year
2014, and was subsequently sold during the second quarter of fiscal year 2014. During fiscal year 2014, we
recognized pre-tax losses of $1.2 million for impairment on this aircraft, which was recorded on the Selling and
Administrative Expenses line of the Consolidated Statements of Income.
• We sold an idle manufacturing facility and land located in Jasper, Indiana, recognizing a pre-tax gain of $1.7 million
during fiscal year 2014, which was recorded on the Selling and Administrative Expenses line of the Consolidated
Statements of Income.
• Our former EMS segment sold a facility and land located in Gaylord, Michigan, recognizing a pre-tax loss of $0.3
million during fiscal year 2014. During fiscal year 2013, the former EMS segment recognized pre-tax impairment on
this property of $0.2 million. The loss on sale and impairment charge were included in the Income from Discontinued
Operations, Net of Tax line of the Consolidated Statements of Income.
Note 5 Commitments and Contingent Liabilities
Leases:
Operating leases from continuing operations for certain offices, showrooms, a manufacturing facility, land, and equipment,
which expire from fiscal year 2016 to 2026, contain provisions under which minimum annual lease payments are, in millions,
$3.4, $3.1, $2.7, $2.3, and $2.2 for the five years ending June 30, 2020, respectively, and aggregate $7.9 million from fiscal
year 2021 to the expiration of the leases in fiscal year 2026. 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 expense from
continuing operations amounted to, in millions, $4.9, $4.1, and $4.4 in fiscal years 2015, 2014, and 2013, respectively,
including certain leases requiring contingent lease payments based on warehouse space utilized, which amounted to expense of,
in millions, $1.0, $0.8, and $0.9 in fiscal years 2015, 2014, and 2013, respectively.
As of June 30, 2015 and 2014, capital leases were not material.
Guarantees:
As of June 30, 2015 and 2014, 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
from unused standby letters of credit totaling $1.0 million as of June 30, 2015 and $1.1 million as of June 30, 2014. 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, 2015 and 2014 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 periodically based on changes in historical
cost trends and in certain cases where specific warranty issues become known.
44
Changes in the product warranty accrual during fiscal years 2015, 2014, and 2013 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution to Kimball Electronics, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product Warranty Liability at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015
2014
2013
3,221
$
2,384
$
2,251
880
(927)
(910)
2,264
2,883
(2,046)
—
1,040
(907)
—
$
3,221
$
2,384
Note 6 Long-Term Debt and Credit Facilities
Long-term debt, less current maturities as of June 30, 2015 and 2014, was, in thousands, $241 and $268, respectively, and
current maturities of long-term debt were, in thousands, $27 and $25, 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, $27, $30, $27, $23, and $25, respectively, and
aggregate $136 thereafter.
Credit facilities consisted of the following:
(Amounts in Millions)
Availability to
Borrow at
June 30, 2015
Borrowings
Outstanding at
June 30, 2015
Borrowings
Outstanding at
June 30, 2014
Primary revolving credit facility (1). . . . . . . . . . . . . . . . . . . . . . . . . $
Former EMS segment overdraft credit facilities (2) . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
29.0
—
29.0
$
$
— $
—
— $
—
—
—
(1) In connection with the spin-off, on October 31, 2014 Kimball entered into a new credit facility. The new credit agreement,
which replaced a previously existing primary credit facility, has a maturity date of October 31, 2019 and allows for up to
$30 million in borrowings, with an option to increase the amount available for borrowing to $55 million at the Company's
request, subject to participating banks' consent.
At June 30, 2015, we had $1.0 million in letters of credit outstanding, which reduced our borrowing capacity on the credit
facility.
The revolving loans under the Credit Agreement may consist of, at the Company's election, advances in U.S. dollars or
advances in any other currency that is agreed to by the lenders. The proceeds of the revolving loans are to be used for
general corporate purposes of the Company including acquisitions. A portion of the credit facility, not to exceed $10
million of the principal amount, will be available for the issuance of letters of credit. A commitment fee is payable on the
unused portion of the credit facility which was immaterial to our operating results for fiscal year 2015. 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 the Company's ratio of consolidated total indebtedness to adjusted consolidated
EBITDA.
The interest rate is dependent on the type of borrowings and will be one of the following two options:
• The adjusted London Interbank Offered Rate (“Adjusted LIBO Rate” as defined in the Credit Agreement) in
effect two business days prior to the advance (adjusted upwards to reflect bank reserve costs) for such interest
period, plus the Eurocurrency Loans margin which can range from 125.0 to 175.0 basis points based on the
Company's ratio of consolidated total indebtedness to adjusted consolidated EBITDA; or
• The Alternate Base Rate, which is defined as the highest of the fluctuating rate per annum equal to the higher of
JPMorgan's prime rate;
1% per annum above the Adjusted LIBO rate; or
1/2% per annum above the Federal funds rate;
a.
b.
c.
plus the ABR Loans spread which can range from 25.0 to 75.0 basis points based on the Company's ratio of
consolidated total indebtedness to adjusted consolidated EBITDA.
45
The Company's financial covenants under the Credit Agreement require:
• An adjusted leverage ratio of (a) consolidated total indebtedness minus unencumbered U.S. cash on hand in the
U.S. in excess of $15,000,000 to (b) consolidated EBITDA, determined as of the end of each of its fiscal quarters
for the then most recently ended four fiscal quarters, to not be greater than 3.0 to 1.0, and
• A fixed charge coverage ratio of (a) the sum of (i) consolidated EBITDA, minus (ii) 50% of depreciation expense,
minus (iii) taxes paid, minus (iv) dividends and distributions paid, to (b) the sum of (i) scheduled principal
payments on indebtedness due and/or paid, plus (ii) interest expense, calculated on a consolidated basis in
accordance with GAAP, determined as of the end of each of its fiscal quarters for the trailing four fiscal quarters
then ending, to not be less than 1.10 to 1.00.
Prior to the October 31, 2014 spin-off, Kimball maintained a primary revolving credit facility which provided for up to $75
million in borrowings.
(2) Our former EMS segment, classified as a discontinued operation, also maintained foreign credit facilities which were
available to cover bank overdrafts. Bank overdrafts may have been deemed necessary to satisfy short-term cash needs
rather than funding from intercompany sources.
Cash payments for interest on borrowings were, in thousands, $29, $29, and $36, in fiscal years 2015, 2014, and 2013,
respectively. Capitalized interest expense was immaterial during fiscal years 2015, 2014, and 2013.
Note 7 Employee Benefit Plans
Retirement Plans:
Kimball has a trusteed defined contribution retirement plan in effect for substantially all domestic employees meeting the
eligibility requirements. Employer 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 enables 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. In connection
with the spin-off, the Company has transferred the retirement plan balances of EMS employees to Kimball Electronics
retirement plans.
The discretionary employer contribution for domestic employees was determined annually by the Compensation and
Governance Committee of the Board of Directors. Total expense from continuing operations related to employer contributions
to the domestic retirement plans was, in millions, $4.3, $4.0, and $4.0 for fiscal years 2015, 2014, and 2013, respectively.
Employees of certain foreign subsidiaries are covered by local pension or retirement plans. The expense from continuing
operations related to employer contributions to these foreign plans for fiscal years 2015, 2014, and 2013 was not material.
46
Severance Plans:
Kimball's domestic employees participate in severance plans which provide severance benefits to eligible employees meeting
the plans' qualifications, primarily involuntary termination without cause. In connection with the spin-off, the Company
transferred the post-employment obligation for EMS employees to Kimball Electronics.
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:
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss for the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution to Kimball Electronics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Balance in current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Balance in noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total benefit obligation recognized in the Consolidated Balance Sheets . . . . . . . . . . $
June 30
2015
2014
5,350
$
5,579
645
96
(895)
(168)
(2,173)
2,855
501
2,354
2,855
$
$
$
955
134
(899)
(419)
—
5,350
939
4,411
5,350
June 30
(Amounts in Thousands)
Changes and Components in Accumulated Other Comprehensive Income (Loss) (before tax):
2015
2014
(44)
Accumulated Other Comprehensive Income (Loss) at beginning of year . . . . . . . . . . . . . . $ (1,567) $
(286)
Change in unrecognized prior service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,237)
Net change in unrecognized actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution to Kimball Electronics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Accumulated Other Comprehensive Income (Loss) at end of year . . . . . . . . . . . . . . . . . . . $ (2,011) $ (1,567)
199
Balance in unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1,766)
Balance in unrecognized actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Accumulated Other Comprehensive Income (Loss) recognized in Share Owners'
Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,011) $ (1,567)
(185)
(603)
344
(2,011)
— $
(Amounts in Thousands)
Components of Net Periodic Benefit Cost (before tax):
Year Ended June 30
2015
2014
2013
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic benefit cost — Total cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic benefit cost — Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
47
645
$
96
185
(292)
634
81
553
955
134
286
338
$
$
1,713
343
1,370
$
$
$
825
179
286
344
1,634
321
1,313
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 18 - Restructuring Expense of Notes to
Consolidated Financial Statements, are not estimable using actuarial methods and are expensed in accordance with other
applicable U.S. GAAP.
Prior service cost was amortized on a straight-line basis over the average remaining service period of employees that were
active at the time of the plan initiation and actuarial (gain) loss is amortized on a straight-line basis over the average remaining
service period of employees expected to receive benefits under the plan.
The estimated actuarial net (gain) loss from continuing operations for the severance plans that will be amortized from
accumulated other comprehensive income into net periodic benefit cost (income) over the next fiscal year is, pre-tax in
thousands, $(811).
Assumptions used to determine fiscal year end benefit obligations are as follows:
Discount Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of Compensation Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2.8%
3.0%
Weighted average assumptions used to determine fiscal year net periodic benefit costs are as follows:
Discount Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of Compensation Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2.6%
3.0%
2014
2.3%
3.0%
2014
2.5%
3.0%
2013
3.8%
3.8%
Note 8 Stock Compensation Plans
On August 13, 2013, the Board of Directors adopted the Amended and Restated 2003 Stock Option and Incentive Plan (“the
2003 Plan”), which was approved by Kimball's Share Owners on October 15, 2013. Under the 2003 Plan, 5,000,000 shares of
Common Stock are reserved for issuance of new awards and awards that had been issued under a former 2003 Stock Option
and Incentive Plan. The 2003 Plan allows for 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. The 2003 Plan
expires December 31, 2018.
The pre-tax compensation cost from continuing operations charged against income was $5.6 million, $5.5 million, and $3.7
million in fiscal years 2015, 2014, and 2013, respectively. The total income tax benefit from continuing operations for stock
compensation arrangements was $2.2 million, $2.2 million, and $1.5 million in fiscal years 2015, 2014, and 2013, respectively.
We generally use treasury shares for issuance of shares.
Performance Shares:
Kimball awards performance shares to officers and other key employees. 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 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 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.
48
A summary of performance share activity during fiscal year 2015 is presented below:
Performance Shares outstanding at July 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of Spin-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Shares outstanding at June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of Shares
1,974,863
—
(649,524)
(559,081)
14,400
780,658
Weighted Average
Grant Date
Fair Value
$10.92
$—
$11.07
$15.90
$10.21
As of June 30, 2015, there was approximately $3.5 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 July 2015 through July 2019, with a weighted average vesting period of one year, four 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 $14.93 and $10.91 for performance share awards granted in fiscal years 2014 and 2013, respectively. During fiscal
years 2015, 2014, and 2013, respectively, 649,524; 512,719; and 254,393 performance shares vested at a fair value of $7.2
million, $5.6 million, and $1.4 million. The performance shares vested represent the total number of shares vested prior to the
reduction of shares withheld to satisfy tax withholding obligations. During fiscal year 2015, in connection with the spin-off of
Kimball Electronics, the number of performance shares outstanding was reduced by 282,740 for performance shares related to
Kimball Electronics' employees, and to increase the number of performance share awards held by Kimball International
employees by 297,140 shares in order to preserve the fair value of the awards before and after the spin-off. This modification
did not result in additional compensation expense. 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.
Relative Total Shareholder Return Performance Units:
Kimball awards relative total shareholder return performance units (“RTSR”) to key officers. Under these awards, a participant
will earn from 0% to 200% of the target award depending upon how the compound annual growth rate of Kimball common
stock ranks within the peer group at the end of the performance period. RTSRs are vested when issued shortly after the
performance measurement period is complete and are issued as common shares. The contractual life of RTSRs is two years,
five months. If a participant is not employed on the date shares are issued, the RTSR 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, RTSRs are forfeited.
A summary of RTSR activity during fiscal year 2015 is presented below:
Number
of Shares
Weighted Average
Grant Date
Fair Value
RTSRs outstanding at July 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RTSRs outstanding at June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
30,198
—
—
$—
$11.48
$—
$—
30,198
$11.48
As of June 30, 2015, assuming a target of 100%, there was approximately $0.3 million of unrecognized compensation cost
related to RTSRs. That cost is expected to be recognized over the vesting period ending June 2017, with a weighted average
vesting period of two years. The grant date fair value of RTSR awards was calculated using a Monte Carlo simulation. This
valuation technique includes estimating the movement of stock prices and the effects of volatility, interest rates, and dividends.
The weighted average grant date fair value was $11.48 for RTSR awards granted in fiscal year 2015. During fiscal years 2015,
2014, and 2013, no RTSRs vested.
49
Restricted Share Units:
Restricted Share Units (“RSU”) were granted to officers and key employees. Upon vesting, the outstanding number of RSUs
and the value of dividends accumulated over the vesting period are converted to shares of common stock. The contractual life
of RSUs ranges from one year, four months to two years, seven months. If the employment of a holder of an RSU terminates
before the RSU has vested for any reason other than death, retirement at age 62 or older, total permanent disability, or certain
other circumstances described in the Company's employment policy, the RSU and accumulated dividends will be forfeited.
A summary of RSU activity during fiscal year 2015 is presented below:
Number
of Shares
Weighted Average
Grant Date
Fair Value
RSUs outstanding at July 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs outstanding at June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
188,949
(45,009)
—
143,940
$—
$9.15
$9.13
$—
$9.16
As of June 30, 2015, there was approximately $0.9 million of unrecognized compensation cost related to nonvested RSU
compensation arrangements. That cost is expected to be recognized over vesting periods ending June 2016 and June 2017, with
a weighted average vesting period of one year, six months. The fair value of RSU awards is based on the stock price at the date
of award. The weighted average grant date fair value was $9.15 for RSU awards granted in fiscal year 2015. The total fair
value of RSU awards vested during fiscal year 2015 was $0.4 million. The RSU awards vested represent the total number of
shares vested prior to the reduction of shares withheld to satisfy tax withholding obligations.
Unrestricted Share Grants:
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. Prior to the spin-off, during fiscal year
2015, Kimball granted a total of 17,335 unrestricted shares of Class B common stock at an average grant date fair value of
$16.01, for a total fair value, in thousands, of $278. After the spin-off, during fiscal year 2015, Kimball granted a total of
17,529 unrestricted shares of common stock at an average grant date fair value of $8.79, for a total fair value, in thousands, of
$154. During fiscal years 2014 and 2013, respectively, Kimball granted a total of 20,277 and 2,843 unrestricted shares of Class
B common stock at an average grant date fair value of $11.47 and $11.78, for a total fair value, in thousands, of $233 and $33.
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.
Note 9 Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Income tax benefits associated with net
operating losses of, in thousands, $3,525 expire from fiscal year 2015 to 2035. Income tax benefits associated with tax credit
carryforwards of, in thousands, $2,472, expire from fiscal year 2016 to 2028. A valuation allowance was provided as of
June 30, 2015 for deferred tax assets relating to state net operating losses of, in thousands, $687 that we currently believe are
more likely than not to remain unrealized in the future.
50
The components of the deferred tax assets and liabilities as of June 30, 2015 and 2014, were as follows:
(Amounts in Thousands)
Deferred Tax Assets:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred Tax Liabilities:
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,353
146
427
Total liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
7,926
Net Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
15,328
2015
2014
1,137
$
528
382
1,587
2,388
630
12,810
24,502
134
881
2,472
1,017
—
2,525
—
2,055
(687)
23,254
619
1,036
1,883
—
2,597
3,076
77
4,822
(787)
42,430
7,397
168
512
8,077
34,353
$
$
$
$
The reduction in deferred income taxes from June 30, 2014 to June 30, 2015 was due primarily to the spin-off of Kimball
Electronics on October 31, 2014.
The provision (benefit) for income taxes from continuing operations is composed of the following items:
(Amounts in Thousands)
Currently Payable (Refundable):
Year Ended June 30
2015
2014
2013
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,553
885
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,438
Deferred Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
616
482
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,098
Valuation allowance . . . . . . . . . . . . . . . . . . . . .
Total provision (benefit) for income taxes
from continuing operations . . . . . . . . . . . . . . . . $
—
$
$
$
$
6,108
1,118
7,226
$
$
(3,282)
(139)
(3,421)
(4,514) $
(1,122)
(5,636) $
(797)
(246)
(1,259)
(1,505)
546
6,536
$
793
$
(4,380)
51
A reconciliation of the statutory U.S. income tax rate from continuing operations to Kimball's effective income tax rate follows:
Year Ended June 30
2015
2014
2013
(Amounts in Thousands)
Amount
%
Amount
%
Amount
%
Tax provision (benefit) computed at U.S. federal
statutory rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State income taxes, net of federal income tax
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . .
Domestic manufacturing deduction . . . . . . . . . . . .
Research credit. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spin-off costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefit . . . . . . . . . . . . . . . . . . . .
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision (benefit) for income taxes
from continuing operations . . . . . . . . . . . . . . . . $
6,188
35.0% $
1,474
35.0% $ (3,848)
35.0%
662
—
(602)
(218)
784
(851)
573
3.8
—
(3.4)
(1.2)
4.4
(4.8)
3.2
(45)
(797)
(327)
(115)
422
—
181
(1.1)
(18.9)
(7.8)
(2.7)
10.0
—
4.3
(909)
546
—
(327)
—
—
158
8.3
(5.0)
—
3.0
—
—
(1.5)
6,536
37.0% $
793
18.8% $ (4,380)
39.8%
Net cash payments (refunds) for income taxes were, in thousands, $13,306, $13,911, and $(551) in fiscal years 2015, 2014, and
2013, respectively.
Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 2015, 2014, and 2013
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015
2014
2013
2,692
$
2,752
$
2,624
351
—
—
—
—
(1,123)
1,920
415
—
—
—
—
(475)
2,692
2,159
$
$
$
$
207
—
—
—
—
(79)
2,752
2,286
Portion that, if recognized, would reduce tax expense and effective tax rate . . . . . . . . . . $
1,307
We recognize interest and penalties related to unrecognized tax benefits in the Provision 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:
2015
As of June 30
2014
2013
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
104
105
$
$
285
95
$
$
278
78
Interest and penalties income (expense) recognized for fiscal years 2015, 2014, and 2013 were, in thousands, $171, $(25), and
$22, respectively.
Kimball, or one of its wholly-owned subsidiaries, files U.S. federal income tax returns and income tax returns in various state
and local jurisdictions. We are no longer subject to any significant U.S. federal tax examinations by tax authorities for years
before fiscal year 2012, and to various state and local income tax examinations by tax authorities for years before 2007. 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.
52
Note 10 Common Stock
On October 30, 2014, holders of a sufficient number of shares of Class A common stock converted such shares into Class B
common stock such that the number of outstanding shares of Class A common stock is, after such conversions, less than 15% of
the total number of issued and outstanding shares of both Class A common stock and Class B common stock. Pursuant to the
Company’s Amended and Restated Articles of Incorporation 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 common stock
and Class B common stock, then all of the rights, preferences, limitations and restrictions relating to Class B common stock
shall become the same as the rights, preferences, limitations and restrictions of Class A common stock, without any further
action of or by its Share Owners, and all distinctions between Class A common stock and Class B common stock shall be
eliminated so that all shares of Class B common stock are equal to shares of Class A common stock with respect to all matters,
including without limitation, dividend payments and voting rights. The elimination of such distinctions, which occurred on
October 30, 2014, is referred to as the “stock unification.” As a result of the stock unification, Class A common stock and Class
B common stock now vote as a single class (except as otherwise required by applicable law) on all matters submitted to a vote
of the Company’s Share Owners.
Note 11 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 2015 and 2014.
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
Trading securities: Mutual funds held in
nonqualified SERP
Derivative Liabilities: Foreign exchange
contracts
Level
1
Valuation Technique/Inputs Used
Market - Quoted market prices
2
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 - 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
53
Recurring Fair Value Measurements:
As of June 30, 2015 and 2014, 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, 2015
Level 1
Level 2
Level 3
Total
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Trading Securities: Mutual funds in nonqualified SERP . . . . . . . . . . . . .
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
23,414
—
10,353
33,767
$
$
Liabilities
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
— $
—
—
— $
— $
— $
— $
—
—
— $
— $
— $
23,414
—
10,353
33,767
—
—
(Amounts in Thousands)
Assets
June 30, 2014
Level 1
Level 2
Level 3
Total
Cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,845
—
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . .
Trading Securities: Mutual funds in nonqualified SERP . . . . . . . . . . . .
23,106
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126,951
$
$
Liabilities
Derivatives: Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
— $
— $ 103,845
800
—
800
699
699
$
$
$
—
—
800
23,106
— $ 127,751
— $
— $
699
699
The reduction in balances from June 30, 2014 to June 30, 2015 was primarily due to the spin-off of the EMS segment on
October 31, 2014. No purchases or sales of Level 3 assets occurred during the periods.
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 offset by a SERP liability which represents Kimball's
obligation to distribute SERP funds to participants. See Note 13 - Investments of Notes to Consolidated Financial Statements
for further information regarding the SERP.
Non-Recurring Fair Value Measurements:
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 and property & equipment)
Level
3
Valuation Technique/Inputs Used
Market - Quoted market prices for similar assets sold, adjusted for
features specific to the asset
During fiscal year 2015, we classified an aircraft as held for sale and recognized pre-tax impairment of $1.1 million due to the
book value of the aircraft exceeding current fair market value estimates less selling costs. The aircraft was sold later in fiscal
year 2015 at a pre-tax gain of $0.2 million. During fiscal year 2014, we classified another aircraft as held for sale and
recognized pre-tax impairment of $1.2 million due to a significant downward shift in the market for private aviation aircraft.
The aircraft was subsequently sold during fiscal year 2014. Our former EMS segment sold a facility and land located in
Gaylord, Michigan, recognizing a pre-tax loss of $0.3 million during fiscal year 2014. During fiscal year 2013, the former
EMS segment recognized pre-tax impairment on this held for sale property of $0.2 million. The loss on sale and impairment
charge were included in the Income from Discontinued Operations, Net of Tax line of the Consolidated Statements of Income.
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
Level
2
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
Long-term debt (carried at amortized cost)
3
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
The carrying value of our cash deposit accounts, trade accounts receivable, trade accounts payable, and dividends payable
approximates fair value due to the relatively short maturity and immaterial non-performance risk.
Note 12 Derivative Instruments
Our former EMS segment, classified as a discontinued operation, operated internationally and was therefore exposed to foreign
currency exchange rate fluctuations in the normal course of business. The primary means of managing this exposure was to
utilize natural hedges, such as aligning currencies used in the supply chain with the sale currency. To the extent natural hedging
techniques did not fully offset currency risk, derivative instruments were used 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 included the materiality of the risk, the volatility of the market, the duration of the hedge, the degree to which the
underlying exposure was committed to, and the availability, effectiveness, and cost of derivative instruments. Derivative
instruments were only utilized for risk management purposes and were not used for speculative or trading purposes.
Forward contracts designated as cash flow hedges were used to protect against foreign currency exchange rate risks inherent in
forecasted transactions denominated in a foreign currency. Foreign exchange contracts were also used to hedge against foreign
currency exchange rate risks related to intercompany balances denominated in currencies other than the functional currencies.
In limited cases due to unexpected changes in forecasted transactions, cash flow hedges may have ceased to meet the criteria to
be designated as cash flow hedges. Depending on the type of exposure hedged, either a derivative contract in the opposite
position of the undesignated hedge may have been purchased or the hedge may have been retained until it matured if the hedge
had continued to provide an adequate offset in earnings against the currency revaluation impact of foreign currency
denominated liabilities.
As of June 30, 2015, after the spin-off of the EMS segment, we held no derivative instruments. As of June 30, 2014, the fair
value of outstanding derivative instruments was recognized on the balance sheet as a derivative asset or liability. When
derivatives were settled with the counterparty, the derivative asset or liability was relieved and cash flow was impacted for the
net settlement. For derivative instruments that met the criteria of hedging instruments under FASB guidance, the effective
portions of the gain or loss on the derivative instrument were initially recorded net of related tax effect in Accumulated Other
Comprehensive Income, a component of Share Owners' Equity, and were subsequently reclassified into earnings in the period
or periods during which the hedged transaction was recognized in earnings. The gain or loss associated with derivative
instruments that were not designated as hedging instruments or that ceased to meet the criteria for hedging under FASB
guidance was recognized in earnings.
Kimball also held common stock warrants which provided the right to purchase a privately-held company's equity securities at
a specified exercise price. Due to certain events and changes in circumstances that had adverse effects on the fair value of the
investment in the privately-held company, we revalued the investment which resulted in a derivative loss on the stock warrants
of less than $0.1 million during fiscal year 2014 and $0.9 million in fiscal year 2013. The stock warrants had no value at
June 30, 2015.
55
See Note 11 - Fair Value of Notes to Consolidated Financial Statements for further information regarding the fair value of
derivative assets and liabilities and Note 17 - Comprehensive Income of Notes to Consolidated Financial Statements for the
amount and changes in derivative gains and losses deferred in Accumulated Other Comprehensive Income. 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
2015
June 30
2014
Balance Sheet
Location
June 30
2015
June 30
2014
— $
599 Accrued expenses . .
$
— $
241
Derivatives not designated as hedging instruments:
Foreign exchange contracts. . .
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . . . . . . . .
—
201 Accrued expenses . .
Total derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
800
$
—
— $
458
699
The Effect of Derivative Instruments on Other Comprehensive Income (Loss)
(Amounts in Thousands)
2015
June 30
2014
2013
Amount of Pre-Tax Gain Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,513
$
73
$
1,206
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)
2015
2014
2013
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Discontinued Operations,
Net of Tax . . . . . . . . . . . . . . . . . . . . . . . .
$
1,484
$
(1,187) $
2,139
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion):
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Discontinued Operations,
Net of Tax . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
— $
(3)
Derivatives Not Designated as Hedging Instruments
Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives:
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Discontinued Operations,
Net of Tax . . . . . . . . . . . . . . . . . . . . . . . .
Stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income, net . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Derivative Pre-Tax Gain (Loss) Recognized in Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
740
—
740
2,224
$
$
$
(487) $
(25)
(322)
(885)
(512) $
(1,207)
(1,699) $
929
56
Note 13 Investments
Kimball maintains a self-directed supplemental employee retirement plan (“SERP”) in which executive employees are eligible
to participate. 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 Consolidated Balance Sheets at current fair value. A
SERP liability of the same amount is recorded on the Consolidated Balance Sheets 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 offset valuation adjustments on SERP
investment assets. Net unrealized holding gains (losses) from continuing operations for securities held at June 30, 2015, 2014,
and 2013 were, in thousands, $(644), $(72), and $1,063, respectively. SERP asset and liability balances were as follows:
(Amounts in Thousands)
SERP investments - current asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
SERP investments - other long-term asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total SERP investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
SERP obligation - current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
SERP obligation - other long-term liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total SERP obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
June 30
2015
2014
1,276
9,077
10,353
1,276
9,077
10,353
$
$
$
$
8,812
14,294
23,106
8,812
14,294
23,106
The reduction in SERP investments and obligation from June 30, 2014 to June 30, 2015 was due primarily to the spin-off of
Kimball Electronics on October 31, 2014.
Kimball also held non-marketable equity securities of a privately-held company, which have no value at June 30, 2015. Due to
certain events and changes in circumstances that had adverse effects on the fair value of the investment in the privately-held
company, we revalued the investment which resulted in impairment on the equity securities of $0.1 million in fiscal year 2014
and $1.0 million in fiscal year 2013.
Note 14 Accrued Expenses
Accrued expenses consisted of:
(Amounts in Thousands)
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer retirement contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
June 30
2015
2014
21,824
6,418
4,091
2,933
2,770
2,504
4,885
45,425
$
$
46,307
6,101
4,964
8,187
4,215
—
7,482
77,256
The reduction in compensation, employer retirement plan contribution, taxes, insurance, and other expenses, from June 30,
2014 to June 30, 2015 was due primarily to the spin-off of Kimball Electronics on October 31, 2014.
57
Note 15 Geographic Information
The following geographic area data includes net sales from continuing operations based on the location where title transfers.
Substantially all long-lived assets of the Company’s continuing operations were located in the United States for each of the three fiscal
years ended June 30, 2015. Long-lived assets include property and equipment and other long-term assets such as software.
(Amounts in Thousands)
Net Sales:
Year Ended June 30
2014
2013
2015
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
578,551
22,317
600,868
$
$
530,087
13,730
543,817
$
$
491,366
8,639
500,005
Note 16 Earnings Per Share
Earnings per share are computed using the two-class common stock method due to the dividend preference of Class B Common Stock
which was in effect until the October 30, 2014 stock unification as further described in Note 10 - Common Stock. Basic earnings per
share are based on the weighted average number of shares outstanding during the period. Diluted earnings per share are based on the
weighted average number of shares outstanding plus the assumed issuance of common shares and related payment of assumed
dividends for all potentially dilutive securities. Earnings per share of Class A and Class B Common Stock are as follows:
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
(Amounts in Thousands, Except for Per Share Data)
Class A Class B
Total
Class A Class B
Total
Class A Class B
Total
Year Ended June 30, 2015
Year Ended June 30, 2014
Year Ended June 30, 2013
Basic Earnings (Loss) Per Share from Continuing Operations:
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Undistributed Earnings (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) from Continuing Operations . . . . . . . . . . . . . . . . . $
536
287
823
$ 7,169
$ 7,705
$ 1,437
$ 6,090
$ 7,527
$ 1,495
$ 5,955
$ 7,450
3,151
3,438
(859)
(3,249)
(4,108)
(3,172)
(10,894)
(14,066)
$10,320
$11,143
$
578
$ 2,841
$ 3,419
$ (1,677) $ (4,939) $ (6,616)
Average Basic Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . .
3,231
35,414
38,645
8,026
30,378
38,404
8,584
29,479
38,063
Basic Earnings (Loss) Per Share from Continuing Operations . . . $
0.25
$
0.29
$
0.07
$
0.09
$ (0.20) $ (0.17)
Diluted Earnings (Loss) Per Share from Continuing
Operations:
Dividends Declared and Assumed Dividends on Dilutive Shares. $
Undistributed Earnings (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) from Continuing Operations . . . . . . . . . . . . . . . . . $
536
280
816
$ 7,234
$ 7,770
$ 1,550
$ 6,091
$ 7,641
$ 1,495
$ 5,955
$ 7,450
3,093
3,373
(936)
(3,286)
(4,222)
(3,172)
(10,894)
(14,066)
$10,327
$11,143
$
614
$ 2,805
$ 3,419
$ (1,677) $ (4,939) $ (6,616)
Average Diluted Shares Outstanding. . . . . . . . . . . . . . . . . . . . . . .
3,231
35,740
38,971
8,652
30,385
39,037
8,584
29,479
38,063
Diluted Earnings (Loss) Per Share from Continuing Operations . $
0.25
$
0.29
$
0.07
$
0.09
$ (0.20) $ (0.17)
Reconciliation of Basic and Diluted EPS from Continuing
Operations Calculations:
Income (Loss) from Continuing Operations
Used for Basic EPS Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . $
823
$10,320
$11,143
$
Assumed Dividends Payable on Dilutive Shares. . . . . . . . . . . . . .
Increase (Reduction) in Undistributed Earnings (Loss) -
allocated based on Class A and Class B shares . . . . . . . . . . . . . . .
—
(7)
65
65
1
114
578
113
$ 2,841
$ 3,419
$ (1,677) $ (4,939) $ (6,616)
—
—
—
—
—
—
(58)
(65)
(77)
(37)
(114)
Income (Loss) from Continuing Operations
Used for Diluted EPS Calculation . . . . . . . . . . . . . . . . . . . . . . . . . $
816
$10,327
$11,143
$
614
$ 2,805
$ 3,419
$ (1,677) $ (4,939) $ (6,616)
Average Shares Outstanding for Basic EPS Calculation. . . . . . . .
3,231
35,414
38,645
8,026
30,378
38,404
8,584
29,479
38,063
Dilutive Effect of Average Outstanding Stock Awards. . . . . . . . .
—
326
326
626
7
633
—
—
—
Average Shares Outstanding for Diluted EPS Calculation . . . . . .
3,231
35,740
38,971
8,652
30,385
39,037
8,584
29,479
38,063
58
EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS
Basic Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings Per Share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.24
0.24
$
$
0.24
0.23
$
$
0.78
0.77
$
$
0.79
0.77
$
$
0.70
0.70
$
$
0.70
0.70
Year Ended June 30, 2015
Year Ended June 30, 2014
Year Ended June 30, 2013
Class A
Class B
Class A
Class B
Class A
Class B
EARNINGS PER SHARE (INCLUDING DISCONTINUED OPERATIONS)
(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, 2015
Year Ended June 30, 2014
Year Ended June 30, 2013
Basic Earnings Per Share:
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
536
$ 7,169
$ 7,705
$ 1,437
$ 6,090
$ 7,527
$ 1,495
$ 5,955
$ 7,450
Undistributed Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,053
11,542
12,595
5,420
20,514
25,934
2,803
9,626
12,429
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,589
$18,711
$20,300
$ 6,857
$26,604
$33,461
$ 4,298
$15,581
$19,879
Average Basic Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . .
3,231
35,414
38,645
8,026
30,378
38,404
8,584
29,479
38,063
Basic Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.49
$
0.53
$
0.85
$
0.88
$
0.50
$
0.53
Diluted Earnings Per Share:
Dividends Declared and Assumed Dividends on Dilutive Shares. $
536
$ 7,234
$ 7,770
$ 1,550
$ 6,091
$ 7,641
$ 1,495
$ 5,955
$ 7,450
Undistributed Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,039
11,491
12,530
5,723
20,097
25,820
2,803
9,626
12,429
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,575
$18,725
$20,300
$ 7,273
$26,188
$33,461
$ 4,298
$15,581
$19,879
Average Diluted Shares Outstanding. . . . . . . . . . . . . . . . . . . . . . .
3,231
35,740
38,971
8,652
30,385
39,037
8,584
29,479
38,063
Diluted Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.49
$
0.52
$
0.84
$
0.86
$
0.50
$
0.53
In fiscal year 2013, all of the 190,000 outstanding compensation awards were antidilutive and were excluded from the dilutive
calculation.
Note 17 Accumulated Other Comprehensive Income (Loss)
During fiscal year 2015 and 2014, the changes in the balances of each component of Accumulated Other Comprehensive Income
(Loss), net of tax, were as follows:
Postemployment
Benefits
Derivative
Gain
(Loss)
Prior
Service
Costs
Net
Actuarial
Gain
(Loss)
Accumulated
Other
Comprehensive
Income (Loss)
Foreign
Currency
Translation
Adjustments
855
$
(4,359) $
(292) $
319
$
(3,477)
(Amounts in Thousands)
Balance at June 30, 2013. . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to (earnings) loss. . . . . . . . . . . . . . .
Net current-period other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at June 30, 2014. . . . . . . . . . . . . . . . . . . . . . $
4,054
—
4,054
4,909
$
(13)
961
—
172
948
(3,411) $
172
(120) $
539
204
743
1,062
$
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to (earnings) loss. . . . . . . . . . . . . . .
Distribution to Kimball Electronics, Inc. . . . . . . . . .
Net current-period other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at June 30, 2015. . . . . . . . . . . . . . . . . . . . . . $
(6,070)
—
1,161
2,097
(1,193)
2,507
(4,909)
3,411
—
112
8
120
539
(175)
(197)
167
— $
— $ — $
1,229
$
59
4,580
1,337
5,917
2,440
(3,434)
(1,256)
3,479
(1,211)
1,229
The following reclassifications were made from Accumulated Other Comprehensive Income (Loss) to the Consolidated Statements of
Income:
Reclassifications from Accumulated
Other Comprehensive Income (Loss)
(Amounts in Thousands)
Derivative Gain (Loss) (1)
Postemployment Benefits:
Amortization of Prior Service Costs (2)
Amortization of Actuarial Gain (Loss) (2)
Total Reclassifications for the Period
$
$
$
$
$
$
$
$
$
Fiscal Year Ended
June 30,
2015
2014
Affected Line Item in the
Consolidated Statements of Income
1,193
$
(961)
Income from Discontinued Operations, Net of Tax
(111) $
(61)
68
(104) $
(8) $
159
120
(111)
168
7
64
1,192
1,256
$
$
$
$
$
(158) Cost of Sales
(86) Selling and Administrative Expenses
95 Benefit (Provision) for Income Taxes
(149)
(23)
Income (Loss) from Continuing Operations
Income from Discontinued Operations, Net of Tax
(194) Cost of Sales
(91) Selling and Administrative Expenses
111 Benefit (Provision) for Income Taxes
(174)
(30)
Income (Loss) from Continuing Operations
Income from Discontinued Operations, Net of Tax
Income (Loss) from Continuing Operations
Income from Discontinued Operations, Net of Tax
(323)
(1,014)
(1,337) Net Income
Amounts in parentheses indicate reductions to income.
(1) See Note 12 - Derivative Instruments of Notes to Consolidated Financial Statements for further information on derivative instruments.
(2) See Note 7 - Employee Benefit Plans of Notes to Consolidated Financial Statements for further information on postemployment benefit plans.
Note 18 Restructuring Expense
We recognized pre-tax restructuring expense related to continuing operations of $5.3 million in fiscal year 2015, and recognized no
restructuring related to continuing operations in fiscal years 2014 and 2013. We utilize available market prices and management
estimates to determine the fair value of impaired fixed assets. Restructuring charges related to continuing operations are included in
the Restructuring Expense line item on our Consolidated Statements of Income.
Capacity Utilization Restructuring Plan:
In November 2014, we announced a capacity utilization restructuring plan which includes the consolidation of our metal fabrication
production from an operation located in Post Falls, Idaho, into existing production facilities in Indiana, and the reduction of our
Company plane fleet from two jets to one.
Key factors in the decision to consolidate the Post Falls operation into the Indiana facilities include the improvement of customer
delivery, supply chain dynamics, and transportation costs. The transfer of work involves the start-up of metal fabrication capabilities in
a Company-owned facility, along with the transfer of certain assembly operations into two additional Company-owned facilities, all
existing locations in southern Indiana. The manufacturing capacity realignment will be carefully managed to mitigate customer
disruptions. The consolidation activities began immediately after the announcement in November 2014, and we are actively marketing
for sale the Post Falls, Idaho facility. We expect to incur approximately $3 million for future capital investments to support the
transfer of production to Indiana. No changes in operating income are anticipated until the later quarters of the transfer of work. When
fully implemented by September 2016, we anticipate pre-tax savings of approximately $5 million per year thereafter.
The reduction of our plane fleet from two jets to one reduces our cost structure while aligning the plane fleet size with our needs
following the spin-off of Kimball Electronics on October 31, 2014. Previously, one of our jets was used primarily for the successful
strategy of transporting customers to visit our showrooms, offices, research and development center, and manufacturing locations,
60
while the remaining jet was used primarily for management travel. The plane used primarily for management travel was sold in the
third quarter of fiscal year 2015. The sale of the plane resulted in a $0.2 million pre-tax gain in the third quarter of fiscal year 2015
which partially offset the impairment charge of $1.1 million recorded in the second quarter of fiscal year 2015. As a result of the
aircraft fleet reduction, we expect to realize annual pre-tax savings of $0.8 million. In regards to the remaining jet, we believe that our
location in rural Jasper, Indiana and the location of our manufacturing locations in small towns away from major metropolitan areas
necessitates the need for the remaining jet to efficiently transport customers.
We currently estimate that the pre-tax restructuring charges will be approximately $9.9 million, of which $5.3 million was recorded in
fiscal year 2015 with the remainder expected to be incurred over the remaining anticipated transition period. The restructuring charges
are expected to consist of approximately $6.0 million of transition, training, and other employee costs, $2.9 million of plant closure
and other exit costs, and $1.0 million of non-cash asset impairment. Approximately 90% of the total cost estimate is expected to be
cash expense.
Summary of Restructuring Plan:
(Amounts in Thousands)
Accrued
June 30,
2014
Fiscal Year Ended June 30, 2015
Amounts
Charged
Non-cash
Amounts
Utilized/
Cash Paid
Amounts
Charged
Cash
Accrued
June 30,
2015 (1)
Total Charges
Incurred Since
Plan
Announcement
Total
Expected
Plan Costs
Capacity Realignment
and Post Falls, Idaho Exit
Transition and Other
Employee Costs . . . . . . . . $
Asset Write-downs . . . . . .
Plant Closure and Other
Exit Costs . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . $
Plane Fleet Reduction
Transition and Other
Employee Costs . . . . . . . . $
Asset Write-downs . . . . . .
Total . . . . . . . . . . . . . . . $
Total Restructuring Plan. . . $
— $
—
—
— $
— $
—
— $
— $
2,657
—
1,456
4,113
$
$
— $
131
(44) $
(131)
—
131
$
(1,456)
(1,631) $
224
—
224
$
$
— $
822
822
$
(224) $
(822)
(1,046) $
2,613
—
—
2,613
$
$
— $
—
— $
2,657
131
1,456
4,244
224
822
1,046
$
$
$
$
4,337 $
953 $
(2,677) $
2,613 $
5,290 $
5,797
182
2,912
8,891
224
822
1,046
9,937
(1) The accrued restructuring balance at June 30, 2015 includes $2.5 million recorded in current liabilities and $0.1 million recorded in other long-term liabilities.
Discontinued Restructuring Plan Activities:
Restructuring activities related to the EMS segment are included in the discontinued operations line item on our Consolidated
Statements of Income, and totaled $0.4 million in both fiscal years 2014 and 2013, and we had no restructuring expense related to
discontinued operations in fiscal year 2015. These discontinued operations restructuring plans were completed prior to fiscal year
2013 but continued to incur miscellaneous exit costs related to facility clean up or market value adjustments. These completed
restructuring plans include the European Consolidation, Fremont, and Gaylord plans which were all related to the discontinued EMS
segment.
Note 19 Variable Interest Entities
Kimball's involvement with a variable interest entity (“VIE”) is limited to a situation 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.
Our involvement with the VIE is limited to a note receivable related to the sale of an Indiana facility. The carrying value of the note
receivable, net of a $0.5 million allowance, was $0.9 million as of both June 30, 2015 and June 30, 2014. For both periods, the short-
term portion of the carrying value was included on the Receivables line and the long-term portion of the carrying value was included
on the Other Assets line of our Consolidated Balance Sheets.
We have no obligation to provide additional funding to the VIE, and thus our exposure and risk of loss related to the VIE is limited to
the carrying value of the note receivable. Kimball did not provide additional financial support to the VIE during the fiscal year ended
June 30, 2015.
61
Note 20 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. We hold
collateral for the note receivable from the sale of an Indiana facility thereby mitigating the risk of loss. As of June 30, 2015 and
2014, Kimball had no material past due outstanding notes receivable.
(Amounts in Thousands)
As of June 30, 2015
As of June 30, 2014
Unpaid
Balance
Related
Allowance
Receivable
Net of
Allowance
Unpaid
Balance
Related
Allowance
Receivable
Net of
Allowance
Note Receivable from Sale of Indiana
Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,347
Other Notes Receivable . . . . . . . . . . . . . . . . .
439
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,786
$
$
489
149
638
$
$
858
290
$ 1,392
223
1,148
$ 1,615
$
$
489
149
638
$
$
903
74
977
62
Note 21 Quarterly Financial Information (Unaudited)
(Amounts in Thousands, Except for Per Share Data)
Fiscal Year 2015:
September 30 December 31
March 31
June 30
Three Months Ended
$
151,418
46,596
3,335
(1)
2,677
145,943
44,007
388
4,882
4,882
Net Sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross Profit (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Expense (1) . . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) From Continuing Operations . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings (Loss) Per Share From Continuing
Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings (Loss) Per Share From Continuing
Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal Year 2014:
Net Sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross Profit (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) From Continuing Operations . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings (Loss) Per Share From Continuing
Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings (Loss) Per Share From Continuing
Operations:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted Earnings Per Share:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
144,446
47,183
—
1,517
7,996
0.04
0.04
0.04
0.04
0.20
0.21
0.20
0.21
141,802
42,246
1,009
9,183
0.02
0.03
0.02
0.03
0.24
0.24
0.23
0.24
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Net sales, gross profit, and restructuring expense are from continuing operations.
63
(0.02) $
— $
(0.02) $
— $
0.05
0.07
0.05
0.07
139,049
45,806
2,088
9,222
0.05
0.06
0.05
0.06
0.24
0.24
0.23
0.24
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.12
0.13
0.12
0.13
0.12
0.13
0.12
0.13
125,108
36,617
(37)
7,208
(0.01) $
— $
(0.01) $
— $
0.18
0.19
0.18
0.19
$
$
$
$
159,061
51,079
1,567
4,745
4,745
0.11
0.12
0.11
0.12
0.11
0.12
0.11
0.12
137,858
42,056
359
7,848
0.01
0.01
0.01
0.01
0.20
0.21
0.20
0.20
Item 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A - Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The Company maintains controls and procedures designed to ensure that information required to be disclosed in the
reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission and that such information is accumulated and communicated to the Company's management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. Based upon their evaluation of those controls and procedures performed as of June 30, 2015, 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, 2015 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, 2015 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 20, 2015 under the caption “Election of
Directors.”
Committees
The information required by this item with respect to the Audit Committee and its financial experts 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 20, 2015 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.
64
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 20, 2015 under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.”
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 Corporate Controller (functioning as Principal 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 20, 2015 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 20, 2015 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 20, 2015 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 20, 2015 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 20, 2015 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 20, 2015 under the caption “Independent Registered Public
Accounting Firm” and “Appendix A — Approval Process for Services Performed by the Independent Registered Public
Accounting Firm.”
65
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Consolidated Balance Sheets as of June 30, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2015 . .
34
Consolidated Statements of Comprehensive Income for Each of the Three Years in the Period Ended
June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Share Owners' Equity for Each of the Three Years in the Period Ended
June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
36
37
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
(2) Financial Statement Schedules:
II. Valuation and Qualifying Accounts for Each of the Three Years in the Period Ended June 30,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
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 70 for a list of the exhibits filed or incorporated herein as a part of this report.
66
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/ MICHELLE R. SCHROEDER
Michelle R. Schroeder
Vice President,
Chief Financial Officer
August 26, 2015
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/ ROBERT F. SCHNEIDER
Robert F. Schneider
Chairman of the Board,
Chief Executive Officer
August 26, 2015
/s/ MICHELLE R. SCHROEDER
Michelle R. Schroeder
Vice President,
Chief Financial Officer
August 26, 2015
/s/ DARREN S. GRESS
Darren S. Gress
Corporate Controller
(functioning as Principal Accounting Officer)
August 26, 2015
67
Signature
Signature
THOMAS J. TISCHHAUSER *
Thomas J. Tischhauser
Director
KIMBERLY K. RYAN *
Kimberly K. Ryan
Director
PATRICK E. CONNOLLY *
Patrick E. Connolly
Director
GEOFFREY L. STRINGER *
Geoffrey L. Stringer
Director
CHRISTINE M. VUJOVICH *
Christine M. Vujovich
Director
TIMOTHY J. JAHNKE *
Timothy J. Jahnke
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, 2015
/s/ ROBERT F. SCHNEIDER
Robert F. Schneider
Chairman of the Board, Chief Executive Officer
Individually and as Attorney-In-Fact
68
Schedule II. - Valuation and Qualifying Accounts
KIMBALL INTERNATIONAL, INC.
Balance
at
Beginning
of Year
Additions
(Reductions)
to Expense
Adjustments
to Other
Accounts
Write-offs
and
Recoveries
Impact
of Spin-
Off
Balance at
End of
Year
Description
(Amounts in Thousands)
Year Ended June 30, 2015
Valuation Allowances:
Short-Term Receivables. . . . . . .
Long-Term Receivables. . . . . . .
Deferred Tax Asset. . . . . . . . . . .
Year Ended June 30, 2014
Valuation Allowances:
Short-Term Receivables. . . . . . .
Long-Term Notes Receivable . .
Deferred Tax Asset. . . . . . . . . . .
Year Ended June 30, 2013
Valuation Allowances:
Short-Term Receivables. . . . . . .
Deferred Tax Asset. . . . . . . . . . .
$
$
$
$
$
$
$
$
2,345
628
787
$
$
$
2,791
$
— $
$
2,315
198
$
(10) $
— $
(20) $
$
628
— $
(65) $
— $
— $
(604) $
— $
(100) $
(352) $
— $
— $
(149) $
— $
— $
(277) $
— $
(1,528) $
— $
— $
— $
1,522
618
687
2,345
628
787
1,367
1,911
$
$
1,663
408
$
$
15
$
— $
(254) $
(4) $
— $
— $
2,791
2,315
69
Exhibit
2(a)**
3(a)
3(b)
10(a)*
10(b)*
10(c)*
10(d)*
10(e)*
10(f)
10(g)*
10(h)*
10(i)*
10(j)*
10(k)*
10(l)*
10(m)*
10(n)*
10(o)
10(p)
10(q)
10(r)*
11
21
23
24
31.1
31.2
32.1
32.2
KIMBALL INTERNATIONAL, INC.
INDEX OF EXHIBITS
Description
Separation and Distribution Agreement by and between Kimball International, Inc. and Kimball Electronics, Inc. (Incorporated by
reference to the Company's Form 8-K filed November 3, 2014)
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)
Restated By-laws of the Company (Incorporated by reference to Exhibit 3(b) to the Company's Form 8-K filed November 3, 2014)
Summary of Director and Named Executive Officer Compensation
Discretionary Compensation
Amended and Restated 2003 Stock Option and Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K
filed October 21, 2013)
Supplemental Employee Retirement Plan (2015 Revision)
Form of Annual Performance Share Award Agreement (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed
July 9, 2015)
Credit Agreement, dated as of October 31, 2014 among Kimball International, Inc., the Lenders party hereto and JPMorgan Chase
Bank, N.A., as administrative agent (Incorporated by reference to the Company's Form 8-K filed November 3, 2014)
Form of Employment Agreement with former employee dated May 1, 2006 between the Company and James C. Thyen (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 Agreement (Incorporated by reference to Exhibit 10(h) to the Company's Form 10-K
for the fiscal year ended June 30, 2014)
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)
Form of Change in Control Agreement dated June 26, 2015 between the Company and Robert F. Schneider, Donald W. Van Winkle,
Michelle R. Schroeder, Lonnie P. Nicholson, Julia E. Heitz Cassidy, R. Gregory Kincer, Michael S. Wagner, and Kevin D. McCoy
(Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed June 29, 2015)
Form of Employment Agreement dated June 26, 2015 between the Company and Robert F. Schneider, Donald W. Van Winkle,
Michelle R. Schroeder, and Lonnie P. Nicholson (Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed
June 29, 2015)
Form of Restricted Share Unit Award Agreement (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed
December 19, 2014)
Form of Performance Unit Award Agreement (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed
February 19, 2015)
Form of Amendment of Annual and/or Long-Term Performance Share Awards (Incorporated by reference to Exhibit 10(c) to the
Company's Form 10-Q for the quarter ended December 31, 2014)
Tax Matters Agreement by and among Kimball International, Inc. and Kimball Electronics, Inc. (Incorporated by reference to the
Company's Form 8-K filed November 3, 2014)
Employee Matters Agreement by and between Kimball International, Inc. and Kimball Electronics, Inc. (Incorporated by reference to
the Company's Form 8-K filed November 3, 2014)
Transition Services Agreement by and between Kimball International, Inc. and Kimball Electronics, Inc. (Incorporated by reference to
the Company's Form 8-K filed November 3, 2014)
Form of Annual Performance Share Award Agreement (Incorporated by reference to Exhibit 10(e) to the Company's Form 10-K for
the fiscal year ended June 30, 2014)
Computation of Earnings Per Share (Incorporated by reference to Note 16 - Earnings Per Share of Notes to Consolidated Financial
Statements)
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification furnished by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
XBRL Instance Document
101.INS
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Constitutes management contract or compensatory arrangement
** The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request.
70
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, 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, 2015
/s/ ROBERT F. SCHNEIDER
ROBERT F. SCHNEIDER
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, Michelle R. Schroeder, 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, 2015
/s/ MICHELLE R. SCHROEDER
MICHELLE R. SCHROEDER
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, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert F. Schneider,
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, 2015
/s/ ROBERT F. SCHNEIDER
ROBERT F. SCHNEIDER
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, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michelle R.
Schroeder, 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, 2015
/s/ MICHELLE R. SCHROEDER
MICHELLE R. SCHROEDER
Vice President,
Chief Financial Officer
[This page intentionally left blank]
[This page intentionally left blank]
L E A D E R S H I P
Our Board of Directors, with their diverse
backgrounds, provides wise counsel and
direction to our leadership team.
Board of Directors from Left to Right: Patrick E. Connolly, Kimberly K. Ryan, Geoffrey L. Stringer, Thomas J. Tischhauser, Timothy J. Jahnke,
Christine M. Vujovich & Robert F. Schneider
Board of Directors
Robert F. Schneider
Chairman of the Board of Directors, Chief Executive Officer,
Kimball International, Inc.
Thomas J. Tischhauser ‡
Lead Independent Director
Executive Consultant, Leadership Development,
Former Corporate Vice President, Continental Automotive and
Motorola, Inc.
Patrick E. Connolly +
Chief Operating Officer, Sodexo North America
President, Sodexo Health Care
Timothy J. Jahnke ‡
President and CEO, Elkay Manufacturing Co.
Kimberly K. Ryan +
President, Coperion GmbH, a subsidiary of Hillenbrand, Inc.
Geoffrey L. Stringer +
Audit Committee Chairperson
Retired; Former Executive Vice President of Bank One and
Chief Executive Officer of Bank One Capital Corporation
Christine M. Vujovich ‡
Compensation and Governance Committee Chairperson
Retired; Former Vice President, Marketing and Environmental Policy,
Cummins, Inc.
+ Member of the Audit Committee of the Board
‡ Member of the Compensation and Governance Committee of the Board
Kimball International, Inc. Officers
Robert F. Schneider Chairman of the Board,
Chief Executive Officer
Donald W. Van Winkle President, Chief Operating Officer
Michelle R. Schroeder Vice President, Chief Financial Officer
Kevin D. McCoy Vice President; President,
National Office Furniture
Michael S. Wagner Vice President; President, Kimball Office
Julia E. Heitz Cassidy Vice President, General Counsel
and Secretary
R. Gregory Kincer Vice President, Corporate Development
Lonnie P. Nicholson Vice President, Chief Administrative Officer
Subsidiary Officers
Michael J. Donahue Vice President, Sales, Kimball Office
Katherine L. Sigler Vice President, Operations, Kimball Office
Michael J. Roch Vice President, Sales, National Office Furniture
Richard C. Farr Vice President, Global Operations,
National Office Furniture
Kourtney L. Smith President, Kimball Hospitality
John T. Kaufmann Vice President, Global Operations,
Kimball Hospitality
Other Corporate Data
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 Michelle R. Schroeder,
Vice President, Chief Financial Officer, at our corporate
headquarters and is available on our website at:
www.kimball.com.
Transfer Agent and Registrar of Common Stock
Share Owners with questions concerning address changes,
dividend checks, registration changes, lost share certificates
or transferring shares may contact:
First Class/Registered/Certified Mail:
Computershare
P.O. BOX 30170
College Station, TX 77842-3170
US/Toll Free: 1-877-581-5548
Non-US: 1-781-575-2879
Courier Services:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
US/Toll Free: 1-877-581-5548
Non-US: 1-781-575-2879
Email inquiries:
web.queries@computershare.com
Investor Centre™ website:
www.computershare.com/investor
Sustainability
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).
We are pleased to offer materials to our Share Owners over
the Internet. As a result, we are printing far fewer copies,
thus conserving natural resources and reducing energy use
in printing and shipping materials.
Kimball International urges you to help the environment –
please recycle.
To view our Corporate Sustainability Report please go to:
http://www.kimball.com/corporate_social_responsibility.aspx.
Employer of Choice
As a result of a Great Place to Work®
Review, Kimball International is pleased
to be recognized with the Great Place
to Work® designation.
Corporate Headquarters
1600 Royal Street
Jasper, Indiana 47549-1001
(812) 482-1600
(800) 482-1616 (Toll Free)
(812) 482-8500 (TDD for Hearing Impaired)
www.kimball.com