UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-3279
KIMBALL INTERNATIONAL, INC. |
(Exact name of registrant as specified in its charter) |
Indiana | 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 |
Not Applicable |
Former name, former address and former fiscal year, if changed since last report |
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 __ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes __ No |
Indicate by check mark 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 ___ Accelerated filer X Non-accelerated filer (Do not check if a smaller reporting company) 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 __ No X |
The number of shares outstanding of the Registrant's common stock as of January 20, 2011 was: |
Class A Common Stock - 10,478,763 shares | |
Class B Common Stock - 27,258,770 shares | |
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KIMBALL INTERNATIONAL, INC.
FORM 10-Q
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
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Note 1. Summary of Significant Accounting Policies
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Inventory components of the Company were as follows:
December 31, June 30, (Amounts in Thousands) 2010 2010 Finished Products $ 38,873 $ 33,177 Work-in-Process 11,672 13,209 Raw Materials 125,329 112,897 Total FIFO Inventory $175,874 $159,283 LIFO Reserve (13,581) (12,877) Total Inventory $162,293 $146,406 For interim reporting, LIFO inventories are computed based on quantities as of the end of the quarter and interim changes in price levels. Changes in quantities and price levels are reflected in the interim financial statements in the period in which they occur, except in cases where LIFO inventory liquidations are expected to be reinstated by fiscal year end. During the three-month period ended December 31, 2010, there were no LIFO inventory liquidations. During the six-month period ended December 31, 2010, LIFO inventory liquidations increased net income by, in thousands, $199. During the three and six-month periods ended December 31, 2009, LIFO inventory liquidations increased net income by, in thousands, $371 and $967, respectively.
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Note 3. Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in equity during a period except those resulting from investments by and distributions to Share Owners. Comprehensive income (loss), shown net of tax if applicable, for the three and six-month periods ended December 31, 2010 and 2009 was as follows:
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Management organizes the Company into segments based upon differences in products and services offered in each segment. The Electronic Manufacturing Services (EMS) segment provides engineering and manufacturing services which utilize common production and support capabilities to a variety of industries globally. The EMS segment focuses on electronic assemblies that have high durability requirements and are sold on a contract basis and produced to customers' specifications. The EMS segment currently sells primarily to customers in the medical, automotive, industrial controls, 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. Intersegment sales were insignificant.
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Unallocated corporate assets include cash and cash equivalents, short-term investments, and other assets not allocated to segments. Unallocated corporate net 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. The basis of segmentation and accounting policies of the segments are consistent with those disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
Three Months Ended Six Months Ended December 31 December 31 (Amounts in Thousands) 2010 2009 2010 2009 Net Sales: Electronic Manufacturing Services $181,439 $166,983 $359,306 $332,469 Furniture 129,193 108,140 246,002 217,306 Unallocated Corporate and Eliminations -0- 38 -0- 45 Consolidated $310,632
$275,161 $605,308
$549,820 Net Income (Loss): Electronic Manufacturing Services $ (109)
$ 2,665 $ (357)
$ 2,446 Furniture 801
(996) 1,390
784 Unallocated Corporate and Eliminations 184
237 299
450 Consolidated $ 876 (1)
$ 1,906 (2)
$ 1,332 (1)
$ 3,680 (2)
(1) Net Income (Loss) included after-tax restructuring charges, in thousands, of $222 and $292 in the three and six months ended December 31, 2010, respectively. The EMS segment and Unallocated Corporate and Eliminations recorded in the three months ended December 31, 2010, in thousands, $206 and $16, respectively, of after-tax restructuring charges. The EMS segment and Unallocated Corporate and Eliminations recorded in the six months ended December 31, 2010, in thousands, $265 and $27, respectively, of after-tax restructuring charges. The Furniture segment did not record restructuring during the three and six months ended December 31, 2010. See Note 6 - Restructuring Expense of Notes to Condensed Consolidated Financial Statements for further discussion.
(2) Net Income (Loss) included after-tax restructuring charges, in thousands, of $184 and $476 in the three and six months ended December 31, 2009, respectively. In the three months ended December 31, 2009, the EMS segment and Unallocated Corporate and Eliminations recorded, in thousands, $229 and $14, respectively, of after-tax restructuring charges, and the Furniture segment recorded, in thousands, $59, of after-tax restructuring income. In the six months ended December 31, 2009, the EMS segment and Unallocated Corporate and Eliminations recorded, in thousands, $505 and $22, respectively, of after-tax restructuring charges, and the Furniture segment recorded, in thousands, $51 of after-tax restructuring income. See Note 6 - Restructuring Expense of Notes to Condensed Consolidated Financial Statements for further discussion. Additionally, the EMS segment recorded for both the three and six months ended December 31, 2009 after-tax income of $2.0 million resulting from settlement proceeds related to an antitrust class action lawsuit of which the Company was a member.
December 31, June 30, (Amounts in Thousands) 2010 2010 Total Assets: Electronic Manufacturing Services $400,030 $384,491 Furniture 195,557 182,396 Unallocated Corporate and Eliminations 50,508 69,864 Consolidated $646,095
$636,751
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Note 5. Commitments and Contingent Liabilities
Standby letters of credit are issued to third-party suppliers, lessors, and insurance and financial institutions and can only be drawn upon in the event of the Company's failure to pay its obligations to the beneficiary. As of December 31, 2010, the Company had a maximum financial exposure from unused standby letters of credit totaling $5.1 million. The Company is not aware of circumstances that would require it to perform under any of these arrangements and believes that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect the Company's financial statements. Accordingly, no liability has been recorded as of December 31, 2010 with respect to the standby letters of credit. The Company also enters into commercial letters of credit to facilitate payment to vendors and from customers.
The Company estimates product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction with the length of the warranty offered. Management refines the warranty liability in cases where specific warranty issues become known.
Changes in the product warranty accrual for the six months ended December 31, 2010 and 2009 were as follows:
Six Months Ended
December 31(Amounts in Thousands) 2010
2009 Product Warranty Liability at the beginning of the period $ 1,818 $ 2,176 Additions to warranty accrual (including changes in estimates) 1,253 180 Settlements made (in cash or in kind) (1,133) (504) Product Warranty Liability at the end of the period $ 1,938 $ 1,852 13
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At both December 31, 2010 and June 30, 2010, a facility and land related to the Gaylord, Michigan, exited operation within the EMS segment were classified as held for sale and totaled, in thousands, $1,160. The assets were reported as unallocated corporate assets for segment reporting purposes.
Note 11. Postemployment Benefits
The Company maintains severance plans for all domestic employees. These plans provide severance benefits to eligible employees meeting the plans' qualifications, primarily involuntary termination without cause. The components of net periodic postemployment benefit cost applicable to the Company's severance plans were as follows:
Three Months Ended Six Months Ended December 31 December 31 (Amounts in Thousands) 2010 2009 2010 2009 Service cost $ 242 $ 185 $ 484 $ 378 Interest cost 69 104 138 212 Amortization of prior service costs 72 72 143 143 Amortization of actuarial change 210 146 425 298 Net periodic benefit cost $ 593 $ 507 $ 1,190 $ 1,031 The benefit cost in the above table includes only normal recurring levels of severance activity, as estimated using an actuarial method. Unusual or non-recurring severance actions, such as those disclosed in Note 6 - Restructuring Expense of Notes to Condensed Consolidated Financial Statements, are not estimable using actuarial methods and are expensed in accordance with the applicable U.S. GAAP.
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Note 12. Stock Compensation Plan
During fiscal year 2011, the following stock compensation was awarded to officers, key employees, and non-employee directors. All awards were granted under the 2003 Stock Option and Incentive Plan. For more information on similar unrestricted shares and performance share awards, refer to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
Performance Shares Quarter Awarded
Shares Grant Date Fair Value (4) Annual Performance Shares - Class A (1) 1st Quarter 235,710 $ 5.09 Long-Term Performance Shares - Class A (2) 1st Quarter 483,318 $ 5.09
Unrestricted Shares Quarter Awarded
Shares Grant Date Fair Value (4) Unrestricted Shares - Class A (3) 1st Quarter 1,000 $ 5.27 Unrestricted Shares - Class B (3) 1st Quarter 500 $ 5.27 Unrestricted Shares - Class B (3) 2nd Quarter 1,000 $ 6.72 Unrestricted Shares (Director Compensation) - Class B (3) 2nd Quarter 25,477 $ 6.32
(1) Annual performance shares were awarded to officers. Payouts will be based upon the fiscal year 2011 cash incentive payout percentages calculated under the Company's Profit Sharing Incentive Bonus Plan. The number of shares issued will be less than the maximum potential shares issuable if the maximum cash incentive payout percentages are not achieved. Annual performance shares vest after one year. (2) Long-term performance shares were awarded to officers and other key employees. Payouts will be based upon the cash incentive payout percentages calculated under the Company's Profit Sharing Incentive Bonus Plan. Long-term performance shares are based on five successive annual performance measurement periods, with each annual tranche having a grant date when economic profit tiers are established at the beginning of the applicable fiscal year and a vesting date at the end of each annual period. The number of shares issued will be less than the maximum potential shares issuable if the maximum cash incentive payout percentages are not achieved. (3) Unrestricted shares were awarded to non-employee members of the Board of Directors as compensation for director's fees, as a result of directors' elections to receive unrestricted shares in lieu of cash payment. Director's fees are expensed over the period that directors earn the compensation. Other unrestricted shares were awarded to officers as consideration for their service to the Company. Unrestricted shares do not have vesting periods, holding periods, restrictions on sale, or other restrictions. (4) The grant date fair value of performance shares is based on the stock price at the date of the award, reduced by the present value of dividends normally paid over the vesting period which are not payable on outstanding performance share awards. The grant date fair value shown for long-term performance shares is applicable to the first tranche only. The grant date fair value of the unrestricted shares was based on the stock price at the date of the award.
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Note 13. Variable Interest Entities
The Company's involvement with variable interest entities (VIEs) is limited to situations in which the Company is not the primary beneficiary as the Company lacks the power to direct the activities that most significantly impact the VIE's economic performance. Thus, consolidation is not required.
The Company is involved with VIEs consisting of an investment in convertible debt securities and stock warrants of a privately-held company and a note receivable related to the sale of an Indiana facility. For information related to the Company's investment in the privately-held company, see Note 9 - Short-Term Investments and Note 8 - Derivative Instruments of Notes to Condensed Consolidated Financial Statements. The carrying value of the note receivable is $1.3 million, with no reserve, as of December 31, 2010, and is recorded on the Receivables line of the Company's Condensed Consolidated Balance Sheet. The Company has no material exposure related to the VIEs in addition to the items recorded on its Condensed Consolidated Balance Sheet.
The Company has no obligation to provide additional funding to the VIEs, and thus its risk of loss related to the VIEs is limited to the original funding amount. The Company did not provide any additional financial support to the VIEs during the quarter ended December 31, 2010.
Note 14. Credit Quality and Allowance for Credit Losses of Notes Receivable
The Company monitors credit quality and associated risks of notes receivable on an individual basis based on criteria such as financial stability of the party and collection experience in conjunction with general economic and market conditions. The Company holds collateral for the note receivable from the sale of an Indiana facility thereby mitigating the risk of loss.
As of December 31, 2010 (Amounts in Thousands) Unpaid Balance
Related Allowance Receivable Net of Allowance Note Receivable from Sale of Indiana Facility $ 1,300 $ -0- $ 1,300 Other Notes Receivable 84 84 -0- Total $ 1,384 $ 84 $ 1,300
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to market risks from the information disclosed in Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
Item 4. 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 December 31, 2010, the Chief Executive Officer and Chief Financial Officer of the Company concluded that its disclosure controls and procedures were effective.
(b) 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 December 31, 2010 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 second quarter of fiscal year 2011. At December 31, 2010, two million shares remained available under the repurchase program.
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Exhibits (numbered in accordance with Item 601 of Regulation S-K)
(3(a)) Amended and restated Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3(a) to the Company's Form 10-K for the fiscal year ended June 30, 2007)
(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)
(11) Computation of Earnings Per Share
(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
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Pursuant to the requirements 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/ James C. Thyen | |
JAMES C. THYEN President, Chief Executive Officer | ||
February 4, 2011 | ||
By: | /s/ Robert F. Schneider | |
ROBERT F. SCHNEIDER Executive Vice President, Chief Financial Officer | ||
February 4, 2011 |
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Kimball International, Inc.
Exhibit Index
Exhibit No. | Description | |
3(a) | Amended and restated Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3(a) to the Company's Form 10-K for the fiscal year ended June 30, 2007) | |
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) | |
11 | Computation of Earnings Per Share | |
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 |
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