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0000055772-09-000012.txt : 20090831
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20090831091258
ACCESSION NUMBER: 0000055772-09-000012
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 20090630
FILED AS OF DATE: 20090831
DATE AS OF CHANGE: 20090831
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: KIMBALL INTERNATIONAL INC
CENTRAL INDEX KEY: 0000055772
STANDARD INDUSTRIAL CLASSIFICATION: OFFICE FURNITURE [2520]
IRS NUMBER: 350514506
STATE OF INCORPORATION: IN
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-03279
FILM NUMBER: 091044602
BUSINESS ADDRESS:
STREET 1: 1600 ROYAL ST
CITY: JASPER
STATE: IN
ZIP: 47549
BUSINESS PHONE: 8124821600
MAIL ADDRESS:
STREET 1: 1600 ROYAL STREET
CITY: JASPER
STATE: IN
ZIP: 47549
FORMER COMPANY:
FORMER CONFORMED NAME: JASPER CORP
DATE OF NAME CHANGE: 19740826
10-K
1
k09.htm
KIMBALL INTERNATIONAL, INC. FORM 10-K
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, 2009 |
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 |
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 |
|
|
|
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes __
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 __
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 __ |
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 preceeding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ___ No ___ |
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
X |
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 |
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, 2008 (the last business
day of the Registrant's most recently completed second fiscal quarter) was
$204.2 million, based on 95.6% of Class B Common Stock
held by non-affiliates. |
The number of shares outstanding of the Registrant's common
stock as of August 14, 2009 was:
Class A Common Stock -
10,711,825 shares
Class B Common Stock -
26,574,005 shares |
DOCUMENTS INCORPORATED BY REFERENCE |
Portions of the Proxy
Statement for the Annual Meeting of Share Owners to be held on October 20,
2009, are incorporated by reference into Part III. |
KIMBALL INTERNATIONAL, INC.
FORM 10-K
INDEX
PART I
Item 1 - Business
General
As used herein, the term "Company" refers to Kimball International, Inc.,
the Registrant, and its subsidiaries. Reference to a year relates to a
fiscal year, ended June 30 of the year indicated, rather than a calendar
year unless the context indicates otherwise. Additionally, references to the
first, second, third, and fourth quarters refer to those respective quarters
of the fiscal year indicated.
The Company was incorporated in Indiana in 1939. The corporate
headquarters is located at 1600 Royal Street, Jasper, Indiana.
The Company provides a variety of products from its two business
segments: the Electronic Manufacturing Services (EMS) segment and the
Furniture segment. The EMS segment provides engineering and manufacturing
services which utilize common production and support capabilities globally
to the medical, automotive, industrial control, and public safety
industries. The Furniture segment provides furniture for the office and
hospitality industries, sold under the Company's family of brand names.
Production currently occurs in Company-owned or leased facilities located in
the United States, Mexico, Thailand, China, Poland, and Wales, United
Kingdom. In the United States, the Company has facilities and showrooms in
ten states and the District of Columbia.
Sales by Product Line and Segment
Sales from continuing operations by segment, after elimination of
intersegment sales, for each of the three years in the period ended June 30,
2009 were as follows:
(Amounts in Thousands) |
2009 |
|
2008 |
|
2007 |
Furniture Segment |
|
|
|
|
|
Branded Furniture Product Line |
$
564,618 |
|
$
624,836 |
|
$
602,903 |
Contract Private Label Furniture Product Line |
-0-
|
|
-0-
|
|
11,059
|
Total Furniture Segment |
$
564,618 |
|
$
624,836 |
|
$
613,962 |
Electronic Manufacturing Services Segment |
642,802 |
|
727,149 |
|
672,968 |
Kimball International, Inc. |
$1,207,420 |
|
$1,351,985 |
|
$1,286,930 |
Sales of contract private label products were eliminated in conjunction
with the planned exit of this product line.
Financial information by segment and geographic area for each of the
three years in the period ended June 30, 2009 is included in
Note 15 - Segment and Geographic Area Information of Notes to
Consolidated Financial Statements and is incorporated herein by reference.
Segments
Electronic Manufacturing Services
Overview
The Company entered the electronic manufacturing services market in 1985
with knowledge acquired from the production of electronic organs, which were
first produced in 1963. The Company's current focus is on electronic
assemblies that have high durability requirements such as medical,
automotive, industrial control, and public safety applications.
3
Electronics and electro-mechanical products (electronic assemblies) are
sold globally on a contract basis and produced to customers' specifications.
The Company's engineering and manufacturing services primarily entail:
- the insertion and attachment of microchips
and other electronic capacitors and conductors in ever more
complex and smaller designs onto multi-layered circuit boards,
|
- the production of wiring harnesses and
other electronic equipment, assembling such into subassemblies
or final products,
|
- the testing of products under a series of
harsh conditions, and
|
- the assembly and packaging of electronic
and other related products.
|
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.
During the first quarter of fiscal year 2009, the Company acquired
privately-held Genesis Electronics Manufacturing of Tampa, Florida. The
acquisition supports the Company's growth and diversification strategy,
bringing new customers in the Company's key medical and industrial controls
markets.
During the fourth quarter of fiscal year 2008, the
Company approved a plan to expand its European automotive electronics
capabilities and to establish a European Medical Center of Expertise in
Poznan, Poland. The Company successfully completed the move of production
from Longford, Ireland, into the existing Poznan facility during the fiscal
year 2009 second quarter. As part of the plan, the Company will also
consolidate its EMS facilities located in Bridgend, Wales, and Poznan,
Poland, into a new, larger facility in Poznan, which is expected to improve
the Company's margins in the very competitive EMS market. Construction of
the new, larger facility in Poland is complete with limited production to
begin early in the Company's fiscal year 2010. The plan is being executed in
stages with a projected completion date of December 2011.
In an effort to improve profitability and increase Share Owner value
while remaining committed to its business model of being market driven and
customer centered, during the third quarter of fiscal year 2008, the Company
approved a restructuring plan designed to more appropriately align its
workforce in a changing business environment. Within the Company's EMS
segment, the restructuring activities included realigning engineering and
technical resources closer to the customer and streamlining administrative
and sales processes. The plan also included reducing corporate personnel
costs to more properly align with the overall sales mix change within the
Company. This plan is complete.
During the third quarter of fiscal year 2007, the Company acquired
Reptron Electronics, Inc. ("Reptron"), a U.S. based electronics
manufacturing services company which provided engineering services,
electronics manufacturing services, and display integration services.
Reptron had four manufacturing operations located in Tampa, Florida;
Hibbing, Minnesota; Gaylord, Michigan; and Fremont, California. The
acquisition increased the Company's capabilities and expertise in support of
the Company's long-term strategy to grow business in the medical electronics
and high-end industrial sectors. With the acquisition, the Company
recognized it would have excess capacity in North America. Management
developed a plan as of the acquisition date to consolidate capacity within
the acquired facilities. Based on a review of future growth potential in
various geographies and input from existing customers regarding future
capacity needs, during the fourth quarter of fiscal year 2007, the Company
finalized a restructuring plan within the EMS segment to exit the
manufacturing facility located in Gaylord, Michigan. Production ceased
during the second quarter of fiscal year 2008, and the facility is currently
held for sale. During the second quarter of fiscal year 2008, the Company
approved a restructuring plan to further consolidate its EMS facilities that
resulted in the exit of the manufacturing facility located in Hibbing,
Minnesota. Production at the Hibbing facility ceased in the fourth quarter
of fiscal year 2008, and the Company's lease of the Hibbing facility ended
during the second quarter of fiscal year 2009. A majority of the Gaylord and
Hibbing business transferred to several of the Company's other worldwide EMS
facilities.
During the third quarter of fiscal year 2006, the Company approved a
restructuring plan within the EMS segment to exit a manufacturing facility
located in Northern Indiana. As part of this restructuring plan, the
production for select programs was transferred to other locations within
this segment. Operations at this facility ceased in the Company's first
quarter of fiscal year 2007, and the facility was sold during fiscal year
2008. The decision to exit this facility was a result of excess capacity in
North America.
Late in fiscal year 2007, the Company began production in a new
manufacturing facility built in Nanjing, China.
The acquisitions are discussed in further detail in
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and in
Note 2 - Acquisitions of Notes to Consolidated Financial Statements.
Additional information regarding the Company's restructuring activities is
located in
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and in
Note 18 - Restructuring Expense of Notes to Consolidated Financial
Statements.
4
Sales revenue of the EMS segment is generally not affected by seasonality
with the exception of the buying patterns of automotive industry customers
whose purchases of the Company's product are generally lower in the first
quarter of the Company's fiscal year. Fiscal year 2009 net sales to
automotive industry customers approximated one-fourth of the Company's EMS
segment net sales.
Locations
As of June 30, 2009, the Company's EMS segment consisted of eight
manufacturing facilities with one located in each of Indiana, Florida,
California, China, Mexico, Thailand, Poland, and Wales, United Kingdom. The
Company continually assesses under-utilized capacity and evaluates its
operations as to the most optimum capacity and service levels by geographic
region. During fiscal year 2009, the Company's EMS facility located in
Ireland was consolidated with the Poland facility and the Wales and Poland
facilities will be consolidated into a new, larger facility in Poland over
the next two fiscal years. Operations located outside of the United States
continue to be an integral part of the Company's EMS segment. See
Item 1A - Risk Factors for information regarding financial and
operational risks related to the Company's international operations.
Marketing Channels
Manufacturing and engineering services are marketed by the Company's
business development team. Contract electronic assemblies are manufactured
based on specific orders, generally resulting in a small amount of finished
goods consisting primarily of goods awaiting shipment to specific customers.
Major Competitive Factors
Key competitive factors in the EMS market are competitive pricing,
quality and reliability, engineering design services, production
flexibility, on-time delivery, customer lead time, test capability, and
global presence. Growth in the EMS industry is created through the
proliferation of electronic components in today's advanced products along
with the continuing trend of original equipment manufacturers in the
electronics industry to subcontract the assembly process to companies with a
core competence in this area. The nature of the EMS industry is such that
the start-up of new customers and new programs to replace expiring programs
occurs frequently. New customer and program start-ups generally cause losses
early in the life of a program, which are generally recovered as the program
matures and becomes established. The segment continues to experience margin
pressures related to an overall excess capacity position in the EMS industry
and more specifically this segment's new program launches and
diversification efforts. The continuing success of this segment is dependent
upon its ability to replace expiring customers/programs with new
customers/programs.
The Company does not believe that it or the industry in general, has any
special practices or special conditions affecting working capital items that
are significant for understanding the EMS segment other than fluctuating
inventory levels which may increase in conjunction with transfers of
production among facilities.
Competitors
The EMS industry is very competitive as numerous manufacturers compete
for business from existing and potential customers. The Company's
competition includes EMS companies such as Benchmark Electronics, Inc.,
Jabil Circuit, Inc., and Plexus Corp. The Company does not have a
significant share of the EMS market and was ranked the 16th
largest EMS provider for calendar year 2008 by Manufacturing Market Insider
in the March 2009 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. 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 transfers of production between manufacturing
facilities.
5
Customer Concentration
While the total electronic assemblies market has broad applications, the
Company's customers are concentrated in the medical, automotive, industrial
control, and public safety industries. 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 |
|
2009 |
|
2008 |
|
2007 |
Bayer AG affiliated sales as a percent of consolidated net sales |
12% |
|
11% |
|
15% |
Bayer AG affiliated sales as a percent of EMS segment net sales |
23% |
|
21% |
|
30% |
The increased percentages of sales to Bayer AG in fiscal year 2009 as
compared to fiscal year 2008 are attributable to the Company's lower net
sales to other customers during fiscal year 2009. The fiscal year 2008
reduction in sales to Bayer AG as compared to fiscal year 2007 is related to
two factors. First, in January 2007, Bayer AG sold its diagnostics unit to
Siemens AG, and thus a portion of the Company's net sales which were
formerly to Bayer AG affiliates in fiscal year 2007 are now to Siemens AG.
Second, net sales to Bayer AG affiliates were impacted as a result of the
Company's selling price reduction effective January 2007 to Bayer AG
affiliates which was offset by an equal reduction in the cost of raw
materials purchased from Bayer AG affiliates. The Company also continues to
focus on diversification of the EMS segment customer base.
Furniture
Overview
Since 1950, the Company has produced wood furniture and cabinets. During
fiscal year 2007, the Company ceased manufacturing contract private label
products as it increased focus on core markets. These core markets include
office furniture sold under the Kimball Office and National Office Furniture
brand names and hospitality furniture sold under the Kimball Hospitality
brand name. Kimball Office and National Office Furniture provide office
furniture solutions for private offices, open floor plan areas, conference
rooms, training rooms, lobby, and lounge areas with a vast mix of wood,
metal, laminate, paint, and fabric options. Products include desks,
credenzas, seating, tables, systems/dividers, filing and storage units, and
accessories such as audio visual boards and task lighting. Kimball Office
products tend to focus on the more complex customer solutions, and National
Office Furniture products are geared more to the mid-market/less
complex/lower cost aspect of the office furniture market. Kimball
Hospitality provides 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, and vanities. Also included in this segment are the Company's
trucking fleet and customer fulfillment centers, which handle primarily
product of this segment; but certain logistics services, such as backhauls,
are sold on a contract basis.
Sales revenue of the Furniture segment is generally not affected by
seasonality with the exception of certain product lines which are impacted
by the buying patterns of customers such as the U.S. Federal Government
whose purchases of the Company's product are generally higher in the first
half of the Company's fiscal year.
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 reduced manufacturing costs and
excess capacity by eliminating redundant property and equipment, processes,
and employee costs. The consolidation of these manufacturing departments
resulted in more efficient use of manufacturing space and enabled the
Company to sell one of its Indiana facilities. The consolidation was
substantially complete as of the end of fiscal year 2009.
As discussed in the EMS segment above, the Furniture
segment part of the workforce reduction restructuring activities announced
in the third quarter of fiscal year 2008, included realigning information
technology and procurement resources closer to the customer and streamlining
administrative and sales processes to drive further synergies afforded by
the alignment of the sales and manufacturing functions within this segment.
Related expenditures were primarily for employee severance and transition
costs, and this plan is complete.
In conjunction with the cessation of manufacturing contract private label
products, during fiscal year 2007 the Company approved a plan to exit the
production of wood rear projection television ("PTV") cabinets and stands
within the Furniture segment, which resulted in the exit of the Company's
Juarez, Mexico, operation. For some time, the market demand for wood rear
PTV cabinets had been declining due to the market shift to plasma and LCD
large-screen televisions. As a result of ceasing operations at this
facility, financial results associated with the Mexican operations in the
Furniture segment were classified as discontinued operations beginning in
the quarter ended December 31, 2006, and all prior periods were restated.
The discontinued operations are discussed in further detail in
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and in
Note 19 - Discontinued Operations of Notes to Consolidated Financial
Statements.
6
As part of the Company's plan to sharpen focus and simplify business
processes within the Furniture segment, the Company announced during the
first quarter of fiscal year 2006, a plan which included consolidation of
administrative, marketing, and business development functions to better
serve the segment's primary markets. Expenses related to this plan included
software impairment, accelerated amortization, employee severance, and other
consolidation costs. This plan was complete as of June 30, 2008.
Additional information regarding the Company's restructuring activities
is located in
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and in
Note 18 - Restructuring Expense of Notes to Consolidated Financial
Statements.
Locations
The Company's furniture products as of June 30, 2009 were primarily
produced at ten plants: seven located in Indiana, two in Kentucky, and one
in Idaho. In addition, select finished goods are purchased from external
sources. The Company continually assesses manufacturing capacity and has
adjusted such capacity in recent years. During fiscal year 2009, the Company
sold a plant located in Indiana as manufacturing departments were
consolidated.
In addition, a facility in Indiana houses an education center for dealer
and employee training, a research and development center, and a product
showroom. Office furniture showrooms are maintained in nine additional
cities in the United States. Office space is leased in Dongguan, Guangdong,
China, to facilitate sourcing of product from the Asia Pacific Region.
Marketing Channels
Kimball Office and National brands of office furniture are marketed
through Company salespersons to end users, office furniture dealers,
wholesalers, rental companies, and catalog houses throughout North America
and on an international basis. Hospitality furniture is marketed to end
users using independent manufacturers' representatives.
Major Competitive Factors
The Company's furniture is sold in the office furniture and hospitality
furniture industries. These industries have similar major competitive
factors which include price in relation to quality and appearance, the
utility of the product, supplier lead time, reliability of on-time delivery,
and the ability to respond to requests for special and non-standard
products. The Company offers payment terms similar to industry standards and
in unique circumstances may allow 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
Kimball Office and National office furniture as well as most of the
Company's own lines of hospitality furniture. The Company also produces
contract hospitality furniture to customers' specifications and shipping
timelines. Many office furniture products are shipped through the Company's
delivery system, which the Company believes offers it the ability to reduce
damage to product, enhance scheduling flexibility, and improve the
capability for on-time deliveries.
The Company does not believe that it or the industry in general, has any
special practices or special conditions affecting working capital items that
are significant for understanding the Company's business. The Company does
receive advance payments on select furniture projects primarily in the
hospitality industry.
Competitors
There are numerous manufacturers of office and hospitality furniture
competing within the marketplace, with a significant number of competitors
offering similar products. The Company believes, however, that there are a
limited number of relatively large manufacturers of wood office furniture.
In many instances wood office furniture competes in the market with nonwood
office furniture. Based on available industry statistics, nonwood office
furniture has a larger share of the total office furniture market.
The Company's competition includes office furniture manufacturers such as
Steelcase, Inc., Herman Miller, Inc., Knoll, Inc., Haworth, Inc., and HNI
Corporation and hospitality furniture manufacturers such as American of
Martinsville, Fleetwood Fine Furniture, Inc., Thomasville Furniture
Industries, Inc., and Fairmont Designs.
7
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 furniture. With the
exception of rolled steel, raw materials used in the manufacture of metal
office furniture have been readily available in the global market. While the
Company has been able to maintain an appropriate supply of rolled steel to
meet demand, general supply limitations in the market are impacting costs.
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 a quality product at the
lowest total cost.
Other Information
Backlog
At June 30, 2009, the aggregate sales price of production pursuant to
worldwide open orders, which may be canceled by the customer, was $227.1
million as compared to $306.8 million at June 30, 2008.
(Amounts in Millions) |
June 30, 2009 |
|
June 30, 2008 |
Furniture |
$ 70.2 |
|
$ 101.0 |
EMS |
156.9 |
|
205.8 |
Total Backlog of Continuing Operations |
$ 227.1 |
|
$ 306.8 |
Substantially all of the open orders as of June 30, 2009 are expected to
be filled within the next fiscal year. Both of the Company's segments have
been adversely impacted by the weakening in the global economy. Open orders
generally may not be indicative of future sales trends.
Research, Patents, and Trademarks
Research and development activities include the development of manufacturing
processes, major process improvements, new product development and product
redesign, information technology initiatives, and electronic and wood
related technologies.
Research and development costs were approximately:
|
Year Ended June 30 |
(Amounts in Millions) |
2009 |
|
2008 |
|
2007 |
Research and Development Costs of Continuing Operations |
$14 |
|
$16 |
|
$17 |
The Company owns the Kimball (registered trademark) trademark, which it
believes is significant to the EMS and Furniture segments, and owns the
following patent and trademarks which it believes are significant to the
Furniture segment only:
Registered Trademarks: National. Furniture with
Personality, Cetra, Footprint, Traxx, Interworks, Xsite, Definition, Skye,
WaveWorks, Senator, Prevail, and Eloquence.
Trademarks: President, Hum. Minds at Work,
IntegraClear, and Pura
Patent: Traxx
The Company also owns certain patents and other trademarks and has
certain other trademark and patent applications pending, which in the
Company's opinion are not significant to its business. Patents owned by the
Company expire at various times depending on the patent's date of issuance.
8
Environment and Energy Matters
The Company's operations are subject to various foreign, federal, state, and
local laws and regulations with respect to environmental matters. The
Company believes that it is in substantial compliance with present laws and
regulations and that there are no material liabilities related to such
items.
The Company is dedicated to excellence, leadership, and stewardship in
matters of protecting the environment and communities in which the Company
has operations. Reinforcing the Company's commitment to the environment,
seven of the Company's showrooms and two non-manufacturing locations have
been designed under the guidelines of the U.S. Green Building Council's LEED
(Leadership in Energy and Environmental Design) for Commercial Interiors
program. The Company believes that continued compliance with foreign,
federal, state, and local laws and regulations which have been enacted
relating to the protection of the environment will not have a material
effect on its capital expenditures, earnings, or competitive position.
Management believes capital expenditures for environmental control equipment
during the two fiscal years ending June 30, 2011, will not represent a
material portion of total capital expenditures during those years.
The Company's manufacturing operations require significant amounts of
energy, including natural gas and oil. Federal and state statutes and
regulations control the allocation of fuels available to the Company, but to
date the Company has experienced no interruption of production due to such
regulations. In its wood processing plants, a portion of energy requirements
are satisfied internally by the use of the Company's own wood waste
products.
Employees
|
June 30, 2009 |
|
June 30, 2008 |
United States |
4,097 |
|
4,955 |
Foreign Countries |
2,067 |
|
2,240 |
Total Full-Time Employees of Continuing Operations |
6,164 |
|
7,195 |
All of the Company's foreign operations are subject to collective
bargaining arrangements, many mandated by government regulation or customs
of the particular countries. The Company believes that its employee
relations are good.
Available Information
The Company makes available free of charge through its website,
http://www.ir.kimball.com, its annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, proxy statements, and all
amendments to those reports as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the Securities and
Exchange Commission (SEC). All reports the Company files with the SEC are
also available via the SEC website, http://www.sec.gov, or may be read and
copied at the SEC Public Reference Room located at 100 F Street, N.E.,
Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. The Company's
Internet website and the information contained therein or incorporated
therein are not intended to be incorporated into this Annual Report on Form
10-K.
Forward-Looking Statements
This document may contain certain forward-looking statements. These are
statements made by management, using their best business judgment based upon
facts known at the time of the statements or reasonable estimates, about
future results, plans, or future performance and business of the Company.
Such statements involve risk and uncertainty, and their ultimate validity is
affected by a number of factors, both specific and general. They should not
be construed as a guarantee that such results or events will, in fact, occur
or be realized. The statements may be identified by the use of words such as
"believes," "anticipates," "expects," "intends," "projects," "estimates,"
and similar expressions. It is not possible to foresee or identify all
factors that could cause actual results to differ from expected or
historical results. Additional information regarding risk factors is
available in "Item
1A - Risk Factors" of this report. The Company makes no commitment to
update these factors or to revise any forward-looking statements for events
or circumstances occurring after the statement is issued, except as required
in current and quarterly periodic reports filed with the SEC or otherwise by
law.
At any time when the Company makes forward-looking statements, it desires
to take advantage of the "safe harbor" which is afforded such statements
under the Private Securities Litigation Reform Act of 1995 where factors
could cause actual results to differ materially from forward-looking
statements.
9
Item 1A - Risk Factors
The following important risk factors, among others,
could affect future results and events, causing results and events to differ
materially from those expressed or implied in forward-looking statements
made in this report and presented elsewhere by management from time to time.
Such factors, among others, may have a material adverse effect on the
Company's business, financial condition, and results of operations and
should be carefully considered. It is not possible to predict or identify
all such factors. Consequently, any such list should not be considered to be
a complete statement of all the Company's potential risks or uncertainties.
Because of these and other factors, past performance should not be
considered an indication of future performance.
Unfavorable macroeconomic and industry conditions could adversely
impact demand for the Company's products and adversely affect operating
results. Market demand for the Company's products, which impacts
revenues and gross profit, is influenced by a variety of economic and
industry factors such as:
- general corporate profitability of the
Company's end markets;
- credit availability to the Company's end
markets;
|
- profitability of financial institutions to
whom the Company sells office furniture which are being impacted
by the credit market issues;
|
- new office construction and refurbishment
rates;
|
- new hotel and casino construction and
refurbishment rates;
|
- automotive industry fluctuations,
specifically variation in the performance and market share of
U.S. based auto manufacturers;
|
- changes in the medical device industry;
|
- demand for end-user products which include
electronic assembly components produced by the Company;
|
- excess capacity in the industries in which
the Company competes; and
|
- changes in customer order patterns,
including changes in product quantities, delays in orders, or
cancellation of orders.
|
The Company must make decisions based on order volumes
in order to achieve efficiency in manufacturing capacities. These decisions
include determining what level of additional business to accept, production
schedules, component procurement commitments, and personnel requirements,
among various other considerations. The Company must constantly
monitor the changing economic landscape and may modify its strategic
direction based upon the changing business environment. If the Company does
not react quickly enough to the changes in market or economic conditions, it
could result in lost customers, decreased market share, and increased
operating costs.
The current recession has had and may continue to
have an adverse impact on the Company's operating results. The Company's
key strategies remain intact, but its priorities have changed as customers
and suppliers face volatility in the marketplace. The Company must continue
to adjust operations as needed to appropriately stay focused on its
priorities and to align with the changing market conditions. The Company
cannot predict the timing or the duration of this or any other downturn in the economy or the related effect on the Company's results of
operations and financial condition.
The Company is exposed to the credit risk of its
customers. The current economic conditions and the tightening of the
credit markets have increased the risk of potential bankruptcy of customers
and potential losses from accounts receivable. Accordingly, the Company
heightened its monitoring of receivables and related credit risks. The
realization of these risks could have a negative impact on the Company's
profitability.
The Company operates in a highly competitive environment and may not
be able to compete successfully. The EMS industry is very competitive as
numerous manufacturers compete globally for business from existing and
potential customers. The office and hospitality furniture industries are
also competitive due to numerous global manufacturers competing in the
marketplace. As the demand for products in the Furniture industry contracts
as a result of the current economic conditions, large competitors may apply
more pressure to their aligned distribution to sell their products
exclusively which could lead to reduced opportunities for the Company's
products. The high level of competition in these industries impacts the
Company's ability to implement price increases or, in some cases, even
maintain prices, which could lower profit margins.
The Company faces pricing pressures that could adversely affect the
Company's financial position, results of operations, or cash flows. 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. While the Company works toward
reducing costs to respond to pricing pressures, if the Company cannot
achieve the proportionate reductions in costs, profit margins may suffer. As
end markets dictate, the Company is continually assessing excess capacity
and developing plans to better utilize manufacturing operations, including
consolidating and shifting manufacturing capacity to lower cost venues as
necessary.
10
Reduction of purchases by or the loss of one or more key customers
could reduce revenues and profitability. Losses of key contract
customers within specific industries or significant volume reductions from
key contract customers are both risks. If a current customer of the Company
merges with or is acquired by a party that currently is aligned with a
competitor, the Company could lose future revenues. In addition, continuing
success of the Company is dependent upon replacing expiring contract
customers/programs with new customers/programs. Sales to Bayer AG affiliates
accounted for 12%, 11%, and 15% of consolidated net sales in fiscal years
2009, 2008, and 2007, respectively. Significant declines in the level of
purchases by this customer within the EMS segment or other key customers in
either of the Company's segments, or the loss of a significant number of
customers, could have a material adverse effect on business. In addition,
the nature of the contract electronics manufacturing industry is such that
the start-up of new customers and new programs to replace expiring programs
occurs frequently, and new customer and program start-ups generally cause
losses early in the life of a program.
The Company's future operating results depend on the
ability to purchase a sufficient amount of materials, parts, and components
at competitive prices. The Company depends on suppliers globally to
provide timely delivery of materials, parts, and components for use in the
Company's products. The financial stability of suppliers is monitored by the
Company when feasible as the loss of a significant supplier could have an
adverse impact on the Company's operations. In addition, maintaining strong
relationships with key suppliers of components critical to the manufacturing
process is essential. The Company also purchases select finished goods. If
suppliers fail to meet commitments to the Company in terms of price,
delivery, or quality, it could interrupt the Company's operations and
negatively impact the Company's ability to meet commitments to customers.
The Company could be adversely affected by increased commodity costs
or availability of raw materials. Price increases of commodity
components could have an adverse impact on profitability if the Company
cannot offset such increases with other cost reductions or by price
increases to customers. In recent years, the Company has experienced
increases in the prices of key commodities used in Furniture segment
products, such as steel, seating components, and wood composite sheet
stock. Raw materials utilized by the Company are generally available, but
future availability is unknown and could impact the Company's ability to
meet customer order requirements.
The Company's operating results are impacted by the
cost of fuel and other energy sources. The cost of energy is a critical
component of freight expense and the cost of operating manufacturing
facilities. Increases in the cost of energy could reduce profitability of
the Company.
The Company could be impacted by manufacturing
inefficiencies at certain locations. At times the Company may experience
labor or other manufacturing inefficiencies due to factors such as new
product introductions, transfers of production among the Company's
manufacturing facilities, a sudden decline in sales, a new operating system,
or turnover in personnel. Manufacturing inefficiencies could have an adverse
impact on the Company's financial position, results of operations, or cash
flows.
A change in the Company's sales mix among various products could have
a negative impact on the gross profit margin. Changes in product sales
mix could negatively impact the gross margin of the Company as margins of
different products vary. The Company strives to improve the margins of all
products, but certain products have lower margins in order to price the
product competitively or in connection with the start-up of a new program.
An increase in the proportion of sales of products with lower margins could
have an adverse impact on the Company's financial position, results of
operations, or cash flows.
The Company's restructuring efforts may not be successful. During
the fourth quarter of fiscal year 2008, the Company approved a plan to
expand its European automotive electronics capabilities and to establish a
European Medical Center of Expertise in Poznan, Poland. As part of the plan,
the Company successfully completed the move of production from Longford,
Ireland, into the existing Poznan facility during fiscal year 2009. The
Company also plans to consolidate its current EMS facilities located in
Wales, United Kingdom; and Poznan, Poland; into a new, larger facility in
Poznan, which is expected to improve margins in the very competitive EMS
market. Construction of the new, larger facility in Poland is complete with
limited production to begin early in the Company's fiscal year 2010. The
plan includes the future sale of the existing Poland building. The Company
continually evaluates its manufacturing capabilities and capacities in
relation to current and anticipated market conditions. The successful
execution of restructuring initiatives is dependent on several factors and
may not be accomplished as quickly or effectively as anticipated.
11
Acquisitions by their nature may present risks to the Company. The
Company's sales growth plans may occur through both organic growth and
acquisitions. Acquisitions involve many risks, including:
- difficulties in identifying suitable
acquisition candidates and in negotiating and consummating
acquisitions on terms attractive to the Company;
|
- difficulties in the assimilation of the
operations of the acquired company;
|
- the diversion of resources, including
diverting management's attention from current operations;
|
- risks of entering new geographic or
product markets in which the Company has limited or no direct
prior experience;
|
- the potential loss of key customers of the
acquired company;
|
- the potential loss of key employees of the
acquired company;
|
- the potential incurrence of indebtedness
to fund the acquisition;
|
- the potential issuance of common stock for
some or all of the purchase price, which could dilute ownership
interests of the Company's current shareholders;
|
- the acquired business not achieving
anticipated revenues, earnings, cash flow, or market share;
|
|
- the assumption of undisclosed liabilities;
and
|
|
Start-up operations could present risks to the
Company's current operations. The Company is committed to growing its
business, and therefore from time to time, the Company may determine that it
would be in its best interests to start up a new operation. Start-up
operations involve a number of risks and uncertainties, such as funding the
capital expenditures related to the start-up operation, developing a
management team for the new operation, diversion of management focus away
from current operations, and creation of excess capacity. Any of these risks
could have a material adverse effect on the Company's financial position,
results of operations, or cash flows.
The Company's international operations involve financial and
operational risks. The Company has operations outside the United States,
primarily in China, Thailand, Poland, the United Kingdom, and Mexico. The
Company's international operations are subject to a number of risks, which
may include the following:
- economic and political instability;
|
- changes in foreign regulatory requirements
and laws;
|
- tariffs and other trade barriers;
|
- potentially adverse tax consequences; and
|
|
These risks could have an adverse effect on the Company's financial
position, results of operations, or cash flows. In addition, fluctuations in
exchange rates could impact the Company's operating results. The Company's
risk management strategy includes the use of derivative financial
instruments to hedge certain foreign currency exposures. Any hedging
techniques the Company implements contain risks and may not be entirely
effective. Exchange rate fluctuations could also make the Company's products
more expensive than competitor's products not subject to these fluctuations,
which could adversely affect the Company's revenues and profitability in
international markets.
If the Company's efforts to introduce new products are not successful,
this could limit sales growth or cause sales to decline. The EMS segment
depends on industries that utilize technologically advanced electronic
components which often have short life cycles. The Company must continue to
invest in advanced equipment and product development to remain competitive
in this area. The Furniture segment regularly introduces new products to
keep pace with workplace trends and evolving regulatory and industry
requirements, including environmental, health, safety standards such as
ergonomic considerations, and similar standards for the workplace and for
product performance. The introduction of new products requires the
coordination of the design, manufacturing, and marketing of such products.
The design and engineering of certain new products can take nine to eighteen
months or more, and further time may be required to achieve customer
acceptance. Accordingly, the launch of any particular product may be delayed
or be less successful than originally anticipated by the Company.
Difficulties or delays in introducing new products or lack of customer
acceptance of new products could limit sales growth or cause sales to
decline.
12
If customers do not perceive the Company's products
to be innovative and of high quality, the Company's brand and name
recognition could suffer. The Company believes that establishing and
maintaining brand and name recognition is critical to business. Promotion
and enhancement of the Company's brands will depend on the effectiveness of
marketing and advertising efforts and on successfully providing innovative
and high quality products and superior services. If customers do not
perceive its products and services to be innovative and of high quality, the
Company's brand and name recognition could suffer, which could have a
material adverse effect on the Company's business.
A loss of independent manufacturing representatives,
dealers, or other sales channels could lead to a decline in sales of the
Company's Furniture segment products. The Company's office furniture is
marketed primarily through Company salespersons to end users, office
furniture dealers, wholesalers, rental companies, and catalog houses. The
Company's hospitality furniture is marketed to end users using independent
manufacturing representatives. A significant loss within any of these sales
channels could result in a sales decline and thus have an adverse impact on
the Company's financial position, results of operations, or cash flows.
The Company must effectively manage working capital.
The Company has historically had positive operating cash flows, but
effective management of working capital is key to continuing that trend. The
Company closely monitors inventory and receivable efficiencies and
continuously strives to improve these measures of working capital, but
customer financial difficulties, cancellation or delay of customer orders,
transfers of production among the Company's manufacturing facilities, or
Company manufacturing delays could cause deteriorating working capital
trends.
The Company's assets could become impaired. As
business conditions change, the Company must continually evaluate and work
toward the optimum asset base. It is possible that certain assets such as,
but not limited to, facilities, equipment, intangible assets, or goodwill
could be impaired at some point in the future depending on changing business
conditions. If assets of the Company become impaired the result could be an
adverse impact on the Company's financial position and results of
operations.
There are inherent uncertainties involved in
estimates, judgments, and assumptions used in the preparation of financial
statements in accordance with generally accepted accounting principles in
the United States (U.S. GAAP). Any changes in estimates, judgments, and
assumptions could have a material adverse effect on the Company's financial
position, results of operations, or cash flows. The Company's financial
statements filed with the SEC are prepared in accordance with U.S. GAAP, and
the preparation of such financial statements includes making estimates,
judgments, and assumptions that affect reported amounts of assets,
liabilities, and related reserves, revenues, expenses, and income. Estimates
are inherently subject to change in the future, and such changes could
result in corresponding changes to the amounts of assets, liabilities,
income, or expenses and likewise could have an adverse effect on the
Company's financial position, results of operations, or cash flows.
Fluctuations in the Company's effective tax rate
could have a significant impact on the Company's financial position, results
of operations, or cash flows. The mix of pre-tax income or loss among
the tax jurisdictions in which the Company operates that have varying tax
rates could impact the Company's effective tax rate. The Company is subject
to income taxes as well as non-income based taxes, in both the United States
and various foreign jurisdictions. Judgment is required in determining the
worldwide provision for income taxes, other tax liabilities, interest, and
penalties. Future events could change management's assessment. The Company
operates within multiple taxing jurisdictions and is subject to tax audits
in these jurisdictions. These audits can involve complex issues, which may
require an extended period of time to resolve. The Company has also made
assumptions about the realization of deferred tax assets. Changes in these
assumptions could result in a valuation allowance for these assets. Final
determination of tax audits or tax disputes may be different from what is
currently reflected by the Company's income tax provisions and accruals. In
addition, President Obama's administration has announced proposals for a new
U.S. tax legislation that, if adopted, could adversely affect the Company's
tax rate.
A failure to comply with the debt covenants under
the Company's $100 million credit facility could adversely impact the
Company. The Company's credit facility requires the Company to comply
with certain debt covenants and other terms and conditions. The Company
believes the most significant covenants under its credit facility are
minimum net worth and interest coverage ratio. More detail on these debt
covenants is discussed in
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations. As of June 30, 2009, the Company was in a
positive net cash position of $88.6 million, defined as cash, cash
equivalents, and short-term investments less short-term borrowings under
credit facilities. Therefore, in the event of a default on any of the debt
covenants under the credit facility, the Company, as of June 30, 2009, would
have had sufficient cash to pay off the outstanding borrowings. In the
future, a default on the debt covenants under the Company's credit facility
could cause an increase in the borrowing rates or could make it more
difficult for the Company to secure future financing which could have an
adverse effect on the financial condition of the Company.
A failure to successfully implement information
technology solutions could adversely affect the Company. The Company's
business depends on effective information technology systems. Information
systems require an ongoing commitment of significant resources to maintain
and enhance existing systems and develop new systems in order to keep pace
with changes in information processing technology and evolving industry
standards. Implementation delays or poor execution of information technology
systems could disrupt the Company's operations and increase costs.
13
An inability to protect the Company's intellectual
property could have a significant impact on business. The Company
attempts to protect its intellectual property rights, both in the United
States and in foreign countries, through a combination of patent, trademark,
copyright, and trade secret laws, as well as licensing agreements and
third-party nondisclosure and assignment agreements. Because of the
differences in foreign laws concerning proprietary rights, the Company's
intellectual property rights do not generally receive the same degree of
protection in foreign countries as they do in the United States, and
therefore in some parts of the world, the Company has limited protections,
if any, for its intellectual property. Competing effectively depends, to a
significant extent, on maintaining the proprietary nature of the Company's
intellectual property. The degree of protection offered by the claims of the
various patents and trademarks may not be broad enough to provide
significant proprietary protection or competitive advantages to the Company,
and patents or trademarks may not be issued on pending or contemplated
applications. In addition, not all of the Company's products are covered by
patents. It is also possible that the Company's patents and trademarks may
be challenged, invalidated, cancelled, narrowed, or circumvented.
A third party could claim that the Company has
infringed on their intellectual property rights. The Company could be
notified of a claim regarding intellectual property rights which could lead
to the Company spending time and money to defend or address the claim. Even
if the claim is without merit, it could result in substantial costs and
diversion of resources.
The Company's insurance may not adequately protect the Company from
liabilities related to product defects. The Company maintains product
liability and other insurance coverage that the Company believes to be
generally in accordance with industry practices. However, its insurance
coverage may not be adequate to protect the Company fully against
substantial claims and costs that may arise from liabilities related to
product defects, particularly if the Company has a large number of defective
products or if the root cause is disputed.
The Company's failure to maintain Food and Drug
Administration (FDA) registration of one or more of its registered
manufacturing facilities could negatively impact the Company's ability to
produce products for customers in the medical industry. The Company is
diversifying the EMS segment which includes increasing sales to customers in
the regulated medical industry. To maintain FDA registration, the Company is
subject to FDA audits of the manufacturing process. FDA audit failure could
result in a partial or total suspension of production, fines, or criminal
prosecution. Failure or noncompliance could have an adverse effect on the
Company's reputation in addition to an adverse impact on the Company's
financial position, results of operations, or cash flows.
The Company is subject to extensive environmental
regulation and significant potential environmental liabilities. The past
and present operation and ownership by the Company of manufacturing plants
and real property are subject to extensive and changing federal, state,
local, and foreign environmental laws and regulations, including those
relating to discharges in air, water, and land, the handling and disposal of
solid and hazardous waste, and the remediation of contamination associated
with releases of hazardous substances. The Company cannot predict what
environmental legislation or regulations will be enacted in the future, how
existing or future laws or regulations will be administered or interpreted
or what environmental conditions may be found to exist. Compliance with more
stringent laws or regulations, or stricter interpretation of existing laws,
may require additional expenditures by the Company, some of which could be
material. In addition, any investigations or remedial efforts relating to
environmental matters could involve material costs or otherwise result in
material liabilities.
The Company's failure to retain the existing
management team; maintain its engineering, technical, and manufacturing
process expertise; and continue to attract qualified personnel could
adversely affect the Company's business. The success of the Company is
dependent on keeping pace with technological advancements and adapting
services to provide manufacturing capabilities which meet customers'
changing needs. In addition, the Company must retain its qualified
engineering and technical personnel and successfully anticipate and respond
to technological changes in a cost effective and timely manner. The
Company's culture and guiding principles focus on continuous training,
motivating, and development of employees, and it strives to attract,
motivate, and retain qualified personnel. Failure to retain and attract
qualified personnel could adversely affect the Company's business.
Turnover in personnel could cause manufacturing inefficiencies.
The demand for manufacturing labor in certain geographic areas makes it
difficult to retain experienced production employees. Turnover could result
in additional training and inefficiencies that could impact the Company's
operating results.
Natural disasters or other catastrophic events may
impact the Company's production schedules and, in turn, negatively impact
profitability. Natural disasters or other catastrophic events, including
severe weather, terrorist attacks, power interruptions, and fires, could
disrupt operations and likewise the ability to produce or deliver the
Company's products. The Company's manufacturing operations require
significant amounts of energy, including natural gas and oil, and
governmental regulations control the allocation of such fuels to the
Company. Employees are an integral part of the Company's business and events
such as a pandemic could reduce the availability of employees reporting for
work. In the event the Company experiences a temporary or permanent
interruption in its ability to produce or deliver product, revenues could be
reduced, and business could be materially adversely affected. In addition,
catastrophic events, or the threat thereof, can adversely affect U.S. and
world economies, and could result in delayed or lost sales of the Company's
products. In addition, any continuing disruption in the Company's computer
system could adversely affect the ability to receive and process customer
orders, manufacture products, and ship products on a timely basis, and could
adversely affect relations with customers, potentially resulting in
reduction in orders from customers or loss of customers. The Company
maintains insurance to help protect the Company from costs relating to some
of these matters, but such may not be sufficient or paid in a timely manner
to the Company in the event of such an interruption.
14
The requirements of being a public company may
strain the Company's resources and distract management. The Company is
subject to the reporting requirements of federal securities laws, including
the Sarbanes-Oxley Act of 2002. Among other requirements, the Sarbanes-Oxley
Act requires that the Company maintain effective disclosure controls and
procedures and internal control over financial reporting. The Company has,
and expects to continue to, expend significant management time and resources
maintaining documentation and testing internal control over financial
reporting. While management's evaluation as of June 30, 2009 resulted in the
conclusion that the Company's internal control over financial reporting was
effective as of that date, the Company cannot predict the outcome of testing
in future periods. If the Company concludes in future periods that its
internal control over financial reporting is not effective, or if its
independent registered public accounting firm is not able to render the
required attestations, it could result in lost investor confidence in the
accuracy, reliability, and completeness of the Company's financial reports.
Changes in government regulation may significantly increase the
Company's operating costs in the United States. The federal government
has a broad agenda of potential legislative and regulatory reforms, which if
enacted, could significantly impact the profitability of the Company by
burdening it with forced cost choices that cannot be recovered by increased pricing. These
reforms include:
|
- increased union organization under the
Employee Free Choice Act; and
|
- increased energy in manufacturing costs
resulting from Cap and Trade legislation.
|
The value of the Company's common stock may experience substantial
fluctuations for reasons over which the Company has little control. The
value of common stock could fluctuate substantially based on a variety of
factors, including, among others:
- actual or anticipated fluctuations in
operating results;
|
- announcements concerning the Company,
competitors, or industry;
|
- overall volatility of the stock market;
|
- changes in the financial estimates of
securities analysts or investors regarding the Company, the
industry, or competitors; and
|
- general market or economic conditions.
|
Furthermore, stock prices for many companies fluctuate widely for reasons
that may be unrelated to their operating results. These fluctuations,
coupled with changes in results of operations and general economic,
political, and market conditions, may adversely affect the value of the
Company's common stock.
Item 1B - Unresolved Staff
Comments
None.
15
Item 2 - Properties
The location and number of the Company's major
manufacturing, warehousing, and service facilities, including the executive and
administrative offices, as of June 30, 2009, are as follows:
|
Number of Facilities |
|
Furniture |
Electronic
Manufacturing
Services |
Unallocated
Corporate |
Total |
Indiana |
13 |
1 |
4 |
18 |
Kentucky |
2 |
|
|
2 |
Florida |
|
1 |
|
1 |
California |
|
1 |
|
1 |
Idaho |
1 |
|
|
1 |
Mexico |
|
1 |
|
1 |
Thailand |
|
1 |
|
1 |
Poland |
|
1 |
|
1 |
China |
1 |
1 |
|
2 |
United Kingdom |
|
1 |
|
1 |
Total Facilities |
17 |
8 |
4 |
29 |
The listed facilities occupy approximately
4,814,000 square feet in aggregate, of which approximately 4,658,000 square feet
are owned and 156,000 square feet are leased. Square footage of these facilities
is summarized by segment as follows:
|
Approximate Square Footage |
|
Furniture |
Electronic
Manufacturing
Services |
Unallocated
Corporate |
Total |
Owned |
3,491,000 |
936,000 |
231,000 |
4,658,000 |
Leased |
7,000 |
129,000 |
20,000 |
156,000 |
Total |
3,498,000 |
1,065,000 |
251,000 |
4,814,000 |
Within the EMS segment,
the Company exited the Ireland
facility during fiscal year 2009 and plans to exit the United Kingdom facility in fiscal year 2011 as
part of the Company's plan to consolidate these facilities and the current Poland
facility into a new, larger facility in Poland. Construction of the new, larger facility in
Poland is complete with limited production to begin early in the Company's fiscal year 2010
and thus is not included in the tables above as of June 30, 2009.
The Ireland facility lease expired during fiscal year 2009. The Company continues to
market the existing Poland facility and real estate.
During fiscal year 2009
within the Furniture segment, the
Company sold a plant located in Indiana as manufacturing departments were
consolidated. A leased Furniture
segment research and development facility in California was exited during fiscal
year 2009. A facility that houses a training and education center, a research
and development center, and a product showroom was previously reported
as Unallocated Corporate but is now included in the Furniture segment column
above as one facility.
Included in Unallocated Corporate are executive,
national sales and administrative offices, and a recycling facility.
16
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 2009.
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
nine leased showroom facilities which are not included in the tables above, total 239,000 square feet and expire from fiscal year 2010
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 5 - Commitments
and Contingent Liabilities of Notes to Consolidated Financial Statements for
additional information concerning leases.)
The Company owns approximately 500 acres of
land which includes land where various Company facilities reside, including approximately
180 acres of land in the Kimball Industrial Park, Jasper, Indiana (a site for
certain production and other facilities, and for possible future expansions).
During fiscal year 2009, the Company sold approximately 27,300 acres
of undeveloped land holdings and timberlands to allow that capital to be
reinvested in the Company's EMS and Furniture segments.
Item 3 - Legal
Proceedings
The Registrant and its subsidiaries are not
parties to any pending legal proceedings, other than ordinary routine
litigation incidental to the business, which individually, or in aggregate, are
not expected to be material.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the
Company's security holders during the fourth quarter of fiscal year 2009.
17
Executive
Officers of the Registrant
The executive officers of the Registrant as of August 31, 2009 are as follows:
(Age as of August 31, 2009)
Name |
|
Age |
|
Office and
Area of Responsibility |
|
Executive Officer
Since |
James C. Thyen |
|
65 |
|
President, Chief Executive Officer, Director |
|
1974 |
Douglas A. Habig |
|
62 |
|
Chairman of the Board |
|
1975 |
Robert F. Schneider |
|
48 |
|
Executive Vice President, Chief Financial Officer |
|
1992 |
Donald D. Charron |
|
45 |
|
Executive Vice President, President-Kimball Electronics Group |
|
1999 |
P. Daniel Miller |
|
61 |
|
Executive Vice President, President-Furniture |
|
2000 |
Michelle R. Schroeder |
|
44 |
|
Vice President, Chief Accounting Officer |
|
2003 |
John H. Kahle |
|
52 |
|
Executive Vice President, General Counsel, Secretary |
|
2004 |
Gary W. Schwartz |
|
61 |
|
Executive Vice President, Chief Information Officer |
|
2004 |
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 capacity
shown or some other executive capacity. Michelle R. Schroeder was appointed to
Vice President, Chief Accounting Officer in May 2009. She was
appointed to Vice President in December 2004, served as Corporate Controller
from August 2002 until May 2009, and prior to that
served as Assistant Corporate Controller and Director of
Financial Analysis.
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 are as follows:
|
2009 |
|
2008 |
|
High |
|
Low |
|
High |
|
Low |
First Quarter |
$12.75 |
|
$ 8.00 |
|
$14.38 |
|
$10.94 |
Second Quarter |
$10.74 |
|
$ 4.05 |
|
$15.35 |
|
$11.35 |
Third Quarter |
$ 9.14 |
|
$ 5.22 |
|
$13.96 |
|
$ 9.51 |
Fourth Quarter |
$ 7.54 |
|
$ 5.02 |
|
$11.52 |
|
$ 8.28 |
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.
18
Dividends
There are no restrictions on the payment of dividends except charter provisions
that require on a fiscal year basis, that shares of Class B Common Stock are entitled
to $0.02 per share dividend more than the dividends paid on Class
A Common Stock, provided that dividends are paid on the Company's Class A Common
Stock. Dividends declared totaled $15.6 million and $23.7 million for
fiscal years 2009 and 2008, respectively. Dividends are discussed in
further detail in
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations. Included in these figures are dividends computed and accrued on
unvested Class A and Class B restricted share units, which will be paid by a
conversion to the equivalent value of common shares after a specified vesting period. Dividends
declared by quarter for
fiscal year 2009 compared to fiscal year 2008 are as follows:
|
2009 |
|
2008 |
|
Class A |
|
Class B |
|
Class A |
|
Class B |
First Quarter |
$0.155 |
|
$0.16 |
|
$0.155 |
|
$0.16 |
Second Quarter |
$0.155 |
|
$0.16 |
|
$0.155 |
|
$0.16 |
Third Quarter |
$0.045 |
|
$0.05 |
|
$0.155 |
|
$0.16 |
Fourth Quarter |
$0.045 |
|
$0.05 |
|
$0.155 |
|
$0.16 |
Total Dividends |
$0.400 |
|
$0.42 |
|
$0.620 |
|
$0.64 |
Share Owners
On August 14, 2009, the Company's Class A Common Stock was owned by 571 Share
Owners of record, and the Company's Class B Common Stock was owned by 1,810 Share Owners of record, of which
306 also
owned Class A Common Stock.
Securities Authorized for Issuance Under
Equity Compensation Plans
See
Item 12 of Part III for information on
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 2009. At June 30, 2009, two
million shares remained available under the repurchase program.
19
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,
2004, through June 30, 2009, 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 Corp., Knoll Inc., Steelcase, Inc., Herman
Miller, Inc.
In order to reflect the segment allocation of
Kimball International, Inc., a market capitalization-weighted index was first computed
for each segment group, then a composite peer group index was calculated based
on each segment's proportion of net sales to total consolidated sales for each
fiscal year. The public companies included in the peer group have a larger
revenue base than each of the Company's business segments.
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, 2004 and that dividends are reinvested. The
performances shown on the graph are not necessarily indicative of future price
performance.
|
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
Kimball International, Inc. |
$100.00 |
$ 93.63 |
$146.50 |
$107.78 |
$ 67.61 |
$ 53.66 |
NASDAQ Stock Market (U.S. & Foreign) |
$100.00 |
$ 99.89 |
$106.32 |
$127.46 |
$111.91 |
$ 89.19 |
Peer Group Index |
$100.00 |
$115.40 |
$112.49 |
$109.05 |
$ 78.67 |
$ 52.26 |
20
Item 6 - Selected
Financial Data
This information should be read in conjunction
with Item 8 -
Financial Statements and Supplementary Data and
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
|
Year Ended June 30 |
(Amounts in Thousands, Except for Per Share
Data) |
2009 |
2008 |
2007 |
2006 |
2005 |
Net Sales |
$1,207,420 |
$1,351,985 |
$1,286,930 |
$1,109,549 |
$1,004,386 |
|
|
|
|
|
|
Income from Continuing
Operations |
$
17,328 |
$
78 |
$
23,266 |
$
28,613 |
$
18,342 |
Earnings Per Share from
Continuing Operations |
|
|
|
|
|
Basic: |
|
|
|
|
|
Class A |
$ 0.47 |
$ 0.00 |
$ 0.60 |
$ 0.74 |
$ 0.48 |
Class B |
$ 0.47 |
$ 0.00 |
$ 0.61 |
$ 0.75 |
$ 0.48 |
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
Class A |
$ 0.46 |
$ 0.00 |
$ 0.58 |
$ 0.74 |
$ 0.47 |
Class B |
$ 0.47 |
$ 0.00 |
$ 0.60 |
$ 0.75 |
$ 0.48 |
|
|
|
|
|
|
Total Assets |
$ 642,269 |
$ 722,667 |
$ 694,741 |
$ 679,021 |
$ 600,540 |
|
|
|
|
|
|
Long-Term Debt, Less Current
Maturities |
$
360 |
$
421 |
$ 832 |
$
1,125 |
$
350 |
|
|
|
|
|
|
Cash Dividends Per Share: |
|
|
|
|
|
Class A |
$ 0.40 |
$ 0.62 |
$ 0.62 |
$ 0.62 |
$ 0.62 |
Class B |
$ 0.42 |
$ 0.64 |
$ 0.64 |
$ 0.64 |
$ 0.64 |
The preceding table excludes all income statement activity of
the discontinued operations.
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 the contract
to sell the Company's Poland building and real estate, 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.
Fiscal year 2007 income from continuing operations included $0.9 million
($0.02 per diluted share) of after-tax restructuring expenses.
Fiscal year 2006 income from continuing operations
included $2.8 million
($0.07 per diluted share) of after-tax restructuring expenses and $1.3
million ($0.03 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.
Fiscal year 2005 income from continuing operations included $0.2 million
($0.01 per diluted share) of after-tax restructuring expenses.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Business OverviewKimball International, Inc. provides a
variety of products from its two business segments: the Electronic
Manufacturing Services (EMS) segment and the Furniture segment. The EMS
segment provides engineering and manufacturing services which utilize
common production and support capabilities globally to the medical,
automotive, industrial control, and public safety industries. The
Furniture segment provides furniture for the office and hospitality
industries, sold under the Company's family of brand names.
21
Both of the Company's segments have been adversely
impacted by the weakening in the global economy. During fiscal year
2009, most of the markets in which the Company competes were affected by
the global recession and liquidity crisis. The Company experienced declining sales and order
trends beginning in its second fiscal quarter. Open orders at June 30,
2009 were 37% lower in the Furniture segment and 6% lower in the EMS
segment when compared to the levels at the end of the Company's second
fiscal quarter.
The EMS industry sales projections for calendar
year 2009 (by IDC, iSuppli, and Electronic Trend Publications) show
declines in the range of 7% to 13%. Semiconductor sales, though, are
expected to decline approximately 20% in calendar year 2009, and
although the Company does not directly serve this market, it may
indicate a decline in end market demand for products utilizing
electronic components. Generally, as electronics end markets decline,
EMS industry sales improve as customers outsource a greater portion of
their electronics manufacturing to free up capital for design and
marketing programs and to gain cost advantages. However, customers could
elect to insource a greater portion of their electronics manufacturing
during this economic downturn.
The Company continues its strategy of
diversification within the EMS segment customer base as it currently
focuses on the four key vertical markets of medical, automotive,
industrial control, and public safety. Demand in the automotive market
and medical market began to stabilize during the Company's fiscal year
2009 fourth quarter, but the markets remain uncertain. The industrial
control vertical market is showing signs of stabilization in certain
areas, and the public safety vertical market is sending signals of
strength. Sales to customers in the medical industry are the largest
portion of the Company's EMS segment with sales to customers in the
automotive industry being the second largest. The Company's sales to
customers in the automotive industry are diversified among more than ten
domestic and foreign customers and represented approximately 27% of the
EMS segment's net sales for fiscal year 2009. The amount of sales of
electronic components that relate to General Motors, Ford, and Chrysler
automobiles sold in North America were approximately 8% of the Company's
EMS segment net sales during fiscal year 2009.
The Company expects the furniture market to
continue to decline or at best flatten out. The Business and
Institutional Furniture Manufacturer Association (BIFMA International)
is projecting an approximate 27% year-over-year decline in the office
furniture industry for calendar year 2009. While the Company expects its
mid-market brand to fare better than its contract office furniture brand
due to the project nature of the contract market, it cannot predict
future overall office furniture order trends at this time due to the
short lead time of orders and the volatility in the global economy. The
Company expects order rates for hospitality furniture to decline further
in the near term as hotel occupancy rates and per room revenue rates are
declining.
Competitive pricing pressures within the EMS
segment and on many projects within the Furniture segment continue to
put pressure on the Company's operating margins.
The current economic conditions and the tightening
of the credit markets have also increased the risk of uncollectible
accounts and notes receivables. Accordingly, the Company heightened its
monitoring of receivables and related credit risks, and the Company
believes its accounts and notes receivables allowance for uncollectible
accounts is adequate as of June 30, 2009. Given the current market
conditions and limited credit availability, the economy could decline
further potentially requiring the Company to record additional
allowances.
The Company is continually assessing its strategies
in relation to the significant macroeconomic challenges including the
instability in the financial markets, credit availability, and demand
for products. A long-standing component of the Company's profit sharing
incentive bonus plan and annual retirement contribution is that they are
both linked to the performance of the Company which automatically lowers
total compensation expense when profits are down. The Company has also
implemented various initiatives in response to the deteriorating market
conditions including reducing operating costs, more closely scrutinizing
customer and supply chain risk, and deferring and cancelling capital
expenditures that are not immediately required to support customer
requirements. Examples of actions taken during fiscal year 2009 to
reduce operating costs include a salary reduction plan announced in
February 2009, which is expected to save $3 million in labor costs
annually, permanent workforce reductions, and temporary personnel
layoffs. In addition, to preserve cash, the dividends declared during
the third and fourth quarters of fiscal year 2009 were reduced
approximately 70% from the quarterly dividend rates paid in the first
half of the fiscal year which translates to approximately $4 million
less cash outflow each time dividends are paid. The Company will
continue to closely monitor market changes and its liquidity in order to
proactively adjust its operating costs, discretionary capital spending,
and dividend levels as needed.
The Company continues to have a strong balance
sheet which includes a minimal amount of long-term debt of $0.4 million
and Share Owners' equity of $382.4 million. The Company's short-term
liquidity available, represented as cash, cash equivalents, and
short-term investments plus the unused amount of the Company's revolving
credit facility was $183.7 million at June 30, 2009.
22
In addition to the above risks related to the
current economic conditions, management currently considers the
following events, trends, and uncertainties to be most important to
understanding the Company's financial condition and operating
performance:
- Although the Company has seen recent
moderate declines in the cost of some commodities and in
fuel prices, these continue to be areas of focus within the
Company.
|
- Globalization continues to reshape not
only the industries in which the Company operates but also
its key customers and competitors.
|
- The nature of the electronic
manufacturing services industry is such that the start-up of
new programs to replace departing customers or expiring
programs occurs frequently. 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. While the margins vary depending on
the size of the program and the vertical market being
served, replacement programs often carry lower margins.
|
- Successful execution of the Company's
restructuring plans is critical to the Company's future
performance. The success of the restructuring initiatives is
dependent on accomplishing the plans in a timely and
effective manner. A critical component of the restructuring
initiatives is the transfer of production among facilities
which contributed to some manufacturing inefficiencies and
excess working capital. The Company's restructuring plans
are discussed in the segment discussions below.
|
- The increasingly competitive
marketplace mandates that the Company continually
re-evaluate its business models.
|
- The Company's employees throughout its
business operations are an integral part of the Company's
ability to compete successfully, and the stability of its
management team is critical to long-term Share Owner value.
The Company's career development and succession planning
process helps to maintain stability in management.
|
- As end markets dictate, the Company is
continually assessing under-utilized capacity and developing
plans to grow the Company's customer base and better utilize
manufacturing operations, including shifting manufacturing
capacity to lower cost venues as necessary.
o 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 is substantially complete and has reduced
manufacturing costs and excess capacity by eliminating redundant
property and equipment, processes, and employee costs.
o During the fourth quarter of fiscal year 2008, the Company
approved a plan to expand its European automotive electronics
capabilities and to establish a European Medical Center of
Expertise in Poznan, Poland. The Company presently has an
operation in Poznan. The Company successfully completed the move
of production from Longford, Ireland, into the existing Poznan
facility during the second quarter of fiscal year 2009. As part
of the plan, the Company will also consolidate its EMS
facilities located in Bridgend, Wales, and Poznan into a new,
larger facility in Poznan.
o In an effort to improve profitability and increase Share
Owner value while remaining committed to its business model of
being market driven and customer centered, during the third
quarter of fiscal year 2008, the Company approved a
restructuring plan designed to more appropriately align its
workforce in a changing business environment. Within the
Company's EMS segment, the restructuring activities included
realigning engineering and technical resources closer to the
customer and streamlining administrative and sales processes.
The Furniture segment part of the workforce reduction
restructuring activities included realigning information
technology and procurement resources closer to the customer and
streamlining administrative and sales processes to drive further
synergies afforded by the alignment of the sales and
manufacturing functions within this segment. The plan also
included reducing corporate personnel costs to more properly
align with the overall sales mix change within the Company. This
plan is complete.
o In fiscal year 2008, the Company completed the
consolidation of U.S. manufacturing facilities within the EMS
segment due to excess capacity resulting in the exit of two
facilities that were part of the 2007 acquisition of Reptron
Electronics, Inc. ("Reptron").
|
- To support diversification efforts,
the Company has focused on both organic growth and
acquisition activities. Acquisitions allow rapid
diversification of both customers and industries served.
|
- The regulatory and business
environment for U.S. public companies requires that the
Company continually evaluate and enhance its practices in
the areas of corporate governance and management practices.
The Company has taken a number of steps to conform its
corporate governance to evolving national and industry-wide
best practices among U.S. public companies, not only to
comply with new legal requirements, but also to enhance the
decision-making process of the Board of Directors.
|
23
The preceding statements could be considered
forward-looking statements under the Private Securities Litigation
Reform Act of 1995 and are subject to certain risks and uncertainties
including, but not limited to, a significant change in economic
conditions, loss of key customers or suppliers, or similar unforeseen
events.
Fiscal Year 2009 Results of Operations
The following discussions are based on income from continuing
operations and therefore exclude all income statement activity of the
prior years' discontinued operations.
Financial Overview - Consolidated
Fiscal year 2009 consolidated net sales were $1.21 billion compared
to fiscal year 2008 net sales of $1.35 billion, an 11% decrease, due to
decreased net sales in both the EMS segment and the Furniture segment.
The Company recorded income from continuing operations for fiscal year
2009 of $17.3 million, or $0.47 per Class B diluted share, inclusive of
after-tax restructuring charges of $1.8 million, or $0.04 per Class B
diluted share. The fiscal year 2009 restructuring charges were primarily
related to the European consolidation plan. The fiscal year 2009 results
also included the following non-recurring items: an $18.9 million
after-tax gain, or $0.51 per Class B diluted share, related to the sale
of the Company's undeveloped land holdings and timberlands; a $9.1
million after-tax non-cash goodwill impairment charge, or $0.24 per
Class B diluted share; and $1.6 million of after-tax income, or $0.04
per Class B diluted share, for earnest money deposits retained by the
Company resulting from the termination of the contract to sell the
Company's Poland building and real estate. The Company recorded income
from continuing operations for fiscal year 2008 of $0.1 million, or less
than $0.01 per Class B diluted share, inclusive of after-tax
restructuring charges of $14.6 million, or $0.39 per Class B diluted
share. The fiscal year 2008 restructuring charges were primarily related
to the European consolidation plan, a workforce reduction plan, and the
exit of two domestic EMS facilities.
Consolidated gross profit as a percent of net sales in fiscal year
2009 was 16.8% compared to 18.4% in fiscal year 2008. Both the EMS
segment and the Furniture segment contributed to the decline as
discussed in more detail in the segment discussions below.
Fiscal year 2009 consolidated selling and
administrative expenses declined as a percent of net sales and also
declined in absolute dollars by 17% as compared to fiscal year 2008.
The improved selling and administrative expenses were primarily related
to benefits realized as a result of the previously announced
restructurings; lower salary and wage expense; lower incentive
compensation and employee benefit costs which are linked to Company
profitability; lower depreciation and amortization expense; lower sales
and marketing incentive costs; lower travel costs; and other
improvements resulting from the focus on managing all costs as a result
of the current macroeconomic conditions. Partially offsetting these cost
declines, bad debt expense was $3.8 million higher for fiscal year 2009
compared to fiscal year 2008 as a result of current market conditions.
Additionally, during fiscal years 2009 and 2008, the Company recorded
$2.8 million and $1.3 million, respectively, of favorable adjustments
due to reductions in its Supplemental Employee Retirement Plan (SERP)
liability resulting from the normal revaluation of the liability to fair
value. The result for the fiscal year comparison was a favorable
variance in selling and administrative costs of $1.5 million. The gain
resulting from the reduction of the SERP liability that was recognized
in selling and administrative expenses was exactly offset by a decline
in the SERP investment which was recorded in Other Income (Expense), and
thus there was no effect on net earnings. The SERP investment is
primarily comprised of employee contributions.
Fiscal year 2009 Other General Income included a
$31.5 million pre-tax gain on the sale of undeveloped land holdings and
timberlands. The gain on the sale of land was included in Unallocated
Corporate in segment reporting. Also impacting the fiscal year 2009
Other General Income was $1.9 million pre-tax income from earnest money
deposits retained by the Company resulting from the termination of the
contract to sell and lease back the Company's Poland building and real
estate. The buyer was unable to close the transaction, and as a result,
the Company was entitled to retain the deposit funds. This income was
recorded in the EMS segment.
The Company recorded non-cash pre-tax goodwill
impairment charges of $14.6 million during fiscal year 2009 as a result
of interim goodwill impairment testing which was completed due to the
continued uncertainty associated with the economy and the significant
decline in the Company's sales and order trends as well as the increased
disparity between the Company's market capitalization and the carrying
value of its Share Owners' equity. The goodwill was related to prior
acquisitions in both of the Company's segments. See
Note 1 - Summary of Significant Accounting Policies of Notes to
Consolidated Financial Statements for more information on goodwill.
Fiscal year 2009 other expense totaled $0.4 million compared to
fiscal year 2008 other income of $3.2 million. The $1.5 million variance
in SERP investments contributed to the increased other expenses. Fiscal
year 2008 other income also included $1.3 million of pre-tax income
relating to funds received as part of a Polish offset credit program for
investments made in the Company's Poland operation.
The Company's effective tax rate for fiscal year 2009 was 31.6%. The
fiscal year 2009 effective tax rate was positively impacted by a tax
benefit related to a European subsidiary and to a lesser extent various
tax benefits such as tax-exempt interest income and the research and
development credit which together more than offset the negative impact
of losses generated in select foreign jurisdictions with tax rates lower
than the domestic rate. As a result of various tax benefits in fiscal
year 2008, such as tax-exempt interest income and the research and
development credit, coupled with the tax benefit recorded related to the
pre-tax loss, the Company recorded an overall income tax benefit greater
than the pre-tax loss in fiscal year 2008. For further detail see
Note 9 - Income Taxes of Notes to Consolidated Financial Statements.
24
Comparing the balance sheets as of June 30, 2009 to
June 30, 2008, the Company's combined cash and short-term investments
balances increased primarily due to cash inflows related to reductions
in the Company's accounts receivable and inventory balances and the sale
of the Company's undeveloped land holdings and timberlands. The
Company's accounts receivable balance declined primarily as a result of
the lower sales volumes, and the inventory balance declined due to the
lower sales volumes and a focus on managing working capital during the
latter half of fiscal year 2009. The Company's accounts payable balance
also decreased since June 30, 2008 in relation to the declining
inventory balances. The increase in property and equipment was primarily
due to the construction of the new EMS segment facility in Poland and
the purchase of other EMS segment manufacturing equipment. The other
assets line declined due to the sale of the tracts of undeveloped land
holdings and timberlands; cash proceeds received from this sale
increased the Company's cash balance and allowed the Company to reduce
borrowings under its credit facilities. Accrued expenses as of June 30,
2009 declined when compared to June 30, 2008 primarily due to decreased
accruals for employee benefits which are linked to Company
profitability, lower accrued selling expenses, lower accrued
restructuring expenses, and a decline in the deferred income balance due
to recognition of various items during fiscal year 2009.
The variance in the additional paid-in capital and
treasury stock lines was primarily attributable to the fulfillment of
requests by Share Owners to convert approximately 1,188,000 shares from
Class A shares to Class B shares and the issuance of vested restricted
share units to key employees. The decline in Accumulated Other
Comprehensive Income (Loss) was related to foreign currency translation
adjustments and derivative financial instruments. See
Note 17 - Comprehensive Income of Notes to Consolidated Financial
Statements for more information on derivative financial instruments and
foreign currency translation adjustments.
Electronic Manufacturing Services Segment
During the first quarter of fiscal year 2009, the
Company acquired privately-held Genesis Electronics Manufacturing of
Tampa, Florida, for $5.4 million. The acquisition supports the Company's
growth and diversification strategy, bringing new customers in the
Company's key medical and industrial controls markets. The operating
results of this acquisition were included in the Company's consolidated
financial statements beginning on September 1, 2008 and excluding the
related goodwill impairment had an immaterial impact on the fiscal year
2009 financial results. See
Note 2 - Acquisitions of Notes to Consolidated Financial Statements
for more information on the acquisition.
During the fourth quarter of fiscal year 2008, the
Company approved a plan to expand its European automotive electronics
capabilities and to establish a European Medical Center of Expertise in
Poznan, Poland. The Company successfully completed the move of
production from Longford, Ireland, into the existing Poznan facility
during the fiscal year 2009 second quarter. As part of the plan, the
Company will also consolidate its EMS facilities located in Bridgend,
Wales, and Poznan, Poland, into a new, larger facility in Poznan, which
is expected to improve the Company's margins in the very competitive EMS
market. Construction of the new, larger facility in Poland is complete
with limited production to begin early in the Company's fiscal year
2010. The plan is being executed in stages with a projected completion
date of December 2011. See
Note 18 - Restructuring Expense of Notes to Consolidated Financial
Statements for more information on restructuring charges.
Also during the fourth quarter of fiscal year 2008, the Company had
signed a conditional agreement to sell and lease back the facilities and
real estate that house its current Poland operations. The Company
planned to lease back the building until December 2011 at which time it
will have completed the consolidation of its European operations into a
newly constructed facility in Poland. The closing on the sale of the
existing Poland facility was expected to occur before December 31, 2008.
The buyer was unable to close the transaction. Pursuant to the
agreement, the Company was entitled to retain approximately $1.9 million
of earnest money deposit funds held by the Company which was recorded as
pre-tax Other General Income in the Company's fiscal year 2009. The
Company continues to market the facility and real estate which were not
impaired as of June 30, 2009.
EMS segment results were as follows:
|
At or For the
Year Ended |
|
|
|
June 30 |
|
|
(Amounts in Millions) |
2009 |
|
2008 |
|
% Change |
Net Sales |
$ 642.8 |
|
$ 727.1 |
|
(12%) |
Income (Loss)
from Continuing Operations |
$ (11.8) |
|
$ (15.3) |
|
23% |
Restructuring
Expense, net of tax |
$ 1.5 |
|
$ 12.8 |
|
|
Goodwill
Impairment, net of tax |
$ 8.0 |
|
$ 0.0 |
|
|
Open Orders |
$ 156.9 |
|
$ 205.8 |
|
(24%) |
25
Fiscal year 2009 net sales to customers in the
automotive and industrial control industries experienced double digit
percentage declines compared to fiscal year 2008. To a lesser extent,
sales to customers in the medical industry also declined, and sales to
customers in the public safety industry increased when compared to
fiscal year 2008. Due to the contract nature of the Company's business,
open orders at a point in time may not be indicative of future sales
trends.
Fiscal year 2009 EMS segment gross profit as a
percent of net sales declined 1.7 percentage points compared to fiscal
year 2008 primarily due to lower volumes; inefficiencies in the
segment's European operations which are currently being consolidated
into one facility; a shift in sales mix to lower margin product; higher
employee healthcare costs; higher depreciation expense; and contractual
customer price reductions on select products. Partially mitigating the
lower margins were benefits the segment realized on the North American
consolidation activities which were completed late in fiscal year 2008.
The EMS segment achieved a 25% reduction in selling
and administrative expense in absolute dollars for fiscal year 2009
compared to fiscal year 2008. Selling and administrative costs also
decreased 1.5 percentage points as a percent of net sales. The
improvement was primarily related to benefits realized from
restructuring activities, reduced spending on travel, lower
depreciation/amortization expense, and a strong focus on managing all
costs including labor reductions as a result of the current
macroeconomic conditions. Lower incentive compensation costs and lower
employee benefit costs which are linked to Company profitability also
contributed to the selling and administrative expense reduction as
compared to fiscal year 2008.
The restructuring expense recorded in fiscal year
2009 was primarily related to the European consolidation plan. The
fiscal year 2008 restructuring expense was primarily related to the
European consolidation plan, the workforce reduction plan, and the exit
of two domestic EMS facilities.
Fiscal year 2009 Other General Income included $1.9
million pre-tax, which equated to $1.6 million after-tax, income from
the earnest money deposits retained by the Company resulting from the
termination of the contract to sell and lease back the Company's Poland
building and real estate.
The fiscal year 2009 EMS segment earnings were also
impacted by the recording of non-cash pre-tax goodwill impairment of
$12.8 million, which equated to $8.0 million after-tax. During fiscal
year 2008, goodwill impairment of $0.2 million pre-tax was recorded on
the Restructuring line item of the Company's Consolidated Statements of
Income as it related to a restructuring plan.
The fiscal year 2008 other income/expense included
$1.3 million of pre-tax, or $0.7 million after-tax, income relating to
funds received as part of a Polish offset credit program for investments
made in the Company's Poland operation.
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 |
|
2009 |
|
2008 |
Bayer AG affiliated sales as a percent of consolidated net sales |
12% |
|
11% |
Bayer AG affiliated sales as a percent of
EMS segment net sales |
23% |
|
21% |
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 matures and becomes established.
This segment continues to experience margin pressures related to an
overall excess capacity position in the electronics subcontracting
services market.
Risk factors within this 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, the
contract nature of this industry, unexpected integration issues with
acquisitions, the importance of sales to large customers, and the
potential for customers to choose to insource 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.
26
Furniture Segment
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
reduced manufacturing costs and excess capacity by eliminating redundant
property and equipment, processes, and employee costs. The consolidation
was substantially complete as of the end of fiscal year 2009. See
Note 18 - Restructuring Expense of Notes to Consolidated Financial
Statements for more information on restructuring charges.
Furniture segment results were as follows:
|
At or For the
Year Ended |
|
|
|
June 30 |
|
|
(Amounts in Millions) |
2009 |
|
2008 |
|
% Change |
Net Sales |
$ 564.6 |
|
$ 624.8 |
|
(10%) |
Income from
Continuing Operations |
$ 8.3 |
|
$ 13.4 |
|
(38%) |
Restructuring
Expense, net of tax |
$ 0.1 |
|
$ 1.3 |
|
|
Goodwill
Impairment, net of tax |
$ 1.1 |
|
$ 0.0 |
|
|
Open Orders |
$ 70.2 |
|
$ 101.0 |
|
(31%) |
The net sales decline in the Furniture segment for
fiscal year 2009 compared to fiscal year 2008 resulted from decreased
net sales of office furniture which were partially offset by increased
net sales of hospitality furniture. Price increases net of higher
discounting contributed approximately $9.6 million to net sales during
fiscal year 2009 when compared to fiscal year 2008. Fiscal year 2009
sales of newly introduced office furniture products which have been sold
for less than twelve months approximated $26.8 million. Furniture
products open orders at June 30, 2009 declined when compared to the open
orders at June 30, 2008 due to decreased open orders for both office
furniture and hospitality furniture. Open orders at a point in time may
not be indicative of future sales trends.
Fiscal year 2009 gross profit as a percent of net
sales declined 1.8 percentage points when compared to fiscal year 2008.
In addition to the impact of the lower net sales level, gross profit was
negatively impacted by higher commodity costs, increased discounting on
select product, costs incurred for supplier-related issues, and a sales
mix shift to lower margin product. Partially offsetting the higher costs
were price increases on select office furniture products, labor
efficiency improvements, decreased employee benefit costs which are
linked to Company profitability, and a decrease in LIFO inventory
reserves resulting from lower inventory levels which positively impacted
the fiscal year 2009 gross profit.
Fiscal year 2009 selling and administrative
expenses decreased in both absolute dollars and as a percent of net
sales compared to fiscal year 2008. The selling and administrative
expense decline resulted from lower salary expenses related to the
workforce reduction restructuring activities, lower sales and marketing
incentive costs, lower travel expense, lower incentive compensation and
employee benefit costs which are linked to Company profitability, and
other improvements resulting from the focus on managing all costs as a
result of the current macroeconomic conditions. Partially offsetting the
selling and administrative expense improvements was increased bad debt
expense of approximately $2.6 million on a pre-tax basis in fiscal year
2009 compared to fiscal year 2008.
The fiscal year 2008 restructuring charges were
primarily related to the workforce reduction plan.
The fiscal year 2009 Furniture segment earnings
were also impacted by the recording of non-cash pre-tax goodwill
impairment of $1.8 million, which equated to $1.1 million after-tax.
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.
27
Fiscal Year 2008 Results of Operations
Discontinued Operations
During the first quarter of fiscal year 2007, the Company approved a
plan to exit the production of PTV cabinets and stands within the
Furniture segment, which resulted in the exit of the Company's Juarez,
Mexico, operation. Production ceased at the Juarez facility during the
second quarter of fiscal year 2007, and all inventory has been sold.
Miscellaneous wrap-up activities including disposition of remaining
equipment were complete as of June 30, 2007. During the fourth quarter
of fiscal year 2008 the Company bought out the remaining term of the
building lease. As a result of ceasing operations at this facility, the
financial results associated with the Mexican operations in the
Furniture segment were classified as discontinued operations beginning
in the quarter ended December 31, 2006, and all prior periods were
restated.
See
Note 19 - Discontinued Operations of Notes to Consolidated Financial
Statements for more information on the discontinued operations.
Financial results of the discontinued operations were as follows:
|
Year Ended June 30 |
(Amounts in Thousands, Except
for Per Share Data) |
2008 |
|
2007 |
Net Sales of Discontinued
Operations |
$ -0- |
|
$ 8,744 |
|
|
|
|
Operating Loss of Discontinued
Operations, Net of Tax |
$ (124) |
|
$ (3,068) |
Loss on Disposal of Discontinued
Operations, Net of Tax |
-0- |
|
(1,046) |
Loss from Discontinued
Operations, Net of Tax |
$ (124) |
|
$ (4,114) |
Loss from Discontinued Operations per Class B Diluted Share |
$
(0.00) |
|
$ (0.11) |
The Company does not disclose discontinued operations separately from
continuing operations in the Consolidated Statements of Cash Flows.
However, for clarity purposes, the Company does separately disclose the
adjustment to net income for the loss on disposal of discontinued
operations in cash flows from operating activities and the proceeds from
disposal of discontinued operations in cash flows from investing
activities.
The following discussions are based on income from continuing
operations and therefore exclude all income statement activity of the
discontinued operations.
Financial Overview - Consolidated
Fiscal year 2008 consolidated net sales were $1.35 billion compared
to fiscal year 2007 net sales of $1.29 billion, a 5% increase over
fiscal year 2007. The higher net sales resulted from increased EMS
segment net sales related to the third quarter fiscal year 2007 Reptron
acquisition within the EMS segment which contributed net sales of $144
million in fiscal year 2008 and $55 million in fiscal year 2007 as well
as increased organic Furniture and EMS segment net sales. In addition,
in mid-fiscal year 2007, the Company reduced the price of finished
product sold to a customer in the EMS segment which carried forward
through fiscal year 2008. Fiscal year 2008 had a full-year impact of
this pricing reduction while fiscal year 2007 only had the impact for
half of the year and thus resulted in a $65 million net sales reduction
in fiscal year 2008 when compared to fiscal year 2007, which partially
offset the EMS sales increase.
The Company recorded income from continuing operations for fiscal
year 2008 of $0.1 million, or less than $0.01 per Class B diluted share,
inclusive of after-tax restructuring charges of $14.6 million, or $0.39
per Class B diluted share. The fiscal year 2008 restructuring charges
were primarily related to the European consolidation plan, a workforce
reduction plan, and the exit of two domestic EMS facilities. Fiscal
year 2007 income from continuing operations was $23.3 million, or $0.60
per Class B diluted share, inclusive of after-tax restructuring charges
of $0.9 million, or $0.02 per Class B diluted share.
Information regarding the Reptron acquisition and restructuring plans
is included in the segment discussions below.
Consolidated gross profit as a percent of sales in fiscal year 2008
was 18.4% compared to 20.3% in fiscal year 2007. Both the EMS segment
and the Furniture segment contributed to the decline as discussed in
more detail in the segment discussions below. Gross profit was also
negatively impacted as the Company's sales mix continued to shift toward
the EMS segment, which operates at a lower gross profit percentage than
the Furniture segment. Partially offsetting the fiscal year 2008 gross
profit as a percent of net sales decline, the EMS customer pricing
adjustment discussed above increased gross margin as a percent of net
sales approximately 1 percentage point compared to fiscal year 2007
gross margin. This EMS customer pricing adjustment had no impact on the
gross margin dollars for either fiscal year 2008 or fiscal year 2007 as
the reduction in sales was offset by an equal reduction in material cost
purchased from the same customer.
28
The fiscal year 2008 consolidated selling and administrative expense
level in absolute dollars approximated the fiscal year 2007 level and
declined as a percent of net sales. The decline in consolidated selling
and administrative costs as a percent of net sales was primarily due to
the leverage of the higher net sales level and the shift in sales mix
toward the EMS segment, which has a lower selling and administrative
expense percentage than the Furniture segment.
Fiscal year 2008 other income totaled $3.2 million compared to fiscal
year 2007 other income of $9.9 million. Fiscal year 2008 interest
expense was $0.9 million higher due to higher average outstanding debt
balances, and fiscal year 2008 interest income was $1.9 million lower
than fiscal year 2007 as the Company's average cash and short-term
investment balances were lower. In addition, a $3.5 million decline in
the market value of the Company's SERP investments for fiscal year 2008
as compared to fiscal year 2007 contributed to the decline in other
income. The loss on the SERP investment that was recognized in other
income was exactly offset by a reduction in the SERP liability which was
recognized in selling and administrative expense in accordance with U.S.
GAAP. Fiscal year 2008 other income also included $1.3 million pre-tax
income relating to funds received as part of a Polish offset credit
program for investments made in the Company's Poland operation.
As a result of various tax benefits in fiscal year 2008, such as
tax-exempt interest income and the research and development credit,
coupled with the tax benefit recorded related to the pre-tax loss, the
Company recorded an overall income tax benefit greater than the pre-tax
loss. The fiscal year 2007 effective tax rate was 36%. For further
detail see
Note 9 - Income Taxes of Notes to Consolidated Financial Statements.
Electronic Manufacturing Services Segment
In an effort to improve profitability and increase Share Owner value
while remaining committed to its business model of being market driven
and customer centered, during the third quarter of fiscal year 2008, the
Company approved a restructuring plan designed to more appropriately
align its workforce in a changing business environment. Within the
Company's EMS segment, the restructuring activities included realigning
engineering and technical resources closer to the customer and
streamlining administrative and sales processes. The plan also included
reducing corporate personnel costs to more properly align with the
overall sales mix change within the Company. Expenditures were
primarily for employee severance and transition costs. This plan is
complete.
On February 15, 2007, the Company acquired Reptron, a U.S. based
electronics manufacturing services company which provided engineering
services, electronics manufacturing services, and display integration
services. The total amount of funds required to consummate the merger
and to pay fees related to the merger was $50.9 million. Reptron had
four manufacturing operations located in Tampa, Florida; Hibbing,
Minnesota; Gaylord, Michigan; and Fremont, California. The acquisition
increased the Company's capabilities and expertise in support of the
Company's long-term strategy to grow business in the medical electronics
and high-end industrial sectors. The operating results of this
acquisition are included in the Company's consolidated financial
statements beginning on the acquisition date. With the acquisition, the
Company recognized it would have excess capacity in North
America. Management developed a plan as of the acquisition date to
consolidate capacity within the acquired facilities. Based on a review
of future growth potential in various geographies and input from
existing customers regarding future capacity needs, during the fourth
quarter of fiscal year 2007 the Company finalized a restructuring plan
within the EMS segment to exit the facility located in Gaylord,
Michigan, and transfer the business to several of the Company's other
EMS facilities. The Company ceased production at the facility during the
second quarter of fiscal year 2008. Excess equipment was sold during the
third quarter of fiscal year 2008, and the Gaylord facility is currently
classified as held for sale. Expenditures included employee severance
and transition costs which were recognized as part of the purchase price
allocation, not impacting earnings. Expenditures also included losses on
the sale of equipment, impairment on the facility, and an immaterial
amount related to other closure activities which impacted earnings as
the costs were incurred. The Company expects to recognize minimal future
charges related to ongoing facility maintenance expenses. During the
second quarter of fiscal year 2008, the Company approved a separate
restructuring plan to further consolidate its EMS facilities that
resulted in the exit of the manufacturing facility located in Hibbing,
Minnesota, which was also one of the acquired Reptron facilities.
Production at the Hibbing facility ceased in the fourth quarter of
fiscal year 2008, and the Company's lease of the Hibbing facility ended
in December 2008. A majority of the Hibbing business transferred to
several of the Company's worldwide EMS facilities. Expenditures, most of
which were recognized during fiscal year 2008, included employee
severance and transition costs, asset and goodwill impairment, lease
exit costs, and other plant closure and exit costs.
During the third quarter of fiscal year
2006, the Company approved a restructuring plan within the EMS segment
to exit a manufacturing facility located in Northern Indiana. As part of
this restructuring plan, the production for select programs was
transferred to other locations within this segment. Operations at this
facility ceased in the Company's first quarter of fiscal year 2007, and
the facility was sold during fiscal year 2008. The plan included
employee transition costs, accelerated software amortization costs,
accelerated asset depreciation, and other restructuring costs which were
partially offset by gains on the sale of equipment net of other asset
impairment. The decision to exit this facility was a result of excess
capacity in North America.
29
EMS segment net sales and open orders were as follows:
|
At or For the Year Ended
June 30 |
|
|
|
|
|
(Amounts in Millions) |
2008 |
|
2007 |
|
% Change |
Net Sales |
$727.1 |
|
$673.0 |
|
8%
|
Open Orders |
$205.8 |
|
$192.0 |
|
7%
|
Fiscal year 2008 EMS segment net sales increased $54 million, or 8%,
from fiscal year 2007. The acquisition completed midway through the
third quarter of fiscal year 2007 within the EMS segment contributed
sales of $144 million in fiscal year 2008 and $55 million in fiscal year
2007. In addition, in mid-fiscal year 2007, the Company reduced the
price of finished product sold to a customer in the EMS segment which
carried forward through fiscal year 2008. Fiscal year 2008 had a
full-year impact of this pricing reduction while fiscal year 2007 only
had the impact for half of the year and thus resulted in a $65 million
net sales reduction in fiscal year 2008 when compared to fiscal year
2007. See the discussion below for more information on this selling
price change. Increased sales to customers in the medical, industrial
control, and public safety industries more than offset decreased sales
to customers in the automotive industry driven by declines in the
domestic automotive market.
The EMS segment recorded a loss from continuing operations of $15.3
million for fiscal year 2008, inclusive of after-tax restructuring
charges of $12.8 million primarily related to the European consolidation
plan, the workforce reduction plan, and the exit of two domestic EMS
facilities. EMS segment fiscal year 2007 income from continuing
operations totaled $1.0 million, inclusive of after-tax restructuring
charges of $0.1 million.
Fiscal year 2008 gross profit as a percent of net sales declined 1.2
percentage points compared to fiscal year 2007. Fiscal year 2008 gross
profit was negatively impacted by excess capacity costs and
inefficiencies some of which were associated with the closure of two
domestic facilities and the related transfer of production to other
facilities within this segment. Gross profit was also negatively
impacted by a shift in product mix to lower margin product.
Beginning in the third quarter of fiscal year 2007, gross profit as a
percent of sales was favorably impacted by a reduction in the pricing of
select raw material which is purchased from Bayer AG and affiliates, a
major customer within the EMS segment. The selling price of the finished
product back to Bayer AG and affiliates was likewise reduced by an
amount equal to the material price reduction. While there was no impact
to gross profit dollars, net income, or net cash flows related to this
pricing change, gross profit as a percent of net sales increased
approximately 1 percentage point, and selling and administrative expense
as a percent of net sales increased by a similar percentage for fiscal
year 2008 as compared to fiscal year 2007.
Fiscal year 2008 selling and administrative expense increased in both
dollars and as a percent of net sales when compared to fiscal year 2007.
The inclusion of the selling and administrative expenses of the
mid-third quarter fiscal year 2007 acquisition for the entire fiscal
year 2008 was the primary driver of the increase in selling and
administrative expense in absolute dollars. The customer pricing
adjustment mentioned above increased selling and administrative expense
as a percent of net sales, and the leverage of higher sales volume
decreased selling and administrative expense as a percent of net sales.
In addition, increased investments in business development resources
contributed to the selling and administrative expense increase as a
percent of net sales and in absolute dollars.
The fiscal year 2008 and 2007 earnings were unfavorably impacted by
pre-tax costs, in millions, of $2.3 and $3.5, respectively, related to
the start-up of an EMS manufacturing facility in China. Fiscal year
2008 income from continuing operations included $1.3 million of pre-tax
income relating to funds received as part of the Polish offset credit
program for investments made in the Company's Poland operation.
30
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 |
|
2008 |
|
2007 |
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 |
21% |
|
30% |
The reduction in fiscal-year-to-date sales to Bayer AG is related to
two factors. First, in January 2007, Bayer AG sold its diagnostics unit
to Siemens AG, and thus a portion of the Company's net sales which were
formerly to Bayer AG affiliates in fiscal year 2007 are now to Siemens
AG. Second, net sales to Bayer AG affiliates were also impacted as a
result of the Company's aforementioned selling price reduction effective
January 2007 to Bayer AG affiliates which was offset by an equal
reduction in the material cost.
Furniture Segment
As part of the workforce reduction restructuring activities discussed
in the EMS segment above, within the Company's Furniture segment, the
restructuring activities included realigning information technology and
procurement resources closer to the customer and streamlining
administrative and sales processes to drive further synergies afforded
by the alignment of the sales and manufacturing functions within this
segment. Related expenditures were primarily for employee severance and
transition costs. This plan is complete.
As part of the Company's plan to sharpen focus and simplify business
processes within the Furniture segment, the Company announced during the
first quarter of fiscal year 2006, a plan which included consolidation
of administrative, marketing, and business development functions to
better serve the segment's primary markets. Expenses related to this
plan included software impairment, accelerated amortization, employee
severance, and other consolidation costs. This plan is complete.
Furniture segment net sales and open orders were as follows:
|
At or For the Year Ended
June 30 |
|
|
|
|
|
|
2008 |
|
2007 |
|
% Change |
(Amounts in Millions) |
|
|
|
|
|
Net Sales: |
|
|
|
|
|
Furniture Segment |
|
|
|
|
|
Branded Furniture |
$624.8 |
|
$602.9 |
|
4%
|
Contract Private Label Furniture |
-0- |
|
11.1 |
|
(100%) |
Total |
$624.8 |
|
$614.0 |
|
2%
|
|
|
|
|
|
|
Open Orders: |
|
|
|
|
|
Furniture Segment |
|
|
|
|
|
Branded Furniture |
$101.0 |
|
$
95.3 |
|
6%
|
Total |
$101.0 |
|
$
95.3 |
|
6%
|
Increased net sales volumes of both office and hospitality furniture
contributed to the increased branded furniture net sales level. Price
increases net of higher discounting contributed approximately $4 million
to the increased net sales of branded furniture during fiscal year 2008
when compared to fiscal year 2007. Fiscal year 2008 sales of newly
introduced office furniture products which the Company began selling
during fiscal year 2008 approximated $57 million. Branded furniture
products open orders at June 30, 2008 were 6% higher than open orders at
June 30, 2007 as higher hospitality furniture open orders more than
offset lower office furniture open orders. The absence of net sales and
open orders of contract private label products was a result of the
planned exit of this product line.
31
The Furniture segment income from continuing operations was $13.4
million in fiscal year 2008, inclusive of after-tax restructuring
charges of $1.3 million, compared to income from continuing operations
of $17.8 million in fiscal year 2007, which included $0.8 million of
after-tax restructuring charges. The fiscal year 2008 restructuring
charges were primarily related to the workforce reduction plan, and the
fiscal year 2007 restructuring charges were primarily related to the
consolidation and standardization of administrative, marketing, and
business development functions within this segment. Fiscal year 2008
gross profit as a percent of net sales declined 2.1 percentage points
when compared to fiscal year 2007. Gross profit was negatively impacted
by supply chain cost increases, increased fuel expense, a sales mix
shift to lower margin product, and competitive pricing pressures. Price
increases on select office furniture products partially offset the
higher costs.
As compared to fiscal year 2007, fiscal year 2008 selling and
administrative expenses decreased in both absolute dollars and as a
percent of net sales as the Furniture segment incurred lower advertising
and product promotion expenses and lower incentive compensation costs.
Increased investments in the segment's sales force partially offset the
other selling and administrative savings. The leverage of the segment's
higher sales volumes also contributed to the selling and administrative
expense as a percent of net sales improvement. The Furniture segment
earnings were also positively impacted by savings realized through
various cost reduction initiatives.
See
Note 18 - Restructuring Expense of Notes to Consolidated Financial
Statements for more information on restructuring charges.
Liquidity and Capital Resources
Working capital at June 30, 2009 was $176.2 million
compared to working capital of $162.6 million at June 30, 2008. The
current ratio was 1.8 at June 30, 2009 and 1.5 at June 30, 2008.
The Company's internal measure of Accounts
Receivable performance, also referred to as Days Sales Outstanding
(DSO), for fiscal year 2009 of 47.2 days approximated the 46.6 days for
fiscal year 2008. The Company defines DSO as the average of monthly
accounts and notes receivable divided by an average day's net sales. The
Company's Production Days Supply on Hand (PDSOH) of inventory measure
for fiscal year 2009 increased to 65.6 from 59.9 for fiscal year 2008.
The increased PDSOH was primarily driven by the rapid decline in EMS
segment sales volumes. The Company defines PDSOH as the average of the
monthly gross inventory divided by an average day's cost of sales.
The Company's short-term liquidity available,
represented as cash, cash equivalents, and short-term investments plus
the unused amount of the Company's revolving credit facility, totaled
$183.7 million at June 30, 2009 compared to $126.6 million at June 30,
2008. The credit facility provides an option to increase the amount
available by an additional $50 million at the Company's request, subject
to participating banks' consent.
The Company's net cash position from an aggregate
of cash, cash equivalents, and short-term investments less short-term
borrowings under credit facilities increased from $29.8 million at June
30, 2008 to $88.6 million at June 30, 2009, as cash flow generated from
reductions in certain components of working capital and from the sale of
assets more than offset cash payments during fiscal year 2009 for
capital expenditures, the acquisition within the EMS segment, and
dividends. Operating activities generated $84.2 million of cash flow in
fiscal year 2009 compared to $43.4 million in fiscal year 2008. Proceeds
from the sale of assets of $49.9 million were received during fiscal
year 2009, primarily related to the sale of the Company's undeveloped
land holdings and timberlands. The Company reinvested $48.3 million into
capital investments for the future, primarily for manufacturing
equipment, the new Poland facility under construction which is part of
the plan to consolidate the European manufacturing footprint, and other
facility improvements during fiscal year 2009. The Company also expended
$5.4 million for the acquisition within the EMS segment during fiscal
year 2009. Fiscal year 2009 financing cash flow activities included
$19.4 million in dividend payments, which was a decrease from the $23.7
million of dividends paid during fiscal year 2008. The dividend declared
during the third quarter of fiscal year 2009 payable in April 2009 was
reduced approximately 70% from the quarterly dividend rates paid in
previous quarters which reduced dividend payments by approximately $4
million during the Company's fiscal year 2009 fourth quarter. The
dividend declared to be paid in the first quarter of fiscal year 2010
was comparable to the dividend paid in the Company's fourth quarter of
fiscal year 2009. Consistent with the Company's historical dividend
policy, the Company's Board of Directors will evaluate the appropriate
dividend payment on a quarterly basis. During fiscal year 2010, the
Company expects to minimize capital expenditures where appropriate but
will invest in capital expenditures prudently, particularly for projects
that would enhance the Company's capabilities and diversification while providing an opportunity
for growth and improved profitability when the economy recovers. The
land and new facility in Poland are expected to cost approximately $35
million of which approximately $27 million was paid prior to June 30,
2009. The Company plans to sell its current Poland facility in the
future.
At June 30, 2009, the Company had $12.7 million of
short-term borrowings outstanding under its $100 million credit facility
described in more detail below. The Company also has several smaller
foreign credit facilities available but had no borrowings under these
facilities as of June 30, 2009. At June 30, 2008, the Company had $52.6
million of short-term borrowings outstanding.
The Company maintains a $100 million credit
facility with an expiration date in April 2013 that allows for both
issuances of letters of credit and cash borrowings. The $100 million
credit facility provides an option to increase the amount available for
borrowing to $150 million at the Company's request, subject to the group
of participating banks' consent. The $100 million credit facility
requires the Company to comply with certain debt covenants including
interest coverage ratio, minimum net worth, and other terms and
conditions. The Company was in compliance with these covenants at June
30, 2009.
32
The Company believes the most significant covenants
under its $100 million credit facility are minimum net worth and
interest coverage ratio. The table below compares the actual net worth
and interest coverage ratio with the limits specified in the credit
agreement.
Covenant |
|
At or For the Period Ended June 30, 2009 |
|
Limit As Specified in Credit Agreement |
|
Excess |
Minimum Net Worth |
|
$382,354,000 |
|
$362,000,000 |
|
$20,354,000 |
Interest Coverage Ratio |
|
25.1 |
|
3.0 |
|
22.1 |
The Interest Coverage Ratio is calculated on a
rolling four-quarter basis as defined in the credit agreement.
The outstanding balance under the $100 million
credit facility consisted of $12.7 million for a Euro currency
borrowing, which provides a natural currency hedge against a Euro
denominated intercompany note between the U.S. parent and Euro
functional currency subsidiaries. There were also approximately $5.0
million in letters of credit against the credit facility. Total
availability to borrow under the $100 million credit facility was $82.3
million at June 30, 2009.
The Company also maintains a separate foreign
credit facility for its EMS segment operation in Thailand which is
backed by the $100 million revolving credit facility. In addition to
the $100 million credit facility, the Company has several other foreign
credit facilities which are available to cover bank overdrafts to
satisfy short-term cash needs at that specific location rather than
funding from intercompany sources. The Company has a credit facility for
its EMS segment operation in Wales, United Kingdom, which is comprised
of an overdraft facility which allows for multi-currency borrowings up
to 2 million Sterling equivalent (approximately $3.3 million U.S.
dollars at June 30, 2009 exchange rates) and an engagement facility of
3.5 million Sterling equivalent (approximately $5.8 million U.S. dollars
at June 30, 2009 exchange rates), which can be used only for payment of
customs, duties, or value-added taxes in the event of the Company's
failure to pay its obligations. The Company also has a credit facility
for its EMS segment operation in Poznan, Poland, which allows for
multi-currency borrowings up to 6 million Euro equivalent (approximately
$8.5 million U.S. dollars at June 30, 2009 exchange rates). These
overdraft facilities can be cancelled at any time by either the bank or
the Company. At June 30, 2009, the Company had no borrowings outstanding
under these foreign facilities.
The Company believes its principal sources of
liquidity from available funds on hand, cash generated from operations,
and the availability of borrowing under the Company's credit facilities
will be sufficient in fiscal year 2010 and the foreseeable future. One
of the Company's primary sources of funds is its ability to generate
cash from operations to meet its liquidity obligations, which could be
adversely affected by factors such as general economic and market
conditions, a decline in demand for the Company's products, loss of key
contract customers, the ability of the Company to generate profits, and
other unforeseen circumstances. In particular, should demand for the
Company's products decrease significantly over the next 12 months due to
the weakened economy, the available cash provided by operations could be
adversely impacted. Another source of funds is the Company's credit
facilities. The $100 million credit facility is contingent on complying
with certain debt covenants.
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.
Fair Value
The Company adopted the provisions of SFAS No. 157,
Fair Value Measurements, which defines fair value, for financial assets
and liabilities measured at fair value on a recurring basis at July 1,
2008. The adoption had an immaterial impact on the Company's financial
statements. During fiscal year 2009, no financial assets were affected
by a lack of market liquidity. For level 1 financial assets, readily
available market pricing was used to value the financial instruments.
For available-for-sale securities classified as level 2 assets, the fair
values are determined based on observable market inputs which use
evaluated pricing models that vary by asset class and incorporate
available trade, bid, and other market information. The Company
evaluated the inputs used to value the instruments and validated the
accuracy of the instrument fair values based on historical evidence. The
Company's derivatives, which were classified as level 2
assets/liabilities, were independently valued using a financial risk
management software package 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, the derivative fair values were compared to fair
values calculated by the counterparty banks. The Company's own credit
risk and counterparty credit risk had an immaterial impact on valuation
of derivatives. See
Note 11 - Fair Value of Financial Assets and Liabilities of Notes to
Consolidated Financial Statements for more information.
33
Contractual Obligations
The following table summarizes the Company's contractual obligations
as of June 30, 2009.
|
Payments Due
During Fiscal Years Ending June 30 |
(Amounts in Millions) |
Total |
|
2010 |
|
2011-2012 |
|
2013-2014 |
|
Thereafter |
Recorded Contractual Obligations (a): |
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations (b) |
$ 13.1 |
|
$
12.7 |
|
$
0.1 |
|
$
0.0 |
|
$
0.3 |
|
|
|
|
|
|
|
|
|
|
Other Long-Term Liabilities Reflected on the Balance Sheet
(c) (d) (e) |
32.9 |
|
10.1 |
|
11.6 |
|
2.1 |
|
9.1
|
|
|
|
|
|
|
|
|
|
|
Unrecorded Contractual Obligations: |
|
|
|
|
|
|
|
|
|
Operating Leases (e) |
15.1 |
|
3.4 |
|
5.9 |
|
3.1 |
|
2.7
|
Purchase Obligations (f) |
197.5 |
|
182.8 |
|
8.3 |
|
6.2 |
|
0.2
|
Other |
1.8 |
|
0.5 |
|
1.1 |
|
0.1 |
|
0.1 |
Total |
$260.4 |
|
$209.5 |
|
$27.0 |
|
$11.5 |
|
$12.4
|
(a) As of June 30, 2009, the Company had no Capital Lease
Obligations.
(b) Refer to
Note 6 - Long-Term Debt and Credit Facility of Notes to Consolidated
Financial Statements for more information regarding Long-Term Debt
Obligations. Accrued interest is also included on the Long-Term Debt
Obligations line. The $12.7 million long-term debt obligations due in
fiscal year 2010 include $12.7 million of short-term borrowing under the
Company's $100 million credit facility and less than $0.1 million of
long-term debt obligations due in fiscal year 2010 which are recorded as
current liabilities. 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 2010 amount includes $3.5
million for SERP payments recorded as current liabilities.
- The timing of employee transition
payments related to facilities to be exited is estimated
based on the expected termination in the underlying
restructuring plan. The fiscal year 2010 amount also
includes $4.4 million for restructuring employee transition
payments and the related derivatives recorded as a current
liability.
- The timing of severance plan payments
is estimated based on the average service life of
employees. The fiscal year 2010 amount also includes $0.6
million for severance payments recorded as a current
liability.
- The timing of warranty payments is
estimated based on historical data. The fiscal year 2010
amount includes $1.6 million for short-term warranty
payments recorded as a current liability.
|
(d) Excludes $4.2 million of long-term unrecognized tax benefits
associated with the adoption of Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN
48), 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.
(e) Refer to
Note 5 - Commitments and Contingent Liabilities of Notes to
Consolidated Financial Statements for more information regarding
Operating Leases and certain Other Long-Term Liabilities.
(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 intends to fulfill are also included in the purchase
obligations amount listed above through fiscal year 2014. In certain
instances, such as when lead times dictate, the Company enters into
contractual agreements for material in excess of the levels required to
fulfill customer orders. In turn, agreements with the customers cover a
portion of that exposure for the material which was purchased prior to
having a firm order.
34
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements other than standby
letters of credit and operating leases entered into in the normal course
of business. These arrangements do not have a material current effect
and are not reasonably likely to have a material future effect on the
Company's financial condition, results of operations, liquidity, capital
expenditures, or capital resources. See
Note 5 - Commitments and Contingent Liabilities of Notes to
Consolidated Financial Statements for more information on standby
letters of credit. The Company does not have material exposures to
trading activities of non-exchange traded contracts.
The preceding statements are forward-looking statements under the
Private Securities Litigation Reform Act of 1995. Certain factors could
cause actual results to differ materially from forward-looking
statements.
Critical Accounting Policies
The Company's consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America. These principles require the use of estimates and
assumptions that affect amounts reported and disclosed in the
consolidated financial statements and related notes. Actual results
could differ from these estimates and assumptions. Management uses its
best judgment in the assumptions used to value these estimates, which
are based on current facts and circumstances, prior experience, and
other assumptions that are believed to be reasonable. The Company's
management overlays a fundamental philosophy of valuing its assets and
liabilities in an appropriately conservative manner. A summary of the
Company's significant accounting policies is disclosed in
Note 1 - Summary of Significant Accounting Policies of Notes to
Consolidated Financial Statements. Management believes the following
critical accounting policies reflect the more significant judgments and
estimates used in preparation of the Company's consolidated financial
statements and are the policies that are most critical in the portrayal
of the Company's financial position and results of operations.
Management has discussed these critical accounting policies and
estimates with the Audit Committee of the Company's Board of Directors
and with the Company's independent registered public accounting firm.
Revenue recognition - The Company recognizes revenue when
title and risk transfer to the customer, which under the terms and
conditions of the sale may occur either at the time of shipment or when
the product is delivered to the customer. Service revenue is recognized
as services are rendered. Shipping and handling fees billed to customers
are recorded as sales while the related shipping and handling costs are
included in cost of goods sold. The Company recognizes sales net of
applicable sales tax.
- Allowance for sales returns - At the time
revenue is recognized certain provisions may also be recorded,
including returns and allowances, which involve estimates based on
current discussions with applicable customers, historical experience
with a particular customer and/or product, and other relevant
factors. As such, these factors may change over time causing the
provisions to be adjusted accordingly. At June 30, 2009 and June 30,
2008, the reserve for returns and allowances was $4.4 million and
$3.3 million, respectively. The returns and allowances reserve
approximated 2% of gross trade receivables during fiscal years 2008
and 2009 up until the last two quarters of fiscal year 2009 at which
time it trended up to 3% primarily due to issues isolated to two
furniture projects with unique specifications.
- Allowance for doubtful accounts - Allowance
for doubtful accounts is generally based on a percentage of aged
accounts receivable, where the percentage increases as the accounts
receivable become older. However, management judgment is utilized in
the final determination of the allowance based on several factors
including specific analysis of a customer's credit worthiness,
changes in a customer's payment history, historical bad debt
experience, and general economic and market trends. The allowance
for doubtful accounts at June 30, 2009 and June 30, 2008 was $3.1
million and $0.8 million, respectively. During the preceding two
years, this reserve had been at or less than 1% of gross trade
accounts receivable up until the last two quarters of fiscal year
2009 at which point it approximated 2% of gross trade accounts
receivable. The higher reserve was driven by increased risk created
by the current market conditions.
35
Excess and obsolete inventory - Inventories were valued using
the lower of last-in, first-out (LIFO) cost or market value for
approximately 14% and 17% of consolidated inventories at June 30, 2009
and June 30, 2008, respectively, including approximately 83% and 85% of
the Furniture segment inventories at June 30, 2009 and June 30, 2008,
respectively. The remaining inventories were valued at lower of
first-in, first-out (FIFO) cost or market value. Inventories recorded on
the Company's balance sheet are adjusted for excess and obsolete
inventory. In general, the Company purchases materials and finished
goods for contract-based business from customer orders and projections,
primarily in the case of long lead time items, and has a general
philosophy to only purchase materials to the extent covered by a written
commitment from its customers. However, there are times when inventory
is purchased beyond customer commitments due to minimum lot sizes and
inventory lead time requirements, or where component allocation or other
procurement issues may exist. The Company may also purchase additional
inventory to support transfers of production between manufacturing
facilities. Evaluation of excess inventory includes such factors as
anticipated usage, inventory turnover, inventory levels, and product
demand levels. Factors considered when evaluating inventory obsolescence
include the age of on-hand inventory and reduction in value due to
damage, use as showroom samples, design changes, or cessation of product
lines.
Self-insurance reserves - The Company is self-insured up to
certain limits for auto and general liability, workers' compensation,
and certain employee health benefits such as medical, short-term
disability, and dental with the related liabilities included in the
accompanying financial statements. The Company's policy is to estimate
reserves based upon a number of factors including known claims,
estimated incurred but not reported claims, and other analyses, which
are based on historical information along with certain assumptions about
future events. Changes in assumptions for such matters as increased
medical costs and changes in actual experience could cause these
estimates to change and reserve levels to be adjusted accordingly. At
June 30, 2009 and June 30, 2008, the Company's accrued liabilities for
self-insurance exposure were $6.5 million and $6.6 million,
respectively.
Taxes - Deferred income tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. These
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which the temporary differences
are expected to reverse. The Company evaluates the recoverability of its
deferred tax assets each quarter by assessing the likelihood of future
profitability and available tax planning strategies that could be
implemented to realize its deferred tax assets. If recovery is not
likely, the Company provides a valuation allowance based on its best
estimate of future taxable income in the various taxing jurisdictions
and the amount of deferred taxes ultimately realizable. Future events
could change management's assessment.
The Company operates within multiple taxing jurisdictions and is
subject to tax audits in these jurisdictions. These audits can involve
complex issues, which may require an extended period of time to resolve.
However, the Company believes it has made adequate provision for income
and other taxes for all years that are subject to audit. As tax periods
are effectively settled, the provision will be adjusted accordingly. The
liability for uncertain income tax and other tax positions was $3.5
million and $2.4 million at June 30, 2009 and June 30, 2008,
respectively. Additional information on income taxes is contained in
Note 9 - Income Taxes of Notes to Consolidated Financial Statements.
Goodwill - Goodwill represents the difference between the
purchase price and the related underlying tangible and intangible net
asset values resulting from business acquisitions. Annually, or if
conditions indicate an earlier review is necessary, the Company compares
the carrying value of the reporting unit to an estimate of the reporting
unit's fair value to identify potential impairment. If the estimated
fair value of the reporting unit is less than the carrying value, a
second step is performed to determine the amount of potential goodwill
impairment. If impaired, goodwill is written down to its estimated
implied fair value. Goodwill is assigned to and the fair value is tested
at the reporting unit level. The Company uses discounted cash flows to
establish its reporting unit fair values. The calculation of the fair
value of the reporting units considers current market conditions
existing at the assessment date. During fiscal year 2009, goodwill was
reviewed on an interim basis due to the continued uncertainty associated
with the economy and the significant decline in the Company's sales and
order trends as well as the increased disparity between the Company's
market capitalization and the carrying value of its Share Owners'
equity. Interim testing resulted in the recognition of non-cash pre-tax
goodwill impairment of, in millions, $12.8 within the EMS segment and
$1.8 within the Furniture segment. In addition to performing the
required annual testing, the Company will continue to monitor
circumstances and events in future periods to determine whether
additional goodwill impairment testing is warranted on an interim basis.
The Company can provide no assurance that an additional impairment
charge for the Company's remaining goodwill balance will not occur in
future periods as a result of these analyses. At June 30, 2009 and June
30, 2008, the Company's goodwill totaled, in millions, $2.6 and $15.4,
respectively.
New Accounting Standards
See
Note 1 - Summary of Significant Accounting Policies of Notes to
Consolidated Financial Statements for information regarding New
Accounting Standards.
36
Item 7A - Quantitative and Qualitative Disclosures About Market
Risk
Interest Rate Risk: As of June 30, 2009 and
2008, the Company had an investment portfolio of fixed income securities,
excluding those classified as cash and cash equivalents, of $25 million and $52
million, respectively. These securities are classified as available-for-sale securities
and are stated at market value. Unrealized losses on debt securities are
recognized in earnings when a company has an intent to sell or is likely to be
required to sell before recovery of the loss, or when the debt security has
incurred a credit loss. Otherwise, unrealized gains and losses are recorded net
of the tax related effect as a component of Share Owners' Equity. These securities, like all fixed income instruments,
are subject to interest rate risk and will decline in value if market interest
rates increase. A hypothetical 100 basis point increase in an annual
period in market interest
rates from levels at June 30, 2009 and 2008 would cause the fair value of these
short-term investments to decline by an immaterial amount. Further
information on short-term investments is provided in
Note 13 - Short-Term Investments
of Notes to Consolidated Financial Statements.
The Company is exposed to interest rate risk on
certain outstanding debt balances. The outstanding loan balances under the
Company's credit facilities bear interest at
variable rates based on prevailing short-term interest rates. Based on the
$13 million and $53 million outstanding balances of variable rate obligations at June 30,
2009 and 2008, respectively, the Company estimates that a hypothetical 100 basis point change in
interest rates would not have a material effect on annual interest expense. Further information on debt balances is provided
in Note 6 - Long-Term
Debt and Credit Facility of Notes to Consolidated Financial Statements.
Foreign Exchange Rate Risk: The Company operates
internationally and thus is subject to potentially adverse movements in foreign
currency rate changes. The Company's risk management strategy includes the
use of derivative financial instruments to hedge certain foreign currency
exposures. Derivatives are used only to manage underlying exposures of the
Company and are not used in a speculative manner. Further information on
derivative financial instruments is provided in
Note 12 - Derivative Instruments
of Notes to Consolidated Financial Statements. The Company
estimates that a hypothetical 10% adverse change in foreign currency exchange
rates 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.
37
Item 8 - Financial Statements and Supplementary
Data
38
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Kimball International, Inc. is responsible
for establishing and maintaining adequate internal control over financial
reporting and for the preparation and integrity of the accompanying financial statements and
other related information in this report. The consolidated financial
statements of the Company and its subsidiaries, including the footnotes, were
prepared in accordance with accounting principles generally accepted in the
United States of America and include judgments and estimates, which in the
opinion of management are applied on an appropriately conservative basis. The Company maintains a system of internal and disclosure
controls intended to provide reasonable assurance that assets are safeguarded
from loss or material misuse, transactions are authorized and recorded properly,
and that the accounting records may be relied upon for the preparation of the
financial statements. This system is tested and evaluated regularly for
adherence and effectiveness by employees who work within the internal control
processes, by the Company's staff of internal auditors, as well
as by the independent registered public accounting firm in connection with their annual audit.
The Audit Committee of the Board of Directors, which is
comprised of directors who are not employees of the Company, meets regularly
with management, the internal auditors, and the independent registered public
accounting firm to review
the Company's financial policies and procedures, its internal control structure,
the objectivity of its financial reporting, and the independence of the
Company's independent registered public accounting firm. The internal auditors and the independent
registered public accounting firm have free and direct access to the Audit Committee, and they meet
periodically, without management present, to discuss appropriate matters.
Because of inherent limitations, a system of internal control
over financial reporting may not prevent or detect misstatements and even when
determined to be effective, can only provide reasonable assurance with respect
to financial statement preparation and presentation.
These consolidated financial statements are subject to an
evaluation of internal control over financial reporting conducted under the
supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer. Based on that evaluation,
conducted under the criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission,
management concluded that its internal control over financial reporting was
effective as of June 30, 2009.
Deloitte & Touche LLP, the Company's independent registered public accounting firm,
has issued an audit report on the Company's internal control over financial
reporting which is included herein.
|
|
|
|
|
|
|
|
|
|
|
/s/ James C. Thyen |
|
|
JAMES C. THYEN
President,
Chief Executive Officer |
|
|
August 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert F. Schneider |
|
|
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer |
|
|
August 31, 2009 |
39
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Share Owners of Kimball
International, Inc.:
We have audited the accompanying consolidated balance sheets of
Kimball International, Inc. and subsidiaries (the "Company") as of June 30, 2009
and 2008, and the related consolidated statements of income, share owners'
equity, and cash flows for each of the three years in the period ended June 30,
2009. 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, 2009, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for these financial statements and financial statement schedule,
for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on these
financial statements and financial statement schedule and an opinion on the
Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, 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, 2009 and 2008, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 2009, 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, present 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, 2009, based on the criteria established in
Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP |
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 31, 2009 |
40
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share and Per Share Data)
|
|
|
|
|
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
ASSETS |
|
|
|
|
Current Assets: |
|
|
|
|
Cash and cash equivalents |
|
$ 75,932 |
|
$ 30,805 |
Short-term investments |
|
25,376 |
|
51,635 |
Receivables, net of allowances of $4,366 and $1,057,
respectively |
|
143,398 |
|
180,307 |
Inventories |
|
127,004 |
|
164,961 |
Prepaid expenses and other current assets |
|
35,720 |
|
37,227 |
Assets held for sale |
|
1,358 |
|
1,374 |
Total current assets |
|
408,788 |
|
466,309 |
Property and Equipment, net of accumulated depreciation of $338,001
and |
|
|
|
|
$340,076, respectively |
|
200,474 |
|
189,904 |
Goodwill |
|
2,608 |
|
15,355 |
Other Intangible Assets, net of accumulated amortization of $62,481
and |
|
|
|
|
$66,087, respectively |
|
10,181 |
|
13,373 |
Other Assets |
|
20,218 |
|
37,726 |
Total Assets |
|
$ 642,269 |
|
$ 722,667 |
LIABILITIES AND SHARE OWNERS' EQUITY |
|
|
|
|
Current Liabilities: |
|
|
|
|
Current maturities of long-term debt |
|
$ 60 |
|
$ 470 |
Accounts payable |
|
165,051 |
|
174,575 |
Borrowings under credit facilities |
|
12,677 |
|
52,620 |
Dividends payable |
|
2,393 |
|
6,989 |
Accrued expenses |
|
52,426 |
|
69,053 |
Total current liabilities |
|
232,607 |
|
303,707 |
Other Liabilities: |
|
|
|
|
Long-term debt, less current maturities |
|
360 |
|
421 |
Other |
|
26,948 |
|
26,072 |
Total other liabilities |
|
27,308 |
|
26,493 |
Share Owners' Equity: |
|
|
|
|
Common stock-par value $0.05 per share: |
|
|
|
|
Class A - Shares authorized: 49,826,000 in 2009 and 2008 |
|
|
|
|
Shares issued: 14,368,000 in 2009 and 2008 |
|
718 |
|
718 |
Class B - Shares authorized: 100,000,000 in 2009 and 2008 |
|
|
|
|
Shares issued: 28,657,000 in 2009 and 2008 |
|
1,433 |
|
1,433 |
Additional paid-in capital |
|
343 |
|
14,531 |
Retained earnings |
|
458,180 |
|
456,413 |
Accumulated other comprehensive income (loss) |
|
(501) |
|
12,308 |
Less: Treasury stock, at cost: |
|
|
|
|
Class A - 3,646,000 in 2009 and 2,691,000 in 2008 |
|
(50,421) |
|
(46,517) |
Class B - 2,093,000 in 2009 and 3,372,000 in 2008 |
|
(27,398) |
|
(46,419) |
Total Share Owners' Equity |
|
382,354 |
|
392,467 |
Total Liabilities and Share Owners' Equity |
|
$ 642,269 |
|
$ 722,667 |
See
Notes to Consolidated Financial Statements |
|
|
|
|
41
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
|
Year Ended June 30 |
|
2009 |
|
2008 |
|
2007 |
Net Sales |
$ 1,207,420 |
|
$ 1,351,985 |
|
$ 1,286,930 |
Cost of Sales |
1,004,901 |
|
1,103,511 |
|
1,025,570 |
Gross Profit |
202,519 |
|
248,474 |
|
261,360 |
Selling and Administrative Expenses |
192,711 |
|
232,131 |
|
233,409 |
Other General Income |
(33,417) |
|
-0- |
|
-0- |
Restructuring Expense |
2,981 |
|
21,911 |
|
1,528 |
Goodwill Impairment |
14,559 |
|
-0- |
|
-0- |
Operating Income (Loss) |
25,685 |
|
(5,568) |
|
26,423 |
Other Income (Expense): |
|
|
|
|
|
Interest income |
2,499 |
|
3,362 |
|
5,237 |
Interest expense |
(1,565) |
|
(1,967) |
|
(1,073) |
Non-operating income |
2,663 |
|
3,512 |
|
6,795 |
Non-operating expense |
(3,956) |
|
(1,703) |
|
(1,030) |
Other income (expense), net |
(359) |
|
3,204 |
|
9,929 |
Income (Loss) from Continuing Operations Before Taxes on Income |
25,326 |
|
(2,364) |
|
36,352 |
Provision (Benefit) for Income Taxes |
7,998 |
|
(2,442) |
|
13,086 |
Income from Continuing Operations |
17,328 |
|
78 |
|
23,266 |
Loss from Discontinued Operations, Net of Tax |
-0- |
|
(124) |
|
(4,114) |
Net Income (Loss) |
$ 17,328 |
|
$ (46) |
|
$ 19,152 |
Earnings (Loss) Per Share of Common Stock: |
|
|
|
|
|
Basic Earnings Per Share from Continuing Operations: |
|
|
|
|
|
Class A |
$ 0.47 |
|
$ 0.00 |
|
$ 0.60 |
Class B |
$ 0.47 |
|
$ 0.00 |
|
$ 0.61 |
Diluted Earnings Per Share from Continuing Operations: |
|
|
|
|
|
Class A |
$ 0.46 |
|
$ 0.00 |
|
$ 0.58 |
Class B |
$ 0.47 |
|
$ 0.00 |
|
$ 0.60 |
Basic Earnings (Loss) Per Share: |
|
|
|
|
|
Class A |
$ 0.47 |
|
$ (0.00) |
|
$ 0.49 |
Class B |
$ 0.47 |
|
$ (0.00) |
|
$ 0.50 |
Diluted Earnings (Loss) Per Share: |
|
|
|
|
|
Class A |
$ 0.46 |
|
$ (0.00) |
|
$ 0.47 |
Class B |
$ 0.47 |
|
$ (0.00) |
|
$ 0.49 |
Average Number of Shares Outstanding: |
|
|
|
|
|
Basic: |
|
|
|
|
|
Class A |
11,036 |
|
11,696 |
|
11,979 |
Class B |
26,125 |
|
25,418 |
|
26,623 |
Totals |
37,161 |
|
37,114 |
|
38,602 |
Diluted: |
|
|
|
|
|
Class A |
11,195 |
|
11,868 |
|
12,325 |
Class B |
26,151 |
|
25,504 |
|
26,932 |
Totals |
37,346 |
|
37,372 |
|
39,257 |
See
Notes to Consolidated Financial Statements |
|
|
|
|
|
42
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
|
Year Ended June 30 |
|
2009 |
|
2008 |
|
2007 |
Cash Flows From Operating Activities: |
|
|
|
|
|
Net income (loss) |
$ 17,328 |
|
$ (46) |
|
$ 19,152 |
Adjustments to reconcile net income (loss) to net cash provided
by operating activities: |
|
|
|
|
|
Depreciation and amortization |
37,618 |
|
39,421 |
|
38,905 |
Gain on sales of assets |
(32,796) |
|
(840) |
|
(775) |
Loss on disposal of discontinued operations |
-0- |
|
-0- |
|
1,600 |
Restructuring and exit costs |
278 |
|
2,736 |
|
953 |
Deferred income tax and other deferred charges |
(8,860) |
|
4,193 |
|
(3,764) |
Goodwill impairment |
14,559 |
|
-0- |
|
-0- |
Stock-based compensation |
2,129 |
|
3,979 |
|
4,922 |
Excess tax benefits from stock-based compensation |
(297) |
|
(14) |
|
(1,095) |
Change in operating assets and liabilities: |
|
|
|
|
|
Receivables |
31,386 |
|
3,341 |
|
2,021 |
Inventories |
36,667 |
|
(22,960) |
|
173 |
Prepaid expenses and other current assets |
7,994 |
|
(2,950) |
|
(1,663) |
Accounts payable |
(5,142) |
|
13,071 |
|
(8,252) |
Accrued expenses |
(16,705) |
|
3,468 |
|
(7,803) |
Net cash provided by operating activities |
84,159 |
|
43,399 |
|
44,374 |
Cash Flows From Investing Activities: |
|
|
|
|
|
Capital expenditures |
(47,679) |
|
(49,742) |
|
(40,881) |
Proceeds from sales of assets |
49,942 |
|
5,209 |
|
2,823 |
Proceeds from disposal of discontinued operations |
-0- |
|
250 |
|
721 |
Payments for acquisitions |
(5,391) |
|
(4,566) |
|
(51,052) |
Purchase of capitalized software and other assets |
(632) |
|
(905) |
|
(999) |
Purchases of available-for-sale securities |
(8,032) |
|
(33,184) |
|
(116,939) |
Sales and maturities of available-for-sale securities |
34,572 |
|
53,777 |
|
152,470 |
Other, net |
(320) |
|
3 |
|
(683) |
Net cash provided by (used for) investing activities |
22,460 |
|
(29,158) |
|
(54,540) |
Cash Flows From Financing Activities: |
|
|
|
|
|
Proceeds from revolving credit facility |
60,620 |
|
-0- |
|
1,268 |
Payments on revolving credit facility |
(63,349) |
|
(4,445) |
|
(4,440) |
Additional net change in credit facilities |
(35,805) |
|
32,267 |
|
925 |
Payments on capital leases and long-term debt |
(527) |
|
(1,022) |
|
(565) |
Repurchases of common stock |
-0- |
|
(24,844) |
|
(1,078) |
Dividends paid to Share Owners |
(19,410) |
|
(23,701) |
|
(24,419) |
Excess tax benefits from stock-based compensation |
297 |
|
14 |
|
1,095 |
Proceeds from exercise of stock options |
-0- |
|
-0- |
|
6,595 |
Repurchase of employee shares for tax withholding |
(1,209) |
|
(859) |
|
-0- |
Other, net |
-0- |
|
-0- |
|
(51) |
Net cash used for financing activities |
(59,383) |
|
(22,590) |
|
(20,670) |
Effect of Exchange Rate Change on Cash and Cash Equivalents |
(2,109) |
|
4,127 |
|
1,006 |
Net Increase (Decrease) in Cash and Cash Equivalents |
45,127 |
|
(4,222) |
|
(29,830) |
Cash and Cash Equivalents at Beginning of Year |
30,805 |
|
35,027 |
|
64,857 |
Cash and Cash Equivalents at End of Year |
$ 75,932 |
|
$ 30,805 |
|
$ 35,027 |
See
Notes to Consolidated Financial Statements |
|
|
|
|
|
43
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, 2006 |
$ 718 |
|
$1,433 |
|
$ 6,019 |
|
$486,518 |
|
$ 886 |
|
$(72,992) |
|
$ 422,582 |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
19,152 |
|
|
|
|
|
19,152 |
Net change in unrealized gains and losses on securities |
|
|
|
|
|
|
|
76 |
|
|
|
76 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
3,182 |
|
|
|
3,182 |
Net change in derivative gains and losses |
|
|
|
|
|
|
|
|
574 |
|
|
|
574 |
Postemployment severance prior service cost |
|
|
|
|
|
|
|
|
(1,323) |
|
|
|
(1,323) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
21,661 |
Issuance of non-restricted stock ( 8,000 shares) |
|
|
|
|
73 |
|
|
|
|
|
118 |
|
191 |
Net exchanges of shares of Class A and Class B |
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock ( 1,138,000 shares) |
|
|
|
|
5,940 |
|
|
|
|
|
(5,940) |
|
-0- |
Vesting of restricted share units |
|
|
|
|
(29) |
|
|
|
|
|
|
|
(29) |
Compensation expense related to stock incentive plans |
|
|
|
4,745 |
|
|
|
|
|
|
|
4,745 |
Exercise of stock options ( 469,000 shares) |
|
|
|
|
28 |
|
|
|
|
|
7,242 |
|
7,270 |
Performance share issuance ( 101,000 shares) |
|
|
|
|
(2,208) |
|
|
|
|
|
1,667 |
|
(541) |
Share repurchases ( 266,000 shares) |
|
|
|
|
|
|
|
|
|
|
(3,624) |
|
(3,624) |
Dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A ( $0.62 per share) |
|
|
|
|
|
|
(7,609) |
|
|
|
|
|
(7,609) |
Class B ( $0.64 per share) |
|
|
|
|
|
|
(17,198) |
|
|
|
|
|
(17,198) |
Amounts at June 30, 2007 |
$ 718 |
|
$1,433 |
|
$ 14,568 |
|
$480,863 |
|
$ 3,395 |
|
$(73,529) |
|
$ 427,448 |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
(46) |
|
|
|
|
|
(46) |
Net change in unrealized gains and losses on securities |
|
|
|
|
|
|
|
433 |
|
|
|
433 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
9,090 |
|
|
|
9,090 |
Net change in derivative gains and losses |
|
|
|
|
|
|
|
|
(714) |
|
|
|
(714) |
Postemployment severance prior service cost |
|
|
|
|
|
|
|
|
172 |
|
|
|
172 |
Postemployment severance actuarial change |
|
|
|
|
|
|
|
|
(68) |
|
|
|
(68) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
8,867 |
Issuance of non-restricted stock ( 13,000 shares) |
|
|
|
|
(31) |
|
|
|
|
|
204 |
|
173 |
Net exchanges of shares of Class A and Class B |
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock ( 91,000 shares) |
|
|
|
|
(326) |
|
|
|
|
|
326 |
|
-0- |
Vesting of restricted share units ( 12,000 shares) |
|
|
|
|
(220) |
|
|
|
|
|
188 |
|
(32) |
Compensation expense related to stock incentive plans |
|
|
|
3,763 |
|
|
|
|
|
|
|
3,763 |
Performance share issuance ( 139,000 shares) |
|
|
|
|
(3,223) |
|
|
|
|
|
2,173 |
|
(1,050) |
Share repurchases ( 1,733,000 shares) |
|
|
|
|
|
|
|
|
|
|
(22,298) |
|
(22,298) |
Cumulative effect of adoption of FIN 48, Accounting |
|
|
|
|
|
|
|
|
|
|
|
|
for Uncertainty in Income Taxes |
|
|
|
|
|
|
(712) |
|
|
|
|
|
(712) |
Dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A ( $0.62 per share) |
|
|
|
|
|
|
(7,476) |
|
|
|
|
|
(7,476) |
Class B ( $0.64 per share) |
|
|
|
|
|
|
(16,216) |
|
|
|
|
|
(16,216) |
Amounts at June 30, 2008 |
$ 718 |
|
$1,433 |
|
$ 14,531 |
|
$456,413 |
|
$ 12,308 |
|
$(92,936) |
|
$ 392,467 |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
17,328 |
|
|
|
|
|
17,328 |
Net change in unrealized gains and losses on securities |
|
|
|
|
|
|
|
211 |
|
|
|
211 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
(6,034) |
|
|
|
(6,034) |
Net change in derivative gains and losses |
|
|
|
|
|
|
|
|
(5,151) |
|
|
|
(5,151) |
Postemployment severance prior service cost |
|
|
|
|
|
|
|
|
171 |
|
|
|
171 |
Postemployment severance actuarial change |
|
|
|
|
|
|
|
|
(2,006) |
|
|
|
(2,006) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
4,519 |
Issuance of non-restricted stock ( 29,000 shares) |
|
|
|
|
(484) |
|
|
|
|
|
447 |
|
(37) |
Net exchanges of shares of Class A and Class B |
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock ( 1,188,000 shares) |
|
|
|
|
(10,038) |
|
|
|
|
|
10,038 |
|
-0- |
Vesting of restricted share units ( 219,000 shares) |
|
|
|
|
(4,210) |
|
|
|
|
|
3,460 |
|
(750) |
Compensation expense related to stock incentive plans |
|
|
|
2,129 |
|
|
|
|
|
|
|
2,129 |
Performance share issuance ( 76,000 shares) |
|
|
|
|
(1,585) |
|
|
|
|
|
1,172 |
|
(413) |
Dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A ( $0.40 per share) |
|
|
|
|
|
|
(4,617) |
|
|
|
|
|
(4,617) |
Class B ( $0.42 per share) |
|
|
|
|
|
|
(10,944) |
|
|
|
|
|
(10,944) |
Amounts at June 30, 2009 |
$ 718 |
|
$1,433 |
|
$ 343 |
|
$458,180 |
|
$ (501) |
|
$(77,819) |
|
$ 382,354 |
See
Notes to Consolidated Financial Statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
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.
Revenue Recognition: Revenue from
product sales is recognized when title and risk transfer to the customer, which
under the terms and conditions of the sale, may occur either at the time of
shipment or when the product is delivered to the customer. Shipping and
handling fees billed to customers are recorded as sales while the related
shipping and handling costs are included in cost of goods sold. The
Company recognizes sales net of applicable sales tax. Service revenue is
recognized as services are rendered. 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. An allowance for
doubtful accounts is recorded using specific analysis of a customer's credit
worthiness, changes in a customer's payment history, historical bad debt
experience, and general economic and market trends. Estimates of collectibility result in an increase
or decrease in selling expenses.
Use of Estimates: The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America 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.
Cash, Cash Equivalents, and Short-Term Investments:
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. Short-term investments consist primarily of municipal
securities with maturities exceeding three months at the time of
acquisition. Available-for-sale securities are stated at fair value. Unrealized losses on debt securities are recognized in earnings when a company
has an intent to sell or is likely to be required to sell before recovery of the
loss, or when the debt security has incurred a credit loss. Otherwise,
unrealized gains and losses are recorded net of
the tax related effect as a component of
Share Owners' Equity.
Inventories: Inventories are stated at the lower
of cost or market value. Cost includes material, labor, and applicable
manufacturing overhead. Costs associated with underutilization of
capacity are expensed as incurred. The last-in, first-out (LIFO)
method was used for approximately 14% and 17% of consolidated inventories at
June 30, 2009 and
June 30, 2008, respectively, and remaining inventories were valued using
the first-in, first-out (FIFO) method. Inventories recorded on the
Company's balance sheet are adjusted for excess and obsolete inventory. Evaluation of excess inventory includes such factors as anticipated usage,
inventory turnover, inventory levels, and product demand levels. Factors
considered when evaluating obsolescence include the age of on-hand inventory and
reduction in value due to damage, use as showroom samples, design changes, or
cessation of product lines.
Property, Equipment, and Depreciation: Property
and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful life of the assets using the
straight-line method for financial reporting purposes. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
useful life of the improvement or the term of the lease. Major maintenance
activities and improvements are
capitalized; other maintenance, repairs, and minor renewals and betterments are
expensed.
Impairment of Long-Lived Assets: The Company
performs reviews for impairment of long-lived assets whenever events or changes
in circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss is recognized when
estimated future cash flows expected to result from the use of the asset and its
eventual disposition are less than its carrying amount. When an impairment
is identified, the carrying amount of the asset is reduced to its estimated fair
value. Assets to be disposed of are recorded at the lower of net book
value or fair market value less cost to sell at the date management commits to a
plan of disposal.
Goodwill and Other Intangible Assets: Goodwill represents the difference between the purchase price and the
related underlying tangible and intangible net asset values resulting
from business acquisitions. Annually, or if conditions indicate an
earlier review is necessary, the Company compares the carrying value of
the reporting unit to an estimate of the reporting unit's fair value to
identify potential impairment. If
the estimated fair value of the reporting unit is less than the carrying value,
a second step is performed to determine the amount of potential goodwill
impairment. If impaired, goodwill is
written down to its estimated implied fair value. Goodwill
is assigned to and the fair value is tested at the reporting unit level.
The Company uses discounted cash flows to establish its reporting unit
fair value. The calculation of the fair value of the reporting units
considers current market conditions existing at the assessment date.
45
A summary of the goodwill by segment is as follows:
|
June 30, |
|
June 30, |
(Amounts in Thousands) |
2009 |
|
2008 |
Electronic
Manufacturing Services |
$ 2,608
|
|
$ 13,622
|
Furniture |
-0-
|
|
1,733
|
Consolidated |
$ 2,608
|
|
$ 15,355
|
During fiscal year 2009, goodwill was reviewed
on an interim basis due to the continued uncertainty associated with the
economy and liquidity crisis and the significant decline in the Company's sales and order
trends as well as the increased disparity between the Company's
market capitalization and the carrying value of its stockholders' equity. Interim testing resulted in the recognition of goodwill
impairment of, in thousands, $12,826 within the Electronic Manufacturing
Services (EMS) segment and $1,733 within the Furniture segment. The
impairment was recorded on the Goodwill Impairment line item of the
Company's Consolidated Statements of Income.
In addition to performing the required annual testing, the Company
will continue to monitor circumstances and events in future periods to
determine whether additional goodwill impairment testing is warranted on
an interim basis. The Company can provide no assurance that
an additional 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.
Within the EMS segment, goodwill increased
by,
in thousands, $1,965 during fiscal year 2009
for the acquisition of Genesis Electronics
Manufacturing. This acquisition was integrated into an existing
reporting unit, and the goodwill was subsequently deemed impaired by the interim
testing completed during the third quarter of fiscal year 2009. See
Note 2 -
Acquisitions of Notes to Consolidated Financial Statements
for further discussion. Goodwill was offset by, in thousands, a $153
reduction due to the effect of changes in foreign currency exchange rates.
During fiscal year 2008, the terminated business in
conjunction with the consolidation of a Hibbing, Minnesota, operation resulted
in a pre-tax goodwill impairment loss of, in thousands, $172, which was
recorded on the Restructuring line item of the Company's Consolidated Statements
of Income.
Other intangible assets consist of capitalized
software, product rights, and customer relationships and are reported as Other
Intangible Assets on the Consolidated Balance Sheets. 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, 2009 |
|
June 30, 2008 |
(Amounts in Thousands) |
|
Cost |
|
Accumulated
Amortization |
|
Net Value |
|
Cost |
|
Accumulated
Amortization |
|
Net Value |
Electronic Manufacturing Services: |
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Software |
|
$27,455 |
|
$ 24,217 |
|
$ 3,238 |
|
$27,228 |
|
$ 22,531 |
|
$ 4,697 |
Customer Relationships |
|
1,167 |
|
448 |
|
719 |
|
937 |
|
247 |
|
690 |
Other Intangible Assets |
|
$28,622 |
|
$ 24,665 |
|
$ 3,957 |
|
$28,165 |
|
$ 22,778 |
|
$ 5,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture: |
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Software |
|
$37,107 |
|
$ 32,533 |
|
$ 4,574 |
|
$43,868 |
|
$ 37,895 |
|
$ 5,973 |
Product Rights |
|
1,160 |
|
334 |
|
826 |
|
1,160 |
|
210 |
|
950 |
Other Intangible Assets |
|
$38,267 |
|
$ 32,867 |
|
$ 5,400 |
|
$45,028 |
|
$ 38,105 |
|
$ 6,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Software |
|
$ 5,773 |
|
$ 4,949 |
|
$ 824 |
|
$ 6,267 |
|
$ 5,204 |
|
$ 1,063 |
Other Intangible Assets |
|
$ 5,773 |
|
$ 4,949 |
|
$ 824 |
|
$ 6,267 |
|
$ 5,204 |
|
$ 1,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$72,662 |
|
$ 62,481 |
|
$ 10,181 |
|
$79,460 |
|
$ 66,087 |
|
$ 13,373 |
The customer relationship intangible asset cost increased by, in thousands,
$230 during fiscal year 2009 due to the acquisition of
Genesis Electronics Manufacturing.
46
During fiscal years 2009, 2008, and 2007, amortization
expense of other intangible assets from continuing operations, including
asset write-downs associated with the Company's restructuring plans, was, in thousands,
$3,931, $8,036, and
$8,756, respectively. Amortization expense in future
periods is expected to be, in thousands, $2,389, $2,023, $1,769, $1,474, and $1,114 in the five years ending June 30,
2014, and $1,412 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 2009, the Company performed an
assessment of the useful lives of Enterprise Resource Planning (ERP)
software. In evaluating
useful lives, the Company considered how long assets would remain
functionally efficient and effective, given levels of technology,
competitive factors, and the economic environment as of fiscal year 2009. This assessment indicated that the assets will continue to be used for a
longer period than previously anticipated. As a result, effective
October 1, 2008, the Company revised the useful lives of ERP software from 7
years to 10 years. Changes in estimates are accounted for on a prospective basis, by
amortizing assets' current carrying values over their revised remaining
useful lives. The effect of this change in estimate, compared to the
original amortization, for fiscal year
2009 was a pre-tax reduction in amortization expense of, in thousands, $1,402. The pre-tax
(decrease) increase to amortization expense in future periods
is expected to be, in thousands, ($1,227), ($299), $451, $911, and $664 in the five years ending June
30, 2014, and $902 thereafter.
Internal-use software is stated at cost less
accumulated amortization and is amortized using the straight-line method. During
the software application development stage, capitalized costs include external
consulting costs, cost of software licenses, and internal payroll and
payroll-related costs for employees who are directly associated with a software
project. Upgrades and enhancements are capitalized if they result in added
functionality which enable the software to perform tasks it was previously
incapable of performing. Software maintenance, training, data conversion,
and business process reengineering costs are expensed in the period in which
they are incurred.
Product rights to produce and sell certain products are
amortized on a straight-line basis over their estimated useful lives, and capitalized customer relationships are amortized on
estimated attrition rate of customers. The Company has no intangible assets with indefinite useful lives
which are not subject to amortization.
Research and Development: The costs of research
and development are expensed as incurred. Research and development costs from continuing
operations were approximately,
in millions, $14, $16, and $17 in
fiscal years 2009, 2008, and 2007, respectively.
Advertising: Advertising costs are
expensed as incurred. Advertising costs from
continuing operations, included in
selling and administrative expenses were, in millions, $4.5, $6.2, and
$8.3, in fiscal years 2009, 2008, and 2007, respectively.
Insurance and Self-insurance: The Company is
self-insured up to certain limits for auto and general liability, workers'
compensation, and certain employee health benefits including medical, short-term
disability, and dental, with the related liabilities included in the accompanying
financial statements. The Company's policy is to estimate reserves based
upon a number of factors including known claims, estimated incurred but not
reported claims, and other analyses, which are based on historical
information along with certain assumptions about future events. Approximately
68% of the workforce is covered under self-insured medical and
short-term disability plans.The Company carries external medical and disability insurance
coverage for the remainder of its eligible workforce not covered by self-insured
plans. Insurance benefits
are not provided to retired employees.
Income Taxes: 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. Determination of the amount of unrecognized deferred
tax liability on unremitted earnings is not practicable.
Off-Balance Sheet Risk and Concentration of Credit Risk:
The Company has business and credit risks concentrated in the medical, automotive, and furniture industries. Two customers, Bayer AG and
TRW Automotive, Inc., represented 19% and 11%,
respectively, of consolidated accounts receivable at June 30, 2009. Bayer
AG and Siemens AG, represented 16% and 15%, respectively, of consolidated
accounts receivable at June 30, 2008. The Company
currently does not foresee a credit risk associated with these receivables. The
Company also has an agreement with a contract customer and a note
receivable related to the sale of an Indiana facility. At June 30, 2009,
$4.7 million was outstanding. The Company recorded a provision for potential
credit losses. The Company's off-balance sheet arrangements are limited to
operating leases entered into in the normal course of business as described in
Note 5 - Commitments
and Contingent Liabilities of Notes to Consolidated Financial Statements.
47
Other General Income: Other General Income includes the gain related to the sale of
undeveloped land and timberland holdings and earnest money deposits
retained by the Company resulting from the termination of the contract
to sell and lease back the Company's Poland building and real estate.
Components of Other General Income: |
|
Year Ended June 30 |
(Amounts in Thousands) |
2009 |
|
2008 |
|
2007 |
Gain on Sale of Undeveloped Land and
Timberland Holdings |
$ 31,489 |
|
$ -0-
|
|
$ -0-
|
Earnest Money Deposits Retained |
1,928
|
|
-0-
|
|
-0-
|
Other General Income |
$ 33,417 |
|
$ -0-
|
|
$ -0-
|
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 Supplemental
Employee Retirement Plan (SERP) investments, non-production rent income, bank
charges, and other miscellaneous non-operating income and expense items that are not
directly related to operations.
Foreign Currency Translation: The Company uses the
U.S. dollar and Euro predominately as its functional currencies. Foreign currency
assets and liabilities are remeasured into functional currencies at end-of-period
exchange rates, except for nonmonetary assets and equity, which are remeasured at historical exchange
rates. Revenue and expenses are remeasured at the weighted average
exchange rate during the fiscal year, except for expenses related to nonmonetary assets, which are remeasured at historical exchange rates. Gains
and losses from foreign currency remeasurement are reported in the Non-operating income
or expense line item on the Consolidated Statements of Income.
For businesses whose functional currency is other
than the U.S. dollar, the translation of functional currency statements to U.S.
dollar statements uses end-of-period exchange rates for assets and liabilities,
weighted average exchange rates for revenue and expenses, and historical rates for
equity. The resulting currency translation adjustment is recorded in
Accumulated Other Comprehensive Income (Loss), as a component of Share Owners' Equity.
Derivative Instruments and Hedging Activities:
Derivative financial instruments are recognized on the balance sheet as assets
and liabilities and are measured at fair value. Changes in the fair
value of derivatives are recorded each period in earnings or Accumulated Other
Comprehensive Income (Loss), depending on whether a derivative is designated and
effective as part of a hedge transaction, and if it is, the type of hedge
transaction. Hedge accounting is utilized when a derivative is expected to
be highly effective upon execution and continues to be highly effective
over the duration of the hedge transaction. Hedge accounting permits gains and losses on derivative instruments
to be deferred in
Accumulated Other Comprehensive Income (Loss) and subsequently included in earnings in
the periods in which earnings are affected by the hedged item, or when the
derivative is determined to be ineffective. The
Company's use of derivatives is generally limited to 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. See
Note 12 - Derivative Instruments of Notes to Consolidated Financial
Statements for more information on derivative instruments and hedging
activities.
Stock-Based Compensation: As
described in Note 8 - Stock
Compensation Plans of Notes to Consolidated Financial Statements, the
Company maintains stock-based compensation plans which allow for the issuance of
restricted stock, restricted share units, unrestricted share grants, incentive
stock options, nonqualified stock options, performance shares, performance
units, and stock appreciation rights for grant to officers and other key
employees of the Company and to members of the Board of Directors who are not
employees. The Company recognizes the cost resulting from share-based payment
transactions using a fair-value-based method. The estimated fair value of
outstanding performance shares and restricted share units is based on the stock
price at the date of the award. For performance shares, the price is reduced by
the present value of dividends normally paid over the vesting period which are
not payable on outstanding performance share awards. The estimated fair value of
stock options is determined using the Black-Scholes option pricing model.
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.
48
Subsequent Events: The Company has
evaluated the impact of subsequent events through August 31, 2009, which is the date these
financial statements were issued.
New Accounting Standards: In June 2009, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles - a replacement of FASB Statement No.
162 (FAS 168). This standard establishes the FASB Accounting Standards
Codification as the source of authoritative U.S. GAAP recognized by the FASB.
The Codification does not change current U.S. GAAP but is intended to simplify
user access to all authoritative U.S. GAAP by providing all literature related
to a particular topic in one place. All existing accounting standard documents
will be superseded. FAS 168 will be effective beginning in the Company's first
quarter of fiscal year 2010, and its adoption is not expected to have an impact
on the Company's consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (FAS 167), which modifies how a company determines when an entity that
is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. FAS 167 clarifies that the determination of
whether a company is required to consolidate an entity is based on, among other
things, an entity's purpose and design and a company's ability to direct the
activities of the entity that most significantly impact the entity's economic
performance. FAS 167 requires an ongoing reassessment of whether a company is
the primary beneficiary of a variable interest entity and requires additional
disclosures about a company's involvement in variable interest entities. FAS 167
will be effective as of the beginning of the Company's fiscal year 2011. The
Company is currently evaluating the impact, if any, of adoption of FAS 167 on
its consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (FAS 165). FAS
165 incorporates existing guidance into the accounting literature for the
accounting and disclosure of events that occur after the balance sheet date but
before financial statements are issued. In addition, the standard requires
disclosure of the date through which a company has evaluated subsequent
events. FAS 165 became effective as of the end of the Company's fiscal year
2009, and the required disclosure has been provided in
Note 1 - Summary of Significant Accounting Policies of Notes to Consolidated
Financial Statements. The adoption did not have a material effect on the
Company's consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position (FSP) FAS 115-2 and FAS
124-2, Recognition and Presentation of Other-Than-Temporary Impairments. This
FSP modifies the recognition of impairment losses on debt securities so that an
impairment loss is triggered when a company has an intent to sell or is likely
to sell before recovery of the loss, or when the debt security has incurred a
credit loss. This FSP also requires interim and annual disclosures, by major
security type, of impairment losses taken and not taken, and information on
credit losses. The Company adopted the FSP at the end of fiscal year 2009 and
provided the required disclosures in
Note 13 - Short-Term Investments of Notes to Consolidated Financial
Statements. The adoption did not have a material impact on the Company's
financial position or results of operations.
In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. This FSP expands to interim periods the existing
annual requirement to disclose the fair value of financial instruments that are
not reflected on the balance sheet at fair value. The FSP will be effective and
will require additional disclosures in interim periods beginning in the
Company's first quarter of fiscal year 2010.
In October
2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial
Asset When the Market for That Asset is Not Active. This FSP clarifies the
application of SFAS No. 157, Fair Value Measurements, in a market that is not
active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial asset is
not active. Additionally, in April 2009 the FASB issued FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly. This FSP provides guidelines for determining the fair values when there
is no active market or where the price inputs being used represent distressed
sales and requires additional annual and interim disclosure of fair value by
major security types. FSP FAS 157-3 was effective upon issuance and FSP FAS
157-4 became effective as of the Company's fiscal year ended June 30, 2009.
Other than additional disclosure requirements, the FSP's have not had an impact
on the Company's financial position or results of operations because the Company
currently has no financial instruments in inactive markets.
In June 2008, the
FASB issued an FSP on Emerging Issues Task Force (EITF) 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 provides that
unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings per share
pursuant to the two-class method. The two-class method is an earnings allocation
method for computing earnings per share when an entity's capital structure
includes multiple classes of common stock and participating securities. FSP EITF
03-6-1 is effective as of the beginning of the Company's fiscal year 2010 and
requires that previously reported earnings per share data be recast in financial
statements issued in periods after the effective date. The Company does not
expect the impact of FSP EITF 03-6-1 to be significant.
49
In May 2008, the
FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (FAS 162). FAS 162 identifies the sources of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements that are presented in conformity with generally accepted
accounting principles in the United States. This statement did not change
existing practices. This statement became effective on November 15, 2008 and did
not have a material effect on the Company's consolidated financial statements.
FAS 162 will be superseded when FAS 168 becomes effective in the Company's first
quarter of fiscal year 2010.
In April 2008, the
FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible
Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and
Other Intangible Assets. FSP FAS 142-3 allows an entity to use its own
historical experience in renewing or extending similar arrangements, adjusted
for entity-specific factors, in developing assumptions about renewal or
extension used to determine the useful life of a recognized intangible asset. As
a result, the determination of intangible asset useful lives is now consistent
with the method used to determine the period of expected cash flows used to
measure the fair value of the intangible assets, as described in other
accounting principles. The guidance for determining the useful life of a
recognized intangible asset is to be applied prospectively to intangible assets
acquired after the effective date. Disclosure requirements are to be applied
prospectively to all intangible assets recognized as of, and subsequent to, the
effective date. The provisions of FSP FAS 142-3 are effective as of the
beginning of the Company's fiscal year 2010 and are currently not expected to
have a material effect on the Company's consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (FAS 161). FAS 161 amends and expands the
disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, and requires entities to provide enhanced qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair values and amounts of gains and losses on derivative
contracts, and disclosures about credit-risk-related contingent features in
derivative agreements. The Company adopted FAS 161 as of the third quarter of
fiscal year 2009 and provided the required disclosures in
Note 12 - Derivative Instruments of Notes to Consolidated Financial
Statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (FAS 141(R)). FAS 141(R) requires that the fair value of the
purchase price of an acquisition including the issuance of equity securities be
determined on the acquisition date; requires that all assets, liabilities,
noncontrolling interests, contingent consideration, contingencies, and
in-process research and development costs of an acquired business be recorded at
fair value at the acquisition date; requires that acquisition costs generally be
expensed as incurred; requires that restructuring costs generally be expensed in
periods subsequent to the acquisition date; and requires that changes in
deferred tax asset valuation allowances and acquired income tax uncertainties
after the measurement period impact income tax expense. FAS 141(R) also broadens
the definition of a business combination and expands disclosures related to
business combinations. Additionally, in April 2009, the FASB issued FSP
141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies, which amends FAS 141(R) and requires
that acquired contingent assets and liabilities be recognized at fair value if
fair value can be reasonably estimated. If the fair value cannot be reasonably
estimated, the asset or liability will be recognized in accordance with SFAS No.
5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable
Estimation of the Amount of a Loss. FAS 141(R) and FSP 141(R)-1 will be applied
prospectively to business combinations occurring after the beginning of the
Company's fiscal year 2010, except that business combinations consummated prior
to the effective date must apply FAS 141(R) income tax requirements immediately
upon adoption. The impact, if any, of FAS 141(R) and FSP 141(R)-1 on the
Company's financial position, results of operations, and cash flows will depend
on the extent of business combinations completed after the adoption of the
standard.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51 (FAS 160). FAS 160
requires that noncontrolling interests be reported as a separate component of
equity, that net income attributable to the parent and to the noncontrolling
interest be separately identified in the consolidated statements of income, that
changes in a parent's ownership interest be accounted for as equity
transactions, and that, when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary and the gain or loss
on the deconsolidation of the subsidiary be measured at fair value. FAS 160 will
be applied prospectively, except for presentation and disclosure requirements
which will be applied retrospectively, as of the beginning of the Company's
fiscal year 2010. The Company does not currently have noncontrolling interests,
and therefore the adoption of FAS 160 is not expected to have an impact on the
Company's financial position, results of operations, or cash flows.
In June 2007, the FASB ratified the EITF consensus on Issue No. 06-11,
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards
(EITF 06-11). EITF 06-11 requires companies to recognize the income tax benefit
realized from dividends or dividend equivalents that are charged to retained
earnings and paid to employees for nonvested equity-classified employee
share-based payment awards as an increase to additional paid-in capital. The
realized income tax benefit recognized in additional paid-in capital should be
included in the pool of excess tax benefits available to absorb future tax
deficiencies on share-based payment awards. EITF 06-11 was adopted on a
prospective basis for income tax benefits on dividends declared after the
beginning of the Company's fiscal year 2009. The adoption of EITF 06-11 did not
have a material impact on the Company's financial position, results of
operations, or cash flows.
50
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115 (FAS 159). FAS 159 expands the use of fair value accounting
but does not affect existing standards which require assets or liabilities to be
carried at fair value. Under FAS 159, a company may elect to use fair value to
measure financial instruments and certain other items, which may reduce the need
to apply complex hedge accounting provisions in order to mitigate volatility in
reported earnings. The fair value election is irrevocable and is generally made
on an instrument-by-instrument basis, even if a company has similar instruments
that it elects not to measure based on fair value. FAS 159 became effective as
of the beginning of the Company's fiscal year 2009. The Company has determined
that it will not elect to use fair value accounting for any eligible items, and
therefore FAS 159 will have no impact on its financial position, results of
operations, or cash flows.
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB
Statements No. 87, 88, 106, and 132(R) (FAS 158). FAS 158 requires employers to
recognize the overfunded or underfunded status of a defined benefit plan as an
asset or liability in its statement of financial position, recognize through
comprehensive income changes in that funded status in the year in which the
changes occur, and measure a plan's assets and its obligations that determine
its funded status as of the end of the employer's fiscal year. At the end of
fiscal year 2007, the Company adopted the provisions of FAS 158 related to
recognition of plan assets, benefit liabilities, and comprehensive income. The
Company adopted the provisions of this rule that require measurement of plan
assets and benefit obligations as of the year end balance sheet date for the
Company's fiscal year 2009, and it did not have a material impact on the
Company's financial position, results of operations, or cash flows. This rule
impacts the accounting for the Company's unfunded noncontributory postemployment
severance plans.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (FAS
157), which defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. FAS 157 is only applicable to existing accounting
pronouncements that require or permit fair value measurements and does not
require any new fair value measurements. The standard, as originally issued, was
to be effective as of the beginning of the Company's fiscal year 2009. With the
issuance in February 2008 of FSP No. FAS 157-2, Effective Date of FASB Statement
No. 157, the FASB approved a one-year deferral to the beginning of the Company's
fiscal year 2010 for all non-financial assets and liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis at least annually. In addition, the FASB has excluded leases
from the scope of FAS 157 with the issuance of FSP No. FAS 157-1, Application of
FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements that Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13. FAS 157 will be applied
prospectively. The Company's adoption of the provisions of FAS 157 applicable to
financial instruments as of July 1, 2008, did not have a material impact on the
Company's financial position, results of operations, or cash flows. The
provisions of FAS 157 applicable to non-financial assets and liabilities are
currently not expected to have a material effect on the Company's consolidated
financial statements.
Note 2 Acquisitions
Fiscal Year 2009 Acquisition:
During fiscal year 2009, the Company acquired
privately-held Genesis Electronics Manufacturing located in Tampa, Florida. The acquisition supports the Company's growth and diversification strategy,
bringing new customers in key target markets. The acquisition purchase
price totaled $5.4 million. Assets acquired were $7.7 million, which
included $2.0 million of goodwill, and liabilities assumed were $2.3
million. Direct costs of the acquisition were not material. Goodwill
was allocated to the EMS segment of the Company. The operating results of
this acquisition are included in the Company's consolidated financial
statements beginning on September 1, 2008 and excluding subsequent goodwill
impairment, had an immaterial impact on the fiscal year 2009 financial results. See
Note 1 -
Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for more information on goodwill
impairment. The purchase price allocation is final.
Fiscal Year 2007 Acquisition:
On February 15, 2007, the Company completed the
acquisition of Reptron. The operating results of this acquisition are included in the
Company's consolidated financial statements beginning on the acquisition date.
The acquisition is included in the Company's EMS segment and increased the Company's capabilities and expertise in
support of the Company's long-term strategy to grow business in the medical
electronics and high-end industrial sectors. The acquisition included four manufacturing
operations located in Tampa, Florida; Hibbing, Minnesota; Gaylord, Michigan; and
Fremont, California. In fiscal year 2008, pursuant to its restructuring plans,
the Company ceased operations at the Gaylord,
Michigan, and Hibbing, Minnesota, facilities and transferred a majority of the
business to several of the Company's other worldwide EMS facilities.
51
The total amount of funds required to consummate the merger and
to pay fees related to the merger was $50.9 million. The merger was funded with
available cash and short-term investments. Merger funds were used to purchase
all outstanding Reptron stock for $3.8 million, repay outstanding indebtedness
and accrued interest of $17.6 million, tender senior secured notes for $22.4
million at acquisition date plus $4.8 million of senior secured notes and accrued interest
redeemed in fiscal year 2008, and pay direct acquisition costs of $2.3 million.
The following table summarizes the final purchase
price allocation to assets acquired, liabilities assumed, and goodwill. The
acquisition resulted in $11.9 million of goodwill for the EMS segment of the
Company. Goodwill of $10.1 million is deductible for tax
purposes. The Company also identified and recorded intangible assets of $0.9
million related to customer relationships. See
Note 1 - Summary of Significant Accounting Policies
of Notes to Consolidated Financial Statements for further disclosure related
to goodwill and intangible assets. The purchase
price allocation is final.
(Amounts in
Thousands) |
Reptron Acquisition Purchase Price Allocation |
Accounts Receivable |
$13,218 |
Inventory |
24,948 |
Deferred Tax Asset |
1,130 |
Other Current Assets |
1,173 |
Property and Equipment |
18,380 |
Customer Relationship Intangible
Asset |
937 |
Other Long-Term Assets |
339 |
Goodwill |
11,876 |
Total assets acquired |
$72,001 |
Accounts Payable |
$16,584 |
Accrued Expenses |
3,547 |
Accrued Restructuring |
767 |
Other Liabilities |
184 |
Total liabilities
assumed |
$21,082 |
Net assets acquired |
$50,919 |
Note 3 Inventories
Inventories are valued using the lower of
last-in, first-out (LIFO) cost or market value for approximately 14% and 17% of
consolidated inventories at June 30, 2009 and June 30, 2008, respectively, including approximately
83% and 85% of the Furniture segment inventories at June 30, 2009 and June 30, 2008,
respectively. The EMS segment inventories and
the remaining inventories in the Furniture segment are valued using
the lower of first-in, first-out (FIFO) cost or market value.
Had the FIFO method been used for all inventories, income
from continuing operations would have been $2.4 million lower in fiscal year
2009, $1.1 million higher in fiscal year 2008, and $0.1 million higher in fiscal
year 2007. Certain inventory quantity reductions caused
liquidations of LIFO inventory values, which increased income from continuing
operations by $2.5 million in fiscal year 2009, $0.1 million in fiscal year 2008, and
$1.1 million in fiscal year 2007.
Inventory components at June 30 are as follows:
(Amounts in Thousands) |
2009 |
|
2008 |
Finished products |
$
35,530 |
|
$
42,201 |
Work-in-process |
11,752 |
|
14,363 |
Raw materials |
93,999 |
|
126,583 |
Total FIFO inventory |
$141,281 |
|
$183,147 |
LIFO Reserve |
(14,277) |
|
(18,186) |
Total inventory |
$127,004 |
|
$164,961 |
52
Note 4 Property and Equipment
Major classes of property and equipment at June 30 consist of
the following:
(Amounts in Thousands) |
2009 |
|
2008 |
Land |
$
9,399 |
|
$
9,472 |
Buildings and improvements |
167,997 |
|
171,249 |
Machinery and equipment |
331,139 |
|
326,136 |
Construction-in-progress |
29,940 |
|
23,123 |
Total |
$
538,475 |
|
$
529,980 |
Less: Accumulated depreciation |
(338,001) |
|
(340,076) |
Property and equipment, net |
$
200,474 |
|
$
189,904 |
The useful lives used in computing depreciation are based on
the Company's estimate of the service life of the classes of property, as
follows:
|
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 from
continuing operations,
including asset write-downs associated with the Company's restructuring plans,
totaled, in millions, $33.9 for fiscal year 2009, $34.0 for fiscal year 2008, and $31.7 for fiscal year 2007.
At June 30, 2009, in thousands, assets totaling $1,358
were classified as held for sale and consisted of $1,160 for a facility and
land related to the Gaylord, Michigan, exited operation within the EMS
segment and $198 for equipment related to previously held timberlands. All
of these assets were reported as unallocated corporate assets for segment
reporting purposes. The Company expects to sell these assets during the next
12 months.
Due to a decline in the market value of the held
for sale EMS
facility, the Company recognized a pre-tax impairment loss, in thousands, of
$214 during fiscal year 2009. The impairment was recorded on the Restructuring
Expense line item of the Company's Consolidated Statements of Income. The fair
value of the assets was determined by prices for similar assets.
During fiscal year 2009, the Company decided to
sell its undeveloped land holdings and timberlands using an auction approach.
The undeveloped land holdings and timberlands were included on the Other Assets
line item of the Company's June 30, 2008 Consolidated Balance Sheet. As a result
of the auction, the Company recognized a pre-tax gain, in thousands, of $31,489,
which was recorded on the Other General Income line item of the Company's
Consolidated Statements of Income. In addition, in thousands, $244 of equipment
related to the timberlands was sold during fiscal year 2009. The Company
recognized an immaterial gain on the sale of this equipment.
At June 30, 2008, the Company had, in thousands, assets totaling $1,374 classified as held for sale.
53
Note 5 Commitments and Contingent Liabilities
Leases:
Operating leases from continuing operations for
certain office, showroom, manufacturing facilities, land, and equipment, which expire from fiscal year 2010
to 2056, contain provisions under which minimum annual lease payments are, in
millions, $3.4, $3.3, $2.6, $1.7, and $1.4 for the five years ended June 30,
2014, respectively, and aggregate $2.7 million from fiscal year 2015 to the
expiration of the leases in fiscal year 2056. The Company is obligated
under certain real estate leases to maintain the properties and pay real estate
taxes. Certain of these leases include renewal options and escalation
clauses. Total rental expenses from continuing operations amounted to, in millions, $6.1, $7.8, and
$6.5 in fiscal years 2009, 2008, and 2007, respectively.
As of June 30, 2009, the Company had no capitalized leases.
As of June 30, 2008, the Company had, in millions, $0.4 of capitalized leases
for equipment.
Guarantees:
As of June 30, 2009 and 2008, the Company had no
guarantees issued which were contingent on the future performance of another
entity. Standby letters of credit are issued to third-party suppliers, lessors, and insurance and financial institutions and can only be drawn upon in
the event of the Company's failure to pay its obligations to the beneficiary.
As of June 30, 2009 and 2008, the Company had a maximum financial exposure from
unused standby letters of credit totaling approximately $5.0 million and $5.1
million, respectively. The Company is not aware of circumstances that would require
it to perform under any of these arrangements and believes that the resolution
of any claims that might arise in the future, either individually or in the
aggregate, would not materially affect the Company's financial statements.
Accordingly, no liability has been recorded as of June 30, 2009 and 2008 with
respect to the standby letters of credit. The Company also enters into
commercial letters of credit to facilitate payments to vendors and from
customers.
Product Warranties:
The Company estimates product warranty liability at the time
of sale based on historical repair cost trends in conjunction with the length of
the warranty offered. Management refines the warranty liability in
cases where specific warranty issues become known.
Changes in the product warranty accrual during fiscal years
2009, 2008, and 2007 were as follows:
(Amounts in Thousands) |
2009 |
|
2008 |
|
2007 |
Product
Warranty Liability at the beginning of the year |
$
1,470 |
|
$
2,147 |
|
$
2,127 |
Accrual for
warranties issued |
1,311 |
|
446 |
|
961 |
Accruals (reductions) related to pre-existing
warranties (including changes in estimates) |
509 |
|
(166) |
|
(47) |
Settlements
made (in cash or in kind) |
(1,114) |
|
(957) |
|
(894) |
Product
Warranty Liability at the end of the year |
$
2,176 |
|
$
1,470 |
|
$
2,147 |
Note 6 Long-Term Debt and Credit Facility
Long-term debt consists of long-term notes payable,
which have an interest rate of 9.25%. Aggregate maturities of long-term debt for the next
five years are, in thousands, $60, $61, $12, $14, and $15, respectively, and
aggregate $258 thereafter. Due dates for long-term debt occur in fiscal years
2011 and 2025.
The Company maintains a revolving credit facility
which expires in April 2013 and 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, subject to participating banks' consent. The Company uses this facility for acquisitions and general corporate purposes.
A commitment fee is payable on the unused portion of the credit facility which was
immaterial to the Company's operating results for fiscal years 2009, 2008, and 2007. The commitment fee on the unused portion of principal amount of the credit
facility is payable at a rate that ranges from 12.5 to 15.0 basis points per
annum as determined by the Company's leverage ratio. Borrowings under the credit agreement bear interest at a floating
rate based, at the Company's option, upon a London Interbank Offered Rate
(LIBOR) plus an applicable percentage or the greater of the federal funds rate
plus an applicable percentage and the prime rate. The Company is in
compliance with debt covenants requiring it to maintain a certain interest coverage ratio, minimum net worth, and other terms and
conditions.
54
The Company also maintains a separate foreign
credit facility for its EMS segment operation in Thailand which is backed by the $100 million revolving credit facility.
The separate foreign credit facility is expected to be reviewed during fiscal year
2010 for renewal. The interest rate applicable to borrowings in US dollars under the separate
foreign credit facility is charged at 0.75% per annum over the Singapore Interbank Money Market Offered Rate (SIBOR). The interest rate on borrowings in Thai Baht under the separate foreign credit
facility is charged at the prevailing market rate.
At June 30, 2009, the Company had $12.7 million
of short-term borrowings outstanding. The Company utilized a Euro currency
borrowing which provides a natural currency hedge against Euro denominated
intercompany notes between the US parent and the Euro functional currency
subsidiaries. The Company also had approximately $5.0 million in letters of
credit against the credit facility. There were no borrowings outstanding under
the
separate Thailand credit facility which is backed by the $100 million credit
facility. Total availability to borrow under the $100 million credit facility
was $82.3 million at June 30, 2009. At June 30, 2008, the Company
had $52.6 million of short-term borrowings outstanding under the credit
facility.
The Company also has a credit facility for its
EMS segment operation in Wales, United Kingdom.
The facility will be reviewed in November 2009 and can be terminated by either
the bank or the Company at any time. The facility is comprised of an overdraft
facility which allows for multi-currency borrowings up to 2 million Sterling equivalent
(approximately $3.3 million US dollars at June 30, 2009 exchange rates) and an
engagement facility of 3.5 million Sterling equivalent (approximately $5.8 million US dollars at
June 30, 2009 exchange rates), which can be used only for payment of customs,
duties, or value-added taxes in the event of the Company's failure to pay its
obligations. Bank overdrafts may be deemed necessary to
satisfy short-term cash needs rather than funding from intercompany sources. The interest rate applicable to the Sterling overdraft facility is charged at
2%
per annum over the Bank of England's Sterling Base Rate. The interest rate
applicable to the engagement facility is determined by the bank at the time a
drawing request is made. The Company had no
borrowings outstanding under this credit facility at June 30, 2009 and 2008.
During fiscal year 2009, the Company entered
into a credit facility for
its EMS segment operation in Poznan, Poland, which allows for
multi-currency borrowings up to 6 million Euro equivalent
(approximately $8.5 million U.S. dollars at June 30, 2009
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 Poznan location rather than funding from
intercompany sources. Interest on the overdraft is charged at 1%
over the Euro Overnight Index Average (EONIA). This overdraft facility can be cancelled
at any time by either the bank or the Company. At June 30,
2009, the Company had no borrowings outstanding under this
overdraft facility.
As of June 30, 2009 and 2008, the weighted
average interest rates on the Company's short-term borrowings outstanding under
the credit facilities were 1.46% and 4.99%, respectively. Cash payments for interest on borrowings were, in
thousands, $1,807, $2,197, and $889, in fiscal years 2009, 2008, and 2007, respectively.
Capitalized interest expense was not material during fiscal years 2009, 2008,
and 2007.
Note 7
Employee Benefit Plans
Retirement Plans:
The Company has a trusteed defined contribution retirement
plan in effect for substantially all domestic employees meeting the eligibility
requirements. The plan includes a 401(k) feature, thereby permitting
participants to make additional voluntary contributions on a pre-tax basis. Payments by the Company to the trusteed plan have a five-year vesting schedule
and are held for the sole benefit of participants. The Company also maintains a trusteed defined contribution retirement plan for employees
of acquired companies.
The Company maintains a supplemental employee retirement plan
(SERP) for executive employees which enable them to defer cash compensation on a
pre-tax basis in excess of IRS limitations. The SERP is structured as a
rabbi trust, and therefore assets in the SERP portfolio are subject to creditor
claims in the event of bankruptcy.
Company contributions for domestic employees are based on a percent of net income
as determined by the Compensation and
Governance Committee of the Board of Directors. There was no employer
contribution to the retirement plans during fiscal year 2009. Total expense
related to employer contributions to the retirement plans was $5.8 million for
each of fiscal years 2008 and 2007.
Employees of certain foreign subsidiaries are
covered by local pension or retirement plans. Total expense related to
employer contributions to these foreign plans for 2009, 2008, and 2007 was, in
millions, $0.7, $1.0, and $0.9, respectively.
55
Severance Plans:
The Company maintains severance plans for
all domestic employees. The plans, which were initiated at the end of fiscal
year 2007, provide severance benefits
to eligible employees meeting the plans' qualifications, primarily involuntary
termination without cause. There are no statutory requirements for the Company
to contribute to the plans, nor do employees contribute to the plans. The
plans hold no assets. Benefits are paid using available cash on hand when
eligible employees meet plan qualifications for payment. Benefits are
based upon an employee's years of service and accumulate up to certain limits
specified in the plans and include both salary and medical benefits. The
components and changes in the Benefit Obligation, Accumulated Other
Comprehensive Income (Loss), and Net Periodic Benefit Cost are as follows:
(Amounts in Thousands) |
2009 |
|
2008 |
Changes and Components of Benefit Obligation: |
|
|
|
Benefit obligation at beginning of year |
$ 2,177 |
|
$ 2,200 |
Service cost |
432 |
|
282 |
Interest cost |
205 |
|
120 |
Actuarial loss for the period |
3,854 |
|
130 |
Benefits paid |
(1,199) |
|
(555) |
Benefit obligation at end of year |
$ 5,469 |
|
$ 2,177 |
Balance in current liabilities |
$ 643 |
|
$ 283 |
Balance in noncurrent liabilities |
4,826 |
|
1,894 |
Total benefit obligation recognized in the Consolidated
Balance Sheets |
$ 5,469 |
|
$ 2,177 |
Changes and Components in Accumulated Other Comprehensive Income (Loss)
(before tax): |
|
|
Accumulated Other Comprehensive Income (Loss) at beginning of year |
$ 2,027 |
|
$ 2,200 |
Net change due to unrecognized actuarial loss |
3,336 |
|
113 |
Change due to unrecognized prior service cost |
(285) |
|
(286) |
Accumulated Other Comprehensive Income (Loss) at end of year |
$ 5,078 |
|
$ 2,027 |
Balance in unrecognized actuarial loss |
$ 3,450 |
|
$ 113 |
Balance in unrecognized prior service cost |
1,628 |
|
1,914 |
Total accumulated other comprehensive income (loss) recognized
in Share Owners' Equity |
$ 5,078 |
|
$ 2,027 |
Components of Net Periodic Benefit Cost (before tax): |
|
|
|
Service cost |
$ 432 |
|
$ 282 |
Interest cost |
205 |
|
120 |
Amortization of prior service cost |
285 |
|
286 |
Amortization of actuarial loss |
517 |
|
17 |
Net periodic benefit cost recognized in the Consolidated
Statements of Income |
$ 1,439 |
|
$ 705 |
The significant increase in the benefit obligation was a result of an increase
in the historical rate of severance payments used to project future severance eligible terminations.
The benefit cost in the above table includes only normal recurring levels of
severance activity, as estimated using an actuarial method and management
judgment. Unusual or
nonrecurring severance actions, such as those disclosed in
Note 18 - Restructuring
Expense of Notes to Consolidated Financial Statements, are not estimable
using actuarial methods and are expensed when incurred.
The Company amortizes prior service costs on a
straight-line basis over the average remaining service period of employees
that were active at the time of the plan initiation and amortizes actuarial
losses on a straight-line basis over the average remaining service period of
employees expected to receive benefits under the plan.
The estimated actuarial net loss and prior service
cost 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, $406 and $286, respectively.
56
Assumptions used to determine fiscal year end benefit obligations are as
follows:
|
2009 |
|
2008 |
Discount Rate |
6.6% |
|
5.5% |
Rate of Compensation Increase |
3.0% |
|
5.0% |
Weighted average assumptions used to determine fiscal year net periodic
benefit costs are as follows:
|
2009 |
|
2008 |
Discount Rate |
5.9% |
|
5.5% |
Rate of Compensation Increase |
4.5% |
|
5.0% |
Note 8
Stock Compensation Plans
On August 19, 2003, the Board of Directors adopted the 2003 Stock Option and
Incentive Plan (the "2003 Plan"), which was approved by the Company's Share Owners on October
21,
2008. Under the 2003 Plan, 2,500,000 shares of Common Stock were reserved for
restricted stock, restricted share units, unrestricted share grants, incentive
stock options, nonqualified stock options, performance shares, performance units,
and stock appreciation rights for grant to officers and other key employees of
the Company and to members of the Board of Directors who are not employees.
The 2003 Plan is a ten-year plan. The Company also
has stock options outstanding under a former stock incentive plan, which is
described below. The pre-tax compensation cost that was charged against
income from continuing operations for all of the plans was $2.1 million, $4.0 million, and $4.9
million in
fiscal year 2009, 2008, and 2007, respectively. The total income tax benefit from continuing operations for stock
compensation arrangements was $0.9 million, $1.6 million, and $1.9 million in
fiscal year 2009, 2008, and 2007, respectively. The Company generally uses treasury shares
for fulfillment of option exercises, issuance of performance shares,
and conversion of restricted share units.
Performance Shares:
The Company awards performance shares to officers
and other key employees under the 2003 Plan. Under these awards, a number
of shares will be granted to each participant based upon the attainment of the
applicable bonus percentage calculated under the Company's profit sharing
incentive bonus plan as applied to a total potential share award made and
approved by the Compensation and Governance Committee. Performance shares are vested when issued
shortly after the end of the fiscal year in which the performance measurement
period is complete and are issued as Class A and Class B common shares. Certain outstanding performance shares are applicable to performance measurement
periods in future fiscal years and will be measured at fair value when the
performance targets are established in future fiscal years. The contractual life of performance shares
ranges from one to five years. If a participant is not employed by the
Company on the date of issuance, the performance share award is forfeited,
except in the case of death, retirement at age 62 or older, total permanent
disability, or certain other circumstances described in
the Company's employment policy. Additionally, to the extent
performance conditions are not fully attained, performance shares are forfeited.
A summary of performance share activity under the 2003 Plan during
fiscal year
2009 is presented below:
|
Number of Shares |
|
Weighted
Average Grant Date Fair Value |
Performance shares outstanding
at July 1, 2008 |
759,052
|
|
$12.16
|
Granted |
446,645
|
|
10.37
|
Vested |
(109,197)
|
|
12.17
|
Forfeited |
(188,465)
|
|
12.09
|
Performance shares outstanding
at June 30, 2009 |
908,035
|
|
$10.39
|
57
As of June 30, 2009, there was approximately $1.2
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 2009
through August 2013, with a weighted average vesting period of 1.6 years. The
fair value of performance shares is based on the stock price at the date of
award, reduced by the present value of dividends normally paid over the vesting
period which are not payable on outstanding performance share awards. The
weighted average grant date fair value was $10.37; $12.16; and $17.42 for
performance share awards granted in fiscal year 2009, 2008, and 2007,
respectively. During fiscal year 2009,
2008,
and 2007, respectively, 109,197; 201,598; and 150,651 performance shares vested
at a fair value of $1.3 million, $3.4 million, and $1.8 million. 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.
Restricted Share Units:
Nonvested Restricted Share Units (RSU) awarded to officers and other key
employees are currently outstanding under the 2003 Plan. RSUs
vest five years after the date of award. Upon vesting, the
outstanding number of RSUs and the value of dividends accumulated over the
vesting period are converted to shares of Class A and Class B common stock. If the employment of a holder of an RSU terminates before the RSU has vested for any reason other than
death, retirement at age 62 or older, total permanent disability, or certain other circumstances described in the Company's
employment policy, the RSU and accumulated dividends will be forfeited.
A summary of RSU activity under the 2003 Plan during fiscal
year 2009 is
presented below:
|
Number of Share Units |
|
Weighted
Average Grant Date Fair Value |
Restricted Share Units
outstanding at July 1, 2008 |
480,900
|
|
$15.77
|
Granted |
-0-
|
|
-0- |
Vested |
(239,250)
|
|
17.29
|
Forfeited |
(1,700)
|
|
15.95
|
Restricted Share Units
outstanding at June 30, 2009 |
239,950
|
|
$14.25
|
As of June 30, 2009, there was approximately $0.4 million of unrecognized
compensation cost related to nonvested RSU compensation arrangements awarded
under the 2003 Plan. That cost is expected to be recognized over a weighted
average period of 0.6 years. The fair value of RSU awards is
based on the stock price at the date of award. The total fair value of RSU
awards vested during fiscal year 2009, 2008, and 2007 was, in thousands, $4,137, $233,
and $24,
respectively.
Unrestricted Share Grants:
Under the 2003 Plan, unrestricted shares may be granted to participants as
consideration for service to the Company. Unrestricted share grants do not
have vesting periods, holding periods, restrictions on sale, or other
restrictions. The fair value of unrestricted shares is based on the stock
price at the date of the award. During fiscal year 2009, 2008, and 2007,
respectively, the Company granted a total of 29,545; 13,186; and 7,668 unrestricted shares of
Class B common stock at an average grant date fair value of $6.45, $13.16, and
$24.53,
for a total fair value of $0.2 million, $0.2 million, and $0.2 million. These
shares were issued to 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, and to officers of the Company.
58
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. The
1996 Directors' Stock Compensation and Option Plan, available to all members of
the Board of Directors, was approved by the Company's Share Owners on October
22, 1996. Under the terms of that plan, Directors electing to receive all, or a
portion, of their fees in the form of Company stock were also granted a number
of stock options equal to 50% of the number of shares received for compensation
of fees. All outstanding shares under the Directors' Stock Compensation and Option Plan
expired during fiscal year 2009. No shares remain available for
new grants under the Company's prior stock option plans.
There were no stock option grants awarded during
fiscal years 2009, 2008, and 2007. 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
one to 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 2009 is
presented below:
|
Number of Shares |
|
Weighted
Average Exercise Price |
|
Weighted
Average Remaining Contractual Life |
|
Aggregate Intrinsic Value |
Options outstanding at July 1,
2008 |
779,162
|
|
$15.45
|
|
|
|
|
Granted |
-0-
|
|
-0-
|
|
|
|
|
Exercised |
-0-
|
|
-0-
|
|
|
|
|
Forfeited |
(4,500)
|
|
15.06
|
|
|
|
|
Expired |
(27,144)
|
|
18.12
|
|
|
|
|
Options outstanding at
June 30, 2009 |
747,518
|
|
$15.36
|
|
2.9 years
|
|
$ -0-
|
Options vested |
747,518
|
|
$15.36
|
|
2.9 years
|
|
$ -0-
|
|
|
|
|
|
|
|
|
Options exercisable at
June 30, 2009 |
747,518
|
|
$15.36
|
|
2.9 years
|
|
$ -0-
|
No options were exercised during fiscal years 2009 and 2008. The total intrinsic value of options exercised during
fiscal year 2007 was $5.8 million. The value of existing shares held by
employees was used to exercise stock options. The actual tax benefit
realized for the tax deductions from option exercises totaled $1.9 million
for fiscal year 2007.
Note 9 Income Taxes
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Income
tax benefits associated with net operating losses of,
in thousands, $4,582 expire from fiscal year 2013
to 2029. Income tax benefits associated with
tax credit carryforwards of, in thousands, $3,506, expire from fiscal year 2016
to 2022. A valuation reserve was provided as of June 30, 2009 for deferred
tax assets relating to certain foreign and state net operating losses of, in
thousands, $1,573, certain state tax
credit carryforwards of, in thousands, $3,407, and, in thousands, $152 related to
other deferred tax assets that the Company currently
believes are more likely than not to remain unrealized in the future.
59
60
In 2006, the FASB issued FIN 48, which clarifies
the accounting for uncertainty in tax positions. FIN 48 requires that the
Company
recognize in its financial statements the impact of a tax position, if that
position is more likely than not of being sustained on audit, based on the
technical merits of the position. The Company adopted the provisions of FIN 48
on July 1, 2007, the beginning of the Company's fiscal year.
Upon the adoption of FIN 48 on July 1, 2007, the Company recognized a $5.8
million increase in the liability for unrecognized tax benefits including
interest and penalties. The increase
was accounted for as a reduction to the July 1, 2007 balance of retained
earnings in the amount of $0.7 million and an increase to deferred tax assets of
$5.1 million. The total liability for unrecognized tax benefits totaled
$6.4 million as of July 1, 2007.
61
Changes in the unrecognized tax benefit
during fiscal years 2009 and 2008 were as follows:
(Amounts in Thousands) |
2009 |
|
2008 |
Beginning balance - July
1 |
$ 1,020 |
|
$ 5,617 |
Tax positions related to
prior years: |
|
|
|
Additions |
341 |
|
161 |
Reductions [1] |
-0- |
|
(4,737)
|
Tax positions related to
current year: |
|
|
|
Additions |
985 |
|
70 |
Reductions |
(3)
|
|
-0- |
Settlements |
(3)
|
|
(13)
|
Lapses in statute of
limitations |
(175)
|
|
(78)
|
Ending balance - June 30 |
$ 2,165
|
|
$ 1,020
|
|
|
|
|
Portion that, if
recognized, would reduce tax expense and effective tax rate |
$ 1,905
|
|
$ 730
|
[1] The $4.7 million reduction during fiscal year 2008 was due
primarily to the IRS approving Form 3115 Application for Change in Accounting
Method. The approval of Form 3115 eliminated the need for an unrecognized tax
benefit liability. The reduction in the liability resulted in a corresponding
adjustment to deferred tax assets.
(Amounts in Thousands) |
As of
June 30, 2009 |
|
As of
June 30, 2008 |
|
As of
July 1, 2007 |
Accrued Interest and
Penalties: |
|
|
|
|
|
Interest |
$ 344
|
|
$ 341
|
|
$ 674
|
Penalties |
146
|
|
159
|
|
151
|
Accrued interest and penalties are not included
in the tabular roll forward of unrecognized tax benefits above. The Company recognizes interest and penalties
accrued related to unrecognized tax benefits as Interest expense and
Non-operating expense, respectively, under the Other Income (Expense) category on the
Consolidated Statements of Income. Interest and penalties recognized
for the fiscal years ended June 30, 2009 and June 30, 2008 were, in
thousands, $10 and $325 income, respectively.
The Company, or one of its wholly-owned
subsidiaries, files U.S. federal income tax returns and income tax returns in
various state, local, and foreign jurisdictions. The Company is no longer
subject to any significant U.S. federal tax examinations by tax authorities for
years before fiscal year 2006. The Company is subject to various
state and local income tax examinations by tax authorities for years after
June 30, 2002 and various foreign jurisdictions for years after June 30, 2003. The Company does not expect the change in the amount of
unrecognized tax benefits in the next 12 months to
have a significant impact on the results of operations or the financial position
of the Company.
Note 10 Common Stock
On a fiscal year basis, shares of Class B Common Stock are
entitled to an additional $0.02 per share dividend more than the dividends paid
on Class A Common Stock, provided that dividends are paid on the Company's Class
A Common Stock. The owners of both Class A and Class B Common Stock are
entitled to share pro-rata, irrespective of class, in the distribution of the
Company's available assets upon dissolution.
Owners of Class B Common Stock are entitled to elect, as a
class, one member of the Company's Board of Directors. In addition, owners
of Class B Common Stock are entitled to full voting powers, as a class, with
respect to any consolidation, merger, sale, lease, exchange, mortgage, pledge,
or other disposition of all or substantially all of the Company's fixed assets,
or dissolution of the Company. Otherwise, except as provided by statute
with respect to certain amendments to the Articles of Incorporation, the owners
of Class B Common Stock have no voting rights, and the entire voting power is
vested in the Class A Common Stock, which has one vote per share. The Habig families own directly or share voting power in excess of
50% of the Class
A Common Stock of Kimball International, Inc. The owner of a share of
Class A Common Stock may, at their option, convert such share into one share of
Class B Common Stock at any time.
62
If dividends are not paid on shares of the Company's Class
B Common Stock for a period of thirty-six consecutive months, or if at any time
the number of shares of Class A Common Stock issued and outstanding is less than
15% of the total number of issued and outstanding shares of both Class A and
Class B Common Stock, then all shares of Class B Common Stock shall
automatically have the same rights and privileges as the Class A Common Stock,
with full and equal voting rights and with equal rights to receive dividends as
and if declared by the Board of Directors.
During fiscal year 2008, cash payments for
repurchases of Class B Common Stock were $24.8 million. With these repurchases,
the Company completed a previously authorized share repurchase program. Subsequent to the completion of the previously authorized share repurchase
program, the Board of Directors authorized a plan which allows for the
repurchase of up to an additional 2,000,000 shares of the Company's common
stock.
Note 11 Fair Value of Financial
Assets and Liabilities
In September 2006, the
FASB issued SFAS No. 157, Fair Value Measurements (FAS 157), which
defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The provisions
of FAS 157 were effective for the Company as of July 1, 2008, however,
the FASB deferred the effective date of FAS 157 until the beginning of
the Company's fiscal year 2010, as it relates to fair value measurement
requirements for non-financial assets and liabilities that are not
measured at fair value on a recurring basis. Accordingly, the Company
adopted FAS 157 for financial assets and liabilities measured at fair
value on a recurring basis at July 1, 2008. The adoption did not have a
material impact on the Company's financial statements.
The fair value
framework as established in FAS 157 requires the categorization of
assets and liabilities 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:
Financial Instruments
Recognized at Fair Value
The
following methods and assumptions were used to measure fair value:
Financial Instrument |
|
Valuation Technique/Inputs Used |
Cash Equivalents |
|
Market--Quoted market prices |
Available-for-sale securities: Municipal securities |
|
Market--Based on market data which use evaluated
pricing models and incorporate available trade, bid, and other market
information |
Derivative Assets |
|
Market--Based on observable market inputs using
standard calculations, such as time value, forward interest yield
curves, and current spot rates, considering counterparty credit risk |
Nonqualified supplemental employee retirement plan
assets |
|
Market--Quoted market prices |
Derivative Liabilities |
|
Market--Based on observable market inputs using
standard calculations, such as time value, forward interest rate
yield curves, and current spot rates adjusted for the Company's
nonperformance risk |
63
As of June 30, 2009,
the fair values of financial assets and liabilities that are measured at
fair value on a recurring basis
are categorized as follows:
(Amounts in Thousands) |
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Assets |
|
|
|
|
|
|
|
Cash equivalents |
$42,114 |
|
$
-0- |
|
$
-0- |
|
$42,114 |
Available-for-sale securities: Municipal Securities |
-0- |
|
25,376 |
|
-0- |
|
25,376 |
Derivatives |
-0- |
|
784 |
|
-0- |
|
784 |
Nonqualified supplemental employee retirement plan assets |
10,992 |
|
-0- |
|
-0- |
|
10,992 |
Total assets at fair value |
$53,106
|
|
$26,160
|
|
$ -0-
|
|
$79,266
|
Liabilities |
|
|
|
|
|
|
|
Derivatives |
$ -0-
|
|
$ 3,407 |
|
$ -0- |
|
$ 3,407 |
Total liabilities at fair value |
$ -0-
|
|
$ 3,407
|
|
$ -0-
|
|
$ 3,407
|
There were no changes
in the Company's valuation techniques or inputs used to measure fair values on a
recurring basis as a result of adopting FAS 157.
Disclosure of Other Financial Instruments
In addition
to the methods and assumptions used to record the fair value of financial
instruments as discussed in the Fair Value Measurements section above, the following methods and assumptions
were used to estimate the fair value of financial instruments as required by SFAS No. 107, Disclosures About Fair
Values of Financial Instruments. There were no changes in the methods or
significant assumptions used in estimating fair value for the year ended June 30, 2009.
Other
financial instruments contained in the Consolidated Balance Sheets where the
carrying amount approximates fair value:
Assets |
|
Liabilities |
Certain cash and cash equivalents |
|
Accounts payable |
Receivables |
|
Borrowings under credit facilities |
Other assets not recorded at fair value |
|
Dividends payable |
|
|
Accrued expenses |
The fair value estimate for long-term debt, excluding
capital leases, was estimated using a
discounted cash flow analysis based on quoted long-term debt market rates
adjusted for the Company's non-performance risk. There was an immaterial
difference between the carrying value and estimated fair value of long-term
debt as of June 30, 2009 and 2008.
64
Note 12 Derivative Instruments
The Effect of Derivative Instruments on Other
Comprehensive Income (Loss) |
|
|
|
|
|
|
(Amounts in Thousands) |
|
|
|
|
|
June 30 |
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive
Income (Loss) (OCI) on Derivative (Effective Portion) |
|
|
|
Foreign currency forward contracts |
|
|
|
$(13,832) |
|
$ (4,396) |
|
$ 2,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Derivative Instruments on Consolidated Statements of
Income |
|
|
|
|
(Amounts in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30 |
Derivatives in FAS 133 Cash Flow Hedging Relationships |
|
Location of Gain or (Loss) |
|
2009 |
|
2008 |
|
2007 |
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI
into Income (Effective Portion) |
Foreign currency forward contracts |
|
Net Sales |
|
$ (280) |
|
$ -0- |
|
$ -0- |
Foreign currency forward contracts |
|
Cost of Sales |
|
(5,749) |
|
(2,069) |
|
-0- |
Foreign currency forward contracts |
|
Non-operating income |
|
(1,878) |
|
(1,061) |
|
988 |
Total |
|
|
|
|
|
$ (7,907) |
|
$ (3,130) |
|
$ 988 |
|
|
|
|
|
|
|
|
|
|
|
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI
into Income (Ineffective Portion) |
Foreign currency forward contracts |
|
Non-operating income |
|
$ 165 |
|
$ -0- |
|
$ 299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments under FAS 133 |
|
|
|
|
|
|
|
|
Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivative |
|
|
|
|
Foreign currency forward contracts |
|
Non-operating income |
|
$ 1,274 |
|
$ -0- |
|
$ -0- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL DERIVATIVE PRE-TAX GAIN (LOSS) RECOGNIZED IN INCOME |
|
|
|
$ (6,468) |
|
$ (3,130) |
|
$ 1,287 |
66
Note 13 Short-Term Investments
The Company's short-term investment portfolio
consists of available-for-sale securities which is comprised of exempt
securities issued by municipalities ("Municipal Securities") which can
be in the form of
General Obligation Bonds, Revenue Bonds, Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes, pre-refunded (by U.S. Govt. or
State and Local Govt.) bonds, and short-term putable bonds. The Company's investment policy
dictates that Municipal Securities must be investment grade quality.
Available-for-sale securities are recorded at
fair value. See
Note
11 - Fair Value of Financial Assets and Liabilities of Notes to Consolidated Financial
Statements for more information on the fair value of available-for-sale
securities. The amortized cost basis reflects the original purchase price,
with discounts and premiums amortized over the life of the security.
Unrealized losses on debt securities are recognized in earnings when a
company has an intent to sell or is likely to be required to sell before
recovery of the loss, or when the debt security has incurred a credit loss.
Otherwise, unrealized gains and losses are recorded net of the tax related
effect as a component of Share Owners' Equity. Municipal Securities mature within a
four-year
period.
Municipal Securities |
June
30 |
(Amounts in Thousands) |
2009 |
|
2008 |
Amortized cost
basis |
$24,606
|
|
$51,216
|
Unrealized holding gains |
770
|
|
502
|
Unrealized holding losses
|
-0-
|
|
(83)
|
Other-than-temporary impairment |
-0-
|
|
-0-
|
Fair Value |
$25,376
|
|
$51,635
|
There were no investments which were in an unrealized loss
position as of June 30, 2009. Municipal
Securities in a continuous unrealized loss position were as follows:
Municipal Securities |
June
30 |
(Amounts in Thousands) |
2009 |
|
2008 |
Continuous loss
position for less than 12
months: |
|
|
|
Fair value |
$ -0-
|
|
$18,535
|
Unrealized loss |
-0-
|
|
(83)
|
Continuous loss
position for 12 months or
greater: |
|
|
|
Fair value |
-0-
|
|
-0-
|
Unrealized loss |
-0-
|
|
-0-
|
Activity for the Municipal Securities that were classified as
available-for-sale was as follows:
Municipal Securities |
For the Year Ended June 30 |
(Amounts in Thousands) |
2009 |
|
2008 |
|
2007 |
Proceeds from sales |
$34,337 |
|
$39,126 |
|
$13,403 |
Gross realized gains from sale of
available-for-sale securities included in earnings |
1,114 |
|
305 |
|
17 |
Gross realized losses from sale of
available-for-sale securities included in earnings |
(88) |
|
(71) |
|
(72) |
Net unrealized holding gain (loss) included in
Accumulated Other Comprehensive Income (Loss) |
1,377 |
|
953 |
|
22 |
Net (gains) losses reclassified out of Accumulated
Other Comprehensive Income (Loss) |
(1,026) |
|
(234) |
|
104 |
Realized gains and losses are reported in
Other Income (Expense) category of the Consolidated Statements of Income.
The cost of each individual security was used in computing the
realized gains and losses. During fiscal year 2007, the Company also
recorded, in thousands, $49 of other-than-temporary impairment.
67
The Company maintains a self-directed supplemental employee retirement plan
(SERP) for executive employees. The SERP is structured as a rabbi trust, and
therefore assets in the SERP portfolio are subject to creditor claims in the
event of bankruptcy. The Company recognizes SERP investment assets on the
balance sheet at current fair value. A SERP liability of the same amount is
recorded on the balance sheet representing the Company's obligation to
distribute SERP funds to participants. The SERP investment assets are
classified as trading, and accordingly, realized and unrealized gains and
losses are recognized in income. Adjustments made to revalue the SERP
liability are also recognized in income and exactly offset valuation
adjustments on SERP investment assets. The change in net unrealized holding
gains and (losses) at June 30, 2009, 2008, and 2007 was, in thousands, ($2,739),
($2,385), and $2,939, respectively. SERP asset and liability balances were
as follows:
|
June
30 |
(Amounts in Thousands) |
2009 |
|
2008 |
SERP investment - current asset |
$ 3,536
|
|
$ 2,958
|
SERP investment - other long-term asset |
7,456
|
|
10,009
|
Total SERP investment |
$
10,992
|
|
$
12,967
|
SERP obligation - current liability |
$ 3,536
|
|
$ 2,958
|
SERP obligation - other long-term liability |
7,456
|
|
10,009
|
Total SERP obligation |
$ 10,992
|
|
$ 12,967
|
Note 14 Accrued Expenses
Accrued expenses consisted of:
|
June 30 |
(Amounts in Thousands) |
2009 |
|
2008 |
Taxes |
$
7,573 |
|
$
5,882 |
Compensation |
20,292
|
|
24,596
|
Retirement plan |
-0- |
|
5,617
|
Insurance |
7,023
|
|
7,376
|
Restructuring |
3,793
|
|
6,728
|
Other expenses |
13,745
|
|
18,854
|
Total
accrued expenses |
$52,426
|
|
$69,053
|
68
Note 15 Segment and Geographic Area Information
Management organizes the Company into segments based upon
differences in products and services offered in each segment. The segments
and their principal products and services are as follows: The EMS segment provides engineering and manufacturing services which utilize
common production and support capabilities to a variety of industries globally. The EMS segment focuses on electronic assemblies that have high durability
requirements and are sold on a contract basis and produced to customers'
specifications. The Company 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.
Included in the EMS segment are sales to one
major customer. Sales to Bayer AG affiliates totaled, in millions, $149.5,
$149.9, and $198.9 in fiscal years 2009, 2008, and
2007, respectively, representing 12%, 11%, and 15% of consolidated net sales,
respectively, for such periods.
The accounting policies of the segments are the same as those
described in
Note 1 - Summary of Significant Accounting Policies of Notes to Consolidated
Financial Statements with additional
explanation of segment allocations as follows. Corporate assets and operating costs
are allocated to the segments based on the extent to which each segment uses a
centralized function, where practicable. However, certain common costs
have been allocated among segments less precisely than would be required for
standalone financial information prepared in accordance with accounting
principles generally accepted in the United States of America. Unallocated
corporate assets include cash and cash equivalents, short-term investments, and
other assets not allocated to segments. Unallocated corporate income
from continuing operations consists of income not allocated to segments for purposes of evaluating
segment performance, such as the gain on the sale of the Company's undeveloped
land holdings and timberlands, and includes income from corporate investments and other
non-operational items. Sales between the Furniture segment and EMS segment are not material.
The Company evaluates segment performance based upon several
financial measures, although the two most common include economic profit, which
incorporates a segment's cost of capital when evaluating financial performance,
and income from continuing operations. Income from continuing operations is reported for each segment as it is the
measure most consistent with the measurement principles used in the Company's
consolidated financial statements.
The Company aggregates multiple operating
segments into each reportable segment. The aggregated operating segments
have similar economic characteristics and meet the other aggregation criteria
required by SFAS 131, Disclosure about Segments of an Enterprise and Related
Information.
69
Income statement amounts presented are from
continuing operations.
|
At or For the Year Ended June 30, 2009 |
|
Electronic Manufacturing Services |
|
Furniture |
|
Unallocated Corporate and Eliminations |
|
Consolidated |
|
|
|
|
(Amounts in Thousands) |
|
|
|
Net Sales |
$ 642,802 |
|
$ 564,618 |
|
$ -0- |
|
$ 1,207,420 |
Depreciation and Amortization |
22,181 |
|
15,437 |
|
-0- |
|
37,618 |
Goodwill Impairment |
12,826 |
|
1,733 |
|
-0- |
|
14,559 |
Interest Income |
-0- |
|
-0- |
|
2,499 |
|
2,499 |
Interest Expense |
320 |
|
-0- |
|
1,245 |
|
1,565 |
Provision (Benefit) for Income Taxes |
(9,150) |
|
5,054 |
|
12,094 |
|
7,998 |
Income (Loss) from Continuing Operations(1) |
(11,768) |
|
8,285 |
|
20,811 |
|
17,328 |
Total Assets |
351,506 |
|
184,755 |
|
106,008 |
|
642,269 |
Goodwill |
2,608 |
|
-0- |
|
-0- |
|
2,608 |
Capital Expenditures |
36,958 |
|
10,721 |
|
-0- |
|
47,679 |
|
|
|
|
|
|
|
|
|
At or For the Year Ended June 30, 2008 |
|
Electronic Manufacturing Services |
|
Furniture |
|
Unallocated Corporate and Eliminations |
|
Consolidated |
|
|
|
|
(Amounts in Thousands) |
|
|
|
Net Sales |
$ 727,149 |
|
$ 624,836 |
|
$ -0- |
|
$ 1,351,985 |
Depreciation and Amortization |
17,621 |
|
21,800 |
|
-0- |
|
39,421 |
Interest Income |
-0- |
|
-0- |
|
3,362 |
|
3,362 |
Interest Expense |
1,043 |
|
-0- |
|
924 |
|
1,967 |
Provision (Benefit) for Income Taxes |
(9,737) |
|
8,260 |
|
(965) |
|
(2,442) |
Income (Loss) from Continuing Operations(2) |
(15,264) |
|
13,417 |
|
1,925 |
|
78 |
Total Assets |
396,773 |
|
240,674 |
|
85,220 |
|
722,667 |
Goodwill |
13,622 |
|
1,733 |
|
-0- |
|
15,355 |
Capital Expenditures |
27,846 |
|
21,896 |
|
-0- |
|
49,742 |
|
|
|
|
|
|
|
|
|
At or For the Year Ended June 30, 2007 |
|
Electronic Manufacturing Services |
|
Furniture |
|
Unallocated Corporate and Eliminations |
|
Consolidated |
|
|
|
|
(Amounts in Thousands) |
|
|
|
Net Sales |
$ 672,968 |
|
$ 613,962 |
|
$ -0- |
|
$ 1,286,930 |
Depreciation and Amortization |
20,561 |
|
18,093 |
|
-0- |
|
38,654 |
Interest Income |
-0- |
|
-0- |
|
5,237 |
|
5,237 |
Interest Expense |
1,025 |
|
3 |
|
45 |
|
1,073 |
Provision for Income Taxes |
1,489 |
|
11,283 |
|
314 |
|
13,086 |
Income from Continuing Operations(3) |
981 |
|
17,810 |
|
4,475 |
|
23,266 |
Total Assets |
381,631 |
|
225,555 |
|
87,555 |
|
694,741 |
Goodwill |
13,785 |
|
1,733 |
|
-0- |
|
15,518 |
Capital Expenditures |
18,568 |
|
22,313 |
|
-0- |
|
40,881 |
(1) Includes after-tax restructuring charges of $1.8 million in
fiscal year 2009. On a segment basis, the EMS segment recorded a $1.5
million restructuring charge, the Furniture segment recorded a $0.1
million restructuring charge, and Unallocated Corporate and
Eliminations recorded a $0.2 million restructuring charge. See
Note 18 -
Restructuring Expense of Notes to Consolidated Financial
Statements for further discussion. Additionally, in fiscal year
2009, the EMS segment recorded $1.6 million of after-tax income for
earnest money deposits retained by the Company resulting from the
termination of the contract to sell the Company's Poland building
and real estate. Unallocated Corporate and Eliminations also
recorded in fiscal year 2009 $18.9 million of after-tax gains on the
sale of undeveloped land holdings and timberlands. Also, during
fiscal year 2009, the Company recorded $9.1 million of after-tax
costs related to goodwill impairment, consisting of $8.0 million in
the EMS segment and $1.1 million in the Furniture segment. See the
Goodwill and Other Intangible Assets section of
Note
1 - Summary of Significant Accounting Policies of Notes to
Consolidated Financial Statements for further discussion.
|
70
(2) Includes consolidated after-tax restructuring charges of $14.6
million in fiscal year 2008. On a segment basis, the EMS
segment recorded a $12.8 million restructuring charge, the Furniture
segment recorded a $1.3 million restructuring charge, and
Unallocated Corporate and Eliminations recorded a $0.5 million restructuring charge. See
Note 18 -
Restructuring Expense of Notes to Consolidated Financial
Statements for further discussion. The EMS segment also
recorded $0.7 million of after-tax income in fiscal year 2008,
received as part of a Polish offset credit program for investments
made in the Company's Poland operation. |
(3) Includes consolidated after-tax restructuring charges of $0.9
million in fiscal year 2007. On a segment basis, the EMS
segment recorded a $0.1 million restructuring charge,
the Furniture segment recorded a $0.8 million restructuring
charge,
and
Unallocated Corporate and Eliminations recorded a minimal amount of restructuring. See Note 18 - Restructuring Expense of Notes to Consolidated
Financial Statements for further discussion. |
Sales by Product Line: |
|
|
|
|
|
The Furniture segment produces and sells a variety of similar
products and services. Net sales to external customers by product
line within the Furniture segment were as follows: |
|
Year Ended June 30 |
(Amounts in Thousands) |
2009 |
|
2008 |
|
2007 |
Net Sales: |
|
|
|
|
|
Furniture |
|
|
|
|
|
Branded Furniture |
$ 564,618 |
|
$ 624,836 |
|
$ 602,903 |
Contract Private Label Products(4) |
-0- |
|
-0- |
|
11,059 |
Total |
$ 564,618 |
|
$ 624,836 |
|
$ 613,962 |
|
|
|
|
|
|
(4) The Net Sales decline was the result of the planned exit of
Contract Private Label Products which was complete as of June 30,
2007. |
|
|
|
|
|
|
Geographic Area: |
|
|
|
|
|
The following geographic area data includes net sales based on
product shipment destination 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 |
(Amounts in Thousands) |
2009 |
|
2008 |
|
2007 |
Net Sales: |
|
|
|
|
|
United States |
$ 795,861 |
|
$ 990,326 |
|
$ 921,230 |
United Kingdom(5) |
211,766 |
|
-0- |
|
-0- |
Other Foreign |
199,793 |
|
361,659 |
|
365,700 |
Total net sales |
$ 1,207,420 |
|
$ 1,351,985 |
|
$ 1,286,930 |
|
|
|
|
|
|
Long-Lived Assets: |
|
|
|
|
|
United States |
$ 142,187 |
|
$ 166,589 |
|
$ 167,579 |
Poland |
44,807 |
|
24,097 |
|
16,062 |
Other Foreign |
22,806 |
|
26,889 |
|
24,868 |
Total long-lived assets |
$ 209,800 |
|
$ 217,575 |
|
$ 208,509 |
|
|
|
|
|
|
(5) In fiscal year 2009, the Company's Wales facility changed its
shipping arrangement with customers so that products are shipped to
the United Kingdom, and the customer takes possession of the product
in the United Kingdom. It is not practicable to provide the United
Kingdom net sales for prior years because the product shipment
destination occurred throughout Europe, but no individual country
had a significant share of net sales in relation to total net sales. |
71
Note 16 Earnings Per Share
Earnings per share are computed using the two-class common
stock method due to the dividend preference of Class B Common Stock. Basic
earnings per share are based on the weighted average number of shares
outstanding during the period. Diluted earnings per share are based on the
weighted average number of shares outstanding plus the assumed issuance of
common shares and related payment of assumed dividends for all potentially
dilutive securities. Earnings per share of Class A and Class B Common
Stock are as follows:
EARNINGS PER SHARE FROM CONTINUING OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2009 |
|
Year Ended June 30, 2008 |
|
Year Ended June 30, 2007 |
(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 from Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared |
$ 4,617 |
|
$ 10,944 |
|
$ 15,561 |
|
$ 7,476 |
|
$ 16,216 |
|
$23,692 |
|
$ 7,609 |
|
$17,198 |
|
$24,807 |
Undistributed Earnings (Loss) |
525 |
|
1,242 |
|
1,767 |
|
(7,442) |
|
(16,172) |
|
(23,614) |
|
(478) |
|
(1,063) |
|
(1,541) |
Income from Continuing Operations |
$ 5,142 |
|
$ 12,186 |
|
$ 17,328 |
|
$ 34 |
|
$ 44 |
|
$ 78 |
|
$ 7,131 |
|
$16,135 |
|
$23,266 |
Average Basic Shares Outstanding |
11,036 |
|
26,125 |
|
37,161 |
|
11,696 |
|
25,418 |
|
37,114 |
|
11,979 |
|
26,623 |
|
38,602 |
Basic Earnings Per Share from
Continuing Operations |
$ 0.47 |
|
$ 0.47 |
|
|
|
$ 0.00 |
|
$ 0.00 |
|
|
|
$ 0.60 |
|
$ 0.61 |
|
|
Diluted Earnings Per Share from Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared and Assumed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Dilutive Shares |
$ 4,632 |
|
$ 10,945 |
|
$ 15,577 |
|
$ 7,514 |
|
$ 16,224 |
|
$23,738 |
|
$ 7,708 |
|
$17,360 |
|
$25,068 |
Undistributed Earnings (Loss) |
525 |
|
1,226 |
|
1,751 |
|
(7,514) |
|
(16,146) |
|
(23,660) |
|
(565) |
|
(1,237) |
|
(1,802) |
Income from Continuing Operations |
$ 5,157 |
|
$ 12,171 |
|
$ 17,328 |
|
$ -0- |
|
$ 78 |
|
$ 78 |
|
$ 7,143 |
|
$16,123 |
|
$23,266 |
Average Diluted Shares Outstanding |
11,195 |
|
26,151 |
|
37,346 |
|
11,868 |
|
25,504 |
|
37,372 |
|
12,325 |
|
26,932 |
|
39,257 |
Diluted Earnings Per Share
from Continuing Operations |
$ 0.46 |
|
$ 0.47 |
|
|
|
$ 0.00 |
|
$ 0.00 |
|
|
|
$ 0.58 |
|
$ 0.60 |
|
|
Reconciliation of Basic and Diluted EPS from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations Calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used for Basic EPS Calculation |
$ 5,142 |
|
$ 12,186 |
|
$ 17,328 |
|
$ 34 |
|
$ 44 |
|
$ 78 |
|
$ 7,131 |
|
$16,135 |
|
$23,266 |
Assumed Dividends Payable on Dilutive Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
-0- |
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
151 |
|
151 |
Performance shares |
15 |
|
1 |
|
16 |
|
38 |
|
8 |
|
46 |
|
99 |
|
11 |
|
110 |
Reduction of Undistributed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) - allocated based on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A and Class B shares |
-0- |
|
(16) |
|
(16) |
|
(72) |
|
26 |
|
(46) |
|
(87) |
|
(174) |
|
(261) |
Income from Continuing Operations
Used for Diluted EPS Calculation |
$ 5,157 |
|
$ 12,171 |
|
$ 17,328 |
|
$ -0- |
|
$ 78 |
|
$ 78 |
|
$ 7,143 |
|
$16,123 |
|
$23,266 |
Average Shares Outstanding for Basic
EPS Calculation |
11,036 |
|
26,125 |
|
37,161 |
|
11,696 |
|
25,418 |
|
37,114 |
|
11,979 |
|
26,623 |
|
38,602 |
Dilutive Effect of Average Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
-0- |
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
236 |
|
236 |
Performance shares |
38 |
|
2 |
|
40 |
|
61 |
|
12 |
|
73 |
|
160 |
|
16 |
|
176 |
Restricted share units |
121 |
|
24 |
|
145 |
|
111 |
|
74 |
|
185 |
|
186 |
|
57 |
|
243 |
Average Shares Outstanding for Diluted
EPS Calculation |
11,195 |
|
26,151 |
|
37,346 |
|
11,868 |
|
25,504 |
|
37,372 |
|
12,325 |
|
26,932 |
|
39,257 |
Included in dividends declared for the basic and diluted earnings
per share computation are dividends computed and accrued on unvested
Class A and Class B restricted share units, which will be paid by a
conversion to the equivalent value of common shares after a vesting
period. |
In fiscal year 2009, all 755,000 average stock options outstanding
were antidilutive and were excluded from the dilutive calculation.
In fiscal year 2008, all 792,000 average stock options outstanding
were antidilutive and were excluded in the dilutive calculation. In
addition, 149,000 of the 334,000 average restricted share units and
82,000 of the 155,000 average performance share grants were
antidilutive and excluded from the dilutive calculation. In fiscal
year 2007, all 1,147,000 average stock options outstanding were
dilutive and were included in the dilutive calculation. |
72
LOSS PER SHARE FROM DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
June 30, 2009 |
|
June 30, 2008 |
|
June 30, 2007 |
Basic: |
|
|
|
|
|
Class A |
$ 0.00 |
|
$ (0.00) |
|
$ (0.11) |
Class B |
$ 0.00 |
|
$ (0.00) |
|
$ (0.11) |
Diluted: |
|
|
|
|
|
Class A |
$ 0.00 |
|
$ (0.00) |
|
$ (0.11) |
Class B |
$ 0.00 |
|
$ (0.00) |
|
$ (0.11) |
EARNINGS PER SHARE (INCLUDING DISCONTINUED
OPERATIONS) |
|
|
|
|
|
|
|
Year Ended June 30, 2009 |
|
Year Ended June 30, 2008 |
|
Year Ended June 30, 2007 |
(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 (Loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared |
$ 4,617 |
|
$ 10,944 |
|
$ 15,561 |
|
$ 7,476 |
|
$ 16,216 |
|
$ 23,692 |
|
$7,609 |
|
$17,198 |
|
$24,807 |
Undistributed Earnings (Loss) |
525 |
|
1,242 |
|
1,767 |
|
(7,481) |
|
(16,257) |
|
(23,738) |
|
(1,754) |
|
(3,901) |
|
(5,655) |
Net Income (Loss) |
$ 5,142 |
|
$ 12,186 |
|
$ 17,328 |
|
$ (5) |
|
$ (41) |
|
$ (46) |
|
$5,855 |
|
$13,297 |
|
$19,152 |
Average Basic Shares Outstanding |
11,036 |
|
26,125 |
|
37,161 |
|
11,696 |
|
25,418 |
|
37,114 |
|
11,979 |
|
26,623 |
|
38,602 |
Basic Earnings (Loss) Per Share |
$ 0.47 |
|
$ 0.47 |
|
|
|
$ (0.00) |
|
$ (0.00) |
|
|
|
$ 0.49 |
|
$ 0.50 |
|
|
Diluted Earnings (Loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared and Assumed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Dilutive Shares |
$ 4,632 |
|
$ 10,945 |
|
$ 15,577 |
|
$ 7,514 |
|
$ 16,224 |
|
$ 23,738 |
|
$7,708 |
|
$17,360 |
|
$25,068 |
Undistributed Earnings (Loss) |
525 |
|
1,226 |
|
1,751 |
|
(7,553) |
|
(16,231) |
|
(23,784) |
|
(1,857) |
|
(4,059) |
|
(5,916) |
Net Income (Loss) |
$ 5,157 |
|
$ 12,171 |
|
$ 17,328 |
|
$ (39) |
|
$ (7) |
|
$ (46) |
|
$5,851 |
|
$13,301 |
|
$19,152 |
Average Diluted Shares Outstanding |
11,195 |
|
26,151 |
|
37,346 |
|
11,868 |
|
25,504 |
|
37,372 |
|
12,325 |
|
26,932 |
|
39,257 |
Diluted Earnings (Loss) Per Share |
$ 0.46 |
|
$ 0.47 |
|
|
|
$ (0.00) |
|
$ (0.00) |
|
|
|
$ 0.47 |
|
$ 0.49 |
|
|
Included in dividends declared for the basic and diluted earnings
per share computation are dividends computed and accrued on unvested
Class A and Class B restricted share units, which will be paid by a
conversion to the equivalent value of common shares after a vesting
period. |
In fiscal year 2009, all 755,000 average stock options outstanding
were antidilutive and were excluded from the dilutive calculation.
In fiscal year 2008, all 792,000 average stock options outstanding
were antidilutive and were excluded in the dilutive calculation. In
addition, 149,000 of the 334,000 average restricted share units and
82,000 of the 155,000 average performance share grants were
antidilutive and excluded from the dilutive calculation. In fiscal
year 2007, all 1,147,000 average stock options outstanding were
dilutive and were included in the dilutive calculation. |
73
Note 17 Comprehensive Income
Comprehensive income includes all changes in equity during a
period except those resulting from investments by, and distributions to, Share
Owners. Comprehensive income consists of net income (loss) 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, 2009 |
|
Year Ended June 30, 2008 |
|
Year Ended June 30, 2007 |
(Amounts in Thousands) |
Pre-tax |
|
Tax |
|
Net |
|
Pre-tax |
|
Tax |
|
Net |
|
Pre-tax |
|
Tax |
|
Net |
Net income (loss) |
|
|
|
|
$ 17,328 |
|
|
|
|
|
$ (46) |
|
|
|
|
|
$ 19,152 |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
$ (4,143) |
|
$ (1,891) |
|
$ (6,034) |
|
$ 9,090 |
|
$ -0- |
|
$ 9,090 |
|
$ 3,182 |
|
$ -0- |
|
$ 3,182 |
Postemployment severance actuarial change |
(3,853) |
|
1,536 |
|
(2,317) |
|
(130) |
|
52 |
|
(78) |
|
(2,200) |
|
877 |
|
(1,323) |
Other fair value changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
1,377 |
|
(549) |
|
828 |
|
953 |
|
(379) |
|
574 |
|
22 |
|
(9) |
|
13 |
Derivatives |
(13,832) |
|
3,962 |
|
(9,870) |
|
(4,396) |
|
1,678 |
|
(2,718) |
|
2,044 |
|
(637) |
|
1,407 |
Reclassification to (earnings) loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
(1,026) |
|
409 |
|
(617) |
|
(234) |
|
93 |
|
(141) |
|
104 |
|
(41) |
|
63 |
Derivatives |
7,742 |
|
(3,023) |
|
4,719 |
|
3,130 |
|
(1,126) |
|
2,004 |
|
(1,287) |
|
454 |
|
(833) |
Amortization of prior service costs |
285 |
|
(114) |
|
171 |
|
286 |
|
(114) |
|
172 |
|
-0- |
|
-0- |
|
-0- |
Amortization of actuarial change |
517 |
|
(206) |
|
311 |
|
17 |
|
(7) |
|
10 |
|
-0- |
|
-0- |
|
-0- |
Other comprehensive income (loss) |
$ (12,933) |
|
$ 124 |
|
$ (12,809) |
|
$ 8,716 |
|
$ 197 |
|
$ 8,913 |
|
$ 1,865 |
|
$ 644 |
|
$ 2,509 |
Total comprehensive income |
|
|
|
|
$ 4,519 |
|
|
|
|
|
$ 8,867 |
|
|
|
|
|
$ 21,661 |
Accumulated other comprehensive income
(loss), net of tax effects, was as follows: |
|
|
|
Year Ended June 30 |
|
2009 |
|
2008 |
|
2007 |
(Amounts in Thousands) |
|
|
|
|
|
Foreign currency translation adjustments |
$ 7,821 |
|
$ 13,855 |
|
$ 4,765 |
Unrealized gain (loss) from: |
|
|
|
|
|
Available-for-sale securities |
463 |
|
252 |
|
(181) |
Derivatives |
(5,731) |
|
(580) |
|
134 |
Postemployment benefits: |
|
|
|
|
|
Prior service costs |
(980) |
|
(1,151) |
|
(1,323) |
Net actuarial loss |
(2,074) |
|
(68) |
|
-0- |
Accumulated other comprehensive income (loss) |
$ (501) |
|
$ 12,308 |
|
$ 3,395 |
74
Note 18 Restructuring Expense
75
Summary of All Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
June 30,
2008 (4) |
|
Fiscal Year Ended June 30, 2009 |
|
Accrued
June 30,
2009 (4) |
|
Total Charges (Income)
Incurred Since Plan Announcement (5) |
|
Total Expected
Plan Costs (Income) (5) |
|
(Amounts in Thousands) |
|
Amounts
Charged (Income) Cash |
|
Amounts
Charged (Income)
Non-cash |
|
Amounts Utilized/
Cash Paid |
|
Adjustments |
|
|
|
|
EMS Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2008 European Consolidation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition and Other Employee Costs |
$ 15,117 |
|
$ 1,851 |
|
$ -0- |
|
$(2,498) |
|
$ (2,182) |
(7) |
$12,288 |
|
$ 17,601 |
|
$19,139 |
|
Asset Write-downs |
-0- |
|
-0- |
|
(63) |
|
63 |
|
-0- |
|
-0- |
|
346 |
|
346 |
|
Plant Closure and Other Exit Costs |
-0- |
|
394 |
|
-0- |
|
(394) |
|
-0- |
|
-0- |
|
457 |
|
1,180 |
|
Total |
$ 15,117 |
|
$ 2,245 |
|
$ (63) |
|
$(2,829) |
|
$ (2,182) |
|
$12,288 |
|
$ 18,404 |
|
$20,665 |
|
Other Restructuring Plans (1) |
521 |
|
252 |
|
(41) |
|
(732) |
|
-0- |
|
-0- |
|
2,933 |
(6) |
2,933 |
(6) |
Total EMS Segment |
$ 15,638 |
|
$ 2,497 |
|
$ (104) |
|
$(3,561) |
|
$ (2,182) |
|
$12,288 |
|
$ 21,337 |
|
$23,598 |
|
Furniture Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2009 Office Furniture Manufacturing Consolidation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition and Other Employee Costs |
$ -0- |
|
$ 443 |
|
$ -0- |
|
$ (443) |
|
$ -0- |
|
$ -0- |
|
$ 443 |
|
$ 443 |
|
Asset Write-downs (Gain on Sale) |
-0- |
|
(608) |
(8) |
168 |
|
440 |
|
-0- |
|
-0- |
|
(440) |
|
(537) |
(8) |
Plant Closure and Other Exit Costs |
-0- |
|
232 |
|
-0- |
|
(232) |
|
-0- |
|
-0- |
|
232 |
|
232 |
|
Total |
$ -0- |
|
$ 67 |
|
$ 168 |
|
$ (235) |
|
$ -0- |
|
$ -0- |
|
$ 235 |
|
$ 138 |
|
Other Restructuring Plans (1) |
487 |
|
(93) |
|
-0- |
|
(394) |
|
-0- |
|
-0- |
|
1,097 |
|
1,097 |
|
Total Furniture Segment |
$ 487 |
|
$ (26) |
|
$ 168 |
|
$ (629) |
|
$ -0- |
|
$ -0- |
|
$ 1,332 |
|
$ 1,235 |
|
Unallocated Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Restructuring Plans (1) |
183 |
|
232 |
|
214 |
|
(629) |
|
-0- |
|
-0- |
|
920 |
|
1,111 |
|
Consolidated Total of All Plans |
$ 16,308 |
|
$ 2,703 |
|
$ 278 |
|
$(4,819) |
|
$ (2,182) |
|
$12,288 |
|
$ 23,589 |
|
$25,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
June 30,
2007 (4) |
|
Fiscal Year Ended June 30, 2008 |
|
Accrued
June 30,
2008 (4) |
|
|
|
|
|
(Amounts in Thousands) |
|
Amounts
Charged-Cash |
|
Amounts
Charged-
Non-cash |
|
Amounts Utilized/
Cash Paid |
|
Adjustments |
|
|
|
|
|
|
EMS Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2008 European Consolidation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition and Other Employee Costs |
$ -0- |
|
$ 15,750 |
|
$ -0- |
|
$ (918) |
|
$ 285 |
(7) |
$15,117 |
|
|
|
|
|
Asset Write-downs |
-0- |
|
-0- |
|
409 |
|
(409) |
|
-0- |
|
-0- |
|
|
|
|
|
Plant Closure and Other Exit Costs |
-0- |
|
63 |
|
-0- |
|
(63) |
|
-0- |
|
-0- |
|
|
|
|
|
Total |
$ -0- |
|
$ 15,813 |
|
$ 409 |
|
$(1,390) |
|
$ 285 |
|
$15,117 |
|
|
|
|
|
Other Restructuring Plans (2) |
1,042 |
|
1,554 |
|
1,167 |
|
(2,967) |
|
(275) |
(6) |
521 |
|
|
|
|
|
Total EMS Segment |
$ 1,042 |
|
$ 17,367 |
|
$ 1,576 |
|
$(4,357) |
|
$ 10 |
|
$15,638 |
|
|
|
|
|
Furniture Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Restructuring Plans (2) |
6 |
|
1,052 |
|
1,161 |
|
(1,732) |
|
-0- |
|
487 |
|
|
|
|
|
Unallocated Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Restructuring Plans (2) |
-0- |
|
501 |
|
254 |
|
(572) |
|
-0- |
|
183 |
|
|
|
|
|
Consolidated Total of All Plans |
$ 1,048 |
|
$ 18,920 |
|
$ 2,991 |
|
$(6,661) |
|
$ 10 |
|
$16,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
|
Accrued
June 30,
2006 (4) |
|
Fiscal Year Ended June 30, 2007 |
|
Accrued
June 30,
2007 (4) |
|
|
|
|
|
(Amounts in Thousands) |
|
Amounts
Charged-Cash |
|
Amounts
Charged (Income)
Non-cash |
|
Amounts Utilized/
Cash Paid |
|
Adjustments |
|
|
|
|
|
|
EMS Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Restructuring Plans (3) |
$ 356 |
|
$ 337 |
|
$ (242) |
|
$ (451) |
|
$ 1,042 |
(6) |
$ 1,042 |
|
|
|
|
|
Furniture Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Restructuring Plans (3) |
21 |
|
72 |
|
1,195 |
|
(1,282) |
|
-0- |
|
6 |
|
|
|
|
|
Unallocated Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Restructuring Plans (3) |
-0- |
|
166 |
|
-0- |
|
(166) |
|
-0- |
|
-0- |
|
|
|
|
|
Consolidated Total of All Plans |
$ 377 |
|
$ 575 |
|
$ 953 |
|
$(1,899) |
|
$ 1,042 |
|
$ 1,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Other Restructuring Plans with charges during fiscal year 2009
include the EMS segment Hibbing plan initiated in fiscal year 2008,
the EMS segment and Unallocated Corporate Gaylord restructuring plan
initiated in fiscal year 2007, and the company-wide workforce
restructuring plan initiated in fiscal year 2008. |
|
(2) Other Restructuring Plans with charges and adjustments during
fiscal year 2008 include the the Furniture segment consolidation and
simplification plan initiated in fiscal year 2006, the EMS segment
Hibbing plan initiated in fiscal year 2008 and Gaylord plan
initiated in fiscal year 2007, the Unallocated Corporate Gaylord
restructuring plan initiated in fiscal year 2007 and Auburn
restructuring plan initiated in fiscal year 2006, and the
company-wide workforce restructuring plan initiated in fiscal year
2008. |
|
(3) Other Restructuring Plans with charges and adjustments during
fiscal year 2007 include the EMS segment Gaylord plan initiated in
fiscal year 2007 and Auburn plan initiated in fiscal year 2006, the
Furniture segment consolidation and simplification plan initiated in
fiscal year 2006, and the Unallocated Corporate Auburn restructuring
plan initiated in fiscal year 2006. |
|
(4) Accrued restructuring at June 30, 2009, June 30, 2008, and June
30, 2007 was $12.3 million, $16.3 million, and $1.0 million,
respectively. The balances include $3.8 million, $6.7 million, and
$1.0 million recorded in current liabilities and $8.5 million, $9.6
million, and $0.0 million recorded in other long-term liabilities at
June 30, 2009, June 30, 2008, and June 30, 2007, respectively.
|
|
(5) These columns include restructuring plans that were active
during fiscal year 2009, including the EMS segment European
Consolidation Plan and Hibbing Plan, both initiated in fiscal year
2008, the Furniture segment Office Furniture Manufacturing
Consolidation Plan initiated in fiscal year 2009, the EMS segment
and Unallocated Corporate Gaylord restructuring plan initiated in
fiscal year 2007, and the company-wide workforce restructuring plan
initiated in fiscal year 2008. |
|
(6) In addition to the incurred charges and total expected plan
costs in the EMS segment shown above, an additional $0.8 million
increase in restructuring reserves were recognized as an adjustment
to the purchase price allocation of the acquisition of Reptron,
which increased the goodwill balance of the acquired entity, during
fiscal years 2007 and 2008. |
|
(7) The effect of changes in foreign currency exchange rates within
the EMS segment primarily due to revaluation of the restructuring
liability is included in this amount. |
|
(8) The consolidation of office furniture manufacturing departments
resulted in more efficient use of manufacturing space and enabled
the Company to sell an Indiana facility, resulting in a gain on the
sale during fiscal year 2009. An additional gain of $0.1 million is
expected in fiscal year 2010 upon the sale of additional land. |
|
77
Note 19
Discontinued Operations
Fiscal Year 2007 Discontinued Operations:
During the first quarter of fiscal year 2007, the Company approved a plan to
exit the production of wood rear projection television (PTV) cabinets and stands within the
Furniture segment, which affected the Company's Juarez, Mexico, operation. With
the exit, the Company no longer has continuing involvement with the production
of PTV cabinets and stands. Production at the Juarez
facility ceased during the second quarter of fiscal year 2007, and all inventory has been sold. Miscellaneous wrap-up activities including
disposition of remaining equipment were complete as of June 30,
2007. Beginning in the quarter ended December 31, 2006, the year-to-date
financial results associated with the Mexican operations in the
Furniture segment were classified as
discontinued operations, and all prior periods were restated. Their operating
results and gains (losses) on disposal are presented on the Loss from
Discontinued Operations, Net of Tax line item of the Consolidated Statements of
Income.
The Company utilized available market prices and management estimates to
determine the fair value of impaired fixed assets. The costs shown below
related to the exit of PTV cabinet and stand production at the Juarez facility
are included in discontinued operations and those costs related to the building
lease and other costs after production of PTV cabinets and stands ceased are
included in continuing operations. There were no charges related to exit
activities at the Juarez facility during fiscal year 2009. Pre-tax charges related
to exit activities at the Juarez facility during fiscal years 2008 and 2007 were as follows:
|
(Amounts in Thousands) |
Property & Equipment Impairment and Losses on Sales |
|
Transition and Other Employee Costs |
|
Lease and Other Exit Costs |
|
Total |
2008 |
Exit costs in continuing
operations |
$ -0-
|
|
$ -0-
|
|
$ 1,272 |
|
$ 1,272 |
|
Exit costs in discontinued
operations |
-0- |
|
30 |
|
13 |
|
43 |
|
Total |
$ -0-
|
|
$
30 |
|
$ 1,285 |
|
$ 1,315 |
|
|
|
|
|
|
|
|
|
2007 |
Exit costs in continuing
operations |
$ -0-
|
|
$ -0-
|
|
$
648 |
|
$ 648 |
|
Exit costs in discontinued
operations |
1,623 |
|
1,101 |
|
994 |
|
3,718 |
|
Total |
$ 1,623 |
|
$ 1,101 |
|
$ 1,642 |
|
$ 4,366 |
|
|
|
|
|
|
|
|
|
Total |
Exit costs in continuing
operations |
$ -0-
|
|
$ -0-
|
|
$ 1,920 |
|
$ 1,920 |
|
Exit costs in discontinued
operations |
$ 1,623 |
|
$ 1,131 |
|
$ 1,007 |
|
$ 3,761 |
|
Total |
$ 1,623 |
|
$ 1,131 |
|
$ 2,927 |
|
$ 5,681 |
During fiscal year 2009, the Company did not classify any additional businesses
as discontinued operations. Operating results and the loss on sale of the fiscal
year 2007 discontinued operations were as
follows:
|
Year
Ended June 30 |
(Amounts in Thousands) |
2009
|
|
2008
|
|
2007
|
Net Sales of
Discontinued Operations |
$
-0- |
|
$
-0- |
|
$ 8,744 |
|
|
|
|
|
|
Operating Loss of
Discontinued Operations |
$
-0- |
|
$ (78) |
|
$ (5,046) |
Benefit
(Provision) for Income Taxes |
-0- |
|
(46) |
|
1,978
|
Operating Loss of Discontinued Operations, Net of Tax |
$
-0- |
|
$ (124)
|
|
$
(3,068)
|
|
|
|
|
|
|
Loss on Disposal of Discontinued Operations |
$
-0- |
|
$
-0- |
|
$
(1,600)
|
Benefit for Income Taxes |
-0- |
|
-0- |
|
554
|
Loss on Disposal
of Discontinued Operations, Net of Tax |
$
-0- |
|
$
-0- |
|
$
(1,046)
|
Loss from Discontinued Operations, Net of Tax |
$
-0- |
|
$ (124)
|
|
$
(4,114)
|
78
Note 20 Quarterly Financial Information
(Unaudited)
(1) |
Net sales and gross profit are from continuing operations. Operating results from the Genesis Electronics Manufacturing acquisition are included in the
table above as of September 1, 2008 and had an immaterial impact. |
(2) |
Other General Income included $8.0 million, $23.2 million, and $0.3
million for the quarters ended December 31, 2008, March 31, 2009, and
June 30, 2009, respectively, pre-tax gain related to the sale of
undeveloped land and timberland holdings and $1.9 million, pre-tax,
for the quarter ended December 31, 2008 related to the earnest money
deposits retained by the Company resulting from the termination of
the contract to sell and lease back the Company's Poland building
and real estate. |
(3) |
Income from continuing operations and net
income for the quarter ended September 30, 2007 included $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. |
79
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, 2009, 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, 2009 has been audited by the Company's
independent registered public accounting firm. Management's report and
the independent registered public accounting firm's attestation report are included in the Company's Consolidated Financial Statements under the captions entitled
"Management's Report on Internal Control Over Financial Reporting"
and "Report
of Independent Registered Public Accounting Firm" and
are
incorporated herein by reference.
(c) Changes in internal control over
financial reporting.
There have been no changes in the Company's internal
control over financial reporting that occurred during the quarter ended June
30, 2009 that have materially affected, or that are reasonably likely to
materially affect, the Company's internal control over financial reporting.
Item 9B
- Other
Information
In lieu of filing a Form 8-K under Item 5.02 "Departure of
Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers," the Company is
providing the following disclosure in this Form 10-K as the Form 10-K is
being filed within the four business day reporting requirement for the
event.
On August 27, 2009, the Compensation and Governance Committee
of the Board of Directors of the Company
approved a decrease to the base salary of the Company's Chairman of the Board
(the "Chairman"), Douglas A. Habig. The Compensation and Governance Committee has historically and
independently set the compensation of the Chairman, because Mr. Habig, a former
Chief Executive Officer of the Company, remained an employee of
the Company since becoming Chairman, and receives no director fees as an
employee Chairman under the Board of Directors' fee structure. As disclosed in the Company's
2008 Proxy Statement, the Compensation and Governance Committee began a process in 2007 of examining and
clarifying the proper role and duties of the Chairman and Chief Executive Officer such that the
Chairman focuses on the effective operation of the Board of Directors while the Chief Executive Officer performs
his duties in regard to the executive management of the Company. Continuing this
examination at its August 2009 meeting, the Compensation and Governance Committee determined that a further
adjustment to the Chairman's compensation was warranted. The Compensation and
Governance Committee
unanimously approved a salary decrease from the current annualized base of
$257,400 to $170,040 which will take effect on September 7, 2009.
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 20, 2009 under the caption "Election of Directors."
80
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 20, 2009 under the caption "Information
Concerning the Board of Directors and Committees."
Executive Officers of the Registrant
The information required by this item with respect to
Executive Officers of the Registrant is included at the end of Part I and is
incorporated herein by reference.
Compliance with Section 16(a) of the Exchange Act
The information required by this item with respect to
compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference
to the material contained in the Company's Proxy Statement for its annual
meeting of Share Owners to be held October 20, 2009 under the caption "Section
16(a) Beneficial Ownership Reporting Compliance."
Code of Ethics
The Company has a code of ethics that applies to all
of its employees, including the Chief Executive Officer, the Chief
Financial Officer, and the Chief Accounting Officer. The code of ethics
is posted on the Company's website at www.ir.kimball.com. It is the Company's
intention to disclose any amendments to the code of ethics on this website.
In addition, any waivers of the code of ethics for directors or executive
officers of the Company will be disclosed in a Current Report on Form 8-K.
Item 11 -
Executive
Compensation
The information required by this item is incorporated by
reference to the material contained in the Company's Proxy Statement for its
annual meeting of Share Owners to be held October 20, 2009 under the captions
"Information Concerning the Board of Directors and Committees," "Compensation
Discussion and Analysis," "Compensation Committee Report," and
"Executive Officer and Director Compensation."
Item 12 - Security Ownership of
Certain Beneficial Owners and Management and Related Share Owner Matters
Security Ownership
The information required by this item is incorporated by
reference to the material contained in the Company's Proxy Statement for its
annual meeting of Share Owners to be held October 20, 2009 under the caption
"Share Ownership Information."
81
Securities Authorized for Issuance Under Equity
Compensation Plans
The following table summarizes the Company's equity
compensation plans as of June 30, 2009:
|
Number of Securities to be Issued Upon Exercise of
Outstanding Options, Warrants and Rights |
Weighted Average Exercise Price of Outstanding Options,
Warrants and Rights |
Number of Securities Remaining Available for Future
Issuance Under Equity Compensation Plans (excluding securities reflected
in first column) |
Equity compensation plans approved by Share
Owners |
1,895,503 (1) |
$15.36(2) |
645,064
(3) |
|
|
|
|
Equity compensation plans not approved by
Share Owners |
-0- |
-0- |
-0- |
Total |
1,895,503 |
$15.36 |
645,064 |
(1) Includes 747,518 Class B stock option grants,
870,935 Class A and 37,100 Class B performance share awards, and 199,200
Class A and 40,750 Class B restricted share unit awards. The number
of performance shares assumes that performance targets will be met.
(2) Performance shares and restricted share
units not included as
there is no exercise price for these awards.
(3) Includes 645,064 Class A and Class B
shares available for issuance as restricted stock, restricted share units,
unrestricted share grants, incentive stock options, nonqualified stock
options, performance shares, performance units, and stock appreciation
rights under the Company's 2003 Stock Option and Incentive Plan. No
shares remain available for issuance under the Company's prior stock option
plans.
Item 13 -
Certain Relationships and Related Transactions, and Director Independence
Relationships and Related Transactions
The information required by this item is incorporated by
reference to the material contained in the Company's Proxy Statement for its
annual meeting of Share Owners to be held October 20, 2009 under the caption
"Review and Approval of Transactions with Related Persons."
Director Independence
The information required by this item is incorporated by
reference to the material contained in the Company's Proxy Statement for its
annual meeting of Share Owners to be held October 20, 2009 under the caption
"Information Concerning the Board of Directors and Committees."
Item 14 - Principal Accounting Fees and Services
The information required by this item is incorporated by
reference to the material contained in the Company's Proxy Statement for its
annual meeting of Share Owners to be held October 20, 2009 under the caption
"Independent Registered Public Accounting Firm" and
"Appendix A - Approval Process for Services Performed by the Independent Registered Public
Accounting Firm."
82
PART IV
Item 15 - Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this
report:
(1) Financial Statements:
(2) Financial Statement Schedules:
(3) Exhibits
See the Index of Exhibits
on page 87 for a list of the exhibits filed or incorporated herein as a part of
this report.
83
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 31, 2009 |
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 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert F. Schneider |
|
|
ROBERT F. SCHNEIDER Executive Vice President, Chief Financial Officer
August 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
/s/ Michelle R. Schroeder |
|
|
MICHELLE R. SCHROEDER Vice
President,
Chief Accounting Officer
August 31, 2009 |
84
Signature |
|
Signature |
|
|
|
Geoffrey L. Stringer * |
|
Harry W. Bowman* |
GEOFFREY L. STRINGER |
|
HARRY W. BOWMAN |
Director |
|
Director |
|
|
|
Thomas J. Tischhauser * |
|
James C. Thyen * |
THOMAS J. TISCHHAUSER |
|
JAMES C. THYEN |
Director |
|
Director |
|
|
|
Christine M. Vujovich * |
|
Jack R. Wentworth * |
CHRISTINE M. VUJOVICH |
|
JACK R. WENTWORTH |
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 31, 2009 |
|
/s/ Douglas A. Habig |
|
|
DOUGLAS A. HABIG |
|
|
Director
|
Individually and as Attorney-In-Fact |
85
KIMBALL INTERNATIONAL, INC.
Schedule II. - Valuation and Qualifying Accounts
Description |
Balance at Beginning of Year |
Additions/(Reductions) to Expense |
Charged to Other Accounts |
Write-offs and Recoveries |
Balance at End of Year |
(Amounts in Thousands)
|
|
|
|
|
|
Year Ended June 30, 2009 |
|
|
|
|
|
Valuation Allowances: |
|
|
|
|
|
Short-Term Receivable Allowance |
$ 1,057 |
$ 4,137 |
$ 93 |
$ (921)
|
$ 4,366 |
Long-Term Note Receivable Allowance |
$
-0- |
$ -0- |
$ -0- |
$
-0-
|
$ -0- |
Deferred Tax Asset |
$ 4,966 |
$ 288
|
$ -0- |
$ (122) |
$ 5,132 |
|
|
|
|
|
|
Year Ended June 30, 2008 |
|
|
|
|
|
Valuation Allowances: |
|
|
|
|
|
Short-Term Receivable Allowance |
$ 1,477 |
$
48 |
$ 11 |
$
(479) |
$ 1,057 |
Long-Term Note Receivable Allowance |
$ 1,400 |
$
300 |
$ -0- |
$ (1,700) |
$ -0- |
Deferred Tax Asset |
$ 4,420 |
$
1,159
|
$ -0- |
$ (613) |
$ 4,966 |
|
|
|
|
|
|
Year Ended June 30, 2007 |
|
|
|
|
|
Valuation Allowances: |
|
|
|
|
|
Short-Term Receivable Allowance |
$ 1,282 |
$ (282)
|
$ 242 |
$
235 |
$ 1,477 |
Long-Term Note Receivable Allowance |
$ 1,400 |
$ -0- |
$ -0- |
$
-0- |
$ 1,400 |
Deferred Tax Asset |
$ 3,856 |
$
574 |
$ -0- |
$ (10) |
$ 4,420 |
86
KIMBALL INTERNATIONAL, INC.
INDEX OF
EXHIBITS
|
|
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 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 August 3, 2009) |
10(a)* |
Summary of Director and Named
Executive Officer Compensation |
10(b)* |
Supplemental Bonus Plan |
10(c)* |
2003 Stock Option and
Incentive Plan
(Incorporated by reference to Exhibit 10(d) to the Company's Form 10-Q for
the period ended December 31, 2008) |
10(d)* |
Supplemental Employee
Retirement Plan (2009 Revision) (Incorporated by reference to Exhibit
10(c) to the Company's Form 10-Q for
the period ended December 31, 2008) |
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, 2006) |
10(f)* |
Form of Restricted Stock Unit Award
Agreement (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K/A filed
January 24, 2005) |
10(g)* |
Form of Annual Performance Share Award
Agreement, 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, 2006) |
10(h) |
Credit Agreement, dated as of
April 23, 2008, among the Company, the lenders party thereto and
JPMorgan Chase Bank, N.A., as Agent and Letter of Credit Issuer (Incorporated
by reference to Exhibit 10.1 to the Company's Form 8-K filed April 28,
2008) |
10(i)* |
Form of Employment Agreement
dated May 1, 2006 between the Company and each of James C. Thyen,
Douglas A. Habig, Robert F. Schneider, Donald D. Charron, P. Daniel
Miller, John H. Kahle and Gary W. Schwartz
(Incorporated by reference to Exhibit 10(c) to the Company's Form 10-Q for the period
ended March 31, 2006) |
10(j)* |
Form of Long Term Performance
Share Award, as amended on August 22, 2006 (Incorporated by reference to Exhibit 10(c)
to the Company's
Form 10-Q for the period ended September 30, 2006) |
10(k)* |
Description of the Company's
2005 Profit Sharing Incentive Bonus Plan (Incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K filed October 18, 2005) |
10(l) |
Contract to Purchase
Real Estate at Public Auction (Incorporated by reference to Exhibit
10.1 to the Company's Form 8-K filed November 14, 2008) |
11 |
Computation of Earnings Per
Share
(Incorporated by reference to Note
16 - 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 |
* = constitutes
management contract or compensatory arrangement |
87
EX-10
2
exhibit10a.htm
KIMBALL INTERNATIONAL, INC. EXHIBIT 10A
Exhibit 10
Exhibit 10(a)SUMMARY
OF DIRECTOR AND NAMED EXECUTIVE OFFICER COMPENSATION
This summary sets forth the compensation of the Directors of Kimball
International, Inc. (the "Company"). The summary also includes compensation of the
Chief Executive Officer, Chief Financial Officer, and three most highly compensated executive officers (the
"Named Executive Officers") of the Company as identified in the Company's most
recent Proxy
Statement filed with the Securities and Exchange Commission.
For a detailed description of the compensation arrangements that the
Directors and Named Executive Officers participate in, refer to the Company's
most recent Proxy Statement filed with the Securities and Exchange Commission.
Director Compensation
All Outside (non-employee) Directors receive annual compensation of $40,000 for
the year for service as Directors. The Chairperson of the Audit Committee of the
Board of Directors receives $5,000 per committee meeting, and other Audit
Committee members receive $3,500 per committee meeting. The Chairperson of the
Compensation and Governance Committee receives $3,500 per committee meeting, and
other members of the Compensation and Governance Committee receive $2,000 per
committee meeting. Members of the Strategic Planning Committee receive $3,500 per committee meeting.
The Directors can elect to receive all of their annual retainer and/or
meeting fees in shares of Class B Common Stock under the Company's 2003 Stock
Option and Incentive Plan. Directors are also reimbursed for travel
expenses incurred in connection with Board and Committee meeting attendance.
An Outside Director is a director who is not an employee of the Company
or one of its subsidiaries. James C. Thyen, President and Chief Executive
Officer, and Douglas A. Habig, Chairman of the Board, are Directors of the
Company but do not receive compensation for their services as Directors.
Named Executive Officers
Base Pay
Periodically,
the Compensation and Governance Committee ("the Committee") of the Board of Directors reviews and
approves the salaries that are paid to the Company's executive
officers. The following are the current annualized base salaries for the
Company's Named Executive Officers:
|
James C. Thyen, President and Chief Executive Officer |
$810,836 |
|
Douglas A. Habig, Chairman of the Board |
$170,040 |
|
Donald D. Charron, Executive Vice President, President-Kimball Electronics Group |
$505,596 |
|
P. Daniel Miller, Executive Vice President, President-Furniture |
$499,252 |
|
Robert F. Schneider, Executive Vice President, Chief Financial Officer |
$409,292 |
Cash Incentive Compensation
Each of the Named Executive Officers was eligible to participate in the Company's
2005 Profit Sharing Incentive Bonus Plan (the "Plan") for fiscal year
2009 except for Douglas A. Habig. Effective July 1, 2008, Douglas A. Habig no longer
participates in the Plan. A long-standing component of the Company's profit sharing incentive
bonus plan is that it is linked to the performance of the Company which
automatically lowers total compensation expense when profits are down. Under the
Plan, cash incentives are accrued
annually and paid in five installments over the succeeding fiscal year. Except
for provisions relating to retirement, death, permanent disability, and certain
other circumstances described in a participant's employment agreement,
participants must be actively employed on each payment date to be eligible to
receive any unpaid cash incentive installment. The total amount of cash
incentives accrued and
authorized to be paid to the Named Executive Officers based on the Company's
fiscal year 2009 results is listed below. The Named Executive Officers received
an installment of 50% of the payment in August 2009,
and the remaining portions will be paid in equal installments in September 2009, January 2010, April 2010, and June 2010.
|
James C. Thyen, President and Chief Executive Officer |
$ 68,699 |
|
Douglas A. Habig, Chairman of the Board |
$ -0- |
|
Donald D. Charron, Executive Vice President, President-Kimball Electronics Group |
$
10,370 |
|
P. Daniel Miller, Executive Vice President, President-Furniture |
$ 78,452 |
|
Robert F. Schneider, Executive Vice President, Chief Financial Officer |
$ 33,492 |
Stock Compensation
The Named Executive Officers may also receive a variety of stock incentive
benefits under the 2003 Stock Option and Incentive Plan consisting of: restricted
stock, restricted share units, unrestricted share grants, incentive stock
options, nonqualified stock options, stock appreciation rights, performance
shares, and performance units. The only form of award granted to Named
Executive Officers for fiscal
year 2009 was performance shares. Performance shares include both an
annual performance share ("APS") award and a long-term performance share ("LTPS")
award with one-fifth (1/5) of the LTPS award vesting annually over the succeeding
five-year period. No other form of award has been granted to the Named
Executive Officers
since July 2005.
The following table summarizes the performance shares issued in Class A
Common Stock during August 2009 to the Company's Named Executive Officers
pursuant to their fiscal year 2009
performance share awards:
|
APS Award |
|
LTPS Award |
|
(number of
shares issued) (1) |
|
(number of
shares issued) (1) |
|
|
|
|
James C. Thyen, President and Chief Executive Officer |
6,356 |
|
12,784 |
Douglas A. Habig, Chairman of the Board |
-0- |
|
4,152 |
Donald D. Charron, Executive Vice President, President-Kimball Electronics Group |
80 |
|
3,784 |
P. Daniel Miller, Executive Vice President, President-Furniture |
640 |
|
2,144 |
Robert F. Schneider, Executive Vice President, Chief Financial Officer |
320 |
|
2,144 |
(1) Shares have not been reduced by the number of shares
withheld to satisfy tax withholding obligations.
The following table summarizes the maximum number of performance shares awarded
in August 2009 to the Company's Named Executive Officers for fiscal year 2010:
|
APS Award |
|
LTPS Award |
|
(number of shares) |
|
(number of shares) |
|
|
|
|
James C. Thyen, President and Chief Executive Officer |
143,000 |
|
183,000 |
Douglas A. Habig, Chairman of the Board |
-0- |
|
-0- |
Donald D. Charron, Executive Vice President, President-Kimball Electronics Group |
7,500 |
|
54,300 |
P. Daniel Miller, Executive Vice President, President-Furniture |
7,500 |
|
44,300 |
Robert F. Schneider, Executive Vice President, Chief Financial Officer |
7,500 |
|
54,300 |
The number of shares to be issued will be dependent upon the percentage payout
under the Plan. Refer to the Company's Proxy Statement for further
details.
The following table summarizes shares issued in Class A Common
Stock during January 2009 to the Company's Named Executive Officers pursuant to
their Restricted Share Unit Awards (RSU) that were awarded January 23, 2004, and
vested January 24, 2009:
|
Restricted Share
Unit Awards |
|
Accumulated Dividends
on Restricted
Share Units |
|
(number of
shares issued) (1) |
|
(number of
shares issued) (1)(2) |
|
|
|
|
James C. Thyen, President and Chief Executive Officer |
47,400 |
|
18,791 |
Douglas A. Habig, Chairman of the Board |
47,400 |
|
18,791 |
Donald D. Charron, Executive Vice President, President-Kimball Electronics Group |
13,400 |
|
5,313 |
P. Daniel Miller, Executive Vice President, President-Furniture |
13,400 |
|
5,313 |
Robert F. Schneider, Executive Vice President, Chief Financial Officer |
13,400 |
|
5,313 |
|
(1) Shares have not been reduced by the
number of shares withheld to satisfy tax withholding obligations. |
(2) Represents shares of Class A Common
Stock issued pursuant to the RSU Agreement determined by dividing the
accumulated phantom cash dividends credited to the RSU by the ten-day
average close price ending on the day preceding the vest date. |
Retirement Plans
The Named Executive Officers participate in a defined
contribution, participant-directed retirement plan with a 401(k) provision that
all domestic employees are eligible
to participate in (the "Retirement Plan"). The Retirement Plan provides for
voluntary employee contributions as well as a discretionary annual Company
contribution based on a percent of net income as determined by the Board of Directors
which automatically lowers total compensation expense when profits are down. Each eligible employee's Company
contribution is defined as a percent of eligible compensation, the percent being
identical for all eligible employees, including Named Executive Officers.
Participant contributions are fully vested immediately, and Company contributions
are fully vested after five years of participation. All Named Executive Officers
are fully vested. The Retirement
Plan is fully funded. For those eligible employees who, under the 1986 Tax
Reform Act, are deemed to be highly compensated, their individual Company
contribution under the Retirement Plan is reduced. For employees who are
eligible, including all Named Executive Officers, there is a nonqualified,
Supplemental Employee Retirement Plan (SERP) in which the Company contributes to
the account of each individual an amount equal to the reduction in the
contribution under the Retirement Plan arising from the provisions of the 1986
Tax Reform Act. The SERP investment is primarily composed of employee
contributions. There was no Company contribution to the Retirement Plan or SERP
for fiscal year 2009.
Other
The Named Executive
Officers receive nominal benefits such as financial counseling, medical
reimbursement, executive preventive healthcare program, tax
preparation, and other
miscellaneous items. The Named Executive Officers may use the Company
aircraft for transportation related to the executive preventive healthcare
program and for limited personal reasons. The exact amounts received from these benefits are
not predetermined and are disclosed annually in the Company's Proxy Statement.
EX-10
3
exhibit10b.htm
KIMBALL INTERNATIONAL, INC. EXHIBIT 10B
Exhibit 10
Exhibit 10(b)
SUPPLEMENTAL BONUS PLAN
The Compensation and Governance Committee (the "Committee"), on an annual basis, approves a total
dollar bonus pool for a Supplemental Bonus Plan, up to a maximum of one and
one-half percent (1.5%) of the consolidated
net income excluding restructuring charges of Kimball International, Inc. (the "Company")
and calculated before federal and state income taxes and the amount payable to employees under the Company's
Profit Sharing Incentive Bonus Plan.
The Committee empowers the Chairman of the Board and/or Chief Executive Officer to grant individual
bonuses under the plan to eligible participants within certain ranges approved by the Committee
at the beginning of each fiscal year. Supplemental bonuses are awarded based upon
individual efforts not recognized under the Company's Profit Sharing
Incentive Bonus Plan.
Eligible participants are the Chairman of the Board,
President, Chief
Executive Officer, Secretary, Treasurer, Senior
Executive Vice Presidents, Executive Vice Presidents, and Vice Presidents of the
Company or its subsidiaries and any other salaried employees of the Company or
subsidiaries as the Chairman of the Board and/or Chief Executive Officer may select.
Any bonus under this plan awarded to the Chairman of the Board
or Chief Executive
Officer must be approved by the Committee.
The payment and forfeiture provisions under this plan are
under the same provisions as the Profit Sharing Incentive Bonus Plan.
EX-21
4
exhibit21.htm
KIMBALL INTERNATIONAL, INC. EXHIBIT 21
Exhibit 21
Exhibit 21
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
As of June 30, 2009, the subsidiaries of the
Registrant were as follows:
|
Jurisdiction of
Incorporation |
Percent of
Voting Stock Owned
By the
Registrant |
|
|
|
|
|
Kimball International Marketing, Inc. |
Indiana |
100% |
|
Kimball Furniture Group, Inc. |
Indiana |
100% |
|
Kimball Electronics, Inc. |
Indiana |
100% |
|
Kimball International Transit, Inc. |
Indiana |
100% |
|
Kimball Electronics - Mexico, S.A. de C.V. |
Mexico |
100% |
|
Kimball Electronics (Thailand) Limited |
Thailand |
100% |
|
Kimball Electronics Poland Sp. z o.o. |
Poland |
100% |
|
Kimball Hospitality, Inc. |
Indiana |
100% |
|
Kimball Electronics (Wales) Limited |
United Kingdom |
100% |
|
Kimball Electronics (Nanjing) Co., Ltd. |
China |
100% |
|
Kimball Electronics Tampa, Inc. |
Florida |
100% |
|
National Office Furniture, Inc. |
Delaware |
100% |
|
Kimball Electronics Netherlands B.V. |
Netherlands |
100% |
|
EX-23
5
exhibit23.htm
KIMBALL INTERNATIONAL, INC. EXHIBIT 23
Exhibit 23
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We consent to the incorporation by reference in
Registration Statement Nos. 333-111744, 333-14591, and 333-56048 of Kimball
International, Inc. on Form S-8 of our report dated August 31, 2009, relating to
the consolidated financial statements and financial statement schedule of
Kimball International, Inc. and the effectiveness of
Kimball International, Inc.'s internal control over financial reporting, appearing in this Annual Report on
Form 10-K of Kimball International, Inc. for the year ended June 30, 2009.
|
|
/s/ Deloitte & Touche LLP |
|
|
|
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 31, 2009 |
|
EX-24
6
exhibit24.htm
KIMBALL INTERNATIONAL, INC. EXHIBIT 24
Exhibit 24
Exhibit 24
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint DOUGLAS A.
HABIG, his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution, in name, place and stead, to sign the Form 10-K Annual Report of
Kimball International, Inc. (and each amendment thereto, if any) pursuant to
Section 13 or 15(d) of the Securities and Exchange Act of 1934, for the fiscal
year ended June 30, 2009, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto the attorney-in-fact full power and authority to sign
such document on behalf of the undersigned and to make such filing, as fully to
all intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that the attorneys-in-fact, or their substitutes,
may lawfully do or cause to be done by virtue hereof.
Date: August 18, 2009
/s/ James C. Thyen
James C. Thyen |
/s/ Douglas A. Habig
Douglas A. Habig |
|
|
|
|
|
|
|
/s/ Jack R. Wentworth
Jack R. Wentworth |
/s/ Christine M. Vujovich
Christine M. Vujovich |
|
|
|
|
|
|
|
/s/ Harry W. Bowman
Harry W. Bowman |
/s/ Geoffrey L. Stringer
Geoffrey L. Stringer |
|
|
|
|
|
|
|
/s/ Thomas J. Tischhauser
Thomas J. Tischhauser |
|
|
EX-31
7
exhibit311.htm
KIMBALL INTERNATIONAL, INC. EXHIBIT 31.1
Exhibit 31
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James C. Thyen, certify that:
1. |
I have reviewed this Annual Report on Form
10-K of Kimball International, Inc.; |
|
|
2. |
Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3. |
Based on my knowledge, the financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
4. |
The registrant's other certifying officer and
I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
(a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period
in which this report is being prepared; |
|
|
|
(b) Designed such internal
control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; |
|
|
|
(c) Evaluated the effectiveness
of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
(d) Disclosed in this report any
change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and |
|
|
5. |
The registrant's other certifying officer and
I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions): |
|
|
|
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and |
|
|
|
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the
registrant's internal control over financial reporting. |
|
|
|
|
|
|
|
|
/s/ James C. Thyen |
|
|
JAMES C. THYEN
President,
Chief Executive Officer |
|
|
August 31, 2009 |
EX-31
8
exhibit312.htm
KIMBALL INTERNATIONAL, INC. EXHIBIT 31.2
Exhibit 31
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert F. Schneider, certify that:
1. |
I have reviewed this Annual Report on Form
10-K of Kimball International, Inc.; |
|
|
2. |
Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3. |
Based on my knowledge, the financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
4. |
The registrant's other certifying officer and
I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
(a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period
in which this report is being prepared; |
|
|
|
(b) Designed such internal
control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; |
|
|
|
(c) Evaluated the effectiveness
of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
(d) Disclosed in this report any
change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and |
|
|
5. |
The registrant's other certifying officer and
I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions): |
|
|
|
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and |
|
|
|
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the
registrant's internal control over financial reporting. |
|
|
|
|
|
|
|
|
/s/ Robert F. Schneider |
|
|
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer |
|
|
August 31, 2009 |
EX-32
9
exhibit321.htm
KIMBALL INTERNATIONAL, INC. EXHIBIT 32.1
Exhibit 32
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Kimball International,
Inc. (the "Company") on Form 10-K for the period ending June 30, 2009 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, James C. Thyen, President and Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and result of
operations of the Company.
|
/s/ James C. Thyen |
|
|
JAMES C. THYEN
President,
Chief Executive Officer |
|
|
August 31, 2009 |
|
EX-32
10
exhibit322.htm
KIMBALL INTERNATIONAL, INC. EXHIBIT 32.2
Exhibit 32
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Kimball International,
Inc. (the "Company") on Form 10-K for the period ending June 30, 2009 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Robert F. Schneider, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and result of
operations of the Company.
|
/s/ Robert F. Schneider |
|
|
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer |
|
|
August 31, 2009 |
|
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