UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 20122014
OR
o 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
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| KIMBALL INTERNATIONAL, INC. |
| (Exact name of registrant as specified in its charter) |
| Indiana | | 35-0514506 |
| (State or other jurisdiction of | | (I.R.S. Employer Identification No.) |
| incorporation or organization) | | |
| 1600 Royal Street, Jasper, Indiana | | 47549-1001 |
| (Address of principal executive offices) | | (Zip Code) |
| (812) 482-1600 |
| Registrant's telephone number, including area code |
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| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each Class | | Name of each exchange on which registered |
| Class B Common Stock, par value $0.05 per share | | The NASDAQ Stock Market LLC |
| Securities registered pursuant to Section 12(g) of the Act: |
| Class A Common Stock, par value $0.05 per share | | |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x |
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 x No o |
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 x No o |
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. ox |
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 o Accelerated filer x Non-accelerated filer o Smaller reporting company o (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x |
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, 20112013 (the last business day of the Registrant's most recently completed second fiscal quarter) was $136.9441.9 million, based on 96.7%96.8% of Class B Common Stock held by non-affiliates.
The number of shares outstanding of the Registrant's common stock as of August 13, 201218, 2014 was:
Class A Common Stock - 10,112,4947,706,450 shares
Class B Common Stock - 27,788,19530,731,157 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on October 16, 201221, 2014, are incorporated by reference into Part III.
KIMBALL INTERNATIONAL, INC.
FORM 10-K INDEX
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| PART I |
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| PART II |
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| PART III |
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| PART IV |
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PART I
Item 1 - Business
General
As used herein, the term "Company" refersterms "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.
The CompanyKimball was incorporated in Indiana in 1939. TheOur corporate headquarters is located at 1600 Royal Street, Jasper, Indiana.
The CompanyKimball provides a variety of products from its two business segments: the Electronic Manufacturing Services (EMS)("EMS") segment and the Furniture segment. The EMS segment providesis a global provider of engineering, manufacturing, and manufacturingsupply chain services which utilize common production and support capabilities globally to customers in the automotive, medical, automotive, industrial, and public safety industries.end markets. The Furniture segment provides furniture for the office and hospitality industries, sold under the Company'sKimball's family of brand names. Production currently occurs in Company-owned or leased facilities located in the United States, Mexico, Thailand, China, and Poland. In the United States, the Company haswe have facilities and showrooms in 11 states and the District of Columbia.
Sales by Segment
Sales by segment, after elimination of intersegment sales, for each of the three years in the period ended June 30, 20122014 were as follows:
| | | (Amounts in Thousands) | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Electronic Manufacturing Services segment | $ | 616,751 |
| | 54 | % | | $ | 721,419 |
| | 60 | % | | $ | 709,133 |
| | 63 | % | $ | 741,530 |
| | 58 | % | | $ | 703,129 |
| | 58 | % | | $ | 616,751 |
| | 54 | % |
| Furniture segment | 525,310 |
| | 46 | % | | 481,178 |
| | 40 | % | | 413,611 |
| | 37 | % | 543,817 |
| | 42 | % | | 500,005 |
| | 42 | % | | 525,310 |
| | 46 | % |
| Unallocated Corporate | — |
| | — | % | | — |
| | — | % | | 64 |
| | — | % | |
| Kimball International, Inc. | $ | 1,142,061 |
| | 100 | % | | $ | 1,202,597 |
| | 100 | % | | $ | 1,122,808 |
| | 100 | % | $ | 1,285,347 |
| | 100 | % | | $ | 1,203,134 |
| | 100 | % | | $ | 1,142,061 |
| | 100 | % |
Financial information by segment and geographic area for each of the three years in the period ended June 30, 20122014 is included in Note 14 - Segment and Geographic Area Information of Notes to Consolidated Financial Statements and is incorporated herein by reference.
Spin-off of Kimball Electronics, Inc.
On January 20, 2014, we announced that our Board of Directors unanimously approved a plan to spin off our EMS segment. The spin-off will result in two independent publicly-traded companies: Kimball International, Inc., an industry leader in the sale and manufacture of quality office and hospitality furniture; and Kimball Electronics, Inc., a leading global provider of electronic manufacturing services to the automotive, medical, industrial, and public safety markets.
Execution of the transaction requires further work on structure, management, governance and other significant matters. The completion of the spin-off is subject to certain customary conditions, including receipt of a legal opinion as to the tax-free nature of the spin-off for U.S. federal income tax purposes and regulatory approvals, as well as certain other matters. We can make no assurance that any spin-off transaction will ultimately occur, or, if one does occur, its terms or timing. We currently expect the spin-off to occur by the end of October 2014.
Segments
Electronic Manufacturing Services
Overview
The CompanyKimball began producing electronic assemblies, circuit boards, and wiring harnesses for electronic organs and keyboards in 1961 and has since grown and evolved with the EMS industry. The Company'sOur current focus is onthe design and manufacture of electronic assemblies that have highrequire durability, reliability, the highest levels of quality reliability,control, and regulatory compliance requirements primarily in the automotive, medical, automotive, industrial, and public safety applications. The Company'send markets. Our services support the complete product life cycle of our customers' products and our processes and capabilities cover a range of products from high volume-low mix to high mix-low volume. Our business development managers work to build long-term relationships that create value for customers, suppliers, employees and Share Owners, and this quest is supported globally from locations in five countries through prototype, new product development and introduction, supply chain management, test development, complete system assembly, and repair services.
Electronics and electro-mechanical products (electronic assemblies)3
EMS services are sold globally on a contract basis and producedwe produce products to customers'our customers’ specifications. The Company'ssegment's engineering, manufacturing, and manufacturingsupply chain services primarily entail:include:
designDesign services;
Rapid prototyping and new product introduction support;
new product launch;
productionProduction and testing of printed circuit board assemblies (PCBAs);
industrializationIndustrialization and automation of the manufacturing processes;
productProduct design and process validation and qualification;
Reliability testing (testing of products under a series of harsh conditions;extreme environmental conditions);
assemblyAssembly, production, and packaging of electronic and other related non-electronic products;
Supply chain services; and
completeComplete product life cycle management.
Integrated throughout this segment is customer program management over the life cycle of the product along with supply chain management, which affords customers the opportunity to focus their attention and resources to sales, marketing, and product development as they sell their unique end products under their brand name into various markets and industries.Seasonality
Sales revenue of theour EMS segment is generally not affected by seasonality with the exception of the buying patterns of automotive industry customers whose purchases of the Company's product are generally lower in the first quarter of the Company's fiscal year.seasonality.
Recent Business Changes
During the fourth quarter of fiscal year 2011, the Company approvedwe initiated a plan to exit a 35,000 square foot leased assembly operation located in Fremont, California. Operations at this facility ceased during the second quarter of fiscal year 2012, and a majority of the business was transferred to anour existing Jasper, Indiana EMS facility.
During the first quarter of fiscal year 2009, the Company acquired privately-held Genesis Electronics Manufacturing of Tampa, Florida. The acquisition supported the Company's growth and diversification strategy, bringing new customers in the Company's key medical and industrial markets.
During the fourth quarter of fiscal year 2008, the Company approvedwe initiated a plan to expand itsour European automotive electronics capabilities and to establish a European Medical Center of Expertise near Poznan, Poland. As part of the plan, the Companywe consolidated itsour EMS facilities located in Wales, United Kingdom, and Poznan, Poland, into a new larger facility near Poznan, which is expected to improve the Company's margins in the very competitive EMS market.Poznan. The plan was executed in stages and was completed during fiscal year 2012.
Additional information regarding the Company'sour restructuring activities is located in Note 17 - Restructuring Expense of Notes to Consolidated Financial Statements. Locations
As of June 30, 20122014, the Company'sour EMS segment consisted of six manufacturing facilities with one located in each of Indiana, Florida, Poland, China, Mexico, and Thailand. As discussed above, during fiscal year 2012, the Company completed the consolidations of the EMS facilities located in CaliforniaWe continually assess our capacity needs and Wales, United Kingdom into other EMS segment facilities. The Company continually assesses under-utilized capacity and evaluates itsevaluate our operations as to the most optimum capacity andoptimize our service levels by geographic region. Operations located outside of the United States continue to be an integral part of the Company'sour EMS segment. See Item 1A - Risk Factors for information regarding financial and operational risks related to the Company'sour international operations. Marketing Channels
Manufacturing, engineering, and engineeringsupply chain services are marketed by the Company'sour business development team. We use a Customer Relationship Model ("CRM") to provide our customers convenient access to our global footprint and all of our services throughout the entire product life cycle. Our CRM model combines members of the EMS team from within our manufacturing facilities and members of our EMS business development team who reside remotely and nearer to the EMS customers around the world. Contract electronic assemblies are manufactured based on specific orders, generally resulting in a small amount of finished goods consisting primarily of goods awaiting shipment to specific customers.
Major Competitive Factors
Key competitive factors in the EMS market include competitive pricing, quality and reliability, engineering design services, production flexibility, on-time delivery, customer lead time, test capability, and global presence. Growth in the EMS industry is created through the proliferation of electronic components in today's advanced products along withand the continuing trend of original equipment manufacturers in the electronics industry to subcontractsubcontracting the assembly process to companies with a core competence in this area. The nature of the EMS industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. New customer and program start-ups generally cause losses early in the life of a program, which are generally recovered as the program becomes established and matures. The segment continues to experience margin pressures related to an overall excess capacity position in the electronics subcontracting services market. The continuing success of this segment is dependent upon its ability to replace expiring customers/programs with new customers/programs.
The Company does not believe that it or the industry in general, has any special practices or special conditions affecting working capital items that are significant for understanding theour EMS segment other than fluctuating inventory levels which may increase in conjunction with transfers of production among facilities and start-up of new programs.
Competitors
The EMS industry is very competitive as numerous manufacturers compete for business from existing and potential customers. The Company'sOur competition includes EMS companies such as Benchmark Electronics, Inc., Jabil Circuit, Inc., and Plexus
Corp. The Company does not have a significant share of the EMS market and was ranked the 20th largest global EMS provider for calendar year 20112013 by Manufacturing Market Insider in the March 20122014 edition.
Raw Material Availability
Raw materials utilized in the manufacture of contract electronic products are generally readily available from both domestic and foreign sources, although from time to time the industry experiences shortages of certain components due to supply and demand forces, combined with rapid product life cycles of certain components. In addition, unforeseen events such as natural disasters can and have disrupted portions of the supply chain. The Company has minimized disruption in the supply chain by maintaining close communication with suppliers.
Raw materials are normally acquired for specific customer orders and may or may not be interchangeable among products. Inherent risks associated with rapid technological changes within this contract industry are mitigated by procuring raw materials, for the most part, based on firm orders. The Company may also purchase additional inventory to support new product introductions and transfers of production between manufacturing facilities.
Customer Concentration
While the total electronic assemblies market has broad applications, the Company's customers are concentrated in the automotive, medical, automotive, industrial, and public safety industries. Included in this segment prior to fiscal year 2012 were a significant amount of sales to Bayer AG affiliatesJohnson Controls, Inc. ("JCI") which accounted for the following portions of consolidated net sales and EMS segment net sales:
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| | Year Ended June 30 |
| | 2012 | | 2011 | | 2010 |
| Bayer AG affiliated sales as a percent of consolidated net sales | —% | | 11% | | 15% |
| Bayer AG affiliated sales as a percent of EMS segment net sales | 1% | | 19% | | 24% |
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| | Year Ended June 30 |
| | 2014 | | 2013 | | 2012 |
| Johnson Controls, Inc. sales as a percent of consolidated net sales | 8% | | 10% | | 9% |
| Johnson Controls, Inc. sales as a percent of EMS segment net sales | 13% | | 17% | | 17% |
As shown in the table above, the Company's sales to Bayer AG declined due to the expiration of the Company's primary manufacturing contract with this customer in the fourth quarter of fiscal year 2011. This contract accounted for a majority of the sales to Bayer AG during fiscal years 2011 and 2010. Margins on the Bayer AG product were generally lower than the Company's other EMS products. The nature of the contract businesselectronic manufacturing services industry is such that start-up of new customers and new programs to replace expiring customersprograms occurs frequently. The Company continuesOur agreements with customers are often not for a definitive term and are amended and extended, but generally continue for the relevant product’s life cycle which can be difficult to predict at the beginning of a program. Our customers generally have the right to cancel a particular product, subject to contractual provisions governing the final product runs, excess or obsolete inventory and end-of-life pricing, which reduces the additional costs that we incur when a product purchase agreement is terminated. We continue to focus on diversification of the EMS segment customer base. Volumes for one of our largest contracts with JCI, which accounted for approximately $46 million in sales during fiscal year 2014, are expected to decline in fiscal year 2015 as certain JCI programs reach end-of-life. In addition, due to its available capacity JCI decided to in-source other programs manufactured by Kimball Electronics which accounted for approximately $33 million in sales in fiscal year 2014. The transition to JCI’s in-sourcing will occur in stages and began in our fourth quarter of fiscal year 2014 with the final transition expected to be substantially complete by January 2015. Gross profit as a percent of net sales on the JCI product approximates the EMS segment's overall gross margin. Agreement has been reached with JCI for the end-of-life production, and revenue will be impacted, but much of that volume already has been and is expected to continue to be replaced with new business.
Furniture
Overview
The CompanyKimball has been in the furniture business since 1950. This segment's core markets include office furniture sold under the Kimball Office, and National, brand names and hospitality furniture sold under the Kimball Hospitality brand name.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.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 office furniture solutions which create spaces where people can connect. Our rich wood heritage and craftsmanship remains, while new products and materials integrate our product portfolio, satisfying the marketplace's need for private offices,multi-functional, open accommodations throughout all industries. Our furniture solutions are used in open floor plan areas, conference rooms, training rooms, lobby,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 such as audio visual boards and task lighting.accessories. Kimball Office products tend to focus
on the more complex customer solutions, and National products are geared more to the mid-market/less complex/lower cost aspect of the office furniture market. Kimball Hospitality provides in roomworks with designers to create furniture which extends the unique ambiance of a property into the guest rooms by providing in-room and public space furniture solutions for hotel properties, condominiums, and mixed use developments. Products include headboards, desks, tables, dressers, entertainment centers, chests, wall panels, upholstered seating, task seating, cabinets, and vanities with a broad mix of wood, metal, stone, laminate, finish, and fabric options. Also included in this segment are the Company's trucking fleet and customer fulfillment centers, which handle primarily product of this segment; but certainsegment. Certain logistics services, such as backhauls, are sold on a contract basis.basis, but the sales level is immaterial.
Seasonality
Sales revenue of theour Furniture segment is generally not affected by seasonality with the exception of certain product lines which are impacted by the buying patterns of customers such as the U.S. federal government whose purchases of the Company'sour product are generally higher in the first half of the Company's fiscal year.
Recent Business Changes
Production within one of our Indiana facilities was expanded during fiscal year 2013 to manufacture select hospitality furniture products domestically which improves our flexibility in instances such as customer requests for shorter lead times.
A production facility in Virginia was opened during fiscal year 2011 to manufacture upholstered seating, headboards, and other products for the Company's custom, program, and catalog offerings for hospitality guest rooms and public spaces.
During the first quarter of fiscal year 2009, the Company approved a restructuring plan to consolidate production of select
office furniture manufacturing departments. The consolidation was substantially completed during fiscal year 2009 with the remaining items completed during fiscal year 2010. The consolidation reduced manufacturing costs and excess capacity by eliminating redundant property and equipment, processes, and employee costs.
Locations
The Company's furniture products as of June 30, 20122014 were primarily produced at eleven plants: seven located in Indiana, two in Kentucky, and one each in Idaho and Virginia. In addition, select finished goods are purchased from external sources. The Company continually assesses manufacturing capacity and has adjustedadjusts such capacity in recent years.as necessary.
In addition, a facility in Indiana houses an education center for dealer and employee training, a research and development center, and a product showroom. Furniture showrooms are maintained in nineeight 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
Kimball Office and National brands of officeOur furniture areis marketed through Company salespersonsby sales representatives to end users, office furniture dealers, wholesalers, rentalbrokers, designers, purchasing companies, and catalog houses throughout North America and on an international basis. Hospitality furniture is marketed to end users using independent manufacturers' representatives.
Major Competitive Factors
The Company'sOur furniture is sold in the office furniture and hospitality furniture industries. These industries have similar major competitive factors which include price in relation to quality and appearance, the utility of the product, supplier lead time, reliability of on-time delivery, sustainability, and the ability to respond to requests for special and non-standard products. The Company offersWe offer payment terms similar to industry standards and in unique circumstances may grant alternate payment terms.
Certain industries are more price sensitive than others, but all expect on-time, damage-free delivery. The Company maintains sufficient finished goods inventories to be able to offer prompt shipment of certain lines of office furniture as well as most of the Company'sour own lines of hospitality furniture. The Company also produces hospitalityIn addition to the many options available on our standard furniture products, custom furniture is produced to customers'customer specifications and shipping timelines.timelines on a project basis. Many of our office furniture products are shipped through the Company'sour delivery system, which the Company believeswe believe offers it the ability to reduce damage to product, enhance scheduling flexibility, and improve the capability for on-time deliveries.
The Company does not believe that it or the industry in general, has any special practices or special conditions affecting working capital items that are significant for understanding the Company'sour furniture business. The Company does receive advance payments from customers on select furniture projects primarily in the hospitality industry.
Competitors
There are numerous furniture manufacturers of office and hospitality furniture competing within the marketplace, with a significant number of competitors offering similar products. The Company believes, however, that there are a limited number of relatively large manufacturers of wood office and hospitality furniture. In many instances wood office furniture competes in the market with nonwood office furniture. Based on available industry statistics, nonwood office furniture has a larger share of the total office furniture market.
Our competition includes furniture manufacturers such as Steelcase Inc., Herman Miller, Inc., Knoll, Inc., Haworth, Inc., and HNI Corporation, and several other privately-owned furniture manufacturers.
Raw Material Availability
Certain components used in the production of furniture are manufactured internally within the segment and are generally readily available, as are other raw materials used in the production of wood and nonwoodnon-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.
Other Information
Backlog
The aggregate sales price of production pursuant to worldwide open orders, which may be canceled by the customer, was as follows:
| | | (Amounts in Millions) | June 30
2012 | | June 30
2011 | June 30,
2014 | | June 30,
2013 |
| EMS | $ | 170.6 |
| | $ | 165.1 |
| $ | 178.0 |
| | $ | 174.5 |
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| Furniture | 72.0 |
| | 90.4 |
| 97.2 |
| | 95.7 |
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| Total Backlog | $ | 242.6 |
| | $ | 255.5 |
| $ | 275.2 |
| | $ | 270.2 |
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Substantially all of the open orders as of June 30, 20122014 are expected to be filled within the next fiscal year. Open orders of furniture products at June 30, 2012 are lower than the June 30, 2011 open orders primarily due to lower office furniture orders from the U.S. federal government and a large hospitality custom project received near the end of fiscal year 2011 which was included in the June 30, 2011 open orders. Open orders may not be indicative of future sales trends.
Research Patents, and TrademarksDevelopment
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 electronic and wood related technologies.
Research and development costs were approximately:
| | | | Year Ended June 30 | Year Ended June 30 |
| (Amounts in Millions) | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Research and Development Costs | $13 | | $13 | | $12 | $16 | | $14 | | $13 |
The Company ownsIntellectual Property
We own the Kimball (registered trademark) trademark, which it believeswe believe is significant to the EMS and Furniture segments, and ownswe own the following patents and trademarks which it believeswe believe are significant to the Furniture segment only:
Registered Trademarks: National. Furniture with Personality, Cetra, Traxx, Interworks, Xsite, Definition, Skye, WaveWorks, Senator, Prevail, Eloquence, Hum. Minds at Work, Pura, Fluent, Aurora, Mix-It, Jiminy, IntegraClear, Epicenter, National, Beo, Acapella, Adagiato, Aspire, Bingo, Footprint, Fundamental, Perks, Pose, Stature, Transcend, and AuroraDavari
Trademarks: President, IntegraClear, Exhibit, Priority, Villa, Wish, Swift, Epic, Itsa, Scenario, Alumma, Bloom, Boyd, Campos, Collage, Delano, Dwell, Enjoy, Event, Fit, Flip, Hero. Just for You, Kwik Office, LF Series, Poly, See Me, Shade, Splendor, Xtreme, and SwiftXsede (pending)
We also own patents for the following products which are significant to the Furniture segment:
Patents: Wish, Priority, Xsite, Exhibit, Villa, Aurora, Fluent, Epic, Davari, and FluentXsede (pending)
The CompanyFurniture segment also owns other patents and trademarks and has certain other trademark and patent applications pending, which in the Company'sour opinion are not significant to its business. Patents owned by the Company expire at various times depending on the patent's date of issuance.
Within the EMS segment, our primary intellectual property is our proprietary manufacturing technology and processes which allow us to provide very competitive electronic manufacturing services to our customers. As such, this intellectual property is
complex and normally contained within our facilities. The nature of this know-how does not lend itself well to traditional patent protection. In addition, we feel the best protection strategy involves maintaining our intellectual property as trade secrets because there is no disclosure of the information to the world, and there is no expiration on the length of protection. For these reasons, the EMS segment does not own any patents.
Environment and Energy Matters
The Company'sOur operations are subject to various foreign, federal, state, and local laws and regulations with respect to environmental matters. The Company believesWe believe that it iswe are in substantial compliance with present laws and regulations and that there are no material liabilities related to such items.
The Company isWe are dedicated to excellence, leadership, and stewardship in matters of protecting the environment and communities in which the Company haswe have operations. Reinforcing the Company'sour commitment to the environment, six of the Company'sour showrooms and two non-manufacturing locations have been designed under the guidelines of the U.S. Green Building Council's LEED (Leadership in Energy and Environmental Design) for Commercial Interiors program. The Company believesWe 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 itsour capital expenditures, earnings, or competitive position. Management believesWe believe capital expenditures for environmental control equipment during the two fiscal years ending June 30, 2014,2016, will not represent a material portion of total capital expenditures during those years.
The Company'sOur manufacturing operations require significant amounts of energy, including natural gas, oil, and oil.electricity. Federal, foreign, and state statutes and regulations may control the allocation of fuels available to the Company,us, but to date the Company haswe have experienced no interruption of production due to such regulations. In itsour wood processing plants, a portion of energy requirements are satisfied internally by the use of the Company'sour own wood waste products.
Employees
| | | | June 30
2012 | | June 30
2011 | June 30
2014 | | June 30
2013 |
| United States | 3,694 |
| | 3,787 |
| 3,526 |
| | 3,710 |
|
| Foreign Countries | 2,601 |
| | 2,575 |
| 3,140 |
| | 2,716 |
|
| Total Full-Time Employees | 6,295 |
| | 6,362 |
| |
| Total Employees | | 6,666 |
| | 6,426 |
|
Our U.S. operations are not subject to collective bargaining arrangements. All of the Company'sour foreign operations are subject to collective bargaining arrangements, many mandated by government regulation or customs of the particular countries. The Company believesWe believe that itsour employee relations are good.
Available Information
The Company makes available free of charge through its website, http://www.ir.kimball.com, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC)("SEC"). All reports the Company files with the SEC are also available via the SEC website, http://www.sec.gov, or may be read and copied at the SEC Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The Company's Internet website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.
Forward-Looking Statements
This document may containcontains certain forward-looking statements. These are statements made by management, using their best business judgment based upon facts known at the time of the statements or reasonable estimates, about future results, plans, or future performance and business of the Company. Such statements involve risk and uncertainty, and their ultimate validity is affected by a number of factors, both specific and general. They should not be construed as a guarantee that such results or events will, in fact, occur or be realized.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. Additional information regarding risk factors is available in Item 1A - Risk Factors of this report. The Company makesWe 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 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 the Company makeswe make forward-looking statements, it desireswe 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 1A - Risk Factors
The following important risk factors, among others, could affect future results and events, causing results and events to differ materially from those expressed or implied in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors, among others, may have a material adverse effect on the Company'sour business, financial condition, and results of operations and should be carefully considered. It isAdditional risks and uncertainties that we do not possible to predictcurrently know about, we currently believe are immaterial or identify all such factors. Consequently, any such list shouldwe have not be considered to be a complete statementpredicted may also affect our business, financial condition, or results of all the Company's potential risks or uncertainties.operations. Because of these and other factors, past performance should not be considered an indication of future performance.
UnfavorableWe announced that we are pursuing a plan to spin off our EMS segment into a new, independent publicly traded company. This has, and will likely continue to require significant time and attention of our management and we may not be able to complete the transaction or, if completed, realize the anticipated benefits. On January 20, 2014 we announced a plan to separate into two independent companies through a spin-off of our EMS segment. Completion of the transaction will be contingent upon final approval of our Board of Directors, our receipt of a tax opinion of counsel that the spin-off will qualify as a tax-free distribution for U.S. federal income tax purposes to us and our Share Owners, the effectiveness of a Registration Statement on Form 10 and other conditions. Additionally, our ability to complete the spin-off in a timely manner, if at all, could be affected by unanticipated developments or changes in market conditions. There is a significant degree of difficulty and management distraction inherent in the process of the spin-off of our EMS segment. These difficulties include:
the challenge of executing the spin-off while carrying on the ongoing operations of each business;
the potential difficulty in retaining key officers and personnel of each business; and
separating corporate infrastructure, including but not limited to systems, insurance, accounting, legal, finance, real estate, tax and human resources, for each of the two businesses.
For these and other reasons, we may not be able to complete the spin-off as cost-effectively as we anticipate and within the expected time frame or at all. Even if completed, we may not realize the anticipated benefits from the spin-off and the spin-off may result in additional operating expenses for both companies in the aggregate. Any such difficulties could adversely affect our financial position, results of operations, or cash flows.
The proposed spin-off of our EMS segment could result in substantial tax liability to us and our Share Owners. Among the conditions for completing the spin-off will be our receipt of a tax opinion of counsel substantially to the effect that, for U.S. federal income tax purposes, the spin-off will qualify as a tax-free distribution under certain sections of the Internal Revenue Code. If any of the factual representations and assumptions made in connection with obtaining the tax opinion are inaccurate or incomplete in any material respect, then we will not be able to rely on the tax opinion. Furthermore, the tax opinion will not be binding on the Internal Revenue Service ("IRS") or the courts. Accordingly, the IRS or the courts may challenge the conclusions stated in the tax opinion and such challenge could prevail.
If, notwithstanding our receipt of the tax opinion, the spin-off is determined to be taxable, then (i) we would be subject to tax as if we sold the stock distributed in the spin-off in a taxable sale for its fair market value; and (ii) each Share Owner who receives stock distributed in the spin-off would be treated as receiving a distribution of property in an amount equal to the fair market value of such stock that would generally result in varied tax liabilities for each Share Owner depending on the facts and circumstances at the time of the spin-off, which may be substantial.
Uncertain macroeconomic and industry conditions could continue to adversely impact demand for the Company'sour products and adversely affect operating results. Market demand for the Company'sour products, which impacts revenues and gross profit, is influenced by a variety of economic and industry factors such as:
instability of the global financial markets;
uncertainty of worldwide economic conditions;
erosion of global consumer confidence;
general corporate profitability of the Company's end markets;markets to which we sell;
credit availability to the Company's end markets;markets to which we sell;
white-collar unemployment rates;
commercial property vacancy rates;
new office construction and refurbishment rates;
deficit status of many governmental entities which may result in declining purchases of office furniture;
new hotel and casino construction and refurbishment rates;
automotive industry fluctuations;
changesdemand fluctuations in the EMS industries we currently serve, including automotive, medical, device industry;industrial and public safety;
demand for end-user products which include electronic assembly components produced by the Company;we produce;
excess capacity in the industries in which the Company competes;we compete; and
changes in customer order patterns, including changes in product quantities, delays in orders, or cancellation of orders.
The CompanyWe must make decisions based on order volumes in order to achieve efficiency in manufacturing capacities. These decisions include determining what level of additional business to accept, production schedules, component procurement commitments, and personnel requirements, among various other considerations. The CompanyWe must constantly monitor the changing economic landscape and may modify itsour strategic direction based upon the changing business environment. If the Company doeswe 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.
Market conditions have had and may continue to have an adverse impact on the Company's operating results. The risk of further deterioration in the United States economy is exacerbated by:
general financial instability in the stressed European countries;
uncertainties related to future U.S. tax rates; and
delayed decisions regarding U.S. spending policies until after the November 2012 presidential election.
The Company's key strategies remain intact, but it must continue to adjust operations as needed to stay focused on its priorities and to align with the changing market conditions. The Company cannot predict the timing or the duration of any further downturn in the economy or the related effect on the Company's results of operations and financial condition.
The Company isWe are exposed to the credit risk of its customers.our customers that have been adversely affected by the instability of market conditions. The current economicinstability of market conditions and the state of the credit markets drivedrives an elevated risk of potential bankruptcy of customers resulting in a greater risk of uncollectible outstanding accounts receivable. Accordingly, the Companywe intensely monitors itsmonitor our receivables and related credit risks. The realization of these risks could have a negative impact on the Company'sour profitability.
Reduction of purchases by or the loss of one or more key customers could reduce revenues and profitability. Losses of key contract customers within specific industries or significant volume reductions from key contract customers are both risks. If a current customer of the Company merges with or is acquired by a party that currently is aligned with a competitor, the Companywe could lose future revenues. TheOur continuing success of the Company is dependent upon replacing expiring contract customers/programs with new customers/programs. TheSignificant declines in the level of purchases by key customers in either of the Company's segments, or the loss of a significant number of customers, could have a material adverse effect on our business. In addition, the nature of the contract electronics manufacturing industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently, and new customer and program start-ups generally cause losses early in the life of a program. In our EMS segment, sales to Johnson Controls, Inc. ("JCI") accounted for 8%, 10%, and 9% of consolidated net sales in fiscal years 2014, 2013, and 2012, respectively. We expect volumes for one of our largest contracts with JCI, which accounted for approximately $46 million in net sales in fiscal year 2014, to decline in fiscal year 2015. The Companyreason for such decline in volume is that certain JCI programs are reaching end-of-life. In addition, due to its available capacity, JCI has decided to in-source programs that have historically been manufactured by our EMS segment, which accounted for approximately $33 million in net sales in fiscal year 2014. We expect JCI's transition to in-sourcing to occur in stages with the transition to be substantially complete by January 2015. In our Furniture segment, a reduction of government spending could also have an adverse impact on our sales levels. We can provide no assurance that itwe will be able to fully replace any lost sales, which could have an adverse effect on the Company'sour financial position, results of operations, or cash flows. A reduction of government spending on furniture could also have an adverse impact on the Company's sales levels.
The Company operatesWe operate in a highly competitive environment and may not be able to compete successfully. The Company faces pricing pressures in both of its segments, especially the EMS segment, as a result of intense competition from large EMS providers, emerging products, and over-capacity. Numerous manufacturers within the EMS industry compete globally for business from existing and potential customers. Some of our competitors have greater resources and more geographically diversified international operations than we do. We also face competition from the manufacturing operations of our customers, who are continually evaluating the merits of manufacturing products internally against the advantages of outsourcing to EMS providers. The competition may further intensify as more companies enter the markets in which we operate, as existing competitors expand capacity and as the industry consolidates. The office and hospitality furniture industries are also competitive due to numerous global manufacturers competing in the marketplace. In times of reduced demand for office furniture, large competitors may apply more pressure to their aligned distribution to sell their products exclusively which could lead to reduced opportunities for the Company'sour products. While the Company workswe work toward reducing costs to respond to pricing pressures, if the Companywe cannot achieve the proportionate reductions in costs, profit margins may suffer. The high
level of competition in these industries impacts the Company'sour ability to implement price increases or, in some cases, even maintain prices, which also could lower profit margins. In addition, as end markets dictate, the Company iswe are continually assessing excess capacity and developing plans to better utilize manufacturing operations, including consolidating and shifting manufacturing capacity to lower cost venues as necessary.
The Company's future operating results depend on the abilityWe may be unable to purchase a sufficient amount of materials, parts, and components for use in our products at a competitive prices.price, in a timely manner, or at all. The Company dependsWe depend on suppliers globally to provide timely delivery of materials, parts, and components for use in the Company'sour products. TheWe monitor the financial stability of suppliers is monitored by the Company when feasible as the loss of a significant supplier could have an adverse impact on the Company'sour operations. Suppliers adjust their capacity as demand fluctuates, and component shortages and/or component allocations could occur. Certain finished products and components purchased by the Companywe purchase are primarily manufactured in select regions of the world and issues in those regions could cause manufacturing delays. Maintaining strong relationships with key suppliers of components critical to the
manufacturing process is essential. Price increases of commodity components could have an adverse impact on our profitability if the Companywe cannot offset such increases with other cost reductions or by price increases to customers. Materials utilized by the Companywe utilize are generally available, but future availability is unknown and could impact the Company'sour ability to meet customer order requirements. If suppliers fail to meet commitments to the Companyus in terms of price, delivery, or quality, it could interrupt the Company'sour operations and negatively impact the Company'sour ability to meet commitments to customers.
The Company'sOur operating results are impactedcould 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 profitability of the Company.our profitability.
The Company could be impacted byWe are subject to manufacturing inefficiencies at certain locations.due to startup of new programs, transfer of production and other factors. At times the Companywe may experience labor or other manufacturing inefficiencies due to factors such as start-up of new programs and product introductions, transfers of production among the Company'sour manufacturing facilities, a sudden decline in sales, a new operating system, or turnover in personnel. Manufacturing inefficiencies could have an adverse impact on the Company'sour financial position, results of operations, or cash flows.
A change in the Company'sour sales mix among various products could have a negative impact on the gross profit margin. Changes in product sales mix could negatively impact theour gross margin of the Company as margins of different products vary. The Company strivesWe strive to improve the margins of all products, but certain products have lower margins in order to price the product competitively or in connection with the start-up of a new program. In addition, the EMS segment has historically operated at a lower gross profit percentage than the Furniture segment, and if the sales mix trends toward the EMS segment, the Company's consolidated gross profit margin will be negatively impacted. An increase in the proportion of sales of products with lower margins could have an adverse impact on the Company'sour financial position, results of operations, or cash flows.
FutureOur future restructuring efforts by the Company may not be successful. The CompanyWe continually evaluates itsevaluate our manufacturing capabilities and capacities in relation to current and anticipated market conditions. If the Company implements furtherwe implement restructuring plans in the future, the successful execution of those restructuring initiatives will be dependent on various factors and may not be accomplished as quickly or effectively as anticipated.
Acquisitions by their nature may presentWe will face risks to the Company.commonly encountered with growth through acquisitions. The Company'sOur sales growth plans may occur through both organic growth and acquisitions. Acquisitions involve many risks, including:
difficulties in identifying suitable acquisition candidates and in negotiating and consummating acquisitions on terms attractive to the Company;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 the Company haswe 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 the Company'sour current shareholders;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.
Start-up operations could present risks to the Company's currentWe may not be successful in launching start-up operations. The Company isWe are committed to growing itsour business, and therefore from time to time, the Companywe may determine that it would be in itsour best interests to start up a new operation. Start-up operations involve a number of risks and uncertainties, such as funding the capital expenditures related to the start-up operation, developing a
management team for the new operation, diversion of management focus away from current operations, and creation of excess capacity. Any of these risks could have a material adverse effect on the Company'sour financial position, results of operations, or cash flows.
The Company'sOur international operations involve financial and operational risks. The Company hasWe have operations outside the United States, primarily in China, Thailand, Poland, and Mexico. The Company'sOur international operations are subject to a number of risks, which may include the following:
economic and political instability;
warfare, riots, terrorism, and other forms of violence or geopolitical disruption;
compliance with laws, such as the Foreign Corrupt Practices Act, applicable to U.S. companies doing business outside the United States;
changes in foreign regulatory requirements and laws;
tariffs and other trade barriers;
potentially adverse tax consequences including the manner in which multinational companies are taxed in the U.S.; and
foreign labor practices.
These risks could have an adverse effect on the Company'sour financial position, results of operations, or cash flows. In addition, fluctuations in exchange rates could impact the Company'sour operating results. The Company'sOur risk management strategy includes the use of derivative financial instruments to hedge certain foreign currency exposures. Any hedging techniques the Company implementswe implement contain risks and may not be entirely effective. Exchange rate fluctuations could also make the Company'sour products more expensive than competitor's products not subject to these fluctuations, which could adversely affect the Company'sour revenues and profitability in international markets.
If the Company's efforts to introduce new products or start-up new programs are not successful, this could limit sales growth or cause sales to decline. The Furniture segment regularly introduces new products to keep pace with workplace trends and evolving regulatory and industry requirements, including environmental, health, and safety standards such as sustainability and ergonomic considerations, and similar standards for the workplace and for product performance. The introductionShifts in workforce demographics, working styles, and technology may impact the types of newoffice furniture products requires the coordination of the design, manufacturing,purchased by our customers as smaller and marketing of such products. The design and engineering of certain new products can take nine to eighteen months or more and further time may be required to achieve customer acceptance. Accordingly, the launch of any particular product may be delayed or be less successful than originally anticipated by the Company. Difficulties or delays in introducing new products or lack of customer acceptance of new products could limit sales growth or cause sales to decline.collaborative workstations gain popularity. The EMS segment depends on industries that utilize technologically advanced electronic components which often have short life cycles. The CompanyWe must continue to invest in advanced equipment and product development to remain competitive in this area.
In both segments, the introduction of new products or start-up of new programs require the coordination of the design, manufacturing, and marketing of such products. The design and engineering required for certain new products or programs can take an extended period of time, and further time may be required to achieve customer acceptance. Accordingly, the launch of any particular product or program may be delayed or may be less successful than we originally anticipated. Difficulties or delays in introducing new products and programs or lack of customer acceptance of new products or programs could limit sales growth or cause sales to decline.
If customers do not perceive the Company'sour products and services to be innovative and of high quality, the Company'sour brand and name recognition and reputation could suffer. The Company believesWe believe that establishing and maintaining good brand and name recognition and a good reputation is critical to our business. Promotion and enhancement of the Company'sour 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 itsour products and services to be innovative and of high quality, the Company'sour reputation, brand and name recognition could suffer, which could have a material adverse effect on the Company'sour business.
A loss of independent manufacturing representatives, dealers, or other sales channels could lead to a decline in sales of the Company's Furniture segment products. The Company'sOur office furniture is marketed primarily through Company salespersons to end users, office furniture dealers, wholesalers, rental companies, and catalog houses. The Company'sOur hospitality furniture is marketed to end users using independent manufacturing representatives. A significant loss within any of these sales channels could result in a sales decline and thus have an adverse impact on the Company'sour financial position, results of operations, or cash flows.
The Company mustFailure to effectively manage working capital.capital may adversely affect our cash flow from operations. The CompanyWe closely monitorsmonitor inventory and receivable efficiencies and continuously strivesstrive to improve these measures of working capital, but customer financial difficulties, cancellation or delay of customer orders, shifts in customer payment practices, transfers of production among the Company'sour manufacturing facilities, or Company manufacturing delays could cause deteriorating working capital trends.adversely affect our cash flow from operations.
The Company's assetsWe may not be able to achieve maximum utilization of our manufacturing capacity. Most of our customers do not commit to long-term production schedules and we are unable to forecast the level of customer orders with certainty over a given period of time. As a result, at times it can be difficult for us to schedule production and maximize 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 become impaired.incur losses due to asset impairment. As business conditions change, the Companywe must continually evaluate and work toward the optimum asset base. It is possible that certain assets such as, but not limited to, facilities, equipment, intangible assets, or goodwill could be impaired at some point in the future depending on changing business conditions. If assets of the Company become impaired the resultSuch impairment could behave an adverse impact on the Company'sour financial position and results of operations.
There are inherent uncertainties involved in estimates, judgments, and assumptions used in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP). Any changes in estimates, judgments, and assumptions could have a material adverse effect on the Company's financial position, results of operations, or cash flows. The Company's financial statements filed with the SEC are prepared in accordance with U.S. GAAP, and the preparation of such financial statements includes making estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, and related reserves, revenues, expenses, and income. Estimates are inherently subject to change in the future, and such changes could result in corresponding changes to the amounts of assets, liabilities, income, or expenses and likewise could have an adverse effect on the Company's financial position, results of operations, or cash flows.
Changes in financial accounting standards may affect the Company's financial position, results of operations, or cash flows. The Financial Accounting Standards Board (FASB) is considering various proposed rule changes. The SEC is considering options for incorporating International Financial Reporting Standards (IFRS) into the U.S. financial reporting
system. The implementation of new accounting standards or changes to U.S. GAAP could adversely impact the Company's financial position, results of operations, or cash flows.
Fluctuations in the Company'sour effective tax rate could have a significant impact on the Company'sour financial position, results of operations, or cash flows. The mix of pre-tax income or loss among the tax jurisdictions in which the Company operateswe operate that have varying tax rates could impact the Company'sour effective tax rate. The Company isWe are subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. Judgment is required in determining the worldwide provision for income taxes, other tax liabilities, interest, and penalties. Future events could change management's assessment. The Company operatesWe operate within multiple taxing jurisdictions and isare subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. The Company hasWe 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 the Company'sour income tax provisions and accruals.
A failure to comply with the financial covenants under the Company's $100$75 million credit facility could adversely impact the Company. The Company'sOur credit facility requires the Company to comply with certain financial covenants. The Company believesWe believe the most significant covenants under itsthis credit facility are the ratio of consolidated indebtedness to consolidated EBITDA (debt to EBITDA) and minimum net worth and interest coverage ratio.(excluding accumulated other comprehensive income). More detail on these financial covenants is discussed in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. As of June 30, 20122014, the Companywe had no short-term borrowings under itsthis credit facilitiesfacility and had total cash and cash equivalents of $75.2136.6 million. In the future, a default on the financial covenants under the Company'sour credit facility could cause an increase in the borrowing rates or could make it more difficult for the Companyus to secure future financing which could adversely affect the financial condition of the Company. In addition, the Company's credit facility expires in April 2013, and the new credit facility terms Our business may be less favorable than the current terms.
Aharmed due to failure to successfully implement information technology solutions could adversely affect the Company.or a lack of reasonable safeguards to maintain data security. The Company'sOur business depends on effective information technology systems.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, or poor execution, or a breach of information technology systems could disrupt our operations, damage our reputation, or increase costs related to the Company's operations and increase costs.mitigation of, response to, or litigation arising from any such issue.
An inabilityFailure to protect the Company'sour intellectual property could have a significant impact on business.undermine our competitive position. The Company attemptsWe attempt to protect itsour intellectual property rights, both in the United States and in foreign countries, through a combination of patent, trademark, copyright, and trade secret laws, as well as licensing agreements and third-party non-disclosure and assignment agreements. Because of the differences in foreign laws concerning proprietary rights, the Company'sour intellectual property rights do not generally receive the same degree of protection in foreign countries as they do in the United States, and therefore in some parts of the world, the Company haswe have limited protections, if any, for itsour intellectual property. Competing effectively depends, to a significant extent, on maintaining the proprietary nature of the Company'sour intellectual property. The degree of protection offered by the claims of the various patents and trademarks may not be broad enough to provide significant proprietary protection or competitive advantages to the Company, and patents or trademarks may not be issued on pending or contemplated applications. In addition, not all of the Company'sour products are covered by patents. It is also possible that the Company'sour patents and trademarks may be challenged, invalidated, canceled, narrowed, or circumvented.
AWe may be sued by third party could claim that the Company has infringed onparties for alleged infringement of their intellectual property rights.rights and incur substantial litigation or other costs. The CompanyWe could be notified of a claim regarding intellectual property rights which could lead us to the Company spendingspend time and money to defend or address the claim. Even if the claim is without merit, it could result in substantial costs and diversion of resources.
The Company'sOur insurance may not adequately protect the Companyus from liabilities related to product defects. The Company maintainsWe maintain product liability and other insurance coverage that the Company believeswe believe to be generally in accordance with industry practices. However, itsour insurance coverage may not be adequate to protect the Companyus fully against substantial claims and costs that may arise from liabilities related to product defects, particularly if the Company haswe have a large number of defective products or if the root cause is disputed.
The Company'sOur failure to maintain Food and Drug Administration (FDA)("FDA") registration of one or more of itsour registered manufacturing facilities could negatively impact the Company'sour ability to produce products for itsour customers in the medical industry. To maintain FDA registration, the Company is subject to FDA audits of the manufacturing process. FDA audit failure could result in a partial or total suspension of production, fines, or criminal prosecution. Failure or noncompliance
could have an adverse effect on the Company'sour reputation in addition to an adverse impact on the Company'sour financial position, results of operations, or cash flows.
The Company isWe are subject to extensive environmental regulation and significant potential environmental liabilities. TheOur past and present operation and ownership by the Company of manufacturing plants and real property are subject to extensive
and changing federal, state, local, and foreign environmental laws and regulations, including those relating to discharges in air, water, and land, the handling and disposal of solid and hazardous waste, the use of certain hazardous materials in the production of select EMS products, and the remediation of contamination associated with releases of hazardous substances. In addition, the increased prevalence of global climate issues may result in new regulations that may negatively impact the Company. The Companyus. We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures, by the Company, some of which could be material. In addition, any investigations or remedial efforts relating to environmental matters could involve material costs or otherwise result in material liabilities.
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. Certain changes to our executive management team will occur if the spin-off is consummated. The Company'sunexpected loss of the services of any other executive officers or other key personnel would have an adverse effect on us.
Our failure to retain the existing management team;team, maintain itsour engineering, technical, and manufacturing process expertise; andexpertise, or continue to attract qualified personnel could adversely affect the Company'sour business. TheOur success of the Company is dependent on keeping pace with technological advancements and adapting services to provide manufacturing capabilities which meet customers' changing needs. In addition, the Companywe must retain itsour qualified engineering and technical personnel and successfully anticipate and respond to technological changes in a cost effective and timely manner. The Company'sOur culture and guiding principles focus on continuous training, motivating, and development of employees, and it striveswe strive to attract, motivate, and retain qualified personnel. Failure to retain and attract qualified personnel could adversely affect the Company'sour business.
Turnover in personnel could cause manufacturing inefficiencies. The demand for manufacturing labor in certain geographic areas makes retaining experienced production employees difficult. Turnover could result in additional training and inefficiencies that could impact the Company'sour operating results.
Natural disasters or other catastrophic events may impact the Company'sour 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 theour ability to produce or deliver the Company's products. The Company'sOur manufacturing operations require significant amounts of energy, including natural gas and oil, and governmental regulations may control the allocation of such fuels to the Company.fuels. Employees are an integral part of the Company'sour business and events such as a pandemic could reduce the availability of employees reporting for work. In the event the Company experienceswe experience a temporary or permanent interruption in itsour ability to produce or deliver product, revenues could be reduced, and business could be materially adversely affected. In addition, catastrophic events, or the threat thereof, can adversely affect U.S. and world economies, and could result in delayed or lost sales of the Company'sour products. In addition, any continuing disruption in the Company'sour computer system could adversely affect the ability to receive and process customer orders, manufacture products, and ship products on a timely basis, and could adversely affect relations with customers, potentially resulting in reduction in orders from customers or loss of customers. The Company maintainsWe maintain insurance to help protect the Companyus from costs relating to some of these matters, but such may not be sufficient or paid in a timely manner to the Companyus in the event of such an interruption.
The requirements of being a public company may strain the Company'sour resources and distract management. The Company isWe are subject to the reporting requirements of federal securities laws, including the Sarbanes-Oxley Act of 2002. Among other requirements, the Sarbanes-Oxley Act requires that the Companywe maintain effective disclosure controls and procedures and internal control over financial reporting. The Company hasWe have expended and expectsexpect to continue to expend management time and resources maintaining documentation and testing internal control over financial reporting. While management's evaluation as of June 30, 20122014 resulted in the conclusion that the Company's internal control over financial reporting was effective as of that date, the Companywe cannot predict the outcome of testing in future periods. If we cannot maintain effective disclosure controls and procedures or favorably assess the Company concludes in future periods that itseffectiveness of our internal control over financial reporting, is not effective, or if itsour independent registered public accounting firm is not able to rendercannot provide an unqualified attestation report on the required attestations, it could result in losteffectiveness of our internal control over financial reporting, investor confidence and, in turn, the accuracy, reliability, and completenessmarket price of the Company's financial reports.our common stock could decline.
Imposition of government regulations may significantly increase the Company'sour operating costs in the United States.States and abroad. Legislative and regulatory reforms by the U.S. federal governmentand foreign governments could significantly impact theour profitability of the Company by burdening itus with forced cost choices that cannot be recovered by increased pricing. For example:
The United States healthcare reform legislation passed in 2010 and upheld by the Supreme Court in 2012 is likely to increase the Company's total healthcare costs which could have a significant impact on the Company's financial position, results of operations, manufacturing facilities and employment in the U.S., or cash flows.
International Traffic in Arms Regulations (ITAR) must be followed when producing defense related products for the U.S. government. A breach of these regulations could have an adverse impact on the Company'sour financial condition, results of operations, or cash flows.
The Company importsWe import a portion of its woodour wooden furniture products and isare thus subject to an antidumping tariff on wooden bedroom furniture supplied from China. The tariffs are subject to review and could result in retroactive and prospective tariff rate increases which could have an adverse impact on the Company'sour 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 new due diligence, disclosure, and reporting requirements for companies which manufacture products that include components containing such minerals, regardless of whether the minerals are actually mined in the DRC or adjoining countries. 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 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 new 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. We filed our initial Conflict Minerals Disclosure report on May 29, 2014.
The value of the Company'sour common stock may experience substantial fluctuations for reasons over which the Company haswe 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 theour Company, competitors, or industry;
overall volatility of the stock market;
changes in the financial estimates of securities analysts or investors regarding theour 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 theour Company's common stock.
Item 1B - Unresolved Staff Comments
None.
Item 2 - Properties
The location and number of the Company'sour major manufacturing, warehousing, and service facilities, including theour executive and administrative offices, as of June 30, 20122014, are as follows:
| | | | Number of Facilities | Number of Facilities |
| | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate | | Total | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate | | Total |
| North America | | | | | | | | | | | | | | |
| Florida | 1 |
| |
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| | |
| | 1 |
| 1 |
| |
|
| | |
| | 1 |
|
| Idaho |
|
| | 1 |
| | |
| | 1 |
|
|
| | 1 |
| | |
| | 1 |
|
| Indiana | 1 |
| | 13 |
| | 4 |
| | 18 |
| 1 |
| | 13 |
| | 4 |
| | 18 |
|
| Kentucky | |
| | 2 |
| | |
| | 2 |
| |
| | 2 |
| | |
| | 2 |
|
| Virginia | |
| | 1 |
| | |
| | 1 |
| |
| | 1 |
| | |
| | 1 |
|
| Mexico | 1 |
| | |
| | |
| | 1 |
| 1 |
| | |
| | |
| | 1 |
|
| Asia | | | | | | | | | | | | | | |
| China | 1 |
| | 1 |
| | |
| | 2 |
| 1 |
| | 1 |
| | |
| | 2 |
|
| Thailand | 1 |
| | |
| | |
| | 1 |
| 1 |
| | |
| | |
| | 1 |
|
| Vietnam | | | | 1 |
| | | | 1 |
|
| Europe | | | | | | | | | | | | | | |
| Poland | 1 |
| | | | |
| | 1 |
| 1 |
| | | | |
| | 1 |
|
| Total Facilities | 6 |
| | 18 |
| | 4 |
| | 28 |
| 6 |
| | 19 |
| | 4 |
| | 29 |
|
The listed facilities occupy approximately 4,820,0004,823,000 square feet in aggregate, of which approximately 4,733,0004,706,000 square feet are owned and 87,000117,000 square feet are leased. Square footage of these facilities is summarized by segment as follows:
| | | | Approximate Square Footage | Approximate Square Footage |
| | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate | | Total | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate | | Total |
| Owned | 1,011,000 |
| | 3,491,000 |
| | 231,000 |
| | 4,733,000 |
| 1,011,000 |
| | 3,491,000 |
| | 204,000 |
| | 4,706,000 |
|
| Leased | — |
| | 67,000 |
| | 20,000 |
| | 87,000 |
| — |
| | 70,000 |
| | 47,000 |
| | 117,000 |
|
| Total | 1,011,000 |
| | 3,558,000 |
| | 251,000 |
| | 4,820,000 |
| 1,011,000 |
| | 3,561,000 |
| | 251,000 |
| | 4,823,000 |
|
During fiscal year 2012, the Company exited EMS segment facilities in California and the United Kingdom as previously announced restructuring consolidation plans were completed.
Included in Unallocated Corporate are executive, national sales and administrative offices, and a recycling facility.
Generally, properties are utilized at normal capacity levels on a multiple shift basis. At times, certain facilities utilize a reduced second or third shift. Due to sales fluctuations, not all facilities were utilized at normal capacity during fiscal year 20122014. 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 teneleven leased office furniture showroom facilities which are not included in the tables above, total 208,000 square feet and expire from fiscal year 20132015 to 2056 with many of the leases subject to renewal options. The leased showroom facilities are in six states and the District of Columbia. See Note 4 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for additional information concerning leases. The Company ownsWe own approximately 500 acres of land which includes land where various Company facilities reside, including approximately 180160 acres of land in the Kimball Industrial Park, Jasper, Indiana (a site for certain production and other facilities, and for possible future expansions).
Item 3 - Legal Proceedings
The RegistrantWe and itsour subsidiaries are not parties to any pending legal proceedings, other than ordinary routine litigation incidental to the business. The outcome of current routine pending litigation, individually and in the aggregate, is not expected to have a material adverse impact on the Company.impact.
Item 4 - Mine Safety Disclosures
Not applicable.
Executive Officers of the Registrant
TheOur executive officers of the Registrant as of August 27, 20122014 are as follows:
(Age as of August 27, 20122014)
| | | Name | | Age | | Office and Area of Responsibility | | Executive Officer Since | | Age | | Office and Area of Responsibility | | Executive Officer Since |
| James C. Thyen | | 68 | | President, Chief Executive Officer, Director | | 1974 | | 70 | | President, Chief Executive Officer, Director | | 1974 |
| Douglas A. Habig | | 65 | | Chairman of the Board | | 1975 | | 67 | | Chairman of the Board | | 1975 |
| Donald D. Charron | | | 50 | | Executive Vice President, President-Kimball Electronics Group, Director | | 1999 |
| Robert F. Schneider | | 51 | | Executive Vice President, Chief Financial Officer | | 1992 | | 53 | | Executive Vice President, Chief Financial Officer, Director | | 1992 |
| Donald D. Charron | | 48 | | Executive Vice President, President-Kimball Electronics Group | | 1999 | |
| John H. Kahle | | 55 | | Executive Vice President, General Counsel, Secretary | | 2004 | | 57 | | Executive Vice President, General Counsel, Secretary | | 2004 |
| Gary W. Schwartz | | 64 | | Executive Vice President, Chief Information Officer | | 2004 | |
| Donald W. Van Winkle | | 51 | | Vice President, President-Office Furniture Group | | 2010 | | 53 | | Executive Vice President, President-Furniture Group | | 2010 |
| Stanley C. Sapp | | 51 | | Vice President, President-Kimball Hospitality | | 2010 | |
| Lonnie P. Nicholson | | | 50 | | Vice President, Chief Information Officer | | 2014 |
| Dean M. Vonderheide | | | 60 | | Vice President, Organizational Effectiveness | | 2014 |
| Michelle R. Schroeder | | 47 | | Vice President, Chief Accounting Officer | | 2003 | | 49 | | Vice President, Chief Accounting Officer | | 2003 |
Executive officers are elected annually by the Board of Directors. All of the executive officers unless otherwise noted have been employed by the Company for more than the past five years in the principal occupation shown or some other executive capacity. Donald W.
Mr. Van Winkle was appointed toas Executive Vice President, President-Furniture Group in March 2014. He served as Vice President, President-Office Furniture Group infrom February 2010.2010 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 the Furniture segment since joining the Company in January 1991. Stanley C. Sapp
Mr. Nicholson was appointed to Vice President, President-Kimball Hospitality in February 2010. He had previously served as Vice President, Chief Information Officer in January 2014. Throughout 2013 he served as Director, Business Analytics and General Managerthen Vice President, Business Analytics, with oversight of Kimball Hospitalitystrategic 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 February 2005November 2011 until February 2010,January 2013, and prior to that servedDirector of Employee Engagement from November 2008 until November 2011 following other roles of advancing responsibility in other key roles within the Furniture segmentareas of application development, systems analysis, process reengineering, lean/continuous improvement and enterprise resource planning ("ERP") since joining the Company in June 2002.1986.
Mr. Vonderheide was appointed to the Company's executive committee in February 2014. Since 2008, Mr. Vonderheide has served the Company as Vice President, Organizational Effectiveness with responsibility for the ongoing development of the corporate culture and improvement in organizational effectiveness with specific emphasis on attraction, engagement, development and retention of our talent. Included in the scope of his responsibilities are the areas of human resources, employee safety, sustainable environment practices, and regulatory compliance. Mr. Vonderheide served in various manufacturing and leadership roles of progressing responsibility since joining the Company in 1982.
Mr. Charron was appointed to our Board of Directors in February 2013.
Mr. Schneider was appointed to our Board of Directors in February 2014.
PART II
Item 5 - Market for Registrant's Common Equity, Related Share Owner Matters and Issuer Purchases of Equity Securities
Market Prices
The Company's Class B Common Stock trades on the NASDAQ Global Select Market of The NASDAQ Stock Market LLC under the symbol: KBALB. High and low sales prices by quarter for the last two fiscal years as quoted by the NASDAQ system were as follows:
| | | | 2012 | | 2011 | 2014 | | 2013 |
| | High | | Low | | High | | Low | High | | Low | | High | | Low |
| First Quarter | $ | 6.92 |
| | $ | 4.61 |
| | $ | 6.50 |
| | $ | 4.81 |
| $ | 12.00 |
| | $ | 9.61 |
| | $ | 13.25 |
| | $ | 7.70 |
|
| Second Quarter | $ | 6.09 |
| | $ | 4.63 |
| | $ | 7.17 |
| | $ | 5.51 |
| $ | 15.39 |
| | $ | 10.20 |
| | $ | 13.10 |
| | $ | 10.95 |
|
| Third Quarter | $ | 7.19 |
| | $ | 5.15 |
| | $ | 7.73 |
| | $ | 6.09 |
| $ | 20.10 |
| | $ | 13.60 |
| | $ | 12.59 |
| | $ | 8.48 |
|
| Fourth Quarter | $ | 7.84 |
| | $ | 6.25 |
| | $ | 7.89 |
| | $ | 5.92 |
| $ | 18.97 |
| | $ | 15.35 |
| | $ | 10.80 |
| | $ | 8.63 |
|
There is no established public trading market for the Company's Class A Common Stock. However, Class A shares are convertible on a one-for-one basis to Class B shares.
Dividends
There are no restrictions on the payment of dividends exceptOur charter provisions require that, require on a fiscal year basis, that shares of Class B Common Stock are entitled to $0.02 per share dividend more than the annual dividends paid on Class A Common Stock, provided that dividends are paid on the Company's Class A Common Stock. Dividends declared totaled $7.47.5 million for both fiscal yearyears 20122014 and $7.3 million for fiscal year 20112013. Dividends per share declared by quarter for fiscal year 20122014 compared to fiscal year 20112013 were as follows:
| | | | 2012 | | 2011 | 2014 | | 2013 |
| | Class A | | Class B | | Class A | | Class B | Class A | | Class B | | Class A | | Class B |
| First Quarter | $ | 0.045 |
| | $ | 0.05 |
| | $ | 0.045 |
| | $ | 0.05 |
| $ | 0.045 |
| | $ | 0.05 |
| | $ | 0.045 |
| | $ | 0.05 |
|
| Second Quarter | 0.045 |
| | 0.05 |
| | 0.045 |
| | 0.05 |
| 0.045 |
| | 0.05 |
| | 0.045 |
| | 0.05 |
|
| Third Quarter | 0.045 |
| | 0.05 |
| | 0.045 |
| | 0.05 |
| 0.045 |
| | 0.05 |
| | 0.045 |
| | 0.05 |
|
| Fourth Quarter | 0.045 |
| | 0.05 |
| | 0.045 |
| | 0.05 |
| 0.045 |
| | 0.05 |
| | 0.045 |
| | 0.05 |
|
| Total Dividends | $ | 0.180 |
| | $ | 0.20 |
| | $ | 0.180 |
| | $ | 0.20 |
| $ | 0.180 |
| | $ | 0.20 |
| | $ | 0.180 |
| | $ | 0.20 |
|
Share Owners
On August 13, 201218, 2014, the Company's Class A Common Stock was owned by 549479 Share Owners of record, and the Company's Class B Common Stock was owned by 1,6661,382 Share Owners of record, of which 292242 also owned Class A Common Stock.
Securities Authorized for Issuance Under Equity Compensation Plans
Issuer Purchases of Equity Securities
A share repurchase program authorized by the Board of Directors was announced on October 16, 2007. The program allows for the repurchase of up to two million shares of any combination of Class A and Class B shares and will remain in effect until all shares authorized have been repurchased. The Company did not repurchase any shares under the repurchase program during the fourth quarter of fiscal year 20122014. At June 30, 20122014, two million shares remained available under the repurchase program.
Performance Graph
The following performance graph is not deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934 and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference into such a filing.
The graph below compares the cumulative total return to Share Owners of the Company's Class B Common Stock from June 30, 20072009 through June 30, 20122014, the last business day in the respective fiscal years, to the cumulative total return of the NASDAQ Stock Market (U.S. and Foreign) and a peer group index for the same period of time. Due to the diversity of its operations, the Company is not aware of any public companies that are directly comparable to it. Therefore, the peer group index is comprised of publicly traded companies in both of the Company's segments, as follows:
EMS segment: Benchmark Electronics, Inc., Jabil Circuit, Inc., Plexus Corp.
Furniture segment: HNI Corporation, Knoll, Inc., Steelcase Inc., Herman Miller, Inc.
In order to reflect the segment allocation of Kimball International, Inc., a market capitalization-weighted index was first computed for each segment group, then a composite peer group index was calculated based on each segment's proportion of net sales to total consolidated sales for each fiscal year. The public companies included in the peer group have a larger revenue base than each of the Company'sour business segments.
The graph assumes $100 is invested in the Company's stock and each of the two indexes at the closing market quotations on June 30, 20072009 and that dividends are reinvested. The performances shown on the graph are not necessarily indicative of future price performance.
Comparison of Cumulative Five Year Total Return
| | | | 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 |
| Kimball International, Inc. | $ | 100.00 |
| | $ | 62.73 |
| | $ | 49.79 |
| | $ | 45.26 |
| | $ | 54.26 |
| | $ | 67.20 |
| $ | 100.00 |
| $ | 90.90 |
| $ | 108.98 |
| $ | 134.98 |
| $ | 173.48 |
| $ | 302.80 |
|
| NASDAQ Stock Market (U.S. & Foreign) | $ | 100.00 |
| | $ | 84.54 |
| | $ | 73.03 |
| | $ | 82.88 |
| | $ | 110.33 |
| | $ | 115.30 |
| $ | 100.00 |
| $ | 115.98 |
| $ | 153.93 |
| $ | 164.70 |
| $ | 193.69 |
| $ | 254.06 |
|
| Peer Group Index | $ | 100.00 |
| | $ | 72.14 |
| | $ | 47.92 |
| | $ | 70.95 |
| | $ | 96.05 |
| | $ | 85.13 |
| $ | 100.00 |
| $ | 148.05 |
| $ | 200.44 |
| $ | 177.64 |
| $ | 218.79 |
| $ | 249.06 |
|
Item 6 - Selected Financial Data
| | | | Year Ended June 30 | Year Ended June 30 |
(Amounts in Thousands, Except for Per Share Data) | 2012 | | 2011 | | 2010 | | 2009 | | 2008 | 2014 | | 2013 | | 2012 | | 2011 | | 2010 |
| Net Sales | $ | 1,142,061 |
| | $ | 1,202,597 |
| | $ | 1,122,808 |
| | $ | 1,207,420 |
| | $ | 1,351,985 |
| $ | 1,285,347 |
| | $ | 1,203,134 |
| | $ | 1,142,061 |
| | $ | 1,202,597 |
| | $ | 1,122,808 |
|
| Income from Continuing Operations | $ | 11,634 |
| | $ | 4,922 |
| | $ | 10,803 |
| | $ | 17,328 |
| | $ | 78 |
| |
| Earnings Per Share from Continuing Operations: | |
| | |
| | |
| | |
| | |
| |
| Net Income | | $ | 33,461 |
| | $ | 19,879 |
| | $ | 11,634 |
| | $ | 4,922 |
| | $ | 10,803 |
|
| Earnings Per Share: | | Earnings Per Share: | | |
| | |
| | |
| | |
|
| Basic: | | | | | | | | | | | | | | | | | | |
| Class A | $ | 0.29 |
| | $ | 0.12 |
| | $ | 0.27 |
| | $ | 0.46 |
| | $ | — |
| $ | 0.85 |
| | $ | 0.50 |
| | $ | 0.29 |
| | $ | 0.12 |
| | $ | 0.27 |
|
| Class B | $ | 0.31 |
| | $ | 0.14 |
| | $ | 0.29 |
| | $ | 0.47 |
| | $ | — |
| $ | 0.88 |
| | $ | 0.53 |
| | $ | 0.31 |
| | $ | 0.14 |
| | $ | 0.29 |
|
| Diluted: | | | | | | | | | | | | | | | | | | |
| Class A | $ | 0.29 |
| | $ | 0.12 |
| | $ | 0.27 |
| | $ | 0.46 |
| | $ | — |
| $ | 0.84 |
| | $ | 0.49 |
| | $ | 0.29 |
| | $ | 0.12 |
| | $ | 0.27 |
|
| Class B | $ | 0.31 |
| | $ | 0.14 |
| | $ | 0.29 |
| | $ | 0.47 |
| | $ | — |
| $ | 0.86 |
| | $ | 0.52 |
| | $ | 0.31 |
| | $ | 0.14 |
| | $ | 0.29 |
|
| Total Assets | $ | 595,516 |
| | $ | 626,312 |
| | $ | 636,751 |
| | $ | 642,269 |
| | $ | 722,667 |
| $ | 722,146 |
| | $ | 644,519 |
| | $ | 595,516 |
| | $ | 626,312 |
| | $ | 636,751 |
|
| Long-Term Debt, Less Current Maturities | $ | 273 |
| | $ | 286 |
| | $ | 299 |
| | $ | 360 |
| | $ | 421 |
| $ | 268 |
| | $ | 294 |
| | $ | 273 |
| | $ | 286 |
| | $ | 299 |
|
| Cash Dividends Per Share: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Class A | $ | 0.18 |
| | $ | 0.18 |
| | $ | 0.18 |
| | $ | 0.40 |
| | $ | 0.62 |
| $ | 0.18 |
| | $ | 0.18 |
| | $ | 0.18 |
| | $ | 0.18 |
| | $ | 0.18 |
|
| Class B | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.42 |
| | $ | 0.64 |
| $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
|
TheFiscal year 2014 net income statement activityincluded $0.2 million ($0.01 per diluted share) of discontinued operationsafter-tax restructuring expenses, $3.4 million ($0.09 per diluted share) of after-tax income resulting from settlements received related to two antitrust class action lawsuits in eachwhich the Company was a class member, an after-tax gain of $1.1 million ($0.03 per diluted share) for the years ended June 30, 2012, 2011, 2010,sale of an idle Furniture segment manufacturing facility and 2009land located in Jasper, Indiana, after-tax impairment of $0.7 million ($0.02 per diluted share) for an aircraft which was zero. The preceding table excludes allsubsequently sold, and $2.8 million ($0.07 per diluted share) of after-tax expense related to the spin-off.
Fiscal year 2013 net income statement activityincluded $0.3 million ($0.01 per diluted share) of discontinued operations in the year ended June 30, 2008.after-tax restructuring expenses.
Fiscal year 2012 net income from continuing operations included $2.1 million ($0.06 per diluted share) of after-tax restructuring expenses.
Fiscal year 2011 net income from continuing operations included $0.6 million ($0.01 per diluted share) of after-tax restructuring expenses.
Fiscal year 2010 net income from continuing operations included $1.2 million ($0.03 per diluted share) of after-tax restructuring expenses, $2.0 million ($0.05 per diluted share) of after-tax income resulting from settlement proceeds related to an antitrust lawsuit of which the Company was a class member, and $7.7 million ($0.20 per diluted share) of after-tax income from the sale of the facility and land in Poland.
Fiscal year 2009 income from continuing operations included $1.8 million ($0.04 per diluted share) of after-tax restructuring expenses, $9.1 million ($0.24 per diluted share) of after-tax non-cash goodwill impairment, $1.6 million ($0.04 per diluted share) of after-tax income from earnest money deposits retained by the Company resulting from the termination of a contract to sell the Company's Poland facility and land, and $18.9 million ($0.51 per diluted share) of after-tax gains on the sale of undeveloped land holdings and timberlands.
Fiscal year 2008 income from continuing operations included $14.6 million ($0.39 per diluted share) of after-tax restructuring expenses and $0.7 million ($0.02 per diluted share) of after-tax income received as part of a Polish offset credit program for investments made in the Company's Poland operation.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Kimball International, Inc. ("the Company," "Kimball," "we," us," or "our") provides a variety of products from itsour two business segments: the Electronic Manufacturing Services (EMS)("EMS") segment and the Furniture segment. The EMS segment provides engineering, manufacturing, and manufacturingsupply chain services which utilize common production and support capabilities globally tospecializes in producing durable electronics for the automotive, medical, automotive, industrial, and public safety industries.markets globally. The Furniture segment provides furniture for the office and hospitality industries, sold under the Company'sKimball's family of brand names.
ProjectionsKey economic indicators currently point toward continued strengthening in the overall economy. However, uncertainties still exist and 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.
EMS industry projections for calendar year 20122014 (by IDC and IHS iSuppli in January 2012) reported a range of projected growth from flat to
4% in the EMS industry. In addition,April 2014 MMI publication) are growth of 9% for calendar year 2014 over 2013 and growth of 7% for calendar year 2015 over 2014. Additionally, in June 2014 the Semiconductor Industry Association (SIA) reported in January 2012 thatendorsed a forecast for year-over-year semiconductor sales are projected to have low single-digit growth inof 7% for calendar year 2012,2014 and 3% for calendar year 2015, and although the Company does not directly serve this market, it may be indicative of the end
market demand for products utilizing electronic components. More recentWithin the EMS industry outlooks have not been widely published as there are no clear trends defining the industry this year as the various markets have mixed outlooks.
The Company focusessegment, our focus is on the four key vertical markets of automotive, medical, automotive, industrial, and public safety insafety. Our overall expectation for the EMS segment. This segment's overall demand continues to stabilize,market is that of moderate growth, but is mixed.with mixed demand. The automotive end market is benefiting from relative strength in the U.S. market and improvement in the Chinese market, while demand in other geographies such as Europe is less certain due toare showing signs of improvement despite the lingering impact of the European debt crisis. The industrial market demand is improving but continues to reflect a lower demand for heating, cooling, and ventilation (HVAC) products than historical levels.demand from our customers that provide product and solutions to climate control applications. We are seeing demand in the public safety market starting to stabilize. Demand in the medical and public safety marketsmarket remains stable. We continue to monitor the current economic environment and its potential impact on our customers.
As of June 2012,In relation to the office furniture industry, the Business and Institutional Furniture Manufacturer Association (BIFMA) forecastedforecast (by IHS as of June 2014) projects a year-over-year increase in the office furniture industryof 7% for calendar year 20122014 and an increase of 5% with improved growth of 7% forecast11% for calendar year 2013.2015. The forecast for two of the leading indicators for the hospitality furniture market forecasts (June 2012 reports by Smith Travel(May 2014 PwC and June 2014 PKF Hospitality Research and PricewaterhouseCoopers LLP) projectreports) include anapproximate 2% increase in occupancy rates of 1% to 2% and an approximate 6%increase in revenue per available room (RevPAR)RevPAR (Revenue Per Available Room) of 6% to 7% for calendar year 2012.2014 over calendar year 2013.
Competitive pricing pressures continue to burden the operating margins of select areas within both segments of the Company's operations.
The Company is committed to ensuring it sustains the cost efficiencies and process improvements undertaken during the recession. In addition, a long-standing component of the Company's profit sharing incentive bonus plan is that it is linked to the Company's worldwide, group, or business unit performance which adjusts compensation expense as profits change. The focus on cost control continues. At the same time, the Company plans to continue toWe invest in capital expenditures prudently for projects in support of both organic growth and potential acquisitions that would enhance the Company'sour capabilities and diversification while providing an opportunity for growth and improved profitability. The Company also continues toWe have a strong focus on cost control and closely monitor market changes and itsour liquidity in order to proactively adjust itsour 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, group, or business unit performance which is designed to adjust compensation expense as profits change.
The Company continuedWe continue to maintain a strong balance sheet, as of the end of fiscal year 2012,which included minimal long-term debt of $0.3 million and Share Owners' equity of $386.2441.5 million as of June 30, 2014. The Company'sOur short-term liquidity available, represented as cash and cash equivalents plus the unused amount of the Company's revolvingour credit facility,facilities, was $170.9221.5 million at June 30, 20122014.
In addition to the above discussion, related to the current market conditions, management currently considers the following events, trends, and uncertainties to be most important to understanding the Company'sour financial condition and operating performance:
While certain sectors are showing signs of economic recovery, the macroeconomic environment remains volatile as a result of continued uncertainty related to the European debt crisis, the upcoming U.S. elections, and the potential tax increases and spending cuts looming at the end of calendar year 2012. The uncertainty tends to cause disruption in business strategy, execution, and timing in many of the markets in which the Company competes.
The nature of the EMS industry is such that the start-up of new programs to replace departing customers or expiring programs occurs frequently. As previously announced, the Company's sales to Bayer AG began to decline in the fourth quarter of fiscal year 2011 as the Company's primary manufacturing contract with Bayer AG expired. Margins on the Bayer AG product were generally lower than the Company's other EMS products. The Company continues to manufacture other products for Bayer AG. The success of the Company's EMS segment is dependent on the successful replacement of such customers or programs. Such changes usually occur gradually over time as old programs phase out of production while newer programs ramp up. The transition to new programs may temporarily reduce sales and increase operating costs, resulting in a temporary decline in operating profit at the impacted business unit.
Inflation has moderated and does not appear to be a significant risk in the near-term, but the Company continuesWe continue to focus on mitigating the impact of raw material commodity pricing pressures.
Due to the contract and project nature of the EMS and Furniture industries, fluctuation in the demand for 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 the EMS and Furniture segment discussions below for further details regarding current sales and open order trends.
The healthcare reform legislationnature of the electronic manufacturing services industry is such that was signed into lawthe start-up of new customers and new programs to replace expiring programs occurs frequently. Our agreements with customers are often not for a definitive term and generally may be canceled by customers at any time. As such, our ability to continue contractual relationships with our customers, including our principal customers, is not certain. New customers and program start-ups generally cause losses early in March 2010 and upheld by the Supreme Court in June 2012 is expected to increase the Company's healthcare and related administrative expenseslife of a program, which are generally recovered as the provisionsprogram becomes established and matures.
We continue to see volatility in order rates as customers continue to defer the purchase of new furniture for large projects driven by fiscal uncertainty which in turn can impact the law become effective over the next coupleoperating results of years.our Furniture segment.
Globalization continues to reshape not only the industries in which the Company operateswe operate but also itsour key customers and competitors.
The Company's employeesEmployees throughout itsour business operations are an integral part of the Company'sour ability to compete successfully, and the stability of itsthe management team is critical to long-term Share Owner value. The Company'sOur career development and succession planning processes help to maintain stability in management.
Planned Spin-Off
On January 20, 2014, we announced that our Board of Directors unanimously approved a plan to spin off our EMS segment which is expected to occur near the end of October 2014. The separation will result in two independent publicly-traded companies: Kimball International, Inc., an industry leader in the sale and manufacture of quality office and hospitality furniture; and Kimball Electronics, Inc., a leading global provider of electronic manufacturing services to the automotive, medical, industrial, and public safety markets.
Execution of the transaction requires further work on structure, management, governance and other significant matters. The completion of the spin-off is subject to certain customary conditions, including receipt of a legal opinion as to the tax-free nature of the spin-off for U.S. federal income tax purposes and regulatory approvals, as well as certain other matters. We can make no assurance that any spin-off transaction will ultimately occur, or, if one does occur, its terms or timing.
Certain preceding statements could be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties including, but not limited to, a significant changethe successful completion of the spin-off, adverse changes in the global economic conditions, loss of key customers or suppliers, or similar unforeseen events. Additional risk factors that could have an effect on our performance are located within Item 1A - Risk Factors. Fiscal Year 20122014 Results of Operations
Financial Overview - Consolidated
Fiscal year 20122014 consolidated net sales were $1.141.29 billion compared to fiscal year 20112013 net sales of $1.20 billion, a 5%7% decrease, resulting from a 15% net sales decrease in the EMS segment which more than offsetincrease, driven by a 9% net sales increase in the Furniture segment and a 5% net sales increase in the EMS segment. Fiscal year 20122014 net income was $11.633.5 million, or $0.310.86 per Class B diluted share, inclusive of $2.1 million, or $0.06 per Class B diluted share, of after-tax restructuring costs primarily related to the European consolidation plan.share. The Company recorded net income for fiscal year 20112013 of $4.919.9 million, or $0.140.52 per Class B diluted share, inclusive of $0.6 million, or $0.01 per Class B diluted share, of after-tax restructuring costs primarily related to the European consolidation plan.share.
Consolidated gross profit as a percent of net sales improved to 18.4%19.9% for fiscal year 20122014 from 16.2%18.6% in fiscal year 20112013 primarily due to margin improvement in both the EMS and Furniture segments coupled with a shift in sales mix (as depicted in the table below) toward the Furniture segment which operates at a higher gross profit percentage than the EMS segment. Gross profit is discussed in more detail in the following segment discussions below.discussions.
| | | Segment Net Sales as a % of Consolidated Net Sales | Year Ended | Year Ended |
| | June 30 | June 30 |
| | 2012 | | 2011 | 2014 | | 2013 |
| EMS segment | 54% | | 60% | 58% | | 58% |
| Furniture segment | 46% | | 40% | 42% | | 42% |
Fiscal year 20122014 consolidated selling and administrative expenses decreased 1.6% in absolute dollars, but increased as a percent of net sales increased 0.4 of a percentage point compared to fiscal year 2011, on decreased operating leverage2013, and increased 10.2% in absolute dollars primarily due to lower revenue. The Company recorded $3.1increased profit-based incentive compensation costs, along with higher salary and employee benefits expense. During fiscal year 2014 selling and administrative expenses were also impacted by $3.0 million lessof incremental external expenses incurred related to the planned spin-off of our EMS segment a majority of which were for professional services such as legal and auditing services, a $1.2 million pre-tax loss on the sale of an aircraft, and higher commission expense resulting from the higher sales volumes. In addition, we had an unfavorable variance within selling and administrative expenses in fiscal year 2012 than fiscal year 2011of $1.3 million related to the normal revaluation to fair value of the Company'sour Supplemental Employee Retirement Plan (SERP)("SERP") liability. The revaluation ofimpact from the change in the SERP liability recordedthat was recognized in selling and administrative expenses is exactlywas offset bywith the revaluationchange in fair value of the SERP investmentinvestments which was recorded in Other Income (Expense); therefore,, and thus there was no effect on net earnings.income. Employee contributions comprise approximately 90% of the SERP investment. Partially offsetting the lower SERP expenseaforementioned increases was a $1.7 million pre-tax gain recognized on the sale of an increaseidle facility in incentive compensation expenses inthe Furniture segment during fiscal year 2012 as compared2014 and a $1.0 million decline in bad debt expense primarily driven by a prior year allowance for uncollectible receivables related to fiscal year 2011.one specific customer.
Fiscal year 2012 other expense totaled2014 Other General Income included $0.75.7 million comparedof pre-tax income resulting from settlements received related to other incometwo antitrust class action lawsuits in which Kimball was a class member. The lawsuits alleged that certain EMS segment suppliers conspired over a number of $2.0 million foryears to raise and fix the prices of electronic components, resulting in overcharges to purchasers of those components. We recorded no Other General Income during fiscal year 2013.2011.
Other income (expense) consisted of the following:
| | | Other Income (Expense) | Year Ended | Year Ended |
| | June 30 | June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | 2014 | | 2013 |
| Interest Income | $ | 430 |
| | $ | 820 |
| $ | 220 |
| | $ | 404 |
|
| Interest Expense | (35 | ) | | (121 | ) | (28 | ) | | (35 | ) |
| Foreign Currency/Derivative Gain (Loss) | 568 |
| | (1,208 | ) | |
| Gain (Loss) on Supplemental Employee Retirement Plan Investment | (3 | ) | | 3,064 |
| |
| Impairment Loss on Privately-Held Investment | (715 | ) | | — |
| |
| Impairment Loss on Convertible Debt Securities | — |
| | (1,216 | ) | |
| Gain (Loss) on Stock Warrants | (526 | ) | | 1,041 |
| |
| Foreign Currency/Derivative Loss | | (161 | ) | | (112 | ) |
| Gain on Supplemental Employee Retirement Plan Investment | | 3,274 |
| | 2,000 |
|
| Impairment on Privately-Held Investment | | (91 | ) | | (1,019 | ) |
| Loss on Stock Warrants | | (25 | ) | | (885 | ) |
| Other | (406 | ) | | (359 | ) | (599 | ) | | (691 | ) |
| Other Income (Expense), net | $ | (687 | ) | | $ | 2,021 |
| $ | 2,590 |
| | $ | (338 | ) |
The impairment loss on the privately-held investment the impairment loss on convertible debt securities, and the gain (loss)loss on stock warrants listed in the table above allboth relate to the Company'sour investment in one privately-held company. See the Notes to Consolidated Financial Statements for more detailed information.
Our income before income taxes and effective tax rate was comprised of the following U.S. and foreign components:
|
| | | | | | | | | | | | | |
| | Year Ended June 30, 2014 | | Year Ended June 30, 2013 |
| (Amounts in Thousands) | Income Before Taxes | | Effective Tax Rate | | Income Before Taxes | | Effective Tax Rate |
| United States | $ | 18,343 |
| | 36.3 | % | | $ | 2,525 |
|
| (24.5 | )% |
| Foreign | $ | 24,830 |
| | 12.3 | % | | $ | 20,138 |
|
| 16.9 | % |
| Total | $ | 43,173 |
| | 22.5 | % | | $ | 22,663 |
|
| 12.3 | % |
The fiscal year 20122014 effective tax rate of 22.5%was 34.3%.favorably impacted by a high mix of earnings in foreign jurisdictions which have lower statutory tax rates than the U.S. The foreign effective tax rate for fiscal year 20112014 was favorably impacted by $1.4 million of adjustments related to decreases in foreign deferred tax asset valuation allowances.
During fiscal year 2013, we had a disproportionate mix of sales and pre-tax income between our foreign and domestic operations. Our foreign operations recorded $20.1 million of pre-tax income on $353.9 million of sales and our domestic operations recorded $2.5 million of pre-tax income on $849.2 million of sales. The lower domestic pre-tax income in fiscal year 2013 was primarily caused by 1) the Furniture segment (all domestic operations) which generated a small pre-tax loss for the year resulting from the loss of fixed cost leverage due to its low sales volume for the year and 2) the unallocated corporate loss during the year partially resulting from an impairment loss on a privately-held investment. The statutory tax rates in the foreign jurisdictions in which we operate are lower than the U.S. As a result of the lower foreign tax rates, the significantly higher proportion of earnings coming from foreign locations in fiscal year 2013 had a favorable impact on the fiscal year 2013 consolidated effective tax rate compared to the U.S. statutory rate. In addition, the fiscal year 2013 consolidated effective tax rate was (10.9)% asfavorably impacted by U.S. tax credits. These tax credits, coupled with relatively low pre-tax income coupled with the favorable impact of the Company's earnings mix and the research and development credit resulted in a tax benefit despite the Company's pre-tax income. The mix of earnings between U.S. and foreign jurisdictions largely contributed to the overall tax benefit due to losses in the U.S. which have a higher statutory, caused the negative U.S. tax rate thanshown above.
Our overall effective tax rate will fluctuate depending on the Company's foreign operations which were profitable in fiscal year 2011.geographic distribution of our worldwide earnings. See Note 8 - Income Taxes of Notes to Consolidated Financial Statements for more information. Comparing the balance sheet as of June 30, 20122014 to June 30, 20112013, the decrease in$14.9 million accounts receivable balance increase was a result ofprimarily driven by the Company's lowerincreased sales levels and a shift in the payment practices of three largeseveral EMS segment customers during fiscal year 2012 which favorably impacted the Company's accounts receivable balance. A reduction2014. Inventory balances have grown $16.5 million primarily in the Company's inventory balance was primarily the result of successful inventory reduction initiatives in both segments, and the Company'sorder to support increased sales volumes. The accounts payable balances declined in conjunction with the reduced inventory levels. The decreased accrued expenses balance increase of $18.7 million was primarily driven by a declineincreased inventory purchases and an increase in deposits received on custom Furniture orders which are classified in accounts payable. The accrued expenses balance increase of $20.4 million was largely driven by higher accrued compensation and a decline in accrued restructuring as the European consolidationunder our profit-sharing incentive bonus plan was completed during fiscal year 2012.resulting primarily from improved profitability.
Electronic Manufacturing Services Segment
EMS segment results follow:
| | | | At or For the Year | | |
| At or For the Year | | |
|
| | Ended June 30 | | | Ended June 30 | | |
| (Amounts in Millions) | 2012 | | 2011 | | % Change | 2014 | | 2013 | | % Change |
| Net Sales | $ | 616.8 |
| | $ | 721.4 |
| | (15 | )% | $ | 741.5 |
| | $ | 703.1 |
| | 5 | % |
| Operating Income | $ | 8.9 |
| | $ | 5.5 |
| | 62 | % | $ | 33.4 |
| | $ | 27.5 |
| | 21 | % |
| Operating Income % | 1.4 | % | | 0.8 | % | | | 4.5 | % | | 3.9 | % | | |
| Net Income | $ | 6.6 |
| | $ | 4.1 |
| | 62 | % | $ | 26.7 |
| | $ | 21.1 |
| | 26 | % |
| Restructuring Expense, net of tax | $ | 1.7 |
| | $ | 0.5 |
| | |
| |
| Open Orders | $ | 170.6 |
| | $ | 165.1 |
| | 3 | % | $ | 178.0 |
| | $ | 174.5 |
| | 2 | % |
Fiscal year 20122014 EMS segment net sales increased to customers in the automotive and industrial industries, declined to customers in the public safety industry, and remained flat to customers in the medical industrial, and public safety industries decreasedindustry compared to fiscal year 20112013 which more than offset an increase. Despite the decline in netsales to JCI as discussed in further detail below, sales to customers in the automotive industry. The decline in net salesmarket improved primarily due to the medicalstrength of the Chinese market. Sales to customers in the industrial market increased primarily due to additional program awards from an existing customer. Sales to customers in the public safety industry was attributable to the expirationdecreased as a result of a contract with one medical customer (Bayer AG) latelower spending and delays in fiscal year 2011 which accounted for a $130.7 million decline in net sales in fiscal year 2012. Excluding this customer, net sales to the medical industry, as well as the overall EMS segment net sales, increased in fiscal year 2012 compared to fiscal year 2011.ordering by government agencies. Open orders as of June 30, 20122014 were up 3%2% compared to June 30, 2011. However,2013 as the expected decline in open orders to JCI was more than offset by increased open orders to other customers. Open orders at a point in time may not be indicative of future sales trends due to the contract nature of the Company's business.
Fiscal year 20122014 EMS segment gross profit as a percent of net sales improved 1.40.2 of a percentage point when compared to fiscal year 2013. Fiscal year 2013 gross profit was unfavorably impacted by a $1.4 million inventory write-down related to a single customer that went out of business.
EMS segment selling and administrative expenses in absolute dollars increased 10% in fiscal year 2014 as compared to fiscal year 2013, and increased 0.4 of a percentage point when compared to fiscal year 2013 due to higher profit-based incentive compensation costs resulting from improved earnings in fiscal year 2014 and increased salary expenses.
EMS segment Other General Income in fiscal year 2014 included $5.7 million of pre-tax income, or $3.4 million after-tax, resulting from settlements received related to two antitrust class action lawsuits in which Kimball was a class member. No Other General Income was recorded during fiscal year 2013.
Fiscal year 2014 EMS segment net income was favorably impacted by $1.4 million of tax adjustments related to a decrease in a foreign deferred tax asset valuation allowance.
Included in this segment were a significant amount of sales to JCI which accounted for the following portions of consolidated net sales and EMS segment net sales:
|
| | | |
| | Year Ended June 30 |
| | 2014 | | 2013 |
| Johnson Controls, Inc. sales as a percent of consolidated net sales | 8% | | 10% |
| Johnson Controls, Inc. sales as a percent of EMS segment net sales | 13% | | 17% |
The nature of the electronic manufacturing services industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. New customers and program start-ups generally cause losses early in the life of a program, which are generally recovered as the program becomes established and matures. Volumes for one of our largest contracts with JCI, which accounted for approximately $46 million in sales in fiscal year 2014, are expected to decline in fiscal year 2015 as certain JCI programs reach end-of-life. In addition, during the second quarter of our fiscal year 2014, due to its available capacity JCI decided to in-source other programs manufactured by our EMS segment which accounted for approximately $33 million in sales in fiscal year 2014. The transition to JCI's in-sourcing will occur in stages and began in our fourth quarter of fiscal year 2014 with the transition expected to be substantially complete by January 2015. Gross profit as a percent of net sales on the JCI product approximates the overall segment gross margin. Agreement has been reached with JCI for the end-of-life production, and revenue will be impacted, but much of that volume already has been and is expected to continue to be replaced with new business.
Risk factors within the EMS segment include, but are not limited to, general economic and market conditions, customer order delays, increased globalization, foreign currency exchange rate fluctuations, rapid technological changes, component availability, supplier and customer financial stability, the contract nature of this industry, the concentration of sales to large customers, and the potential for customers to choose a dual sourcing strategy or to in-source a greater portion of their electronics manufacturing. The continuing success of this segment is dependent upon our ability to replace expiring customers/programs with new customers/programs. Additional risk factors that could have an effect on our performance are located within Item 1A - Risk Factors. Furniture Segment
Furniture segment results follow:
|
| | | | | | | | | | |
| | At or For the Year | | |
| | Ended June 30 | | |
| (Amounts in Millions) | 2014 | | 2013 | | % Change |
| Net Sales | $ | 543.8 |
| | $ | 500.0 |
| | 9 | % |
| Operating Income (Loss) | $ | 16.4 |
| | $ | (0.4 | ) | |
|
|
| Operating Income (Loss) % | 3.0 | % | | (0.1 | )% | | |
| Net Income | $ | 10.4 |
| | $ | 0.1 |
| |
|
|
| Open Orders | $ | 97.2 |
| | $ | 95.7 |
| | 2 | % |
The fiscal year 2014 net sales increase in the Furniture segment compared to fiscal year 2013 resulted from increased net sales of both hospitality furniture and office furniture. The increase in furniture net 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 within the office furniture industry increased compared to fiscal year 2013 except for a decline in sales to the federal government. Open orders of furniture products at June 30, 2014 increased 2% from the orders open as of June 30, 2013 on higher orders of hospitality furniture which more than offset a decline in office furniture open orders. Open orders at a point in time may not be indicative of future sales trends.
Fiscal year 2014 Furniture segment gross profit as a percent of net sales increased 2.5 percentage points when compared to fiscal year 20112013. 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.
Compared to fiscal year 2013, fiscal year 2014 selling and administrative expenses as a percent of net sales decreased 0.6 of a percentage point due to the higher sales volumes but increased 7% in absolute dollars primarily due to increased profit-based incentive compensation costs, increased salary and employee benefit expenses, and higher commissions resulting from the higher sales, which were partially offset by a $1.7 million pre-tax gain recognized on the sale of an idle facility during fiscal year 2014.
Risk factors within this segment include, but are not limited to, general economic and market conditions, increased global competition, financial stability of customers and suppliers, supply chain cost pressures, and relationships with strategic customers and product distributors. Additional risk factors that could have an effect on our performance are located within Item 1A - Risk Factors.
Fiscal Year 2013 Results of Operations
Financial Overview - Consolidated
Fiscal year 2013 consolidated net sales were $1.20 billion compared to fiscal year 2012 net sales of $1.14 billion, a 5% increase, resulting from a 14% increase in the EMS segment which more than offset a 5% decrease in the Furniture segment. Fiscal year 2013 net income was $19.9 million, or $0.52 per Class B diluted share, inclusive of $0.3 million, or $0.01 per Class B diluted share, of after-tax restructuring costs. The Company recorded net income for fiscal year 2012 of $11.6 million, or $0.31 per Class B diluted share, inclusive of $2.1 million, or $0.06 per Class B diluted share, of after-tax restructuring costs primarily related to the European consolidation plan.
Consolidated gross profit as a percent of net sales improved to 18.6% for fiscal year 2013 from 18.4% in fiscal year 2012 due to margin improvement in the EMS segment, which was partially offset by a decline in Furniture segment margin coupled with a shift in sales mix (as depicted in the table below) toward the EMS segment which operates at a lower gross profit percentage than the Furniture segment. Gross profit is discussed in more detail in the segment discussions below.
|
| | | |
| Segment Net Sales as a % of Consolidated Net Sales | Year Ended |
| | June 30 |
| | 2013 | | 2012 |
| EMS segment | 58% | | 54% |
| Furniture segment | 42% | | 46% |
Fiscal year 2013 consolidated selling and administrative expenses as a percent of net sales increased 0.2 of a percentage point compared to fiscal year 2012, and increased 6.5% in absolute dollars primarily due to increased incentive compensation costs. In addition, we recorded $2.0 million more expense within selling and administrative expenses in fiscal year 2013 than fiscal year 2012 related to the normal revaluation to fair value of the Company's Supplemental Employee Retirement Plan ("SERP") liability. The revaluation of the SERP liability recorded in selling and administrative expenses is offset by the revaluation of the SERP investment recorded in Other Income (Expense), and thus there was no effect on net income.
Other income (expense) consisted of the following:
|
| | | | | | | |
| Other Income (Expense) | Year Ended |
| | June 30 |
| (Amounts in Thousands) | 2013 | | 2012 |
| Interest Income | $ | 404 |
| | $ | 430 |
|
| Interest Expense | (35 | ) | | (35 | ) |
| Foreign Currency/Derivative Gain (Loss) | (112 | ) | | 568 |
|
| Gain (Loss) on Supplemental Employee Retirement Plan Investment | 2,000 |
| | (3 | ) |
| Impairment on Privately-Held Investment | (1,019 | ) | | (715 | ) |
| Loss on Stock Warrants | (885 | ) | | (526 | ) |
| Other | (691 | ) | | (406 | ) |
| Other Expense, net | $ | (338 | ) | | $ | (687 | ) |
The impairment on the privately-held investment and the loss on stock warrants listed in the table above both relate to the Company's investment in one privately-held company. See the Notes to Consolidated Financial Statements for more detailed information. Our income before income taxes and effective tax rate was comprised of the following U.S. and foreign components:
|
| | | | | | | | | | | | | |
| | Year Ended June 30 , 2013 | | Year Ended June 30 , 2012 |
| (Amounts in Thousands) | Income Before Taxes | | Effective Tax Rate | | Income Before Taxes | | Effective Tax Rate |
| United States | $ | 2,525 |
| | (24.5 | )% | | $ | 7,831 |
| | 41.5 | % |
| Foreign | $ | 20,138 |
| | 16.9 | % | | $ | 9,871 |
| | 28.9 | % |
| Total | $ | 22,663 |
| | 12.3 | % | | $ | 17,702 |
| | 34.3 | % |
During fiscal year 2013, we had a disproportionate mix of sales and pre-tax income between our foreign and domestic operations. Our foreign operations recorded $20.1 million of pre-tax income on $353.9 million of sales and our domestic operations recorded $2.5 million of pre-tax income on $849.2 million of sales. The lower domestic pre-tax income in fiscal year 2013 was primarily caused by 1) the Furniture segment (all domestic operations) which generated a small pre-tax loss for the year resulting from the loss of fixed cost leverage due to its low sales volume for the year and 2) the unallocated corporate loss during the year partially resulting from an impairment loss on a privately-held investment.
Our consolidated effective tax rate in fiscal year 2013 was 12.3% compared to 34.3% in fiscal year 2012. The statutory tax rates in the foreign jurisdictions in which we operate are lower than the U.S. As a result of the lower foreign tax rates, the significantly higher proportion of earnings coming from foreign locations in fiscal year 2013 had a favorable impact on the
consolidated effective tax rate in fiscal year 2013. In addition, the fiscal year 2013 consolidated effective tax rate was favorably impacted by U.S. tax credits. These tax credits, coupled with relatively low pre-tax income in the U.S., caused the negative U.S. tax rate shown above. The foreign effective tax rate in fiscal year 2012 was unfavorably impacted by currency fluctuations that are not taxed in the foreign jurisdictions. See Note 8 - Income Taxes of Notes to Consolidated Financial Statements for more information. Electronic Manufacturing Services Segment
EMS segment results follow:
|
| | | | | | | | | | |
| | At or For the Year | | |
|
| | Ended June 30 | | |
| (Amounts in Millions) | 2013 | | 2012 | | % Change |
| Net Sales | $ | 703.1 |
| | $ | 616.8 |
| | 14 | % |
| Operating Income | $ | 27.5 |
| | $ | 8.9 |
| | 209 | % |
| Operating Income % | 3.9 | % | | 1.4 | % | | |
| Net Income | $ | 21.1 |
| | $ | 6.6 |
| | 222 | % |
| Restructuring Expense, net of tax | $ | 0.1 |
| | $ | 1.7 |
| | |
|
| Open Orders | $ | 174.5 |
| | $ | 170.6 |
| | 2 | % |
Fiscal year 2013 EMS segment net sales to customers in the automotive, medical, industrial, and public safety industries all increased compared to fiscal year 2012. Sales to customers in the automotive industry were favorably impacted by the strength in the U.S. market, the uptick in the China market, and additional program awards from existing customers in the European market. Sales to customers in the medical industry improved on increased demand from existing customers and new customer program awards. Sales to customers in the industrial market increased primarily on additional program awards from an existing customer and the increased demand from customers that provide product and solutions to climate control applications compared to the prior fiscal year. Sales to customers in the public safety industry benefited from the ramp up of select product lines. Open orders as of June 30, 2013 were up 2% compared to June 30, 2012.
Fiscal year 2013 EMS segment gross profit as a percent of net sales improved 2.0 percentage points when compared to fiscal year 2012. The improvement in gross profit as a percent of net sales was primarily driventhe result of leverage gained on higher revenue as well as benefits gained from global purchasing efforts and operating efficiencies related to continuous improvement initiatives. The EMS segment fiscal year 2013 gross profit was also favorably impacted by the benefit from a sales mix shift toward higher margin product and benefits realized related tofrom restructuring activities in which two facilities were closed during the second quarter of fiscal year 2012. EMS segment fiscal year 2013 gross profit was unfavorably impacted by a $1.4 million inventory reserve recorded relating to a customer that notified us they were going out of business.
EMS segment selling and administrative expenses in absolute dollars decreased 11%increased 15% in fiscal year 20122013 as compared to fiscal year 2011, but increased2012, and were flat as a percent of net sales ondue to the lowerhigher sales volumes. The selling and administrative expenses declinedincreased primarily due to benefits realized from restructuring activities within this segment.higher incentive compensation costs related to the significant improvement in the EMS segment earnings.
The previously announced exit of the Company's small assembly facility located in Fremont, California was completed during fiscal year 2012 along with the associated move of a majority of that business to the Jasper, Indiana facility. In addition, the previously announced consolidation of the Company's European EMS facilities was likewise completed during fiscal year 2012. See Note 17 - Restructuring Expense of Notes to Consolidated Financial Statements for more information on restructuring charges. EMS segment Other Income/ExpenseIncome (Expense) for fiscal year 20122013 totaled expense of $0.3$0.9 million,, compared to expense of $1.9$0.3 million in fiscal year 2011.2012. The variance in Other Income/ExpenseIncome (Expense) was primarily related to net foreign currency exchange movement.
Included in this segment were a significant amount of sales to Bayer AG affiliates in the prior fiscal yearJohnson Controls, Inc. which accounted for the following portions of consolidated net sales and EMS segment net sales:
|
| | | |
| | Year Ended June 30 |
| | 2012 | | 2011 |
| Bayer AG affiliated sales as a percent of consolidated net sales | —% | | 11% |
| Bayer AG affiliated sales as a percent of EMS segment net sales | 1% | | 19% |
|
| | | |
| | Year Ended June 30 |
| | 2013 | | 2012 |
| Johnson Controls, Inc. sales as a percent of consolidated net sales | 10% | | 9% |
| Johnson Controls, Inc. sales as a percent of EMS segment net sales | 17% | | 17% |
The Company's sales to Bayer AG declined due to the expiration of the Company's primary manufacturing contract with this customer. This contract accounted for a majority of the sales to Bayer AG during fiscal year 2011. Margins on the Bayer AG product were generally lower than the Company's other EMS products. The nature of the electronic manufacturing services industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. New customer and program start-ups generally cause losses early in the life of a program, which are generally recovered as the program becomes established and matures. This segment continues to experience margin pressures related to an overall excess capacity position in the electronics subcontracting services market.
Risk factors within the EMS segment include, but are not limited to, general economic and market conditions, customer order delays, increased globalization, foreign currency exchange rate fluctuations, rapid technological changes, component availability, supplier stability, the contract nature of this industry, the concentration of sales to large customers, and the potential for customers to choose a dual sourcing strategy or to in-source a greater portion of their electronics manufacturing. The continuing success of this segment is dependent upon its ability to replace expiring customers/programs with new customers/programs. Additional risk factors that could have an effect on the Company's performance are located within Item 1A - Risk Factors.Furniture Segment
Furniture segment results follow:
| | | | At or For the Year | | | At or For the Year | | |
| | Ended June 30 | | | Ended June 30 | | |
| (Amounts in Millions) | 2012 | | 2011 | | % Change | 2013 | | 2012 | | % Change |
| Net Sales | $ | 525.3 |
| | $ | 481.2 |
| | 9 | % | $ | 500.0 |
| | $ | 525.3 |
| | (5 | )% |
| Operating Income | $ | 11.9 |
| | $ | 1.1 |
| | 1,003 | % | |
| Operating Income % | 2.3 | % | | 0.2 | % | | | |
| Operating Income (Loss) | | $ | (0.4 | ) | | $ | 11.9 |
| | (103 | )% |
| Operating Income (Loss) % | | (0.1 | )% | | 2.3 | % | | |
| Net Income | $ | 7.0 |
| | $ | 0.5 |
| | 1,374 | % | $ | 0.1 |
| | $ | 7.0 |
| | (99 | )% |
| Open Orders | $ | 72.0 |
| | $ | 90.4 |
| | (20 | )% | $ | 95.7 |
| | $ | 72.0 |
| | 33 | % |
The fiscal year 20122013 net sales increasedecrease in the Furniture segment compared to fiscal year 20112012 resulted primarily from increaseddecreased net sales of hospitality furniture and to a lesser extent from increaseddecreased net sales of office furniture. The increase inlower hospitality furniture net sales of hospitality furniture was driven bywere due to two unusually large custom projects that were completed during fiscal year 2012. The increasedecrease in office furniture net sales was due to decreased sales volumes which more than offset the positive impact of price increases net of incremental discounting which more than offset a decrease in sales volume. Fiscal year 2012 salesdiscounting. The largest driver of newly introducedthe decreased office furniture products which have been sold for less than twelve months approximated $13.5 million.sales volumes was lower sales to the federal government. Open orders of furniture products at June 30, 2012 decreased 20%2013 increased 33% from the orders open as of June 30, 2011 primarily due to lower2012 on higher orders of both office furniture orders from the U.S. federal government and a large hospitality custom project received near the end of fiscal year 2011 which was included in the June 30, 2011 open orders. Open orders at a point in time may not be indicative of future sales trends.furniture.
Fiscal year 20122013 Furniture segment gross profit as a percent of net sales improved 0.7declined 0.4 of a percentage pointspoint when compared to fiscal year 2011.2012. Items unfavorably impacting the year-over-year gross margin comparison were the loss of leverage due to lower current year sales volumes, an unfavorable sales mix, a prior year favorable impact resulting from a decrease in the LIFO inventory reserve, and a prior year recovery of previously paid import duties related to a retroactive change in a tariff rate. Fiscal year 20122013 gross profit as a percent of net sales was favorably impacted by sales price increases net of incremental discounting by a recovery of previously paid import duties related to a retroactive change in a tariff rate, and by the favorable impact resulting from a decrease in the LIFO inventory reserve. The improvement inlower commodity costs.
Compared to fiscal year 2012, gross profit fiscal year 2013 selling and administrative expenses as a percent of net sales was partially offset by commodity cost increases, higher freightincreased 1.9 percentage points largely due to the lower sales volumes and fuel costs, and the impact of excess operating capacity at select locations.
Fiscal year 2012also due to a 2.1% absolute dollar increase in selling and administrative expenses increased in absolute dollars by 3.9%, but decreased as a percent of net sales on the higher sales volumes, when compared to fiscal year 2011. The selling and administrative expenses were impacteddriven by higher salary expenses, higher incentive compensation costs, and increased travel expenses.
Risk factors within this segment include, but are not limited to, general economic and market conditions, increased global competition, financial stability of customers, supply chain cost pressures, and relationships with strategic customers and product distributors. Additional risk factors that could have an effect on the Company's performance are located within Item 1A - Risk Factors.
Fiscal Year 2011 Results of Operations
Financial Overview - Consolidated
Fiscal year 2011 consolidated net sales were $1.20 billion compared to fiscal year 2010 net sales of $1.12 billion, a 7% increase, resulting from a 16% net sales increase in the Furniture segment and a 2% net sales increase in the EMS segment. Fiscal year 2011 net income was $4.9 million, or $0.14 per Class B diluted share, inclusive of $0.6 million, or $0.01 per Class B diluted share, of after-tax restructuring costs primarily related to the European consolidation plan. The Company recorded net income for fiscal year 2010 of $10.8 million, or $0.29 per Class B diluted share, inclusive of $1.2 million, or $0.03 per Class B diluted share, of after-tax restructuring costs primarily related to the European consolidation plan. The fiscal year 2010 results also included the following items: a $7.7 million after-tax gain, or $0.20 per Class B diluted share, related to the sale of a facility and land in Poland, and $2.0 million of after-tax income, or $0.05 per Class B diluted share, resulting from settlement proceeds related to an antitrust class action lawsuit of which the Company was a class member.
Consolidated gross profit as a percent of net sales improved to 16.2% for fiscal year 2011 from 15.7% in fiscal year 2010 primarily due to a shift in sales mix (as depicted in the table below) toward the Furniture segment which operates at a higher gross profit percentage than the EMS segment. Gross profit is discussed in more detail in the segment discussions below.
|
| | | |
| Segment Net Sales as a % of Consolidated Net Sales | Year Ended |
| | June 30 |
| | 2011 | | 2010 |
| EMS segment | 60% | | 63% |
| Furniture segment | 40% | | 37% |
Fiscal year 2011 consolidated selling and administrative expenses increased 5.2% in absolute dollars, but decreased as a percent of net sales, compared to fiscal year 2010, on increased operating leverage as a result of the increase in revenue. The increase in absolute dollars was primarily due to higher commissions in the Furniture segment resulting from the higher sales volumes and higher labor costs which were partially offset by lower severance expense. In addition, the Company recorded $3.1 million of expense within selling and administrative expenses due to an increase in its SERP liability resulting from the normal revaluation of the liability to fair value during fiscal year 2011 compared to $1.5 million of expense which was recorded in fiscal year 2010. The value of the SERP investments increased causing additional selling and administrative expense related to the SERP liability. The SERP expense recorded in selling and administrative expenses was exactly offset by an increase in SERP investment income which was recorded in Other Income (Expense) as an investment gain; therefore, there was no effect on net earnings.
The Company recorded no Other General Income during fiscal year 2011. Other General Income in fiscal year 2010 included $6.7 million pre-tax gain recorded in the EMS segment related to the sale of the Company's land and facility that housed its Poland operation before moving to another facility in Poland. In addition, fiscal year 2010 Other General Income included $3.3 million of pre-tax income also recorded in the EMS segment resulting from settlement proceeds related to the antitrust class action lawsuit of which the Company was a class member.
Other Income (Expense) included other income of $2.0 million for fiscal year 2011 compared to other income of $3.3 million for fiscal year 2010. The variance in other income was driven by unfavorable foreign exchange movement that impacted the EMS segment and a $1.2 million impairment loss related to the valuation of convertible notes which were partially offset by the increased SERP investment income mentioned above and a revaluation of stock warrants resulting in a gain of $1.0 million.
The fiscal year 2011 effective tax rate was (10.9)% as relatively low pre-tax income coupled with the favorable impact of the Company's earnings mix and the research and development credit resulted in a tax benefit despite the Company's pre-tax income. The mix of earnings between U.S. and foreign jurisdictions largely contributed to the overall tax benefit due to losses in the U.S. which have a higher statutory tax rate than the Company's foreign operations which were profitable in fiscal year 2011. The fiscal year 2010 effective tax rate was (81.0)% as relatively low pre-tax income coupled with a tax benefit due to the Company's tax planning strategy related to the sale of its Poland facility and land and the favorable impact of the Company's earnings mix resulted in a tax benefit in fiscal year 2010 despite the Company's pre-tax income. See Note 8 - Income Taxes of Notes to Consolidated Financial Statements for more information.
Electronic Manufacturing Services Segment
EMS segment results follow:
|
| | | | | | | | | | |
| | At or For the Year | | |
|
| | Ended June 30 | | |
| (Amounts in Millions) | 2011 | | 2010 | | % Change |
| Net Sales | $ | 721.4 |
| | $ | 709.1 |
| | 2 | % |
| Operating Income | $ | 5.5 |
| | $ | 15.3 |
| | (64 | )% |
| Net Income | $ | 4.1 |
| | $ | 15.7 |
| | (74 | )% |
| Poland Land/Facility Gain, net of tax | $ | — |
| | $ | 7.7 |
| | |
| Restructuring Expense, net of tax | $ | 0.5 |
| | $ | 1.2 |
| | |
|
| Open Orders | $ | 165.1 |
| | $ | 199.1 |
| | (17 | )% |
Fiscal year 2011 EMS segment net sales to customers in the medical, industrial, and public safety industries increased compared to fiscal year 2010 which more than offset a decrease in net sales to customers in the automotive industry. Open orders were down 17% as of June 30, 2011 compared to June 30, 2010 primarily due to lower orders from Bayer AG.
Fiscal year 2011 EMS segment gross profit as a percent of net sales improved 0.2 percentage points when compared to fiscal year 2010. The improvement was primarily driven by the benefit from a sales mix shift toward higher margin product, lower depreciation expense, and improved labor efficiencies at select units which more than offset inefficiencies related to the European restructuring activities and higher component costs related to the rapid ramp up of new customer programs.
EMS segment selling and administrative expenses in absolute dollars increased 7% in fiscal year 2011 as compared to fiscal year 2010 and also increased as a percent of net sales primarily due to increased salaries and employee benefit costs.
The pre-tax restructuring charges recorded during fiscal year 2011 totaled $0.9 million. See Note 17 - Restructuring Expense of Notes to Consolidated Financial Statements for more information on restructuring charges. The restructuring expenses recorded in fiscal year 2010 were primarily related to the European consolidation plan.The EMS segment recorded no Other General Income during fiscal year 2011. EMS segment Other General Income for fiscal year 2010 included a $6.7 million pre-tax gain from the sale of the existing Poland facility and land. Including the tax benefit related to the sale of this facility and land, the after-tax gain was $7.7 million. In addition, Other General Income in fiscal year 2010 included $3.3 million of pre-tax income, or $2.0 million after-tax, resulting from settlement proceeds related to the antitrust class action lawsuit.
EMS segment Other Income/Expense for fiscal year 2011 totaled expense of $1.9 million, compared to income of $0.1 million in fiscal year 2010. The variance in Other Income/Expense was primarily related to unfavorable foreign currency exchange movement in fiscal year 2011.
As a percent of net sales, operating income was 0.8% for fiscal year 2011 and 2.2% for fiscal year 2010. Fiscal year 2010 operating income included the gain on the sale of the Poland facility and land and also included the settlement from the class action lawsuit.
The EMS segment fiscal year 2011 effective tax rate was favorably impacted by the earnings mix between U.S. and foreign jurisdictions. During fiscal year 2010, the EMS segment recorded $1.0 million of tax income related to the sale of the facility and land in Poland instead of tax expense normally associated with a gain, resulting from a tax planning strategy. The fiscal year 2010 EMS segment income tax was also favorably impacted by the mix of earnings between U.S. and foreign EMS operations.
Included in this segment are a significant amount of sales to Bayer AG affiliates which accounted for the following portions of consolidated net sales and EMS segment net sales:
|
| | | |
| | Year Ended June 30 |
| | 2011 | | 2010 |
| Bayer AG affiliated sales as a percent of consolidated net sales | 11% | | 15% |
| Bayer AG affiliated sales as a percent of EMS segment net sales | 19% | | 24% |
The Company's sales to Bayer AG began to decline in the fourth quarter of fiscal year 2011 due to the expiration of the Company's primary manufacturing contract with Bayer AG. This contract accounted for a majority of the sales to Bayer AG during fiscal years 2011 and 2010.
Furniture Segment
Furniture segment results follow:
|
| | | | | | | | | | |
| | At or For the Year | | |
| | Ended June 30 | | |
| (Amounts in Millions) | 2011 | | 2010 | | % Change |
| Net Sales | $ | 481.2 |
| | $ | 413.6 |
| | 16 | % |
| Operating Income (Loss) | $ | 1.1 |
| | $ | (9.4 | ) | | 111 | % |
| Net Income (Loss) | $ | 0.5 |
| | $ | (5.8 | ) | | 108 | % |
| Open Orders | $ | 90.4 |
| | $ | 70.6 |
| | 28 | % |
The fiscal year 2011 net sales increase in the Furniture segment compared to fiscal year 2010 resulted primarily from increased net sales of office furniture and to a lesser extent from increased net sales of hospitality furniture. The increase in office furniture sales was the result of higher sales volumes which were partially offset by higher discounting net of price increases. Fiscal year 2011 sales of newly introduced office furniture products which have been sold for less than twelve months approximated $17.1 million. Open orders of furniture products at June 30, 2011 increased 28% from the orders open as of June 30, 2010 as open orders for both office furniture and hospitality furniture increased.
Fiscal year 2011 Furniture segment gross profit as a percent of net sales declined 0.7 percentage points when compared to fiscal year 2010. Items contributing to the decline included increased discounting resulting from competitive pricing pressures and inflationary commodity cost increases. The gross profit decline was partially offset by price increases on select product and the increased operating leverage of the higher sales volumes.
Fiscal year 2011 selling and administrative expenses increased in absolute dollars by 4.1%, but decreased as a percent of net sales on the higher sales volumes, when compared to fiscal year 2010. The selling and administrative expenses were impacted by higher commissions resulting from the higher net sales, higher profit-based incentive compensation costs, and higher costs associated with sales and marketing initiatives to drive growth, which were partially offset by lower severancecosts and decreased commission expense.
As a percent of net sales, operating income (loss) was 0.2% for fiscal year 2011 and (2.3)% for fiscal year 2010.
Liquidity and Capital Resources
Working capital at June 30, 20122014 was $191.0246.2 million compared to working capital of $178.0214.4 million at June 30, 20112013. The current ratio was 2.0 at both June 30, 20122014 and 1.8 at June 30, 20112013.
The Company's internalOur measure of accounts receivable performance, also referred to as Days Sales Outstanding (DSO)("DSO"), for fiscal year 20122014 of 45.746.3 days improvedincreased compared to the 48.544.0 days for fiscal year 20112013. The Company definesDSO increase was primarily driven by the mix of sales among customers in the EMS segment. We define DSO as the average of monthly accounts and notes receivable divided by an average day's net sales. The Company'sOur Production Days Supply on Hand (PDSOH)("PDSOH") of inventory measure for fiscal year 20122014 declined to 58.953.5 days from 64.455.6 days for fiscal year 20112013. The improved PDSOH compared to the prior fiscal year corresponds withresulted primarily from ongoing successful initiatives to reduce or maintain EMS segment inventory reduction initiatives in both segments duringlevels as the current fiscal year. The Company definesbusiness grows. We define PDSOH as the average of the monthly gross inventory divided by an average day's cost of sales.
The Company'sKimball's short-term liquidity available, represented as cash and cash equivalents plus the unused amountamounts of the Company's revolvingour credit facility,facilities, totaled $170.9221.5 million at June 30, 20122014 compared to $146.2185.2 million at June 30, 2011.
The Company's cash and cash equivalents position improved to $75.2 million at June 30, 2012 from $51.4 million at June 30, 20112013. The CompanyWe had no short-term borrowings outstanding as of June 30, 20122014 or June 30, 20112013.
Our cash and cash equivalents position improved to $136.6 million at June 30, 2014 from $103.6 million at June 30, 2013, with $26.3 million held by our foreign operations as of June 30, 2014. Except for the nontaxable repayment of intercompany loans, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate these funds to our U.S. operations. However, if these funds were repatriated rather than used to repay intercompany loans, the amount remitted would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.
Operating activities generated $59.069.9 million of cash flow in fiscal year 20122014 compared to the $21.363.9 million of cash generated by operating activities in fiscal year 20112013. A largely due to increased net income. Changes in working capital balances provided $5.4 million of cash in fiscal year 2014 compared to providing cash of $6.4 million in fiscal year 2013. Cash generated from operating activities in fiscal year 2012 totaled $59.0 million and changes in working capital balances provided $8.7 million of cash.
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 which we classify in accounts payable. 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 EMS segment customers.
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 EMS segment production volumes 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 EMS segment sales volumes and a shift in the mix of EMS segment sales at the end of fiscal year 2013 toward customers with longer payment terms.
The $8.7 million of cash provided by changes in working capital balances in fiscal year 2012 was driven by a $20.5 million decline in our inventory balance due to successful inventory reduction initiatives in both segments, decreased accounts receivable balances of $6.7 million resulting from lower EMS segment sales levels and a shift in the payment practices of three large EMS segment customers during fiscal year 2012, favorably impacted and a $6.4 million decline in prepaid expenses and other current assets. These sources of cash flowwere partially offset by approximately $12.6a $17.7 million decline in accrued expenses primarily driven by a decline in accrued compensation and a decline in accrued restructuring from the completion of the European consolidation plan and a $7.1 million accounts payable decline in conjunction with the reduced inventory levels.
For fiscal years ended June 30, 2014, June 30, 2013, and June 30, 2012 net cash used for investing activities was $27.5 million, $28.0 million, and reduced DSO by one day.$25.7 million, respectively. During fiscal yearyears 20122014, the Company2013, and 2012 we reinvested $28.333.7 million, $28.8 million, and $28.3 million, respectively into capital investments for the future largelywith the largest investments being made for manufacturing equipment and facility improvements within both segments. The Company alsoDuring fiscal year 2015, we expect to increase our investment in capital expenditures, particularly for projects that will enhance our capabilities and diversification while providing an opportunity for growth and improved profitability including potential acquisitions if the opportunity arises.
For fiscal years ended June 30, 2014, June 30, 2013, and June 30, 2012 net cash used for financing activities was $9.4 million, $7.7 million, and $7.7 million, respectively. We paid dividends of $7.47.5 million of dividends, $7.4 million, and $7.4 million, in fiscal year 2012.years 2014, 2013, and 2012, respectively. Consistent with the Company'sour historical dividend policy, the Company's Board of Directors will evaluate the appropriate dividend payment on a quarterly basis.
During fiscal
year 2013, the Company expects2015, we anticipate cash outflow of approximately $28 million for deferred incentive compensation related to continue to invest in capital expenditures prudently, particularly for projects including potential acquisitions that would enhance the Company's capabilities and diversification while providing an opportunity for growth and improved profitability.our fiscal year 2014 performance.
AtWe maintain a June 30, 2012 and June 30, 2011, the Company had no short-term borrowings outstanding under its $10075 million credit facility described in more detail below. The Company also has several smaller foreign credit facilities available described in more detail below and likewise had no borrowings outstanding under these facilities as(the "primary facility") with a maturity date of June 30, 2012 or June 30, 2011.
At June 30, 2012, the Company had $4.3 million contingently committed in letters of credit against the $100 million credit facility. Total availability to borrow under the $100 million credit facility was $95.7 million at June 30, 2012.
The Company maintains the $100 million credit facility with an expiration date in April 2013December 2017 that allows for both issuances of letters of credit and cash borrowings. The $100 million creditprimary facility provides an option to increase the amount available for borrowing to $150115 million at the Company'sour request, subject to the consent of the participating banks. At both June 30, 2014 and June 30, 2013, we had no short-term borrowings outstanding under the primary facility. At June 30, 2014, we had $1.1 million in letters of credit which reduced our borrowing capacity on the primary facility.
The $10075 million credit facility upon which there were no borrowings at June 30, 2012, requires the Companyus to comply with certain debt covenants, the most significant of which are the interest coverage ratio of consolidated indebtedness to consolidated EBITDA (debt to EBITDA) and minimum net worth. The Company wasworth (excluding accumulated other comprehensive income). We were in compliance with the debt covenants of the credit facility during the fiscal year ended June 30, 20122014.
The table below compares the actual net worth and interest coveragedebt to EBITDA ratio with the limits specified in the credit agreement.
| | | Covenant | | At or For the Period Ended June 30, 2012 | | Limit As Specified in Credit Agreement | | Excess | | At or For the Period Ended June 30, 2014 | | Limit As Specified in Credit Agreement | | Excess |
| Minimum Net Worth | |
| $386,228,000 |
| |
| $362,000,000 |
| |
| $24,228,000 |
| |
| $439,094,000 |
| |
| $362,000,000 |
| |
| $77,094,000 |
|
| Interest Coverage Ratio | | 604.4 |
| | 3.0 |
| | 601.4 |
| |
| Debt to EBITDA Ratio | | | 0.02 |
| | 3.00 |
| | 2.98 |
|
The Interest Coveragedebt to EBITDA Ratio is calculated on a rolling four-quarter basis as defined in the credit agreement.
We believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under our credit facilities will be sufficient to meet our working capital and other operating needs for at least the next 12 months.
In addition to the $10075 million creditprimary facility, the CompanyKimball can opt to utilize foreign credit facilities which are available to satisfy short-term cash needs at a specific foreign location rather than funding from intercompany sources. The Company maintainsAt June 30, 2014 we had a foreignThailand overdraft credit facility which allows for its EMS segment operation in Thailand which is backed by the $100borrowings up to 90.0 million revolving credit facility. The Company has Thai Baht (approximately $2.8 million at June 30, 2014 exchange rates). We also have a credit facility for itsour EMS segment operation in Poland, which allows for multi-currency borrowings up to 6.0 million Euro equivalent (approximately $7.68.2 million U.S. dollars at June 30, 20122014 exchange rates). These foreign credit facilities can be canceled at any time by either the bank or the Company.by us. We had no borrowings outstanding under these foreign credit facilities as of June 30, 2014 or June 30, 2013.
The Company believes its principal sourcesTotal availability to borrow in USD equivalent under all of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under the Company'sour credit facilities will be sufficient for fiscal year 2013 and the foreseeable future. One of the Company's sourcestotaled $84.9 million at June 30, 2014.
Another source of funds is itsin addition to our credit facilities has been our ability to generate cash from operations to meet itsour liquidity obligations which could be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw material components in the supply chain, a decline in demand for the Company'sour products and services, loss of key contract customers, thecustomers/programs, our ability of the Company to generate profits, and other unforeseen circumstances. In particular, should demand for the Company'sour products decrease significantly over the next 12 months, the available cash provided by operations could be adversely impacted. Another source of funds is the Company's credit facilities. The Company expects to renew or negotiate a new credit facility to replace the current $100 million credit facility prior to its April 2013 expiration. However, a new or negotiated renewal of the credit facility may be less favorable in terms of borrowing costs than the current facility due to the impact that the current economic conditions have had on borrowing in general. In addition, changing conditions in the credit markets, prohibitive costs, or other unforeseen circumstances could adversely impact the renewal or replacement of this facility. During fiscal year 2012 there were no borrowings on the credit facility, and costs related to the credit facility were not significant.
The preceding statements include forward-looking statements under the Private Securities Litigation Reform Act of 1995. Certain factors could cause actual results to differ materially from forward-looking statements.
Fair Value
During fiscal year 20122014, no level 1 or level 2 financial instruments were affected by a lack of market liquidity. For level 1 financial assets, readily available market pricing was used to value the financial instruments. The Company'sOur foreign currency derivatives, which were classified as level 2 assets/liabilities, were independently valued using observable market inputs such as forward interest rate yield curves, current spot rates, and time value calculations. To verify the reasonableness of the independently determined fair values, these derivative fair values were compared to fair values calculated by the counterparty banks. The Company'sOur own credit risk and counterparty credit risk had an immaterial impact on the valuation of the foreign currency derivatives.
During fiscal year 2010, the Company purchased convertible debtKimball currently holds non-marketable equity securities of $2.3 million and stock warrants of $0.4 million of a privately-held company. During fiscal year 2011,Due to certain events and changes in circumstances that had adverse effects on the convertible debt securities experienced an other-than-temporary declinefair value of the investment in fair market value resulting in a $1.2 million impairment loss and, upon a qualified financing, were subsequently converted to non-marketable equity securities. Alsothe privately-held company, we revalued the investment which, during fiscal year 2011, the revaluation of stock warrantsyears 2014, 2013 and 2012, respectively, resulted in a $0.1 million, $1.0 million derivative gain as a result of the qualified financing. During fiscal year 2012, the privately-held company experienced delays in their start-up,, and therefore initiated another round of financing that the Company chose not to participate in, which resulted in the automatic conversion of preferred shares and warrants to common shares and warrants. Upon the conversion, the equity securities and warrants were revalued, resulting in an impairment loss of $0.7 million impairment on the equity securities, and a less than $0.1 million, $0.9 million, and $0.5 million derivative loss on the stock warrants during fiscal year 2012.
warrants. The investment in non-marketable equity securities is accounted for as a cost-method investment which carries the securities at cost. In the event of impairment, the valuation uses a probability-weighted Black-Scholes option pricing model. The stock warrants are classified as derivative instruments and are valued on a recurring basis using a market-based approach which utilizes a probability-weighted Black-Scholes option pricing model. The fair value measurements for stock warrants and the impairment of non-marketable equity securities were calculated using unobservable inputs and were classified as level 3 financial assets.
Contractual Obligations
The following table summarizes the Company's contractual obligations as of June 30, 20122014.
| | | | Payments Due During Fiscal Years Ending June 30 | Payments Due During Fiscal Years Ending June 30 |
| (Amounts in Millions) | Total | | 2013 | | 2014-2015 | | 2016-2017 | | Thereafter | Total | | 2015 | | 2016-2017 | | 2018-2019 | | Thereafter |
Recorded Contractual Obligations: (a) | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
Long-Term Debt Obligations (b) | $ | 0.3 |
| | $ | — |
| | $ | — |
| | $ | 0.1 |
| | $ | 0.2 |
| $ | 0.3 |
| | $ | — |
| | $ | — |
| | $ | 0.1 |
| | $ | 0.2 |
|
Other Long-Term Liabilities Reflected on the Balance Sheet (c) (d) (e) | 25.2 |
| | 8.1 |
| | 3.1 |
| | 3.0 |
| | 11.0 |
| 33.7 |
| | 12.2 |
| | 4.0 |
| | 4.7 |
| | 12.8 |
|
| Unrecorded Contractual Obligations: | | | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
|
Operating Leases (e) | 9.5 |
| | 3.5 |
| | 4.2 |
| | 1.3 |
| | 0.5 |
| 25.7 |
| | 3.3 |
| | 6.1 |
| | 5.0 |
| | 11.3 |
|
Purchase Obligations (f) | 198.3 |
| | 181.5 |
| | 11.1 |
| | 5.7 |
| | — |
| 213.6 |
| | 200.2 |
| | 7.7 |
| | 5.7 |
| | — |
|
| Other | 0.2 |
| | — |
| | | 0.1 |
| | | — |
| | | 0.1 |
| 0.1 |
| | — |
| | | — |
| | | — |
| | | 0.1 |
|
| Total | $ | 233.5 |
| | $ | 193.1 |
| | | $ | 18.5 |
| | | $ | 10.1 |
| | | $ | 11.8 |
| $ | 273.4 |
| | $ | 215.7 |
| | | $ | 17.8 |
| | | $ | 15.5 |
| | | $ | 24.4 |
|
| |
| (a) | As of June 30, 20122014, the Company had noless than $0.1 million of Capital Lease Obligations. |
| |
| (b) | Refer to Note 5 - Long-Term Debt and Credit FacilityFacilities 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 20132015 amount includes less than $0.1 million of long-term debt obligations due in fiscal year 20132015 which waswere 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 20132015 amount includes $5.98.8 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 20132015 amount includes $0.81.0 million for severance payments recorded as a current liability.
The timing of warranty payments is estimated based on historical data. The fiscal year 20132015 amount includes $1.41.5 million for short-term warranty payments recorded as a current liability.
| |
| (d) | Excludes $4.24.5 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. |
| |
| (f) | Purchase Obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms. The amounts listed above for purchase obligations include contractual commitments for items such as raw materials, supplies, capital expenditures, services, and software acquisitions/license commitments. Cancellable purchase obligations that the Company intendswe intend to fulfill are also included in the purchase obligations amount listed above through fiscal year 2017.2019. In certain instances, such as when lead times dictate, the Company enterswe enter into contractual agreements for material in excess of the levels required to fulfill customer orders. In turn, agreements with the customers cover a portion of that exposure for the material which was purchased prior to having a firm order. |
Off-Balance Sheet Arrangements
The Company hasWe 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 the Company'sour financial condition, results of operations, liquidity, capital expenditures, or capital resources. See Note 4 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for more information on standby letters of credit. The CompanyWe doesdo not have material exposures to trading activities of non-exchange traded contracts.
The preceding statements are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Certain factors could cause actual results to differ materially from forward-looking statements.31
Critical Accounting Policies
The Company'sKimball's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and related notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in the assumptions used to value these estimates, which are based on current facts and circumstances, prior experience, and other assumptions that are believed to be reasonable. The Company's management overlays a fundamental philosophy of valuing its assets and liabilities in an appropriately conservative manner. Management believes the following critical accounting policies reflect the more significant judgments and estimates used in preparation of the Company'sour consolidated financial statements and are the policies that are most critical in the portrayal of the Company'sour financial position and results of operations. Management has discussed these critical accounting policies and estimates with the Audit Committee of the Company's Board of Directors and with the Company's independent registered public accounting firm.
Revenue recognition - The Company recognizesWe 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 transferof loss passes to the customer which underaccording to the terms and conditions of the sale may occur eithercontract. 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 time of shipment or when the product is delivered to the customer. Service revenue is recognized as services are rendered.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. The Company recognizesWe recognize sales net of applicable sales tax.
Sales returns and allowances - At the time revenue is recognized certain provisions may also be recorded, includingBased on estimated product returns and price concessions, a provisionreserve for returns and allowances which involveis recorded at the time of the sale, resulting in a reduction of revenue. These estimates based on current discussions with applicable customers, historical experience with a particular customer and/or product, and other relevant factors. As such, these factors may change over time causing the provisions to be adjusted accordingly. At June 30, 20122014 and June 30, 20112013, the reserve for returns and allowances was $2.51.3 million and $2.11.7 million, respectively. The returns and allowances reserve approximated 1% to 2% of gross trade receivables during fiscal years 20122014 and 2011.2013.
Allowance for doubtful accounts - AllowanceOur estimate for doubtful accounts is generally basedthe allowance for credit losses on a percentage of agedtrade accounts receivable where the percentage increases as the accountsand notes receivable become older. However, management judgment is utilized in the final determination of the allowance based on several factors including specificincludes analysis of a customer'ssuch items as aging, credit worthiness, changes in a customer's payment history, and historical bad debt experience, andexperience. Management uses these specific analyses in conjunction with an evaluation of the general economic and market trends.conditions to determine the final allowance for credit losses on the trade accounts receivable and notes receivable. The allowance for doubtful accounts at both June 30, 20122014 and June 30, 20112013 was $0.81.8 million and $1.4 million, respectively.. This reserve approximated 1% of gross trade accounts receivable during fiscal years 20122014 and 2011.2013.
Excess and obsolete inventory - Inventories were valued using the lower of last-in, first-out (LIFO)("LIFO") cost or market value for approximately 10% and 11%16% of consolidated inventories at both June 30, 20122014 and June 30, 20112013, respectively, including
approximately 78%89% and 81%87% of the Furniture segment inventories at June 30, 20122014 and June 30, 20112013, respectively. The remaining inventories were valued at lower of first-in, first-out (FIFO)("FIFO") cost or market value. Inventories recorded on the Company'sour balance sheet are adjusted for excess and obsolete inventory. In general, the Company purchaseswe purchase materials and finished goods for our contract-based business from customer orders and projections, primarily in the case of long lead time items, and haswe have a general philosophy to only purchase materials to the extent covered by a written commitment from itsour customers.
However, there are times when inventory is purchased beyond customer commitments due to minimum lot sizes and inventory lead time requirements, or where component allocation or other procurement issues may exist. The CompanyWe may also purchase additional inventory to support transfers of production between manufacturing facilities. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover, inventory levels, and product demand levels. Factors considered when evaluating inventory obsolescence include the age of on-hand inventory and reduction in value due to damage, use as showroom samples, design changes, or cessation of product lines. When we estimate that the current market value is below cost or determine that future demand is lower than current inventory levels, based on our evaluation of the above factors or other relevant current and projected factors associated with current economic conditions, a reduction in inventory cost to estimated net realizable value will be recorded as expense in Cost of Sales. We recorded expense of $1.4 million for excess and obsolete inventory in fiscal year 2013 related to inventory specific to one customer who went out of business.
Self-insurance reserves - The Company isWe 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. The Company'sOur 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, 20122014 and June 30, 20112013, the Company'sour accrued liabilities for self-insurance exposure were $3.9$4.2 million and $3.6$3.5 million, respectively.
Taxes - Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. The Company evaluatesWe evaluate the recoverability of itsour deferred tax assets each quarter by assessing the likelihood of future profitabilitytaxable income and available tax planning strategies that could be implemented to realize itsour deferred tax assets. If recovery is not likely, the Company provideswe provide a valuation allowance based on itsour best estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable. Future events could change management's assessment.
The Company operatesWe operate within multiple taxing jurisdictions and isare subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. However, the Company believes it haswe believe we have made adequate provision for income and other taxes for all years that are subject to audit. As tax periodspositions 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 $3.8 million at June 30, 20122014 and $3.63.9 million at June 30, 20112013.
New Accounting Standards
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Rate Risk: The CompanyKimball operates internationally and thus is subject to potentially adverse movements in foreign currency rate changes. The Company'sOur risk management strategy includes the use of derivative financial instruments to hedge certain foreign currency exposures. Derivatives are used only to manage underlying exposures of the Company and are not used in a speculative manner. Further information on derivative financial instruments is provided in Note 11 - Derivative Instruments of Notes to Consolidated Financial Statements. The Company estimatesWe estimate that a hypothetical 10% adverse change in foreign currency exchange rates from levels at June 30, 20122014 and 20112013 relative to non-functional currency balances of monetary instruments, to the extent not hedged by derivative instruments, would not have a material impact on profitability in an annual period.
Equity Risk: The Company holds an investment in the non-marketable equity securities and stock warrants of a privately-held company. If the private company experiences certain events or circumstances, such as the loss of customers, the inability to achieve growth initiatives, or if there are factors beyond its control in the markets which it serves, the private company's performance could be affected materially resulting in a loss of some or all of its value, which could result in an other-than-temporary impairment of the investment. If an other-than-temporary impairment of fair value would occur, the investment would be adjusted down to its fair value and an impairment charge would be recognized in earnings.
During fiscal year 2012, the privately-held company experienced delays in their start-up, and therefore initiated another round of financing that the Company chose not to participate in, which resulted in the automatic conversion of preferred shares and
warrants to common shares and warrants. Upon the conversion, the equity securities and warrants were revalued, resulting in an impairment loss of $0.7 million on the equity securities and a $0.5 million derivative loss on stock warrants. During fiscal year 2011, the equity securities experienced an other-than-temporary decline in fair market value resulting in a $1.2 million impairment loss, and the revaluation of stock warrants in conjunction with a qualified financing resulted in a $1.0 million derivative gain. The non-marketable equity investment had a carrying amount of $1.1 million and $1.8 million as of June 30, 2012 and 2011, respectively, and the stock warrants had a carrying amount of $0.9 million and $1.4 million as of June 30, 2012 and 2011, respectively.
Item 8 - Financial Statements and Supplementary Data
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| INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | |
| | Page No. |
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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Kimball International, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting and for the preparation and integrity of the accompanying financial statements and other related information in this report. The consolidated financial statements of the Company and its subsidiaries, including the footnotes, were prepared in accordance with accounting principles generally accepted in the United States of America and include judgments and estimates, which in the opinion of management are applied on an appropriately conservative basis. The Company maintainsWe 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 the Company'sour 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, theour internal auditors, and the independent registered public accounting firm to review the Company'sour financial policies and procedures, itsour internal control structure, the objectivity of itsour financial reporting, and the independence of the Company's independent registered public accounting firm. The internal auditors and the independent registered public accounting firm have free and direct access to the Audit Committee, and they meet periodically, without management present, to discuss appropriate matters.
Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation.
These consolidated financial statements are subject to an evaluation of internal control over financial reporting conducted under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, conducted under the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission, management concluded that itsour internal control over financial reporting was effective as of June 30, 20122014.
Deloitte & Touche LLP, the Company'sour independent registered public accounting firm, has issued an audit report on the Company'sour internal control over financial reporting which is included herein.
|
| |
| | /s/ JAMES C. THYEN |
| | James C. Thyen |
| | President, |
| | Chief Executive Officer |
| | August 27, 20122014 |
| | |
| | /s/ ROBERT F. SCHNEIDER |
| | Robert F. Schneider |
| | Executive Vice President, |
| | Chief Financial Officer |
| | August 27, 20122014 |
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, 20122014 and 20112013, and the related consolidated statements of income, comprehensive income, share owners' equity, and cash flows for each of the three years in the period ended June 30, 20122014. 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, 20122014, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kimball International, Inc. and subsidiaries as of June 30, 20122014 and 20112013, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 20122014, 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, 20122014, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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| |
| | /s/ Deloitte & Touche LLP |
| | DELOITTE & TOUCHE LLP |
| | Indianapolis, Indiana |
| | August 27, 20122014 |
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
| | | | June 30
2012 | | June 30
2011 | June 30,
2014 | | June 30,
2013 |
| ASSETS | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | $ | 75,197 |
| | $ | 51,409 |
| $ | 136,624 |
| | $ | 103,600 |
|
| Receivables, net of allowances of $1,367 and $1,799, respectively | 139,467 |
| | 149,753 |
| |
| Receivables, net of allowances of $2,345 and $2,791, respectively | | 175,695 |
| | 160,767 |
|
| Inventories | 117,681 |
| | 141,097 |
| 140,475 |
| | 123,998 |
|
| Prepaid expenses and other current assets | 44,636 |
| | 50,215 |
| 46,998 |
| | 39,013 |
|
| Assets held for sale | 1,709 |
| | 2,807 |
| — |
| | 1,521 |
|
| Total current assets | 378,690 |
| | 395,281 |
| 499,792 |
| | 428,899 |
|
| Property and Equipment, net of accumulated depreciation of $357,808 and $360,105, respectively | 186,099 |
| | 196,682 |
| |
| Property and Equipment, net of accumulated depreciation of $358,493 and $371,232, respectively | | 188,833 |
| | 185,744 |
|
| Goodwill | 2,480 |
| | 2,644 |
| 2,564 |
| | 2,511 |
|
| Other Intangible Assets, net of accumulated amortization of $65,824 and $65,514, respectively | 6,206 |
| | 7,625 |
| |
| Other Intangible Assets, net of accumulated amortization of $61,912 and $62,147, respectively | | 4,191 |
| | 5,276 |
|
| Other Assets | 22,041 |
| | 24,080 |
| 26,766 |
| | 22,089 |
|
| Total Assets | $ | 595,516 |
| | $ | 626,312 |
| $ | 722,146 |
| | $ | 644,519 |
|
| | | | | | | |
| LIABILITIES AND SHARE OWNERS' EQUITY | |
| | |
| |
| | |
|
| Current Liabilities: | |
| | |
| |
| | |
|
| Current maturities of long-term debt | $ | 14 |
| | $ | 12 |
| $ | 25 |
| | $ | 23 |
|
| Accounts payable | 137,423 |
| | 149,107 |
| 174,436 |
| | 155,709 |
|
| Dividends payable | 1,843 |
| | 1,835 |
| 1,883 |
| | 1,863 |
|
| Accrued expenses | 48,460 |
| | 66,316 |
| 77,256 |
| | 56,856 |
|
| Total current liabilities | 187,740 |
| | 217,270 |
| 253,600 |
| | 214,451 |
|
| Other Liabilities: | |
| | |
| |
| | |
|
| Long-term debt, less current maturities | 273 |
| | 286 |
| 268 |
| | 294 |
|
| Other | 21,275 |
| | 21,357 |
| 26,745 |
| | 25,268 |
|
| Total other liabilities | 21,548 |
| | 21,643 |
| 27,013 |
| | 25,562 |
|
| Share Owners' Equity: | |
| | |
| |
| | |
|
| Common stock-par value $0.05 per share: | |
| | |
| |
| | |
|
Class A - Shares authorized: 50,000,000 Shares issued: 14,359,000 (14,368,000 in 2011) | 718 |
| | 718 |
| |
Class B - Shares authorized: 100,000,000 Shares issued: 28,666,000 (28,657,000 in 2011) | 1,433 |
| | 1,433 |
| |
Class A - Shares authorized: 50,000,000 Shares issued: 11,212,000 (12,025,000 in 2013) | | 560 |
| | 601 |
|
Class B - Shares authorized: 100,000,000 Shares issued: 31,813,000 (31,000,000 in 2013) | | 1,591 |
| | 1,550 |
|
| Additional paid-in capital | 635 |
| | 230 |
| 6,269 |
| | 4,448 |
|
| Retained earnings | 452,093 |
| | 450,172 |
| 487,040 |
| | 462,957 |
|
| Accumulated other comprehensive income (loss) | (4,963 | ) | | 1,618 |
| 2,440 |
| | (3,477 | ) |
| Less: Treasury stock, at cost: |
|
| |
|
|
|
| |
|
|
| Class A - 4,020,000 shares (3,945,000 in 2011) | (49,235 | ) | | (49,437 | ) | |
| Class B - 1,104,000 shares (1,330,000 in 2011) | (14,453 | ) | | (17,335 | ) | |
| Class A - 3,505,000 shares (3,843,000 in 2013) | | (42,198 | ) | | (47,152 | ) |
| Class B - 1,082,000 shares (1,101,000 in 2013) | | (14,169 | ) | | (14,421 | ) |
| Total Share Owners' Equity | 386,228 |
| | 387,399 |
| 441,533 |
| | 404,506 |
|
| Total Liabilities and Share Owners' Equity | $ | 595,516 |
| | $ | 626,312 |
| $ | 722,146 |
| | $ | 644,519 |
|
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
| | | | Year Ended June 30 | Year Ended June 30 |
| | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Net Sales | $ | 1,142,061 |
| | $ | 1,202,597 |
| | $ | 1,122,808 |
| $ | 1,285,347 |
| | $ | 1,203,134 |
| | $ | 1,142,061 |
|
| Cost of Sales | 932,106 |
| | 1,008,005 |
| | 946,275 |
| 1,029,323 |
| | 979,386 |
| | 932,106 |
|
| Gross Profit | 209,955 |
| | 194,592 |
| | 176,533 |
| 256,024 |
| | 223,748 |
| | 209,955 |
|
| Selling and Administrative Expenses | 188,148 |
| | 191,167 |
| | 181,771 |
| 220,727 |
| | 200,331 |
| | 188,148 |
|
| Other General Income | — |
| | — |
| | (9,980 | ) | (5,688 | ) | | — |
| | — |
|
| Restructuring Expense | 3,418 |
| | 1,009 |
| | 2,051 |
| 402 |
| | 416 |
| | 3,418 |
|
| Operating Income | 18,389 |
| | 2,416 |
| | 2,691 |
| 40,583 |
| | 23,001 |
| | 18,389 |
|
| Other Income (Expense): | |
| | |
| | |
| |
| | |
| | |
|
| Interest income | 430 |
| | 820 |
| | 1,188 |
| 220 |
| | 404 |
| | 430 |
|
| Interest expense | (35 | ) | | (121 | ) | | (142 | ) | (28 | ) | | (35 | ) | | (35 | ) |
| Non-operating income | 1,096 |
| | 4,542 |
| | 2,980 |
| 3,612 |
| | 2,381 |
| | 1,096 |
|
| Non-operating expense | (2,178 | ) | | (3,220 | ) | | (749 | ) | (1,214 | ) | | (3,088 | ) | | (2,178 | ) |
| Other income (expense), net | (687 | ) | | 2,021 |
| | 3,277 |
| 2,590 |
| | (338 | ) | | (687 | ) |
| Income Before Taxes on Income | 17,702 |
| | 4,437 |
| | 5,968 |
| 43,173 |
| | 22,663 |
| | 17,702 |
|
| Provision (Benefit) for Income Taxes | 6,068 |
| | (485 | ) | | (4,835 | ) | |
| Provision for Income Taxes | | 9,712 |
| | 2,784 |
| | 6,068 |
|
| Net Income | $ | 11,634 |
| | $ | 4,922 |
| | $ | 10,803 |
| $ | 33,461 |
| | $ | 19,879 |
| | $ | 11,634 |
|
| | | | | | | | | | | |
| Earnings Per Share of Common Stock: | | | | | | | | | | |
| Basic Earnings Per Share: | | | | | | | | | | |
| Class A | $ | 0.29 |
| | $ | 0.12 |
| | $ | 0.27 |
| $ | 0.85 |
| | $ | 0.50 |
| | $ | 0.29 |
|
| Class B | $ | 0.31 |
| | $ | 0.14 |
| | $ | 0.29 |
| $ | 0.88 |
| | $ | 0.53 |
| | $ | 0.31 |
|
| Diluted Earnings Per Share: | | | | | | | | | | |
| Class A | $ | 0.29 |
| | $ | 0.12 |
| | $ | 0.27 |
| $ | 0.84 |
| | $ | 0.49 |
| | $ | 0.29 |
|
| Class B | $ | 0.31 |
| | $ | 0.14 |
| | $ | 0.29 |
| $ | 0.86 |
| | $ | 0.52 |
| | $ | 0.31 |
|
| Average Number of Shares Outstanding: | | | | | | | | | | |
| Basic: | | | | | | | | | | |
| Class A | 10,387 |
| | 10,493 |
| | 10,694 |
| 8,026 |
| | 8,584 |
| | 10,387 |
|
| Class B | 27,494 |
| | 27,233 |
| | 26,765 |
| 30,378 |
| | 29,479 |
| | 27,494 |
|
| Totals | 37,881 |
| | 37,726 |
| | 37,459 |
| 38,404 |
| | 38,063 |
| | 37,881 |
|
| Diluted: | | | | | | | | | | |
| Class A | 10,593 |
| | 10,639 |
| | 10,791 |
| 8,652 |
| | 9,043 |
| | 10,593 |
|
| Class B | 27,494 |
| | 27,234 |
| | 26,770 |
| 30,385 |
| | 29,479 |
| | 27,494 |
|
| Totals | 38,087 |
| | 37,873 |
| | 37,561 |
| 39,037 |
| | 38,522 |
| | 38,087 |
|
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended June 30, 2014 | | Year Ended June 30, 2013 | | Year Ended June 30, 2012 |
| | Pre-tax | | Tax | | Net of Tax | | Pre-tax | | Tax | | Net of Tax | | Pre-tax | | Tax | | Net of Tax |
| Net income | | | | | $ | 33,461 |
| | | | | | $ | 19,879 |
| | | | | | $ | 11,634 |
|
| Other comprehensive income (loss): | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | $ | 4,358 |
| | $ | (304 | ) | | $ | 4,054 |
| | $ | 1,952 |
| | $ | (120 | ) | | $ | 1,832 |
| | $ | (10,156 | ) | | $ | 1,922 |
| | $ | (8,234 | ) |
| Postemployment severance actuarial change | 899 |
| | (360 | ) | | 539 |
| | 1 |
| | — |
| | 1 |
| | 1,265 |
| | (505 | ) | | 760 |
|
| Derivative gain (loss) | 73 |
| | (86 | ) | | (13 | ) | | 1,206 |
| | (380 | ) | | 826 |
| | (192 | ) | | 302 |
| | 110 |
|
| Reclassification to (earnings) loss: | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (493 | ) | | — |
| | (493 | ) |
| Derivatives | 1,187 |
| | (226 | ) | | 961 |
| | (2,136 | ) | | 583 |
| | (1,553 | ) | | 1,069 |
| | (346 | ) | | 723 |
|
| Amortization of prior service costs | 286 |
| | (114 | ) | | 172 |
| | 286 |
| | (114 | ) | | 172 |
| | 286 |
| | (114 | ) | | 172 |
|
| Amortization of actuarial change | 338 |
| | (134 | ) | | 204 |
| | 344 |
| | (136 | ) | | 208 |
| | 633 |
| | (252 | ) | | 381 |
|
| Other comprehensive income (loss) | $ | 7,141 |
| | $ | (1,224 | ) | | $ | 5,917 |
| | $ | 1,653 |
| | $ | (167 | ) | | $ | 1,486 |
| | $ | (7,588 | ) | | $ | 1,007 |
| | $ | (6,581 | ) |
| Total comprehensive income | |
| | |
| | $ | 39,378 |
| | |
| | |
| | $ | 21,365 |
| | |
| | |
| | $ | 5,053 |
|
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
| | | | Year Ended June 30 | Year Ended June 30 |
| | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Cash Flows From Operating Activities: | | | | | | | | | | |
| Net income | $ | 11,634 |
| | $ | 4,922 |
| | $ | 10,803 |
| $ | 33,461 |
| | $ | 19,879 |
| | $ | 11,634 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
| |
| | |
| | |
|
| Depreciation and amortization | 30,973 |
| | 31,207 |
| | 34,760 |
| 31,885 |
| | 30,758 |
| | 30,973 |
|
| Gain on sales of assets | (28 | ) | | (35 | ) | | (6,771 | ) | (1,484 | ) | | (181 | ) | | (28 | ) |
| Restructuring | 439 |
| | — |
| | 176 |
| |
| Restructuring and asset impairment charges | | 1,509 |
| | 188 |
| | 439 |
|
| Deferred income tax and other deferred charges | 3,561 |
| | 3,658 |
| | (2,023 | ) | (8,893 | ) | | (962 | ) | | 3,561 |
|
| Stock-based compensation | 1,443 |
| | 1,284 |
| | 1,824 |
| 7,018 |
| | 5,023 |
| | 1,443 |
|
| Excess tax benefits from stock-based compensation | (41 | ) | | — |
| | (263 | ) | (43 | ) | | (567 | ) | | (41 | ) |
| Other, net | 2,301 |
| | 963 |
| | (392 | ) | 1,007 |
| | 3,362 |
| | 2,301 |
|
| Change in operating assets and liabilities: | | | | | | | | | | |
| Receivables | 6,655 |
| | 2,975 |
| | (17,629 | ) | (14,635 | ) | | (19,549 | ) | | 6,655 |
|
| Inventories | 20,472 |
| | 3,243 |
| | (26,229 | ) | (14,894 | ) | | (5,844 | ) | | 20,472 |
|
| Prepaid expenses and other current assets | 6,430 |
| | (5,004 | ) | | (8,269 | ) | (256 | ) | | 6,207 |
| | 6,430 |
|
| Accounts payable | (7,081 | ) | | (28,524 | ) | | 26,700 |
| 15,738 |
| | 17,693 |
| | (7,081 | ) |
| Accrued expenses | (17,739 | ) | | 6,660 |
| | 695 |
| 19,458 |
| | 7,854 |
| | (17,739 | ) |
| Net cash provided by operating activities | 59,019 |
| | 21,349 |
| | 13,382 |
| 69,871 |
| | 63,861 |
| | 59,019 |
|
| Cash Flows From Investing Activities: | |
| | |
| | |
| |
| | |
| | |
|
| Capital expenditures | (26,943 | ) | | (31,371 | ) | | (34,791 | ) | (32,897 | ) | | (27,555 | ) | | (26,943 | ) |
| Proceeds from sales of assets | 2,566 |
| | 941 |
| | 12,900 |
| 4,761 |
| | 786 |
| | 2,566 |
|
| Purchases of capitalized software | (1,323 | ) | | (1,839 | ) | | (624 | ) | (756 | ) | | (1,200 | ) | | (1,323 | ) |
| Purchases of available-for-sale securities | — |
| | — |
| | (7,193 | ) | |
| Sales and maturities of available-for-sale securities | — |
| | — |
| | 29,702 |
| |
| Other, net | (13 | ) | | (1,458 | ) | | 198 |
| 1,346 |
| | (62 | ) | | (13 | ) |
| Net cash (used for) provided by investing activities | (25,713 | ) | | (33,727 | ) | | 192 |
| |
| Net cash used for investing activities | | (27,546 | ) | | (28,031 | ) | | (25,713 | ) |
| Cash Flows From Financing Activities: | |
| | |
| | |
| |
| | |
| | |
|
| Proceeds from revolving credit facility | — |
| | 88,750 |
| | — |
| |
| Payments on revolving credit facility | — |
| | (88,750 | ) | | (12,248 | ) | |
| Payments on long-term debt | (11 | ) | | (62 | ) | | (60 | ) | |
| Net change in capital leases and long-term debt | | (24 | ) | | 30 |
| | (11 | ) |
| Dividends paid to Share Owners | (7,363 | ) | | (7,330 | ) | | (7,264 | ) | (7,507 | ) | | (7,430 | ) | | (7,363 | ) |
| Excess tax benefits from stock-based compensation | 41 |
| | — |
| | 263 |
| 43 |
| | 567 |
| | 41 |
|
| Repurchase of employee shares for tax withholding | (337 | ) | | (278 | ) | | (1,212 | ) | (1,953 | ) | | (875 | ) | | (337 | ) |
| Net cash used for financing activities | (7,670 | ) | | (7,670 | ) | | (20,521 | ) | (9,441 | ) | | (7,708 | ) | | (7,670 | ) |
| Effect of Exchange Rate Change on Cash and Cash Equivalents | (1,848 | ) | | 6,115 |
| | (3,643 | ) | 140 |
| | 281 |
| | (1,848 | ) |
| Net Increase (Decrease) in Cash and Cash Equivalents | 23,788 |
| | (13,933 | ) | | (10,590 | ) | |
| Net Increase in Cash and Cash Equivalents | | 33,024 |
| | 28,403 |
| | 23,788 |
|
| Cash and Cash Equivalents at Beginning of Year | 51,409 |
| | 65,342 |
| | 75,932 |
| 103,600 |
| | 75,197 |
| | 51,409 |
|
| Cash and Cash Equivalents at End of Year | $ | 75,197 |
| | $ | 51,409 |
| | $ | 65,342 |
| $ | 136,624 |
| | $ | 103,600 |
| | $ | 75,197 |
|
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY
(Amounts in Thousands, Except for Share and Per Share Data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Share Owners' Equity |
| | Class A | | Class B | |
| Amounts at June 30, 2009 | $ | 718 |
| | $ | 1,433 |
| | $ | 343 |
| | $ | 458,180 |
| | $ | (501 | ) | | $ | (77,819 | ) | | $ | 382,354 |
|
| Comprehensive income: | | | | | | | | | | | | | |
|
| Net income | | | | | | | 10,803 |
| | | | | | 10,803 |
|
| Net change in unrealized gains and losses on securities | | | | | | | | | (463 | ) | | | | (463 | ) |
| Foreign currency translation adjustment | | | | | | | | | (10,384 | ) | | | | (10,384 | ) |
| Net change in derivative gains and losses | | | | | | | | | 1,724 |
| | | | 1,724 |
|
| Postemployment severance prior service cost | | | | | | | | | 173 |
| | | | 173 |
|
| Postemployment severance actuarial change | | | | | | | | | (324 | ) | | | | (324 | ) |
| Comprehensive income | | | | | | | | | | | | | 1,529 |
|
| Issuance of non-restricted stock (20,000 shares) | | | | | (209 | ) | | (66 | ) | | | | 258 |
| | (17 | ) |
Net exchanges of shares of Class A and Class B
common stock (460,000 shares) | | | | | (490 | ) | | (2,567 | ) | | | | 3,057 |
| | — |
|
| Vesting of restricted share units (209,000 shares) | | | | | (274 | ) | | (3,435 | ) | | | | 3,157 |
| | (552 | ) |
| Compensation expense related to stock incentive plans | | | | | 1,824 |
| | | | | | | | 1,824 |
|
| Performance share issuance (97,000 shares) | | | | | (1,075 | ) | | (784 | ) | | | | 1,480 |
| | (379 | ) |
| Dividends declared: | | | | | | | | | | | | | |
|
| Class A ($0.18 per share) | | | | | | | (1,955 | ) | | | | | | (1,955 | ) |
| Class B ($0.20 per share) | | | | | | | (5,376 | ) | | | | | | (5,376 | ) |
| Amounts at June 30, 2010 | $ | 718 |
| | $ | 1,433 |
| | $ | 119 |
| | $ | 454,800 |
| | $ | (9,775 | ) | | $ | (69,867 | ) | | $ | 377,428 |
|
| Comprehensive income: | | | | | | | | | | | | | |
|
| Net income | | | | | | | 4,922 |
| | | | | | 4,922 |
|
| Foreign currency translation adjustment | | | | | | | | | 10,313 |
| | | | 10,313 |
|
| Net change in derivative gains and losses | | | | | | | | | (458 | ) | | | | (458 | ) |
| Postemployment severance prior service cost | | | | | | | | | 171 |
| | | | 171 |
|
| Postemployment severance actuarial change | | | | | | | | | 1,367 |
| | | | 1,367 |
|
| Comprehensive income | | | | | | | | | | | | | 16,315 |
|
| Issuance of non-restricted stock (39,000 shares) | | | | | (556 | ) | | (107 | ) | | | | 499 |
| | (164 | ) |
Net exchanges of shares of Class A and Class B
common stock (215,000 shares) | | | | | (551 | ) | | (728 | ) | | | | 1,279 |
| | — |
|
| Compensation expense related to stock incentive plans | | | | | 1,284 |
| | | | | | | | 1,284 |
|
| Performance share issuance (99,000 shares) | | | | | (66 | ) | | (1,378 | ) | | | | 1,317 |
| | (127 | ) |
| Dividends declared: | | | | | | | | | | | | | |
|
| Class A ($0.18 per share) | | | | | | | (1,889 | ) | | | | | | (1,889 | ) |
| Class B ($0.20 per share) | | | | | | | (5,448 | ) | | | | | | (5,448 | ) |
| Amounts at June 30, 2011 | $ | 718 |
| | $ | 1,433 |
| | $ | 230 |
| | $ | 450,172 |
| | $ | 1,618 |
| | $ | (66,772 | ) | | $ | 387,399 |
|
| Comprehensive income: | | | | | | | | | | | | | |
|
| Net income | | | | | | | 11,634 |
| | | | | | 11,634 |
|
| Foreign currency translation adjustment | | | | | | | | | (8,727 | ) | | | | (8,727 | ) |
| Net change in derivative gains and losses | | | | | | | | | 833 |
| | | | 833 |
|
| Postemployment severance prior service cost | | | | | | | | | 172 |
| | | | 172 |
|
| Postemployment severance actuarial change | | | | | | | | | 1,141 |
| | | | 1,141 |
|
| Comprehensive income | | | | | | | | | | | | | 5,053 |
|
| Issuance of non-restricted stock (20,000 shares) | | | | | (227 | ) | | (93 | ) | | | | 243 |
| | (77 | ) |
Net exchanges of shares of Class A and Class B
common stock (209,000 shares) | | | | | (782 | ) | | (529 | ) | | | | 1,311 |
| | — |
|
| Compensation expense related to stock incentive plans | | | | | 1,443 |
| | | | | | | | 1,443 |
|
| Performance share issuance (131,000 shares) | | | | | (29 | ) | | (1,720 | ) | | | | 1,530 |
| | (219 | ) |
| Dividends declared: | | | | | | | | | | | | | |
|
| Class A ($0.18 per share) | | | | | | | (1,869 | ) | | | | | | (1,869 | ) |
| Class B ($0.20 per share) | | | | | | | (5,502 | ) | | | | | | (5,502 | ) |
| Amounts at June 30, 2012 | $ | 718 |
| | $ | 1,433 |
| | $ | 635 |
| | $ | 452,093 |
| | $ | (4,963 | ) | | $ | (63,688 | ) | | $ | 386,228 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Share Owners' Equity |
| | Class A | | Class B | |
| Amounts at June 30, 2011 | $ | 718 |
| | $ | 1,433 |
| | $ | 230 |
| | $ | 450,172 |
| | $ | 1,618 |
| | $ | (66,772 | ) | | $ | 387,399 |
|
| Net income | | | | | | | 11,634 |
| | | | | | 11,634 |
|
| Other comprehensive loss | | | | | | | | | (6,581 | ) | | | | (6,581 | ) |
| Issuance of non-restricted stock (20,000 shares) | | | | | (227 | ) | | (93 | ) | | | | 243 |
| | (77 | ) |
Net exchanges of shares of Class A and Class B
common stock (209,000 shares) | | | | | (782 | ) | | (529 | ) | | | | 1,311 |
| | — |
|
| Compensation expense related to stock incentive plans | | | | | 1,443 |
| | | | | | | | 1,443 |
|
| Performance share issuance (131,000 shares) | | | | | (29 | ) | | (1,720 | ) | | | | 1,530 |
| | (219 | ) |
| Dividends declared: | | | | | | | | | | | | | |
|
| Class A ($0.18 per share) | | | | | | | (1,869 | ) | | | | | | (1,869 | ) |
| Class B ($0.20 per share) | | | | | | | (5,502 | ) | | | | | | (5,502 | ) |
| Amounts at June 30, 2012 | $ | 718 |
| | $ | 1,433 |
| | $ | 635 |
| | $ | 452,093 |
| | $ | (4,963 | ) | | $ | (63,688 | ) | | $ | 386,228 |
|
| Net income | | | | | | | 19,879 |
| | | | | | 19,879 |
|
| Other comprehensive income | | | | | | | | | 1,486 |
| | | | 1,486 |
|
| Issuance of non-restricted stock (3,000 shares) | | | | | (62 | ) | | — |
| | | | 31 |
| | (31 | ) |
Conversion of Class A to Class B
common stock (2,334,000 shares) | (117 | ) | | 117 |
| | | | | | | | | | — |
|
| Compensation expense related to stock incentive plans | | | | | 5,023 |
| | | | | | | | 5,023 |
|
| Performance share issuance (177,000 shares) | | | | | (1,148 | ) | | (1,565 | ) | | | | 2,084 |
| | (629 | ) |
| Dividends declared: | | | | | | | | | | | | | |
|
| Class A ($0.18 per share) | | | | | | | (1,495 | ) | | | | | | (1,495 | ) |
| Class B ($0.20 per share) | | | | | | | (5,955 | ) | | | | | | (5,955 | ) |
| Amounts at June 30, 2013 | $ | 601 |
| | $ | 1,550 |
| | $ | 4,448 |
| | $ | 462,957 |
| | $ | (3,477 | ) | | $ | (61,573 | ) | | $ | 404,506 |
|
| Net income | | | | | | | 33,461 |
| | | | | | 33,461 |
|
| Other comprehensive income | | | | | | | | | 5,917 |
| | | | 5,917 |
|
| Issuance of non-restricted stock (20,000 shares) | | | | | (196 | ) | | | | | | 253 |
| | 57 |
|
Conversion of Class A to Class B
common stock (813,000 shares) | (41 | ) | | 41 |
| | | | | | | | | | — |
|
| Compensation expense related to stock incentive plans | | | | | 7,018 |
| | | | | | | | 7,018 |
|
| Performance share issuance (337,000 shares) | | | | | (5,001 | ) | | (1,851 | ) | | | | 4,953 |
| | (1,899 | ) |
| Dividends declared: | | | | | | | | | | | | | |
|
| Class A ($0.18 per share) | | | | | | | (1,437 | ) | | | | | | (1,437 | ) |
| Class B ($0.20 per share) | | | | | | | (6,090 | ) | | | | | | (6,090 | ) |
| Amounts at June 30, 2014 | $ | 560 |
| | $ | 1,591 |
| | $ | 6,269 |
| | $ | 487,040 |
| | $ | 2,440 |
| | $ | (56,367 | ) | | $ | 441,533 |
|
KIMBALL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the accounts of all domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect the reported amounts included in the consolidated financial statements and related note disclosures. While efforts are made to assure estimates used are reasonably accurate based on management's knowledge of current events, actual results could differ from those estimates.
Revenue Recognition: Revenue from productWe recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is recognized whenfixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the title and the risk transferof loss passes to the customer which underaccording to the terms and conditions of the sale, may occur eithercontract. 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 time of shipment or when the product is delivered to the customer. Service revenue is recognized as services are rendered.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. The Company recognizesWe 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: The Company'sKimball's notes receivable and trade accounts receivable are recorded per the terms of the agreement or sale, and accrued interest is recognized when earned. The Company determinesWe 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 the Company'sour limited number of notes receivable.
The Company'sOur policy for estimating the allowance for credit losses on trade accounts receivable and notes receivable includes analysis of such items as agement,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. The Company'sOur limited numberamount of notes receivable allows management to monitor the risks, credit quality indicators, collectability, and probability of impairment on an individual basis. Adjustments to the allowance for credit losses are recorded in selling and administrative expenses.
In the ordinary course of business, customers periodically negotiate extended payment terms on trade accounts receivable. The CompanyEMS segment customary terms require payment within 30 to 45 days, with any terms beyond 45 days being considered extended payment terms while Furniture segment customary terms require payment within 30 days, with terms beyond 30 days being considered extended. We may utilize accounts receivable factoring arrangements with third-party financial institutions in order to extend terms for the customer without negatively impacting the Company'sour cash flow. These arrangements in all cases do not contain recourse provisions againstwhich would obligate us in the Company for itsevent of our customers' failure to pay. Receivables are considered sold when they are transferred beyond the reach of the CompanyKimball and its creditors, the purchaser has the right to pledge or exchange the receivables, and the Company haswe have surrendered control over the transferred receivables. During the fiscal yearyears ended June 30, 20122014 and 2013, the Companywe sold, without recourse, $59193.0 million and $207.0 million of accounts receivable. There were no receivables sold during the fiscal year ended June 30, 2011.receivable, respectively. Factoring fees were not material.
Inventories: Inventories are stated at the lower of cost or market value. Cost includes material, labor, and applicable manufacturing overhead. Costs associated with underutilization of capacity are expensed as incurred. The last-in, first-out (LIFO)("LIFO") method was used for approximately 10% and 11%16% of consolidated inventories at both June 30, 20122014 and June 30, 20112013, respectively, and remaining inventories were valued using the first-in, first-out (FIFO)("FIFO") method. Inventories recorded on the Company's balance sheet are adjusted for excess and obsolete inventory. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover, inventory levels, and product demand levels. Factors considered when evaluating obsolescence include the age of on-hand inventory and reduction in value due to damage, use as showroom samples, design changes, or cessation of product lines.
Property, Equipment, and Depreciation: Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful life of the assets using the straight-line method for financial reporting purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Major maintenance activities and improvements are capitalized; other maintenance, repairs, and minor renewals and betterments are expensed.
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.
Impairment of Long-Lived Assets: The Company performsWe perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment lossImpairment is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal.
Goodwill and Other Intangible Assets: Goodwill represents the difference between the purchase price and the related underlying tangible and intangible net asset fair values resulting from business acquisitions. Annually, or if conditions indicate an earlier review is necessary, the Companywe may assess qualitative factors to determine if it is more likely than not that the fair value is less than its carrying amount and if it is necessary to perform the quantitative two-step goodwill impairment test. The CompanyWe also hashave the option to bypass the qualitative assessment and proceed directly to performing the first step of the quantitative goodwill impairment test. If the first step is determined to be necessary, the Company compareswe compare the carrying value of the reporting unit to an estimate of the reporting unit's fair value to identify potential impairment. If the estimated fair value of the reporting unit is less than the carrying value, a second step is performed to determine the amount of potential goodwill impairment. If impaired, goodwill is written down to its estimated implied fair value. Goodwill is assigned to and the fair value is tested at the reporting unit level. The fair value is established primarily using a discounted cash flow analysis and secondarily a market approach utilizing current industry information. The calculation of the fair value of the reporting units considers current market conditions existing at the assessment date. During fiscal years 20122014, 20112013, and 20102012, no goodwill impairment loss was recognized.
A summary of the goodwill by segment is as follows:
| | | (Amounts in Thousands) | Electronic Manufacturing Services | | Furniture | | Consolidated | Electronic Manufacturing Services | | Furniture | | Consolidated |
| Balance as of June 30, 2010 | | | | | | |
| Balance as of June 30, 2012 | | | | | | |
| Goodwill | $ | 15,269 |
| | $ | 1,733 |
| | $ | 17,002 |
| $ | 15,306 |
| | $ | 1,733 |
| | $ | 17,039 |
|
| Accumulated impairment losses | (12,826 | ) | | (1,733 | ) | | (14,559 | ) | |
| Accumulated impairment | | (12,826 | ) | | (1,733 | ) | | (14,559 | ) |
| Goodwill, net | 2,443 |
| | — |
| | 2,443 |
| 2,480 |
| | — |
| | 2,480 |
|
| Effect of Foreign Currency Translation | 201 |
| | — |
| | 201 |
| 31 |
| | — |
| | 31 |
|
| Balance as of June 30, 2011 | | | | | | |
| Balance as of June 30, 2013 | | | | | | |
| Goodwill | 15,470 |
| | 1,733 |
| | 17,203 |
| 15,337 |
| | 1,733 |
| | 17,070 |
|
| Accumulated impairment losses | (12,826 | ) | | (1,733 | ) | | (14,559 | ) | |
| Accumulated impairment | | (12,826 | ) | | (1,733 | ) | | (14,559 | ) |
| Goodwill, net | 2,644 |
| | — |
| | 2,644 |
| 2,511 |
| | — |
| | 2,511 |
|
| Effect of Foreign Currency Translation | (164 | ) | | — |
| | (164 | ) | 53 |
| | — |
| | 53 |
|
| Balance as of June 30, 2012 | | | | | | |
| Balance as of June 30, 2014 | | | | | | |
| Goodwill | 15,306 |
| | 1,733 |
| | 17,039 |
| 15,390 |
| | 1,733 |
| | 17,123 |
|
| Accumulated impairment losses | (12,826 | ) | | (1,733 | ) | | (14,559 | ) | |
| Accumulated impairment | | (12,826 | ) | | (1,733 | ) | | (14,559 | ) |
| Goodwill, net | $ | 2,480 |
| | $ | — |
| | $ | 2,480 |
| $ | 2,564 |
| | $ | — |
| | $ | 2,564 |
|
In addition to performing the required annual testing, the Companywe will continue to monitor circumstances and events in future periods to determine whether additional goodwill impairment testing is warranted on an interim basis. The Company can provide no assurance that an impairment charge for the remaining goodwill balance, which approximates only 0.4% of the Company's total assets, will not occur in future periods as a result of these analyses.
Other Intangible Assets reported on the Consolidated Balance Sheets consist of capitalized software, product rights, and customer relationships. Intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets.
A summary of other intangible assets subject to amortization by segment is as follows:
| | | | June 30, 2012 | | June 30, 2011 | June 30, 2014 | | June 30, 2013 |
| (Amounts in Thousands) | Cost | | Accumulated Amortization | | Net Value | | Cost | | Accumulated Amortization | | Net Value | Cost | | Accumulated Amortization | | Net Value | | Cost | | Accumulated Amortization | | Net Value |
| Electronic Manufacturing Services: | | | | | | | | | | | | | | | | | | | | | | |
| Capitalized Software | $ | 28,470 |
| | $ | 26,084 |
| | $ | 2,386 |
| | $ | 28,676 |
| | $ | 25,700 |
| | $ | 2,976 |
| $ | 29,271 |
| | $ | 27,626 |
| | $ | 1,645 |
| | $ | 29,072 |
| | $ | 27,072 |
| | $ | 2,000 |
|
| Customer Relationships | 1,167 |
| | 843 |
| | 324 |
| | 1,167 |
| | 744 |
| | 423 |
| 1,167 |
| | 981 |
| | 186 |
| | 1,167 |
| | 919 |
| | 248 |
|
| Other Intangible Assets | 29,637 |
| | 26,927 |
| | 2,710 |
| | 29,843 |
| | 26,444 |
| | 3,399 |
| 30,438 |
| | 28,607 |
| | 1,831 |
| | 30,239 |
| | 27,991 |
| | 2,248 |
|
| Furniture: | | | | | | | | | | | | | | | | | | | | | | |
| Capitalized Software | 36,937 |
| | 33,889 |
| | 3,048 |
| | 36,375 |
| | 33,064 |
| | 3,311 |
| 30,790 |
| | 28,783 |
| | 2,007 |
| | 32,313 |
| | 29,823 |
| | 2,490 |
|
| Product Rights | 372 |
| | 210 |
| | 162 |
| | 1,160 |
| | 606 |
| | 554 |
| 372 |
| | 294 |
| | 78 |
| | 372 |
| | 222 |
| | 150 |
|
| Other Intangible Assets | 37,309 |
| | 34,099 |
| | 3,210 |
| | 37,535 |
| | 33,670 |
| | 3,865 |
| 31,162 |
| | 29,077 |
| | 2,085 |
| | 32,685 |
| | 30,045 |
| | 2,640 |
|
| Unallocated Corporate: | | | | | | | | | | | | | | | | | | | | | | |
| Capitalized Software | 5,084 |
| | 4,798 |
| | 286 |
| | 5,761 |
| | 5,400 |
| | 361 |
| 4,503 |
| | 4,228 |
| | 275 |
| | 4,499 |
| | 4,111 |
| | 388 |
|
| Other Intangible Assets | 5,084 |
| | 4,798 |
| | 286 |
| | 5,761 |
| | 5,400 |
| | 361 |
| 4,503 |
| | 4,228 |
| | 275 |
| | 4,499 |
| | 4,111 |
| | 388 |
|
| Consolidated | $ | 72,030 |
| | $ | 65,824 |
| | $ | 6,206 |
| | $ | 73,139 |
| | $ | 65,514 |
| | $ | 7,625 |
| $ | 66,103 |
| | $ | 61,912 |
| | $ | 4,191 |
| | $ | 67,423 |
| | $ | 62,147 |
| | $ | 5,276 |
|
During fiscal years 20122014, 20112013, and 20102012, amortization expense of other intangible assets was, in thousands, $2,6691,789, $2,3672,132, and $2,4842,669, respectively. Amortization expense in future periods is expected to be, in thousands, $2,1401,281, $1,516773, $909625, $464449, and $389394 in the five years ending June 30, 20172019, and $788669 thereafter. The amortization period for product rights is 7 years. The amortization period for the customer relationship intangible asset ranges from 10 to 16 years. The estimated useful life of internal-use software ranges from 3 to 10 years. During fiscal year 2012,, the Furniture segment recognized impairment of $256,$256, in thousands, related to intangible product rights for a product line with volumes much lower than originally forecasted. The impairment loss was included in the Selling and Administrative Expenses line of the Consolidated Statements of Income.
Internal-use software is stated at cost less accumulated amortization and is amortized using the straight-line method. During the software application development stage, capitalized costs include external consulting costs, cost of software licenses, and internal payroll and payroll-related costs for employees who are directly associated with a software project. Upgrades and enhancements are capitalized if they result in added functionality which enable the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion, and business process reengineering costs are expensed in the period in which they are incurred.
Product rights to produce and sell certain products are amortized on a straight-line basis over their estimated useful lives, and capitalized customer relationships are amortized on estimated attrition rate of customers. The Company hasWe have no intangible assets with indefinite useful lives which are not subject to amortization.
Research and Development: The costs of research and development are expensed as incurred. Research and development costs were approximately, in millions, $1316, $1314, and $1213 in fiscal years 20122014, 20112013, and 20102012, respectively.
Advertising: Advertising costs are expensed as incurred. Advertising costs, included in selling and administrative expenses were, in millions, $4.73.7, $4.33.2, and $5.54.7, in fiscal years 20122014, 20112013, and 20102012, respectively.
Insurance and Self-insurance: The Company isWe 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. The Company'sOur policy is to estimate reserves based upon a number of factors including known claims, estimated incurred but not reported claims, and other analyses, which are based on historical information along with certain assumptions about future events. Approximately 60%50% of the workforce is covered under self-insured medical and short-term disability plans.
The Company carriesWe carry external medical and disability insurance coverage for the remainder of itsour eligible workforce not covered by self-insured plans. Insurance benefits are not provided to retired employees.
Income Taxes: Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. The Company evaluatesWe evaluate the recoverability of its deferred tax assets each quarter by assessing the likelihood of future profitabilitytaxable income and available tax planning strategies that could be implemented to realize our
to realize its deferred tax assets. If recovery is not likely, the Company provideswe provide a valuation allowance based on itsour best estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable. Future events could change management's assessment.
The Company operatesWe operate within multiple taxing jurisdictions and isare subject to tax audits in these jurisdictions. These audits can involve complex uncertain tax positions, which may require an extended period of time to resolve. A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company maintainsWe maintain a liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions. As tax periodspositions are effectively settled, the tax liability is adjusted accordingly. The Company recognizesWe 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 do not expect the regulations as issued to have a material effect on our consolidated financial statements. Future transitional guidance in the form of revenue procedures issued by the IRS could impact our current estimates.
Concentrations of Credit Risk: The Company hasWe have business and credit risks concentrated in the automotive, medical, automotive,industrial, public safety, and furniture industries. Additionally, the Companywe currently has notes receivable with an electronics engineering services firm,have a note receivable related to the sale of an Indiana facility and other miscellaneous notes receivable. At June 30, 20122014 and 20112013, $3.01.6 million and $2.82.1 million, respectively, waswere outstanding under the notes receivables. The credit risk associated with receivables is disclosed in Note 19 - Credit Quality and Allowance for Credit Losses of Notes Receivable of Notes to Consolidated Financial Statements. Off-Balance Sheet Risk: The Company'sOur off-balance sheet arrangements are limited to operating leases entered into in the normal course of business as described in Note 4 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. Other General Income: NoFiscal year 2014 Other General Income was recorded in fiscal yearsincluded 2012$5.7 million or 2011.of pre-tax income resulting from settlements received related to two antitrust class action lawsuits in which Kimball was a class member. The lawsuits alleged that certain EMS segment suppliers conspired over a number of years to raise and fix the prices of electronic components, resulting in overcharges to purchasers of those components. We recorded no Other General Income induring fiscal year 2010 of $10.0 million included a gain on the sale of the Company's Poland facility of $6.7 millionyears 2013 and land and settlement proceeds related to a class action lawsuit of which the Company was a class member of $3.3 million.2012.
Non-operating Income and Expense: Non-operating income and expense include the impact of such items as foreign currency rate movements and related derivative gain or loss, fair value adjustments on privately-held investments and Supplemental Employee Retirement Plan (SERP)("SERP") investments, non-production rent income, bank charges, and other miscellaneous non-operating income and expense items that are not directly related to operations. The gain or loss on SERP investments is offset by a change in the SERP liability that is recognized in selling and administrative expenses.
Foreign Currency Translation: The CompanyKimball uses the U.S. dollar and Euro predominately as its functional currencies. Foreign currency assets and liabilities are remeasured into functional currencies at end-of-period exchange rates, except for nonmonetary assets and equity, which are remeasured at historical exchange rates. Revenue and expenses are remeasured at the weighted average exchange rate during the fiscal year, except for expenses related to nonmonetary assets, which are remeasured at historical exchange rates. Gains and losses from foreign currency remeasurement are reported in the Non-operating income or expense line item on the Consolidated Statements of Income.
For businesses whose functional currency is other than the U.S. dollar, the translation of functional currency statements to U.S. dollar statements uses end-of-period exchange rates for assets and liabilities, weighted average exchange rates for revenue and expenses, and historical rates for equity. The resulting currency translation adjustment is recorded in Accumulated Other Comprehensive Income (Loss), as a component of Share Owners' Equity.
Derivative Instruments and Hedging Activities: Derivative financial instruments are recognized on the balance sheet as assets and liabilities and are measured at fair value. Changes in the fair value of derivatives are recorded each period in earnings or Accumulated Other Comprehensive Income (Loss), depending on whether a derivative is designated and effective as part of a hedge transaction, and if it is, the type of hedge transaction. Hedge accounting is utilized when a derivative is expected to be highly effective upon execution and continues to be highly effective over the duration of the hedge transaction. Hedge accounting permits gains and losses on derivative instruments to be deferred in Accumulated Other Comprehensive Income (Loss) and subsequently included in earnings in the periods in which earnings are affected by the hedged item, or when the derivative is determined to be ineffective. The Company usesWe use derivatives primarily for forward purchases of foreign currency to manage exposure to the variability of cash flows, primarily related to the foreign exchange rate risks inherent in forecasted transactions denominated in foreign currency. Additionally, the Company haswe have an investment in stock warrants which is accounted for as a derivative
instrument. See Note 11 - Derivative Instruments of Notes to Consolidated Financial Statements for more information on derivative instruments and hedging activities. Stock-Based Compensation: As described in Note 7 - Stock Compensation Plans of Notes to Consolidated Financial Statements, the CompanyKimball maintains a stock-based compensation plansplan which allowallows for the issuance of restricted stock, restricted share units, unrestricted share grants, incentive stock options, nonqualified stock options, performance shares, performance units, and stock appreciation rights for grant to officers and other key employees of the Company and to members of the Board of Directors who are not employees. The Company recognizesWe recognize the cost resulting from share-based payment transactions using
a fair-value-based method. The estimated fair value of outstanding performance shares is based on the stock price at the date of the grant. For performance shares, the price is reduced by the present value of dividends normally paid over the vesting period which are not payable on outstanding performance share awards. Stock-based compensation expense is recognized for the portion of the award that is ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
New Accounting Standards: In December 2011,June 2014, the Financial Accounting Standards Board (FASB)("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 creates new disclosure requirementsthe company expects to receive in exchange for offsetting assetsthose goods or services. To achieve this core principle, the guidance provides a five-step analysis of transactions to determine when and liabilities.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 Companynature, 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 disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.obtain or fulfill a contract. The guidance is effective for the Company'sour first quarter fiscal year 20142018 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 retrospective basis.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 Companynew 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 are currently evaluating the impact of the adoption of this guidance but doeson our consolidated financial statements.
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 is effective prospectively for our first quarter fiscal year 2015 financial statements. We do not expect the adoption willto have a material effect on the Company'sour consolidated financial statements.
In September 2011,February 2013, the FASB issued guidance to allow the use of a qualitative approach to test goodwill for impairment. The guidance permits the Company to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. The Company chose to early adopt this standard, therefore the guidance was effective for the Company's first quarter fiscal year 2012 financial statements. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows. At June 30, 2012, the Company's goodwill totaled $2.5 million, which approximates 0.4% of the Company's total assets.
In June 2011, the FASB issued newadditional guidance on the presentation of comprehensive income. This guidance eliminatesrequires an entity to provide information about the option to present the componentsamounts reclassified out of accumulated other comprehensive income as partby component. In addition, an entity is required to present, either on the face of the Statement of Share Owners' Equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections,where net income andis presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income orby the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in two separate but consecutive statements. Whileits entirety in the new guidance changes the presentation of comprehensive income, there are no changes to the componentssame reporting period. For other amounts that are recognizednot required under U.S. GAAP to be reclassified in their entirety to net income, oran entity is required to cross-reference to other comprehensive incomedisclosures required under current accounting guidance.U.S. GAAP that provide additional detail about those amounts. The guidance is effectiveamendments were adopted prospectively for the Company'sour first quarter fiscal year 20132014 financial statements on a retrospective basis.statements. As this guidance only amends the presentation of the components ofimpacted how comprehensive income is disclosed, the adoption willdid not have an impact on the Company'sour consolidated financial position, results of operations, or cash flows.
In May 2011, the FASB issued guidance to amend certain measurement and disclosure requirements related to fair value measurements to improve consistency with international reporting standards. The guidance required additional disclosures, including disclosures related to the measurement of level 3 assets. The guidance became effective prospectively for the Company's third quarter fiscal year 2012 financial statements. The adoption did not have a material impact on the Company's consolidated financial statements.
In January 2010, the FASB issued guidance to improve disclosures about fair value instruments. The guidance requires additional disclosure about significant transfers between levels 1, 2, and 3 of the fair value hierarchy and requires disclosure of level 3 activity on a gross basis. In addition, the guidance clarifies existing requirements regarding the required level of disaggregation by class of assets and liabilities and also clarifies disclosures of inputs and valuation techniques. The guidance became effective beginning in the Company's third quarter of fiscal year 2010, except for the requirement to disclose level 3 activity on a gross basis, which became effective as of the beginning of the Company's fiscal year 2012. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.46
Note 2 Inventories
Inventories are valued using the lower of last-in, first-out (LIFO)("LIFO") cost or market value for approximately 10% and 11%16% of consolidated inventories at both June 30, 20122014 and June 30, 20112013, respectively, including approximately 78%89% and 81%87% of the Furniture segment inventories at June 30, 20122014 and June 30, 20112013, respectively. The EMS segment inventories and the remaining inventories in the Furniture segment are valued using the lower of first-in, first-out (FIFO)("FIFO") cost or market value.
Had the FIFO method been used for all inventories, income would have been $0.40.6 million lowerhigher in fiscal year 20122014, $0.2 million higher in fiscal year 20112013, and $0.80.4 million lower in fiscal year 20102012. Certain inventory quantity reductions caused liquidations of LIFO inventory values, which increased income by $1.8 million in fiscal year 2012, $0.9 million. There was an immaterial amount of LIFO inventory liquidations in 2014 and none in fiscal year 2011, and $1.3 million in fiscal year 2010.2013.
Inventory components at June 30 were as follows:
| | | (Amounts in Thousands) | 2012 | | 2011 | 2014 | | 2013 |
| Finished products | $ | 26,552 |
| | $ | 33,287 |
| $ | 37,373 |
| | $ | 33,956 |
|
| Work-in-process | 12,582 |
| | 11,734 |
| 13,808 |
| | 12,746 |
|
| Raw materials | 91,105 |
| | 109,337 |
| 103,083 |
| | 90,167 |
|
| Total FIFO inventory | $ | 130,239 |
| | $ | 154,358 |
| $ | 154,264 |
| | $ | 136,869 |
|
| LIFO reserve | (12,558 | ) | | (13,261 | ) | (13,789 | ) | | (12,871 | ) |
| Total inventory | $ | 117,681 |
| | $ | 141,097 |
| $ | 140,475 |
| | $ | 123,998 |
|
Note 3 Property and Equipment
Major classes of property and equipment at June 30 consist of the following:
| | | (Amounts in Thousands) | 2012 | | 2011 | 2014 | | 2013 |
| Land | $ | 12,050 |
| | $ | 12,849 |
| $ | 12,308 |
| | $ | 12,152 |
|
| Buildings and improvements | 175,574 |
| | 184,684 |
| 183,735 |
| | 179,719 |
|
| Machinery and equipment | 350,995 |
| | 349,489 |
| 341,525 |
| | 361,557 |
|
| Construction-in-progress | 5,288 |
| | 9,765 |
| 9,758 |
| | 3,548 |
|
| Total | $ | 543,907 |
| | $ | 556,787 |
| $ | 547,326 |
| | $ | 556,976 |
|
| Less: Accumulated depreciation | (357,808 | ) | | (360,105 | ) | (358,493 | ) | | (371,232 | ) |
| Property and equipment, net | $ | 186,099 |
| | $ | 196,682 |
| $ | 188,833 |
| | $ | 185,744 |
|
The useful lives used in computing depreciation are based on the Company's estimate of theestimated service life of thelives for classes of property, as follows:
|
| |
| | Years |
| Buildings and improvements | 5 to 50 |
| Machinery and equipment | 2 to 20 |
| Leasehold improvements | Lesser of Useful Life or Term of Lease |
Depreciation and amortization of property and equipment, including asset write-downs associated with the Company's restructuring plans, totaled, in millions,$30.1 for fiscal year 2014, $28.8 for fiscal year 2013, and $28.9 for fiscal year 2012, $29.0 for fiscal year 2011, and $32.5 for fiscal year 2010.
During fiscal year 2012,, the Furniture segment recognized impairment of $78,$78, in thousands, related to equipment for a product line with volumes much lower than originally forecasted, which was included in the Cost of Sales line onof the Company's Consolidated Statements of Income.
Due to a decline in the market value of a held for sale EMS facility, the Company recognized in Unallocated Corporate a pre-tax impairment loss, in thousands, of $572 during fiscal year 2012, which was included in the Restructuring Expense line on the Company's Consolidated Statements of Income.
At June 30, 20122014, in thousands,no assets totaling $1,709 were classified as held for sale. Assets held for sale that were sold during fiscal year 2014 included:
An underutilized aircraft totaling, in thousands, $1,525 was classified as held for sale during the first quarter of fiscal year 2014, and consistedwas subsequently sold during the second quarter of fiscal year 2014. During fiscal year 2014, we recognized pre-tax losses, in thousands, of $5881,198 for a facilityimpairment on this aircraft, which was recorded on the Selling and land related toAdministrative Expenses line of the Gaylord, Michigan exited operation within the EMSConsolidated Statements of Income and recognized in Unallocated Corporate for segment and reporting purposes.
$1,121 forWe sold an idle Furniture segment manufacturing facility and land located in Jasper, Indiana. The Gaylord, MichiganIndiana, recognizing a pre-tax gain, in thousands, of $1,749 during fiscal year 2014, which was recorded on the Selling and Administrative Expenses line of the Consolidated Statements of Income.
We sold an EMS facility and land located in Gaylord, Michigan, recognizing a pre-tax loss, in thousands, of $311 during fiscal year 2014. During fiscal years 2013 and 2012, we recognized pre-tax impairment on this property, in thousands, of $188 and $572, respectively. The loss on sale and impairment charges were included in the Restructuring Expense line of the Consolidated Statements of Income and reported as unallocated corporate assets for segment reporting purposes. The idle Jasper, Indiana manufacturing facility and land were reported as Furniture segment assetsin Unallocated Corporate for segment reporting purposes.
During fiscal year 2012, the Company sold a tract of land in Poland which was previously classified as held for sale. The sale had an immaterial effect on the Company's consolidated financial statements.
At June 30, 20112013, the CompanyKimball had, in thousands, assets totaling $2,8071,521 classified as held for sale.
Note 4 Commitments and Contingent Liabilities
Leases:
Operating leases for certain office, showroom, manufacturing facilities, land, and equipment, which expire from fiscal year 20132015 to 2056, contain provisions under which minimum annual lease payments are, in millions, $3.53.3, $2.53.2, $1.72.9, $0.92.6, and $0.42.4 for the five years endedending June 30, 20172019, respectively, and aggregate $0.511.3 million from fiscal year 20182020 to the expiration of the leases in fiscal year 2056. The Company isWe 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 expensesexpense amounted to, in millions, $4.84.4, $6.24.7, and $5.44.8 in fiscal years 20122014, 20112013, and 20102012, respectively, including certain leases requiring contingent lease payments based on warehouse space utilized, which amounted to expense of, in millions, $0.40.8, $0.50.9, and $0.4 in fiscal years 20122014, 20112013, and 20102012, respectively.
As of June 30, 20122014 and 20112013, the Company had nocapital leases.leases were not material.
Guarantees:
As of June 30, 20122014 and 20112013, the Companywe had no guarantees issued which were contingent on the future performance of another entity. Standby letters of credit are issued to third-party suppliers, lessors, and insurance and financial institutions and can only be drawn upon in the event of the Company'sKimball's failure to pay its obligations to the beneficiary. The CompanyWe had a maximum financial exposure from unused standby letters of credit totaling $1.1 million as of June 30, 2014 and $4.31.2 million as of June 30, 2012 and $5.2 million as of June 30, 20112013. The Company isWe are not aware of circumstances that would require itus to perform under any of these arrangements and believesbelieve that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect the Company'sour consolidated financial statements. Accordingly, no liability has been recorded as of June 30, 20122014 and 20112013 with respect to the standby letters of credit. The CompanyKimball also enters into commercial letters of credit to facilitate payments to vendors and from customers.
Product Warranties:
The Company estimatesWe 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.
Changes in the product warranty accrual during fiscal years 20122014, 20112013, and 20102012 were as follows:
| | | (Amounts in Thousands) | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Product Warranty Liability at the beginning of the year | $ | 2,109 |
| | $ | 1,818 |
| | $ | 2,176 |
| $ | 2,384 |
| | $ | 2,251 |
| | $ | 2,109 |
|
| Additions to warranty accrual (including changes in estimates) | 1,019 |
| | 1,060 |
| | 59 |
| 2,883 |
| | 1,040 |
| | 1,019 |
|
| Settlements made (in cash or in kind) | (877 | ) | | (769 | ) | | (417 | ) | (2,046 | ) | | (907 | ) | | (877 | ) |
| Product Warranty Liability at the end of the year | $ | 2,251 |
| | $ | 2,109 |
| | $ | 1,818 |
| $ | 3,221 |
| | $ | 2,384 |
| | $ | 2,251 |
|
Note 5 Long-Term Debt and Credit FacilityFacilities
Long-term debt, less current maturities as of June 30, 20122014 and 20112013, was, in thousands, $273268 and $286294, respectively, and current maturities of long-term debt were, in thousands, $1425 and $1223, respectively. Long-term debt consists of a long-term note payable which has an interest rate ofand capitalized leases. Interest rates range from 2.50% to 9.25% and maturesmaturities occur in fiscal years 2018 and 2025. Aggregate maturities of long-term debt for the next five years are, in thousands, $1425, $1527, $1630, $1827, and $1923, respectively, and aggregate $205161 thereafter.
Credit facilities consisted of the following:
| | | | Availability to Borrow at | | Borrowings Outstanding at | | Borrowings Outstanding at | Availability to Borrow at | | Borrowings Outstanding at | | Borrowings Outstanding at |
| (Amounts in Millions, in U.S Dollar Equivalents) | June 30, 2012 | | June 30, 2012 | | June 30, 2011 | June 30, 2014 | | June 30, 2014 | | June 30, 2013 |
Primary revolving credit facility (1) | $ | 95.7 |
| | $ | — |
| | $ | — |
| $ | 73.9 |
| | $ | — |
| | $ | — |
|
Poland overdraft credit facility (2) | 7.6 |
| | — |
| | — |
| |
Thailand overdraft credit facility (2) | | 2.8 |
| | — |
| | — |
|
Poland overdraft credit facility (3) | | 8.2 |
| | — |
| | — |
|
| Total | $ | 103.3 |
| | $ | — |
| | $ | — |
| $ | 84.9 |
| | $ | — |
| | $ | — |
|
| |
(1) | The Company's primary revolving credit facility, which expires in April 2013, provides for up to $100 million in borrowings, with an option to increase the amount available for borrowing to $150 million at the Company's request,
|
(1) Kimball's primary revolving credit facility, which expires in December 2017, provides for up to $75 million in borrowings, with an option to increase the amount available for borrowing to $115 million upon request, subject to participating banks' consent. The Company usesWe use this facility for acquisitions and general corporate purposes. A commitment fee is payable on the unused portion of the credit facility which was immaterial to the Company'sour operating results for fiscal years 20122014, 20112013, and 20102012. The commitment fee on the unused portion of principal amount of the credit facility is payable at a rate that ranges from 12.520.0 to 15.025.0 basis points per annum as determined by the Company'sour leverage ratio. Borrowings under the credit agreement bear interest at a floating rate based, at the Company'sKimball's option, upon a London Interbank Offered Rate (LIBOR)("LIBOR") plus an applicable percentage or the greater of the federal funds rate plus an applicable percentage and the prime rate. The credit facility requires the Company tothat we comply with certain debt covenants including interest coverage ratioconsolidated indebtedness to consolidated EBITDA (debt to EBITDA) and minimum net worth. The Company was in compliance with these covenants during the fiscal year ended June 30, 2012worth (excluding accumulated other comprehensive income). The CompanyKimball had $4.3$1.1 million in letters of credit contingently committed against the credit facility at June 30, 20122014.
The Company also maintains | |
| (2) | Kimball also maintained a $2.7 million foreign credit facility for its EMS segment operation in Thailand which was backed by the $75 million revolving credit facility via a standby letter of credit. This foreign credit facility was reviewed for renewal annually and could be canceled at any time by either the bank or Kimball. We canceled this credit agreement on October 1, 2013, and as of May 6, 2014 put in place a new Thailand overdraft credit facility which allows for borrowings of up to 90.0 million Thai Baht (approximately $2.8 million at June 30, 2014 exchange rates). This new credit facility can be terminated at any time by either the bank or Kimball by giving prior written notice of at least 15 days to the other party. Interest on borrowing under this facility is charged at a rate of interest determined by the bank in accordance with relevant laws and regulations for charging interest on an overdraft facility. |
(3) The credit facility for the EMS segment operation in Thailand which is backed by thePoland allows for multi-currency borrowings up to a $1006 million revolving credit facility.Euro equivalent (approximately $8.2 million U.S. dollars at June 30, 2014 exchange rates) and is available to cover bank overdrafts. Bank overdrafts may be deemed necessary to satisfy short-term cash needs at our Poland location rather than funding from intercompany sources. This foreign credit facility is reviewed for renewal annually and can be canceled at any time by either the bank or the Company.Kimball. Interest on borrowing in US dollars under the facility is charged at 0.75% per annum over the Singapore Interbank Money Market Offered Rate (SIBOR). The interest rate on borrowings in Thai Baht under thethis credit facility is charged at the prevailing market rate.
| |
(2) | The credit facility for the EMS segment operation in Poland allows for multi-currency borrowings up to a 6 million Euro equivalent (approximately $7.6 million U.S. dollars at June 30, 2012 exchange rates) and is available to cover bank overdrafts. Bank overdrafts may be deemed necessary to satisfy short-term cash needs at the Company's Poland location rather than funding from intercompany sources. This credit facility is reviewed for renewal annually and can be canceled at any time by either the bank or the Company. Interest on the overdraft is charged at 1.75% over the Euro Overnight Index Average (EONIA).
|
As of both June 30, 2012 and 2011, there were no outstanding short-term borrowings. Cash payments for interest on borrowings were, in thousands, $3729, $12136, and $20337, in fiscal years 20122014, 20112013, and 20102012, respectively. Capitalized interest expense was immaterial during fiscal years 20122014, 20112013, and 20102012.
Note 6 Employee Benefit Plans
Retirement Plans:
The CompanyKimball has a trusteed defined contribution retirement plan in effect for substantially all domestic employees meeting the eligibility requirements. Payments by the CompanyEmployer contributions to the trusteed plan have a five-year vesting schedule and are held for the sole benefit of participants. The CompanyKimball also maintains a supplemental employee retirement plan (SERP)("SERP") for executive employees which enableenables them to defer cash compensation on a pre-tax basis in excess of IRS limitations. The SERP is structured as a rabbi trust, and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy.
Company contributionsThe discretionary employer contribution for domestic employees are based on a percent of net income with certain minimum and maximum limits aswas determined annually by the Compensation and Governance Committee of the Board of Directors. Total expense related to employer contributions to the domestic retirement plans was, in millions, $5.35.2, $5.05.1, and $4.55.3 for fiscal years 20122014, 20112013, and 20102012, respectively.
Employees of certain foreign subsidiaries are covered by local pension or retirement plans. Total expense related to employer contributions to these foreign plans for fiscal years 20122014, 20112013, and 20102012 was, in millions, $0.30.2, $0.50.2, and $0.60.3, respectively.
Severance Plans:
The Company maintains severance plans for allKimball's domestic employees whichparticipate in severance plans. These plans cover domestic employees and provide severance benefits to eligible employees meeting the plans' qualifications, primarily involuntary termination without cause. There are no statutory requirements for the CompanyKimball 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:
| | | | June 30 | June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | 2014 | | 2013 |
| Changes and Components of Benefit Obligation: | |
| | |
| |
| | |
|
| Benefit obligation at beginning of year | $ | 5,073 |
| | $ | 5,900 |
| $ | 5,579 |
| | $ | 4,720 |
|
| Service cost | 811 |
| | 934 |
| 955 |
| | 825 |
|
| Interest cost | 189 |
| | 264 |
| 134 |
| | 179 |
|
| Actuarial (gain) loss for the period | (1,265 | ) | | (1,501 | ) | (899 | ) | | (1 | ) |
| Benefits paid | (88 | ) | | (524 | ) | (419 | ) | | (144 | ) |
| Benefit obligation at end of year | $ | 4,720 |
| | $ | 5,073 |
| $ | 5,350 |
| | $ | 5,579 |
|
| Balance in current liabilities | $ | 828 |
| | $ | 890 |
| $ | 939 |
| | $ | 979 |
|
| Balance in noncurrent liabilities | 3,892 |
| | 4,183 |
| 4,411 |
| | 4,600 |
|
| Total benefit obligation recognized in the Consolidated Balance Sheets | $ | 4,720 |
| | $ | 5,073 |
| $ | 5,350 |
| | $ | 5,579 |
|
| | | | June 30 | June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | 2014 | | 2013 |
| Changes and Components in Accumulated Other Comprehensive Income (Loss) (before tax): | Changes and Components in Accumulated Other Comprehensive Income (Loss) (before tax): | | |
| Changes and Components in Accumulated Other Comprehensive Income (Loss) (before tax): | | |
|
| Accumulated Other Comprehensive Income (Loss) at beginning of year | $ | 2,771 |
| | $ | 5,332 |
| $ | (44 | ) | | $ | 587 |
|
| Change in unrecognized prior service cost | (286 | ) | | (286 | ) | (286 | ) | | (286 | ) |
| Net change in unrecognized actuarial loss | (1,898 | ) | | (2,275 | ) | |
| Net change in unrecognized actuarial (gain) loss | | (1,237 | ) | | (345 | ) |
| Accumulated Other Comprehensive Income (Loss) at end of year | $ | 587 |
| | $ | 2,771 |
| $ | (1,567 | ) | | $ | (44 | ) |
| Balance in unrecognized prior service cost | $ | 771 |
| | $ | 1,057 |
| $ | 199 |
| | $ | 485 |
|
| Balance in unrecognized actuarial (gain) loss | (184 | ) | | 1,714 |
| (1,766 | ) | | (529 | ) |
| Total Accumulated Other Comprehensive Income (Loss) recognized in Share Owners' Equity | $ | 587 |
| | $ | 2,771 |
| $ | (1,567 | ) | | $ | (44 | ) |
| | | (Amounts in Thousands) | Year Ended June 30 | Year Ended June 30 |
| Components of Net Periodic Benefit Cost (before tax): | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Service cost | $ | 811 |
| | $ | 934 |
| | $ | 854 |
| $ | 955 |
| | $ | 825 |
| | $ | 811 |
|
| Interest cost | 189 |
| | 264 |
| | 408 |
| 134 |
| | 179 |
| | 189 |
|
| Amortization of prior service cost | 286 |
| | 286 |
| | 285 |
| 286 |
| | 286 |
| | 286 |
|
| Amortization of actuarial (gain) loss | 633 |
| | 774 |
| | 753 |
| 338 |
| | 344 |
| | 633 |
|
| Net periodic benefit cost recognized in the Consolidated Statements of Income | $ | 1,919 |
| | $ | 2,258 |
| | $ | 2,300 |
| $ | 1,713 |
| | $ | 1,634 |
| | $ | 1,919 |
|
The benefit cost in the above table includes only normal recurring levels of severance activity, as estimated using an actuarial method and management judgment.method. Unusual or non-recurring severance actions, such as those disclosed in Note 17 - Restructuring Expense of Notes to Consolidated Financial Statements, are not estimable using actuarial methods and are expensed in accordance with theother applicable U.S. GAAP.
The Company amortizes prior50
Prior service costscost is 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 amortizes 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 prior service cost and actuarial net (gain) loss for the severance plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are, pre-tax in thousands, $286 and $(32)(310), respectively.
Assumptions used to determine fiscal year end benefit obligations are as follows:
| | | | 2012 | | 2011 | 2014 | | 2013 |
| Discount Rate | 3.3% | | 4.8% | 2.3% | | 2.5% |
| Rate of Compensation Increase | 4.0% | | 4.0% | 3.0% | | 3.0% |
Weighted average assumptions used to determine fiscal year net periodic benefit costs are as follows:
| | | | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Discount Rate | 4.1% | | 5.0% | | 6.2% | 2.5% | | 3.8% | | 4.1% |
| Rate of Compensation Increase | 4.0% | | 4.0% | | 3.3% | 3.0% | | 3.8% | | 4.0% |
Note 7 Stock Compensation Plans
On August 19, 2003,13, 2013, the Board of Directors adopted the Amended and Restated 2003 Stock Option and Incentive Plan (the "2003("the 2003 Plan"), which was approved by the Company'sKimball's Share Owners on October 21, 2008.15, 2013. Under the 2003 Plan, 2,500,0005,000,000 shares of Common Stock wereare 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 of the Company and to members of the Board of Directors who are not employees. The 2003 Plan is a ten-year plan. The Company also has stock options outstanding under a former stock incentive plan, which is described below. expires December 31, 2018.
The pre-tax compensation cost that was charged against income for all of the plans was $1.47.0 million, $1.35.0 million, and $1.81.4 million in fiscal year 20122014, 20112013, and 20102012, respectively. The total income tax benefit for stock compensation arrangements was $0.62.8 million, $0.52.0 million, and $0.70.6 million in fiscal year 20122014, 20112013, and 20102012, respectively. The CompanyWe generally usesuse treasury shares for fulfillment of option exercises and issuance of performance shares.
Performance Shares:
The CompanyKimball awards performance shares to officers and other key employees under the 2003 Plan.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 the Company'sKimball's profit sharing incentive bonus plan as applied to a total potential share award made and approved by the Compensation and Governance Committee. Performance shares are vested when issued shortly after the end of the fiscal year in which the performance measurement period is complete and are issued as Class A andor Class B common shares. Certain outstanding performance shares are applicable to performance measurement periods in future fiscal years and will be measured at fair value when the performance targets are established in future fiscal years. The contractual life of performance shares ranges from one year to five years. If a participant is not employed by the Company on the date shares are issued, the performance share award is forfeited, except in the case of death, retirement at age 62 or older, total permanent disability, or certain other circumstances described in the Company'sKimball's employment policy. Additionally, toTo the extent performance conditions are not fully attained, performance shares are forfeited.
A summary of performance share activity under the 2003 Plan during fiscal year 20122014 is presented below:
| | | | Number of Shares | | Weighted Average Grant Date Fair Value | Number of Shares | | Weighted Average Grant Date Fair Value |
| Performance shares outstanding at July 1, 2011 | 1,563,278 |
| | $5.10 | |
| Performance shares outstanding at July 1, 2013 | | 1,561,713 |
| | $10.92 |
| Granted | 800,150 |
| | $5.46 | 1,187,801 |
| | $14.93 |
| Vested | (187,915 | ) | | $5.09 | (512,719 | ) | | $10.92 |
| Forfeited | (430,113 | ) | | $5.09 | (261,932 | ) | | $10.97 |
| Performance shares outstanding at June 30, 2012 | 1,745,400 |
| | $5.45 | |
| Performance shares outstanding at June 30, 2014 | | 1,974,863 |
| | $14.55 |
As of June 30, 20122014, there was approximately $2.516.0 million of unrecognized compensation cost related to performance shares,
based on the latest estimated attainment of performance goals. That cost is expected to be recognized over annual performance periods ending August 20122014 through August 2016,2019, with a weighted average vesting period of one year, sixseven months. The fair value of performance shares is based on the stock price at the date of grant, reduced by the present value of dividends normally paid over the vesting period which are not payable on outstanding performance share awards. The weighted average grant date fair value was $5.4614.93; $5.1010.91; and $6.255.46 for performance share awards granted in fiscal year 20122014, 20112013, and 20102012, respectively. During fiscal year 20122014, 20112013, and 20102012, respectively, 187,915512,719; 141,049254,393; and 140,832187,915 performance shares vested at a fair value of $1.05.6 million, $0.91.4 million, and $1.11.0 million. These shares are the total number of shares vested, prior to the reduction of shares withheld to satisfy tax withholding obligations. The number of shares presented in the above table, the amounts of unrecognized compensation, and the weighted average period include performance shares awarded that are applicable to future performance measurement periods and will be measured at fair value when the performance targets are established in future fiscal years.
Unrestricted Share Grants:
Under the 2003 Plan, unrestrictedUnrestricted shares may be granted to employees and members of the Board of Directors as consideration for service to the Company.Kimball. Unrestricted share grants do not have vesting periods, holding periods, restrictions on sale, or other restrictions. The fair value of unrestricted shares is based on the stock price at the date of the award. During fiscal year 20122014, 20112013, and 20102012, respectively, the CompanyKimball granted a total of 22,18720,277; 46,9772,843; and 19,66222,187 unrestricted shares of Class B common stock at an average grant date fair value of $5.9511.47, $6.7111.78, and $7.635.95, for a total fair value, in thousands, of $0.1 million233, $0.3 million33, and $0.2 million132. These shares are the total number of shares granted, prior to the reduction of shares withheld to satisfy tax withholding obligations. TheseUnrestricted 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. Other unrestricted shares were awarded to officers as consideration for their service to the Company.
Restricted Share Units:
Restricted Share Units (RSU) were awarded to officers and other key employees under the 2003 Plan in fiscal years prior to fiscal year 2012. As of June 30, 2012, there was no unrecognized compensation cost related to RSU compensation arrangements awarded under the 2003 Plan as all RSU's had vested. The total fair value of RSU awards vested during fiscal year 2012, 2011, and 2010 was, in millions, $0, $0, and $3.4, respectively.
Stock Options:
The Company has stock options outstanding under a former stock incentive plan. The 1996 Stock Incentive Program, which was approved by the Company's Share Owners on October 22, 1996, allowed the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, and performance share awards to officers and other key employees of the Company and to members of the Board of Directors who are not employees. The 1996 Stock Incentive Program will continue to have options outstanding through fiscal year 2013. No shares remain available for new grants under the 1996 Stock Incentive Program.
There were no stock option grants awarded during fiscal years 2012, 2011, and 2010. For outstanding awards, the fair value at the date of the grant was estimated using the Black-Scholes option pricing model. Options outstanding are exercisable five years after the date of grant and expire ten years after the date of grant. Stock options are forfeited when employment terminates, except in the case of retirement at age 62 or older, death, permanent disability, or certain other circumstances described in the Company's employment policy.
A summary of stock option activity during fiscal year 2012 is presented below:
|
| | | | | | | | |
| | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| Options outstanding at July 1, 2011 | 619,585 |
| | $15.10 | | | | |
| Granted | — |
| | $— | | | | |
| Exercised | — |
| | $— | | | | |
| Forfeited | (1,500 | ) | | $15.06 | | | | |
| Expired | (139,585 | ) | | $15.24 | | | | |
| Options outstanding at June 30, 2012 | 478,500 |
| | $15.06 | | 4 months | | $— |
| Options vested and exercisable at June 30, 2012 | 478,500 |
| | $15.06 | | 4 months | | $— |
No options were exercised during fiscal years 2012, 2011, and 2010.
Note 8 Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Income tax benefits associated with net operating losses of, in thousands, $5,6983,076 expire from fiscal year 20132014 to 2034. Income tax benefits associated with tax credit carryforwards of, in thousands, $2,7341,883, expire from fiscal year 20162015 to 20262027. As of June 30, 2012, the Company was in a cumulative three-year domestic income position, after adjustment for permanent items. In evaluating whether aA valuation allowance was warranted for the U.S. federal net deferred tax asset as of June 30, 2012, management weighed both positive and negative evidence and determined that it was more likely than not that all of the deferred tax asset would be realized, and accordingly, a valuation allowance for the U.S. federal net deferred tax asset was not required. A valuation reserve was provided as of June 30, 20122014 for deferred tax assets relating to certain foreign and state net operating losses of, in thousands, $1,761, and, in thousands, $150787 related to other deferred tax assets that the Companywe currently believesbelieve are more likely than not to remain unrealized in the future. During fiscal year ended June 30, 2012, the valuation reserve was reduced primarily due to the expiration of a state tax credit.
The components of the deferred tax assets and liabilities as of June 30, 20122014 and 20112013, were as follows:
| | | (Amounts in Thousands) | 2012 | | 2011 | 2014 | | 2013 |
| Deferred Tax Assets: | |
| | |
| |
| | |
|
| Receivables | $ | 1,492 |
| | $ | 1,420 |
| $ | 1,587 |
| | $ | 1,775 |
|
| Inventory | 2,009 |
| | 2,409 |
| 2,388 |
| | 2,521 |
|
| Employee benefits | 640 |
| | 608 |
| 630 |
| | 601 |
|
| Deferred compensation | 12,885 |
| | 12,092 |
| 24,502 |
| | 18,076 |
|
| Other current liabilities | 1,313 |
| | 1,583 |
| 619 |
| | 514 |
|
| Warranty reserve | 767 |
| | 698 |
| 1,036 |
| | 749 |
|
| Credit carryforwards | 2,734 |
| | 6,272 |
| |
| Tax credit carryforwards | | 1,883 |
| | 1,768 |
|
| Restructuring | 107 |
| | 3,173 |
| — |
| | 15 |
|
| Goodwill | 3,510 |
| | 4,011 |
| 2,597 |
| | 3,011 |
|
| Net operating loss carryforward | 5,698 |
| | 5,749 |
| 3,076 |
| | 4,114 |
|
| Net foreign currency losses | | 77 |
| | 480 |
|
| Miscellaneous | 4,322 |
| | 2,698 |
| 4,822 |
| | 4,818 |
|
| Valuation Allowance | (1,911 | ) | | (6,698 | ) | (787 | ) | | (2,315 | ) |
| Total asset | $ | 33,566 |
| | $ | 34,015 |
| $ | 42,430 |
| | $ | 36,127 |
|
| Deferred Tax Liabilities: | | | | | | |
| Property & equipment | $ | 10,075 |
| | $ | 6,986 |
| |
| Property and equipment | | $ | 7,397 |
| | $ | 9,017 |
|
| Capitalized software | 62 |
| | 115 |
| 168 |
| | 141 |
|
| Net foreign currency gains | — |
| | 1,677 |
| |
| Miscellaneous | 494 |
| | 597 |
| 512 |
| | 607 |
|
| Total liability | $ | 10,631 |
| | $ | 9,375 |
| $ | 8,077 |
| | $ | 9,765 |
|
| Net Deferred Income Taxes | $ | 22,935 |
| | $ | 24,640 |
| $ | 34,353 |
| | $ | 26,362 |
|
The components of income (loss) before taxes on income are as follows:
| | | | Year Ended June 30 | Year Ended June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| United States | $ | 7,831 |
| | $ | (2,966 | ) | | $ | (8,434 | ) | $ | 18,343 |
| | $ | 2,525 |
| | $ | 7,831 |
|
| Foreign | 9,871 |
| | 7,403 |
| | 14,402 |
| 24,830 |
| | 20,138 |
| | 9,871 |
|
| Total income before income taxes on income | $ | 17,702 |
| | $ | 4,437 |
| | $ | 5,968 |
| |
| Total income before taxes on income | | $ | 43,173 |
| | $ | 22,663 |
| | $ | 17,702 |
|
Foreign unremitted earnings of entities not included in the United States tax return have been included in the consolidated financial statements without giving effect to the United States taxes that may be payable on distribution to the United States because it is not anticipated such earnings will be remitted to the United States. Under current applicable tax laws, if we chose to remit some or all of the funds we have designated as indefinitely reinvested outside the United States rather than making nontaxable repayments on our intercompany loans, the amount remitted would be subject to United States income taxes and applicable non-U.S. income and withholding taxes. Such earnings would also become taxable upon the sale or liquidation of these subsidiaries or upon remittance of dividends. The aggregate unremitted earnings of the Company'sKimball's foreign subsidiaries for which a deferred income tax liability has not been recorded was approximately $80.3126 million as of June 30, 20122014. Determination of the amount of unrecognized deferred tax liability on unremitted earnings is not practicable.
The provision (benefit) for income taxes is composed of the following items:
| | | | Year Ended June 30 | Year Ended June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Currently Payable (Refundable): | |
| | |
| | |
| |
| | |
| | |
|
| Federal | $ | 954 |
| | $ | (2,527 | ) | | $ | (6,768 | ) | $ | 12,486 |
| | $ | 2,673 |
| | $ | 954 |
|
| Foreign | 1,849 |
| | (130 | ) | | 3,474 |
| 4,505 |
| | 2,861 |
| | 1,849 |
|
| State | 877 |
| | 150 |
| | (305 | ) | 1,630 |
| | 1,051 |
| | 877 |
|
| Total current | 3,680 |
| | (2,507 | ) | | (3,599 | ) | $ | 18,621 |
| | $ | 6,585 |
| | $ | 3,680 |
|
| Deferred Taxes: | |
| | |
| | |
| |
| | |
| | |
|
| Federal | 1,784 |
| | 1,090 |
| | 1,407 |
| $ | (6,072 | ) | | $ | (2,631 | ) | | $ | 1,784 |
|
| Foreign | 970 |
| | 1,509 |
| | (1,553 | ) | (55 | ) | | 542 |
| | 970 |
|
| State | (366 | ) | | (577 | ) | | (1,090 | ) | (1,254 | ) | | (1,712 | ) | | (366 | ) |
| Total deferred | 2,388 |
| | 2,022 |
| | (1,236 | ) | $ | (7,381 | ) | | $ | (3,801 | ) | | $ | 2,388 |
|
| Total provision (benefit) for income taxes | $ | 6,068 |
| | $ | (485 | ) | | $ | (4,835 | ) | |
| Valuation allowance | | $ | (1,528 | ) | | — |
| | — |
|
| Total provision for income taxes | | $ | 9,712 |
| | $ | 2,784 |
| | $ | 6,068 |
|
A reconciliation of the statutory U.S. income tax rate to the Company'sKimball's effective income tax rate follows:
| | | | Year Ended June 30 | Year Ended June 30 |
| | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| (Amounts in Thousands) | Amount | | % | | Amount | | % | | Amount | | % | Amount | | % | | Amount | | % | | Amount | | % |
| Tax computed at U.S. federal statutory rate | $ | 6,196 |
| | 35.0 | % | | $ | 1,553 |
| | 35.0 | % | | $ | 2,089 |
| | 35.0 | % | $ | 15,110 |
| | 35.0 | % | | $ | 7,932 |
| | 35.0 | % | | $ | 6,196 |
| | 35.0 | % |
| State income taxes, net of federal income tax benefit | 332 |
| | 1.9 |
| | (277 | ) | | (6.3 | ) | | (907 | ) | | (15.2 | ) | 166 |
| | 0.4 |
| | (430 | ) | | (1.9 | ) | | 332 |
| | 1.9 |
|
| Foreign tax effect | (639 | ) | | (3.6 | ) | | (1,213 | ) | | (27.3 | ) | | (3,120 | ) | | (52.3 | ) | (4,241 | ) | | (9.8 | ) | | (3,645 | ) | | (16.1 | ) | | (639 | ) | | (3.6 | ) |
| Tax-exempt interest income | — |
| | — |
| | — |
| | — |
| | (169 | ) | | (2.8 | ) | |
| Valuation allowance | | (1,528 | ) | | (3.5 | ) | | — |
| | — |
| | — |
| | — |
|
| Domestic manufacturing deduction | | (478 | ) | | (1.1 | ) | | (549 | ) | | (2.4 | ) | | — |
| | — |
|
| Research credit | (247 | ) | | (1.4 | ) | | (751 | ) | | (16.9 | ) | | (674 | ) | | (11.3 | ) | (376 | ) | | (0.9 | ) | | (729 | ) | | (3.2 | ) | | (247 | ) | | (1.4 | ) |
| Foreign subsidiary land and building gain | — |
| | — |
| | — |
| | — |
| | (2,236 | ) | | (37.5 | ) | |
| Spin-off costs | | 1,015 |
| | 2.3 |
| | — |
| | — |
| | — |
| | — |
|
| Other - net | 426 |
| | 2.4 |
| | 203 |
| | 4.6 |
| | 182 |
| | 3.1 |
| 44 |
| | 0.1 |
| | 205 |
| | 0.9 |
| | 426 |
| | 2.4 |
|
| Total provision (benefit) for income taxes | $ | 6,068 |
| | 34.3 | % | | $ | (485 | ) | | (10.9 | )% | | $ | (4,835 | ) | | (81.0 | )% | |
| Total provision for income taxes | | $ | 9,712 |
| | 22.5 | % | | $ | 2,784 |
| | 12.3 | % | | $ | 6,068 |
| | 34.3 | % |
Net cash payments (refunds) for income taxes were, in thousands, $1,50413,911, $(2,851)(551), and $8,8661,504 in fiscal years 20122014, 20112013, and 20102012, respectively.
Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 20122014, 20112013, and 20102012 were as follows:
| | | (Amounts in Thousands) | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Beginning balance - July 1 | $ | 2,499 |
| | $ | 2,466 |
| | $ | 2,165 |
| $ | 2,752 |
| | $ | 2,624 |
| | $ | 2,499 |
|
| Tax positions related to prior fiscal years: | |
| | |
| | |
| |
| | |
| | |
|
| Additions | 250 |
| | 312 |
| | 532 |
| 415 |
| | 207 |
| | 250 |
|
| Reductions | (84 | ) | | (77 | ) | | (130 | ) | — |
| | — |
| | (84 | ) |
| Tax positions related to current fiscal year: | |
| | |
| | |
| |
| | |
| | |
|
| Additions | — |
| | 96 |
| | 74 |
| — |
| | — |
| | — |
|
| Reductions | — |
| | (42 | ) | | — |
| — |
| | — |
| | — |
|
| Settlements | — |
| | (74 | ) | | (36 | ) | — |
| | — |
| | — |
|
| Lapses in statute of limitations | (41 | ) | | (182 | ) | | (139 | ) | (475 | ) | | (79 | ) | | (41 | ) |
| Ending balance - June 30 | $ | 2,624 |
| | $ | 2,499 |
| | $ | 2,466 |
| $ | 2,692 |
| | $ | 2,752 |
| | $ | 2,624 |
|
| Portion that, if recognized, would reduce tax expense and effective tax rate | $ | 2,190 |
| | $ | 2,125 |
| | $ | 2,097 |
| $ | 2,159 |
| | $ | 2,286 |
| | $ | 2,190 |
|
The Company recognizesWe recognize interest and penalties related to unrecognized tax benefits in the Provision (Benefit) for Income Taxes line of the Consolidated Statements of Income. Amounts accrued for interest and penalties were as follows:
| | | | As of June 30 | As of June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Accrued Interest and Penalties: | |
| | |
| | |
| |
| | |
| | |
|
| Interest | $ | 256 |
| | $ | 230 |
| | $ | 311 |
| $ | 285 |
| | $ | 278 |
| | $ | 256 |
|
| Penalties | 85 |
| | 86 |
| | 117 |
| $ | 95 |
| | $ | 78 |
| | $ | 85 |
|
Accrued interest and penalties are not included in the tabular roll forward of unrecognized tax benefits above. Interest and penalties income/income (expense) recognized for fiscal years 20122014, 20112013, and 20102012 were, in thousands, $(2)(25), $10722, and $72(2), respectively.
The Company,Kimball, or one of its wholly-owned subsidiaries, files U.S. federal income tax returns and income tax returns in various state, local, and foreign jurisdictions. The Company isWe are no longer subject to any significant U.S. federal tax examinations by tax authorities for years before fiscal year 2008. The Company is2009. We are subject to various state and local income tax examinations by tax authorities for years after June 30, 20022006 and various foreign jurisdictions for years after June 30, 2004. The Company does2007. We do not expect the change in the amount of unrecognized tax benefits in the next 12 months to have a significant impact on theour results of operations or the financial position of the Company.position.
Note 9 Common Stock
On a fiscal year basis, shares of Class B Common Stock are entitled to an additional $0.02 per share dividend more than the dividends paid on Class A Common Stock, provided that dividends are paid on the Company'sKimball's Class A Common Stock. The owners of both Class A and Class B Common Stock are entitled to share pro-rata, irrespective of class, in the distribution of the Company'sKimball's available assets upon dissolution.
Owners of Class B Common Stock are entitled to elect, as a class, one member of the Company'sKimball's Board of Directors. In addition, owners of Class B Common Stock are entitled to full voting powers, as a class, with respect to any consolidation, merger, sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the Company's fixed assets, or dissolution of the Company. Otherwise, except as provided by statute with respect to certain amendments to the Articles of Incorporation, the owners of Class B Common Stock have no voting rights, and the entire voting power is vested in the Class A Common Stock, which has one vote per share. The Habig families own directly or share voting power in excess of 50% of the Class A Common Stock of Kimball International, Inc. The owner of a share of Class A Common Stock may, at their option, convert such share into one share of Class B Common Stock at any time.
If dividends are not paid on shares of the Company'sKimball's Class B Common Stock for a period of thirty-six consecutive months, or if at any time the number of shares of Class A Common Stock issued and outstanding is less than 15% of the total number of issued and outstanding shares of both Class A and Class B Common Stock, then all shares of Class B Common Stock shall automatically have the same rights and privileges as the Class A Common Stock, with full and equal voting rights and with equal rights to receive dividends as and if declared by the Board of Directors.
Note 10 Fair Value
The CompanyKimball categorizes assets and liabilities measured at fair value into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than those included in level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3: Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability.
The Company'sOur 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 yearyears 20122014 and 2013.
Financial Instruments Recognized at Fair ValueValue:
The following methods and assumptions were used to measure fair value:
|
| | | | |
| Financial Instrument | | Level | | Valuation Technique/Inputs Used |
| Cash Equivalents | | 1 | | Market - Quoted market prices |
| Derivative Assets: Foreign exchange contracts | | 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 |
| Derivative Assets: Stock warrants | | 3 | | Market - Based on a probability-weighted Black-Scholes option pricing model with the following inputs (level 3 input values indicated in parenthesis): risk-free interest rate (0.69%(0.05%), historical stock price volatility (97.1%(78.5%) and weighted average expected term (4 years, 5(6 months). Enterprise value was estimated using a discounted cash flow calculation.
Stock warrants are revalued and analyzed for reasonableness on a quarterly basis. Based on the probability-weighted option pricing model, the stock warrants were fully impaired during fiscal year 2014. The level 3 inputs used are the standard inputs used in the Black-Scholes model. Input values are based on publicly available information (Federal Reserve interest rates) and internally-developed information (historical stock price volatility of comparable investments) and remaining expected term of warrants. Significant increases (decreases) in the historical stock price volatility, expected life, and enterprise value in isolation would result in a significantly higher (lower) fair value measurement. The inputs do not have any interrelationships. |
Trading securities: Mutual funds held by nonqualified supplemental employee retirement planin SERP | | 1 | | Market - Quoted market prices |
| Derivative Liabilities: Foreign exchange contracts | | 2 | | Market - Based on observable market inputs using standard calculations, such as time value, forward interest rate yield curves, and current spot rates adjusted for the Company'sKimball's non-performance risk |
Recurring Fair Value Measurements:
As of June 30, 20122014 and 20112013, 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:
| | | | June 30, 2012 | June 30, 2014 |
| (Amounts in Thousands) | Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 103,845 |
| | $ | — |
| | $ | — |
| | $ | 103,845 |
|
| Derivatives: Foreign exchange contracts | — |
| | 2,278 |
| | — |
| | 2,278 |
| — |
| | 800 |
| | — |
| | 800 |
|
| Derivatives: Stock warrants | — |
| | — |
| | 911 |
| | 911 |
| |
| Trading Securities: Mutual funds held by nonqualified supplemental employee retirement plan | 16,922 |
| | — |
| | — |
| | 16,922 |
| |
| Trading Securities: Mutual funds held in SERP | | 23,106 |
| | — |
| | — |
| | 23,106 |
|
| Total assets at fair value | $ | 16,922 |
| | $ | 2,278 |
| | $ | 911 |
| | $ | 20,111 |
| $ | 126,951 |
| | $ | 800 |
| | $ | — |
| | $ | 127,751 |
|
| Liabilities | | | | | | | | | | | | | | |
| Derivatives: Foreign exchange contracts | $ | — |
| | $ | 799 |
| | $ | — |
| | $ | 799 |
| $ | — |
| | $ | 699 |
| | $ | — |
| | $ | 699 |
|
| Total liabilities at fair value | $ | — |
| | $ | 799 |
| | $ | — |
| | $ | 799 |
| $ | — |
| | $ | 699 |
| | $ | — |
| | $ | 699 |
|
| | | | June 30, 2011 | June 30, 2013 |
| (Amounts in Thousands) | Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | |
| Cash equivalents | $ | 32,021 |
| | $ | — |
| | $ | — |
| | $ | 32,021 |
| $ | 83,516 |
| | $ | — |
| | $ | — |
| | $ | 83,516 |
|
| Derivatives: Foreign exchange contracts | — |
| | 1,044 |
| | — |
| | 1,044 |
| — |
| | 273 |
| | — |
| | 273 |
|
| Derivatives: Stock warrants | — |
| | — |
| | 1,437 |
| | 1,437 |
| — |
| | — |
| | 25 |
| | 25 |
|
| Trading Securities: Mutual funds held by nonqualified supplemental employee retirement plan | 16,138 |
| | — |
| | — |
| | 16,138 |
| |
| Trading Securities: Mutual funds held in SERP | | 19,600 |
| | — |
| | — |
| | 19,600 |
|
| Total assets at fair value | $ | 48,159 |
| | $ | 1,044 |
| | $ | 1,437 |
| | $ | 50,640 |
| $ | 103,116 |
| | $ | 273 |
| | $ | 25 |
| | $ | 103,414 |
|
| Liabilities | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Derivatives: Foreign exchange contracts | $ | — |
| | $ | 1,684 |
| | $ | — |
| | $ | 1,684 |
| $ | — |
| | $ | 1,662 |
| | $ | — |
| | $ | 1,662 |
|
| Total liabilities at fair value | $ | — |
| | $ | 1,684 |
| | $ | — |
| | $ | 1,684 |
| $ | — |
| | $ | 1,662 |
| | $ | — |
| | $ | 1,662 |
|
During fiscal year 2010, the Company purchased convertible debtKimball currently holds non-marketable equity securities of $2.3 million and stock warrants of $0.4 million of a privately-held company. During fiscal year 2011, the convertible debt securities experienced an other-than-temporary decline in fair market value resulting in a $1.2 million impairment loss and, upon a qualified financing, were subsequently converted to non-marketable equity securities. The investment in non-marketable equity securities is accounted for as a cost-method investment and is included in the Financial Instruments Not Carried At Fair Value section that follows. The revaluationDue to certain events and changes in circumstances that had adverse effects on the fair value of stock warrantsthe investment in the privately-held company, we revalued the investment which, during fiscal years 2014, 2013 and 2012, respectively, resulted in a$0.1 million, $1.0 million derivative gain as a result of the qualified financing. During fiscal year 2012, the privately-held company experienced delays in their start-up,, and therefore initiated another round of financing that the Company chose not to participate in, which resulted in the automatic conversion of preferred shares and warrants to common shares and warrants. Upon the conversion, the equity securities and warrants were revalued, resulting in an impairment loss of $0.7 million impairment on the equity securities, and a less than $0.1 million, $0.9 million, and $0.5 million derivative loss on the stock warrants. As of June 30, 2014, the equity securities and stock warrants during fiscal year 2012.
have been fully impaired. See Note 11 - Derivative Instruments of Notes to Consolidated Financial Statements for further information regarding the stock warrants. See Note 12 - Investments of Notes to Consolidated Financial Statements for further information regarding the convertible debt securities and non-marketable equity securities. The other changes in fair value of Level 3 investment assets during fiscal year 2012 were immaterial, and noNo purchases or sales of Level 3 assets occurred during the period.periods.
The nonqualified supplemental employee retirement plan (SERP)("SERP") assets consist primarily of equity funds, balanced funds, a bond fund, and a money market fund. The SERP investment assets are exactly offset by a SERP liability which represents the Company'sKimball's obligation to distribute SERP funds to participants. See Note 12 - Investments of Notes to Consolidated Financial Statements for further information regarding the SERP. Non-Recurring Fair Value Measurements:
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments when events or circumstances indicate a significant adverse effect on the fair value of the asset. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.
|
| | | | |
| Non-recurring fair value adjustment | | Level | | Valuation Technique/Inputs Used |
Impairment of assets held for sale (real estate)estate and property & equipment) | | 3 | | Market - Probability-weighted cash flow calculation using estimatedEstimated potential net selling prices.price. |
| Impairment of long-lived assets (intangible asset and property & equipment) | | 3 | | Market - Probability-weighted discounted cash flow calculation using estimated future cash flows. |
During fiscal year 2014, we classified an aircraft as held for sale and accordingly 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. Due to a declinedeclines in the market value of the held for sale EMS facility, the Companywe recognized a pre-tax impairment loss of, in millions, $0.60.2 millionand $0.6 during fiscal year years 2013 and 2012,. respectively. Also during fiscal year 2012,, the Company we recognized impairment of, in millions, $0.3$0.3 and $0.1$0.1 related to intangible product rights and equipment, respectively, for a product line which iswas near the end of its production period.
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 | | Level | | Valuation Technique/Inputs Used |
| Notes receivable | | 2 | | 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 |
| Non-marketable equity securities (cost-method investments, which carry shares at cost except in the event of impairment) | | 3 | | Cost Method, with Impairment Recognized Using a Market-Based Valuation Technique - See the explanation below the table regarding the method used to periodically estimate the fair value of cost-method investments.
InFor the event of impairment recognized during fiscal year 2014, the valuation iswas based on a probability-weighted Black-Scholes option pricing model with the following inputs (level 3 input values indicated in parenthesis): risk-free interest rate (0.69%(0.05%), historical stock price volatility (97.1%(78.5%) and weighted average expected term (4 years, 5(6 months). Enterprise value was estimated using a discounted cash flow calculation.
Based on the probability-weighted option pricing model, the equity securities were fully impaired during fiscal year 2014.
The level 3 inputs used are the standard inputs used in the Black-Scholes model. Input values are based on publicly available information (Federal Reserve interest rates) and internally-developed information (historical stock price volatility of comparable investments) and remaining expected holding period of securities.
Significant increases (decreases) in the historical stock price volatility, expected life, and enterprise value in isolation would result in a significantly higher (lower) fair value measurement. The inputs do not have any interrelationships. |
| 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 the Company'sadjusted for Kimball's non-performance risk |
Investments in non-marketable equity securities are accounted for using the cost method if the CompanyKimball does not have the ability to exercise significant influence over the operating and financial policies of the investee. On a periodic basis, but no less frequently than quarterly, these investments are assessed for impairment when there are events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. If a significant adverse effect on the fair value of the investment has occurred and is deemed to be other-than-temporary, the fair value of the investment is estimated, and the amount by which the carrying value of the cost-method investment exceeds its fair value is recorded as an impairment loss.impairment.
The carrying value of the Company's short-term financial instruments, includingour cash deposit accounts, trade accounts receivable, prepaid and deposit accounts, trade accounts payable accrued expenses and dividends payable, approximateapproximates fair value due to thetheir relatively short maturity and immaterial non-performance risk of such instruments. These financial instruments are categorized as Level 2 financial instruments.risk.
Note 11 Derivative Instruments
Foreign Exchange Contracts:
The Company operatesWe operate internationally and isare therefore exposed to foreign currency exchange rate fluctuations in the normal course of itsour business. The Company'sOur primary means of managing this exposure is to utilize natural hedges, such as aligning currencies used in the supply chain with the sale currency. To the extent natural hedging techniques do not fully offset currency risk, the Company useswe use derivative instruments with the objective of reducing the residual exposure to certain foreign currency rate movements. Factors considered in the decision to hedge an underlying market exposure include the materiality of the risk, the volatility of the market, the duration of the hedge, the degree to which the underlying exposure is committed to, and the availability, effectiveness, and cost of derivative instruments. Derivative instruments are only utilized for risk management purposes and are not used for speculative or trading purposes.
The Company usesWe use forward contracts designated as cash flow hedges to protect against foreign currency exchange rate risks
inherent in forecasted transactions denominated in a foreign currency. Foreign exchange contracts are also used to hedge against foreign currency exchange rate risks related to intercompany balances denominated in currencies other than the functional currencies. As of June 30, 20122014, the Companywe had outstanding foreign exchange contracts to hedge currencies against the U.S. dollar in the aggregate notional amount of $25.325.6 million and to hedge currencies against the Euro in the aggregate notional amount of 34.747.7 million EUR.Euro. The notional amounts are indicators of the volume of derivative activities but are not indicators of the potential gain or loss on the derivatives.
In limited cases due to unexpected changes in forecasted transactions, cash flow hedges may cease to meet the criteria to be designated as cash flow hedges. Depending on the type of exposure hedged, the Companywe may either purchase a derivative contract in the opposite position of the undesignated hedge or may retain the hedge until it matures if the hedge continues to provide an adequate offset in earnings against the currency revaluation impact of foreign currency denominated liabilities.
The fair value of outstanding derivative instruments is recognized on the balance sheet as a derivative asset or liability. When derivatives are settled with the counterparty, the derivative asset or liability is relieved and cash flow is impacted for the net settlement. For derivative instruments that meet the criteria of hedging instruments under FASB guidance, the effective portions of the gain or loss on the derivative instrument are initially recorded net of related tax effect in Accumulated Other Comprehensive Income (Loss), a component of Share Owners' Equity, and are subsequently reclassified into earnings in the period or periods during which the hedged transaction is recognized in earnings. The ineffective portion of the derivative gain or loss is reported in the Non-operating income or expense line item on the Consolidated Statements of Income immediately. The gain or loss associated with derivative instruments that are not designated as hedging instruments or that cease to meet the criteria for hedging under FASB guidance is also reported in the Non-operating income or expense line item on the Consolidated Statements of Income immediately.
Based on fair values as of June 30, 20122014, the Company estimateswe estimate that approximately $0.10.2 million of pre-tax derivative lossesgain deferred in Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings, along with the earnings effects of related forecasted transactions, within the fiscal year ending June 30, 20132015. LossesGains on foreign exchange contracts are generally offset by gainslosses in operating costs in the income statement when the underlying hedged transaction is recognized in earnings. Because gains or losses on foreign exchange contracts fluctuate partially based on currency spot rates, the future effect on earnings of the cash flow hedges alone is not determinable, but in conjunction with the underlying hedged transactions, the result is expected to be a decline in currency risk. The maximum length of time the Companywe had hedged itsour exposure to the variability in future cash flows was 12 months as of both June 30, 20122014 and June 30, 20112013.
Stock Warrants:
In conjunction with the Company's investments in convertible debt securities of a privately-held company during fiscal year 2010, the Company receivedKimball holds common and preferred stock warrants which provide the right to purchase thea privately-held company's equity securities at a specified exercise price.
As part of the June 2011 qualified financing related to the convertible debt securities, the latest preferred stock offering price of warrants was modified to a $0.25 per share exercise price (originally based on the previous offering price of $1.50), and the number of warrants was modified to 11 million shares (originally 1,833,000 shares). The qualified financing did not impact the common warrants, which remained at a $0.15 per share exercise price (2,750,000 shares). The revaluation of warrants due to the change in terms and the valuation of the underlying business resulted in a $1.0 million gain during fiscal year 2011, recognized in the Non-operating income line item on the Consolidated Statements of Income.
During fiscal year 2012, the privately-held company experienced delays in their start-up, and therefore initiated another round of financing that the Company chose not to participate in, which resulted in the automatic conversion of the preferred warrants to common warrants. Upon the conversion, the stock warrants were revalued resulting in a $0.5 million derivative loss on stock warrants during fiscal year 2012.
The value of the stock warrants fluctuates primarily in relation to the value of the privately-held company's underlying securities, either providing an appreciation in value or potentially expiring with no value. The stock warrants expire in June 2017. Gains and losses on the revaluation of stock warrants are recognized in the Non-operating income (expense), net line item on the Consolidated Statements of Income. 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, $0.9 million in fiscal year 2013, and $0.5 million during fiscal year 2012.
See Note 10 - Fair Value of Notes to Consolidated Financial Statements for further information regarding the fair value of derivative assets and liabilities and Note 16 - Comprehensive Income of Notes to Consolidated Financial Statements for the amount and changes in derivative gains and losses deferred in Accumulated Other Comprehensive Income (Loss).
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 | Asset Derivatives | | Liability Derivatives |
| | | Fair Value As of | | Fair Value As of | | Fair Value As of | | Fair Value As of |
| (Amounts in Thousands) | Balance Sheet Location | | June 30
2012 | | June 30
2011 | | Balance Sheet Location | | June 30
2012 | | June 30
2011 | Balance Sheet Location | | June 30
2014 | | June 30
2013 | | Balance Sheet Location | | June 30
2014 | | June 30
2013 |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | | Derivatives designated as hedging instruments: | | | | | | | | |
| Foreign exchange contracts | Prepaid expenses and other current assets | | $ | 1,058 |
|
| $ | 644 |
| | Accrued expenses | | $ | 799 |
|
| $ | 415 |
| Prepaid expenses and other current assets | | $ | 599 |
|
| $ | 265 |
| | Accrued expenses | | $ | 241 |
|
| $ | 1,097 |
|
| | | | | | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | |
| Foreign exchange contracts | Prepaid expenses and other current assets | | 1,220 |
|
| 400 |
| | Accrued expenses | | — |
|
| 1,269 |
| Prepaid expenses and other current assets | | 201 |
|
| 8 |
| | Accrued expenses | | 458 |
|
| 565 |
|
| Stock warrants | Other assets (long-term) | | 911 |
|
| 1,437 |
| | | | | Other assets (long-term) | | — |
|
| 25 |
| | | | |
| Total derivatives | | $ | 3,189 |
|
| $ | 2,481 |
| | $ | 799 |
|
| $ | 1,684 |
| | $ | 800 |
|
| $ | 298 |
| | $ | 699 |
|
| $ | 1,662 |
|
| | The Effect of Derivative Instruments on Other Comprehensive Income (Loss) | | | | June 30 | | June 30 |
| (Amounts in Thousands) | | 2012 | | 2011 | | 2010 | | 2014 | | 2013 | | 2012 |
| Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion): | Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion): | | | Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion): | | |
| Foreign exchange contracts | Foreign exchange contracts | | $ | (192 | ) | | $ | 1,063 |
| | $ | 2,494 |
| Foreign exchange contracts | | $ | 73 |
| | $ | 1,206 |
| | $ | (192 | ) |
| | | The Effect of Derivative Instruments on Consolidated Statements of Income | The Effect of Derivative Instruments on Consolidated Statements of Income | | | | | | | The Effect of Derivative Instruments on Consolidated Statements of Income | | | | | | |
| | | | | | | | | | | | | |
| (Amounts in Thousands) | | Fiscal Year Ended June 30 | | Fiscal Year Ended June 30 |
| Derivatives in Cash Flow Hedging Relationships | | Location of Gain or (Loss) | | 2012 | | 2011 | | 2,010 | | Location of Gain or (Loss) | | 2014 | | 2013 | | 2012 |
| Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion): | Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion): | | | | | Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion): | | | | |
| Foreign exchange contracts | | Net Sales | | $ | — |
| | $ | — |
| | $ | 15 |
| |
| Foreign exchange contracts | | Cost of Sales | | (1,415 | ) | | 1,674 |
| | 143 |
| | Cost of Sales | | $ | (1,024 | ) | | $ | 2,212 |
| | $ | (1,415 | ) |
| Foreign exchange contracts | | Non-operating income/expense | | 363 |
| | (121 | ) | | 36 |
| | Non-operating income (expense) | | (163 | ) | | (73 | ) | | 363 |
|
| Total | Total | | $ | (1,052 | ) | | $ | 1,553 |
| | $ | 194 |
| Total | | $ | (1,187 | ) | | $ | 2,139 |
| | $ | (1,052 | ) |
| | | | | | | | | | | | | |
| Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion): | Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion): | | | | | Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion): | | | | |
| Foreign exchange contracts | | Non-operating income/expense | | $ | (17 | ) | | $ | 2 |
| | $ | 44 |
| | Non-operating income (expense) | | $ | — |
| | $ | (3 | ) | | $ | (17 | ) |
| | | | | | | | | | | | | |
| Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | |
| Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives: | Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives: | | | | | | | Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives: | | | | | | |
| Foreign exchange contracts | | Non-operating income/expense | | $ | 2,513 |
| | $ | (4,322 | ) | | $ | 1,355 |
| | Non-operating income (expense) | | $ | (487 | ) | | $ | (322 | ) | | $ | 2,513 |
|
| Stock warrants | | Non-operating income/expense | | (526 | ) | | 1,041 |
| | (7 | ) | | Non-operating income (expense) | | (25 | ) | | (885 | ) | | (526 | ) |
| Total | Total | | $ | 1,987 |
| | $ | (3,281 | ) | | $ | 1,348 |
| Total | | $ | (512 | ) | | $ | (1,207 | ) | | $ | 1,987 |
|
| | | | | | | | | | | | | |
| Total Derivative Pre-Tax Gain (Loss) Recognized in Income | Total Derivative Pre-Tax Gain (Loss) Recognized in Income | | $ | 918 |
| | $ | (1,726 | ) | | $ | 1,586 |
| Total Derivative Pre-Tax Gain (Loss) Recognized in Income | | $ | (1,699 | ) | | $ | 929 |
| | $ | 918 |
|
Note 12 Investments
MunicipalNon-marketable Equity Securities:
Kimball currently holds non-marketable equity securities of a privately-held company. The Company's investment portfolio included available-for-saleequity securities which were comprised of exempt securities issued by municipalities ("Municipal Securities"). During fiscal year 2010, the Company sold all of its municipal securities and thus had no municipal securities outstanding as ofvalue at June 30, 20122014 and were valued at 2011$0.1 million.
Activity for as of June 30, 2013. Due to certain events and changes in circumstances that had adverse effects on the municipal securities that were classified as available-for-sale was as follows:
|
| | | | | | | | | | | |
| | For the Year Ended June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | | 2010 |
| Proceeds from sales | $ | — |
| | $ | — |
| | $ | 28,937 |
|
| Gross realized gains from sale of available-for-sale securities included in earnings | — |
| | — |
| | 639 |
|
| Net unrealized holding gain (loss) included in Other Comprehensive Income (Loss) | — |
| | — |
| | (131 | ) |
| Net (gains) losses reclassified out of Other Comprehensive Income (Loss) | — |
| | — |
| | (639 | ) |
Realized gains and losses are reported in the Other Income (Expense) categoryfair value of the Consolidated Statements of Income. The cost of each individual security was usedinvestment in computing the realized gains and losses. No other-than-temporary impairment was recorded on municipal securities during fiscal years 2012, 2011, and 2010.
Convertible Debt and Non-marketable Equity Securities:
During fiscal year 2010, the Company purchased convertible debt securities of a privately-held company, which were initially allocated a value of $2.3 million. Interest accrued on the debt securities at a rate of 8.00% per annum and was due with the principal in June 2011. The Company also received stock warrants to purchase the common and preferred stock of the privately-held company, at a specified exercise price,we revalued the investment which are discussedresulted in impairment on the equity securities of Note 11 - Derivative Instruments$0.1 million of Notes to Consolidated Financial Statements.Duringin fiscal year 2011, the convertible debt securities experienced an other-than-temporary decline in fair market value resulting in a2014, $1.21.0 million impairment lossin fiscal year 2013, and upon a qualified financing, were subsequently converted to preferred shares. The conversion of the convertible notes to preferred shares had no$0.7 million earnings impact. in fiscal year 2012.
The preferred sharesequity securities are non-marketable and are accounted for as a cost-method investment, which carries the shares at cost except in the event of impairment. The preferred shares had a carrying value of $1.8 million at June 30, 2011.
During fiscal year 2012, the privately-held company experienced delays in their start-up, and therefore initiated another round of financing that the Company chose not to participate in, which resulted in the automatic conversion of preferred shares to common shares. Upon the conversion, the equity securities were revalued which resulted in an impairment loss of $0.7 million during fiscal year 2012. The common shares had a carrying value of $1.1 million at June 30, 2012.
The privately-held investment is included in the Other Assets line of the Consolidated
Balance Sheets.Sheet in fiscal year 2013. See Note 10 - Fair Value of Notes to Consolidated Financial Statements for more information on the valuation of these securities. The investment does not rise to the level of a material variable interest or a controlling interest in the privately-held company which would require consolidation. Supplemental Employee Retirement Plan Investments:
The CompanyKimball maintains a self-directed supplemental employee retirement plan (SERP)("SERP") for executive employees. The SERP utilizes a rabbi trust, and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy. The CompanyKimball recognizes SERP investment assets on the balance sheet at current fair value. A SERP liability of the same amount is recorded on the balance sheet representing the Company'san obligation to distribute SERP funds to participants. The SERP investment assets are classified as trading, and accordingly, realized and unrealized gains and losses are recognized in income in the Other Income (Expense) category. Adjustments made to revalue the SERP liability are also recognized in income as selling and administrative expenses and exactly offset valuation adjustments on SERP investment assets. The change in net unrealized holding gains (losses) for the fiscal years ended June 30, 20122014, 20112013, and 20102012 was, in thousands, $(483)184, $2,6111,243, and $1,385(483), respectively. SERP asset and liability balances were as follows:
| | | | June 30 | June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | 2014 | | 2013 |
| SERP investment - current asset | $ | 5,899 |
| | $ | 5,604 |
| $ | 8,812 |
| | $ | 7,031 |
|
| SERP investment - other long-term asset | 11,023 |
| | 10,534 |
| 14,294 |
| | 12,569 |
|
| Total SERP investment | $ | 16,922 |
| | $ | 16,138 |
| $ | 23,106 |
| | $ | 19,600 |
|
| SERP obligation - current liability | $ | 5,899 |
| | $ | 5,604 |
| $ | 8,812 |
| | $ | 7,031 |
|
| SERP obligation - other long-term liability | 11,023 |
| | 10,534 |
| 14,294 |
| | 12,569 |
|
| Total SERP obligation | $ | 16,922 |
| | $ | 16,138 |
| $ | 23,106 |
| | $ | 19,600 |
|
Note 13 Accrued Expenses
Accrued expenses consisted of:
| | | | June 30 | June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | 2014 | | 2013 |
| Taxes | $ | 4,193 |
| | $ | 8,290 |
| $ | 8,187 |
| | $ | 3,635 |
|
| Compensation | 22,601 |
| | 26,445 |
| 46,307 |
| | 32,268 |
|
| Retirement plan | 5,189 |
| | 4,809 |
| 4,964 |
| | 5,050 |
|
| Insurance | 3,875 |
| | 3,598 |
| 4,215 |
| | 3,500 |
|
| Restructuring | 269 |
| | 7,958 |
| — |
| | 38 |
|
| Other expenses | 12,333 |
| | 15,216 |
| 13,583 |
| | 12,365 |
|
| Total accrued expenses | $ | 48,460 |
| | $ | 66,316 |
| $ | 77,256 |
| | $ | 56,856 |
|
The accrued compensation expense increased primarily due to higher accrued incentive compensation.
Note 14 Segment and Geographic Area Information
Management organizes the CompanyKimball into segments based upon differences in products and services offered in each segment. The segments and their principal products and services are as follows. The EMS segment provides engineering, manufacturing, and manufacturingsupply chain services which utilize common production and support capabilities to a variety of industries globally. The EMS segment focuses on electronic assemblies that have high durability requirements and are sold on a contract basis and produced to customers' specifications. The EMS segment currently sells primarily to customers in the automotive, medical, automotive, industrial, and public safety industries. The Furniture segment provides furniture for the office and hospitality industries, sold under the Company's family of brand names. Each segment's product line offerings consist of similar products and services sold within various industries.
Included in theThe EMS segment werehad sales to one major customer.customer that represented more than 10% of consolidated net sales. Sales to Bayer AG affiliatesJohnson Controls, Inc. totaled, in millions, $5.096.4, $135.7122.1, and $169.6104.6 in fiscal years 20122014, 20112013, and 20102012, respectively, representing 0%8%, 11%10%, and 15%9% of consolidated net sales, respectively, for such periods.
The accounting policies of the segments are the same as those described in Note 1 - Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements with additional explanation of segment allocations as follows. Corporate assets and operating costs are allocated to the segments based on the extent to which each segment uses a centralized function, where practicable. However, certain common costs, including income taxes, have been allocated among segments less precisely than would be required for standalone financial information prepared in accordance with accounting principles generally accepted in the United States of America. Unallocated corporate assets include cash and cash equivalents, investments, and other assets not allocated to segments. Unallocated corporate income consists of income not allocated to segments for purposes of evaluating segment performance and includes income from corporate investments and other non-operational items. Sales between the Furniture segment and EMS segment are not material. The Company evaluatesWe evaluate segment performance based upon several financial measures, including economic profit, which incorporates a segment's cost of capital when evaluating financial performance, operating income, and net income. Operating income and net income are reported for each segment as they are the measures most consistent with the measurement principles used in the Company'sour consolidated financial statements.
The Company aggregatesWe aggregate multiple operating segments into each reportable segment. The aggregated operating segments have similar economic characteristics and meet the other aggregation criteria required by U.S. GAAP.
|
| | | | | | | | | | | | | | | |
| | At or For the Year Ended June 30, 2014 |
| | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate and Eliminations | | Consolidated |
| (Amounts in Thousands) |
| Net Sales | $ | 741,530 |
| | $ | 543,817 |
| | $ | — |
| | $ | 1,285,347 |
|
| Depreciation and Amortization | 18,847 |
| | 13,038 |
| | — |
| | 31,885 |
|
| Operating Income (Loss) | 33,389 |
| | 16,351 |
| | (9,157 | ) | | 40,583 |
|
| Interest Income | — |
| | — |
| | 220 |
| | 220 |
|
| Interest Expense | 2 |
| | 2 |
| | 24 |
| | 28 |
|
| Provision (Benefit) for Income Taxes | 6,015 |
| | 6,074 |
| | (2,377 | ) | | 9,712 |
|
Net Income (Loss) (1) | 26,688 |
| | 10,406 |
| | (3,633 | ) | | 33,461 |
|
| Total Assets | 390,064 |
| | 195,130 |
| | 136,952 |
| | 722,146 |
|
| Goodwill | 2,564 |
| | — |
| | — |
| | 2,564 |
|
| Capital Expenditures | 20,695 |
| | 12,202 |
| | — |
| | 32,897 |
|
|
| | | | | | | | | | | | | | | |
| | At or For the Year Ended June 30, 2013 |
| | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate and Eliminations | | Consolidated |
| (Amounts in Thousands) |
| Net Sales | $ | 703,129 |
| | $ | 500,005 |
| | $ | — |
| | $ | 1,203,134 |
|
| Depreciation and Amortization | 18,195 |
| | 12,563 |
| | — |
| | 30,758 |
|
| Operating Income (Loss) | 27,483 |
| | (367 | ) | | (4,115 | ) | | 23,001 |
|
| Interest Income | — |
| | — |
| | 404 |
| | 404 |
|
| Interest Expense | 9 |
| | 1 |
| | 25 |
| | 35 |
|
| Provision (Benefit) for Income Taxes | 5,499 |
| | (503 | ) | | (2,212 | ) | | 2,784 |
|
Net Income (Loss) (2) | 21,133 |
| | 75 |
| | (1,329 | ) | | 19,879 |
|
| Total Assets | 353,425 |
| | 185,925 |
| | 105,169 |
| | 644,519 |
|
| Goodwill | 2,511 |
| | — |
| | — |
| | 2,511 |
|
| Capital Expenditures | 14,145 |
| | 13,410 |
| | — |
| | 27,555 |
|
|
| | | | | | | | | | | | | | | |
| | At or For the Year Ended June 30, 2012 |
| | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate and Eliminations | | Consolidated |
| (Amounts in Thousands) |
| Net Sales | $ | 616,751 |
| | $ | 525,310 |
| | $ | — |
| | $ | 1,142,061 |
|
| Depreciation and Amortization | 17,590 |
| | 13,383 |
| | — |
| | 30,973 |
|
| Operating Income (Loss) | 8,904 |
| | 11,874 |
| | (2,389 | ) | | 18,389 |
|
| Interest Income | — |
| | — |
| | 430 |
| | 430 |
|
| Interest Expense | 6 |
| | 2 |
| | 27 |
| | 35 |
|
| Provision (Benefit) for Income Taxes | 2,042 |
| | 4,837 |
| | (811 | ) | | 6,068 |
|
Net Income (Loss) (1) | 6,572 |
| | 6,957 |
| | (1,895 | ) | | 11,634 |
|
| Total Assets | 332,115 |
| | 183,415 |
| | 79,986 |
| | 595,516 |
|
| Goodwill | 2,480 |
| | — |
| | — |
| | 2,480 |
|
| Capital Expenditures | 13,485 |
| | 13,458 |
| | — |
| | 26,943 |
|
|
| | | | | | | | | | | | | | | |
| | At or For the Year Ended June 30, 2011 |
| | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate and Eliminations | | Consolidated |
| (Amounts in Thousands) |
| Net Sales | $ | 721,419 |
| | $ | 481,178 |
| | $ | — |
| | $ | 1,202,597 |
|
| Depreciation and Amortization | 17,153 |
| | 14,054 |
| | — |
| | 31,207 |
|
| Operating Income (Loss) | 5,487 |
| | 1,077 |
| | (4,148 | ) | | 2,416 |
|
| Interest Income | — |
| | — |
| | 820 |
| | 820 |
|
| Interest Expense | 22 |
| | — |
| | 99 |
| | 121 |
|
| Provision (Benefit) for Income Taxes | (452 | ) | | 256 |
| | (289 | ) | | (485 | ) |
Net Income (2) | 4,067 |
| | 472 |
| | 383 |
| | 4,922 |
|
| Total Assets | 377,067 |
| | 191,275 |
| | 57,970 |
| | 626,312 |
|
| Goodwill | 2,644 |
| | — |
| | — |
| | 2,644 |
|
| Capital Expenditures | 24,863 |
| | 6,508 |
| | — |
| | 31,371 |
|
| | | | At or For the Year Ended June 30, 2010 | At or For the Year Ended June 30, 2012 |
| | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate and Eliminations | | Consolidated | Electronic Manufacturing Services | | Furniture | | Unallocated Corporate and Eliminations | | Consolidated |
| (Amounts in Thousands) |
| Net Sales | $ | 709,133 |
| | $ | 413,611 |
| | $ | 64 |
| | $ | 1,122,808 |
| $ | 616,751 |
| | $ | 525,310 |
| | $ | — |
| | $ | 1,142,061 |
|
| Depreciation and Amortization | 20,570 |
| | 14,190 |
| | — |
| | 34,760 |
| 17,590 |
| | 13,383 |
| | — |
| | 30,973 |
|
| Operating Income (Loss) | 15,291 |
| | (9,374 | ) | | (3,226 | ) | | 2,691 |
| 8,904 |
| | 11,874 |
| | (2,389 | ) | | 18,389 |
|
| Interest Income | — |
| | — |
| | 1,188 |
| | 1,188 |
| — |
| | — |
| | 430 |
| | 430 |
|
| Interest Expense | 77 |
| | — |
| | 65 |
| | 142 |
| 6 |
| | 2 |
| | 27 |
| | 35 |
|
| Provision (Benefit) for Income Taxes | (361 | ) | | (4,104 | ) | | (370 | ) | | (4,835 | ) | 2,042 |
| | 4,837 |
| | (811 | ) | | 6,068 |
|
Net Income (Loss) (3) | 15,731 |
| | (5,751 | ) | | 823 |
| | 10,803 |
| 6,572 |
| | 6,957 |
| | (1,895 | ) | | 11,634 |
|
| Total Assets | 384,491 |
| | 182,396 |
| | 69,864 |
| | 636,751 |
| 332,115 |
| | 183,415 |
| | 79,986 |
| | 595,516 |
|
| Goodwill | 2,443 |
| | — |
| | — |
| | 2,443 |
| 2,480 |
| | — |
| | — |
| | 2,480 |
|
| Capital Expenditures | 22,455 |
| | 12,336 |
| | — |
| | 34,791 |
| 13,485 |
| | 13,458 |
| | — |
| | 26,943 |
|
| |
| (1) | Fiscal year 2014 EMS segment net income includes $3.4 million of after-tax income resulting from settlements received related to two antitrust class action lawsuits in which the Company was a class member. Fiscal year 2014 Furniture segment net income includes an after-tax gain of $1.1 million for the sale of an idle Furniture segment manufacturing facility and land located in Jasper, Indiana. Fiscal year 2014 Unallocated Corporate and Elimination net income includes after-tax spin-off costs of $2.8 million, after-tax impairment of $0.7 million for an aircraft which was subsequently sold, and restructuring charges of $0.2 million. See Note 17 - Restructuring Expense of Notes to the Consolidated Financial Statements for further discussion. |
| |
| (2) | Includes after-tax restructuring charges of $0.3 million in fiscal year 2013. The EMS segment and Unallocated Corporate and Eliminations recorded, respectively, $0.1 million expense and $0.2 million expense. See Note 17 - Restructuring Expense of Notes to the Consolidated Financial Statements for further discussion. |
| |
| (3) | Includes after-tax restructuring charges of $2.1 million in fiscal year 2012. The EMS segment and Unallocated Corporate and Eliminations recorded, respectively, $1.7 million expense and $0.4 million expense. See Note 17 - Restructuring Expense of Notes to the Consolidated Financial Statements for further discussion. |
| |
(2) | Includes after-tax restructuring charges of $0.6 million in fiscal year 2011. The EMS segment and Unallocated Corporate and Eliminations recorded, respectively, $0.5 million expense and $0.1 million expense. See Note 17 - Restructuring Expense of Notes to the Consolidated Financial Statements for further discussion. |
| |
(3) | Includes after-tax restructuring charges of $1.2 million in fiscal year 2010. The EMS segment, the Furniture segment,
|
and Unallocated Corporate and Eliminations recorded, respectively, $1.2 million expense, $0.1 million income, and $0.1 million expense. See Note 17 - Restructuring Expense of Notes to Consolidated Financial Statements for further discussion. The EMS segment also recorded $2.0 million of after-tax income resulting from settlement proceeds related to an antitrust lawsuit of which the Company was a class member and a $7.7 million million after-tax gain from the sale of the facility and land in Poland.Geographic Area:
The following geographic area data includes net sales based on the location where title transfers and long-lived assets based on physical location. Long-lived assets include property and equipment and other long-term assets such as software.
| | | | At or For the Year Ended June 30 | At or For the Year Ended June 30 |
| (Amounts in Thousands) | 2012 | | 2011 | | 2010 | 2014 | | 2013 | | 2012 |
| Net Sales: | | | | | | | | | | |
| United States | $ | 870,080 |
| | $ | 817,252 |
| | $ | 699,620 |
| $ | 894,093 |
| | $ | 883,680 |
| | $ | 870,080 |
|
Poland (4) | 3,412 |
| | 132,518 |
| | 3,877 |
| |
United Kingdom (4) | 15,603 |
| | 26,723 |
| | 113,576 |
| |
| Other Foreign | 252,966 |
| | 226,104 |
| | 305,735 |
| 391,254 |
| | 319,454 |
| | 271,981 |
|
| Total net sales | $ | 1,142,061 |
| | $ | 1,202,597 |
| | $ | 1,122,808 |
| $ | 1,285,347 |
| | $ | 1,203,134 |
| | $ | 1,142,061 |
|
| Long-Lived Assets: | | | | | | | | | | |
| United States | $ | 129,258 |
| | $ | 134,639 |
| | $ | 134,115 |
| $ | 126,840 |
| | $ | 126,364 |
| | $ | 129,258 |
|
| Poland | 44,427 |
| | 47,765 |
| | 40,905 |
| 45,287 |
| | 45,971 |
| | 44,427 |
|
| Other Foreign | 18,899 |
| | 21,630 |
| | 19,563 |
| 21,313 |
| | 19,020 |
| | 18,899 |
|
| Total long-lived assets | $ | 192,584 |
| | $ | 204,034 |
| | $ | 194,583 |
| $ | 193,440 |
| | $ | 191,355 |
| | $ | 192,584 |
|
| |
(4) | The decrease in net sales to Poland in fiscal year 2012 compared to fiscal year 2011 was attributable to the expiration of a contract with one medical customer (Bayer AG). The increase in Poland net sales and the decline in United Kingdom net sales in fiscal year 2011 compared to fiscal year 2010 was due to the transfer of production between these locations which resulted in a change in the shipping destination to Poland. |
Note 15 Earnings Per Share
Earnings per share are computed using the two-class common stock method due to the dividend preference of Class B Common Stock. Basic earnings per share are based on the weighted average number of shares outstanding during the period. Diluted earnings per share are based on the weighted average number of shares outstanding plus the assumed issuance of common shares and related payment of assumed dividends for all potentially dilutive securities. Earnings per share of Class A and Class B Common Stock are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| EARNINGS PER SHARE | | | | | | |
| | Year Ended June 30, 2012 | | Year Ended June 30, 2011 | | Year Ended June 30, 2010 |
| (Amounts in Thousands, Except for Per Share Data) | Class A | | Class B | | Total | | Class A | | Class B | | Total | | Class A | | Class B | | Total |
| Basic Earnings Per Share: | | | | | | | | | | | | | | | | | |
| Dividends Declared | $ | 1,869 |
| | $ | 5,502 |
| | $ | 7,371 |
| | $ | 1,889 |
| | $ | 5,448 |
| | $ | 7,337 |
| | $ | 1,955 |
| | $ | 5,376 |
| | $ | 7,331 |
|
| Less: Unvested Participating Dividends | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9 | ) | | — |
| | (9 | ) |
| Dividends to Common Share Owners | 1,869 |
| | 5,502 |
| | 7,371 |
| | 1,889 |
| | 5,448 |
| | 7,337 |
| | 1,946 |
| | 5,376 |
| | 7,322 |
|
| Undistributed Earnings (Loss) | |
| | |
| | 4,263 |
| | |
| | |
| | (2,415 | ) | | |
| | |
| | 3,472 |
|
| Less: Earnings (Loss) Allocated to Participating Securities | | | |
| | — |
| | |
| | |
| | — |
| | |
| | |
| | (4 | ) |
Undistributed Earnings (Loss) Allocated to Common Share Owners | 1,169 |
| | 3,094 |
| | 4,263 |
| | (672 | ) | | (1,743 | ) | | (2,415 | ) | | 990 |
| | 2,478 |
| | 3,468 |
|
| Income Available to Common Share Owners | $ | 3,038 |
| | $ | 8,596 |
| | $ | 11,634 |
| | $ | 1,217 |
| | $ | 3,705 |
| | $ | 4,922 |
| | $ | 2,936 |
| | $ | 7,854 |
| | $ | 10,790 |
|
| Average Basic Common Shares Outstanding | 10,387 |
| | 27,494 |
| | 37,881 |
| | 10,493 |
| | 27,233 |
| | 37,726 |
| | 10,694 |
| | 26,765 |
| | 37,459 |
|
| Basic Earnings Per Share | $ | 0.29 |
| | $ | 0.31 |
| | |
| | $ | 0.12 |
| | $ | 0.14 |
| | |
| | $ | 0.27 |
| | $ | 0.29 |
| | |
|
| Diluted Earnings Per Share: | | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Dividends Declared and Assumed Dividends on Dilutive Shares | $ | 1,906 |
| | $ | 5,502 |
| | $ | 7,408 |
| | $ | 1,916 |
| | $ | 5,448 |
| | $ | 7,364 |
| | $ | 1,972 |
| | $ | 5,377 |
| | $ | 7,349 |
|
| Less: Unvested Participating Dividends | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9 | ) | | — |
| | (9 | ) |
| Dividends and Assumed Dividends to Common Share Owners | 1,906 |
| | 5,502 |
| | 7,408 |
| | 1,916 |
| | 5,448 |
| | 7,364 |
| | 1,963 |
| | 5,377 |
| | 7,340 |
|
| Undistributed Earnings (Loss) | |
| | |
| | 4,226 |
| | |
| | |
| | (2,442 | ) | | |
| | |
| | 3,454 |
|
| Less: Earnings (Loss) Allocated to Participating Securities | | | |
| | — |
| | |
| | |
| | — |
| | |
| | |
| | (4 | ) |
Undistributed Earnings (Loss) Allocated to Common Share Owners | 1,175 |
| | 3,051 |
| | 4,226 |
| | (686 | ) | | (1,756 | ) | | (2,442 | ) | | 991 |
| | 2,459 |
| | 3,450 |
|
| Income Available to Common Share Owners | $ | 3,081 |
| | $ | 8,553 |
| | $ | 11,634 |
| | $ | 1,230 |
| | $ | 3,692 |
| | $ | 4,922 |
| | $ | 2,954 |
| | $ | 7,836 |
| | $ | 10,790 |
|
| Average Diluted Common Shares Outstanding | 10,593 |
| | 27,494 |
| | 38,087 |
| | 10,639 |
| | 27,234 |
| | 37,873 |
| | 10,791 |
| | 26,770 |
| | 37,561 |
|
| Diluted Earnings Per Share | $ | 0.29 |
| | $ | 0.31 |
| | |
| | $ | 0.12 |
| | $ | 0.14 |
| | |
| | $ | 0.27 |
| | $ | 0.29 |
| | |
|
| Reconciliation of Basic and Diluted EPS Calculations: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Income Used for Basic EPS Calculation | $ | 3,038 |
| | $ | 8,596 |
| | $ | 11,634 |
| | $ | 1,217 |
| | $ | 3,705 |
| | $ | 4,922 |
| | $ | 2,936 |
| | $ | 7,854 |
| | $ | 10,790 |
|
| Assumed Dividends Payable on Dilutive Shares: | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Performance shares | 37 |
| | — |
| | 37 |
| | 27 |
| | — |
| | 27 |
| | 17 |
| | 1 |
| | 18 |
|
Increase (Reduction) of Undistributed Earnings (Loss) - allocated based on Class A and Class B shares | 6 |
| | (43 | ) | | (37 | ) | | (14 | ) | | (13 | ) | | (27 | ) | | 1 |
| | (19 | ) | | (18 | ) |
| Income Used for Diluted EPS Calculation | $ | 3,081 |
| | $ | 8,553 |
| | $ | 11,634 |
| | $ | 1,230 |
| | $ | 3,692 |
| | $ | 4,922 |
| | $ | 2,954 |
| | $ | 7,836 |
| | $ | 10,790 |
|
Average Shares Outstanding for Basic EPS Calculation | 10,387 |
| | 27,494 |
| | 37,881 |
| | 10,493 |
| | 27,233 |
| | 37,726 |
| | 10,694 |
| | 26,765 |
| | 37,459 |
|
| Dilutive Effect of Average Outstanding: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Performance shares | 206 |
| | — |
| | 206 |
| | 146 |
| | 1 |
| | 147 |
| | 97 |
| | 5 |
| | 102 |
|
Average Shares Outstanding for Diluted EPS Calculation | 10,593 |
| | 27,494 |
| | 38,087 |
| | 10,639 |
| | 27,234 |
| | 37,873 |
| | 10,791 |
| | 26,770 |
| | 37,561 |
|
Included in dividends declared for the basic and diluted earnings per share computation for fiscal year 2010 are dividends computed and accrued on unvested Class A and Class B restricted share units, which were paid by a conversion to the equivalent value of common shares on the vesting date. Restricted share units held by retirement-age participants had a nonforfeitable right to dividends and were deducted from the above dividends and undistributed earnings figures allocable to common Share Owners. All restricted share units vested during fiscal year 2010. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| EARNINGS PER SHARE | | | | | | |
| | Year Ended June 30, 2014 | | Year Ended June 30, 2013 | | Year Ended June 30, 2012 |
| (Amounts in Thousands, Except for Per Share Data) | Class A | | Class B | | Total | | Class A | | Class B | | Total | | Class A | | Class B | | Total |
| Basic Earnings Per Share: | | | | | | | | | | | | | | | | | |
| Dividends Declared | $ | 1,437 |
| | $ | 6,090 |
| | $ | 7,527 |
| | $ | 1,495 |
| | $ | 5,955 |
| | $ | 7,450 |
| | $ | 1,869 |
| | $ | 5,502 |
| | $ | 7,371 |
|
| Undistributed Earnings | 5,420 |
| | 20,514 |
| | 25,934 |
| | 2,803 |
| | 9,626 |
| | 12,429 |
| | 1,169 |
| | 3,094 |
| | 4,263 |
|
| Net Income | $ | 6,857 |
| | $ | 26,604 |
| | $ | 33,461 |
| | $ | 4,298 |
| | $ | 15,581 |
| | $ | 19,879 |
| | $ | 3,038 |
| | $ | 8,596 |
| | $ | 11,634 |
|
| Average Basic Shares Outstanding | 8,026 |
| | 30,378 |
| | 38,404 |
| | 8,584 |
| | 29,479 |
| | 38,063 |
| | 10,387 |
| | 27,494 |
| | 37,881 |
|
| Basic Earnings Per Share | $ | 0.85 |
| | $ | 0.88 |
| | |
| | $ | 0.50 |
| | $ | 0.53 |
| | |
| | $ | 0.29 |
| | $ | 0.31 |
| | |
|
| Diluted Earnings Per Share: | | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Dividends Declared and Assumed Dividends on Dilutive Shares | $ | 1,550 |
| | $ | 6,091 |
| | $ | 7,641 |
| | $ | 1,577 |
| | $ | 5,955 |
| | $ | 7,532 |
| | $ | 1,906 |
| | $ | 5,502 |
| | $ | 7,408 |
|
| Undistributed Earnings | 5,723 |
| | 20,097 |
| | 25,820 |
| | 2,898 |
| | 9,449 |
| | 12,347 |
| | 1,175 |
| | 3,051 |
| | 4,226 |
|
| Net Income | $ | 7,273 |
| | $ | 26,188 |
| | $ | 33,461 |
| | $ | 4,475 |
| | $ | 15,404 |
| | $ | 19,879 |
| | $ | 3,081 |
| | $ | 8,553 |
| | $ | 11,634 |
|
| Average Diluted Shares Outstanding | 8,652 |
| | 30,385 |
| | 39,037 |
| | 9,043 |
| | 29,479 |
| | 38,522 |
| | 10,593 |
| | 27,494 |
| | 38,087 |
|
| Diluted Earnings Per Share | $ | 0.84 |
| | $ | 0.86 |
| | |
| | $ | 0.49 |
| | $ | 0.52 |
| | |
| | $ | 0.29 |
| | $ | 0.31 |
| | |
|
| Reconciliation of Basic and Diluted EPS Calculations: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Income Used for Basic EPS Calculation | $ | 6,857 |
| | $ | 26,604 |
| | $ | 33,461 |
| | $ | 4,298 |
| | $ | 15,581 |
| | $ | 19,879 |
| | $ | 3,038 |
| | $ | 8,596 |
| | $ | 11,634 |
|
| Assumed Dividends Payable on Dilutive Performance Shares | 113 |
| | 1 |
| | 114 |
| | 82 |
| | — |
| | 82 |
| | 37 |
| | — |
| | 37 |
|
Increase (Reduction) of Undistributed Earnings - allocated based on Class A and Class B shares | 303 |
| | (417 | ) | | (114 | ) | | 95 |
| | (177 | ) | | (82 | ) | | 6 |
| | (43 | ) | | (37 | ) |
| Net Income Used for Diluted EPS Calculation | $ | 7,273 |
| | $ | 26,188 |
| | $ | 33,461 |
| | $ | 4,475 |
| | $ | 15,404 |
| | $ | 19,879 |
| | $ | 3,081 |
| | $ | 8,553 |
| | $ | 11,634 |
|
Average Shares Outstanding for Basic EPS Calculation | 8,026 |
| | 30,378 |
| | 38,404 |
| | 8,584 |
| | 29,479 |
| | 38,063 |
| | 10,387 |
| | 27,494 |
| | 37,881 |
|
| Dilutive Effect of Average Outstanding Performance shares | 626 |
| | 7 |
| | 633 |
| | 459 |
| | — |
| | 459 |
| | 206 |
| | — |
| | 206 |
|
Average Shares Outstanding for Diluted EPS Calculation | 8,652 |
| | 30,385 |
| | 39,037 |
| | 9,043 |
| | 29,479 |
| | 38,522 |
| | 10,593 |
| | 27,494 |
| | 38,087 |
|
In fiscal year 20122013, 2011, and 20102012, respectively, all 508,000, 625,000190,000, and 693,000508,000 average stock options outstanding were antidilutive and were excluded from the dilutive calculation. There were no stock options outstanding during fiscal year 2014.
Note 16 Accumulated Other Comprehensive Income (Loss)
Comprehensive income includes allDuring fiscal year 2014, 2013, and 2012, the changes in equity during a period except those resulting from investments by, and distributions to, Share Owners.the balances of each component of Accumulated Other Comprehensive income consists of net income and other comprehensive income (loss), which includes the net change in unrealized gains and losses on investments, foreign currency translation adjustments, the net change in derivative gains and losses, net actuarial change in postemployment severance, and postemployment severance prior service cost.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended June 30, 2012 | | Year Ended June 30, 2011 | | Year Ended June 30, 2010 |
| (Amounts in Thousands) | Pre-tax | | Tax | | Net of Tax | | Pre-tax | | Tax | | Net of Tax | | Pre-tax | | Tax | | Net of Tax |
| Net income | | | | | $ | 11,634 |
| | | | | | $ | 4,922 |
| | | | | | $ | 10,803 |
|
| Other comprehensive income (loss): | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | $ | (10,156 | ) | | $ | 1,922 |
| | $ | (8,234 | ) | | $ | 13,218 |
| | $ | (2,905 | ) | | $ | 10,313 |
| | $ | (12,672 | ) | | $ | 2,288 |
| | $ | (10,384 | ) |
| Postemployment severance actuarial change | 1,265 |
| | (505 | ) | | 760 |
| | 1,501 |
| | (599 | ) | | 902 |
| | (1,292 | ) | | 515 |
| | (777 | ) |
| Other fair value changes: | | | | | | | | | | | | | | | | | |
| Available-for-sale securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (131 | ) | | 52 |
| | (79 | ) |
| Derivatives | (192 | ) | | 302 |
| | 110 |
| | 1,063 |
| | (489 | ) | | 574 |
| | 2,494 |
| | (587 | ) | | 1,907 |
|
| Reclassification to (earnings) loss: | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments (1) | (493 | ) | | — |
| | (493 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Available-for-sale securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (639 | ) | | 255 |
| | (384 | ) |
| Derivatives | 1,069 |
| | (346 | ) | | 723 |
| | (1,555 | ) | | 523 |
| | (1,032 | ) | | (238 | ) | | 55 |
| | (183 | ) |
| Amortization of prior service costs | 286 |
| | (114 | ) | | 172 |
| | 286 |
| | (115 | ) | | 171 |
| | 285 |
| | (112 | ) | | 173 |
|
| Amortization of actuarial change | 633 |
| | (252 | ) | | 381 |
| | 774 |
| | (309 | ) | | 465 |
| | 753 |
| | (300 | ) | | 453 |
|
| Other comprehensive income (loss) | $ | (7,588 | ) | | $ | 1,007 |
| | $ | (6,581 | ) | | $ | 15,287 |
| | $ | (3,894 | ) | | $ | 11,393 |
| | $ | (11,440 | ) | | $ | 2,166 |
| | $ | (9,274 | ) |
| Total comprehensive income | |
| | |
| | $ | 5,053 |
| | |
| | |
| | $ | 16,315 |
| | |
| | |
| | $ | 1,529 |
|
(1) The reclassification of foreign currency translation adjustments to earnings relates to the final liquidation of a foreign subsidiary.
Accumulated other comprehensive income (loss)Income (Loss), net of tax, effects, waswere as follows:
|
| | | | | | | | | | | |
| | Year Ended June 30 |
| | 2012 | | 2011 | | 2010 |
| (Amounts in Thousands) | | | | | |
| Foreign currency translation adjustments | $ | (977 | ) | | $ | 7,750 |
| | $ | (2,563 | ) |
| Net unrealized loss on derivatives | (3,632 | ) | | (4,465 | ) | | (4,007 | ) |
| Postemployment benefits: | | | | | |
| Prior service costs | (464 | ) | | (636 | ) | | (807 | ) |
| Net actuarial gain (loss) | 110 |
| | (1,031 | ) | | (2,398 | ) |
| Accumulated other comprehensive income (loss) | $ | (4,963 | ) | | $ | 1,618 |
| | $ | (9,775 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | Postemployment Benefits | | |
| (Amounts in Thousands) | Foreign Currency Translation Adjustments | | Derivative Gain (Loss) | | Prior Service Costs | | Net Actuarial Gain (Loss) | | Accumulated Other Comprehensive Income (Loss) |
| Balance at June 30, 2012 | $ | (977 | ) | | $ | (3,632 | ) | | $ | (464 | ) | | $ | 110 |
| | $ | (4,963 | ) |
| Current-period other comprehensive income (loss) | 1,832 |
| | (727 | ) | | 172 |
| | 209 |
| | 1,486 |
|
| Balance at June 30, 2013 | $ | 855 |
| | $ | (4,359 | ) | | $ | (292 | ) | | $ | 319 |
| | $ | (3,477 | ) |
| Current-period other comprehensive income (loss) | 4,054 |
| | 948 |
|
| 172 |
|
| 743 |
| | 5,917 |
|
| Balance at June 30, 2014 | $ | 4,909 |
| | $ | (3,411 | ) | | $ | (120 | ) | | $ | 1,062 |
| | $ | 2,440 |
|
The following reclassifications were made from Accumulated Other Comprehensive Income (Loss) to the Consolidated Statements of Income:
|
| | | | | | |
| Reclassifications from Accumulated Other Comprehensive Income (Loss) | | Fiscal Year Ended | Affected Line Item in the Consolidated Statements of Income |
| | June 30, |
| (Amounts in Thousands) | | 2014 | |
Derivative Gain (Loss) (1) | | $ | (1,024 | ) | | Cost of Sales |
| | | (163 | ) | | Non-operating income (expense), net |
| | | 226 |
| | Benefit (Provision) for Income Taxes |
| | | $ | (961 | ) | | Net of Tax |
| Postemployment Benefits: | | | | |
Amortization of Prior Service Costs (2) | | $ | (185 | ) | | Cost of Sales |
| | | (101 | ) | | Selling and Administrative Expenses |
| | | 114 |
| | Benefit (Provision) for Income Taxes |
| | | $ | (172 | ) | | Net of Tax |
| | | | | |
Amortization of Actuarial Gain (Loss) (2) | | $ | (228 | ) | | Cost of Sales |
| | | (110 | ) | | Selling and Administrative Expenses |
| | | 134 |
| | Benefit (Provision) for Income Taxes |
| | | $ | (204 | ) | | Net of Tax |
| | | | | |
| Total Reclassifications for the Period | | $ | (1,337 | ) | | Net of Tax |
Amounts in parentheses indicate reductions to income.
Note 17 Restructuring Expense
The CompanyWe recognized consolidated pre-tax restructuring expense of $3.40.4 million, in each of fiscal years $1.0 million2014 and 2013, and $2.13.4 million in fiscal years 2012, 2011, and 2010, respectively. Restructuring plans which were active during fiscal year 2012 are discussed in the sections below.
The EMS Gaylord. All restructuring plan and the Furniture segment office furniture manufacturing consolidation plan, whichplans were substantially completecompleted prior to fiscal year 2012, are included2013 but we continued to incur miscellaneous exit costs related to facility clean up or market value adjustments. Completed restructuring plans include the European Consolidation, Fremont, and Gaylord plans which were all related to the EMS segment. We do not expect these plans to have any restructuring charges in the summary table on the following page under the Other Restructuring Plan caption. Due to a decline in the market value of the EMS Gaylord facility, the Company recognized a pre-tax impairment loss, in thousands, of $572 during fiscal year 2012.future.
The Company utilizesWe utilize available market prices and management estimates to determine the fair value of impaired fixed assets. Restructuring charges are included in the Restructuring Expense line item on the Company'sour Consolidated Statements of Income.
Fremont Restructuring Plan:
During the second quarter of fiscal year 2012, the Companywe completed a plan to exit a small leased EMS assembly facility located in Fremont, California. This plan had beenwas approved in the fourth quarter of fiscal year 2011. The Company isWe were contractually obligated on the lease of this facility until August 2013. The Company expects totalWe recognized immaterial restructuring charges in fiscal years 2014 and 2013, and recognized $0.8 million of plant closure expenses during fiscal year 2012 related to this plan. Total pre-tax restructuring charges exclusive of future costs ifincurred since the Company is unable to sub-lease the facility, to beplan announcement were approximately $1.11.3 million, including $0.2 million related to severance and other employee transition costs, and $0.91.1 million related to lease and other exit costs.
European Consolidation Plan:
During the second quarter of fiscal year 2012, the Companywe completed a plan to expand itsour European automotive electronics capabilities and to establish a European Medical Center of Expertise near Poznan, Poland. This plan had beenwas approved in the fourth quarter of fiscal year 2008. The plan was executed in stages as follows:
The CompanyWe successfully completed the move of production from Longford, Ireland, into a former Poznan, Poland facility during the fiscal year 2009 second quarter.
Construction of a new, larger facility in Poland was completed in the fourth quarter of fiscal year 2009.
The CompanyWe sold the former Poland facility and land during fiscal year 2010 and recorded a $6.7 million pre-tax gain which was included in the Other General Income line on the Company'sof our Consolidated Statements of Income.
The former Poland facility was leased back until the transfer of the remaining production to the new facility was completed in fiscal year 2011.
The CompanyWe completed the consolidation of itsthe EMS facility located in Wales, United Kingdom into the new facility. Production in Wales ceased and was transferred to the Poland facility in the second quarter of fiscal year 2012. The lease for the Wales facility terminated in the third quarter of fiscal year 2012.
We recognized immaterial restructuring charges in fiscal years 2014 and 2013, and during fiscal year 2012 recognized $1.9 million of plant closure costs, severance, and other employee transition costs related to this plan. Total pre-tax restructuring charges incurred since the plan announcement, excluding the gain on the sale of the former facility and construction of the new facility, related to the consolidation activities were approximately, in millions, $23.023.1 consisting of $20.8 of severance and other employee costs, $0.4 of property and equipment asset impairment, $0.4 of lease exit costs, and $1.41.5 of other exit costs.
Gaylord Restructuring Plan:
SummaryDuring fiscal year 2008, related to a plan approved in fiscal year 2007, we ceased the operations of All Plansa facility located in
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accrued June 30,
2011 (3) | | Fiscal Year Ended June 30, 2012 | | Accrued June 30, 2012 (3) | | Total Charges Incurred
Since Plan Announcement (4) | | Total Expected Plan Costs (4) |
| (Amounts in Thousands) | Amounts Charged Cash | | Amounts Charged (Income) Non-cash | | Amounts Utilized/ Cash Paid | | Adjustments | |
| EMS Segment | | | | | | | | | | | | | | | |
| FY 2011 Fremont Restructuring Plan | | | | | | | | | | | | |
| Transition and Other Employee Costs | $ | 264 |
| | $ | — |
| | $ | 15 |
| | $ | (236 | ) | | $ | (43 | ) | | $ | — |
| | $ | 236 |
| | $ | 236 |
|
| Plant Closure and Other Exit Costs | — |
| | 830 |
| | — |
| | (561 | ) | | — |
| | 269 |
| | 850 |
| | 890 |
|
| Total | $ | 264 |
| | $ | 830 |
| | $ | 15 |
| | $ | (797 | ) | | $ | (43 | ) | | $ | 269 |
| | $ | 1,086 |
| | $ | 1,126 |
|
| FY 2008 European Consolidation Plan | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Transition and Other Employee Costs | $ | 7,694 |
| | $ | 937 |
| | $ | — |
| | $ | (8,506 | ) | | $ | (125 | ) | (5) | $ | — |
| | $ | 20,831 |
| | $ | 20,831 |
|
| Asset Write-downs (Gain on Sale) | — |
| | — |
| | (148 | ) | | 148 |
| | — |
| | — |
| | 374 |
| | 374 |
|
| Plant Closure and Other Exit Costs | — |
| | 1,156 |
| |
|
| | (1,156 | ) | | — |
| | — |
| | 1,814 |
| | 1,814 |
|
| Total | $ | 7,694 |
| | $ | 2,093 |
| | $ | (148 | ) | | $ | (9,514 | ) | | $ | (125 | ) | | $ | — |
| | $ | 23,019 |
| | $ | 23,019 |
|
| Total EMS Segment | $ | 7,958 |
| | $ | 2,923 |
| | $ | (133 | ) | | $ | (10,311 | ) | | $ | (168 | ) | | $ | 269 |
| | $ | 24,105 |
| | $ | 24,145 |
|
| Unallocated Corporate |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | |
Other Restructuring Plan (1) | — |
| | 99 |
| | 572 |
| | (671 | ) | | — |
| | — |
| | 1,436 |
| | 1,557 |
|
| Consolidated Total of All Plans | $ | 7,958 |
| | $ | 3,022 |
| | $ | 439 |
| | $ | (10,982 | ) | | $ | (168 | ) | | $ | 269 |
| | $ | 25,541 |
| | $ | 25,702 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Year Ended June 30, 2011 | | |
| (Amounts in Thousands) | Accrued June 30, 2010 (3) | | Amounts Charged Cash | | Amounts Charged Non-cash | | Amounts Utilized/ Cash Paid | | Adjustments | | Accrued June 30, 2011 (3) |
| EMS Segment | | | | | | | | | | | |
| FY 2011 Fremont Restructuring Plan | | | | | | | | |
| Transition and Other Employee Costs | $ | — |
| | $ | 246 |
| | $ | 18 |
| | $ | — |
| | $ | — |
| | $ | 264 |
|
| Plant Closure and Other Exit Costs | — |
| | 20 |
| | — |
| | (20 | ) | | — |
| | — |
|
| Total | $ | — |
| | $ | 266 |
| | $ | 18 |
| | $ | (20 | ) | | $ | — |
| | $ | 264 |
|
| FY 2008 European Consolidation Plan | | | | | | | | |
| Transition and Other Employee Costs | $ | 9,181 |
| | $ | 619 |
| | $ | — |
| | $ | (2,776 | ) | | $ | 670 |
| (5) | $ | 7,694 |
|
| Plant Closure and Other Exit Costs | — |
| | 2 |
| | — |
| | (2 | ) | | — |
| | — |
|
| Total | $ | 9,181 |
| | $ | 621 |
| | $ | — |
| | $ | (2,778 | ) | | $ | 670 |
| | $ | 7,694 |
|
| Total EMS Segment | $ | 9,181 |
| | $ | 887 |
| | $ | 18 |
| | $ | (2,798 | ) | | $ | 670 |
| | $ | 7,958 |
|
| Unallocated Corporate |
|
| |
|
| |
|
| |
|
| |
|
| | |
Other Restructuring Plan (1) | — |
| | 104 |
| | — |
| | (104 | ) | | — |
| | — |
|
| Consolidated Total of All Plans | $ | 9,181 |
| | $ | 991 |
| | $ | 18 |
| | $ | (2,902 | ) | | $ | 670 |
| | $ | 7,958 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Accrued June 30,
2009 (3) | | Fiscal Year Ended June 30, 2010 | | Accrued June 30,
2010 (3) |
| (Amounts in Thousands) | | Amounts Charged (Income) Cash | | Amounts Charged Non-cash | | Amounts Utilized/ Cash Paid | | Adjustments | |
| EMS Segment | | | | | | | | | | | |
| FY 2008 European Consolidation Plan | | | | | | | | |
| Transition and Other Employee Costs | $ | 12,288 |
| | $ | 1,673 |
| | $ | — |
| | $ | (3,681 | ) | | $ | (1,099 | ) | (5) | $ | 9,181 |
|
| Asset Write-downs | — |
| | — |
| | 176 |
| | (176 | ) | | — |
| | — |
|
| Plant Closure and Other Exit Costs | — |
| | 200 |
| | — |
| | (200 | ) | | — |
| | — |
|
| Total EMS Segment | $ | 12,288 |
| | $ | 1,873 |
| | $ | 176 |
| | $ | (4,057 | ) | | $ | (1,099 | ) |
| $ | 9,181 |
|
| Furniture Segment |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
Other Restructuring Plan (2) | — |
| | (83 | ) | | — |
| | 83 |
| | — |
| | — |
|
| Unallocated Corporate |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
Other Restructuring Plan (2) | — |
| | 85 |
| | — |
| | (85 | ) | | — |
| | — |
|
| Consolidated Total of All Plans | $ | 12,288 |
| | $ | 1,875 |
| | $ | 176 |
| | $ | (4,059 | ) | | $ | (1,099 | ) |
| $ | 9,181 |
|
| |
(1) | The Other Restructuring Plan with charges during fiscal years 2012 and 2011 is the Unallocated Corporate Gaylord restructuring plan initiated in fiscal year 2007.
|
| |
(2) | Other Restructuring Plans with charges during fiscal year 2010 include the Furniture segment office furniture manufacturing consolidation plan initiated in fiscal year 2009 and the Unallocated Corporate Gaylord restructuring plan initiated in fiscal year 2007.
|
| |
(3) | Accrued restructuring at June 30, 2012 was $0.3 million recorded in current liabilities. At June 30, 2011 accrued restructuring was $8.0 million recorded in current liabilities. At June 30, 2010 accrued restructuring was $9.2 million consisting of $2.5 million recorded in current liabilities and $6.7 million recorded in other long-term liabilities.
|
| |
(4) | These columns include restructuring plans that were active during fiscal year 2012, including the EMS segment European Consolidation Plan initiated in fiscal year 2008, the EMS segment Fremont Restructuring Plan initiated in fiscal year 2011, and the Unallocated Corporate Gaylord restructuring plan initiated in fiscal year 2007.
|
| |
(5) | The effect of changes in foreign currency exchange rates within the EMS segment due to revaluation of the restructuring liability is included in this amount. |
Note 18 Variable Interest Entities
The Company'sKimball's involvement with a variable interest entities (VIEs)entity ("VIE") is limited to situationsa situation in which the Company iswe are not the primary beneficiary as the Company lackswe lack the power to direct the activities that most significantly impact the VIE's economic performance. Thus, consolidation is not required.
The Company isWe are involved with VIEsthe VIE consisting of an investment in common stock and stock warrants of a privately-held company, a note receivable related to the sale of an Indiana facility, and notes receivable resulting from loans provided to an electronics engineering services firm during fiscal year 2011. The Company also has a business development cooperation agreement withfacility. As of June 30, 2014, the electronic engineering services firm. For information related to the Company's investment in the privately-held company, see Note 12 - Investments and Note 11 - Derivative Instruments of Notes to Consolidated Financial Statements. The combined carrying value of the notesnote receivable, net of a $0.5 million allowance, was $2.60.9 million and $2.8 million as of June 30, 2012 and June 30, 2011, respectively, with no reserve, with the short-term portion recorded on the Receivables line and the long-term portion recorded on the Other Assets line of the Company'sour Consolidated Balance Sheet. The Company hasAs of
June 30, 2013, the carrying value of the notes receivable related to the sale of the Indiana facility and loans provided to an electronics engineering services firm which were paid in full during fiscal year 2014, net of a $0.4 million allowance, was $1.5 million, and was included on the Receivables line of our Consolidated Balance Sheet as the entire balance was classified as short-term.
We have no obligation to provide additional funding to the VIEs,VIE, and thus itsour exposure and risk of loss related to the VIEsVIE is limited to the carrying value of the investments and notesnote receivable. FinancialKimball did not provide additional financial support provided by the Company to the VIEs was limited to the items discussed aboveVIE during the fiscal year ended June 30, 20122014.
Note 19 Credit Quality and Allowance for Credit Losses of Notes Receivable
The CompanyKimball monitors credit quality and associated risks of notes receivable on an individual basis based on criteria such as financial stability of the party and collection experience in conjunction with general economic and market conditions. The due date for the note receivable from the sale of an Indiana facility was extended until June 30, 2014, and the Company continues2017. We continue to hold collateral for this note receivable thereby mitigating the risk of loss.loss, however as of June 30, 2014 an allowance was recorded on a portion of this note receivable based on our credit quality analysis. The notes receivable from an electronics engineering services firm were paid in full during fiscal year 2014. As of June 30, 20122014 and 2011, none of the2013, Kimball had no material past due outstanding notes receivable were past due.receivable.
| | | | As of June 30, 2012 | | As of June 30, 2011 | As of June 30, 2014 | | As of June 30, 2013 |
| (Amounts in Thousands) | Unpaid Balance | | Related Allowance | | Receivable Net of Allowance | | Unpaid Balance | | Related Allowance | | Receivable Net of Allowance | Unpaid Balance | | Related Allowance | | Receivable Net of Allowance | | Unpaid Balance | | Related Allowance | | Receivable Net of Allowance |
| Note Receivable from Sale of Indiana Facility | $ | 1,409 |
| | $ | — |
| | $ | 1,409 |
| | $ | 1,334 |
| | $ | — |
| | $ | 1,334 |
| $ | 1,392 |
| | $ | 489 |
| | $ | 903 |
| | $ | 1,413 |
| | $ | — |
| | $ | 1,413 |
|
| Notes Receivable from an Electronics Engineering Services Firm | 1,221 |
| | — |
| | 1,221 |
| | 1,420 |
| | — |
| | 1,420 |
| — |
| | — |
| | — |
| | 521 |
| | 440 |
| | 81 |
|
| Other Notes Receivable | 322 |
| | 214 |
| | 108 |
| | — |
| | — |
| | — |
| 223 |
| | 149 |
| | 74 |
| | 127 |
| | 85 |
| | 42 |
|
| Total | $ | 2,952 |
| | $ | 214 |
| | $ | 2,738 |
| | $ | 2,754 |
| | $ | — |
| | $ | 2,754 |
| $ | 1,615 |
| | $ | 638 |
| | $ | 977 |
| | $ | 2,061 |
| | $ | 525 |
| | $ | 1,536 |
|
Note 20 Planned Spin-Off
On January 20, 2014, we announced that our Board of Directors unanimously approved a plan to spin off our EMS segment. The spin-off will result in two independent publicly-traded companies: Kimball International, Inc., an industry leader in the sale and manufacture of quality office and hospitality furniture; and Kimball Electronics, Inc., a leading global provider of electronic manufacturing services to the automotive, medical, industrial, and public safety markets.
Execution of the transaction requires further work on structure, management, governance and other significant matters. The completion of the spin-off is subject to certain customary conditions, including receipt of a legal opinion as to the tax-free nature of the spin-off for U.S. federal income tax purposes and regulatory approvals, as well as certain other matters. We can make no assurance that any spin-off transaction will ultimately occur, or, if one does occur, its terms or timing.
The disclosures within these consolidated financial statements do not take into account the proposed spin-off of the EMS segment.
Note 2021 Quarterly Financial Information (Unaudited)
| | | | Three Months Ended | Three Months Ended |
| (Amounts in Thousands, Except for Per Share Data) | September 30 | | December 31 | | March 31 | | June 30 | September 30 | | December 31 | | March 31 | | June 30 |
| Fiscal Year 2012: | | | | | | | | |
| Fiscal Year 2014: | | | | | | | | |
| Net Sales | $ | 270,635 |
| | $ | 296,904 |
| | $ | 284,414 |
| | $ | 290,108 |
| $ | 317,439 |
| | $ | 320,313 |
| | $ | 310,788 |
| | $ | 336,807 |
|
| Gross Profit | 46,970 |
| | 54,320 |
| | 50,639 |
| | 58,026 |
| 61,324 |
| | 66,846 |
| | 60,292 |
| | 67,562 |
|
| Restructuring Expense | 113 |
| | 1,480 |
| | 895 |
| | 930 |
| |
| Net Income (Loss) | (146 | ) | | 3,197 |
| | 2,506 |
| | 6,077 |
| |
| Basic Earnings (Loss) Per Share: | | | |
| | |
| | |
| |
| Class A | $ | (0.01 | ) | | $ | 0.08 |
| | $ | 0.06 |
| | $ | 0.16 |
| |
| Class B | $ | — |
| | $ | 0.09 |
| | $ | 0.07 |
| | $ | 0.16 |
| |
| Diluted Earnings (Loss) Per Share: | | | | | | | | |
| Class A | $ | (0.01 | ) | | $ | 0.08 |
| | $ | 0.06 |
| | $ | 0.16 |
| |
| Class B | $ | — |
| | $ | 0.09 |
| | $ | 0.07 |
| | $ | 0.16 |
| |
| Fiscal Year 2011: | | | | | | | | |
| Net Sales | $ | 294,676 |
| | $ | 310,632 |
| | $ | 314,466 |
| | $ | 282,823 |
| |
| Gross Profit | 47,147 |
| | 49,576 |
| | 50,691 |
| | 47,178 |
| |
| Restructuring Expense | 117 |
| | 368 |
| | 68 |
| | 456 |
| |
Other General Income (1) | | (5,022 | ) | | — |
| | (666 | ) | | — |
|
| Net Income | 456 |
| | 876 |
| | 3,306 |
| | 284 |
| 9,183 |
| | 9,222 |
| | 7,208 |
| | 7,848 |
|
| Basic Earnings Per Share: | | | |
| | |
| | |
| | | |
| | |
| | |
|
| Class A | $ | 0.01 |
| | $ | 0.02 |
| | $ | 0.08 |
| | $ | — |
| $ | 0.24 |
| | $ | 0.24 |
| | $ | 0.18 |
| | $ | 0.20 |
|
| Class B | $ | 0.01 |
| | $ | 0.02 |
| | $ | 0.09 |
| | $ | 0.01 |
| $ | 0.24 |
| | $ | 0.24 |
| | $ | 0.19 |
| | $ | 0.21 |
|
| Diluted Earnings Per Share: | | | | | | | | | | | | | | |
| Class A | $ | 0.01 |
| | $ | 0.02 |
| | $ | 0.08 |
| | $ | — |
| $ | 0.23 |
| | $ | 0.23 |
| | $ | 0.18 |
| | $ | 0.20 |
|
| Class B | $ | 0.01 |
| | $ | 0.02 |
| | $ | 0.09 |
| | $ | 0.01 |
| $ | 0.24 |
| | $ | 0.24 |
| | $ | 0.19 |
| | $ | 0.20 |
|
| Fiscal Year 2013: | | | | | | | | |
| Net Sales | | $ | 288,190 |
| | $ | 295,136 |
| | $ | 301,486 |
| | $ | 318,322 |
|
| Gross Profit | | 55,205 |
| | 55,157 |
| | 53,809 |
| | 59,577 |
|
| Net Income | | 4,961 |
| | 4,179 |
| | 3,678 |
| | 7,061 |
|
| Basic Earnings Per Share: | | | | |
| | |
| | |
|
| Class A | | $ | 0.12 |
| | $ | 0.11 |
| | $ | 0.09 |
| | $ | 0.18 |
|
| Class B | | $ | 0.13 |
| | $ | 0.11 |
| | $ | 0.10 |
| | $ | 0.19 |
|
| Diluted Earnings Per Share: | | | | | | | | |
| Class A | | $ | 0.12 |
| | $ | 0.11 |
| | $ | 0.09 |
| | $ | 0.18 |
|
| Class B | | $ | 0.13 |
| | $ | 0.11 |
| | $ | 0.10 |
| | $ | 0.18 |
|
(1) Other General Income included $5.0 million and $0.7 million, pre-tax, for the quarters ended September 30, 2013 and March 31, 2014, respectively, for the settlement proceeds received related to two antitrust class action lawsuits in which the Company was a class member.
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, 20122014, 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, 20122014 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
(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, 20122014 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.
PART III
Item 10 - Directors, Executive Officers and Corporate Governance
Directors
The information required by this item with respect to Directors is incorporated by reference to the material contained in the Company's Proxy Statement for its annual meeting of Share Owners to be held October 16, 201221, 2014 under the caption "Election of Directors."
Committees
The information required by this item with respect to the Audit Committee and its financial expert and with respect to the Compensation and Governance Committee's responsibility for establishing procedures by which Share Owners may recommend nominees to the Board of Directors is incorporated by reference to the material contained in the Company's Proxy Statement for its annual meeting of Share Owners to be held October 16, 201221, 2014 under the caption "Information Concerning the Board of Directors and Committees."
Executive Officers of the Registrant
The information required by this item with respect to Executive Officers of the Registrant is included at the end of Part I of this Annual Report on Form 10-K and is incorporated herein by reference.
Compliance with Section 16(a) of the Exchange Act
The information required by this item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the material contained in the Company's Proxy Statement for its annual meeting of Share Owners to be held October 16, 201221, 2014 under the caption "Section 16(a) Beneficial Ownership Reporting Compliance."
Code of Ethics
The CompanyKimball has a code of ethics that applies to all of its employees, including the Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer. The code of ethics is posted on the Company'sKimball's website at www.ir.kimball.com. It is the Company'sour intention to disclose any amendments to the code of ethics on this website. In addition, any waivers of the code of ethics for directors or executive officers of the Company will be disclosed in a Current Report on Form 8-K.
Item 11 - Executive Compensation
The information required by this item is incorporated by reference to the material contained in the Company's Proxy Statement for its annual meeting of Share Owners to be held October 16, 201221, 2014 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 16, 201221, 2014 under the caption "Share Ownership Information."
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item is incorporated by reference to the material contained in the Company's Proxy Statement for its annual meeting of Share Owners to be held October 16, 201221, 2014 under the caption "Executive Officer and Director Compensation — Securities Authorized for Issuance Under Equity Compensation Plans."
Item 13 - Certain Relationships and Related Transactions, and Director Independence
Relationships and Related Transactions
The information required by this item is incorporated by reference to the material contained in the Company's Proxy Statement for its annual meeting of Share Owners to be held October 16, 201221, 2014 under the caption "Review and Approval of Transactions with Related Persons."
Director Independence
The information required by this item is incorporated by reference to the material contained in the Company's Proxy Statement for its annual meeting of Share Owners to be held October 16, 201221, 2014 under the caption "Information Concerning the Board of Directors and Committees."
Item 14 - Principal Accounting Fees and Services
The information required by this item is incorporated by reference to the material contained in the Company's Proxy Statement for its annual meeting of Share Owners to be held October 16, 201221, 2014 under the caption "Independent Registered Public Accounting Firm" and "Appendix A — Approval Process for Services Performed by the Independent Registered Public Accounting Firm."
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. |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | |
| | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(2) Financial Statement Schedules:
|
| | | |
| | | | |
| | | |
| | | Schedules other than those listed above are omitted because they are either not required or not applicable, or the required information is presented in the Consolidated Financial Statements. |
(3) Exhibits
See the Index of Exhibits on page 75 for a list of the exhibits filed or incorporated herein as a part of this report.
SIGNATURES
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.
|
| | |
| | | KIMBALL INTERNATIONAL, INC. |
| | | |
| | By: | /s/ ROBERT F. SCHNEIDER |
| | | Robert F. Schneider |
| | | Executive Vice President, |
| | | Chief Financial Officer |
| | | August 27, 20122014 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
|
| | |
| | | /s/ JAMES C. THYEN |
| | | James C. Thyen |
| | | President, |
| | | Chief Executive Officer |
| | | August 27, 20122014 |
| | | |
| | | /s/ ROBERT F. SCHNEIDER |
| | | Robert F. Schneider |
| | | Executive Vice President, |
| | | Chief Financial Officer |
| | | August 27, 20122014 |
| | | |
| | | /s/ MICHELLE R. SCHROEDER |
| | | Michelle R. Schroeder |
| | | Vice President, |
| | | Chief Accounting Officer |
| | | August 27, 20122014 |
|
| | |
| Signature | | Signature |
| | | |
| DOUGLAS A. HABIG * | | HARRY W. BOWMANROBERT F. SCHNEIDER * |
| Douglas A. Habig | | Harry W. BowmanRobert F. Schneider |
| Chairman of the Board | | Director |
| | | |
THOMAS J. TISCHHAUSERDONALD D. CHARRON * | | GEOFFREY L. STRINGER * |
Thomas J. TischhauserDonald D. Charron | | Geoffrey L. Stringer |
| Director | | Director |
| | | |
| THOMAS J. TISCHHAUSER * | | CHRISTINE M. VUJOVICH * |
| Thomas J. Tischhauser | | Christine M. Vujovich |
| Director | | Director |
| | |
| KIMBERLY K. RYAN * | | TIMOTHY J. JAHNKE * |
| Kimberly K. Ryan | | Timothy J. Jahnke |
| Director | | Director |
| | |
| JACK R. WENTWORTH * |
Christine M. Vujovich | | PATRICK E. CONNOLLY* |
| Jack R. Wentworth | | Patrick E. Connolly |
| Director | | Director |
| |
| * | The undersigned does hereby sign this document on my behalf pursuant to powers of attorney duly executed and filed with the Securities and Exchange Commission, all in the capacities as indicated: |
|
| | |
| Date | | |
August 27, 20122014 | | /s/ JAMES C. THYEN |
| | | James C. Thyen |
| | | President, Chief Executive Officer, Director |
| | | |
| Individually and as Attorney-In-Fact |
KIMBALL INTERNATIONAL, INC.
Schedule II. - Valuation and Qualifying Accounts
| | | Description | Balance at Beginning of Year | | Additions to Expense | | Adjustments to Other Accounts | | Write-offs and Recoveries | | Balance at End of Year | Balance at Beginning of Year | | Additions (Reductions) to Expense | | Adjustments to Other Accounts | | Write-offs and Recoveries | | Balance at End of Year |
| (Amounts in Thousands) | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, 2014 | | | | | | | | | | | |
| Valuation Allowances: | | | | | | | | | | | |
| Short-Term Receivables | | | $ | 2,791 |
| | $ | (20 | ) | | $ | (149 | ) | | $ | (277 | ) | | $ | 2,345 |
|
| Long-Term Receivables | | | $ | — |
| | $ | 628 |
| | $ | — |
| | $ | — |
| | $ | 628 |
|
| Deferred Tax Asset | | | $ | 2,315 |
| | $ | — |
| | $ | — |
| | $ | (1,528 | ) | | $ | 787 |
|
| Year Ended June 30, 2013 | | | | | | | | | | | |
| Valuation Allowances: | | | | | | | | | | | |
| Short-Term Receivables | | | $ | 1,367 |
| | $ | 1,663 |
| | $ | 15 |
| | $ | (254 | ) | | $ | 2,791 |
|
| Deferred Tax Asset | | | $ | 1,911 |
| | $ | 408 |
| | $ | — |
| | $ | (4 | ) | | $ | 2,315 |
|
| Year Ended June 30, 2012 | | | | | | | | | | | | | | | | | | | | |
| Valuation Allowances: | | | | | | | | | | | | | | | | | | | | |
| Short-Term Receivables | | $ | 1,799 |
| | $ | 267 |
| | $ | (83 | ) | | $ | (616 | ) | | $ | 1,367 |
| | $ | 1,799 |
| | $ | 267 |
| | $ | (83 | ) | | $ | (616 | ) | | $ | 1,367 |
|
| Deferred Tax Asset | | $ | 6,698 |
| | $ | 355 |
| | $ | — |
| | $ | (5,142 | ) | | $ | 1,911 |
| | $ | 6,698 |
| | $ | 355 |
| | $ | — |
| | $ | (5,142 | ) | | $ | 1,911 |
|
| Year Ended June 30, 2011 | | | | | | | | | | | |
| Valuation Allowances: | | | | | | | | | | | |
| Short-Term Receivables | | $ | 3,349 |
| | $ | 476 |
| | $ | 195 |
| | $ | (2,221 | ) | | $ | 1,799 |
| |
| Long-Term Notes Receivable | | $ | 69 |
| | $ | — |
| | $ | — |
| | $ | (69 | ) | | $ | — |
| |
| Deferred Tax Asset | | $ | 5,777 |
| | $ | 1,297 |
| | $ | — |
| | $ | (376 | ) | | $ | 6,698 |
| |
| Year Ended June 30, 2010 | | | | | | | | | | | |
| Valuation Allowances: | | | | | | | | | | | |
| Short-Term Receivables | | $ | 4,366 |
| | $ | 232 |
| | $ | (45 | ) | | $ | (1,204 | ) | | $ | 3,349 |
| |
| Long-Term Notes Receivable | | $ | — |
| | $ | 69 |
| | $ | — |
| | $ | — |
| | $ | 69 |
| |
| Deferred Tax Asset | | $ | 5,132 |
| | $ | 814 |
| | $ | — |
| | $ | (169 | ) | | $ | 5,777 |
| |
KIMBALL INTERNATIONAL, INC.
INDEX OF EXHIBITS
|
| | |
| Exhibit No. | | Description |
| 3(a) | | Amended and restatedRestated Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3(a) to the Company's Form 10-K for the fiscal year ended June 30, 2012) |
| 3(b) | | Restated By-laws of the Company (Incorporated by reference to Exhibit 3(b) to the Company's Form 8-K filed October 23, 2009)August 18, 2014) |
| 10(a)* | | Summary of Director and Named Executive Officer Compensation |
| 10(b)* | | Discretionary Compensation |
| 10(c)* | | Amended and Restated 2003 Stock Option and Incentive Plan (Incorporated by reference to Exhibit 10(d)10.1 to the Company's Form 10-Q for the period ended December 31, 2008)8-K filed October 21, 2013) |
| 10(d)* | | Supplemental Employee Retirement Plan (2009(2012 Revision) (Incorporated by reference to Exhibit 10(c)10.1 to the Company's Form 10-Q for the period ended December 31, 2008)8-K filed November 29, 2012) |
10(e)* | | 1996 Stock Incentive Program (Incorporated by reference to Exhibit 10(e) to the Company's Form 10-K for the year ended June 30, 2011) |
10(f)* | | Form of Annual Performance Share Award Agreement as amended on August 22, 2006 (Incorporated by reference to Exhibit 10(a) to the Company's Form 10-Q for the period ended September 30, 2011) |
10(g)10(f) | | Amended and Restated Credit Agreement, dated as of April 23, 2008,December 18, 2012, among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as Agent and Letter of Credit Issuer (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed April 28, 2008)December 20, 2012) |
10(h)10(g)* | | Form of Employment Agreement dated March 8, 2010 between the Company and each of Donald W. Van Winkle and Stanley C. Sapp andWinkle; dated May 1, 2006 between the Company and each of James C. Thyen, Douglas A. Habig, Robert F. Schneider, Donald D. Charron, and John H. KahleKahle; dated January 1, 2014 between the Company and Gary W. Schwartz (IncorporatedLonnie P. Nicholson and dated February 1, 2014 between the Company and Dean M. Vonderheide (All of the Employment Agreements are similar and are incorporated by reference to Exhibit 10(h) to the Company's Form 10-K for the year ended June 30, 2011) |
10(i)10(h)* | | Form of Long Term Performance Share Award as amended on August 22, 2006 (Incorporated by reference to Exhibit 10(b) to the Company's Form 10-Q for the period ended September 30, 2011)Agreement |
10(j)10(i)* | | 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) |
| 11 | | Computation of Earnings Per Share (Incorporated by reference to Note 15 - Earnings Per Share of Notes to Consolidated Financial Statements) |
| 21 | | Subsidiaries of the Registrant |
| 23 | | Consent of Independent Registered Public Accounting Firm |
| 24 | | Power of Attorney |
| 31.1 | | 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 |
| 31.2 | | 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 |
| 32.1 | | 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 |
| 32.2 | | Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | | XBRL Instance Document ** |
| 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
** These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.
