<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, 1999
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
September 8, 1999 were:
Class A Common Stock - 14,318,177 shares
Class B Common Stock - 26,065,320 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 September 8, 1999, was $443.4 million, based upon an
estimate that 85.2% of Class B Common Stock is held by non-affiliates.
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<PAGE>
Portions of the Proxy Statement for the Annual Meeting of Share Owners to be
held on October 19, 1999, are incorporated by reference into Part III.
The exhibit index is located on page 54.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
KIMBALL INTERNATIONAL, INC.
FORM 10-K YEAR ENDED JUNE 30, 1999
Pages
<S> <C> <C>
PART I.
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 5-12
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 13-14
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to Vote of Security Holders . . . 15
PART II.
Item 5. Market for the Registrant's Common Stock and
Related Share Owner Matters . . . . . . . . . . . . . . 16
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 18-24
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . . . 25
Item 8. Financial Statements and Supplementary Data . . . . . . 26-48
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures . . . . . . . . . . 49
PART III.
Item 10. Directors and Executive Officers of the Registrant . . . 49
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 49
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . 49
Item 13. Certain Relationships and Related Transactions . . . . . 49
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . 50
Signatures . . . . . . . . . . . . . . . . . . . . . . . 51-52
</TABLE>
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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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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 adopted Financial Accounting Standards Board Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information, for its
fiscal year 1999 reporting. This new standard requires the presentation of
segment information consistent with information utilized by management for
purposes of allocating resources and assessing performance. Upon adopting the
new standard, aligning the requirements of the standard with the Company's
operational and organizational structure, the Company now discloses two
reportable segments, the Furniture and Cabinets Segment and the Electronic
Contract Assemblies Segment. The previous industry segment, Processed Wood
Products and Other, has been integrated into the Furniture and Cabinets
reportable segment, consistent with the aggregation criteria outlined in
Statement No. 131.
The Company utilizes a substantial degree of vertical integration. It does
not consider seasonal fluctuations to be significant. Production is carried on
in facilities located in the United States, Mexico, Austria and France.
In the United States, the Company has facilities and showrooms in 16 states.
<TABLE>
Sales by segment, after elimination of intersegment sales, for each of the
three years in the period ended June 30, 1999 are as follows:
<CAPTION>
SALES BY SEGMENT (dollars in thousands)
1999 1998 1997
<S> <C> <C> <C>
Furniture and Cabinets $ 771,528 $ 706,679 $676,218
Electronic Contract Assemblies 335,395 325,602 315,816
Unallocated Corporate 44 36 15
--------- -------- -------
Total $1,106,967 $1,032,317 $992,049
</TABLE>
Financial information by segment and geographic area for each of the three
years in the period ended June 30, 1999 is included in Note 14, 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.
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<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. Included in this segment are
sales of 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. In fiscal year 1999, the Company
further expanded its office furniture product offering with the acquisition of
Transwall, a manufacturer of stackable panel systems and floor-to-ceiling
products. Kimball and Harpers office furniture systems have broad market
application, while Transwall office furniture systems are focused more toward
technical applications where wiring capabilities need to be flexible. The
Kimball and National (registered trademark) casegoods and seating lines are
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 (registered trademark) line of
Harpers office furniture systems is designed to integrate easily with existing
Kimball systems products and provide more flexibility and functionality in
office design. The Corporate Wall line of Transwall office furniture combines
the privacy and security of a full height partition with the versatility of an
open plan system. Transwall's Reasons line of office furniture systems provide
interchangeable panels that stack vertically and allow the flexibility of
stacking from floor to ceiling.
The Company has expanded its sales and manufacture of furniture over the
years to include home furniture, lodging and healthcare furniture and most
recently store fixtures through the acquisition of Southeast Millwork in fiscal
year 1999.
Other products within this segment are original equipment manufacturer (OEM)
furniture and cabinets, including cabinets for televisions, audio speakers,
television stands, and other wood related products manufactured on a contract
basis and sold to leading manufacturers in the home entertainment and home
furniture industries.
Also included in the Furniture and Cabinets segment are sales of furniture
component products including unprocessed lumber, dimension lumber, veneer, wood
panels and cabinet doors to both internal and external customers. The Company
also manufactures various miscellaneous products including plywood, polyurethane
and polyester molded products and stamped metal parts and sells them to both
internal and external customers.
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.
Services of the Company's trucking fleet are also sold to unaffiliated
customers.
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Locations
Office, home, lodging and healthcare furniture, store fixtures and OEM
furniture and cabinets and related products, which make up the largest part of
this segment, are produced at twenty-three plants, sixteen located in Indiana
and one each in Kentucky, Idaho, Pennsylvania, North Carolina, Florida,
Mississippi and Mexico. Nine of the twenty-three plants presently producing
furniture and cabinets could interchange production between these two basic
products, if needed. In 1999, the Company purchased a manufacturing facility in
Mexico to produce television cabinets and to provide additional capacity for
other manufacturing operations in the future.
The Company also owns and operates three sawmills, three lumber yards, two
dimension lumber plants, two plants which manufacture contract wood products and
a sliced veneer plant. The Company owns a fourth sawmill which is currently
idle. These facilities are located in Indiana, Tennessee and Kentucky.
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.
The Company sold its period reproduction furniture production facility
located in Alabama, and its carbide cutting tools operation located in Indiana
during fiscal year 1999.
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 two 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.
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. Transwall
brands of office furniture are marketed through Company salespersons and
independent sales representatives to office furniture dealers throughout North
America. Home furniture is generally marketed through independent sales
representatives to independent furniture dealers throughout the United States.
Lodging and healthcare furniture is marketed through independent manufacturers'
representatives. Store fixtures are generally sold directly to retail
businesses. Cabinets and contract furniture are generally marketed through
Company salespersons. The Company's marketing strategy facilitates the sale of
related office furniture, residential furniture and upholstery product within
the lodging and healthcare channels. Furniture component products manufactured
by the Company are used internally as well as sold to others. Products sold to
others are marketed principally to furniture manufacturers, primarily through
Company personnel. Bosendorfer (registered trademark) pianos are marketed
through Company salespersons and agents to independent dealers.
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<PAGE>
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 lodging and healthcare furniture markets compete on quality,
performance history, on-time delivery, customer lead time and price. The
Company offers its own line of lodging and healthcare furniture as well as
producing contract lodging and healthcare furniture to customers'
specifications.
The major competitive factors in the store fixtures industry are quality,
customer lead time, price, service and installation. Store fixtures are produced
to customer specifications from specific orders.
The major competitive factors in the home furniture, cabinet and OEM product
markets are quality, performance history, price, on-time delivery and
customer lead time. Contract home furniture, television and audio speaker
cabinets, and television stands, 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.
Competitive factors in the furniture component products market are price,
quality, availability, on-time delivery and customer lead time.
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, lodging, and
healthcare furniture competing within the marketplace. The Company believes,
however, that there are a limited number of relatively large producers of wood
office and lodging 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 and Transwall as vehicles to strengthen its
market share in the non-wood segment of the industry.
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<PAGE>
There are many manufacturers of both home furniture and store fixtures and
the Company does not have a significant share of either of these markets.
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.
For furniture and cabinet components, 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.
The high-end acoustical piano industry is characterized by a limited number
of competitors, including one major competitor.
Raw Material Availability
Many components used in the production of furniture and cabinets are
manufactured internally within the segment, including processed wood parts,
metal stamped parts and certain polyurethane and polyester molded plastics, all
of which are generally readily available. Other raw materials used in the
production of wood furniture and cabinets are generally readily available.
Certain metal components, such as precision slide mechanisms, 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 and
aluminum, are readily available in the world market. The Company is beginning to
increase its purchases from Asia for certain component parts for home furniture.
Raw materials used in the manufacture of store fixtures are readily available.
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.
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<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 was utilized for warehousing space in fiscal year 1999 and will be
converted to a manufacturing facility in fiscal year 2000, 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 production space at that location. 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. Engineering design
and support services are also provided to the manufacturing facilities within
this segment and to outside customers through the Kimball Electronics Design
Services company, which is based in Indiana.
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
competitive pricing on a global basis, quality, engineering design services,
production flexibility, reliability of on-time delivery, customer lead time,
testing, and global presence. 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 competency 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 transportation (automobiles and
light trucks), computer, telecommunications, defense, industrial controls,
and medical 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 1999, compared to
16% and 15% in fiscal years 1998 and 1997, respectively. In May 1999, TRW,
Inc. acquired Lucas Varity. The success of this segment is contingent on the
success of our customers' products.
This segment's investment capital carries a higher degree of risk than the
Company's other segments due to rapid technological changes, the contract nature
of this industry and the importance of sales to one customer.
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OTHER INFORMATION
BACKLOG
At June 30, 1999, the aggregate sales price of production pursuant
to worldwide open orders, which may be canceled by the customer, were
$272 million as compared to $254 million at June 30, 1998.
<TABLE>
BACKLOG BY SEGMENT
<CAPTION>
(dollars in millions)
June 30, 1999 June 30, 1998
<S> <C> <C>
Furniture and Cabinets $113 $125
Electronic Contract Assemblies 159 129
--- ---
Total Backlog $272 $254
Open orders as of June 30, 1999 are expected to be filled within the next
fiscal year. Open orders generally may not be indicative of future sales
trends.
Segment data has been adjusted to reflect the change in segments resulting from
the adoption of Financial Accounting Standards Board Statement No. 131, Disclosures
about Segments of an Enterprise and Related Information.
</TABLE>
RESEARCH, PATENTS, AND TRADEMARKS
Research and development activities include the development of manufacturing
processes, major process improvements, new product development, information
technology initiatives and electronic, wood and plastic technologies.
<TABLE>
<CAPTION>
(dollars in millions)
fiscal years ended June 30,
1999 1998 1997
<S> <C> <C> <C>
Research and Development Costs $11.6 $13.1 $11.5
</TABLE>
The Company owns the Kimball (registered trademark) trademark, which it
believes is significant to its office, electronic, lodging, 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), Harpers
(registered trademark) and Interworks (registered trademark); 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.
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ENVIRONMENT AND ENERGY MATTERS
The Company's operations are subject to various foreign, federal, state and
local laws and regulations with respect to environmental matters. The Company
believes that it is in substantial compliance with present laws and regulations
and that there are no material liabilities related to such items.
The Company is dedicated to excellence, leadership and stewardship in
matters of protecting the environment and communities in which the Company has
operations. The Company believes that continued compliance with foreign,
federal, state and local laws and regulations which have been enacted relating
to the protection of the environment will not have a material effect on its
capital expenditures, earnings or competitive position. Management believes
capital expenditures for environmental control equipment during the two fiscal
years ending June 30, 2001, 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, 1999 June 30, 1998
<S> <C> <C>
United States 7,765 7,807
Foreign Countries 2,138 1,749
----- -----
Total Full Time Employees at June 30 9,903 9,556
</TABLE>
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.
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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, 1999, are as follows:
<CAPTION>
-------------- Number of Facilities -------------
Furniture Electronic
and Contract Unallocated
Cabinets Assemblies Corporate Total
<S> <C> <C> <C> <C>
Indiana 27 2 6 35
Kentucky 3 3
Tennessee 3 3
California 1 1 2
Pennsylvania 1 1
North Carolina 1 1
Florida 1 1
Idaho 1 1
Mississippi 1 1
Texas 1 1
Austria 2 2
France 1 1
Mexico 2 1 3
-- -- -- --
Total Facilities 43 6 6 55
These facilities occupy approximately 7,945,000 square feet in aggregate,
of which approximately 7,289,000 square feet are owned in fee and 656,000 square
feet are leased. Square footage of these facilities are summarized as follows:
<CAPTION>
------------- Approximate Square Footage -------------
Furniture Electronic
and Contract Unallocated
Cabinets Assemblies Corporate Total
<S> <C> <C> <C> <C>
Fee 6,561,000 470,000 258,000 7,289,000
Leased 507,000 89,000 60,000 656,000
--------- ------- ------- ---------
Sub-total 7,068,000 559,000 318,000 7,945,000
Sub-leased -0- -0- -0- -0-
--------- ------- ------- ---------
Total 7,068,000 559,000 318,000 7,945,000
Including certain leased furniture showroom areas excluded from the above
listing, total facilities approximate 8.1 million square feet. (See Note 5 -
Lease Commitments of the Notes to Consolidated Financial Statements in Item 8,
for additional information concerning leases.)
Segment data has been adjusted to reflect the change in segments resulting
from the adoption of Financial Accounting Standards Board Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information.
</TABLE>
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<PAGE>
Included in Unallocated Corporate are executive, national sales and
administrative offices, an energy center for the Kimball Industrial Park
consisting of 3 trifuel boilers, and a child development facility for employees'
children.
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.
Significant loss of income resulting from a facility catastrophe would be
partially offset by business interruption insurance coverage.
Operating leases totaling 656,000 square feet expire from fiscal year
2000-2008, with all leases subject to renewal options. In addition to the above
production, warehouse and office properties, the Company has 14 leased showroom
facilities totaling 112,000 square feet, in 9 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 27,727 acres of land which includes land
where various Company facilities reside, including approximately 26,806 acres
generally for hardwood timber reserves, approximately 183 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. Included in the
timber reserves acreage is 11,773 acres purchased in fiscal year 1999, which
nearly doubled the Company's timberland holdings and provides land for potential
expansion of manufacturing facilities.
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 in the 4th quarter of fiscal year 1999
<TABLE>
Executive Officers of the Registrant
The executive officers of the Registrant as of August 31, 1999 are as
follows: (Age as of August 31, 1999)
<CAPTION>
Office and Officer
Name Age Area of Responsibility Since
<S> <C> <C> <C>
Douglas A. Habig 52 Chairman of the Board of Directors, 1975
and Chief Executive Officer
Thomas L. Habig 71 Vice Chairman of the Board of Directors 1955
James C. Thyen 55 President and Director 1974
Ronald J. Thyen 62 Senior Executive Vice President, 1966
Operations Officer, Furniture and
Cabinets Segment, and Director
John T. Thyen 61 Senior Executive Vice President, 1978
Marketing and Sales, Kimball Consumer
Products, Furniture and Cabinets Segment,
and Director
Gary P. Critser 62 Senior Executive Vice President, 1967
Corporate Secretary, Treasurer,
and Director
Robert F. Schneider 38 Executive Vice President, Chief Financial 1992
Officer and Assistant Treasurer
Donald D. Charron 36 Executive Vice President, and President, 1999
Kimball Electronics Group
Executive officers are elected annually by the Board of Directors.
Thomas L. Habig and Douglas A. Habig are brothers. James C. Thyen, Ronald J.
Thyen and John T. Thyen are brothers. All of the executive officers unless
otherwise noted have been employed by the Company for more than the past five
years in the capacity shown or some other executive capacity. Robert F.
Schneider was appointed to his current position in July 1997, having
previously served the company as Vice President and Director of Accounting.
Donald D. Charron was employed with Rockwell Automation/Allen Bradley from
December 1992 to April 1999, as Operations Manager, Director of Operations,
and General Business Manager Electronic Operator Interface.
</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>
------- 1999 ------ ------- 1998 ------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter. . . . . . . $20.3750 $14.8750 $23.4375 $19.7500
Second Quarter . . . . . . $21.5000 $14.9375 $22.1875 $18.3750
Third Quarter. . . . . . . $20.0625 $14.7500 $23.7500 $17.0000
Fourth Quarter . . . . . . $18.8125 $14.5625 $24.9375 $17.6250
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 1999
dividends declared were $25.6 million or $.62 per share on Class A Common
Stock and $.64 per share on Class B Common Stock. Dividends by quarter
for 1999 compared to 1998 are as follows:
<CAPTION>
------ 1999 ------ ------ 1998 -----
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
First Quarter. . . . . . . $ .155 $ .16 $ .14375 $ .145
Second Quarter . . . . . . $ .155 $ .16 $ .14500 $ .150
Third Quarter. . . . . . . $ .155 $ .16 $ .14500 $ .150
Fourth Quarter . . . . . . $ .155 $ .16 $ .15500 $ .160
----- ---- ------- ----
Total Dividends. . . . . . $ .620 $ .64 $ .58875 $ .605
</TABLE>
Share Owners: On July 30, 1999, 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 2,470 Share Owners of record, of which
approximately 390 also owned Class A Common Stock.
-16-
<PAGE>
<PAGE>
<TABLE>
Item 6. - Selected Financial Data
(dollars in thousands, except per share amounts)
<CAPTION>
-------------- Year Ended June 30, -------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Sales $1,106,967 $1,032,317 $992,049 $923,636 $895,912
Net Income 59,725 $ 55,027 $ 57,745 $ 45,095 $ 41,439
Earnings Per Share
Basic:
Class A 1.46 $1.32 $1.39 $1.08 $ .98
Class B 1.48 $1.33 $1.40 $1.08 $ .99
Diluted:
Class A 1.45 $1.31 $1.38 $1.07 $ .98
Class B 1.47 $1.32 $1.38 $1.08 $ .99
Total Assets $ 661,386 $ 629,638 $581,583 $538,225 $497,086
Long Term Debt, Less
Current Maturities $ 1,730 $ 1,856 $ 2,313 $ 3,016 $ 924
Cash Dividends Per Share:
Class A $ .620 $ .58875 $ .530 $ .470 $ .425
Class B $ .640 $ .60500 $ .535 $ .475 $ .430
</TABLE>
Fiscal year 1999 results include a $1,337,000 after tax gain ($0.03 per diluted
share) on the sale of a stock investment of which the Company held a minor
interest and a $2,674,000 after tax gain ($0.06 per diluted share) on the
disposition of two non-core operating facilities.
Fiscal year 1998 results include a $1,008,000 after tax gain ($0.02 per diluted
share) on the sale of real estate and a $616,000 after tax gain ($0.01 per
diluted share) on the sale of a stock investment of which the Company held a
minor interest.
Fiscal year 1996 net income was reduced by $1,870,000, or $0.05 per share, for
estimated costs associated with exiting sales and production of the Company's
domestic wholesale piano product line.
-17-
<PAGE>
<PAGE>
Item 7. - Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
Net sales of $1,106,967,000 reached record levels in fiscal year 1999,
surpassing the prior year by 7%. Net income and Class B diluted earnings per
share were $59,725,000 and $1.47, respectively, an increase of 9% over fiscal
year 1998 net income. Fiscal year 1999 results include a $1,337,000 after tax
gain ($0.03 per diluted share) on the sale of a stock investment of which the
Company held a minor interest and a $2,674,000 after tax gain ($0.06 per diluted
share) on the disposition of two non-core operating facilities. Fiscal year
1998 results include a $1,008,000 after tax gain ($0.02 per diluted share) on
the sale of real estate and a $616,000 after tax gain ($0.01 per diluted share)
on the sale of a stock investment of which the Company held a minor interest.
The Company adopted Financial Accounting Standards Board Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information, for its
fiscal year 1999 reporting. This new standard requires the presentation of
segment information consistent with information utilized by management for
purposes of allocating resources and assessing performance. Upon adopting the
new standard, aligning the requirements of the standard with the Company's
operational and organizational structure, the Company has two reportable
segments, the Furniture and Cabinets Segment and the Electronic Contract
Assemblies Segment. The previous industry segment, Processed Wood Products and
Other, has been integrated into the Furniture and Cabinets reportable segment
consistent with the aggregation criteria outlined in Statement No. 131. The
fiscal year 1998 discussion has been revised to reflect the change in segments.
RESULTS OF OPERATIONS
1999 DISCUSSION
Net sales for the 1999 fiscal year surpassed 1998 levels on increases by both of
the Company's segments -- the Furniture and Cabinets Segment and the Electronic
Contract Assemblies Segment. Net income for fiscal year 1999 also increased
over the prior year in both segments.
<TABLE>
Sales and Net Income by Segment
(Amounts in millions)
<CAPTION>
------------ Year Ended June 30 ------------
1999 1998 1997
<S> <C> <C> <C>
Net Sales:
Furniture and Cabinets. . . . . . . . . . . . $771.5 $706.7 $676.2
Electronic Contract Assemblies. . . . . . . . 335.4 325.6 315.8
Net Income:
Furniture and Cabinets. . . . . . . . . . . . $ 34.6 $ 27.9 $ 32.5
Electronic Contract Assemblies. . . . . . . . 18.2 18.1 19.6
</TABLE>
FURNITURE AND CABINETS
Product line offerings included in the Furniture and Cabinets Segment are office
furniture, home furniture, lodging and healthcare furniture, store fixtures,
original equipment manufactured (OEM) furniture and cabinets and furniture
components. 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.
-18-
<PAGE>
<PAGE>
In fiscal year 1999, the Company completed a number of acquisitions included
within the Furniture and Cabinets Segment. In September 1998, the Company
acquired the assets and assumed certain liabilities of Transwall, Inc., a
privately held manufacturer of stackable panel office furniture systems and
floor-to-ceiling products, which increased its already extensive office
furniture product offering. In January 1999, the Company purchased the
assets and assumed certain liabilities of Southeast Millwork, a privately
held manufacturer of store display fixtures. This acquisition provided an
entry point for the Company to pursue the store fixtures markets. These
two acquisitions were accounted for as purchases with results of operations
included in the Company's consolidated results from the date of purchase. In
April 1999, the Company purchased a manufacturing facility located in Juarez,
Mexico. The Juarez facility will initially produce projection television
cabinets and will provide additional capacity for other manufacturing
operations in the future. The results of these acquisitions were not
material to fiscal year 1999 consolidated operating results.
The Company also completed the sale of two of its non-core facilities in fiscal
year 1999. In May 1999, the Company sold Kimball Furniture Reproductions, a
furniture manufacturing facility located in Montgomery, Alabama. In June 1999,
the Company sold ToolPro, a carbide cutting tools production operation located
in Jasper, Indiana. Proceeds from the divestitures will be used to help fund
future acquisitions and general corporate purposes to support the Company's
growth strategy. An after tax gain of $2,674,000 was recorded on these two
dispositions.
Fiscal year 1999 net sales increased 9% in the Furniture and Cabinets Segment,
including acquisitions, when compared to the prior year. Sales increased for
all product lines within this segment.
Increased volumes in the office furniture product line resulted in record sales
in fiscal year 1999. Casegoods and systems products within the office furniture
line both increased over fiscal year 1998, while sales of seating products
declined slightly. Excluding acquisitions, office furniture sales growth
outpaced the 2% growth in shipments reported by the Business and Institutional
Furniture Manufacturer's Association (BIFMA) for the twelve-month period ending
May 1999.
The lodging and healthcare product line experienced increased net sales in
fiscal year 1999 over the prior year. Increased sales of the Company's
custom-made products more than offset sales declines of standard product
offerings. The latter part of the fiscal year showed a general slowing in
orders from the lodging industry.
Fiscal year 1999 outside net sales of OEM furniture and cabinets experienced
double-digit growth when compared to 1998. Increased volume of OEM projection
television cabinets was the major contributor to the sales growth. Fiscal year
1998 sales of these cabinets were lower due to the relocation of a large
customer and its longer than anticipated start up time.
Outside net sales of furniture components increased in fiscal year 1999
primarily as a result of volume increases in furniture component parts, mainly
kitchen cabinet doors.
Net income in the Furniture and Cabinets Segment increased in 1999 when compared
to 1998. Gross profit, as a percent of sales, decreased from 1998 primarily due
to deeper discounting and increased material costs, as a percent of sales.
Selling, general and administrative expenses increased in dollars in 1999 but
decreased as a percent of sales as focused cost reductions resulted in lower
freight, sales incentives and people costs, as a percent of sales.
-19-
<PAGE>
<PAGE>
ELECTRONIC CONTRACT ASSEMBLIES
Net sales for fiscal year 1999 in the Electronic Contract Assemblies Segment
exceeded the prior year by 3%. Sales of electronic transportation products
increased while sales of computer related products declined when compared to the
prior year. The Company continues to expand its product line offering in the
Electronic Contract Assemblies Segment including components for consumer
electronics, appliances, and industrial controls.
Net income in fiscal year 1999 increased slightly over the prior year, primarily
due to higher sales volumes. Gross profit, as a percent of net sales, remained
relatively consistent in the current year when compared to 1998. Selling,
general and administrative costs increased in dollars but decreased slightly, as
a percent of sales, in fiscal year 1999. Net income was also affected by a
higher effective state income tax rate.
Included in this segment are sales to one customer, Lucas Varity, PLC, which
accounted for 16% of consolidated net sales in both fiscal year 1999 and 1998.
Sales to this customer represent approximately one half of total sales in the
Electronic Contract Assemblies Segment, which has historically carried a higher
operating income margin than the Company's other business segment. In May 1999,
Lucas Varity was acquired by TRW.
This segment's investment capital carries a higher degree of risk than the
Company's other segment due to rapid technological changes, the contract nature
of this industry and the importance of sales to one customer.
CONSOLIDATED OPERATIONS
Consolidated selling, general and administrative expenses decreased, as a
percent of sales, 0.2 percentage point in fiscal year 1999 when compared to
1998. The Company has been focused on reducing costs and continues to review
activities and processes to assess where costs could further be reduced while
continuing to provide quality products and services to the marketplace.
Other income decreased from the prior year on lower interest income caused by
lower average investment balances and a shift in the Company's investment
portfolio to a mix more heavily weighted toward tax-free municipal bonds with
lower pre-tax interest rates. Partially offsetting the decline in interest
income was an increase in miscellaneous income. In fiscal year 1999 the Company
recorded a $1,337,000 after tax gain ($0.03 per diluted share) on the sale of a
stock investment of which the Company held a minor interest and a $2,674,000
after tax gain ($0.06 per diluted share) on the disposition of two non-core
facilities. Fiscal year 1998 results include a $1,008,000 after tax gain ($0.02
per diluted share) on the sale of real estate and a $616,000 after tax gain
($0.01 per diluted share) on the sale of a stock investment of which the Company
held a minor interest.
The effective income tax rate decreased 1.8 percentage points in fiscal year
1999 in comparison to 1998. An increase in state tax rates was more than offset
by a decrease in the federal effective tax rate as the Company utilized
available capital loss carryforwards to offset capital gains.
Net income and Class B diluted earnings per share of $59,725,000 and $1.47,
respectively, in fiscal year 1999 increased 9% from the prior year levels of
$55,027,000 and $1.32, respectively.
1998 DISCUSSION
Net sales of $1,032,317,000 for the 1998 fiscal year surpassed 1997 levels on
increased sales by both of the Company's segments -- the Furniture and Cabinets
Segment and the Electronic Contract Assemblies Segment. Net income in 1998
decreased 5% to $55,027,000, from $57,745,000 in 1997.
-20-
<PAGE>
<PAGE>
FURNITURE AND CABINETS
Fiscal year 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 manufactured (OEM) furniture and cabinets.
The office furniture product line experienced record annual net sales as of
fiscal year 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 remained a competitive factor in the office furniture industry,
resulting in lower operating margins in the year over year comparison.
Fiscal year 1998 home furniture product line sales increased in comparison to
1997.
Net sales of lodging and healthcare 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.
Outside net sales for the OEM furniture and cabinets product line declined when
compared to the prior year, with volume declines in television cabinets and
stands and audio speaker cabinets. Sales of OEM 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.
Outside sales of furniture components in 1998 remained relatively flat when
compared to the prior year as increased sales of lumber products were offset by
a decline in sales of dimension product. In an effort to grow additional
outside sales in this segment, the Company invested in additional human
resources focused in the sales and marketing area.
Net income in the Furniture and Cabinets Segment decreased in 1998 when compared
to 1997, despite an increase in sales. Gross profit, as a percent of sales,
remained flat with the prior year. Selling, general 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 as of
fiscal year 1998 with an increase of 3% over the prior year. Increased demand
for electronic transportation products was partially offset by decreased volumes
in computer-related products. Fiscal year 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. This segment's investment
capital carries a higher degree of risk than the Company's other segment due to
rapid technological changes, the contract nature of this industry and the
importance of sales to one customer. Included in this segment are sales to one
customer, Lucas Varity, PLC, which accounted for 16% and 15% of consolidated
sales in fiscal 1998 and 1997, respectively.
-21-
<PAGE>
<PAGE>
Net income in 1998 decreased when compared to the prior year. Gross profit, as
a percent of sales, decreased 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 continued to build its infrastructure to
take advantage of the latest design and production technologies and to support
growth opportunities within the segment.
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 fiscal year
1998, the Company realized a $616,000 after tax gain, or $0.01 per diluted
share, on the sale of a stock investment of which the Company held a minor
interest. The Company also recorded a $1.0 million after tax gain, or $0.02 per
diluted share, on the sale of real estate in the second quarter of fiscal year
1998. 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 fiscal year
1998.
Net income and Class B diluted earnings per share of $55,027,000 and $1.32,
respectively, in fiscal year 1998, decreased 5% from the prior year levels of
$57,745,000 and $1.38, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's aggregate of cash, cash equivalents, and short-term investments
decreased from $173 million at the end of fiscal year 1998 to $132 million at
the end of fiscal year 1999 due primarily to cash outlays for strategic capital
investments. Working capital at June 30, 1999 was $218 million with a current
ratio of 2.3, compared to working capital of $260 million and a current ratio of
2.7 at June 30, 1998.
Operating activities generated $98 million of cash flow in fiscal year 1999
compared to $76 million in fiscal year 1998. Net income and non-cash charges to
net income were partially offset by increases in receivables of $13 million.
The Company reinvested a record $103 million into capital investments for the
future, including strategic acquisitions, the purchase of 11,700 acres of timber
and harvest land, computer equipment, production equipment, office facilities
and a child development facility. Financing cash flow activities were primarily
in the form of $17 million in share repurchases and $26 million in dividend
payments. Net cash flow, excluding the purchases and maturities of short-term
investments was an outflow of $39 million.
In July 1999, the Company announced plans to construct a new state-of-the-art
veneer mill and face operation. Over the next 12 months, the Company plans to
invest approximately $13 million in capital resources constructing the new
facility.
To meet short-term capital requirements, in fiscal year 1999 the Company
established a $100 million revolving credit facility to be used for
acquisitions and general corporate purposes. The agreement allows for both
-22-
<PAGE>
<PAGE>
issuance of letters of credit and cash borrowings. At June 30, 1999, no debt
was outstanding under this revolving credit facility.
The Company anticipates maintaining a strong liquidity position for the 2000
fiscal year and believes its available funds on hand, unused credit line
available under the revolving credit facility 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 increased costs of raw materials,
or a natural disaster or similar unforeseen event.
YEAR 2000 READINESS DISCLOSURE
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
failure or miscalculations.
The Company completed an assessment of its computer systems and the embedded
systems contained in its machinery, equipment and other infrastructure, and
executed a plan to resolve the Year 2000 issue. The phases of the plan include
inventory assessment, remediation and testing. An Executive Committee oversees
completion of these activities. All phases of the Year 2000 plan have been
completed for the Company's mission critical systems and equipment with the
exception of the Juarez, Mexico manufacturing facility acquired late in fiscal
year 1999. The Company anticipates this facility to be Year 2000 compliant by
the end of September 1999. The Company also continues to make progress on Year
2000 compliance of non-critical computer and embedded systems. The Company will
continue its Year 2000 assessment and testing efforts for new or modified
systems throughout 1999 and will continue to test its critical systems for
continued Year 2000 compliance. A corporate freeze on the introduction of
certain business and information technology (IT) initiatives will occur December
1, 1999 through January 15, 2000 to maintain a stable environment through the
turn of the century. While the Year 2000 issue has been given the highest
priority among the 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 75% had been incurred as of June
30, 1999. 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 mission critical third parties to
determine their Year 2000 compliance status through both mailings and direct
contacts. The Company continues to follow up with its suppliers on their state
of readiness, and where appropriate, is conducting in-depth evaluations which
could lead to replacement of the supplier. While the Company is working
-23-
<PAGE>
<PAGE>
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.
Contingency plans outlining recovery strategies for possible failures are
currently being developed. 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
temporary alternate manual processes.
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.
ACCOUNTING STANDARDS
In fiscal year 1999, the Company adopted Financial Accounting Standards No. 130,
Reporting Comprehensive Income. This standard requires the disclosure of all
changes in equity during a period except those resulting from investments by,
and distributions to, Share Owners. Comprehensive income is reported in the
Consolidated Statements of Share Owners' Equity.
Effective for the year ended June 30, 1999, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS 131 establishes new standards for
defining the Company's segments and disclosing information about them. The
adoption of SFAS No. 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. All prior year
segment information has been restated to conform with SFAS No. 131.
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which requires the recognition of all derivatives as either assets
or liabilities in the balance sheet and the measurement of those instruments at
fair value. The Company currently engages in limited derivative activity and
currently does not expect this new standard to have a material effect on the
Company's financial condition or results of operations. This standard will be
effective for the Company's fiscal year 2001.
-24-
<PAGE>
Item 7a - Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 1999, the Company had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of $115
million. 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. Held-to-maturity securities are
stated at amortized cost and available-for-sale securities are stated at market
value with unrealized gains and losses being recorded net of tax related effect,
if any, as a component of Share Owners' Equity. These securities, like all
fixed income instruments, are subject to interest rate risk and will decline in
value if market interest rates increase. A hypothetical 100 basis point
increase in market interest rates from levels at June 30, 1999 would cause the
fair value of these short-term investments to decline by an immaterial amount.
The Company operates internationally, and thus is subject to potentially adverse
movements in foreign currency rate changes. As of June 30, 1999, foreign
subsidiaries' sales, operating income and assets each comprised less than 3% of
consolidated amounts. Historically, the effect of movements in the exchange
rates have been immaterial to the consolidated operating results of the Company.
- 25 -
<PAGE>
<PAGE>
<TABLE>
Item 8. - Financial Statements and Supplementary Data
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
<S> <C>
Report of Management . . . . .. . . . . . . . . . . . . . . . . 27
Report of Independent Public Accountants . . . . . . . . . . . 28
Consolidated Balance Sheets
as of June 30, 1999 and 1998 . . . . . . . . . . . . . . . . 29
Consolidated Statements of Income
for the Three Years Ended June 30, 1999. . . . . . . . . . . 30
Consolidated Statements of Cash Flows
for the Three Years Ended June 30, 1999. . . . . . . . . . . 31
Consolidated Statements of Share Owners' Equity
for the Three Years Ended June 30, 1999. . . . . . . . . . . 32
Notes to Consolidated Financial Statements. . . . . . . . . . . 33-48
</TABLE>
-26-
<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 of the Board,
Chief Executive Officer
James C. Thyen
James C. Thyen
President
Robert F. Schneider
Robert F. Schneider
Executive Vice President,
Chief Financial Officer,
Assistant Treasurer
-27-
<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,
1999 and 1998, 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,
1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999, 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, 1999
-28-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share Data)
June 30
1999 1998
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 16,775 $ 16,757
Short-term investments . . . . . . . . . . . . . . . . . . . . 114,996 156,010
Receivables, less allowances of
$3,816 and $4,023, respectively . . . . . . . . . . . . . . . 132,284 119,170
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 96,157 96,303
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,129 24,697
Total current assets . . . . . . . . . . . . . . . . . . . 386,341 412,937
Property and Equipment, net. . . . . . . . . . . . . . . . . . . 221,498 182,798
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 53,547 33,903
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $661,386 $629,638
Liabilities and Share Owners' Equity
Current Liabilities:
Loans payable. . . . . . . . . . . . . . . . . . . . . . . . . $ 3,518 $ 4,318
Current maturities of long-term debt . . . . . . . . . . . . . 1,185 434
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 77,976 60,907
Dividends payable. . . . . . . . . . . . . . . . . . . . . . . 6,380 6,521
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 79,505 81,030
Total current liabilities. . . . . . . . . . . . . . . . . 168,564 153,210
Other Liabilities:
Long-term debt, less current maturities. . . . . . . . . . . . 1,730 1,856
Deferred income taxes and other. . . . . . . . . . . . . . . . 26,815 25,949
Total other liabilities. . . . . . . . . . . . . . . . . . 28,545 27,805
Share Owners' Equity:
Common stock-par value $.05 per share:
Class A- Shares authorized-49,945,000 (49,967,000 in 1998)
Shares issued-14,486,000 (14,509,000 in 1998). . . . 724 725
Class B- Shares authorized-100,000,000
Shares issued-28,538,000 (28,516,000 in 1998). . . . 1,427 1,426
Additional paid-in capital . . . . . . . . . . . . . . . . . . 6,379 6,022
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 498,962 464,880
Accumulated other comprehensive income . . . . . . . . . . . . 1,312 3,709
Less: Treasury stock-at cost:
Class A- 156,000 shares (125,000 in 1998) . . . . . . . . . . (2,877) (2,362)
Class B- 2,542,000 shares (1,688,000 in 1998) . . . . . . . . (41,650) (25,777)
Total share owners' equity . . . . . . . . . . . . . . . . 464,277 448,623
Total Liabilities and Share Owners' Equity . . . . . . . . . . . $661,386 $629,638
See Notes to Consolidated Financial Statements.
</TABLE>
-29-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
Year Ended June 30
1999 1998 1997
<S> <C> <C> <C>
Net Sales. . . . . . . . . . . . . . . . . . . . . . . $1,106,967 $1,032,317 $992,049
Cost of Sales. . . . . . . . . . . . . . . . . . . . . 778,551 723,378 692,636
Gross Profit . . . . . . . . . . . . . . . . . . . . . 328,416 308,939 299,413
Selling, Administrative and General Expenses . . . . . 250,839 236,463 218,421
Operating Income . . . . . . . . . . . . . . . . . . . 77,577 72,476 80,992
Other Income (Expense):
Interest Expense . . . . . . . . . . . . . . . . . . (476) (424) (551)
Interest Income. . . . . . . . . . . . . . . . . . . 6,554 9,458 8,484
Other, Net . . . . . . . . . . . . . . . . . . . . . 8,719 5,917 (359)
Other Income, Net . . . . . . . . . . . . . . . . . 14,797 14,951 7,574
Income Before Taxes on Income. . . . . . . . . . . . . 92,374 87,427 88,566
Taxes on Income. . . . . . . . . . . . . . . . . . . . 32,649 32,400 30,821
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 59,725 $ 55,027 $ 57,745
Earnings Per Share of Common Stock
Basic:
Class A. . . . . . . . . . . . . . . . . . . . . . . $1.46 $1.32 $1.39
Class B. . . . . . . . . . . . . . . . . . . . . . . $1.48 $1.33 $1.40
Diluted:
Class A. . . . . . . . . . . . . . . . . . . . . . . $1.45 $1.31 $1.38
Class B. . . . . . . . . . . . . . . . . . . . . . . $1.47 $1.32 $1.38
Average Number of Shares Outstanding
Basic:
Class A. . . . . . . . . . . . . . . . . . . . . . . 14,338 14,413 14,498
Class B. . . . . . . . . . . . . . . . . . . . . . . 26,286 27,004 26,952
Totals. . . . . . . . . . . . . . . . . . . . . . . 40,624 41,417 41,450
Diluted:
Class A. . . . . . . . . . . . . . . . . . . . . . . 14,338 14,413 14,498
Class B. . . . . . . . . . . . . . . . . . . . . . . 26,501 27,401 27,265
Totals. . . . . . . . . . . . . . . . . . . . . . . 40,839 41,814 41,763
See Notes to Consolidated Financial Statements.
</TABLE>
-30-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KIMBALL INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended June 30
1999 1998 1997
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 59,725 $ 55,027 $ 57,745
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . 39,710 33,806 33,395
Gain on sales of assets. . . . . . . . . . . . . . . . (3,917) (1,986) (597)
Deferred income tax and other deferred charges . . . . 1,964 880 (1,247)
Change in current assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . (13,114) (9,028) 6,432
Inventories . . . . . . . . . . . . . . . . . . . . (4,816) (15,174) 10,787
Other current assets. . . . . . . . . . . . . . . . (2,529) (1,413) 1,751
Accounts payable. . . . . . . . . . . . . . . . . . 17,069 7,844 4,055
Accrued expenses. . . . . . . . . . . . . . . . . . 3,936 6,248 9,487
Net cash provided by operating activities. . . . 98,028 76,204 121,808
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . (76,568) (41,313) (32,937)
Proceeds from sales of assets. . . . . . . . . . . . . . 820 1,177 1,366
Proceeds from sales of divisions/subsidiaries. . . . . . 7,156 3,150 2,345
Increase in other assets . . . . . . . . . . . . . . . . (25,973) (7,359) (11,810)
Purchases of held-to-maturity securities . . . . . . . . (400) (21,415) (34,465)
Maturities of held-to-maturity securities. . . . . . . . 5,425 46,932 51,446
Purchases of available-for-sale securities . . . . . . . (23,191) (97,120) (58,305)
Sales and maturities of available-for-sale securities. . 57,080 67,517 ---
Net cash used for investing activities . . . . . (55,651) (48,431) (82,360)
Cash Flows From Financing Activities:
Net change in short-term borrowings. . . . . . . . . . . (800) 1,846 190
Net change in long-term debt . . . . . . . . . . . . . . 625 (494) (724)
Acquisition of treasury stock, net of sales. . . . . . . (17,184) (8,323) (4,878)
Dividends paid to share owners . . . . . . . . . . . . . (25,784) (24,280) (21,508)
Proceeds from exercise of stock options. . . . . . . . . 986 1,495 808
Other-net. . . . . . . . . . . . . . . . . . . . . . . . (176) (63) (132)
Net cash used for financing activities . . . . . (42,333) (29,819) (26,244)
Effect of exchange rate changes on cash. . . . . . . . . . (26) (15) (33)
Net Increase (Decrease) in Cash and Cash Equivalents . . . 18 (2,061) 13,171
Cash and Cash Equivalents at Beginning of Year . . . . . . 16,757 18,818 5,647
Cash and Cash Equivalents at End of Year . . . . . . . . . $ 16,775 $ 16,757 $ 18,818
Total Cash, Cash Equivalents
and Short-Term Investments:
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 16,775 $ 16,757 $ 18,818
Short-term investments . . . . . . . . . . . . . . . . . 114,996 156,010 149,677
Totals . . . . . . . . . . . . . . . . . . . . . . . $131,771 $172,767 $168,495
See Notes to Consolidated Financial Statements.
</TABLE>
-31-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY
(Amounts in thousands, except share data)
Three Years Ended June 30, 1999
Accumulated
---Common Stock--- Additional Other
Paid-In Retained Comprehensive Treasury Total Share
Class A Class B Capital Earnings Income Stock Owners' Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts at June 30, 1996. . . . . . . . . . . $2,285 $4,438 $ 898 $399,024 $1,441 ($17,072) $391,014
Comprehensive income:
Net income. . . . . . . . . . . . . . . . . 57,745 57,745
Net change in unrealized gains and losses
on securities. . . . . . . . . . . . . . . (73) (73)
Foreign currency translation adjustment . . 280 280
Comprehensive income. . . . . . . . . . . 57,952
Treasury stock acquired-net (134,000 shares) 34 (4,878) (4,844)
Shares of Class A Common Stock converted to
Class B Common Stock (37,000 shares) . . . (12) 12 647 (647) ---
Exercise of stock options (38,000 shares) . 28 780 808
Cash dividends:
Class A ($.53 per share) . . . . . . . . . (7,682) (7,682)
Class B ($.535 per share). . . . . . . . . (14,422) (14,422)
Amounts at June 30, 1997. . . . . . . . . . . $2,273 $4,450 $1,607 $434,665 $1,648 ($21,817) $422,826
Comprehensive income:
Net income. . . . . . . . . . . . . . . . . 55,027 55,027
Net change in unrealized gains and losses
on securities. . . . . . . . . . . . . . . 2,247 2,247
Foreign currency translation adjustment . . (186) (186)
Comprehensive income. . . . . . . . . . . 57,088
Treasury stock acquired-net (378,000 shares) 74 (8,213) (8,139)
Shares of Class A Common Stock converted to
Class B Common Stock (36,000 shares) . . . (3) 3 81 (81) ---
Exercise of stock options (117,000 shares). (312) 1,972 1,660
Cash dividends:
Class A ($.58875 per share). . . . . . . . (8,483) (8,483)
Class B ($.605 per share). . . . . . . . . (16,329) (16,329)
Change par value from $.3125 pre stock split
to $.05 post stock split . . . . . . . . . (1,545) (3,027) 4,572 ---
Amounts at June 30, 1998. . . . . . . . . . . $ 725 $1,426 $6,022 $464,880 $3,709 ($28,139) $448,623
Comprehensive income:
Net income. . . . . . . . . . . . . . . . . 59,725 59,725
Net change in unrealized gains and losses
on securities. . . . . . . . . . . . . . . (2,100) (2,100)
Foreign currency translation adjustment . . (297) (297)
Comprehensive income. . . . . . . . . . . 57,328
Treasury stock acquired-net (973,000 shares) 77 (17,094) (17,017)
Shares of Class A Common Stock converted to
Class B Common Stock (22,000 shares) . . . (1) 1 311 (311) ---
Exercise of stock options (88,000 shares) . (31) 1,017 986
Cash dividends:
Class A ($.62 per share) . . . . . . . . . (8,891) (8,891)
Class B ($.64 per share) . . . . . . . . . (16,752) (16,752)
Amounts at June 30, 1999. . . . . . . . . . . $ 724 $1,427 $6,379 $498,962 $1,312 ($44,527) $464,277
See Notes to Consolidated Financial Statements.
</TABLE>
-32-
<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.
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 municipal bonds and U.S. Government securities 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 excluded from net income and
recorded net of related tax effect, if any, in Accumulated Other
Comprehensive Income, 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 in Accumulated Other
Comprehensive Income, 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.
Inventories: 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
51% and 52% of consolidated inventories in 1999 and 1998, 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, $11.6 in 1999, $13.1 in
1998, and $11.5 in 1997.
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<PAGE>
<PAGE>
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 transportation, computer,
telecommunications, consumer electronics and furniture industries.
Reclassifications: Certain prior year amounts have been reclassified to conform
with the 1999 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.
New Accounting Standards: In fiscal year 1999, the Company adopted Financial
Accounting Standards No. 130, Reporting Comprehensive Income. This standard
requires the disclosure of all changes in equity during a period except those
resulting from investments by, and distributions to, Share Owners.
Comprehensive income is reported in the Consolidated Statements of Share Owners'
Equity.
Effective for the year ended June 30, 1999, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS 131 establishes new standards for
defining the Company's segments and disclosing information about them. The
adoption of SFAS No. 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. All prior year
segment information has been restated to conform with SFAS No. 131.
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which requires the recognition of all derivatives as either assets
or liabilities in the balance sheet and the measurement of those instruments at
fair value. The Company currently engages in limited derivative activity and
currently does not expect this new standard to have a material effect on the
Company's financial condition or results of operations. This standard will be
effective for the Company's fiscal year 2001.
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<PAGE>
<PAGE>
NOTE 2 ACQUISITIONS AND DISPOSITIONS
Acquisitions of Subsidiaries:
During fiscal year 1999, the Company completed a number of acquisitions related
to its core competencies aimed at penetrating new markets and expanding
existing markets. In the first quarter, the Company acquired the assets and
assumed certain liabilities of Transwall, Inc., a privately held manufacturer of
stackable panel office furniture systems and floor-to-ceiling products. In the
third quarter, the Company acquired the assets and assumed certain liabilities
of Southeast Millwork, a privately held manufacturer of store display fixtures.
These acquisitions were accounted for as purchases with operating results
included in the Company's Consolidated Statements of Income from the date of
acquisition. The results of these acquisitions were not material to fiscal year
1999 consolidated operating results.
In the fourth quarter of fiscal year 1999, the Company purchased a manufacturing
facility located in Juarez, Mexico. The Juarez facility will initially produce
projection television cabinets and will provide additional capacity for other
manufacturing operations in the future.
Dispositions of Subsidiaries:
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.
The Company sold Kimball Furniture Reproductions, a furniture manufacturing
facility located in Montgomery, Alabama, and ToolPro, a carbide cutting tools
production operation located in Jasper, Indiana in the fourth quarter of fiscal
year 1999. The sale of these subsidiaries generated a $2.7 million after-tax
gain which is included in the 1999 Consolidated Statement of Income.
NOTE 3 INVENTORIES
Inventories are valued using the lower of last-in, first-out (LIFO) cost or
market value for approximately 51% and 52% of consolidated inventories in 1999
and 1998, 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, $0.2 lower in 1999, $0.6 higher in 1998, and $0.1 lower in 1997.
Additionally, inventories would have been, in millions, $20.0 and $20.3 higher
at June 30, 1999 and 1998, respectively, if the FIFO method had been used.
During 1999 and 1998, 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>
1999 1998
<S> <C> <C>
Finished products. . . . . . . . . . . . . $33,262 $31,365
Work-in-process. . . . . . . . . . . . . . 14,471 12,971
Raw materials. . . . . . . . . . . . . . . 48,424 51,967
Total inventory . . . . . . . . . . . $96,157 $96,303
</TABLE>
-35-
<PAGE>
<PAGE>
NOTE 4 PROPERTY AND EQUIPMENT
<TABLE>
Major classes of property and equipment consist of the following:
(Amounts in Thousands)
<CAPTION>
1999 1998
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . $ 6,931 $ 4,471
Buildings and improvements . . . . . . . . 171,504 145,880
Machinery and equipment. . . . . . . . . . 291,432 264,316
Construction-in-progress . . . . . . . . . 16,772 13,882
Total. . . . . . . . . . . . . . . . . . 486,639 428,549
Less: Accumulated depreciation . . . (265,141) (245,751)
Property and equipment, net. . . . . . . $221,498 $182,798
</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,
$33.4 for 1999, $29.9 for 1998, and $29.4 for 1997.
</TABLE>
NOTE 5 LEASE COMMITMENTS
Operating leases for certain office, showroom, warehouse and manufacturing
facilities, and equipment, which expire from fiscal year 2000 to 2008, contain
provisions under which minimum annual lease payments are, in millions, $7.8,
$6.0, $4.3, $3.7, and $2.5 for the five years ended June 30, 2004, respectively,
and aggregate $2.0 million from 2005 to the expiration of the leases in 2008.
The Company is obligated under certain real estate leases to maintain the
properties and pay real estate taxes.
Total rental expenses amounted to, in millions, $7.1, $6.7, and $5.9 in 1999,
1998 and 1997, respectively.
NOTE 6 LONG-TERM DEBT AND CREDIT FACILITY
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, $1,185, $629, $441, $144, and $151, respectively, and aggregate $365
thereafter. Interest rates range from 0% to 10%. Interest paid was immaterial
in the three years ending June 30, 1999. Based upon borrowing rates currently
available to the Company, the fair value of the Company's debt approximates the
carrying value.
In fiscal year 1999, the Company established a five year revolving credit
facility that provides for up to $100 million in borrowings. The Company
intends to use this facility for acquisitions and general corporate purposes.
A commitment fee is payable on the unused portion of the credit facility. The
interest rate applicable to borrowings under the agreement is based on the
London Interbank Offered Rate (LIBOR) plus a margin. The Company is in
compliance with debt covenants requiring it to maintain certain debt-to-total
capitalization, interest coverage ratio, minimum net worth, and other terms and
conditions. No debt was outstanding under this agreement at June 30, 1999.
-36-
<PAGE>
<PAGE>
NOTE 7 RETIREMENT PLANS
The Company has a trusteed defined contribution Retirement Plan 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
plan; the percent of contribution is determined by the Board of Directors up
to specific maximum limits. The plan includes a 401(k) feature, thereby
permitting participants to make additional voluntary contributions on a pretax
basis. Payments by the Company to the trusteed plan are vested and held for
the sole benefit of participants. Total contributions to the Retirement Plans
for 1999, 1998 and 1997 were approximately, in millions, $10.8, $10.1, and
$11.3, 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 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. 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 1999 and 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 from six
months to 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 stock options
granted through June 30, 1999 must be held for a five year period before being
sold, except in certain situations. For stock options granted after June 30,
1999, shares of stock issued through exercise have no required holding period.
Stock options are forfeited when employment terminates, except in case of
retirement, death or permanent disability.
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.
-37-
<PAGE>
<PAGE>
<TABLE>
Stock option transactions are as follows:
<CAPTION>
Number Weighted Average
of Shares Exercise Price
<S> <C> <C>
Options outstanding June 30, 1996. . . . . . . 1,099,700 $13.15
Granted. . . . . . . . . . . . . . . . . . . . 402,838 13.80
Exercised. . . . . . . . . . . . . . . . . . . (90,872) 12.64
Forfeited. . . . . . . . . . . . . . . . . . . (35,600) 13.31
Options outstanding June 30, 1997. . . . . . . 1,376,066 13.37
Granted. . . . . . . . . . . . . . . . . . . . 588,889 21.82
Exercised. . . . . . . . . . . . . . . . . . . (225,769) 13.35
Forfeited. . . . . . . . . . . . . . . . . . . (89,170) 14.89
Options outstanding June 30, 1998. . . . . . . 1,650,016 16.30
Granted. . . . . . . . . . . . . . . . . . . . 551,521 18.20
Exercised. . . . . . . . . . . . . . . . . . . (141,993) 13.78
Forfeited. . . . . . . . . . . . . . . . . . . (180,716) 16.57
Expired. . . . . . . . . . . . . . . . . . . . (20,871) 14.80
Options outstanding June 30, 1999. . . . . . . 1,857,957 $17.05
Shares available for future options. . . . . . 5,536,506
</TABLE>
<TABLE>
Following is a status of options outstanding at June 30, 1999:
<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-$16.00 807,309 1 years $13.19 805,833 $13.19
$16.00-$20.00 522,759 6 years 18.20 102,738 18.24
$20.00-$24.00 527,889 4 years 21.82 123,082 21.83
Total 1,857,957 4 years $17.05 1,031,653 $14.72
</TABLE>
The Company adopted the disclosure requirements of Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation
(FAS 123) 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
1999 1998 1997
<S> <C> <C> <C>
Net Income
As Reported . . . . . . . . . . . . . $59,725 $55,027 $57,745
Pro Forma . . . . . . . . . . . . . . $57,444 $53,343 $56,765
Earnings per Share of Common Stock
As Reported:
Basic:
Class A. . . . . . . . . . . . . . $1.46 $1.32 $1.39
Class B. . . . . . . . . . . . . . $1.48 $1.33 $1.40
Diluted:
Class A. . . . . . . . . . . . . . $1.45 $1.31 $1.38
Class B. . . . . . . . . . . . . . $1.47 $1.32 $1.38
Pro Forma:
Basic:
Class A. . . . . . . . . . . . . . $1.40 $1.28 $1.37
Class B. . . . . . . . . . . . . . $1.42 $1.29 $1.37
Diluted:
Class A. . . . . . . . . . . . . . $1.40 $1.27 $1.36
Class B. . . . . . . . . . . . . . $1.42 $1.28 $1.36
</TABLE> -38-
<PAGE>
<PAGE>
The pro forma effects on net income for the year ended June 30, 1997 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, 1999, 1998 and 1997 was $3.72, $4.84 and $2.50 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 34.0% in 1999, 31.7% in 1998 and 31.4% in
1997; risk-free interest rates of 5.4% in 1999, 6.2% in 1998 and 6.3% in
1997; dividend yield of 3.7% in 1999, 2.9% in 1998 and 2.9% in 1997; 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 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 U.S. capital loss carryforward all
expire during the 2002 fiscal year.
<TABLE>
The components of the deferred tax assets and liabilities as of June 30, 1999
and 1998, are as follows:
(Amounts in Thousands)
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Receivables. . . . . . . . . . . . . . . . . $ 1,690 $ 1,830
Inventory. . . . . . . . . . . . . . . . . . 2,311 2,338
Employee benefits. . . . . . . . . . . . . . 6,690 6,579
Other current liabilities. . . . . . . . . . 5,920 6,507
Miscellaneous. . . . . . . . . . . . . . . . 587 658
Foreign net operating losses . . . . . . . . 2,253 2,581
Capital loss carryforward benefit. . . . . . 627 2,597
Valuation reserve. . . . . . . . . . . . . (2,880) (4,794)
Total asset. . . . . . . . . . . . . . . $17,198 $18,296
Deferred tax liabilities:
Property & equipment . . . . . . . . . . . . $14,366 $15,144
Miscellaneous. . . . . . . . . . . . . . . . 339 255
Total liability. . . . . . . . . . . . . $14,705 $15,399
</TABLE>
-39-
<PAGE>
<PAGE>
<TABLE>
The components of income before taxes on income are as follows:
(Amounts in Thousands)
<CAPTION>
------- Year Ended June 30 -----
1999 1998 1997
<S> <C> <C> <C>
United States . . . . . . . . . . . . . . . $90,674 $87,327 $87,626
Foreign . . . . . . . . . . . . . . . . . . 1,700 100 940
Total income before taxes. . . . . . $92,374 $87,427 $88,566
</TABLE>
<TABLE>
Taxes on income are composed of the following items:
(Amounts in Thousands)
<CAPTION>
------- Year Ended June 30 -----
1999 1998 1997
<S> <C> <C> <C>
Currently payable:
Federal. . . . . . . . . . . . . . . . $26,347 $29,363 $28,418
Foreign. . . . . . . . . . . . . . . . 565 224 179
State. . . . . . . . . . . . . . . . . 5,333 3,650 4,538
Total current. . . . . . . . . . . . 32,245 33,237 33,135
Deferred Federal. . . . . . . . . . . . . . 404 (837) (2,314)
Total taxes on income. . . . . . . . $32,649 $32,400 $30,821
</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 --------------
1999 1998 1997
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Taxes computed at statutory rate . . . . . . $32,331 35.0% $30,600 35.0% $30,998 35.0%
State income taxes,
net of Federal income tax benefit . . . . 3,466 3.7 2,373 2.7 3,179 3.6
Foreign tax effect . . . . . . . . . . . . . (595) (0.6) (35) -- (329) (0.4)
Capital loss benefit . . . . . . . . . . . . (1,586) (1.7) -- -- (3,650) (4.1)
Tax-exempt interest income . . . . . . . . . (1,412) (1.5) (454) (0.5) (531) (0.6)
Other-net. . . . . . . . . . . . . . . . . . 445 0.4 (84) (0.1) 1,154 1.3
Total taxes on income . . . . . . . . . $32,649 35.3% $32,400 37.1% $30,821 34.8%
</TABLE>
Cash payments for income taxes, net of refunds, were in thousands, $28,884,
$28,183 and $37,069 in 1999, 1998 and 1997, respectively.
-40-
<PAGE>
<PAGE>
NOTE 10 COMMON STOCK
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.
-41-
<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>
1999:
Net Sales. . . . . . . . . . . . . . . . $264,646 $280,080 $288,054 $274,187
Gross Profit . . . . . . . . . . . . . . 78,557 83,053 86,433 80,373
Net Income . . . . . . . . . . . . . . . 12,563 14,935 15,189 17,038
Basic Earnings Per Share:
Class A . . . . . . . . . . . . . . . . $.31 $.36 $.37 $.42
Class B . . . . . . . . . . . . . . . . .31 .37 .38 .42
Diluted Earnings Per Share:
Class A . . . . . . . . . . . . . . . . $.30 $.36 $.37 $.42
Class B . . . . . . . . . . . . . . . . .31 .37 .38 .42
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
Net income in the second quarter of fiscal 1998 was increased by, in thousands, $1,008 or $0.02 per share,
representing the gain on the sale of real estate. Net income in the third quarter of fiscal 1998 was increased
by, in thousands, $616 or $0.01 per share, from the gain on the sale of a stock investment of which the Company
held a minor interest. Net income in the second quarter of fiscal 1999 was increased by, in thousands, $1,337
or $.03 per share, representing the gain on the sale of a stock investment of which the Company held a minor
interest. Net income in the fourth quarter of fiscal 1999 was increased by, in thousands, $2,674 or $.06 per
share, representing the gain on the sale of two subsidiaries.
</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 premium
amortized over the life of the security.
Held-to-maturity securities are reported at carrying cost and consist primarily
of government obligations with fair value equal to carrying cost of, in
thousands, $399 at June 30, 1999, compared to fair value and carrying cost
of $5,430 and $5,429 at June 30, 1998, respectively. Unrealized holding
gains and losses were immaterial at June 30, 1999 and 1998. 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, $114,597 and $114,523 at June 30, 1999, compared to
$150,581, and $148,408 at June 30, 1998, respectively. Unrealized holding
gains and losses at June 30, 1999 were, in thousands, $277 and ($203),
compared to $2,254 and ($80) at June 30, 1998, respectively. All
available-for-sale securities mature within a four year period.
Proceeds from sales of available-for-sale securities were, in thousands,
$17,273 and $27,236 for the years ended June 30, 1999 and 1998, respectively.
Gross realized gains and losses on the sale of available-for-sale securities
at June 30, 1999 were, in thousands, $172 and ($2) respectively, compared to
gross realized gains of, in thousands, $76 at June 30, 1998. The cost was
determined on each individual security in computing the realized gain.
-42-
<PAGE>
<PAGE>
NOTE 13 ACCRUED EXPENSES
<TABLE>
Accrued expenses at June 30 consist of:
(Amounts in Thousands)
<CAPTION>
------ June 30 -------
1999 1998
<S> <C> <C>
Income taxes . . . . . . . . . . . . . . . . . $ 2,292 $ 1,183
Property taxes . . . . . . . . . . . . . . . . 4,290 4,089
Compensation . . . . . . . . . . . . . . . . . 31,938 30,327
Retirement plan. . . . . . . . . . . . . . . . 10,529 9,889
Other expenses . . . . . . . . . . . . . . . . 30,456 35,542
Total accrued expenses. . . . . . . . . . . . $79,505 $81,030
</TABLE>
NOTE 14 SEGMENT AND GEOGRAPHIC AREA INFORMATION
Effective for the year ended June 30, 1999, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information. The adoption of SFAS 131 requires the
presentation of segment information which is consistent with information
utilized by management for purposes of allocating resources and assessing
performance. Upon adopting the new standard, aligning the requirements of the
standard with the Company's operational and organizational structure, the
Company now discloses two reportable segments, the Furniture and Cabinets
Segment and the Electronic Contract Assemblies Segment. The previous segment,
Processed Wood Products and Other, has been integrated into the Furniture and
Cabinets reportable segment consistent with the aggregation criteria outlined in
SFAS 131.
Management organizes the Company into segments based upon differences in
products and services offered in each segment. The segments and their principal
products and services are as follows:
The Furniture and Cabinets Segment produces office, lodging, healthcare and home
furniture, OEM furniture and cabinet products, store fixtures, and a variety of
other furniture and furniture components produced on a contract basis.
Intersegment sales are insignificant.
The Electronic Contract Assemblies Segment produces 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 totaling in millions, $178.9, $168.2 and $152.2 in 1999, 1998
and 1997, respectively, representing 16%, 16% and 15% of consolidated net sales.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies" with additional explanation of
segment allocations as follows. Corporate operating costs are allocated to the
segments based on the extent to which each segment uses a centralized function,
where practicable. However, certain common costs have been allocated among
segments less precisely than would be required for stand alone financial
information prepared in accordance with generally accepted accounting
-43-
<PAGE>
<PAGE>
principles. Unallocated corporate assets include cash and cash equivalents,
short-term investments and other assets not allocated to segments.
The Company evaluates segment performance based upon several financial measures,
although the two most common include economic profit, which incorporates a
segment's cost of capital when evaluating financial performance, and net income.
Pursuant to SFAS 131, net income is reported for each segment as it is the
measure most consistent with the measurement principles used in the Company's
consolidated financial statements.
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------
Furniture Electronic Unallocated
and Contract Corporate and
(Amounts in Thousands) Cabinets Assemblies Eliminations Consolidated
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . $771,528 $335,395 $ 44 $1,106,967
Depreciation and amortization . . . 29,763 9,947 -- 39,710
Interest income . . . . . . . . . . -- -- 6,554 6,554
Interest expense . . . . . . . . . 412 -- 64 476
Taxes on income . . . . . . . . . . 19,566 11,856 1,227 32,649
Net income. . . . . . . . . . . . . 34,569 18,185 6,971 59,725
Total assets . . . . . . . . . . . 389,725 140,905 130,756 661,386
Capital expenditures . . . . . . . 67,141 9,427 -- 76,568
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------
Furniture Electronic Unallocated
and Contract Corporate and
(Amounts in Thousands) Cabinets Assemblies Eliminations Consolidated
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . $706,679 $325,602 $ 36 $1,032,317
Depreciation and amortization . . . 25,719 8,087 -- 33,806
Interest income . . . . . . . . . . -- -- 9,458 9,458
Interest expense . . . . . . . . . 386 -- 38 424
Taxes on income . . . . . . . . . . 17,917 10,932 3,551 32,400
Net income. . . . . . . . . . . . . 27,904 18,050 9,073 55,027
Total assets . . . . . . . . . . . 331,247 128,165 170,226 629,638
Capital expenditures . . . . . . . 29,000 12,313 -- 41,313
</TABLE>
-44-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------
Furniture Electronic Unallocated
and Contract Corporate and
(Amounts in Thousands) Cabinets Assemblies Eliminations Consolidated
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . $676,218 $315,816 $ 15 $ 992,049
Depreciation and amortization . . . 26,106 7,289 -- 33,395
Interest income . . . . . . . . . . -- -- 8,484 8,484
Interest expense . . . . . . . . . 486 12 53 551
Taxes on income . . . . . . . . . . 16,820 11,985 2,016 30,821
Net income. . . . . . . . . . . . . 32,451 19,595 5,699 57,745
Total assets . . . . . . . . . . . 301,018 114,783 165,782 581,583
Capital expenditures . . . . . . . 24,110 8,827 -- 32,937
</TABLE>
Geographic Area
The following geographic area data include net sales based on product shipment
destination and long-lived assets based on physical location. Long-lived
assets include property and equipment and other long-term assets such as
software.
<TABLE>
(Amounts in Thousands)
<CAPTION>
--------- Year Ended June 30 --------
1999 1998 1997
<S> <C> <C> <C>
Net Sales:
United States. . . . . . . . . . . . . . . . $1,022,943 $ 977,716 $ 942,086
Foreign. . . . . . . . . . . . . . . . . . . 84,024 54,601 49,963
Total Net Sales . . . . . . . . . . . . . $1,106,967 $1,032,317 $ 992,049
Long-Lived Assets:
United States. . . . . . . . . . . . . . . . $ 233,132 $ 199,043 $ 190,904
Foreign. . . . . . . . . . . . . . . . . . . 26,172 7,762 5,009
Total Long-Lived Assets . . . . . . . . . $ 259,304 $ 206,805 $ 195,913
</TABLE>
-45-
<PAGE>
<PAGE>
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. Earnings per
share of Class A and Class B Common Stock are as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------
Available Average Earnings Per Share
Income Shares Class A Class B
--------- ------- ------- -------
(Amounts in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . $59,725
Distributed earnings:
Class A dividends declared . . . . . . . . . (8,891) $ .620
Class B dividends declared . . . . . . . . . (16,752) $ .640
Undistributed basic earnings . . . . . . . . . $34,082 40,624 .839 .839
Basic Earnings Per Share . . . . . . . . . . . $1.459 $1.479
Basic Earnings Per Share (rounded) . . . . . . $1.46 $1.48
Dilutive effect of stock options . . . . . . . (138) 215
Undistributed diluted earnings . . . . . . . . $33,944 40,839 .831 .831
Diluted Earnings Per Share . . . . . . . . . . $1.451 $1.471
Diluted Earnings Per Share (rounded) . . . . . $1.45 $1.47
981,902 of the 1,901,947 average outstanding stock options were antidilutive, and were excluded from the
dilutive computation for this period.
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------
Available Average Earnings Per Share
Income Shares Class A Class B
--------- ------- ------- -------
(Amounts in Thousands, Except Per Share Data)
<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>
-46-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Available Average Earnings Per Share
Income Shares Class A Class B
--------- ------- ------- -------
(Amounts in Thousands, Except Per Share Data)
<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>
-47-
<PAGE>
<PAGE>
NOTE 16 COMPREHENSIVE INCOME
Effective July 1, 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income, which establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption had no impact on the Company's net income or Share Owners'
Equity. Comprehensive income includes all changes in equity during a period
except those resulting from investments by, and distributions to, Share Owners.
Comprehensive income consists of net income and other comprehensive income,
which includes the net change in unrealized gains and losses on securities, and
foreign currency translation adjustments. The Company has elected to disclose
comprehensive income in the Consolidated Statements of Share Owners' Equity.
Accumulated balances of other comprehensive income are as follows:
<TABLE>
<CAPTION>
Accumulated Other Comprehensive Income
(Net of tax if applicable)
Foreign Net Change in Accumulated
Currency Unrealized Gains Other
Translation and Losses on Comprehensive
Adjustments Securities Income
------------ ---------------- -------------
<S> <C> <C> <C>
Balance at June 30, 1996. . $1,441 $ -- $1,441
Current year change . . . . 280 (73) 207
Balance at June 30, 1997. . 1,721 (73) 1,648
Current year change . . . . (186) 2,247 2,061
Balance at June 30, 1998. . 1,535 2,174 3,709
Current year change . . . . (297) (2,100) (2,397)
Balance at June 30, 1999. . $1,238 $ 74 $1,312
</TABLE>
-48-
<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 19, 1999
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 19, 1999 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 19, 1999 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 19, 1999 under the caption
"Compensation Committee Interlocks and Insider Participation".
-49-
<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 . . . . . . . . . . . . . . . . . . . . . . . . 27
Report of Independent Public Accountants . . . . . . . . . . . . . . 28
Consolidated Balance Sheets
as of June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Income
for the Three Years Ended June 30, 1999 . . . . . . . . . . . . . 30
Consolidated Statements of Cash Flows
for the Three Years Ended June 30, 1999 . . . . . . . . . . . . . 31
Consolidated Statements of Share Owners' Equity
for the Three Years Ended June 30, 1999 . . . . . . . . . . . . . 32
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 33-48
2. Financial Statement Schedules:
<CAPTION>
Page
<S> <C>
II. Valuation and Qualifying Accounts
for the Three Years Ended June 30, 1999 . . . . . . . . . 53
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 54 for a list of the exhibits filed or
incorporated herein as a part of this report.
(b) Reports on Form 8-K:
Form 8-K dated May 26, 1999, was filed pursuant to Item 5 (Other Events) which
contained the Company's news release dated May 25, 1999, announcing a $100
million revolving credit facility.
Form 8-K dated July 8, 1999, was filed pursuant to Item 5 (Other Events) which
contained the Company's new release dated July 8, 1999, announcing the sales of
two of the Company's business units.
Form 8-K dated July 19, 1999 was filed pursuant to Item 5 (Other Events) which
contained the Company's new release dated July 16, 1999, announcing the
Company's intent to construct a state-of-the-art veneer mill.
-50-
<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
September 9, 1999
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 13, 1999
James C. Thyen
JAMES C. THYEN
President
September 9, 1999
Robert F. Schneider
ROBERT F. SCHNEIDER
Executive Vice President,
Chief Financial Officer
and Assistant Treasurer
September 9, 1999
Roy W. Templin
ROY W. TEMPLIN
Vice President,
Corporate Controller
September 9, 1999
-51-
<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
September 13, 1999 Ronald J. Thyen
RONALD J. THYEN
Director
September 17, 1999 Christine M. Vujovich
CHRISTINE M. VUJOVICH
Director
Attorneys-In-Fact
-52-
<PAGE>
<PAGE>
<TABLE>
KIMBALL INTERNATIONAL, INC.
Schedule II. - 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, 1999:
Valuation Allowance:
Receivables . . . . . . $4,023 $ 662 $ 311 $(1,180) $3,816
Deferred Tax Asset. . . $4,794 $(1,914) $ --- $ --- $2,880
YEAR ENDED JUNE 30, 1998:
Valuation Allowances:
Receivables . . . . . . $4,017 $ 731 $(104) $ (621) $4,023
Deferred Tax Asset. . . $4,438 $ 356 --- --- $4,794
YEAR ENDED JUNE 30, 1997:
Valuation Allowances:
Receivables . . . . . . $4,075 $ 833 $(427) $ (464) $4,017
Deferred Tax Asset. . . $7,899 $(3,461) --- --- $4,438
** 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. Fiscal year 1999 reductions to the deferred tax asset valuation allowance relate primarily to the
utilization of capital loss carryforwards and related reversal of the valuation allowance as a result of the
sale of two subsidiaries and the sale of a stock investment of which the Company held a minor interest.
</TABLE>
-53-
<PAGE>
<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 December 31, 1998.)
10(a)* Supplemental Bonus Plan.
10(b)* 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(c)* 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(d)* 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(e)* 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(f)* Supplemental Employee Retirement Plan. (Incorporated by
reference to the Company's Form 10-K for the year ended
June 30, 1995.)
10(g) Credit Agreement with NBD Bank, N.A.
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>
-54-
<PAGE>
SUPPLEMENTAL BONUS PLAN
The Board of Directors, on an annual basis, approves a total dollar bonus
pool for a Supplemental Bonus Plan, up to a maximum of one and one-half
percent (1.5%), on an after-tax basis, of the Company's consolidated net income
calculated before amount payable to employees under the Company's Indirect
Profit Sharing Bonus Plan.
The Board of Directors empowers the Chairman of the Board and Chief Executive
Officer, Vice Chairman, and President to grant individual bonuses under the plan
to eligible participants up to the total dollar bonus pool approved by the
Board. Supplemental bonuses are awarded based upon individual efforts not
recognized under the Company's Indirect Profit Sharing Bonus Plan.
Eligible participants are the Chairman of the Board and Chief Executive
Officer, Vice Chairman, President, Secretary, Treasurer, Senior Executive Vice
Presidents, Executive Vice Presidents, and Vice Presidents of the Company or its
subsidiaries and any other salaried employees of the Company or subsidiaries as
the Chairman and Chief Executive Officer, Vice Chairman, and President may
select.
Any bonus under this plan awarded to the Chief Executive Officer must be
approved by the Compensation Committee of the Board of Directors.
The payments and forfeiture provisions under this plan are under the same
provisions as the Indirect Profit Sharing Bonus Plan.
Exhibit 10(a)
<PAGE>
CREDIT AGREEMENT
between
KIMBALL INTERNATIONAL, INC.
and
NBD BANK, N.A.
Dated as of May 25, 1999
<PAGE>
<PAGE> TABLE OF CONTENTS
ARTICLE I DEFINITIONS
ARTICLE II THE CREDITS
2.1. Commitment
2.2. Required Payments; Termination
2.3. Types of Advances
2.4. Commitment Fee; Reductions in Commitment
2.5. Minimum Amount of Each Advance
2.6. Optional Principal Payments
2.7. Method of Selecting Types and Interest Periods for New Advances
2.8. Conversion and Continuation of Outstanding Advances
2.9. Terms Applicable to the Letters of Credit
2.9.1. Issuance of Letters of Credit
2.9.2. Letter of Credit Fees
2.9.3. Reimbursement of Letters of Credit
2.10. Changes in Interest Rate, etc
2.11. Rates Applicable After Default
2.12. Method of Payment
2.13. Evidence of Indebtedness
2.14. Telephonic Notices
2.15. Interest Payment Dates; Interest and Fee Basis
2.16. Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions
2.17. Lending Installations
2.18. Request to Increase the Commitment
ARTICLE III YIELD PROTECTION; TAXES
3.1. Yield Protection
3.2. Changes in Capital Adequacy Regulations
3.3. Availability of Types of Advances
3.4. Funding Indemnification
3.5. Taxes
3.6. Lender Statements; Survival of Indemnity
ARTICLE IV CONDITIONS PRECEDENT
4.1. Initial Advance
4.2. Each Advance
ARTICLE V REPRESENTATIONS AND WARRANTIES
5.1. Existence and Standing
5.2. Authorization and Validity
5.3. No Conflict; Government Consent
5.4. Financial Statements
5.5. Material Adverse Change
5.6. Taxes
5.7. Litigation and Contingent Obligations
5.8. Subsidiaries
5.9. Accuracy of Information
5.10. Regulation U
5.11. Material Agreements
5.12. Compliance With Laws
5.13. Ownership of Properties
5.14. Environmental Matters
5.15. Investment Company Act
5.16. Public Utility Holding Company Act
5.17. Year 2000.
<PAGE>
<PAGE>
ARTICLE VI COVENANTS
6.1. Financial Reporting
6.2. Use of Proceeds
6.3. Notice of Default
6.4. Conduct of Business
6.5. Taxes
6.6. Insurance
6.7. Compliance with Laws
6.8. Maintenance of Properties
6.9. Inspection
6.10. Indebtedness
6.11. Merger
6.12. Sale of Assets
6.13. Liens
6.14. Year 2000 .
6.15. Financial Covenants
6.15.1. Interest Coverage Ratio
6.15.2. Minimum Net Worth
ARTICLE VII DEFAULTS
ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. Acceleration
8.2. Amendments
8.3. Deposit to Secure Reimbursement Obligations
8.4 Subrogation
8.5. Preservation of Rights
ARTICLE IX GENERAL PROVISIONS
9.1. Survival of Representations
9.2. Governmental Regulation
9.3. Headings
9.4. Entire Agreement
9.5. Benefits of this Agreement
9.6. Expenses; Indemnification
9.7. Accounting
9.8. Severability of Provisions
9.9. Nonliability of the Lender
9.10. Confidentiality
9.11. Disclosure
ARTICLE X SETOFF
ARTICLE XI BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
11.1. Successors and Assigns
11.2. Participations
11.2.1. Permitted Participants; Effect
11.2.2. Benefit of Setoff
11.3. Dissemination of Information
11.4. Tax Treatment
ARTICLE XII NOTICES
12.1. Notices
12.2. Change of Address
<PAGE>
<PAGE>
ARTICLE XIII COUNTERPARTS
ARTICLE XIV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
14.1. CHOICE OF LAW
14.2. CONSENT TO JURISDICTION
14.3. WAIVER OF JURY TRIAL
The following schedules and exhibits have been omitted from this filing.
Schedule 1 - Subsidiaries and Other Investments
Schedule 2 - Indebtedness and Liens
Schedule 3 - Existing Letters of Credit
Exhibit A - Form of Opinion
Exhibit B - Compliance certificate
Exhibit C - Loan/Credit Related Money Transfer Instruction
Exhibit D - Credit Note
Exhibit E - Commitment Increase Supplement
Exhibit F - Borrowing Notice
<PAGE>
<PAGE>
CREDIT AGREEMENT
This Agreement, dated as of May 25, 1999, is among Kimball International,
Inc., and NBD Bank, N.A. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Advance" means a borrowing made pursuant to Article II (or any conversion
or continuation thereof).
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agreement" means this Credit Agreement, as it may be amended or modified
and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the sum of the Federal Funds Effective Rate for such day plus 1/4% per
annum.
"Applicable Fee Rate" means, at any time, the percentage rate per annum at
which Commitment Fees are accruing on the unborrowed portion of the Commitment
at such time as set forth in the Pricing Schedule.
"Applicable Margin" means, with respect to Advances of any Type at any
time, the percentage rate per annum which is applicable at such time with
respect to Advances of such Type, and the percentage rate per annum applicable
to Standby Letters of Credit, all as set forth in the Pricing Schedule.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the President, Chief Financial
Officer, Treasurer, and Assistant Treasurer of the Borrower, acting singly.
"Borrower" means Kimball International, Inc., an Indiana corporation, and
its successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.7.
<PAGE>
<PAGE>
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Indianapolis and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Indianapolis for the conduct of substantially all of their
commercial lending activities.
"Capital Expenditures" means, without duplication, any expenditures for any
purchase or other acquisition of any asset which would be classified as a fixed
or capital asset on a consolidated balance sheet of the Borrower and its
Subsidiaries prepared in accordance with Agreement Accounting Principles
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"Captalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change in Control" means (i) the Family Group owns less than 35% of the
Class A voting stock, or (ii) the acquisition by any Person (other than a member
of the Family Group), or two or more Persons (other than members of the Family
Group) acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of more of the Class A voting stock of the Borrower than that owned
by the Family Group.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commercial Letter of Credit Application" means each Application for
Irrevocable Commercial Letter of Credit, in the form prescribed by the Lender,
from time to time, to govern a Letter of Credit, as any of the same may be
amended from time to time.
"Commercial Letters of Credit" means a letter of credit now or hereafter
issued pursuant to a Commercial Letter of Credit Application by the Lender from
time to time at the request of, and for the account of, the Borrower pursuant to
this Agreement.
"Commitment" means the obligation of the Lender to make Advances up to but
not exceeding $100,000,000, as such amount may be modified from time to time
pursuant to the terms hereof.
"Commitment Fee" is defined in Section 2.4.
"Commitment Increase Supplement" is defined in Section 2.18.
"Consolidated EBIT" means Consolidated Net Income plus, to the extent
deducted from revenues in determining Consolidated Net Income, (i) Consolidated
Interest Expense, (ii) expense for taxes paid or accrued, and (iii)
extraordinary losses incurred other than in the ordinary course of business,
minus, to the extent included in Consolidated Net Income, extraordinary gains
realized other than in the ordinary course of business, all calculated for the
Borrower and its Subsidiaries on a consolidated basis.
<PAGE>
<PAGE>
"Consolidated Funded Indebtedness" means at any time the aggregate dollar
amount of Consolidated Indebtedness which has actually been funded and is
outstanding at such time, whether or not such amount is due or payable at such
time.
"Consolidated Indebtedness" means at any time the Indebtedness of the
Borrower and its Subsidiaries calculated on a consolidated basis as of such
time.
"Consolidated Interest Expense" means, with reference to any period, the
interest expense of the Borrower and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Borrower and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Net Worth" means at any time the consolidated stockholders'
equity of the Borrower and its Subsidiaries calculated on a consolidated basis
as of such time.
"Consolidated Total Capitalization" means at any time the sum of
Consolidated Indebtedness and Consolidated Net Worth, each calculated at such
time.
"Contingent Obligations" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any operating agreement,
take-or-pay contract or the obligations of any such Person as general partner of
a partnership with respect to the liabilities of the partnership.
"Controlled Group" means all members of a controlled group of corporations
or other business entities and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any of
its Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Conversion/Continuation Notice" is defined in Section 2.8.
"Default" means an event described in Article VII.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land, or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
<PAGE>
<PAGE>
"Eurodollar Advance" means an Advance which, except as otherwise provided
in Section 2.11, bears interest at the applicable Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the rate determined by the Lender to be the rate at
which NBD offers to place deposits in U.S. dollars with first-class banks in the
London interbank market at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period, in the approximate amount
of the Lender's relevant Eurodollar Advance and having a maturity equal to such
Interest Period.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the next
higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Excluded Taxes" means, in the case of the Lender or applicable Lending
Installation, taxes imposed on its overall net income, real estate property
taxes and franchise taxes imposed on it, by (i) the jurisdiction under the laws
of which the Lender is incorporated or organized or (ii) the jurisdiction in
which the Lender's principal executive office or the Lender's applicable Lending
Installation is located.
"Exhibit" refers to an exhibit to this Agreement, unless another document
is specifically referenced.
"Facility Termination Date" means May 25, 2004 or any earlier date on which
the Commitment is reduced to zero or otherwise terminated pursuant to the terms
hereof.
"Family Group" means all Persons who are members of the combined, extended
families of Mr. Arnold Habig and Mr. Herbert Thyen, both of Dubois County,
Indiana, including, but not limited to:
(i) the spouses of Mr. Habig and Mr. Thyen;
(ii) the descendants, no matter the degrees of relationship, of Mr. Habig
and Mr. Thyen;
(iii) the nieces and nephews, no matter the degrees of relationship, of
Mr. Habig and Mr. Thyen;
(iv) in-laws of Mr. Habig and Mr. Thyen;
(v) the in-laws of any Person who is a member of (i), (ii) or (iii)
above;
(vi) any trust created for the benefit of a Person described in (i), (ii),
(iii), (iv) or (v) above; and
(vii) a corporation all of the outstanding capital stock of which is owned
by, or a partnership all of the partners of which are, or any other
organization all of the members of which are, members of the Family
Group.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
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Business Day, the average of the quotations at approximately 11:00 a.m.
(Indianapolis time) on such day on such transactions received by the Lender from
three Federal funds brokers of recognized standing selected by the Lender in its
sole discretion.
"Floating Rate" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case
changing when and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which, except as otherwise
provided in Section 2.11, bears interest at the Floating Rate.
"Indebtedness" of a Person means such Person's (i) obligations for borrowed
money, (ii) obligations representing the deferred purchase price of Property or
services (other than accounts payable arising in the ordinary course of such
Person's business payable on terms customary in the trade), (iii) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from Property now or hereafter owned or acquired by such Person, (iv)
obligations which are evidenced by notes, acceptances, or other instruments, (v)
obligations of such Person to purchase securities or other Property arising out
of or in connection with the sale of the same or substantially similar
securities or Property, (vi) Capitalized Lease Obligations, (vii) Contingent
Obligations, (viii) Letters of Credit, and (ix) any other obligation for
borrowed money or other financial accommodation which in accordance with
Agreement Accounting Principles would be shown as a liability on the
consolidated balance sheet of such Person.
"Interest Period" means, with respect to a Eurodollar Advance, a period of
one, two, three, four, five, six, nine or twelve months commencing on a Business
Day selected by the Borrower pursuant to this Agreement. Such Interest Period
shall end on the day which corresponds numerically to such date one, two, three,
four, five, six, nine or twelve months thereafter, provided, however, that if
there is no such numerically corresponding day in such next, second, third,
fourth, fifth, sixth, ninth or twelfth succeeding month, such Interest Period
shall end on the last Business Day of such next, second, third, fourth, fifth,
sixth, ninth or twelfth succeeding month. If an Interest Period would otherwise
end on a day which is not a Business Day, such Interest Period shall end on the
next succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable arising
in the ordinary course of business on terms customary in the trade) or
contribution of capital by such Person; stocks, bonds, mutual funds, partnership
interests, notes, debentures or other securities owned by such Person; any
deposit accounts and certificate of deposit owned by such Person; and structured
notes, derivative financial instruments and other similar instruments or
contracts owned by such Person.
"Lender" means NBD Bank, N.A. and its successors and assigns.
"Lending Installation" means the office, branch, subsidiary or affiliate of
the Lender listed on the signature pages hereof or on a Schedule or otherwise
selected by the Lender pursuant to Section 2.17.
"Letter of Credit Applications" means, collectively, each Commercial Letter
of Credit Application and each Standby Letter of Credit Application.
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"Letters of Credit" means Standby Letters of Credit and Commercial Letters
of Credit and those letters of credit previously issued by the Lender for the
account of the Borrower as described on Schedule 3.
"Leverage Ratio" means, as of any date of calculation, the ratio of (i)
Consolidated Funded Indebtedness outstanding on such date to (ii) Consolidated
Total Capitalization on such date.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, the interest of a vendor or lessor under any
conditional sale, Capitalized Lease or other title retention agreement).
"Loan Documents" means this Agreement, the Note, any Letter of Credit
Applications and any other documents or instruments now or hereafter executed
and delivered by or on behalf of the Borrower to the Lender to further evidence
or govern the Obligations.
"Material Adverse Effect" means a material (as such term is interpreted in
accordance with Agreement Accounting Principles) adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower to perform its obligations under the Loan Documents, or
(iii) the validity or enforceability of any of the Loan Documents or the rights
or remedies of the Lender thereunder.
"NBD" means NBD Bank, N.A. in its individual capacity, and its successors.
"Note" means the credit note, in substantially the form of Exhibit D, duly
executed by the Borrower to the Lender to evidence Advances under the
Commitment, including any renewals, extensions, replacements, and modifications
thereof.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Advances, actual and contingent reimbursement obligations under the
Letters of Credit, all accrued and unpaid fees and all expenses, reimbursements,
indemnities and other obligations of the Borrower to the Lender, or any
indemnified party arising under the Loan Documents, including, without
limitation, all reasonable costs of collection and enforcement of any and all
thereof, including reasonable attorneys' fees.
"Other Taxes" is defined in Section 3.5(ii).
"Participants" is defined in Section 11.2.1.
"Payment Date" means the 10th day of each month.
"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Pricing Schedule" means the Schedule attached hereto identified as such.
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"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Schedule" refers to a specific schedule to this Agreement, unless another
document is specifically referenced.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Standby Letter of Credit" means a letter of credit now or hereafter issued
pursuant to a Standby Letter of Credit Application by the Lender from time to
time at the request of, and for the account of, the Borrower pursuant to this
Agreement.
"Standby Letters of Credit Application" means each Application for
Irrevocable Standby Letter of Credit, in the form prescribed by the Lender, duly
executed by the Borrower in favor of the Lender, from time to time, to govern a
Letter of Credit, as any of the same may be amended from time to time.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the Borrower
and its Subsidiaries, Property which represents more than 25% of the
consolidated assets of the Borrower and its Subsidiaries as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries on a
cumulative basis.
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings, and any and all liabilities with respect to
the foregoing, but excluding Excluded Taxes.
"Transferee" is defined in Section 11.3.
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"Type" means, with respect to any Advance, its nature as a Floating Rate
Advance or a Eurodollar Advance.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person, or (ii) any partnership, limited liability Borrower, association,
joint venture or similar business organization 100% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
"Year 2000 Issues" means anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations and financial condition of the Borrower and its
Subsidiaries and of the Borrower's and its Subsidiaries' material customers,
suppliers and vendors.
"Year 2000 Program" is defined in Section 5.17.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1. Commitment. From and including the date of this Agreement and until
the Facility Termination Date, the Lender agrees, on the terms and conditions
set forth in this Agreement, to make Advances to the Borrower from time to time
in amounts not to exceed in the aggregate at any one time outstanding the amount
of its Commitment. Subject to the terms of this Agreement, the Borrower may
borrow, repay and reborrow at any time prior to the Facility Termination Date.
The Commitment to lend hereunder shall expire on Facility Termination Date.
2.2. Required Payments; Termination. Any outstanding Advances and all
other unpaid Obligations shall be paid in full by the Borrower on the Facility
Termination Date.
2.3. Types of Advances. The Advances may be Floating Rate Advances or
Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.7 and 2.8.
2.4. Commitment Fee; Reductions in Commitment. The Borrower agrees to pay
to the Lender a commitment fee (the "Commitment Fee") at a per annum rate equal
to the Applicable Fee Rate on the daily unborrowed portion of the Commitment
from the date hereof to and including the Facility Termination Date, payable
quarterly in arrears within 15 days of receipt by the Borrower of an invoice
therefor in respect of the immediately preceding calendar quarter. For purposes
of calculating the daily unborrowed portion of the Commitment, each Letter of
Credit shall count against and reduce the Commitment. The Borrower may
permanently reduce the Commitment in whole, or in part in integral multiples of
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$5,000,000, upon at least five Business Days' written notice to the Lender,
which notice shall specify the amount of any such reduction, provided, however,
that the amount of the Commitment may not be reduced below the aggregate
principal amount of the outstanding Advances. All accrued Commitment Fees shall
be payable on the effective date of any termination of the obligations of the
Lender to make Advances hereunder.
2.5. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in
the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess
thereof), and each Floating Rate Advance shall be in the minimum amount of
$250,000 (and in multiples of $50,000 if in excess thereof), provided, however,
that any Floating Rate Advance may be in the amount of the unborrowed portion of
the Commitment.
2.6. Optional Principal Payments. The Borrower may from time to time pay,
without penalty or premium, all outstanding Floating Rate Advances, or, in a
minimum aggregate amount of $250,000 or any integral multiple of $50,000 in
excess thereof, any portion of the outstanding Floating Rate Advances. The
Borrower may from time to time pay, subject to the payment of any funding
indemnification amounts required by Section 3.4 but without penalty or premium,
all outstanding Eurodollar Advances, or, in a minimum aggregate amount of
$1,000,000 or any integral multiple of $100,000 in excess thereof, any portion
of the outstanding Eurodollar Advances upon three Business Days' prior notice to
the Lender.
2.7. Method of Selecting Types and Interest Periods for New Advances. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Advance, the Interest Period applicable thereto from time to time. The Borrower
shall give the Lender irrevocable telephonic or written notice in the form
attached hereto as Exhibit F (a "Borrowing Notice") not later than 10:00 a.m.
(Indianapolis time) on the proposed Borrowing Date of each Floating Rate Advance
and three Business Days before the Borrowing Date for each Eurodollar Advance,
specifying:
(i) the Borrowing Date, which shall be a Business Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Interest Period
applicable thereto.
The Lender will make the applicable Advance available to the Borrower by
deposit to the account of the Borrower with the Lender by the end of the
Borrowing Date.
2.8. Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into Eurodollar Advances pursuant to this Section
2.8 or are repaid in accordance with Section 2.6. Each Eurodollar Advance shall
continue as a Eurodollar Advance until the end of the then applicable Interest
Period therefor, at which time such Eurodollar Advance shall be automatically
converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or
was repaid in accordance with Section 2.6 or (y) the Borrower shall have given
the Lender a Conversion/Continuation Notice (as defined below) requesting that,
at the end of such Interest Period, such Eurodollar Advance continue as a
Eurodollar Advance for the same or another Interest Period. Subject to the
terms of Section 2.5, the Borrower may elect from time to time to convert all or
any part of a Floating Rate Advance into a Eurodollar Advance. The Borrower
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shall give the Lender irrevocable telephonic or written notice in the form
attached hereto as Exhibit F (a "Conversion/Continuation Notice") of each
conversion of a Floating Rate Advance into a Eurodollar Advance or continuation
of a Eurodollar Advance not later than 10:00 a.m. (Indianapolis time) at least
three Business Days prior to the date of the requested conversion or
continuation, specifying:
(i) the requested date, which shall be a Business Day, of such
conversion or continuation,
(ii) the aggregate amount and Type of the Advance which is to be
converted or continued, and
(iii) the amount of such Advance which is to be converted into or
continued as a Eurodollar Advance and the duration of the
Interest Period applicable thereto.
2.9. Terms Applicable to the Letters of Credit.
2.9.1. Issuance of Letters of Credit. Subject to the terms
and conditions hereof, the Lender agrees, upon proper submission of a
Letter of Credit Application, to issue from time to time prior to the
Facility Termination Date, Letters of Credit for the account of the
Borrower. The Letters of Credit shall have an expiration date not later
than the earlier of twenty-four (24) months from the date of issuance or
three Business Days before the Facility Termination Date. The aggregate
of the Letters of Credit outstanding plus the aggregate amount of
unreimbursed drawings under the Letters of Credit shall not exceed Twenty
Million Dollars ($20,000,000). The amount of any Letter of Credit
outstanding at any time for all purposes hereof shall be the maximum
amount which could be drawn thereunder under any circumstances from and
after the date of determination. Each Letter of Credit issued pursuant to
this Agreement and each unreimbursed drawing thereunder shall count
against and reduce the available amount of the Commitment by the amount of
such Letter of Credit outstanding unless and until such Letter of Credit
expires by its terms or otherwise terminates or the amount of a drawing
thereunder is reimbursed, in which event the available amount of the
Commitment shall be reinstated by the amount of such Letter of Credit or
the amount of such reimbursement, as the case may be. Each such Letter of
Credit shall be issued pursuant to a Letter of Credit Application, shall
conform to the general requirements of the Lender for the issuance of such
credits, as to form and substance, shall be subject to the Uniform Customs
and Practices for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 and shall be a letter of credit
which the Lender may lawfully issue. If and to the extent a drawing is at
any time made under any Letter of Credit, the Lender shall notify the
Borrower of such draw and the Borrower agrees to pay to the Lender
immediately and unconditionally upon demand for reimbursement, in lawful
money of the United States, an amount equal to each amount which shall be
so drawn, together with interest from the date of such drawing to and
including the date such payment is reimbursed to the Lender or converted
to an Advance as provided herein at a variable rate per annum equal to the
Floating Rate. All such interest shall be calculated on the basis that an
entire year's interest is earned in Three Hundred Sixty (360) days. In
the event that a drawing under any Letter of Credit is not reimbursed by
the Borrower by 1:00 p.m. (Indianapolis time) on the first Banking Day
after notice to the Borrower, such unreimbursed Letter of Credit shall be
reimbursed by an Advance under the Commitment evidenced by the Note. The
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Borrower hereby irrevocably authorizes the Lender to refinance, without
further notice to the Borrower, the reimbursement Obligation of the
Borrower arising out of any such drawing into a Floating Rate Advance,
evidenced by the Note and for all purposes under, on and subject to the
terms and conditions of this Agreement, but without regard to the
conditions precedent to making an Advance under the Commitment or to any
requirement of this Agreement that each Advance be in a minimum amount or
multiple; provided, however, that an Advance under the Commitment in spite
of the Borrower's failure to satisfy any conditions precedent to making an
Advance shall not constitute a waiver of any Default by the Lender. This
Agreement and the other Loan Documents shall supersede any terms of any
letter of credit applications or other documents which are
irreconcilably inconsistent with the terms hereof or thereof.
2.9.2. Letter of Credit Fees. The Borrower agrees to pay to the
Lender, Letter of Credit fees of 1/8% of the face amount of each
Commercial Letter of Credit and the Applicable Fee per annum of the face
amount of each Standby Letter of Credit at the time of issuance. The
Borrower shall also pay the Lender a negotiating fee of 1/8% for drafts of
Commercial Letters of Credit presented for payment. The Standby Letter of
Credit fees shall be calculated on the basis that an entire year consists
of Three Hundred Sixty (360) days. The Lender shall also be entitled to
charge to the Borrower its standard and customary fees for issuing,
servicing and negotiating draws under letters of credit.
2.9.3. Reimbursement of Letters of Credit. The obligation of the
Borrower to reimburse any drawing under any Letter of Credit shall be
absolute, unconditional and irrevocable and shall be paid and performed
strictly in accordance with the terms of this Agreement under all
circumstances, whatsoever, including, without limitation, the following
circumstances (other than in the case of gross negligence or conduct
constituting malfeasance of the Lender):
(a) any lack of validity or enforceability of any Letter of
Credit, or any Loan Document;
(b) any amendment or waiver of or consent to departure from the
terms of any Letter of Credit, or any Loan Document;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time against the beneficiary of
any Letter of Credit, any transferee of any Letter of Credit, the
Lender or any other Person, whether in connection with the Loan
Documents, such Letter of Credit, or any unrelated transaction;
(d) any statement, draft or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) the surrender or impairment of any security for the
performance or observance of the terms of the Loan Documents, or such
Letter of Credit; or
(f) any circumstance, happening or admission whatsoever,
whether or not similar to any of the foregoing, including, without
limitation, those matters described below.
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The parties benefitted by any Letter of Credit shall be deemed to be the
agents of the Borrower, and except as expressly set forth herein, the Borrower
assumes all risks for their acts, omissions, or misrepresentations. The Lender
shall not be responsible for the validity, sufficiency, truthfulness or
genuineness of any document required to draw under any Letter of Credit even if
such document should in fact prove to be in any and all respects invalid,
insufficient, fraudulent or forged, provided only that the document appears on
its face to be in accordance with the terms of the Letter of Credit and provided
the Lender is not grossly negligent or engaging in conduct constituting
malfeasance. The Lender shall not be responsible for any failure of any draft
to bear reference or adequate reference to the applicable Letter of Credit or
for the failure of any Person to note the amount of any draft on any Letter of
Credit or to surrender or take up any Letter of Credit, each of which provision
may be waived by the Lender, or for errors, omissions, interruptions, or delays
in transmission or delivery of any messages or documents, provided, however,
that the Borrower shall have a claim against the Lender, and the Lender shall be
liable to the Borrower, to the extent of any compensatory, as opposed to
consequential, damages suffered by the Borrower which the Borrower proves were
caused by (i) the Lender's failure to act in good faith or to observe general
banking usage in connection with the Letter of Credit or failure to examine
documents presented under such Letter of Credit with care to determine whether
they comply with the terms of such Letter of Credit (it being understood that
the Lender assumes no liability or responsibility for the genuineness,
falsification or effect of any document which appears on such examination to be
regular on its face) or (ii) the gross negligence or conduct constituting
malfeasance of the Lender. Without limiting the generality of the foregoing,
the Borrower agrees that any action taken by the Lender under or in connection
with any Letter of Credit, if taken in good faith and without gross negligence,
shall be binding upon the Borrower and shall not put the Lender under any such
resulting liability to the Borrower. The Lender shall not be liable for action
or failure to take action under or in connection with any Letter of Credit
except for any such action or failure to take action which constitutes gross
negligence or malfeasance of the Lender. The Lender shall not be liable for
consequential damages in connection with any Letter of Credit. The Lender is
expressly hereby authorized to honor any request for payment which is made under
or in compliance with the terms of any Letter of Credit without regard to and
without any duty on its part to inquire into the existence of any disputes or
controversies between the Borrower and any beneficiary of any Letter of Credit
or any other Person or into respective rights, duties or liabilities of any of
them or whether any facts or occurrences represented in any of the documents
presented under any Letter of Credit are true and correct. No Person, other
than the parties hereto, shall have any rights of any nature under this
Agreement or by reason hereof. In no event shall the Lender's reliance and
payment against documents presented under a Letter of Credit appearing on its
face to substantially comply with the terms thereof be deemed to constitute
gross negligence or malfeasance.
2.10. Changes in Interest Rate, etc. Each Floating Rate Advance shall bear
interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is automatically converted from a
Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.8, to but
excluding the date it is paid or is converted into a Eurodollar Advance pursuant
to Section 2.8 hereof, at a rate per annum equal to the Floating Rate for such
day. Changes in the rate of interest on that portion of any Advance maintained
as a Floating Rate Advance will take effect simultaneously with each change in
the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the
outstanding principal amount thereof from and including the first day of the
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Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined by the Lender as applicable to
such Eurodollar Advance based upon the Borrower's selections under Sections 2.7
and 2.8 and otherwise in accordance with the terms hereof. No Interest Period
may end after the Facility Termination Date.
2.11. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.7 or 2.8, during the continuance of a Default or
Unmatured Default the Lender may, at its option, by notice to the Borrower,
declare that no Advance may be made as, converted into or continued as a
Eurodollar Advance. During the continuance of a Default the Lender may, at its
option, by notice to the Borrower, declare that (i) each Eurodollar Advance
shall bear interest for the remainder of the applicable Interest Period at the
rate otherwise applicable to such Interest Period plus 2% per annum and (ii)
each Floating Rate Advance shall bear interest at a rate per annum equal to the
Floating Rate in effect from time to time plus 2% per annum, provided that,
during the continuance of a Default under Section 7.6 or 7.7, the interest rates
set forth in clauses (i) and (ii) above shall be applicable to all Advances
without any election or action on the part of the Lender.
2.12. Method of Payment. All payments of the Obligations hereunder shall
be made, without setoff, deduction, or counterclaim, in immediately available
funds to the Lender at the Lender's address specified pursuant to Article XIII,
or at any other Lending Installation of the Lender specified in writing by the
Lender to the Borrower, by 1:00 p.m. (Indianapolis time) on the date when due.
The Lender is hereby authorized to charge the account of the Borrower maintained
with the Lender for each payment of principal, interest and fees if payment is
not received as it becomes due hereunder.
2.13. Evidence of Indebtedness. (i) The Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to the Lender resulting from each Advance made by
the Lender from time to time, including the amounts of principal and interest
payable and paid to the Lender from time to time hereunder.
(ii) The Lender shall also maintain accounts in which it will record (a)
the amount of each Advance made hereunder, the Type thereof and the Interest
Period with respect thereto, (b) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to the Lender hereunder
and (c) the amount of any sum received by the Lender hereunder from the
Borrower.
(iii) The entries maintained in the accounts maintained pursuant to
paragraphs (i) and (ii) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded; provided, however, that the failure
of the Lender to maintain such accounts or any error therein shall not in any
manner affect the obligation of the Borrower to repay the Obligations in
accordance with their terms.
(iv) The Lender shall send the Borrower monthly statements summarizing
the outstanding Advances.
2.14. Telephonic Notices. The Borrower hereby authorizes the Lender to
extend, convert or continue Advances, effect selections of Types of Advances and
to transfer funds based on telephonic notices made by any person or persons the
Lender in good faith believes to be acting on behalf of the Borrower, it being
understood that the foregoing authorization is specifically intended to allow
Borrowing Notices and Conversion/Continuation Notices to be given
telephonically. The Borrower agrees to deliver promptly to the Lender a written
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confirmation, if such confirmation is requested by the Lender, of each
telephonic notice signed by an Authorized Officer. If the written confirmation
differs in any material respect from the action taken by the Lender, the records
of the Lender shall govern absent manifest error.
2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued
on each Floating Rate Advance shall be payable on each Payment Date, commencing
with the first such date to occur after the date hereof and at maturity.
Interest accrued on each Eurodollar Advance shall be payable on the last day of
its applicable Interest Period, on any date on which the Eurodollar Advance is
prepaid, whether by acceleration or otherwise, and at maturity. Interest
accrued on each Eurodollar Advance having an Interest Period longer than three
months shall also be payable on the last day of each three-month interval during
such Interest Period. Interest and Commitment Fees shall be calculated for
actual days elapsed on the basis of a 360-day year. Interest shall be payable
for the day an Advance is made but not for the day of any payment on the amount
paid if payment is received prior to noon (local time) at the place of payment.
If any payment of principal of or interest on an Advance shall become due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and, in the case of a principal payment, such extension
of time shall be included in computing interest in connection with such payment.
2.16. Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions. The Lender will provide the Borrower with confirmation promptly
after receiving a Borrowing Notice or Conversion/Continuation Notice with
respect to requested Eurodollar Advances. The Lender will provide the Borrower
with written confirmation promptly after the making of each Advance (including a
Floating Rate Advance used to reimburse a draw under a Letter of Credit pursuant
to Section 2.9.1). Provided, however, that the failure of the Lender to provide
any of the foregoing confirmations or any error in such confirmations shall not
in any manner affect the obligation of the Borrower to repay the Obligations in
accordance with their terms.
2.17. Lending Installations. The Lender may book its Advances at any
Lending Installation selected by the Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Advances and any Notes issued hereunder shall
be deemed held by the Lender for the benefit of any such Lending Installation.
The Lender may, by written notice to the Borrower in accordance with Article
XIII, designate replacement or additional Lending Installations through which
Advances will be made by it and for whose account payments in respect of the
Advances are to be made.
2.18. Request to Increase the Commitment. (a) At the request of the
Borrower to the Lender, the Commitment hereunder may be increased after the date
hereof on one or more occasions by not more than $50,000,000 provided that (i)
the Borrower may not propose more than 2 Commitment increases each year, (ii)
the minimum Commitment increase per notice shall be $5,000,000, (iii) the
Borrower shall have delivered to the Lender all necessary corporate resolutions
authorizing such Commitment increase, (iv) the Lender consents in writing, and
(v) no Default or Unmatured Default shall have occurred and be continuing.
(b) In the event that the Borrower and the Lender shall agree upon such
an increase in the Commitment, the Borrower and the Lender shall enter into a
Commitment Increase Supplement in the form attached as Exhibit E (the
"Commitment Increase Supplement"). Upon the execution and delivery of such
Commitment Increase Supplement as provided above, and upon satisfaction of such
other conditions as the Lender may specify, this Agreement shall be deemed
amended accordingly.
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ARTICLE III
YIELD PROTECTION; TAXES
3.1. Yield Protection. If, on or after the date of this Agreement, the
adoption of any law or any governmental or quasi-governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law), or any
change in the interpretation or administration thereof by any governmental or
quasi-governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender or
applicable Lending Installation with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency:
(i) subjects the Lender or any applicable Lending Installation to
any Taxes, or changes the basis of taxation of payments (other
than with respect to Excluded Taxes) to the Lender in respect
of its Eurodollar Advances, or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended
by, the Lender or any applicable Lending Installation (other than
reserves and assessments taken into account in determining the
interest rate applicable to Eurodollar Advances), or
(iii) imposes any other condition the result of which is to increase
the cost to the Lender or any applicable Lending Installation of
making, funding or maintaining its Eurodollar Advances or reduces
any amount receivable by the Lender or any applicable Lending
Installation in connection with its Eurodollar Advances, or requires
the Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of Eurodollar Advances
held or interest received by it, by an amount deemed material by the
Lender,
and the result of any of the foregoing is to increase the cost to the Lender or
applicable Lending Installation of making or maintaining its Eurodollar Advances
or Commitment or to reduce the return received by the Lender or applicable
Lending Installation in connection with such Eurodollar Advances or Commitment,
then, within 30 days of demand by the Lender, the Borrower shall pay the Lender
such additional amount or amounts as will compensate the Lender for such
increased cost or reduction in amount received.
3.2. Changes in Capital Adequacy Regulations. If the Lender determines
the amount of capital required or expected to be maintained by the Lender, any
Lending Installation of the Lender or any corporation controlling the Lender is
increased as a result of a Change, then, within 30 days of demand by the Lender,
the Borrower shall pay the Lender the amount necessary to compensate for any
shortfall in the rate of return on the portion of such increased capital which
the Lender determines is attributable to this Agreement, its Advances or its
Commitment to make Advances hereunder (after taking into account the Lender's
policies as to capital adequacy). "Change" means (i) any change after the date
of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of
or change in any other law, governmental or quasi-governmental rule, regulation,
policy, guideline, interpretation, or directive (whether or not having the force
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of law) after the date of this Agreement which affects the amount of capital
required or expected to be maintained by the Lender or any Lending Installation
or any corporation controlling the Lender. "Risk-Based Capital Guidelines"
means (i) the risk-based capital guidelines in effect in the United States on
the date of this Agreement, including transition rules, and (ii) the
corresponding capital regulations promulgated by regulatory authorities outside
the United States implementing the July 1988 report of the Basle Committee on
Banking Regulation and Supervisory Practices Entitled "International Convergence
of Capital Measurements and Capital Standards," including transition rules, and
any amendments to such regulations adopted prior to the date of this Agreement.
3.3. Availability of Types of Advances. If the Lender determines that
maintenance of its Eurodollar Advances at a suitable Lending Installation would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Lender determines that (i) deposits of a type
and maturity appropriate to match fund Eurodollar Advances are not available or
(ii) the interest rate applicable to Eurodollar Advances does not accurately
reflect the cost of making or maintaining Eurodollar Advances, then the Lender
shall suspend the availability of Eurodollar Advances and require any affected
Eurodollar Advances to be repaid or converted to Floating Rate Advances, subject
to the payment of any funding indemnification amounts required by Section 3.4.
3.4. Funding Indemnification. If any payment of a Eurodollar Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Eurodollar
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lender, the Borrower will indemnify the Lender for any loss
or cost incurred by it resulting therefrom, including, without limitation, any
loss or cost in liquidating or employing deposits acquired to fund or maintain
such Eurodollar Advance.
3.5. Taxes. (i) All payments by the Borrower to or for the account of
the Lender hereunder or under any Note shall be made free and clear of and
without deduction for any and all Taxes. If the Borrower shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder to the
Lender, (a) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 3.5) the Lender (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(b) the Borrower shall make such deductions, (c) the Borrower shall pay the full
amount deducted to the relevant authority in accordance with applicable law, and
(d) the Borrower shall furnish to the Lender the original copy of a receipt
evidencing payment thereof within 30 days after such payment is made.
(ii) In addition, the Borrower hereby agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note ("Other Taxes").
(iii) The Borrower hereby agrees to indemnify the Lender for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed on amounts payable under this Section 3.5) paid by the
Lender and any liability (including penalties, interest and expenses) arising
there from or with respect thereto. Payments due under this indemification
shall be made within 30 days of the date the Lender makes demand therefore
pursuant to Section 3.6.
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3.6. Lender Statements; Survival of Indemnity. To the extent reasonably
possible, the Lender shall designate an alternate Lending Installation with
respect to its Eurodollar Advances to reduce any liability of the Borrower to
the Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of
Eurodollar Advances under Section 3.3, so long as such designation is not, in
the judgment of the Lender, disadvantageous to the Lender. The Lender shall
deliver a written statement of the Lender to the Borrower as to the amount due,
if any, under Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set
forth in reasonable detail the basis upon which such amount is based and the
calculations upon which the Lender determined such amount and shall be final,
conclusive and binding on the Borrower in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a
Eurodollar Advance shall be calculated as though the Lender funded its
Eurodollar Advance through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Eurodollar
Rate applicable to the Advance, whether in fact that is the case or not. Unless
otherwise provided herein, the amount specified in the written statement of the
Lender shall be payable on demand after receipt by the Borrower of such written
statement. The obligations of the Borrower under Sections 3.1, 3.2, 3.4 and 3.5
shall survive payment of the Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Initial Advance. The Lender shall not be required to make the initial
Advance hereunder or obligated to issue a Letter of Credit unless the Borrower
has furnished to the Lender with the following:
(i) Copies of the articles or certificate of incorporation of the
Borrower, together with all amendments, and a certificate of good
standing, each certified by the appropriate governmental officer in
its jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant Secretary of the
Borrower, of its by-laws and of its Board of Directors' resolutions
and of resolutions or actions of any other body authorizing the
execution of the Loan Documents to which the Borrower is a party.
(iii)An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower, which shall identify by name
and title and bear the signatures of the Authorized Officers and
any other officers of the Borrower authorized to sign the Loan
Documents to which the Borrower is a party, upon which
certificate the Lender shall be entitled to rely until informed
of any change in writing by the Borrower.
(iv) A certificate, signed by the chief financial officer of the
Borrower, stating that on the initial Borrowing Date no Default
or Unmatured Default has occurred and is continuing.
(v) A written opinion of the Borrower's counsel, addressed to the
Lender in substantially the form of Exhibit A.
(vi) The Note duly executed by the Borrower.
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(vii)Written money transfer instructions, in substantially the form
of Exhibit C, addressed to the Lender and signed by an
Authorized Officer, together with such other related money
transfer authorizations as the Lender may have reasonably
requested.
(viii)Information satisfactory to the Lender regarding the Borrower's
Year 2000 Program.
(ix) An insurance certificate evidencing the catastrophic
insurance carried by the Borrower and its Subsidiaries.
(x) Such other documents as the Lender or its counsel may have
reasonably requested except as it relates to the Borrower's
trade secrets and other proprietary information.
The Lender shall provide the Borrower with written confirmation upon
satisfaction of the foregoing conditions.
4.2. Each Advance. The Lender shall not be required to make any Advance or
obligated to issue a Letter of Credit unless on the applicable Borrowing
Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are
true and correct as of such Borrowing Date except to the extent
any such representation or warranty is stated to relate solely
to an earlier date, in which case such representation or
warranty shall have been true and correct on and as of such
earlier date.
(iii)All legal matters incident to the making of such Advance shall
be satisfactory to the Lender and its counsel.
Each Borrowing Notice with respect to each such Advance shall constitute a
representation and warranty by the Borrower that the conditions contained in
Sections 4.2(i) and (ii) have been satisfied. The Lender may require a duly
completed compliance certificate in substantially the form of Exhibit B as a
condition to making an Advance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender that:
5.1. Existence and Standing. Each of the Borrower and its Subsidiaries is
a corporation, partnership (in the case of Subsidiaries only) or limited
liability Borrower duly and properly incorporated or organized, as the case may
be, validly existing and (to the extent such concept applies to such entity) in
good standing under the laws of its jurisdiction of incorporation or
organization and has all requisite authority to conduct its business in each
jurisdiction in which its business is conducted.
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5.2. Authorization and Validity. The Borrower has the power and authority
and legal right to execute and deliver the Loan Documents and to perform its
obligations thereunder. The execution and delivery by the Borrower of the Loan
Documents and the performance of its obligations thereunder have been duly
authorized by proper corporate proceedings, and the Loan Documents to which the
Borrower is a party constitute legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with their terms, except
as enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
5.3. No Conflict; Government Consent. Neither the execution and delivery
by the Borrower of the Loan Documents, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof will violate
(i) any law, rule, regulation, order, writ, judgment, injunction, decree or
award binding on the Borrower or any of its Subsidiaries or (ii) the Borrower's
or any Subsidiary's articles or certificate of incorporation, partnership
agreement, certificate of partnership, articles or certificate of organization,
by-laws, or operating or other management agreement, as the case may be, or
(iii) the provisions of any indenture, instrument or agreement to which the
Borrower or any of its Subsidiaries is a party or is subject, or by which it, or
its Property, is bound, or conflict with or constitute a default thereunder, or
result in, or require, the creation or imposition of any Lien in, of or on the
Property of the Borrower or a Subsidiary pursuant to the terms of any such
indenture, instrument or agreement. No order, consent, adjudication, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, or other action in respect of any governmental or public
body or authority, or any subdivision thereof, which has not been obtained by
the Borrower or any of its Subsidiaries, is required to be obtained by the
Borrower or any of its Subsidiaries in connection with the execution and
delivery of the Loan Documents, the borrowings under this Agreement, the
payment and performance by the Borrower of the Obligations or the legality,
validity, binding effect or enforceability of any of the Loan Documents.
5.4. Financial Statements; Indebtedness. The March 31, 1999 consolidated
financial statements of the Borrower and its Subsidiaries heretofore delivered
to the Lender were prepared in accordance with generally accepted accounting
principles in effect on the date such statements were prepared and fairly
present the consolidated financial condition and operations of the Borrower and
its Subsidiaries at such date and the consolidated results of their operations
for the period then ended. As of the date hereof, except as shown on such
financial statements, except for trade debt incurred in the ordinary course of
business since the date of such financial statements, and except as shown on
Schedule 2, the Borrower and its Subsidiaries have no outstanding Consolidated
Indebtedness exceeding Two Million Dollars ($2,000,000) in the aggregate.
5.5. Material Adverse Change. Since March 31, 1999 there has been no
change in the business, Property, prospects, condition (financial or otherwise)
or results of operations of the Borrower and its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect.
5.6. Taxes. The Borrower and its Subsidiaries have filed all United
States federal tax returns and all other material tax returns which are required
to be filed and have paid all taxes due pursuant to said returns or pursuant to
any assessment received by the Borrower or any of its Subsidiaries, except such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided in accordance with Agreement Accounting Principles
and as to which no Lien exists. The United States income tax returns of the
Borrower and its Subsidiaries have been audited by the Internal Revenue Service
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through the fiscal year ended June 30, 1994. No tax liens have been filed and
no claims are being asserted with respect to any such taxes. The charges,
accruals and reserves on the books of the Borrower and its Subsidiaries in
respect of any taxes or other governmental charges are adequate.
5.7. Litigation and Contingent Obligations. There is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending or, to
the knowledge of any of the Authorized Officers, threatened against or affecting
the Borrower or any of its Subsidiaries which could reasonably be expected to
have a Material Adverse Effect or which seeks to prevent, enjoin or delay the
making of any Advance. Other than any liability incident to any litigation,
arbitration or proceeding which could not reasonably be expected to have a
Material Adverse Effect, the Borrower has no material contingent obligations not
provided for or disclosed in the financial statements referred to in Section
5.4.
5.8. Subsidiaries. Schedule 1 contains an accurate list of all
Subsidiaries of the Borrower as of the date of this Agreement, setting forth
their respective jurisdictions of organization and the percentage of their
respective capital stock or other ownership interests owned by the Borrower or
other Subsidiaries. All of the issued and outstanding shares of capital stock
or other ownership interests of such Subsidiaries have been (to the extent such
concepts are relevant with respect to such ownership interests) duly authorized
and issued and are fully paid and non-assessable.
5.9. Accuracy of Information. No information, exhibit or report furnished
by the Borrower or any of its Subsidiaries to the Lender in connection with the
negotiation of, or compliance with, the Loan Documents contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein not misleading.
5.10. Regulation U. Margin stock (as defined in Regulation U) constitutes
less than 25% of the value of those assets of the Borrower and its Subsidiaries
which are subject to any limitation on sale, pledge, or other restriction
hereunder.
5.11. Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in (i) any agreement to which it is a party, which default
could reasonably be expected to have a Material Adverse Effect or (ii) any
agreement or instrument evidencing or governing Indebtedness.
5.12. Compliance With Laws. The Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property except for any failure
to comply with any of the foregoing which could not reasonably be expected to
have a Material Adverse Effect.
5.13. Ownership of Properties. Except as set forth on Schedule 2, on the
date of this Agreement, to the best of its knowledge, the Borrower and its
Subsidiaries will have good title, free of all Liens other than those permitted
by Section 6.13, to all of the Property and assets reflected in the Borrower's
most recent consolidated financial statements provided to the Lender as owned by
the Borrower and its Subsidiaries.
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5.14. Environmental Matters. In the ordinary course of its business, the
officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
concluded that Environmental Laws cannot reasonably be expected to have a
Material Adverse Effect. Neither the Borrower nor any Subsidiary has received
any notice to the effect that its operations are not in material compliance with
any of the requirements of applicable Environmental Laws or are the subject of
any federal or state investigation evaluating whether any remedial action is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment, which non-compliance or remedial action could reasonably be
expected to have a Material Adverse Effect.
5.15. Investment Company Act. Neither the Borrower nor any Subsidiary is
an "investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
5.16. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.17. Year 2000. The Borrower has made a full and complete assessment of
the Year 2000 Issues and has a realistic and achievable program for remediating
the Year 2000 Issues on a timely basis (the "Year 2000 Program"). Based on such
assessment and on the Year 2000 Program the Borrower does not reasonably
anticipate that Year 2000 Issues will have a Material Adverse Effect.
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Lender shall otherwise
consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself and
each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish to the
Lender:
(i) Within 95 days after the close of each of its fiscal years, an
unqualified audit report certified by Arthur Anderson, Deloitte
& Touche, Ernst & Young, KPMG or PricewaterhouseCoopers (and
their respective successors) and which accountants are
reasonably acceptable to the Lender, or other independent
certified public accountants reasonably acceptable to the
Lender, prepared in accordance with Agreement Accounting
Principles on a consolidated basis for itself and its
Subsidiaries, including consolidated balance sheets as of the
end of such period, related consolidated profit and loss and
reconciliation of surplus statements, and a consolidated
statement of cash flows.
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(ii) Within 50 days after the close of the first three quarterly
periods of each of its fiscal years, for itself and its
Subsidiaries, consolidated unaudited balance sheets as at the
close of each such period and consolidated profit and loss and a
statement of cash flows for the period from the beginning
of such fiscal year to the end of such quarter, all certified by
its chief financial officer.
(iii)As soon as available, any filing with the Securities and
Exchange Commission.
(iv) Together with the financial statements required under Sections
6.1(i) and (ii), a compliance certificate in substantially the
form of Exhibit B signed by its chief financial officer showing
the calculations necessary to determine compliance with this
Agreement and stating that no Default or Unmatured Default
exists, or if any Default or Unmatured Default exists, stating
the nature and status thereof.
(v) As soon as possible and in any event within 10 days after receipt
by the Borrower, a copy of (a) any specific notice or claim to
the effect that the Borrower or any of its Subsidiaries is or
may be liable to any Person as a result of the release by the
Borrower, any of its Subsidiaries, or any other Person of any
toxic or hazardous waste or substance into the environment, and
(b) any notice alleging any violation of any federal, state or
local environmental, health or safety law or regulation by the
Borrower or any of its Subsidiaries, which, in either case,
could reasonably be expected to have a Material Adverse Effect.
(vi) Such other information (including non-financial information
except as it relates to trade secrets or other proprietary
information) as the Lender may from time to time reasonably
request.
6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary
to, use the proceeds of the Advances for acquisition related activities and
general corporate purposes. The Borrower will not, nor will it permit any
Subsidiary to, use any of the proceeds of the Advances to purchase or carry any
"margin stock" (as defined in Regulation U).
6.3. Notice of Default. The Borrower will, and will cause each Subsidiary
to, give prompt notice in writing to the Lender of the occurrence of any Default
or Unmatured Default and of any other development, financial or otherwise
(including, without limitation, developments with respect to Year 2000 Issues),
which could reasonably be expected to have a Material Adverse Effect.
6.4. Conduct of Business. The Borrower will, and will cause each
Subsidiary to (except as permitted by Section 6.11), remain duly incorporated or
organized, validly existing and (to the extent such concept applies to such
entity) in good standing as a domestic corporation, partnership or limited
liability company in its jurisdiction of incorporation or organization, as the
case may be, and maintain all requisite authority to conduct its business in
each jurisdiction in which its business is conducted.
6.5. Taxes. The Borrower will, and will cause each Subsidiary to, in all
material respects, timely file complete and correct United States federal and
applicable foreign, state and local tax returns required by law and pay when due
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all taxes, assessments and governmental charges and levies upon it or its
income, profits or Property, except those which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves
have been set aside in accordance with Agreement Accounting Principles.
6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies catastrophic
coverage insurance in such amounts as is consistent with sound business
practice, and the Borrower will furnish to the Lender upon request full
information as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, materially comply with all laws, rules, regulations, orders,
writs, judgments, injunctions, decrees or awards to which it may be subject
including, without limitation, all Environmental Laws.
6.8. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
its Property in good repair, working order and condition, and make all necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times provided that the
Borrower may discontinue operations and dispose of property in the normal
conduct of business.
6.9. Inspection. The Borrower will, and will cause each Subsidiary to,
discuss the affairs, finances and accounts of the Borrower and each Subsidiary
with, and to be advised as to the same by, their respective officers at such
reasonable times and intervals as the Lender may designate. At any time there
exists a Default or Unmatured Default, the Borrower will, and will cause each
Subsidiary to, permit the Lender, by its respective representatives and agents,
to inspect any of the Property, books and financial records of the Borrower and
each Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Borrower and each Subsidiary.
6.10. Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except
Consolidated Indebtedness of the Borrower or any Subsidiary in an aggregate
principal amount not to exceed 30% of the Consolidated Total Capitalization at
any one time outstanding.
6.11. Merger. The Borrower will not, nor will it permit any Subsidiary
to, merge or consolidate with or into any other Person, except, so long as there
then exists no Default or Unmatured Default and no Default or Unmatured Default
will be occasioned thereby, (i) a Subsidiary may merge into the Borrower or a
Wholly-Owned Subsidiary, and (ii) mergers in which the Borrower is the surviving
party.
6.12. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property to any other
Person, except:
(i) Sales of inventory in the ordinary course of business.
(ii) Leases, sales or other dispositions of its Property that,
together with all other Property of the Borrower and its
Subsidiaries previously leased, sold or disposed of (other than
inventory in the ordinary course of business) as permitted by
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this Section during the period commencing on the date of this
Agreement and ending with the month in which any such lease,
sale or other disposition occurs, do not constitute a
Substantial Portion of the Property of the Borrower and its
Subsidiaries.
(iii)Any transfer of an interest in accounts or notes
receivable on a limited recourse basis, provided that such
transfer qualifies as a sale under Agreement Accounting
Principles and that the amount of such financing does not exceed
$100,000,000 at any one time outstanding.
6.13. Liens. The Borrower will not, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested
in good faith and by appropriate proceedings and for which
adequate reserves in accordance with Agreement Accounting
Principles shall have been set aside on its books.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more
than 60 days past due or which are being contested in good faith
by appropriate proceedings and for which adequate reserves shall
have been set aside on its books.
(iii)Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or
other social security or retirement benefits, or similar
legislation.
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar
character and which do not in any material way affect the
marketability of the same or interfere with the use thereof in
the business of the Borrower or its Subsidiaries.
(v) Liens arising in connection with the transactions permitted by
Section 6.12(ii).
(vi) Liens on Property of the Borrower or any of its Subsidiaries
created solely for the purpose of securing purchase money
Indebtedness and Capitalized Lease Obligations in an aggregate
principal amount not to exceed 10% of the Borrower's total
assets at any one time outstanding, representing or incurred to
finance, refinance or refund the purchase price of the Property,
provided that no such Liens shall extend to or cover other
Property of the Borrower or such Subsidiary so acquired, and the
principal amount of Indebtedness secured by such Lien shall at
no time exceed the original purchase price of the Property.
(vii) Liens existing on the date hereof and described in Schedule 2.
<PAGE>
<PAGE>
6.14. Year 2000. The Borrower will take and will cause each of its
Subsidiaries to take all such actions as are reasonably necessary to
successfully implement the Year 2000 Program and to assure that Year 2000 Issues
will not have a Material Adverse Effect. At the request of the Lender, the
Borrower will provide a description of the Year 2000 Program, together with any
updates or progress reports with respect thereto.
6.15. Financial Covenants.
6.15.1. Interest Coverage Ratio. The Borrower will not permit the
ratio, determined as of the end of each of its fiscal
quarters for the then most-recently ended four fiscal
quarters, of (i) Consolidated EBIT to (ii) Consolidated
Interest Expense to be less than 3.0 to 1.0.
6.15.2. Minimum Net Worth. The Borrower will at all times maintain
Consolidated Net Worth of not less than $364,150,400 as of
March 31, 1999 through and including June 29, 2000, and
not less than $386,909,800 as of June 30, 2000 and at
all times thereafter.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall constitute
a Default:
7.1. Any representation or warranty made or deemed made by or on behalf of
the Borrower or any of its Subsidiaries to the Lender under or in connection
with this Agreement, any Advance, or any certificate or information delivered in
connection with this Agreement or any other Loan Document shall be materially
false on the date as of which made.
7.2. Nonpayment of principal of any Advance when due, or nonpayment of
interest upon any Advance or of any commitment fee or other obligations under
any of the Loan Documents within ten days after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.2, 6.10, 6.11, 6.12, 6.13, 6.14 or 6.15.
7.4. The breach by the Borrower (other than a breach which constitutes a
Default under another Section of this Article VII) of any of the terms or
provisions of this Agreement which is not remedied within ten days after written
notice from the Lender.
7.5. Failure of the Borrower or any of its Subsidiaries to pay when due
any Indebtedness, or the default by the Borrower or any of its Subsidiaries in
the performance (beyond the applicable grace period with respect thereto, if
any) of any term, provision or condition contained in any agreement under which
any such Indebtedness was created or is governed, or any other event shall occur
or condition exist, the effect of which default or event is to cause, or to
permit the holder or holders of such Indebtedness to cause, such Indebtedness to
become due prior to its stated maturity; or any Indebtedness of the Borrower or
any of its Subsidiaries shall be declared to be due and payable or required to
be prepaid or repurchased (other than by a regularly scheduled payment) prior to
<PAGE>
<PAGE>
the stated maturity thereof; or the Borrower or any of its Subsidiaries shall
not pay, or admit in writing its inability to pay, its debts generally as they
become due.
7.6. The Borrower or any of its Subsidiaries shall (i) have an order for
relief entered with respect to it under the Federal bankruptcy laws as now or
hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii)
apply for, seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any
Substantial Portion of its Property, (iv) institute any proceeding seeking an
order for relief under the Federal bankruptcy laws as now or hereafter in effect
or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, adjustment or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other pleading
denying the material allegations of any such proceeding filed against it, (v)
take any corporate or partnership action to authorize or effect any of the
foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good
faith any appointment or proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or any
of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding described in Section
7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and
such appointment continues undischarged or such proceeding continues undismissed
or unstayed for a period of 30 consecutive days.
7.8. Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of, all or any portion of the
Property of the Borrower and its Subsidiaries which, when taken together with
all other Property of the Borrower and its Subsidiaries so condemned, seized,
appropriated, or taken custody or control of, during the period commencing on
the date of this Agreement and ending with the month in which any such action
occurs, constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to
pay, bond or otherwise discharge one or more (i) judgments or orders for the
payment of money in excess of $10,000,000 (or the equivalent thereof in
currencies other than U.S. Dollars) in the aggregate, or (ii) nonmonetary
judgments or orders which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, which judgment(s), in any such case,
is/are not stayed on appeal or otherwise being appropriately contested in good
faith.
7.10. Any reportable event (as defined in Section 4043 of ERISA) shall
occur in connection with any Plan.
7.11. The Borrower or any of its Subsidiaries shall (i) be the subject of
any proceeding or investigation pertaining to the release by the Borrower, any
of its Subsidiaries or any other Person of any toxic or hazardous waste or
substance into the environment, or (ii) violate any Environmental Law, which, in
the case of an event described in clause (i) or clause (ii), could reasonably be
expected to have a Material Adverse Effect.
7.12. Any Change in Control shall occur.
<PAGE>
<PAGE>
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs
with respect to the Borrower, the obligations of the Lender to make, renew or
convert Advances or to issue Letters of Credit hereunder shall automatically
terminate and the Obligations shall immediately become due and payable without
any election or action on the part of the Lender. If any other Default occurs,
the Lender may terminate or suspend the obligations of the Lender to make, renew
or convert Advances or to issue Letters of Credit hereunder, or declare the
Obligations to be due and payable, or both, whereupon the Obligations shall
become immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which the Borrower hereby expressly waives. In
either event, the Obligations shall become immediately due and payable without
presentment, demand, protest or notice of any kind, all of which Borrower hereby
expressly waives. The remedies of the Lender specified in this Agreement and
the other Loan Documents shall not be exclusive and the Lender may avail itself
of any of the remedies provided by law as well as any equitable remedies
available to the Lender, and each and every remedy shall be cumulative and
concurrent and shall be in addition to every other remedy now or hereafter
existing at law or in equity.
If, within 30 days after acceleration of the maturity of the Obligations or
termination of the obligations of the Lender to make Advances hereunder as a
result of any Default (other than any Default as described in Section 7.6 or 7.7
with respect to the Borrower) and before any judgment or decree for the payment
of the Obligations due shall have been obtained or entered, the Lender (in its
sole discretion) by notice to the Borrower, may rescind and annul such
acceleration and/or termination.
8.2. Amendments. Subject to the provisions of this Article VIII, the
Lender and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lender or the Borrower hereunder or waiving any
Default hereunder.
8.3. Deposit to Secure Reimbursement Obligations. When any Default or
Unmatured Default has occurred and is continuing, the Lender may demand that the
Borrower immediately pay to the Lender an amount equal to the aggregate
outstanding amount of the Letters of Credit and the Borrower shall immediately
upon any such demand make such payment. The Borrower hereby irrevocably grants
to the Lender a security interest in all funds deposited to the credit of or in
transit to any deposit account or fund established pursuant to this Section 8.3,
including, without limitation, any investment of such fund. In the event the
Lender makes a demand pursuant to this Section 8.3, and the Borrower makes the
payment demanded, the Lender agrees to invest the amount of such payment for the
account of the Borrower and at the Borrower's risk and direction in short-term
investments acceptable to the Lender.
8.4. Subrogation. The Lender shall, to the extent of any payments made by
the Lender under any Letter of Credit, be subrogated to all rights of the
beneficiary of such Letter of Credit as to all obligations of the Borrower and
its Subsidiaries with respect to which such payment shall have been made by the
Lender.
<PAGE>
<PAGE>
8.5. Preservation of Rights. No delay or omission of the Lender to
exercise any right under the Loan Documents shall impair such right or be
construed to be a waiver of any Default or an acquiescence therein, and the
making of an Advance notwithstanding the existence of a Default or the inability
of the Borrower to satisfy the conditions precedent to such Advance shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lender, and then only to the extent in such writing
specifically set forth. All remedies contained in the Loan Documents or by law
afforded shall be cumulative and all shall be available to the Lender until the
Obligations have been paid in full.
ARTICLE IX
GENERAL PROVISIONS
9.1. Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement shall survive the making of the
Advances herein contemplated.
9.2. Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, the Lender shall not be obligated to extend credit to
the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3. Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
9.4. Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower and the Lender and supersede all prior
agreements and understandings among the Borrower and the Lender relating to the
subject matter thereof.
9.5. Benefits of this Agreement. This Agreement shall not be construed so
as to confer any right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
9.6. Expenses; Indemnification. (i) The Borrower shall reimburse the
Lender for reasonable direct costs and expenses (including reasonable attorneys'
fees and time charges of attorneys for the Lender, which attorneys may be
employees of the Lender) paid or incurred by the Lender in connection with the
preparation, negotiation, execution, delivery, review, amendment, modification,
and administration of the Loan Documents. The Borrower also agrees to reimburse
the Lender for reasonable costs, internal charges and out-of-pocket expenses
(including reasonable attorneys' fees and time charges of attorneys for the
Lender, which attorneys may be employees of the Lender) paid or incurred by the
Lender in connection with the collection and enforcement of the Loan Documents.
(ii) The Borrower hereby further agrees to indemnify the Lender, its
directors, officers and employees against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without limitation,
all expenses of litigation or preparation therefor whether or not the Lender is
a party thereto) which it may pay or incur arising out of or relating to this
<PAGE>
<PAGE>
Agreement, the other Loan Documents, the transactions contemplated hereby or the
direct or indirect application or proposed application of the proceeds of any
Advance hereunder except to the extent that they are determined in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
from the gross negligence or malfeasance of the party seeking indemnification.
The obligations of the Borrower under this Section 9.6 shall survive the
termination of this Agreement.
9.7. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles, except that any calculation or determination which is to be made on
a consolidated basis shall be made for the Borrower and all its Subsidiaries,
including those Subsidiaries, if any, which are unconsolidated on the Borrower's
audited financial statements.
9.8. Severability of Provisions. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
9.9. Nonliability of the Lender. The relationship between the Borrower on
the one hand and the Lender on the other hand shall be solely that of borrower
and lender. The Lender shall not have any fiduciary responsibilities to the
Borrower. The Lender undertakes no responsibility to the Borrower to review or
inform the Borrower of any matter in connection with any phase of the Borrower's
business or operations. The Borrower agrees that the Lender shall have no
liability to the Borrower (whether sounding in tort, contract or otherwise) for
losses suffered by the Borrower in connection with, arising out of, or in any
way related to, the transactions contemplated and the relationship established
by the Loan Documents, or any act, omission or event occurring in connection
therewith, unless it is determined in a final non-appealable judgment by a court
of competent jurisdiction that such losses resulted from the gross negligence or
malfeasance of the party from which recovery is sought.
9.10. Confidentiality. The Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (i) to its Affiliates, (ii) to legal counsel,
accountants, and other professional advisors to the Lender or to a Transferee,
(iii) to regulatory officials, (iv) to any Person as requested pursuant to or as
required by law, regulation, or legal process, (v) to any Person in connection
with any legal proceeding to which the Lender is a party, and (vi) permitted by
Section 11.3.
9.11. Disclosure. The Borrower and the Lender hereby acknowledge and
agree that the Lender and/or its Affiliates from time to time may hold other
investments in, make other loans to or have other relationships with the
Borrower or its Subsidiaries.
<PAGE>
<PAGE>
ARTICLE X
SETOFF
In addition to, and without limitation of, any rights of the Lender under
applicable law, if the Borrower becomes insolvent, however evidenced, or any
Default occurs, any and all deposits (including all account balances, whether
provisional or final and whether or not collected or available) and any other
Indebtedness at any time held or owing by the Lender or any Affiliate of the
Lender to or for the credit or account of the Borrower may be offset and applied
toward the payment of the Obligations owing to the Lender, whether or not the
Obligations, or any part hereof, shall then be due.
ARTICLE XI
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
11.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights or obligations under the Loan
Documents. Any assignee or transferee of the rights to any Advance or any Note
agrees by acceptance of such transfer or assignment to be bound by all the
terms and provisions of the Loan Documents. Any request, authority or
consent of any Person, who at the time of making such request or giving such
authority or consent is the owner of the rights to any Advance (whether or
not a Note has been issued in evidence thereof), shall be conclusive and
binding on any subsequent holder, transferee or assignee of the rights to
such Advance.
11.2. Participations.
11.2.1. Permitted Participants; Effect. The Lender may, in the
ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Advance owing to the Lender, any Note held
by the Lender, any Commitment of the Lender or any other interest of the
Lender under the Loan Documents.
11.2.2. Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in
Article X in respect of its participating interest in amounts owing
under the Loan Documents to the same extent as if the amount of its
participating interest were owing directly to it as the Lender under
the Loan Documents, provided that the Lender shall retain the right of
setoff provided in Article X with respect to the amount of participating
interests sold to each Participant.
11.3. Dissemination of Information. The Borrower authorizes the Lender
to disclose to any Participant or any other Person acquiring an interest in the
Loan Documents by operation of law (each a "Transferee") and any prospective
Transferee any and all information in the Lender's possession concerning the
creditworthiness of the Borrower and its Subsidiaries; provided that each
Transferee and prospective Transferee agrees to be bound by Section 9.10 of this
Agreement.
<PAGE>
<PAGE>
11.4. Tax Treatment. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the Lender
shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of applicable United States tax
withholding rules and regulations.
ARTICLE XII
NOTICES
12.1. Notices. Except as otherwise permitted by Sections 2.14 and 2.16
with respect to borrowing notices and confirmations, all notices, requests and
other communications to any party hereunder shall be in writing (including
electronic transmission, facsimile transmission or similar writing) and shall be
given to such party at its address or facsimile number set forth on the
signature pages hereof, or at such other address or facsimile number as such
party may hereafter specify for the purpose by notice to the Lender and the
Borrower in accordance with the provisions of this Section 12.1. Each such
notice, request or other communication shall be effective (i) if given by
facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, or (iii) if given by any other means,
when delivered (or, in the case of electronic transmission, received) at the
address specified in this Section; provided that notices to the Lender under
Article II shall not be effective until received.
12.2. Change of Address. The Borrower and the Lender may each change the
address for service of notice upon it by a notice in writing to the other
parties hereto.
ARTICLE XIII
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower and the Lender.
<PAGE>
<PAGE>
ARTICLE XIV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
14.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (BUT WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS)
OF THE STATE OF INDIANA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS.
14.2. CONSENT TO JURISDICTION. THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR INDIANA STATE COURT SITTING IN INDIANAPOLIS, INDIANA IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER AND
THE LENDER HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE
ANY OBJECTION THEY MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY
JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE LENDER OR ANY AFFILIATE OF THE
LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT
IN INDIANAPOLIS, INDIANA.
14.3. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP
ESTABLISHED THEREUNDER.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement as of the date first above written.
KIMBALL INTERNATIONAL, INC.
By:
Robert F. Schneider,
Executive Vice President,
C.F.O. & Asst. Treasurer
Address:
1600 Royal Street
Jasper, Indiana 47549
Attention: Jim Kane
Telephone: (812) 482-8492
FAX: (812) 634-4606
NBD BANK, N.A.
By:
Randall K. Stephens,
First Vice President
Address:
One Indiana Square, Suite IN1-7028
Indianapolis, Indiana 46266
Attention: Randall K. Stephens
Telephone: (317) 266-6704
FAX: (317) 266-6042
Exhibit 10(g)
<PAGE>
<TABLE>
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNIFICANT SUBSIDIARIES OF REGISTRANT
As of June 30, 1999 the significant subsidiaries of the Registrant were as
follows:
<CAPTION>
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%
Kepco, Inc Indiana 100%
Kimball de Juarez, S.A. de C.V. Mexico 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 20, 1999
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 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, 1999,
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 10, 1999
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. 1999 Form 10-K405 and is qualified in its entirety by
reference to such Form 10-K405 filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 16,775
<SECURITIES> 114,996
<RECEIVABLES> 136,100
<ALLOWANCES> 3,816
<INVENTORY> 96,157
<CURRENT-ASSETS> 386,341
<PP&E> 486,639
<DEPRECIATION> 265,141
<TOTAL-ASSETS> 661,386
<CURRENT-LIABILITIES> 168,564
<BONDS> 0
0
0
<COMMON> 2,151
<OTHER-SE> 462,126
<TOTAL-LIABILITY-AND-EQUITY> 661,386
<SALES> 1,106,967
<TOTAL-REVENUES> 1,106,967
<CGS> 778,551
<TOTAL-COSTS> 778,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 662
<INTEREST-EXPENSE> 476
<INCOME-PRETAX> 92,374
<INCOME-TAX> 32,649
<INCOME-CONTINUING> 59,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,725
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.47
</TABLE>
