<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
(mark one) FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 1998
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
incorporation or organization) Identification Number)
1600 Royal Street, Jasper, Indiana 47549-1001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) 482-1600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Class A Common Stock, par value $.05 per share None
Class B Common Stock, par value $.05 per share NASDAQ
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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]
The number of shares outstanding of the Registrant's common stock as of
August 28, 1998 were:
Class A Common Stock - 14,382,596 shares
Class B Common Stock - 26,468,475 shares
Class A Common Stock is not publicly traded and, therefore, no market value is
available. The aggregate market value of the Class B Common Stock held by
non-affiliates, as of August 28, 1998, was $424.8 million, based upon an
estimate that 86.9% of Class B Common Stock is held by non-affiliates.
-1-<PAGE>
<PAGE>
Portions of the Proxy Statement for the Annual Meeting of Share Owners to be
held on October 20, 1998, are incorporated by reference into Part III.
The exhibit index is located on page 51.
-2-<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
KIMBALL INTERNATIONAL, INC.
FORM 10-K YEAR ENDED JUNE 30, 1998
Pages
<S> <C> <C>
PART I.
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 5-12
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 12-13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to Vote of Security Holders . . . 14
PART II.
Item 5. Market for the Registrant's Common Stock and
Related Share Owner Matters . . . . . . . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 17-23
Item 8. Financial Statements and Supplementary Data . . . . . . 24-45
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures . . . . . . . . . . 46
PART III.
Item 10. Directors and Executive Officers of the Registrant . . . 46
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 46
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . 46
Item 13. Certain Relationships and Related Transactions . . . . . 46
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . 47
Signatures . . . . . . . . . . . . . . . . . . . . . . . 48-49
</TABLE>
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<PAGE>
Forward-Looking Statements
This document may contain certain forward-looking statements. These are
statements made by management, using their best business judgement based upon
facts known at the time of the statements or reasonable estimates, about future
results, events and the like. 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 specific reference or by the use of words such as
"believes", "anticipates", "expects", "intends", "projects" and similar
expressions.
Such statements involve risk, uncertainty, and their ultimate validity is
affected by a number of factors, both specific and general. Specific risk
factors may be noted along with the statement itself. However, other more
general risks and uncertainties which are inherent in any forward-looking
statement include, but are not necessarily limited to changes in:
- - Demand for the Company's product
- - Relationships with strategic customers, suppliers and product distributors
- - Competition in each of the Company's product lines
- - Domestic and International business legislation and regulation
- - Technology
- - General economic conditions
- - Cost and/or assumptions underlying strategic decisions
- - Operational capabilities due to natural disasters or other similar unforeseen
events
This listing of factors is NOT intended to include ALL potential risk factors.
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.
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 when they are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those in the forward-looking
statements.
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<PAGE>
PART I
Item 1. - Business
As used herein, the term "Company" refers to Kimball International, Inc.,
the Registrant, and its subsidiaries unless the context indicates otherwise.
The Company was incorporated in Indiana in 1939, and present management
assumed control in 1950. The corporate headquarters is located at 1600 Royal
Street, Jasper, Indiana.
The Company operates in three principal business segments: Furniture and
Cabinets, Electronic Contract Assemblies, and Processed Wood Products and Other.
The Company utilizes a substantial degree of vertical integration, as
approximately 51% of the final products of the Processed Wood Products and Other
Segment are used in the manufacturing processes in the Furniture and Cabinets
Segment.
The Company does not consider seasonal fluctuations to be significant.
Production is carried on in facilities located in the United States, Mexico,
Austria and France. Production in England was discontinued early in the 1997
fiscal year with the sale of that facility. In the United States, the Company
has facilities and showrooms in 15 states.
<TABLE>
Sales by segment, after elimination of intersegment sales, for each of the
three years in the period ended June 30, 1998 are as follows:
<CAPTION>
SALES BY SEGMENT (dollars in thousands)
1998 1997 1996
<S> <C> <C> <C>
Furniture and Cabinets $ 647,597 $617,249 $580,393
Electronic Contract Assemblies 325,602 315,816 284,639
Processed Wood Products and Other 59,118 58,984 58,604
--------- ------- -------
Total $1,032,317 $992,049 $923,636
</TABLE>
Financial information by industry segment and geographic area for each of
the three years in the period ended June 30, 1998, is included in Note 14,
Business Segment and Geographic Area Information, of the Notes to Consolidated
Financial Statements, which can be found in Item 8, and is incorporated herein
by reference.
-5-<PAGE>
<PAGE>
Segments
FURNITURE AND CABINETS
Historical Overview
Since 1950, the Company has produced wood furniture and cabinets, which
continue to be a significant part of the business. Products in this segment
include cabinets for televisions, audio speakers, television stands, furniture
and other wood related products manufactured on a contract basis and sold to
leading manufacturers in the home entertainment and home furniture industries,
and office furniture, which has been manufactured and sold under the Kimball
(registered trademark) trade name since 1970. In 1992, the Company expanded its
product offering with the acquisition of Harpers, a metal office furniture
manufacturer. Harpers has marketed metal office furniture under the Harpers
(registered trademark) trade name since 1982. Kimball and Harpers office
furniture systems have broad market application, while the Kimball and National
(registered trademark) casegoods and seating lines are more focused to the wood
segment of the office furniture industry. The Cetra (registered trademark) and
Footprint (registered trademark) lines of Kimball office furniture systems
provide flexible configurations and help architects and designers optimize space
planning by utilizing Traxx (registered trademark), which increases space
efficiency and eliminates the need for a secondary support structure by using
existing walls. The Interworks (registration allowed) line of office furniture
systems, introduced by Harpers in 1997, is designed to integrate easily with
existing Kimball systems products and provide more flexibility and functionality
in office design.
The Company has expanded its sales and manufacture of furniture over the
years to include Kimball brand name lodging-hospitality furniture, healthcare
furniture, and residential furniture.
Through a predecessor acquired in 1966, L. Bosendorfer of Vienna, Austria,
the Company has been engaged in acoustical piano manufacturing and sales since
1828. The prestigious Bosendorfer line of high-end pianos is sold and
recognized worldwide. The Company was also engaged in the manufacture and
sales of a domestically produced piano product line since 1857 through a
predecessor, W. W. Kimball Co., acquired in 1959, until cessation of this
product line in 1996.
Locations
Office, home, hospitality and healthcare furniture, TV cabinets and
related products, which make up the largest part of this segment, are produced
at sixteen plants, thirteen located in Indiana and one each in Kentucky,
Alabama, and Idaho. Nine of the sixteen plants presently producing furniture
and cabinets could interchange production between these two basic products, if
needed.
Acoustical pianos are produced at a facility located in Austria.
The company sold its piano key and action production facility located in
the United Kingdom during fiscal year 1997.
A facility in Jasper, Indiana houses an Education Center for dealer and
employee training, the Product Design and Research Center, and a Corporate
showroom for product display.
In the United States, showrooms are maintained in eleven cities for office
furniture and three cities for home furniture. In addition, office furniture
is maintained in showrooms in London, England and Toronto, Canada. In certain
showrooms other Company products are also on display. A piano showroom and
service facility is located in Vienna, Austria.
-6-<PAGE>
<PAGE>
Marketing Channels
Kimball, National, and Harpers brands of office furniture are marketed
through Company salespersons to office furniture dealers, wholesalers, rental
companies and catalog houses throughout North America and England. Cabinets and
contract furniture are generally marketed through Company salespersons, while
hospitality and healthcare furniture is marketed through independent
manufacturers' representatives. The Company's channel marketing strategy
facilitates the sale of related office furniture, residential furniture and
upholstery product within the hospitality and healthcare channels. Period
reproduction furniture and residential furniture are generally marketed through
independent sales representatives to independent furniture dealers throughout
the United States. Bosendorfer (registered trademark) pianos are marketed
through Company salespersons and agents to independent dealers.
Major Competitive Factors
The major competitive factors in the office furniture industry are price
in relation to quality and appearance, the utility of the product, customer
lead time, and ability to respond to requests for special and non-standard
products. Certain market segments are more price sensitive than others, but
all segments 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, National and Harpers office furniture to domestic
dealers, thereby permitting the dealers to maintain smaller inventories.
Many products are shipped through the Company's delivery system, which the
Company believes offers it the ability to reduce damage to shipments, enhance
scheduling flexibility, and improve the capability for on-time deliveries,
which are all key competitive factors in the office furniture industry.
The major competitive factors in the cabinet, home furniture and original
equipment manufacturer (OEM) products markets are quality, performance history,
price, on-time delivery and customer lead time. Television and audio speaker
cabinets, television stands, display stands, and contract home furniture are
produced to customer specifications from specific orders and finished goods
inventories are generally small, consisting primarily of goods awaiting shipment
to customers. The Company's own lines of home furniture are offered for sale on
an immediate ship basis.
The hospitality and healthcare furniture markets compete on quality,
performance history, on-time delivery, customer lead time and price. The
Company offers its own line of hospitality and healthcare furniture as well
as producing custom hospitality and healthcare furniture to customers'
specifications.
The major competitive factors in the high-end acoustical piano industry
are quality, acoustical tone and appearance.
Competitors
There are numerous manufacturers of office, home, hospitality, and
healthcare furniture competing within the marketplace. The Company believes,
however, that there are a limited number of relatively large producers of wood
office, hospitality and healthcare furniture, of which the Company believes
that it is one of the larger in net sales. In many instances wood office
furniture competes in the market with metal office furniture. Based on
available industry statistics, metal office furniture has a larger share of
the total office furniture market. The Company has positioned Harpers as a
vehicle to strengthen its market share in the non-wood segment of the industry.
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<PAGE>
The Company believes that it is one of the largest independent domestic
manufacturers of television and audio speaker cabinets, but certain
manufacturers of televisions and audio speakers, including some customers of
the Company, produce cabinets for their own use.
The high-end acoustical piano industry is characterized by a limited
number of competitors, including one major competitor.
There are many manufacturers of residential furniture and the Company
does not have a significant share of this market.
Raw Material Availability
Many components used in the production of furniture and cabinets are
manufactured internally within the segment or by other segments of the
Company, including processed wood parts, and on a limited basis, metal
stamped parts and certain polyurethane and polyester molded plastics. Raw
materials used in the production of wood furniture and cabinets are generally
readily available. Certain metal components used in various wood office
furniture products are purchased in a pre-fabricated stage with additional
fabrication and finishing performed by the Company. Raw materials used in the
manufacture of metal office furniture, primarily rolled steel, is readily
available in the world market. Certain pre-fabricated components used in the
Company's piano line are available from a limited number of sources, although no
interruptions in supplies have been experienced.
-8-<PAGE>
<PAGE>
ELECTRONIC CONTRACT ASSEMBLIES
The Company entered the electronic contract assemblies market in 1985
with knowledge acquired from the production of electronic keyboards for
musical instruments, which were first produced in 1963. Electronics and
electro-mechanical products (electronic assemblies) are sold on a contract
basis and produced to customers' specifications. The Company expanded its
capabilities to include semiconductor DIE processing, design, testing and
packaging through an acquisition in 1996.
Production takes place at four manufacturing facilities located in
Indiana, California, Mexico, and France. One additional facility located in
Indiana is utilized for warehousing space, while another facility in Texas is
utilized to receive inbound materials for the Mexican facility. The Company
expanded its Mexican facility in fiscal 1998, which more than doubled its
production space. The Indiana facility assembles electronic components and
products for sale to outside customers. The facility located in Mexico
assembles electronic components and other electronic products for sale to
outside customers. The facility in California assembles product and also
provides semiconductor DIE processing, design, testing and packaging services.
The French facility provides DIE processing and assembly services for the
European market.
Products are normally marketed by Company salespersons and independent
sales representatives on a contract basis. 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. 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.
Key competitive factors in the electronic contract assemblies market are
price, quality, engineering design services, production flexibility, reliability
of on-time delivery, customer lead time, and testing. Growth in the electronic
contract assemblies industry is created through the proliferation of electronic
components in today's advanced products along with the continuing trend of OEM's
in the electronic industry to subcontract the assembly process to companies with
a core competence in this area. The electronics industry is very competitive as
numerous manufacturers of contract electronic assemblies compete for business
from existing and potential customers. The Company does not have a significant
share of the market for such products.
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 allocations of certain
components due to supply and demand forces, combined with rapid product life
cycles of certain components.
While the total electronic assemblies market has broad applications, the
Company's customers are concentrated in the automotive (automobiles and light
trucks), computer and telecommunications industries. Included in this segment
are sales of electronic assemblies to one customer, Lucas Varity, PLC, which
accounted for approximately 16% of consolidated net sales in fiscal year 1998,
compared to 15% and 14% in fiscal years 1997 and 1996, respectively. The
success of this segment is contingent on the success of our customers' products.
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<PAGE>
PROCESSED WOOD PRODUCTS AND OTHER
The Company's manufacture and sale of processed wood products includes
unprocessed lumber, dimension lumber, plywood and veneer. The Company owns
and operates three sawmills, three lumber yards, three dimension lumber plants,
three plants which manufacture contract wood products, a sliced veneer plant and
two facilities which process plywood and related products. The Company owns a
fourth sawmill which is currently idle.
Processed wood and other products manufactured by the Company are used
internally as well as sold to others. For fiscal year 1998, an estimated 51%
of the total production of these operations was for products used internally
in the Furniture and Cabinets segment. Products sold to others are marketed
principally to furniture manufacturers, primarily through Company personnel.
Competitive factors in the processed wood products market are price,
quality, availability, on-time delivery and customer lead time. In processed
wood materials, the Company competes with many integrated forest and
specialty hardwood product companies and does not have a significant share of
the market for such products. Raw materials used in this business segment
are generally readily available.
Various miscellaneous products are manufactured by the Company for sale
to unaffiliated customers as well as for its own use. These include
polyurethane and polyester molded products, stamped metal parts, carbide
cutting tools and related services on cutting tools. Services of the
Company's trucking fleet are also sold to unaffiliated customers.
OTHER INFORMATION
BACKLOG
At June 30, 1998, the aggregate sales price of production pursuant
to worldwide open orders, which may be canceled by the customer, were
$254 million as compared to $205 million at June 30, 1997.
<TABLE>
BACKLOG BY SEGMENT
<CAPTION>
(dollars in millions)
June 30, 1998 June 30, 1997
<S> <C> <C>
Furniture and Cabinets $119 $104
Electronic Contract Assemblies 129 96
Processed Wood Products & Other 6 5
--- ---
Total Backlog $254 $205
Open orders as of June 30, 1998 are expected to be filled within the next
fiscal year. Open orders generally may not be indicative of future sales
trends.
</TABLE>
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<PAGE>
RESEARCH, PATENTS, AND TRADEMARKS
Research and development activities include the development of manufacturing
processes, major process improvements, new product development, and electronic,
wood and plastic technologies.
<TABLE>
<CAPTION>
(dollars in millions)
fiscal years ended June 30,
1998 1997 1996
<S> <C> <C> <C>
Research and Development Costs $13.1 $11.5 $10.5
</TABLE>
The Company owns the Kimball (registered trademark) trademark, which it
believes is significant to its office, electronic, hospitality, healthcare and
home furniture businesses, and owns the following trademarks which it believes
are significant to its furniture business only: National (registered
trademark), Cetra (registered trademark), Footprint (registered trademark),
Artec (registered trademark), Traxx (registered trademark), Skate (registration
allowed), Harpers (registered trademark), Interworks (registration allowed)
and Bloxx (registration allowed); and to the piano business only:
Bosendorfer (registered trademark). The Company also owns certain patents
and other trademarks and has certain other patent applications pending, which
in the Company's opinion are not significant to its business.
ENVIRONMENT AND ENERGY MATTERS
The Company's operations are subject to various 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. The Company believes that continued compliance with 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, 2000, 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, significant energy requirements
are satisfied internally by the use of the Company's own wood waste products.
<TABLE>
EMPLOYEES
<CAPTION>
June 30, 1998 June 30, 1997
<S> <C> <C>
United States 7,807 7,389
Foreign Countries 1,749 1,560
----- -----
Total Full Time Employees at June 30 9,556 8,949
</TABLE>
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<PAGE>
The Company has no collective bargaining agreements with respect to its
domestic employees. All of the Company's foreign operations are subject to
collective bargaining arrangements. The Company believes that its employee
relations are good.
Item 2. - Properties
<TABLE>
The location and number of the Company's major manufacturing,
warehousing, and service facilities, including the executive and
administrative offices, as of June 30, 1998, are as follows:
<CAPTION>
------------- Number of Facilities ---------------
Furniture Electronic Processed
and Contract Wood Products
Cabinets Assemblies and Other Total
<S> <C> <C> <C> <C>
Indiana 20 2 12 34
Kentucky 1 3 4
Tennessee 3 3
California 2 1 3
Alabama 1 1
Idaho 1 1
Mississippi 1 1
Texas 1 1
Austria 2 2
France 1 1
Mexico 1 1 2
-- - -- --
Total Facilities 28 6 19 53
These facilities occupy approximately 6,747,000 square feet in aggregate,
of which approximately 6,478,000 square feet are owned in fee and 269,000 square
feet are leased. Square footage of these facilities are summarized as follows:
<CAPTION>
------------- Approximate Square Footage -------------
Furniture Electronic Processed
and Contract Wood Products
Cabinets Assemblies and Other Total
<S> <C> <C> <C> <C>
Fee 4,595,000 470,000 1,413,000 6,478,000
Leased 180,000 89,000 -0- 269,000
--------- ------- --------- ----------
Sub-total 4,775,000 559,000 1,413,000 6,747,000
Sub-leased -0- -0- -0- -0-
--------- ------- --------- ----------
Total 4,775,000 559,000 1,413,000 6,747,000
Including certain leased furniture showroom areas excluded from the above
listing, total facilities approximate 6.9 million square feet. (See Note 5 -
Commitments - Leases of Notes to Consolidated Financial Statements in Item 8,
for additional information concerning leases.)
</TABLE>
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<PAGE>
Included in Processed Wood Products and Other are executive, national
sales and administrative offices, the production facility for polyurethane and
polyester molded plastic, the production facility for stamped metal products,
the production and service facility for carbide cutting tools, a facility used
in managing the Company's trucking fleet, and an energy center for the Kimball
Industrial Park consisting of 3 trifuel boilers.
Properties are generally utilized at normal capacity levels on a single
shift basis, with certain facilities operating a second shift, while other
facilities utilize a reduced second or third shift to meet increased demand
levels. At times, certain facilities were not utilized at normal capacity
levels during the fiscal year, because of declines in sales. The Energy
Center is not operating at full capacity.
Any loss of income resulting from a facility catastrophe would be
partially offset by business interruption insurance coverage.
Operating leases totaling 269,000 square feet expire 1999-2007, with all
leases subject to renewal options. In addition to the above production,
warehouse and office properties, the Company has 15 leased showroom facilities
totaling 110,000 square feet, in 10 states in the United States, one location
in London, England, one location in Vienna, Austria, and one location in
Toronto, Canada.
The Company owns approximately 15,790 acres of land which includes land
where various Company facilities reside, including approximately 14,930 acres
generally for hardwood timber reserves, 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), and approximately 60
acres in Post Falls, Idaho, where the Harpers plant is located.
Item 3. - Legal Proceedings
The Registrant and its subsidiaries are not parties to any material
pending legal proceedings, other than ordinary routine litigation incidental
to the business.
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<PAGE>
Item 4. - Submission of Matters to Vote of Security Holders
None to Report
<TABLE>
Executive Officers of the Registrant
The executive officers of the Registrant as of August 31, 1998 are as
follows: (Age as of August 31, 1998)
<CAPTION>
Office and Officer
Name Age Area of Responsibility Since
<S> <C> <C> <C>
Douglas A. Habig 51 Chairman of the Board of Directors, 1975
and Chief Executive Officer
Thomas L. Habig 70 Vice Chairman of the Board of Directors 1955
James C. Thyen 54 President and Director 1974
John B. Habig 65 Senior Executive Vice President, 1958
Operations Officer, Electronics,
and Director
Ronald J. Thyen 61 Senior Executive Vice President, 1966
Operations Officer, Furniture and
Cabinets, and Director
John T. Thyen 60 Senior Executive Vice President, 1978
Marketing and Sales, and Director
Gary P. Critser 61 Senior Executive Vice President, 1967
Secretary, Treasurer, and Director
Robert F. Schneider 37 Executive Vice President, Chief Financial 1992
Officer and Assistant Treasurer
Executive officers are elected annually by the Board of Directors.
Thomas L. Habig, John B. Habig and Douglas A. Habig are brothers. James C.
Thyen, Ronald J. Thyen and John T. Thyen are brothers. All of the executive
officers have been employed by the Company for more than the past five years in
the capacity shown or some other executive capacity. Robert F. Schneider was
appointed to his current position in July 1997, having previously served the
company as Vice President and Director of Accounting.
</TABLE>
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<PAGE>
PART II
Item 5. - Market for the Registrant's Common Stock and Related Share Owner
Matters
<TABLE>
Market Prices: The Company's Class B Common Stock trades on The Nasdaq
Stock Market under the symbol: KBALB. High and low price ranges by quarter
for the last two fiscal years as quoted by the National Association of
Security Dealers (NASDAQ) are as follows:
<CAPTION>
------- 1998 ------ ------- 1997 ------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter. . . . . . . $23 7/16 $19 3/4 $18 5/8 $13 1/4
Second Quarter . . . . . . $22 3/16 $18 3/8 $21 3/8 $17 3/8
Third Quarter. . . . . . . $23 3/4 $17 $22 5/8 $18 1/4
Fourth Quarter . . . . . . $24 15/16 $17 5/8 $21 1/4 $17 1/2
There is no active trading market for the Company's Class A Common Stock.
</TABLE>
<TABLE>
Dividends: There are no restrictions on the payment of dividends except
charter provisions that require 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. During fiscal year 1998
dividends declared were $24.8 million or $.58875 per share on Class A Common
Stock and $.605 per share on Class B Common Stock. Dividends by quarter
for 1998 compared to 1997 are as follows:
<CAPTION>
------ 1998 ------ ------ 1997 ------
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
First Quarter. . . . . . . $ .14 3/8 $ .14 1/2 $ .12 7/8 $ .13
Second Quarter . . . . . . $ .14 1/2 $ .15 $ .12 7/8 $ .13
Third Quarter. . . . . . . $ .14 1/2 $ .15 $ .12 7/8 $ .13
Fourth Quarter . . . . . . $ .15 1/2 $ .16 $ .14 3/8 $ .14 1/2
---- ---- ---- ----
Total Dividends. . . . . . $ .58 7/8 $ .60 1/2 $ .53 $ .53 1/2
</TABLE>
Share Owners: On July 29, 1998, the Company's Class A Common Stock was
owned by approximately 650 Share Owners of record and the Company's Class
B Common Stock by approximately 2,490 Share Owners of record, of which
approximately 390 also owned Class A Common Stock.
At the annual meeting held on October 28, 1997, the Company's Share Owners
approved a two-for-one stock split on the Company's Class A and Class B Common
Stock. The Share Owners also approved restating the Company's Articles of
Incorporation by increasing the number of authorized shares to 150 million
shares, reducing the par value of common stock from $.3125 to $0.05, and
increasing the annual dividend preference on Class B Common Stock to $0.02 per
share. The stock split became effective on November 12, 1997. Financial
information contained in this report, including prior period share and per share
amounts, has been adjusted to reflect the impact of the common stock split.
-15-<PAGE>
<PAGE>
<TABLE>
Item 6. - Selected Financial Data
(dollars in thousands, except per share amounts)
<CAPTION>
-------------- Year Ended June 30, -------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Sales $1,032,317 $992,049 $923,636 $895,912 $822,484
Net Income $ 55,027 $ 57,745 $ 45,095 $ 41,439 $ 36,169
Earnings Per Share
Basic:
Class A $1.32 $1.39 $1.08 $ .98 $ .85
Class B $1.33 $1.40 $1.08 $ .99 $ .86
Diluted:
Class A $1.31 $1.38 $1.07 $ .98 $ .85
Class B $1.32 $1.38 $1.08 $ .99 $ .86
Total Assets $ 629,638 $581,583 $538,225 $497,086 $471,413
Long Term Debt, Less
Current Maturities $ 1,856 $ 2,313 $ 3,016 $ 924 $ 811
Cash Dividends Per Share:
Class A $.58 7/8 $.53 $.47 $.42 1/2 $.41 1/2
Class B $.60 1/2 $.53 1/2 $.47 1/2 $.43 $.42
Share data has been adjusted for the 2-for-1 common stock split effective on November 12, 1997.
</TABLE>
-16-<PAGE>
<PAGE>
Item 7. - Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
Fiscal year 1998 net sales surpassed the $1 billion mark for the first time, as
sales increased 4% above 1997 levels to set a new annual record of
$1,032,317,000. Net income and Class B diluted earnings per share were
$55,027,000 and $1.32, respectively, a decrease of 5% from 1997 record levels.
RESULTS OF OPERATIONS
1998 DISCUSSION
Net sales for the 1998 fiscal year surpassed 1997 levels on increased sales by
both the Furniture and Cabinets segment and the Electronic Contract Assemblies
segment. Net sales in the Processed Wood Products and Other segment were flat
with fiscal year 1997. Operating income in 1998 decreased 11% to $72,476,000,
from $80,992,000 in 1997.
<TABLE>
Business Segments
(Amounts in millions)
<CAPTION>
------ Year Ended June 30 ------
1998 1997 1996
<S> <C> <C> <C>
Net Sales:
Furniture and Cabinets. . . . . . . . . $647.6 $617.2 $580.4
Electronic Contract Assemblies. . . . . 325.6 315.8 284.6
Processed Wood Products and Other . . . 59.1 59.0 58.6
Operating Income:
Furniture and Cabinets. . . . . . . . . $ 38.7 $ 44.2 $ 33.5
Electronic Contract Assemblies. . . . . 28.6 29.7 21.4
Processed Wood Products and Other . . . 5.2 7.1 7.6
</TABLE>
FURNITURE AND CABINETS
Fiscal 1998 net sales in the Furniture and Cabinets segment, the Company's
largest segment, increased 5% over the prior year. A double-digit increase in
office furniture sales was partially offset by sales declines in lodging
furniture and original equipment manufacturer cabinets and furniture.
Office furniture experienced record annual net sales in 1998. Growth was
achieved without acquisitions and was distributed across all major product
groupings - casegoods, seating, and systems. Increases in net sales resulted
primarily from higher volumes. Office furniture sales growth kept pace with the
most recent twelve-month industry trend. Price discounting remains a
competitive factor in the office furniture industry, resulting in lower
operating margins in the year over year comparison.
Net sales for cabinets and furniture product lines declined when compared to the
prior year, with volume declines in television cabinets and stands and audio
speaker cabinets. Fiscal 1998 residential furniture sales increased in
comparison to 1997. Sales of original equipment manufacturer cabinets and
stands in the home entertainment market were impacted by the relocation of a
large customer and its longer than anticipated start up time in the early part
of the fiscal year, resulting in lower volumes in 1998. The Company's
production flexibility allows it to utilize portions of the available production
capacity created by lower volumes within these product lines to support and
balance increased production schedules of other product lines within this
segment. The Company continues to explore other potential external product
avenues to utilize excess capacity in this group, including new customers and
new products.
Net sales of lodging furniture in 1998 declined when compared to 1997.
Increased sales in the Company's standard product lines were more than offset by
reduced sales of custom-made product. Lower volumes were primarily the result
of competitive pricing pressures. In the latter half of the fiscal year, the
Company re-evaluated its lodging furniture pricing structure, and initiated a
new pricing strategy to offer more competitive pricing. In addition, based upon
customer feedback certain products were reengineered which enabled the Company
to lower costs without sacrificing customer-defined quality.
-17-<PAGE>
<PAGE>
Operating income in the Furniture and Cabinets segment decreased in 1998 when
compared to 1997, despite an increase in sales. Cost of goods sold, as a
percent of sales, was lower in 1998 as favorable shifts in the product mix were
partially offset by higher labor costs, as a percent of sales. Sales and
administrative expenses rose in 1998 primarily due to increased investments in
people and technology, higher product distribution costs, and increased
sales-based incentive costs.
ELECTRONIC CONTRACT ASSEMBLIES
The Electronic Contract Assemblies segment achieved record net sales in fiscal
1998 with an increase of 3% over the prior year. Increased demand for
electronic automotive products was partially offset by decreased volumes in
computer-related products. Fiscal 1998 fourth quarter results were unfavorably
impacted by the General Motors (GM) labor strike, as the Electronic Contract
Assemblies segment assembles components that are installed in GM vehicles. The
Company estimates that the impact resulting from the GM strike was less than 2%
of fourth quarter consolidated sales. With the settlement of the strike
occurring in late July, 1998, the Company's expectations are that the effect on
first quarter fiscal 1999 results will be greater than the fourth quarter 1998
impact. The information included above concerning the General Motors labor
strike is a forward-looking statement under the Private Securities Litigation
Reform Act of 1995 and is subject to risks and uncertainties including, but not
limited to how quickly GM and it suppliers will return to full production, as
well as the ability of the Company and its suppliers to ramp up production to
respond to the anticipated acceleration in demand. This segment's working
capital carries a higher degree of risk than the Company's other segments due to
rapid technological changes and the contract nature of this industry. Included
in this segment are sales to one customer which accounted for 16% and 15% of
consolidated sales in fiscal 1998 and 1997, respectively.
Operating income in 1998 decreased when compared to the prior year. Cost of
goods sold, as a percent of sales, increased as lower material costs due to a
product mix shift were more than offset by higher direct labor and overhead
costs. Selling and administrative costs increased from one year ago on
increased investments in people and technology. The Company continues to build
its infrastructure to take advantage of the latest design and production
technologies and to support growth opportunities within the segment.
PROCESSED WOOD PRODUCTS AND OTHER
Outside sales in the Processed Wood Products and Other segment, which accounted
for 6% of consolidated outside sales in 1998, remained relatively consistent
with the prior year as increases in sales of lumber, laminate products and metal
parts were offset by a decline in sales of dimension product and plastic parts.
In an effort to grow additional outside sales in this segment, the Company has
invested in additional human resources focused in the sales and marketing area.
Internal sales of this segment to the Company's other operations, particularly
the Furniture and Cabinets segment, provide a key link in the Company's
vertically integrated supply chain. Operating income declined in the current
year as material costs, as a percent of sales, increased from the prior year.
CONSOLIDATED OPERATIONS
Other income in 1998 increased over the prior year as interest income increased
on higher average investment balances. In the third quarter of the current year
the Company realized a $616,000 after tax gain ($1.2 million pre-tax affect),
-18-<PAGE>
<PAGE>
or $0.01 per diluted share, on the sale of a stock investment of which the
Company holds a minority interest. The Company also recorded a $1.0 million
after tax gain ($1.8 million gross gain affect), or $0.02 per diluted share,
on the sale of an automotive service center in the second quarter of the
current year. In addition, the prior year includes a $3.8 million pretax
loss (no after tax affect) charged to Other - net related to the sale of a
foreign subsidiary.
The effective income tax rate increased 2.3 percentage points in 1998 primarily
due to a $3.8 million tax benefit received on the sale of a foreign subsidiary
in the prior year. Excluding this $3.8 million benefit, the effective income
tax rate decreased 0.4 percentage point when compared to the prior year
primarily the result of a decrease in the state income taxes in the current
year.
Net income and Class B diluted earnings per share of $55,027,000 and $1.32,
respectively, in fiscal 1998, decreased 5% from the prior year levels of
$57,745,000 and $1.38, respectively. The current year earnings per share
amounts reflect a two-for-one stock split which occurred during the second
quarter. All prior year amounts have been restated.
1997 DISCUSSION
Net sales for the 1997 fiscal year, led primarily by increases in the Furniture
and Cabinets, and Electronic Contract Assemblies segments and, to a lesser
extent, the Processed Wood Products and Other segment increased 7% to
$992,049,000. Operating income in 1997 increased to $80,992,000, a 30%
improvement over the 1996 level of $62,511,000.
FURNITURE AND CABINETS
The Company's largest segment, Furniture and Cabinets, increased net sales 6%
above the prior year as double-digit increases in office furniture and lodging
furniture were partially offset by declines in cabinets and furniture.
Office furniture product lines realized volume growth in all three major product
groupings - casegoods, seating, and systems, with growth particularly evident in
value-oriented products which had sales grow at a faster pace than that
experienced by the industry in general. Sales growth in systems also out paced
the industry as a whole.
Sales of most cabinet and furniture product lines declined when compared to the
prior year, with television cabinets and stands, audio speaker cabinets, and
residential furniture all seeing lower volumes in fiscal 1997. The Company's
fiscal 1996 decision to exit the domestic wholesale piano market also
contributed to the declining volumes in these product lines. Lower volumes of
original equipment manufacturer cabinets and stands in the home entertainment
market were the result of some customers realizing lower retail sales of their
products. The Company utilized the available capacity created by the sales
declines to support and balance production schedules of other product lines
within this segment.
Sales of lodging furniture increased as volumes increased in the Company's
standard and custom-made furniture product lines. Strongest growth was seen in
product destined for use in the lodging industry in both renovated and newly
constructed facilities. Sales growth was also achieved in product utilized
within the healthcare industry and other institutional environments.
-19-<PAGE>
<PAGE>
Operating income in the Furniture and Cabinets segment increased in 1997, when
compared to 1996, as higher volumes and lower costs, as a percent of sales,
combined to improve profitability during the year. The prior year included
additional one-time costs to exit the domestic wholesale piano product line and
certain facility start-up costs incurred to redeploy an existing facility to the
production of systems office furniture to support increased volumes. Gross
profit increased in 1997 as material costs declined, as a percent of sales, when
compared to the prior year. Sales expense increased, as a percent of sales,
partially due to increases in volume and performance related expenses, including
commissions and incentives, and higher expenses incurred to promote product to
the customer, such as showroom, delivery, and other expenses. Administrative
expense in 1997 declined in absolute dollars and as a percent of sales, as
minimal changes were needed within the existing administrative infrastructure to
support the increased volumes.
The Company sold its piano key and action production facility located in the
United Kingdom, Herrburger Brooks, PLC, during the first quarter of fiscal 1997,
with the transaction resulting in no impact to consolidated 1997 net income.
ELECTRONIC CONTRACT ASSEMBLIES
Fiscal 1997 sales in the Electronic Contract Assemblies segment increased 11%
over the 1996 level. The acquisition of ELMO Semiconductor in the prior year
third quarter contributed 2% to the increased sales level. Certain large
customers in the automotive and computer industries increased their demand for
the Company's products in the 1997 fiscal year, with volumes increasing in
electronic automotive products and internal and peripheral computer products,
when compared to the prior year. Other customers, primarily in the computer
networking market, reduced order levels. Rescheduling, production flexibility
and material availability are inherent risks in the contract electronic
assemblies market. In addition, as a supplier to customers operating within the
automotive industry, the Company has a certain degree of risk associated with
labor relations within that industry. Due to these factors, this segment's
working capital carries a higher degree of risk than the Company as a whole.
Working capital in this segment as of June 30, 1997, had been reduced from the
elevated levels present at June 30, 1996. As in other segments, the Company
records reserves in response to these risks as they arise based upon estimates
derived from available information known at that time. Operating income in 1997
increased primarily due to increased volumes, with product mix also contributing
to the improved results, although competitive pricing pressures remain a
constant in the industry. Included in this segment were sales to one customer
which accounted for 15% of consolidated sales in 1997 and 14% in 1996.
PROCESSED WOOD PRODUCTS AND OTHER
Outside sales in the Processed Wood Products and Other segment improved
marginally over the prior year as increases in sales of dimension, lumber and
metal parts were offset by a decline in sales of plastic parts, veneer and
laminate products. This segment continued to provide goods and services to the
Company's internal operations, mainly in the Furniture and Cabinets segment, in
support of the vertically integrated supply chain maintained by the Company.
Operating income declined when compared to the prior year due to higher costs
for some raw material commodities coupled with a changing customer mix.
CONSOLIDATED OPERATIONS
Other income declined from the prior year as an increase in interest income
earned due to higher average investment balances during the 1997 fiscal year was
more than offset by a $3.8 million charge to Other - net, related to a pretax
loss on the sale of a foreign subsidiary in the first quarter of 1997, which was
offset by a $3.8 million income tax benefit recorded in Taxes on Income. Other
- - net, also declined due to larger gains realized on sales of assets in the
prior fiscal year. -20- <PAGE>
<PAGE>
The effective income tax rate decreased 4.5 percentage points in 1997 due
primarily to the $3.8 million tax benefit received on the sale of a foreign
subsidiary in the first quarter of this fiscal year. The tax benefit was the
result of a higher U.S. tax basis due to previously nondeductible losses on the
investment in this U.K. subsidiary. Excluding this benefit, the effective
income tax rate decreased 1.8 percentage point when compared to the prior year
due to reduced European operating losses, which provide no immediate tax
benefit, and a slight reduction in the effective state tax rate.
The sale of a foreign subsidiary in the first quarter of fiscal year 1997
resulted in a deferred tax asset for the Company due to a capital loss
recognized in the current year as previously nondeductible losses created a
higher tax basis on this investment. Based on the Company's prior earnings
history and its expectations for future earnings, the Company has determined
that it is more likely than not that the carrying value of the deferred tax
asset will be realized in the future as part of the Company's overall tax
planning strategy under current income tax law.
The Company attained record net income and Class B diluted earnings per share of
$57,745,000 and $1.38, respectively, in fiscal 1997, an increase of 23% over the
prior year levels of $46,965,000 and $1.13, respectively, excluding the effects
of the product line exit costs in the prior year. Including the product line
exit costs, net income and Class B earnings per share increased 28% over the
prior year. Earnings per share amounts have been restated to reflect the
two-for-one stock split effective in the second quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position improved slightly from $168 million in cash,
cash equivalents, and short-term investments at the end of fiscal 1997, to $173
million at the end of fiscal 1998. Working capital increased $16 million to
$260 million and the current ratio was 2.7 to 1 as of June 30, 1998.
Operating activities generated $76 million of cash flow in 1998, down from $122
million in 1997. Net income and non-cash charges to net income were partially
offset by increases in receivables of $9 million and inventory of $15 million.
The Company reinvested $49 million into capital investments for the future,
including facility renovation and expansion, production equipment upgrades and
improvements to the Company's information technology systems. Financing cash
flows of $30 million were primarily in the form of dividend payments and share
repurchases. Net cash flow, excluding the purchases and maturities of
short-term investments was a positive $2 million for fiscal year 1998.
The Company anticipates maintaining a strong liquidity position for the 1999
fiscal year and believes its available funds on hand, borrowing capacity, and
cash generated from operations will be sufficient for working capital needs and
to fund investments in the Company's future. This statement is a
forward-looking statement under the Private Securities Litigation Reform Act of
1995 and is subject to certain risks and uncertainties including, but not
limited to a downturn in the economy, loss of key customers or suppliers,
availability or cost of raw materials, or a natural disaster or similar
unforeseen event.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in a major system
-21-<PAGE>
<PAGE>
failure or miscalculations. The Company has completed an assessment of its
computer systems and the embedded systems contained in its machinery, equipment
and other infrastructure, and is in the process of executing a plan to resolve
the Year 2000 issue. An Executive Committee has been established to oversee
completion of these activities. Management believes the modification of its
computer information systems will be completed in adequate time to enable proper
processing of transactions relating to the Year 2000 and beyond. Integrated
testing of interfaces between various applications used within the Company is
scheduled to begin before September, 1998, with completion of Year 2000
compliance estimated for January - March, 1999. While the Year 2000 issue has
been given the highest priority amongst the information technology (IT) group,
any deferrals of other IT projects by the Company will not have a material
effect on its financial condition or results of operations.
The total gross cost of Year 2000 compliance is estimated to range from $9
million to $11 million, of which approximately 25% had been incurred as of June
30, 1998. Existing information technology resources have been redeployed, which
are anticipated to account for approximately 50% of the total costs, with the
balance being incremental costs to the Company. Approximately 30% of the total
gross costs relate to machinery and other fixed assets which will be
capitalized, with the remaining costs being expensed as incurred.
The Company believes the key risk factors associated with Year 2000 are those it
cannot directly control, primarily the readiness of its key suppliers,
distributors, customers, public infrastructure suppliers and other vendors. The
Company has initiated discussions with these third parties to determine their
Year 2000 compliance status, and is keeping the communication channels open with
respect to their readiness. The Company has mailed correspondence to third
party affiliates to assess their Year 2000 readiness based upon their
representations. The Company has received a good response to those letters and
is in the process of following up with those mission critical third parties who
did not respond. While the Company is working diligently to ensure its mission
critical third parties will be compliant, there can be no assurance that the
systems of any third party on which the Company's systems and operations rely
will be timely converted and which will not have a material adverse effect on
the Company.
The determination of the effect on the Company's results of operations for its
own noncompliance or for third party noncompliance is complex and hinges on
numerous unknowns. Therefore, while the Company does not have a reasonable
estimate of the impact this could have on its results of operations, it
recognizes this noncompliance could range from the malfunction of an embedded
chip in a piece of machinery temporarily shutting down a product line, to a
select public infrastructure of one of the Company's outlying locations or
international facilities being unable to provide service temporarily idling one
or more production facilities. In addition, worst case scenarios could include
a key customer being unable to process transactions halting production on one of
the Company's product lines, to a single source supplier, as well as back-up
suppliers, being unable to provide necessary materials also suspending
production on a product line(s). Some of these individually, and in the
aggregate, could have a material effect on the Company's results of operations.
During the first half of fiscal year 1999, contingency plans will be developed,
documented, and tested outlining recovery strategies for possible failures.
Contingency plans would include such items as sourcing alternatives for single
source suppliers, developing business resumption plans for all of the Company's
business units, and evaluating alternative manual processes.
-22-<PAGE>
<PAGE>
This Year 2000 disclosure contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 and is subject to risks and
uncertainties including, but not limited to such factors as the availability and
cost of human resources with expertise in this area, the ability to locate and
correct all relevant computer codes and time constraints.
-23-<PAGE>
<PAGE>
<TABLE>
Item 8. - Financial Statements and Supplementary Data
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
<S> <C>
Report of Management . . . . .. . . . . . . . . . . . . . . . . 25
Report of Independent Public Accountants . . . . . . . . . . . 26
Consolidated Balance Sheets
as of June 30, 1998 and 1997 . . . . . . . . . . . . . . . . 27
Consolidated Statements of Income
for the Three Years Ended June 30, 1998. . . . . . . . . . . 28
Consolidated Statements of Cash Flows
for the Three Years Ended June 30, 1998. . . . . . . . . . . 29
Consolidated Statements of Share Owners' Equity
for the Three Years Ended June 30, 1998. . . . . . . . . . . 30
Notes to Consolidated Financial Statements. . . . . . . . . . . 31-45
</TABLE>
-24-<PAGE>
<PAGE>
REPORT OF MANAGEMENT
To the Share Owners of Kimball International, Inc.
The management of Kimball International, Inc. is responsible 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 generally accepted accounting principles and include judgement
and estimates, which in the opinion of management are applied on a conservative
basis.
The Company maintains a system of internal 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
the Company's staff of internal auditors, as well as the independent public
accountants 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 public accountants to review the work
performed and to ensure that each is properly discharging its responsibilities.
The internal auditors and the independent public accountants have free and
direct access to the Audit Committee, and they meet periodically, without
management present, to discuss appropriate matters.
Douglas A. Habig
Douglas A. Habig
Chairman,
Chief Executive Officer
James C. Thyen
James C. Thyen
President
Robert F. Schneider
Robert F. Schneider
Executive Vice President,
Chief Financial Officer,
Assistant Treasurer
-25-<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Share Owners of Kimball International, Inc.
We have audited the accompanying consolidated balance sheets of Kimball
International, Inc. (an Indiana corporation) and subsidiaries as of June 30,
1998 and 1997, and the related consolidated statements of income, cash flows and
share owners' equity for each of the three years in the period ended June 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed under Item 14 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 23, 1998
-26-<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share Data)
June 30
1998 1997
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 16,757 $ 18,818
Short-term investments . . . . . . . . . . . . . . . . . . . . 156,010 149,677
Receivables, less allowances of
$4,023 and $4,017, respectively . . . . . . . . . . . . . . . 119,170 110,142
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 96,303 76,142
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,697 21,994
Total current assets . . . . . . . . . . . . . . . . . . . 412,937 376,773
Property and Equipment, net. . . . . . . . . . . . . . . . . . . 182,798 174,010
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 33,903 30,800
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $629,638 $581,583
Liabilities and Share Owners' Equity
Current Liabilities:
Loans payable. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,318 $ 2,472
Current maturities of long-term debt . . . . . . . . . . . . . 434 471
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 60,907 53,063
Dividends payable. . . . . . . . . . . . . . . . . . . . . . . 6,521 5,989
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 81,030 71,263
Total current liabilities. . . . . . . . . . . . . . . . . 153,210 133,258
Other Liabilities:
Long-term debt, less current maturities. . . . . . . . . . . . 1,856 2,313
Deferred income taxes and other. . . . . . . . . . . . . . . . 25,949 23,186
Total other liabilities. . . . . . . . . . . . . . . . . . 27,805 25,499
Share Owners' Equity:
Common stock-par value $.05 per share ($.31 1/4 in 1997):
Class A- Shares authorized-49,967,000 (10,416,000 in 1997)
Shares issued-14,509,000 (7,274,000 in 1997) . . . . 725 2,273
Class B- Shares authorized-100,000,000 (30,000,000 in 1997)
Shares issued-28,516,000 (14,238,000 in 1997). . . . 1,426 4,450
Additional paid-in capital . . . . . . . . . . . . . . . . . . 6,022 1,607
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 464,880 434,665
Foreign currency translation adjustment. . . . . . . . . . . . 1,535 1,721
Unrealized gain/(loss) on available-for-sale securities. . . . 2,174 (73)
Less: Treasury stock-at cost:
Class A- 125,000 shares (55,000 in 1997). . . . . . . . . . . (2,362) (2,044)
Class B- 1,688,000 shares (742,000 in 1997) . . . . . . . . . (25,777) (19,773)
Total share owners' equity . . . . . . . . . . . . . . . . 448,623 422,826
Total Liabilities and Share Owners' Equity . . . . . . . . . . . $629,638 $581,583
See Notes to Consolidated Financial Statements.
</TABLE>
-27-<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
Year Ended June 30
1998 1997 1996
<S> <C> <C> <C>
Net Sales. . . . . . . . . . . . . . . . . . . . . . . $1,032,317 $992,049 $923,636
Cost of Sales. . . . . . . . . . . . . . . . . . . . . 723,378 692,636 664,311
Gross Profit . . . . . . . . . . . . . . . . . . . . . 308,939 299,413 259,325
Selling, Administrative and General Expenses . . . . . 236,463 218,421 193,414
Product Line Exit Costs. . . . . . . . . . . . . . . . --- --- 3,400
Operating Income . . . . . . . . . . . . . . . . . . . 72,476 80,992 62,511
Other Income (Expense):
Interest Expense . . . . . . . . . . . . . . . . . . (424) (551) (408)
Interest Income. . . . . . . . . . . . . . . . . . . 9,458 8,484 7,411
Other, Net . . . . . . . . . . . . . . . . . . . . . 5,917 (359) 4,801
Other Income, Net . . . . . . . . . . . . . . . . . 14,951 7,574 11,804
Income Before Taxes on Income. . . . . . . . . . . . . 87,427 88,566 74,315
Taxes on Income. . . . . . . . . . . . . . . . . . . . 32,400 30,821 29,220
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 55,027 $ 57,745 $ 45,095
Earnings Per Share of Common Stock
Basic:
Class A. . . . . . . . . . . . . . . . . . . . . . . $1.32 $1.39 $1.08
Class B. . . . . . . . . . . . . . . . . . . . . . . $1.33 $1.40 $1.08
Diluted:
Class A. . . . . . . . . . . . . . . . . . . . . . . $1.31 $1.38 $1.07
Class B. . . . . . . . . . . . . . . . . . . . . . . $1.32 $1.38 $1.08
Average Number of Shares Outstanding
Basic:
Class A. . . . . . . . . . . . . . . . . . . . . . . 14,413 14,498 14,616
Class B. . . . . . . . . . . . . . . . . . . . . . . 27,004 26,952 27,194
Totals. . . . . . . . . . . . . . . . . . . . . . . 41,417 41,450 41,810
Diluted:
Class A. . . . . . . . . . . . . . . . . . . . . . . 14,413 14,498 14,616
Class B. . . . . . . . . . . . . . . . . . . . . . . 27,401 27,265 27,240
Totals. . . . . . . . . . . . . . . . . . . . . . . 41,814 41,763 41,856
See Notes to Consolidated Financial Statements.
Share data has been adjusted for the 2-for-1 common stock split effective on November 12, 1997.
</TABLE>
-28-<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KIMBALL INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended June 30
1998 1997 1996
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 55,027 $ 57,745 $ 45,095
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . 33,806 33,395 36,092
Gain on sales of assets. . . . . . . . . . . . . . . . (1,986) (597) (1,235)
Deferred income tax and other deferred charges . . . . 880 (1,247) (939)
Product line exit costs. . . . . . . . . . . . . . . . --- --- 3,400
Change in current assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . (9,028) 6,432 (18,586)
Inventories . . . . . . . . . . . . . . . . . . . . (15,174) 10,787 (13,343)
Other current assets. . . . . . . . . . . . . . . . (1,413) 1,751 1,175
Accounts payable. . . . . . . . . . . . . . . . . . 7,844 4,055 13,138
Accrued expenses. . . . . . . . . . . . . . . . . . 6,248 9,487 (2,794)
Net cash provided by operating activities. . . . 76,204 121,808 62,003
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . (41,313) (32,937) (32,793)
Proceeds from sales of assets. . . . . . . . . . . . . . 1,177 1,366 7,282
Proceeds from sale of division/subsidiary. . . . . . . . 3,150 2,345 ---
Increase in other assets . . . . . . . . . . . . . . . . (7,359) (11,810) (11,658)
Purchases of held-to-maturity securities . . . . . . . . (21,415) (34,465) (17,318)
Maturities of held-to-maturity securities. . . . . . . . 46,932 51,446 67,249
Purchases of available-for-sale securities . . . . . . . (97,120) (58,305) (60,822)
Sales and maturities of available-for-sale securities. . 67,517 --- ---
Net cash used for investing activities . . . . . (48,431) (82,360) (48,060)
Cash Flows From Financing Activities:
Increase in short-term borrowings. . . . . . . . . . . . 1,846 190 519
Net change in long-term debt . . . . . . . . . . . . . . (494) (724) 362
Acquisition of treasury stock, net of sales. . . . . . . (8,323) (4,878) (5,131)
Dividends paid to share owners . . . . . . . . . . . . . (24,280) (21,508) (19,193)
Proceeds from exercise of stock options. . . . . . . . . 1,495 808 ---
Other-net. . . . . . . . . . . . . . . . . . . . . . . . (63) (132) (105)
Net cash used for financing activities . . . . . (29,819) (26,244) (23,548)
Effect of Exchange Rate Changes on Cash. . . . . . . . . . (15) (33) (26)
Net (Decrease) Increase in Cash and Cash Equivalents . . . (2,061) 13,171 (9,631)
Cash and Cash Equivalents at Beginning of Year . . . . . . 18,818 5,647 15,278
Cash and Cash Equivalents at End of Year . . . . . . . . . $ 16,757 $ 18,818 $ 5,647
Total Cash, Cash Equivalents
and Short-Term Investments:
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 16,757 $ 18,818 $ 5,647
Short-term investments . . . . . . . . . . . . . . . . . 156,010 149,677 108,425
Totals . . . . . . . . . . . . . . . . . . . . . . . $172,767 $168,495 $114,072
See Notes to Consolidated Financial Statements.
</TABLE>
-29-<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY
(Amounts in Thousands, Except for Per Share Data)
Three Years Ended June 30, 1998
--------------------- Common Stock ---------------------
-------- Class A ---------- -------- Class B ---------
Authorized --- Issued ---- Authorized --- Issued ----
Shares Shares Amount Shares Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Amounts at June 30, 1995 . . . . . . . . . . . . . . . 10,477 7,335 $2,292 30,000 14,177 $4,431
Shares of Class A Common Stock converted to Class B
Common Stock pursuant to charter provisions. . . . (24) (24) (7) 24 7
Amounts at June 30, 1996 . . . . . . . . . . . . . . . 10,453 7,311 $2,285 30,000 14,201 $4,438
Shares of Class A Common Stock converted to Class B
Common Stock pursuant to charter provisions. . . . (37) (37) (12) 37 12
Amounts at June 30, 1997 . . . . . . . . . . . . . . . 10,416 7,274 $2,273 30,000 14,238 $4,450
Shares of Class A Common Stock converted to Class B
Common Stock pursuant to charter provisions. . . . (33) (36) (3) 36 3
Increase number of authorized shares . . . . . . . . 39,584 70,000
2-for-1 stock split. . . . . . . . . . . . . . . . . 7,271 14,242
Change par value from $.31 1/4 pre stock split to
$.05 post stock split. . . . . . . . . . . . . . . (1,545) (3,027)
Amounts at June 30, 1998 . . . . . . . . . . . . . . . 49,967 14,509 $ 725 100,000 28,516 $1,426
<CAPTION>
Additional
Paid-In Retained -- Treasury Stock --
Capital Earnings Shares Amount
<S> <C> <C> <C> <C>
Amounts at June 30, 1995 . . . . . . . . . . . . . . . $ 812 $373,704 (514) $(11,883)
Net income for the year. . . . . . . . . . . . . . . 45,095
Treasury stock acquired-net. . . . . . . . . . . . . 86 (187) (5,189)
Cash dividends:
Class A ($.47 per share) . . . . . . . . . . . . . (6,870)
Class B ($.47 1/2 per share) . . . . . . . . . . . (12,905)
Amounts at June 30, 1996 . . . . . . . . . . . . . . . $898 $399,024 (701) $(17,072)
Net income for the year. . . . . . . . . . . . . . . 57,745
Treasury stock acquired-net. . . . . . . . . . . . . 34 (134) (4,878)
Shares of Class A Common Stock converted to Class B
Common Stock, via treasury shares, pursuant to
charter provisions . . . . . . . . . . . . . . . . 647 --- (647)
Exercise of stock options. . . . . . . . . . . . . . 28 38 780
Cash dividends:
Class A ($.53 per share) . . . . . . . . . . . . . (7,682)
Class B ($.53 1/2 per share) . . . . . . . . . . . (14,422)
Amounts at June 30, 1997 . . . . . . . . . . . . . . . $1,607 $434,665 (797) $(21,817)
Net income for the year. . . . . . . . . . . . . . . 55,027
Treasury stock acquired-net. . . . . . . . . . . . . 74 (378) (8,213)
Shares of Class A Common Stock converted to Class B
Common Stock, via treasury shares, pursuant to
charter provisions . . . . . . . . . . . . . . . . 81 --- (81)
Exercise of stock options. . . . . . . . . . . . . . (312) 117 1,972
Cash dividends:
Class A ($.58875 per share). . . . . . . . . . . . (8,483)
Class B ($.605 per share). . . . . . . . . . . . . (16,329)
2-for-1 stock split. . . . . . . . . . . . . . . . . (755)
Change par value from $.31 1/4 pre stock split to
$.05 post stock split. . . . . . . . . . . . . . . 4,572
Amounts at June 30, 1998 . . . . . . . . . . . . . . . $6,022 $464,880 (1,813) $(28,139)
See Notes to Consolidated Financial Statements.
Dividends per share have been adjusted for the 2-for-1 common stock split effective on November 12, 1997.
</TABLE> -30-<PAGE>
<PAGE>
KIMBALL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of all domestic and foreign subsidiaries. All significant intercompany
balances and transactions have been eliminated in the consolidation.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts included in the consolidated
financial statements and related footnote 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.
Acquisition of Subsidiaries: On March 29, 1996, the Company acquired with
available cash on hand, certain assets of ELMO Semiconductor Corporation of
California and all of the outstanding capital stock of ELMO Semiconducteurs SARL
of France, providers of semiconductor DIE processing, testing, design and
packaging. The acquisition was accounted for as a purchase with operating
results included in the Company's Consolidated Statements of Income from the
date of acquisition.
Sale of Subsidiary: The Company sold its piano key and action production
facility located in the United Kingdom, Herrburger Brooks, PLC, during the first
quarter of fiscal year 1997. Included in the 1997 consolidated statement of
income is a $3.8 million pretax loss on the sale reported in Other-net, with an
offsetting $3.8 million income tax benefit reported in Taxes on Income. This
tax benefit was the result of a higher U.S. tax basis in this subsidiary due to
previously nondeductible losses on the investment in this U.K. subsidiary. This
transaction resulted in no impact to fiscal year 1997 consolidated net income.
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 equivalents are stated at cost, which
approximates market value. Short-term investments are cash investments,
primarily U.S. Government securities and municipal bonds with maturities
exceeding three months at the time of acquisition. Held-to-maturity securities
are stated at amortized cost. Available-for-sale securities are stated at
market value, with unrealized gains and losses being excluded from net income by
being recorded net of related tax effect, if any, as a component of share
owners' equity.
Foreign Currency Translation: Assets and liabilities of foreign subsidiaries
(except for Mexico, whose functional currency is the U.S. dollar) are translated
into U.S. dollars at fiscal year-end exchange rates, income statement accounts
are translated at the weighted average exchange rate during the year, and the
resulting currency translation adjustments are recorded as a component of share
owners' equity. Financial statements of Mexican operations are translated into
U.S. dollars using both current and historical exchange rates, with translation
gains and losses included in net income.
-31-<PAGE>
<PAGE>
Inventory Pricing: Inventories are stated at the lower of cost or market
value. Cost includes material, labor and applicable manufacturing overhead
and is determined using the last-in, first-out (LIFO) method for approximately
52% and 59% of consolidated inventories in 1998 and 1997, respectively.
Cost of the remaining inventories is determined using the first-in, first-out
(FIFO) method.
Property, Equipment and Depreciation: Property and equipment are stated at
cost. Depreciation is provided over the estimated useful life of the assets
using the straight-line method for financial reporting purposes. Maintenance,
repairs and minor renewals and betterments are expensed; major improvements are
capitalized.
Research and Development: The costs of research and development are expensed as
incurred. These costs were approximately, in millions, $13.1 in 1998, $11.5 in
1997, and $10.5 in 1996.
Medical Care and Disability Benefit Plans: The Company is self-insured with
respect to certain medical care and disability benefit plans for approximately
75% of covered domestic employees. The Company carries stop-loss insurance
coverage to mitigate severe losses under these plans. The balance of domestic
employees are covered under fully insured HMO plans. The costs for such plans
are charged against earnings in the year in which the incident occurred. The
Company does not provide benefits under these plans to retired employees.
Employees of foreign subsidiaries are covered by local benefit plans, the cost
of which is not significant to the consolidated financial statements.
Income Taxes: Unremitted earnings of foreign subsidiaries 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. If remitted,
the additional United States taxes paid would not be material.
Off-Balance Sheet Risk: The Company engages in several types of financing
arrangements with customers, primarily certain guarantees, and also has business
and credit risks concentrated in the automotive, computer, telecommunication,
consumer electronic and wood industries.
Reclassifications: Certain prior year amounts have been reclassified to conform
with the 1998 presentation.
Stock-Based Compensation: The Company continues to account for its employee
stock option plans using Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, which results in no charge to earnings when
options are issued at fair market value. The Company has adopted the disclosure
requirements of Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation.
-32-<PAGE>
<PAGE>
NOTE 2 PRODUCT LINE EXIT COSTS
The Company announced a strategic decision during the 1996 fiscal year to cease
production and sales of its domestic wholesale piano product line, due to the
continuing decline in the domestic piano market. This product line accounted
for less than 2% of consolidated sales in 1996. A pretax provision of
$3,400,000, which equates to a net income effect of $1,870,000, or $0.05 per
share, was established during 1996, to cover all estimated costs associated with
exiting this product line. The Company ceased production of domestic wholesale
pianos as of April, 1996. Costs have been applied against this provision as of
June 30, 1998, totaling $959,000, with the remaining amount reserved for
fulfilling long-term commitments.
NOTE 3 INVENTORIES
Inventories are valued using the lower of last-in, first-out (LIFO) cost or
market value for approximately 52% and 59% of consolidated inventories in 1998
and 1997, respectively. The remaining inventories are valued using the lower of
first-in, first-out (FIFO) cost or market value.
Had the FIFO method been used for all inventories, net income would have been,
in millions, $0.6 higher in 1998, $0.1 lower in 1997, and $0.7 lower in 1996.
Additionally, inventories would have been, in millions, $20.3 and $19.3 higher
at June 30, 1998 and 1997, respectively, if the FIFO method had been used.
During 1998 and 1997, certain inventory quantity reductions caused a liquidation
of LIFO inventory values, which were immaterial.
<TABLE>
Inventory components at June 30 are as follows:
(Amounts in Thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Finished products. . . . . . . . . . . . . $31,365 $23,822
Work-in-process. . . . . . . . . . . . . . 12,971 11,852
Raw materials. . . . . . . . . . . . . . . 51,967 40,468
Total inventory . . . . . . . . . . . $96,303 $76,142
</TABLE>
-33-<PAGE>
<PAGE>
NOTE 4 PROPERTY AND EQUIPMENT
<TABLE>
Major classes of property and equipment consist of the following:
(Amounts in Thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . $ 4,471 $ 5,159
Buildings and improvements . . . . . . . . 145,880 142,937
Machinery and equipment. . . . . . . . . . 264,316 255,586
Construction-in-progress . . . . . . . . . 13,882 7,519
Total. . . . . . . . . . . . . . . . . . 428,549 411,201
Less: Accumulated depreciation . . . (245,751) (237,191)
Property and equipment, net. . . . . . . $182,798 $174,010
</TABLE>
<TABLE>
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:
<CAPTION>
Years
<S> <C>
Buildings and improvements . . . . . . . . 12 to 50
Machinery and equipment. . . . . . . . . . 4 to 40
Leasehold improvements . . . . . . . . . . Life of Lease
Depreciation and amortization of property and equipment totaled, in millions,
$29.9 for 1998, $29.4 for 1997, and $30.8 for 1996.
</TABLE>
NOTE 5 COMMITMENTS - LEASES
Operating leases for certain office, showroom, warehouse and manufacturing
facilities, and equipment, which expire 1999 - 2007, contain provisions under
which minimum annual lease payments are, in millions, $6.3, $5.5, $3.7, $2.0,
and $1.6 for the five years ended June 30, 2003, respectively, and aggregate
$2.2 million from 2004 to the expiration of the leases in 2007. The Company is
obligated under certain of the real estate leases to maintain the properties and
pay real estate taxes.
Total rental expenses amounted to, in millions, $6.7, $5.9, and $5.5 in 1998,
1997 and 1996, respectively.
NOTE 6 LONG-TERM DEBT
Long-term debt is principally obligations under long-term capitalized leases.
Aggregate maturities of long-term debt for the next five years are, in
thousands, $434, $922, $296, $92, and $92, respectively, and aggregate $454
thereafter. Interest rates range from 0% to 10%. Interest paid was
immaterial in the three years ending June 30, 1998. Based upon borrowing rates
currently available to the Company, the fair value of the Company's debt
approximates the carrying value.
-34-<PAGE>
<PAGE>
NOTE 7 RETIREMENT PLANS
The Company has trusteed defined contribution Retirement Plans in effect for
substantially all domestic employees meeting the eligibility requirements.
Company contributions are based on a percent of net income as defined in the
plans; the percent of contribution is determined by the Board of Directors up
to specific maximum limits. The plans include a 401(k) feature, thereby
permitting participants to make additional voluntary contributions on a pretax
basis. Payments by the Company to the trusteed plans are vested and held for
the sole benefit of participants. Total contributions to the Retirement Plans
for 1998, 1997 and 1996 were approximately, in millions, $10.1, $11.3, and $8.6,
respectively.
Employees of certain foreign subsidiaries are covered by local pension or
retirement plans. Annual expense and accumulated benefits of these foreign
plans are not significant to the consolidated financial statements.
NOTE 8 INCENTIVE STOCK OPTIONS
On August 11, 1987, the Board of Directors adopted the 1987 Stock Incentive
Program, which was approved by the Company's Share Owners on October 13, 1987.
Under this plan, 3,600,000 shares of Class B Common Stock were reserved for
incentive stock options, nonqualified stock options, stock appreciation rights,
restricted stock awards, and performance share awards available for grant to
officers and other key employees of the Company, and to members of the Board of
Directors who are not employees. Approximately 275 employees were eligible to
participate in the program during 1997 and 1996. This Stock Incentive Program
expired in August 1997, with prior year grants expiring annually through July
2001.
On June 11, 1996, the Board of Directors adopted the 1996 Stock Incentive
Program, which was approved by the Company's Share Owners on October 22, 1996.
Under this plan, 4,200,000 shares of Class B Common Stock were reserved, in
addition to the approximately 2 million remaining shares currently reserved
under the 1987 plan, for incentive stock options, nonqualified stock options,
stock appreciation rights, and performance share awards available for grant 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 is a ten year
plan. Approximately 290 employees were eligible to participate in the program
during 1998.
Stock options are priced at the fair market value of the stock at the date of
grant. Options granted under the plans generally are exercisable beginning two
years after the date of grant and expire five to ten years after the date of
grant. Shares of stock issued by the exercise of incentive stock options must
be held for a five year period before being sold. Stock options are forfeited
when employment terminates, except in certain situations.
There are 250,000 additional shares reserved for issuance under the Directors'
Stock Compensation and Option Plan which is available to all members of the
Board of Directors. Under terms of the plan, Directors electing to receive all,
or a portion, of their fees in the form of Company stock will also be granted a
number of stock options equal to 50% of the number of shares received for
compensation of fees. Option prices and vesting are similar to those of the
1996 Stock Incentive Program. The plan is in effect through October 2006.
-35-<PAGE>
<PAGE>
<TABLE>
Stock option transactions are as follows:
<CAPTION>
Number Per Share
of Shares Option Price
<S> <C> <C>
Options outstanding June 30, 1995. . . . . . . 542,800 $12.22 - $14.80
Granted. . . . . . . . . . . . . . . . . . . . 580,400 $12.77 - $14.38
Exercised. . . . . . . . . . . . . . . . . . . --- ---
Forfeited. . . . . . . . . . . . . . . . . . . (23,500) $12.22 - $14.80
Options outstanding June 30, 1996. . . . . . . 1,099,700 $12.22 - $14.80
Granted. . . . . . . . . . . . . . . . . . . . 402,838 $13.63 - $19.64
Exercised. . . . . . . . . . . . . . . . . . . (90,872) $12.22 - $14.80
Forfeited. . . . . . . . . . . . . . . . . . . (35,600) $12.22 - $14.80
Options outstanding June 30, 1997. . . . . . . 1,376,066 $12.22 - $19.64
Granted. . . . . . . . . . . . . . . . . . . . 588,889 $20.40 - $23.56
Exercised. . . . . . . . . . . . . . . . . . . (225,769) $12.22 - $14.80
Forfeited. . . . . . . . . . . . . . . . . . . (89,170) $12.22 - $21.83
Options outstanding June 30, 1998. . . . . . . 1,650,016 $12.22 - $23.56
Shares available for future options. . . . . . 5,895,884
</TABLE>
<TABLE>
Following is a status of options outstanding at June 30, 1998:
<CAPTION>
Outstanding Options Exercisable Options
--------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Range Number Life Price Number Price
- ------------- --------- ----------- --------- ------ --------
<S> <C> <C> <C> <C> <C>
$12.00-$16.00 1,072,589 2 years $13.34 686,769 $13.08
$16.00-$20.00 2,238 3 years 18.23 --- --
$20.00-$24.00 575,189 5 years 21.82 106,000 21.83
Total 1,650,016 3 years $16.30 792,769 $14.25
Share data has been adjusted for the 2-for-1 common stock split effective on November 12, 1997.
</TABLE>
The Company adopted the disclosure requirements of Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation
(FAS123) effective in fiscal year 1997. The Company has elected to continue
to follow the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its related interpretations;
accordingly, no compensation cost has been reflected in the financial
statements for its incentive stock options. Had compensation cost for the
Company's incentive stock options been determined based on the fair value at
the grant dates for awards under those plans consistent with the method of
FAS 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Year Ended June 30
1998 1997 1996
<S> <C> <C> <C>
Net Income
As Reported . . . . . . . . . . . . . $55,027 $57,745 $45,095
Pro Forma . . . . . . . . . . . . . . $53,343 $56,765 $44,615
Earnings per Share of Common Stock
As Reported:
Basic:
Class A. . . . . . . . . . . . . . $1.32 $1.39 $1.08
Class B. . . . . . . . . . . . . . $1.33 $1.40 $1.08
Diluted:
Class A. . . . . . . . . . . . . . $1.31 $1.38 $1.07
Class B. . . . . . . . . . . . . . $1.32 $1.38 $1.08
Pro Forma:
Basic:
Class A. . . . . . . . . . . . . . $1.28 $1.37 $1.06
Class B. . . . . . . . . . . . . . $1.29 $1.37 $1.07
Diluted:
Class A. . . . . . . . . . . . . . $1.27 $1.36 $1.06
Class B. . . . . . . . . . . . . . $1.28 $1.36 $1.07
</TABLE> -36-<PAGE>
<PAGE>
The pro forma effects on net income for the years ended June 30, 1997 and
1996 may not be representative of the pro forma effect on net income in future
years because FAS 123 does not take into consideration pro forma compensation
expense related to grants made prior to fiscal year 1996.
The weighted average fair value at date of grant for options granted during the
years ended June 30, 1998, 1997 and 1996 was $4.84, $2.50 and $2.25 per option,
respectively.
The fair value of the options at the date of grant was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected volatility of 31.7% in 1998, 31.4% in 1997 and 32.5% in
1996; risk-free interest rates of 6.18% in 1998, 6.34% in 1997 and 6.25% in
1996; dividend yield of 2.9% in 1998, 2.9% in 1997 and 3.5% in 1996; and an
expected life of 3.5 years for all years.
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. A valuation reserve is
provided in part for deferred tax assets relating to foreign net operating
losses and U.S. capital loss carryforward benefits, due to uncertainty
surrounding the utilization of these deferred tax assets. Income tax benefits
associated with the foreign net operating losses have no expiration period
under current tax laws, while benefits associated with the capital loss
carryforward all expire during the 2002 fiscal year.
<TABLE>
The components of the deferred tax assets and liabilities as of June 30, 1998
and 1997, are as follows:
(Amounts in Thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Receivables. . . . . . . . . . . . . . . . . $ 1,830 $ 1,709
Inventory. . . . . . . . . . . . . . . . . . 2,338 2,456
Employee benefits. . . . . . . . . . . . . . 6,579 5,805
Other current liabilities. . . . . . . . . . 6,507 5,261
Miscellaneous. . . . . . . . . . . . . . . . 658 643
Foreign net operating losses . . . . . . . . 2,581 2,225
Capital loss carryforward benefit. . . . . . 2,597 3,345
Valuation reserve. . . . . . . . . . . . . (4,794) (4,438)
Total asset. . . . . . . . . . . . . . . $18,296 $17,006
Deferred tax liabilities:
Property & equipment . . . . . . . . . . . . $15,144 $13,617
Miscellaneous. . . . . . . . . . . . . . . . 255 1,329
Total liability. . . . . . . . . . . . . $15,399 $14,946
</TABLE>
-37-<PAGE>
<PAGE>
<TABLE>
The components of income before taxes on income are as follows:
(Amounts in Thousands)
<CAPTION>
------- Year Ended June 30 -----
1998 1997 1996
<S> <C> <C> <C>
United States . . . . . . . . . . . . . . . $87,327 $87,626 $75,437
Foreign . . . . . . . . . . . . . . . . . . 100 940 (1,122)
Total income before taxes. . . . . . $87,427 $88,566 $74,315
</TABLE>
<TABLE>
Taxes on income are composed of the following items:
(Amounts in Thousands)
<CAPTION>
------- Year Ended June 30 -----
1998 1997 1996
<S> <C> <C> <C>
Currently payable:
Federal. . . . . . . . . . . . . . . . $29,363 $28,418 $28,699
Foreign. . . . . . . . . . . . . . . . 224 179 ---
State. . . . . . . . . . . . . . . . . 3,650 4,538 4,120
Total current. . . . . . . . . . . . 33,237 33,135 32,819
Deferred Federal. . . . . . . . . . . . . . (837) (2,314) (3,599)
Total taxes on income. . . . . . . . $32,400 $30,821 $29,220
</TABLE>
<TABLE>
A reconciliation of the statutory U.S. income tax rate to the Company's
effective income tax rate follows:
(Amounts in Thousands)
<CAPTION>
-------------- Year Ended June 30 --------------
1998 1997 1996
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Taxes computed at statutory rate. . . . . . $30,600 35.0% $30,998 35.0% $26,010 35.0%
State income taxes,
net of Federal income tax benefit . . . . 2,373 2.7 3,179 3.6 2,678 3.6
Foreign tax effect. . . . . . . . . . . . . (35) -- (329) (.4) 393 .5
Capital loss benefit. . . . . . . . . . . . -- -- (3,650) (4.1) -- --
Other-net. . . . . . . . . . . . . . . . . (538) ( .6) 623 .7 139 .2
Total taxes on income. . . . . . . . . $32,400 37.1% $30,821 34.8% $29,220 39.3%
</TABLE>
Cash payments for income taxes, net of refunds, were in thousands, $28,183,
$37,069, and $31,353 in 1998, 1997, and 1996, respectively.
-38-<PAGE>
<PAGE>
NOTE 10 COMMON STOCK
At the annual meeting held on October 28, 1997, the Company's Share Owners
approved a 2-for-1 stock split on the Company's Class A and Class B Common
Stock. The Share Owners also approved restating the Company's Articles of
Incorporation by increasing the number of authorized shares to 150 million
shares, reducing the par value of common stock from $.3125 to $0.05, and
increasing the annual dividend preference on Class B Common Stock to $0.02 per
share. The stock split became effective on November 12, 1997. Financial
information contained in this report, including prior period share and per share
amounts, has been adjusted to reflect the impact of the common stock split.
On a fiscal year basis, shares of Class B Common Stock are entitled to an
additional $.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
family owns directly or shares voting power in excess of 50% of the Class A
Common Stock of Kimball International, Inc. The owner of a share of Class A
Common Stock may, at their option, convert such share into one share of Class B
Common Stock at any time.
If any 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.
-39-<PAGE>
<PAGE>
NOTE 11 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
Quarterly financial information is summarized as follows:
(Amounts in Thousands, Except for Per Share Data)
<CAPTION>
------------------ Three Months Ended --------------
September 30 December 31 March 31 June 30
<S> <C> <C> <C> <C>
1998:
Net Sales. . . . . . . . . . . . . . . . $245,857 $264,524 $265,001 $256,935
Gross Profit . . . . . . . . . . . . . . 74,280 79,952 77,732 76,975
Net Income . . . . . . . . . . . . . . . 13,029 15,485 13,702 12,811
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . $.31 $.37 $.33 $.31
Class B . . . . . . . . . . . . . . . . .31 .38 .33 .31
Diluted Earnings Per Share:
Class A . . . . . . . . . . . . . . . . $.31 $.36 $.33 $.30
Class B . . . . . . . . . . . . . . . . .31 .37 .33 .31
1997:
Net Sales. . . . . . . . . . . . . . . . $247,700 $253,780 $243,277 $247,292
Gross Profit . . . . . . . . . . . . . . 73,134 75,169 73,819 77,291
Net Income . . . . . . . . . . . . . . . 13,521 14,621 14,521 15,082
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . $.32 $.35 $.35 $.36
Class B . . . . . . . . . . . . . . . . .33 .35 .35 .36
Diluted Earnings Per Share:
Class A . . . . . . . . . . . . . . . . $.32 $.35 $.34 $.36
Class B . . . . . . . . . . . . . . . . .32 .35 .34 .36
1996:
Net Sales. . . . . . . . . . . . . . . . $218,933 $234,539 $223,915 $246,249
Gross Profit . . . . . . . . . . . . . . 55,856 64,725 64,124 74,620
Net Income . . . . . . . . . . . . . . . 8,418 12,291 9,969 14,417
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . $.20 $.29 $.24 $.35
Class B . . . . . . . . . . . . . . . . .20 .29 .24 .35
Diluted Earnings Per Share:
Class A . . . . . . . . . . . . . . . . $.20 $.29 $.24 $.34
Class B . . . . . . . . . . . . . . . . .20 .29 .24 .35
Per share data has been adjusted for the 2-for-1 common stock split effective on November 12, 1997.
Net income in the third quarter of 1996 was reduced by $1,870,000, or $.05 per share, for estimated costs
associated with exiting sales and production of the Company's domestic wholesale piano product line.
Net income in the second quarter of 1998 was increased by $1,008,000 or $0.02 per share, representing the
gain on the sale of an automotive service center.
Net income in the third quarter of 1998 was increased by $616,000 or $0.01 per share, from the gain on the sale
of a stock investment of which the company holds a minority interest.
</TABLE>
NOTE 12 SHORT-TERM INVESTMENTS
The Company classifies its short-term investments in accordance with Financial
Accounting Standards Board Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Fair values are estimated based
upon the quoted market values of those, or similar instruments. Carrying
costs reflect the original purchase price, with discounts and premiums
amortized over the life of the security.
Held-to-maturity securities are reported at carrying cost and consist primarily
of government and municipal obligations with fair values and carrying costs
of, in thousands, $5,430 and $5,429 at June 30, 1998, compared to $30,620 and
$30,622 at June 30, 1997, respectively. Unrealized holding gains and losses
were immaterial at June 30, 1998 and 1997. All held-to-maturity securities
mature within a 12 month period.
Available-for-sale securities are reported at fair value and consist primarily
of government and municipal obligations with fair values and carrying costs
of, in thousands, $150,581 and $148,408 at June 30, 1998, compared to
$119,055, and $119,128 at June 30, 1997, respectively. Unrealized holding
gains and losses at June 30, 1998 were, in thousands, $2,254 and ($80),
respectively. Unrealized holding gains and losses were immaterial at June
30, 1997. All available-for-sale securities mature within a four year period.
Proceeds from sales of available-for-sale securities were, in thousands, $27,236
for the year ended June 30, 1998. Gross realized gains on the sale of
available-for-sale securities amounted to, in thousands, $76; there were no
realized losses. The cost was determined on each individual security in
computing the realized gain.
-40-<PAGE>
<PAGE>
NOTE 13 ACCRUED EXPENSES
<TABLE>
Accrued expenses at June 30 consist of:
(Amounts in Thousands)
<CAPTION>
------ June 30 -------
1998 1997
<S> <C> <C>
Income taxes . . . . . . . . . . . . . . . . . $ 1,183 $ ---
Property taxes . . . . . . . . . . . . . . . . 4,089 4,164
Compensation . . . . . . . . . . . . . . . . . 30,327 30,248
Retirement plan. . . . . . . . . . . . . . . . 9,889 11,072
Other expenses . . . . . . . . . . . . . . . . 35,542 25,779
Total accrued expenses. . . . . . . . . . . . $81,030 $71,263
</TABLE>
NOTE 14 BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company has three business segments which are listed below.
Furniture and Cabinets: Sales include office, hospitality, healthcare and home
furniture; television and stereo cabinets; pianos; and other miscellaneous
products. Intersegment sales are insignificant.
Electronic Contract Assemblies: Sales include electronic and electro-mechanical
products (electronic assemblies) manufactured on a contract basis to customers'
specifications, semiconductor processing, testing, engineering design and
packaging services. Intersegment sales are insignificant. Included in the
Electronic Contract Assemblies segment are sales to one customer that accounted
for 16% of consolidated net sales in 1998, 15% in 1997 and 14% in 1996.
Processed Wood Products and Other: Processed Wood Products include the sales of
lumber, dimension lumber, plywood, veneer, and other miscellaneous wood product
sales. "Other" sales include plastic components, stamped metal products,
carbide cutting tools and related services on cutting tools, and other
miscellaneous services, totaling approximately 28% in 1998, 30% in 1997, and
34% in 1996, of the total customer sales of this segment. Intersegment sales
include these same basic wood products, assembled components and miscellaneous
products, which are used in the final production of office, home, hospitality
and healthcare furniture, and cabinets; thus, intersegment sales consist
primarily of sales to the Furniture and Cabinets segment.
Intersegment sales are generally priced at cost plus a percentage mark-up, and
are generally thought to be marginally less than prices which would be charged
for the same product to unaffiliated customers. The eliminations from operating
income are various transactions including intercompany profit in inventories.
Identifiable assets eliminated generally consist of intercompany profit in
inventories and intercompany receivables.
-41-<PAGE>
<PAGE>
<TABLE>
Business Segment
(Amounts in Thousands)
<CAPTION>
-------------------------- Year Ended June 30 --------------------------
------- 1998 --------- ------- 1997 --------- ------- 1996 ---------
Customers Intersegment Customers Intersegment Customers Intersegment
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
Furniture and Cabinets. . . . . . $ 647,597 $ 1,917 $617,249 $ 653 $580,393 $ 170
Electronic Contract Assemblies. . 325,602 --- 315,816 --- 284,639 ---
Processed Wood Products and Other 59,118 60,871 58,984 60,203 58,604 58,687
Total Net Sales . . . . . . . $1,032,317 $62,788 $992,049 $60,856 $923,636 $58,857
</TABLE>
<TABLE>
Business Segment
(Amounts in Thousands)
<CAPTION>
-------- Year Ended June 30 ----------
1998 1997 1996
<S> <C> <C> <C>
Operating Income:
Furniture and Cabinets . . . . . . . . . . . $38,674 $44,159 $33,467 <F1>
Electronic Contract Assemblies . . . . . . . 28,625 29,748 21,437
Processed Wood Products and Other. . . . . . 5,177 7,085 7,607
Total Operating Income . . . . . . . . . $72,476 $80,992 $62,511
<FN>
<F1>
Included in Furniture and Cabinets operating income for 1996 is a pretax provision of
$3.4 million, which was established to cover all estimated costs associated with exiting
the domestic wholesale piano product line.
</FN>
Business Segment
(Amounts in Thousands)
<CAPTION>
------- June 30 -------
1998 1997
<S> <C> <C>
Identifiable Assets:
Furniture and Cabinets . . . . . . . . . . . $285,205 $261,694
Electronic Contract Assemblies . . . . . . . 128,165 114,783
Processed Wood Products and Other. . . . . . 46,042 39,324
Eliminations . . . . . . . . . . . . . . . . (2,541) (2,713)
Total. . . . . . . . . . . . . . . . . . 456,871 413,088
Unallocated Corporate Assets:
Cash, Cash Equivalents and
Short-Term Investments. . . . . . . . . . . 172,767 168,495
Total Assets . . . . . . . . . . . . . . $629,638 $581,583
</TABLE>
<TABLE>
Business Segment
(Amounts in Thousands)
<CAPTION>
--------- 1998 --------- --------- 1997 --------- --------- 1996 ---------
Depreciation Depreciation Depreciation
and Capital and Capital and Capital
Amortization Expenditures Amortization Expenditures Amortization Expenditures
<S> <C> <C> <C> <C> <C> <C>
Furniture and Cabinets . . . . . . $21,246 $23,353 $21,549 $20,237 $23,511 $22,326
Electronic Contract Assemblies . . 8,087 12,313 7,289 8,827 7,306 7,469
Processed Wood Products and Other. 4,473 5,648 4,557 3,873 5,275 8,547
</TABLE>
-42-<PAGE>
<PAGE>
<TABLE>
Geographic Area
Total United States sales by geographic area include export sales of, in millions, $40
in 1998, $30 in 1997, and $30 in 1996. United States export sales are primarily to
European and North American customers. Foreign sales originate in Europe and are
generally sold to European customers.
Geographic Area
(Amounts in Thousands)
<CAPTION>
--------- Year Ended June 30 --------
1998 1997 1996
<S> <C> <C> <C>
Net Sales:
United States. . . . . . . . . . . . . . . . $1,016,584 $972,335 $902,448
Foreign. . . . . . . . . . . . . . . . . . . 15,773 20,344 22,365
Eliminations . . . . . . . . . . . . . . . . (40) (630) (1,177)
Total Net Sales. . . . . . . . . . . . . $1,032,317 $992,049 $923,636
Operating Income:
United States. . . . . . . . . . . . . . . . $ 73,779 $ 81,027 $ 64,284
Foreign. . . . . . . . . . . . . . . . . . . (1,306) (215) (1,952)
Eliminations . . . . . . . . . . . . . . . . 3 180 179
Total Operating Income . . . . . . . . . $ 72,476 $ 80,992 $ 62,511
Geographic Area
(Amounts in Thousands)
<CAPTION>
------- June 30 -------
1998 1997
<S> <C> <C>
Identifiable Assets:
United States. . . . . . . . . . . . . . . . $442,881 $400,756
Foreign. . . . . . . . . . . . . . . . . . . 14,039 12,557
Eliminations . . . . . . . . . . . . . . . . (49) (225)
Totals . . . . . . . . . . . . . . . . . 456,871 413,088
Unallocated Corporate Assets:
Cash, Cash Equivalents and
Short-Term Investments. . . . . . . . . . . 172,767 168,495
Total Assets . . . . . . . . . . . . . . $629,638 $581,583
</TABLE>
NOTE 15 EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Financial Accounting Standards
Board Statement No. 128, 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 for all potentially dilutive securities.
Share data has been adjusted for the 2-for-1 common stock split effective on
November 12, 1997. Earnings per share of Class A and Class B Common Stock
are as follows:
(Amounts in Thousands, Except Per Share Data)
-43-<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------
Available Average Earnings Per Share
Income Shares Class A Class B
--------- ----------- ------- --------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . $55,027
Distributed earnings:
Class A dividends declared . . . . . . . . . (8,483) $ .58875
Class B dividends declared . . . . . . . . . (16,329) $ .60500
Undistributed basic earnings . . . . . . . . . $30,215 41,417 .72953 .72953
Basic Earnings Per Share . . . . . . . . . . . $1.31828 $1.33453
Basic Earnings Per Share (rounded) . . . . . . $1.32 $1.33
Dilutive effect of stock options . . . . . . . (240) 397
Undistributed diluted earnings . . . . . . . . $29,975 41,814 .71687 .71687
Diluted Earnings Per Share . . . . . . . . . . $1.30562 $1.32187
Diluted Earnings Per Share (rounded) . . . . . $1.31 $1.32
468,891 of the 1,685,007 average outstanding stock options were antidilutive, and were excluded from the
dilutive computation for this period.
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Available Average Earnings Per Share
Income Shares Class A Class B
--------- ----------- ------- --------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . $57,745
Distributed earnings:
Class A dividends declared . . . . . . . . . (7,682) $ .530
Class B dividends declared . . . . . . . . . (14,422) $ .535
Undistributed basic earnings . . . . . . . . . $35,641 41,450 .860 .860
Basic Earnings Per Share . . . . . . . . . . . $1.390 $1.395
Basic Earnings Per Share (rounded) . . . . . . $1.39 $1.40
Dilutive effect of stock options . . . . . . . (167) 313
Undistributed diluted earnings . . . . . . . . $35,474 41,763 .849 .849
Diluted Earnings Per Share . . . . . . . . . . $1.379 $1.384
Diluted Earnings Per Share (rounded) . . . . . $1.38 $1.38
All outstanding stock options were dilutive and were included in the dilutive computation for this period.
</TABLE>
-44-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
Available Average Earnings Per Share
Income Shares Class A Class B
--------- ----------- ------- --------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . $45,095
Distributed earnings:
Class A dividends declared . . . . . . . . . (6,870) $ .470
Class B dividends declared . . . . . . . . . (12,905) $ .475
Undistributed basic earnings . . . . . . . . . $25,320 41,810 .606 .606
Basic Earnings Per Share . . . . . . . . . . . $1.076 $1.081
Basic Earnings Per Share (rounded) . . . . . . $1.08 $1.08
Dilutive effect of stock options . . . . . . . (22) 46
Undistributed diluted earnings . . . . . . . . $25,298 41,856 .604 .604
Diluted Earnings Per Share . . . . . . . . . . $1.074 $1.079
Diluted Earnings Per Share (rounded) . . . . . $1.07 $1.08
146,660 of the 754,156 average outstanding stock options were antidilutive, and were excluded from the
dilutive computation for this period.
</TABLE>
-45- <PAGE>
<PAGE>
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
PART III
Item 10. - Directors and Executive Officers of the Registrant
Directors
The information called for by this item with respect to Directors is
incorporated by reference to the material contained in the Registrant's Proxy
Statement for its annual meeting of Share Owners to be held October 20, 1998
under the captions - "Election of Directors"; "Information Concerning the
Board of Directors and Committees"; and "Compensation of Executive Officers".
Executive Officers of the Registrant
The information called for 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.
Item 11. - Executive Compensation
The information called for by this item is incorporated by reference to
the material contained in the Registrant's Proxy Statement for its annual
meeting of share owners to be held October 20, 1998 under the caption
"Compensation of Executive Officers".
Item 12. - Security Ownership of Certain Beneficial Owners and Management
The information called for by this item is incorporated by reference to
the material contained in the Registrant's Proxy Statement for its annual
meeting of share owners to be held October 20, 1998 under the caption
"Share Ownership Information".
Item 13. - Certain Relationships and Related Transactions
The information called for by this item is incorporated by reference to
the material contained in the Registrant's Proxy Statement for its annual
meeting of share owners to be held October 20, 1998 under the caption
"Compensation Committee Interlocks and Insider Participation".
-46-<PAGE>
<PAGE>
PART IV
<TABLE>
Item 14. - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements:
The following consolidated financial statements of the Registrant are found
in Item 8 and incorporated herein.
<CAPTION>
Page
<S> <C>
Report of Management . . . . . . . . . . . . . . . . . . . . . . . . 25
Report of Independent Public Accountants . . . . . . . . . . . . . . 26
Consolidated Balance Sheets
as of June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Income
for the Three Years Ended June 30, 1998 . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows
for the Three Years Ended June 30, 1998 . . . . . . . . . . . . . 29
Consolidated Statements of Share Owners' Equity
for the Three Years Ended June 30, 1998 . . . . . . . . . . . . . 30
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 31-45
2. Financial Statement Schedules:
<CAPTION>
Page
<S> <C>
VIII. Valuation and Qualifying Accounts
for the Three Years Ended June 30, 1998 . . . . . . . . . 50
Schedules other than those listed above are omitted because they are either
not required or not applicable, or the required information is presented in the
Consolidated Financial Statements.
</TABLE>
3. Exhibits
See the Exhibit Index on page 51 for a list of the exhibits filed or
incorporated herein as a part of this report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the 1998
fiscal year.
-47-<PAGE>
<PAGE>
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 Robert F. Schneider
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer
and Assistant Treasurer
August 31, 1998
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:
Douglas A. Habig
DOUGLAS A. HABIG
Chief Executive Officer
September 2, 1998
James C. Thyen
JAMES C. THYEN
President
September 2, 1998
Robert F. Schneider
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer
and Assistant Treasurer
August 31, 1998
Roy W. Templin
ROY W. TEMPLIN
Vice President,
Corporate Controller
August 31, 1998
-48-<PAGE>
<PAGE>
Signature Signature
THOMAS L. HABIG* DOUGLAS A. HABIG*
Director Director
JOHN B. HABIG* JAMES C. THYEN*
Director Director
JOHN T. THYEN* JACK R. WENTWORTH*
Director Director
GARY P. CRITSER* BRIAN K. HABIG*
Director Director
ALAN B. GRAF, JR.* POLLY KAWALEK*
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, 1998 Ronald J. Thyen
RONALD J. THYEN
Director
September 3, 1998 Christine M. Vujovich
CHRISTINE M. VUJOVICH
Director
Attorneys-In-Fact
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<PAGE>
<TABLE>
KIMBALL INTERNATIONAL, INC.
Schedule VIII. - Valuation and Qualifying Accounts
(Amounts in Thousands)
<CAPTION>
Additions
Balance at Charged Charged Writeoffs Balance
Beginning to to Other and at End
Description of Year Expense Accounts Recoveries of Year
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998:
Valuation Allowances:
Accounts Receivable $4,017 $ 731 $(104) $(621) $4,023
Deferred Tax Asset $4,438 $ 356 --- --- $4,794
YEAR ENDED JUNE 30, 1997:
Valuation Allowances:
Accounts Receivable $4,075 $ 833 $(427) $(464) $4,017
Deferred Tax Asset $7,899 $(3,461) --- --- $4,438
YEAR ENDED JUNE 30, 1996:
Valuation Allowance:
Accounts Receivable $4,245 $ 670 --- $(840) $4,075
Deferred Tax Asset $8,078 $ (179) --- --- $7,899
** Reductions to the deferred tax asset valuation allowance during fiscal year 1997 relate primarily to the
sale of the Company's United Kingdom subsidiary and related transfer of net operating loss tax benefits to the
buyer.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
KIMBALL INTERNATIONAL, INC.
INDEX OF EXHIBITS
<S> <C>
3(a) Amended and restated Articles of Incorporation of the Company.
(Incorporated by reference to the Company's Form 10-Q for
the period ended December 31, 1997.)
3(b) Restated Bylaws of the Company.
(Incorporated by reference to the Company's Form 10-Q for the
period ended March 31, 1998.)
10(a)* Supplemental Bonus Plan. (Incorporated by reference to the
Company's Form 10-K for the year ended June 30, 1994.)
10(b)* Employment Contract with Arnold F. Habig dated June 12, 1990.
(Incorporated by reference to the Company's Form 10-K for the
year ended June 30, 1995.)
10(c)* Agreement with Directors who are also employees of the Company
concerning $25,000 payment to a named beneficiary upon death.
(Incorporated by reference to the Company's Form 10-K for the
year ended June 30, 1997.)
10(d)* 1996 Stock Incentive Program. (Incorporated by reference to the
Company's Schedule 14A Definitive Proxy Statement and Notice of
Annual Meeting of Share Owners held October 22, 1996.)
10(e)* 1996 Director Stock Compensation and Option Plan. (Incorporated
by reference to the Company's Schedule 14A Definitive Proxy
Statement and Notice of Annual Meeting of Share Owners held
October 22, 1996.)
10(f)* Form of Split Dollar Life Insurance Contract. (Incorporated
by reference to the Company's Form 10-K for the year ended
June 30, 1995.)
10(g)* Supplemental Employee Retirement Plan. (Incorporated by
reference to the Company's Form 10-K for the year ended
June 30, 1995.)
11 Computation of Earnings Per Share. (Incorporated by
reference to Note 15, Earnings Per Share, of the Notes
to Consolidated Financial Statements, which can be found
in Item 8.)
21 Significant Subsidiaries of the Company.
23 Consent of Independent Public Accountants.
24 Power of Attorney.
27 Financial Data Schedule.
* = constitutes management contract or compensatory arrangement.
</TABLE>
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<PAGE>
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<CAPTION>
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNIFICANT SUBSIDIARIES OF REGISTRANT
As of June 30, 1998 the significant subsidiaries of the Registrant were as
follows:
Percent Of
State of Voting Stock Owned
Incorporation By the
Registrant
<S> <C> <C>
Kimball International Marketing, Inc. Indiana 100%
Kimball International Manufacturing, Inc. Indiana 100%
Kimball Electronics, Inc. Delaware 100%
Kimball, Inc. Delaware 100%
Kimball Hospitality Furniture, Inc. Indiana 100%
McAllen-American Corporation Texas 100%
Elmo Semiconductor Corporation Indiana 100%
Kimball International Transit, Inc. Indiana 100%
Kimball U.K., Inc. Indiana 100%
Kimco, S.A. de C.V. Mexico 100%
L. Bosendorfer Klavierfabrik GmbH Austria 100%
Elmo Semiconducteurs SARL France 100%
</TABLE>
Exhibit 21
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Numbers 33-20125 and 333-14591.
Arthur Andersen LLP
Chicago, Illinois
September 9, 1998
Exhibit 23
<PAGE>
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint CHRISTINE M. VUJOVICH and
RONALD J. THYEN, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
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 Exchange Act of 1934, for the fiscal year ended June
30, 1998, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto the attorneys-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.
Dated: August 11, 1998
Thomas L. Habig Douglas A. Habig
Thomas L. Habig Douglas A. Habig
James C. Thyen Brian K. Habig
James C. Thyen Brian K. Habig
John B. Habig John T. Thyen
John B. Habig John T. Thyen
Ronald J. Thyen Gary P. Critser
Ronald J. Thyen Gary P. Critser
Christine M. Vujovich Jack R. Wentworth
Christine M. Vujovich Jack R. Wentworth
Alan B. Graf, Jr. Polly B. Kawalek
Alan B. Graf, Jr. Polly B. Kawalek
Exhibit 24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Kimball
International, Inc. 1998 Form 10-K and is qualified in its entirety by reference
to such Form 10-K filing. Prior period EPS information is restated to reflect
the Company's stock split and the adoption of Financial Accounting Standards
Board Statement No. 128, Earnings Per Share.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997 JUN-30-1996
<PERIOD-END> JUN-30-1998 JUN-30-1997 JUN-30-1996
<CASH> 16,757 18,818 5,647
<SECURITIES> 156,010 149,677 108,425
<RECEIVABLES> 123,193 114,159 121,215
<ALLOWANCES> 4,023 4,017 4,075
<INVENTORY> 96,303 76,142 89,489
<CURRENT-ASSETS> 412,937 376,773 342,251
<PP&E> 428,549 411,201 395,578
<DEPRECIATION> 245,751 237,191 221,569
<TOTAL-ASSETS> 629,638 581,583 538,225
<CURRENT-LIABILITIES> 153,210 133,258 122,043
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 2,151 6,723 6,723
<OTHER-SE> 446,472 416,103 384,291
<TOTAL-LIABILITY-AND-EQUITY> 629,638 581,583 538,225
<SALES> 1,032,317 992,049 923,636
<TOTAL-REVENUES> 1,032,317 992,049 923,636
<CGS> 723,378 692,636 664,311
<TOTAL-COSTS> 723,378 692,636 664,311
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 731 833 670
<INTEREST-EXPENSE> 424 551 408
<INCOME-PRETAX> 87,427 88,566 74,315
<INCOME-TAX> 32,400 30,821 29,220
<INCOME-CONTINUING> 55,027 57,745 45,095
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 55,027 57,745 45,095
<EPS-PRIMARY> 1.33 1.40 1.08
<EPS-DILUTED> 1.32 1.38 1.08
</TABLE>
