UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DecemberMarch 31, 19992000
__ 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 No.)
1600 Royal Street, Jasper, Indiana 47549-1001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (812) 482-1600
Not Applicable
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No___
The number of shares outstanding of the Registrant's common stock as of January
24,May
8, 2000 were:
Class A Common Stock - 14,297,01314,279,155 shares
Class B Common Stock - 26,164,40325,917,572 shares
- 1 -
KIMBALL INTERNATIONAL, INC.
FORM 10-Q
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
- DecemberMarch 31, 19992000 (Unaudited) and June 30, 19991999. . . . . . . . . 3
Consolidated Statements of Income (Unaudited)
- Three and SixNine Months Ended DecemberMarch 31, 2000 and 1999 and 1998. . . . . 4
Consolidated Statements of Cash Flows (Unaudited)
- SixNine Months Ended DecemberMarch 31, 2000 and 1999 and 1998. . . . . . . . . . 5
Notes To Consolidated Financial Statements (Unaudited). . . . . 6-7
Item 2. Management's Discussion and Analysis Of
Financial Condition and Results of Operations . . . . . . . . . 8-12
Item 3. Quantitative & Qualitative Disclosures about Market Risk. . . . 13
PART II OTHER INFORMATION:
Item 4 (c). Submission of Matters to a Vote of Security Holders . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 1514
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 1514
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . 1615
- 2 -
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
DecemberMarch 31, June 30,
19992000 1999
Assets
Current Assets:
Cash and cash equivalents $ 2,2864,625 $ 16,775
Short-term investments 107,693100,395 114,996
Receivables, less allowances
of $4,416$4,244 and $3,816, respectively 143,815153,499 132,284
Inventories 109,941112,245 96,157
Other 25,29625,417 26,129
Total current assets 389,031396,181 386,341
Property And Equipment - net of
accumulated depreciation of $281,158$284,314
and $265,141, respectively 230,844235,690 221,498
Other Assets 57,63158,768 53,547
Total assets $677,506$690,639 $661,386
Liabilities And Share Owners' Equity
Current Liabilities:
Loans payable $ 14,0929,312 $ 3,518
Current maturities of long-term debt 1,213798 1,185
Accounts payable 81,41185,357 77,976
Dividends payable 6,4026,386 6,380
Accrued expenses 69,40279,684 79,505
Total current liabilities 172,520181,537 168,564
Other Liabilities:
Long-term debt, less current maturities 1,2002,389 1,730
Deferred income taxes and other 27,48126,980 26,815
Total other liabilities 28,68129,369 28,545
Share Owners' Equity:
Common stock 2,151 2,151
Additional paid-in capital 8,1128,111 6,379
Retained earnings 509,956515,121 498,962
Accumulated other comprehensive income 551335 1,312
Less: Treasury stock, at cost (44,465)(45,985) (44,527)
Total Share Owners' Equity 476,305479,733 464,277
Total liabilities and Share Owners' equity $677,506$690,639 $661,386
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except for per share data)
(unaudited) (unaudited)
Three Months Ended SixNine Months Ended
DecemberMarch 31, DecemberMarch 31,
2000 1999 19982000 1999 1998
Net Sales $294,275 $280,080 $572,677 $544,726$309,495 $288,054 $882,172 $832,780
Cost of Sales 211,807 197,027 413,434 383,116228,693 201,621 642,127 584,737
Gross Profit 82,468 83,053 159,243 161,61080,802 86,433 240,045 248,043
Selling, General and
Administrative Expenses 65,995 64,715 128,635 126,69763,755 64,241 192,390 190,938
Operating Income 16,473 18,338 30,608 34,91317,047 22,192 47,655 57,105
Other Income (Expense):
Interest expense (145) (168) (237) (273)(128) (102) (365) (375)
Interest income 1,231 1,570 2,674 3,5341,114 1,530 3,788 5,064
Other - net 979 3,095 2,446 4,152510 744 2,956 4,896
Other income - net 2,065 4,497 4,883 7,4131,496 2,172 6,379 9,585
Income Before Taxes on Income 18,538 22,835 35,491 42,32618,543 24,364 54,034 66,690
Taxes on Income 6,311 7,900 11,705 14,8286,992 9,175 18,697 24,003
Net Income $ 12,22711,551 $ 14,93515,189 $ 23,78635,337 $ 27,49842,687
Earnings Per Share of Common Stock:
Basic:
Class A $ .30.28 $ .36.37 $ .58 $ .67.87 $1.04
Class B $ .30.29 $ .37.38 $ .59 $ .68.88 $1.06
Diluted:
Class A $ .30.28 $ .36.37 $ .58 $ .66.86 $1.03
Class B $ .30.29 $ .37.38 $ .59 $ .67.88 $1.05
Dividends Per Share of Common Stock:
Class A $ .155 $ .155 $ .31.465 $ .31.465
Class B $ .160 $ .160 $ .32.480 $ .32.480
Average Total Number of Shares
Outstanding Class A and B
Common Stock:
Basic 40,377 40,698 40,375 40,81440,416 40,536 40,389 40,721
Diluted 40,499 40,971 40,548 41,07340,476 40,710 40,527 40,952
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
SixNine Months Ended
DecemberMarch 31,
2000 1999 1998
Cash Flows From Operating Activities:
Net income $ 23,78635,337 $ 27,49842,687
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 21,731 19,10332,741 29,276
Gain on sales of assets (1,102) (231)(821) (424)
Deferred income tax and other deferred charges (551) (51)(122) 3,242
Change in current assets and liabilities:
Receivables (8,729) (15,577)(18,413) (23,017)
Inventories (9,683) (4,334)(11,987) (2,648)
Other current assets 1,443 1,027390 (55)
Accounts payable 1,949 4,8655,896 (1,961)
Accrued expenses (14,097) (8,089)(3,723) 6,546
Net cash provided by operating activities 14,747 24,21139,298 53,646
Cash Flows From Investing Activities:
Capital expenditures (25,594) (29,341)(40,725) (43,482)
Proceeds from sales of assets 1,668 7372,183 1,204
Increase in other assets (2,570) (17,485)(5,398) (21,612)
Purchases of held-to-maturity investments -0- (400)
Maturities of held-to-maturity investments 400 5,4105,415
Purchases of available-for-sale securities (52,225) (24,405)(94,510) (23,799)
Sales and maturities of available-for-sale securities 58,390 41,580107,969 48,080
Net cash used for investing activities (19,931) (23,904)(30,081) (34,594)
Cash Flows From Financing Activities:
Net change in short-term borrowings 7,990 5,9923,210 (201)
Net change in long-term debt (502) 547272 638
Acquisition of treasury stock, net of sales (4,733) (10,738)(6,274) (16,921)
Dividends paid to share owners (12,770) (12,962)(19,172) (19,403)
Proceeds from exercise of stock options 692 818712 940
Other - net 9 62(98) 82
Net cash used for financing activities (9,314) (16,281)(21,350) (34,865)
Effect of Exchange Rate Change on
Cash and Cash Equivalents 9 1(17) (5)
Net Decrease in Cash and Cash Equivalents (14,489) (15,973)(12,150) (15,818)
Cash and Cash Equivalents-Beginning of Period 16,775 16,757
Cash and Cash Equivalents-End of Period $ 2,2864,625 $ 784939
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income taxes $ 14,13122,491 $ 14,21021,617
Interest $ 206328 $ 287386
Total Cash, Cash Equivalents and
Short-Term Investments:
Cash and cash equivalents $ 2,2864,625 $ 784939
Short-term investments 107,693 132,988100,395 125,626
Totals $109,979 $133,772$105,020 $126,565
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying consolidated financial statements of Kimball
International, Inc. ("the Company") are unaudited and have been prepared
in accordance with the instructions to Form 10-Q. As such, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. All significant intercompany transactions and balances have
been eliminated. Management believes the financial statements include all
adjustments (consisting only of normal recurring adjustments) considered
necessary to present fairly the financial statements of the interim period.
It is suggested that these financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
Note 2. Inventories
Inventory components of the Company are as follows:
DecemberMarch 31, June 30,
19992000 1999
(in thousands)
Finished Products $ 31,80832,462 $33,262
Work-in-Process 16,88117,237 14,471
Raw Materials 61,25262,546 48,424
Total inventory $109,941$112,245 $96,157
For interim reporting, LIFO inventories are computed based on estimated year-end
quantities and interim changes in price levels. Changes in such estimates will be
reflected in the interim financial statements in the period in which they occur.
Note 3. Segment 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 that is consistent with
information utilized by management for purposes of allocating resources and
assessing performance.
Management organizes the Company into segments based upon differences in
products and services offered in each segment. The Furniture and Cabinets
Segment manufactures furniture for the office, residential, lodging and
healthcare industries and store display fixtures, all sold under the
Company's family of brand names. Other products produced by the Furniture
and Cabinets Segment on an original equipment manufactured basis include
store fixtures, television cabinets and stands, audio speaker systems,
residential furniture and furniture components. The Electronic Contract
Assemblies Segment is a global provider of design engineering,
manufacturing, packaging and distribution of electronic assemblies,
circuit boards, multi-chip modules and semiconductor components on a
contract basis to customers in the transportation, industrial controls,
telecommunications, computer and medical industries. Intersegment sales
are insignificant. Unallocated corporate assets include cash and cash
equivalents, short-term investments and other assets not allocated to
segments. The basis of segmentation and accounting policies of the
segments are consistent with those as disclosed in the Company's Annual
Report on Form 10-K for the year ended June 30, 1999.
- 6 -
Note 3. Segment Information (continued)
Three Months Ended SixNine Months Ended
DecemberMarch 31, DecemberMarch 31,
2000 1999 19982000 1999 1998
(in thousands)
Net Sales:
Furniture and Cabinets $208,711 $195,677 $402,397 $387,364$214,736 $200,835 $617,134 $588,199
Electronic Contract Assemblies 85,539 84,387 170,239 157,33594,743 87,204 264,981 244,539
Unallocated Corporate and Eliminations 25 16 41 2715 57 42
Consolidated $294,275 $280,080 $572,677 $544,726$309,495 $288,054 $882,172 $832,780
Net Income:
Furniture and Cabinets $ 7,8386,867 $ 7,5419,221 $ 13,13119,998 $ 15,55124,772
Electronic Contract Assemblies 3,080 4,331 6,520 6,7753,350 5,335 9,870 12,110
Unallocated Corporate and Eliminations 1,309 3,063 4,135 5,1721,334 633 5,469 5,805
Consolidated $ 12,22711,551 $ 14,93515,189 $ 23,78635,337 $ 27,49842,687
Total Assets:
Furniture and Cabinets $423,533 $363,833$423,657 $373,477
Electronic Contract Assemblies 144,608 137,320155,838 141,043
Unallocated Corporate and Eliminations 109,365 130,339111,144 121,801
Consolidated $677,506 $631,492$690,639 $636,321
In the second quarter of fiscalnine month period ended March 31, 1999, Unallocated Corporate net income
includes, in thousands, a $1,337 gain ($.03 per share) on the sale of a stock
investment of which the Company held a minor interest.
Note 4. Comprehensive Income
Comprehensive income includes all changes in equity during a period except
those resulting from investments by, and distributions to, Share Owners.
Comprehensive income, shown net of tax if applicable, for the three and
sixnine month periods ending DecemberMarch 31, 19992000 and 19981999 is as follows:
Three Months Ended SixNine Months Ended
DecemberMarch 31, DecemberMarch 31,
2000 1999 19982000 1999 1998
(in thousands)
Net Income $12,227 $14,935 $23,786 $27,498$11,551 $15,189 $35,337 $42,687
Net Change in Unrealized Gains/Losses
on Securities (495) (581) (738) (838)(4) (250) (742) (1,088)
Foreign Currency Translation Adjustment (210) 173 (23) 161(212) (87) (235) 74
Comprehensive Income $11,522 $14,527 $23,025 $26,821$11,335 $14,852 $34,360 $41,673
Note 5. New Accounting Standard
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 periodically engages in
limited forward purchases of foreign currency 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.
Note 6. Acquisition
In November 1999, the Company purchased Jackson of Danville, a privately
held manufacturer of custom and in-line fully upholstered seating
products and wood framed chairs. The acquisition was accounted for as a
purchase with operating results included in the Company's Consolidated
Statements of Income from the date of acquisition, and was financed with
available cash on hand and the Company's Class B Common Stock. The
acquisition price and operating results of this acquisition wereare not
material to the Company's second quarter fiscal year 2000 consolidated operating
results.
- 7 -
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
Net sales for the secondthird quarter of fiscal year 2000 increased 5%7% over the prior
year to $294,275,000 and set$309,495,000 setting a new quarterly record. Net income and Class B
diluted earnings per share were $12,227,000$11,551,000 and $0.30,$0.29, respectively, for the
secondthird quarter of fiscal 2000, a decrease of 18% and 19%, respectively,both decreasing 24% from the prior year. Net sales
for the six-monthnine-month period ending DecemberMarch 31, 19992000 of $572,677,000$882,172,000 surpassed the
prior year sales by 5%6%. Current year net income and Class B diluted earnings
per share for the six monthnine-month period were $23,786,000$35,337,000 and $0.59,$0.88, respectively, a
decrease of 13%17% and 12%16%, respectively, from the prior year. Fiscal year 1999
second quarter and six-monthnine-month net income results include a $1,337,000 after tax gain ($0.03 per
diluted share) on the sale of a stock investment.
RESULTS OF OPERATIONS - THREE AND SIXNINE MONTHS ENDED DECEMBERMARCH 31, 19992000 COMPARED TO
THREE AND SIXNINE MONTHS ENDED DECEMBERMARCH 31, 19981999
Net sales for the Company for the three and six-monthnine-month periods of fiscal year
2000 surpassed second quarterfiscal year 1999 levels on increases from both of the Company's
segments -- the Furniture and Cabinets Segment and the Electronic Contract
Assemblies Segment. Net income declined in both segments for the second quarter declined as
increased profits in the Furniturethree and
Cabinets Segment were more than offset by
a decline in net income for the Electronic Contract Assemblies Segmentnine-month periods when compared to the prior year. A decline in net income for the six-month period
was the result of decreased profits in both the Furniture and Cabinet Segment
and the Electronic Contract Assemblies Segment.fiscal year 1999.
FURNITURE AND CABINETS SEGMENT
Product line offerings in the Furniture and Cabinets Segment include 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, when necessary.
In November 1999, the Company purchased Jackson of Danville, a privately held
manufacturer of custom and in-line fully upholstered seating products and wood
framed chairs. The acquisition was accounted for as a purchase with operating
results included in the Company's consolidated results from the date of
acquisition, and was financed with available cash on hand and the Company's
Class B Common Stock. The acquisition price and operating results of this
acquisition wereare not material to the Company's second quarter fiscal year 2000 consolidated
operating results.
Fiscal year 2000 secondthird quarter and six-monthnine-month net sales increased 7% and 4%5%,
respectively, in the Furniture and Cabinets Segment when compared to the prior
year. Sales increased in the office furniture, OEM furniture and cabinets, home
furniture and furniture component product lines while sales in the lodging and
healthcare product line declined for both periods.
Net sales for both the three and six-monthnine-month periods of fiscal year 2000
increased in the office furniture product line over the prior year ondriven by
increased sales of casegoods seating and systems product groups. The Company's office
furniture sales, surpassedfor the two-month period ending February 2000, lagged the
industry's estimateestimated growth in shipments. However, for the eight-month period
ending February 2000 the Company's office furniture sales, excluding
acquisitions, equaled the industry's estimated growth rate of flat shipments2% as reported by
the Business and Institutional Furniture Manufacturer's Association (BIFMA) for
the same eight-month period ending February 2000 compared to the period ending
February 1999.
- 8 -
two-month period ending November 1999 compared to November 1998. Price
discounting on most office furniture products was higher in the second quarter
of fiscal year 2000 when compared to the prior year as the market remains price
competitive due to the slow growth in the industry in general.
Net sales for both the three and six-monthnine-month periods of fiscal year 2000 declined
from the prior year in the lodging and
healthcare product line.line declined from the prior year. Sales of custom-made
products increased while sales of standard product offerings declined in the
third quarter. While sales declined compared to prior year, third quarter sales
increased over both the first and second quarter.quarters of the current year as
projected in the Company's second quarter Form 10Q filing. On a year-to-date
basis, sales of both custom-made products and standard product offerings
decreased. Gross margins of lodging and healthcare products have declined in
the currentthird quarter when
compared toand for the priorfirst nine-months of fiscal year 2000 as lower
margin custom-made projects account for a greater percentage of the product mix shifted to less profitable
custom-made projects. The Company anticipates sales volumes to pick up in the
latter half of the fiscal year, as evidenced by an increase in the order backlog
as of December 31, 1999 when compared to the beginning of the fiscal year. The
preceding 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, customer order changes, raw material availability
delays or other unexpected production delays.mix.
Net sales of OEM furniture and cabinets for both the secondthird quarter and
six-monthnine-month period exceeded the prior year sales. SecondThird quarter and six-monthnine-month
sales of television cabinets, residential contract furniture, and metal
component parts all increased over
the prior year while sales of television cabinets declined for both periods when
compared to the prior year.
Net sales of furniture components increased in both the secondthird quarter and
six-monthnine-month period of fiscal year 2000 when compared to the prior year primarily
on increased sales of lumber products.
Net income in the Furniture and Cabinets Segment increaseddecreased in the secondthird quarter
of fiscal year 2000 when compared to one year ago partially as a result of
higher sales.ago. Gross profit in this
segment, as a percent of sales, decreased asdue to pricing competition and
increased material and overhead costs, as a percent of sales, were partially offset by
lowersales. Lower labor
costs, as a percent of sales.sales, partially offset the increased material and
overhead costs. The Company's recently acquired Juarez, Mexico facility continues to negatively
impact the gross profitability in this segment when compared to the prior year
secondthird quarter and six-monthnine-month periods. As projected,However, both sales and gross profit for this operation improvedhave
increased in the secondthird quarter, for the Juarez operation, when compared to the
first quartertwo quarters of fiscal year 2000. However, customer schedule changesSignificant improvements in labor
efficiencies and production inefficiencies continue to
impact profitability.overhead costs, as a percent of sales, were the factors driving
the third quarter improvement for the Juarez operation. Higher commodity prices
and low yields, at the Juarez operation, prevented improvement in material
costs, as a percent of sales. The Company has made and continues to make changes to
address these inefficiencies and anticipates continued improvement in both
sales growth and gross profitability during the second half of fiscal year 2000.at this facility. The preceding statement
concerning the Company's Juarez, Mexico facility 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, customer order
changes, or additional unexpected manufacturing inefficiencies. Also contributing to the decline in gross profit in this
segment was the lower volumes and a mix toward lower margin custom-made projects
in the lodging and healthcare product lines and lower margins on furniture
components.inefficiencies or material price changes.
Selling, general and administrative expenses increased in dollars
but decreased, as a percent of sales,
as a focusin the third quarter compared to the same period last year on cost management continues in
fiscal year 2000.lower incentive
compensation costs which are linked to company profitability. Net income for
the six-monthnine-month period also declined primarily due to the lower sales margins on
lodging and healthcare products, lower margins on furniture components, and
start-up costs at the recently acquired Juarez, Mexico facility mentioned above.
- 9 -
ELECTRONIC CONTRACT ASSEMBLIES SEGMENT
Net sales for the secondthird quarter of fiscal year 2000 in the Electronic Contract
Assemblies Segment exceeded the prior year by 1%9%. SecondThird quarter sales of
electronic transportation andcomponents, telecommunication components and medical
devices and
industrial controlscomponents increased while sales of computer related components and industrial
controls declined when compared to the prior year. Segment sales for the
six-monthnine-month period increased 8% compared to one year ago aided partially by the
unfavorable impact the General Motors labor strike had on the prior year
six-monthnine-month results.
- 9 -
Net income for both the secondthird quarter and six-monthnine-month periods decreased from the
prior year. Gross profit, as a percent of net sales, decreased for both the
quarter and six-monthnine-month comparisons. With a planned diversification of its
customer base into a variety of new industries,products as well as production of the next
generation of anti-locking braking components, the Company's gross profit
margins in this segment are lower when compared to higher historic margins that were
achieved on more mature product lines. Start up costs associated with a new
manufacturing facility in Laem Chebang, Thailand and a new high flexibility
production facility in Jasper, Indiana also contributed to the lower net income.
Net income was also impacted during the period due to labor inefficiencies and
separation costs associated with the release of approximately 250 employees from
Kimball's Reynosa, Mexico manufacturing facility. Selling, general and
administrative costs for both the threethird quarter decreased as a percent of sales when
compared to the prior year. Selling, general and six-month periodsadministrative costs for the
nine-month period decreased in bothtotal dollars and as a percent of sales when
compared to the prior year.
Based upon the December 31, 1999 order backlog, the Company anticipates sales
and net income in this segmentyear primarily as a result of lower incentive compensation
which is linked to improve in the second half of the fiscal year.
The preceding 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, customer order changes,
availability of raw materials or unexpected production delays.company profitability.
Included in this segment are sales to one customer, TRW Inc., which accounted
for 15% and 16%17% of consolidated net sales in the secondthird quarter of both fiscal year 2000
and 1999, respectively, and 16% and 14%15% of consolidated net sales in the six monthnine-month period
ending DecemberMarch 31, 19992000 and 1998,1999, respectively. 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.
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 in the third
quarter from the same period last year in both total dollars ($0.5 million) and
as a percent of sales 0.7(1.7 percentage point inpoints). For the second quarternine-month period ending
March 31, 2000 consolidated selling, general, and administrative expenses
decreased as a percent of fiscal year 2000
fromsales by 1.1 percentage points when compared to the
prior yearperiod. The decreases in consolidated selling, general, and
decreased 0.8 percentage point on a year-to-date
comparisonadministrative expenses for both the three and nine-month periods are related primarily to
decreased selling expenses and reducedcontinued cost management efforts along with lower incentive compensation costs
which isare linked to company profitability. The Company began a
focused effort on managing costs in the latter half of the prior fiscal year 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 for both the three and six-month
comparisonsthird quarter on lower
interest income caused by lower average investment balances
and a decrease in miscellaneousbalances. For the first
nine-months of the fiscal year other income is down from the prior year on lower
interest income. Miscellaneous income in the second
quarter of the prior year includes a $2.1 million
gain ($1.3 million after-tax effect) relating to the sale of a stock investment.
The effective income tax rate decreased 0.6 percentage pointremained unchanged in the secondthird quarter compared
to one year ago.ago as a decrease in the state tax rate offset an increase in the
federal tax rate. The fiscal year 2000 six-monthnine-month effective tax - 10 -
rate declined
2.01.4 percentage points from the prior year. An increase in the state tax rate
was more than offset by a decrease in the federal effective tax rate as the
Company realized the benefit of research and development tax credits in the
current year.
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Net income and Class B diluted earnings per share of $12,227,000$11,551,000 and $0.30,$0.29,
respectively, for the secondthird quarter of fiscal year 2000 both decreased 18% and 19%,
respectively,24% from
the prior year levels of $14,935,000$15,189,000 and $0.37.$0.38. Fiscal 2000 year-to-date net
income and Class B diluted earnings per share of $23,786,000$35,337,000 and $0.59, respectively,$0.88,
decreased 13%17% and 12%16%, respectively, from the prior year levels of
$27,498,000$42,687,000 and $0.67.$1.05. Fiscal year 1999 second quarter and
six-monthnine-month net income results include a
$1,337,000 after tax gain ($0.03 per diluted share) on the sale of a stock
investment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's aggregate of cash, cash equivalents, and short-term investments
decreased from $132 million at June 30, 1999 to $110$105 million at DecemberMarch 31, 1999.2000.
Working capital at DecemberMarch 31, 19992000 was $217$215 million with a current ratio of 2.3,2.2,
compared to working capital of $218 million and a current ratio of 2.3 at June
30, 1999.
Operating activities generated $15$39 million of cash flow in the first sixnine months
of fiscal year 2000 compared to $24$54 million in 1999. The Company reinvested $28$46
million into capital investments for the future, including production equipment,
a new, state-of-the-art veneer mill and veneer face operation in Chandler,
Indiana, and office facilities. Financing cash flow activities include $13$25
million in dividend payments.payments and stock repurchases including 401,900 shares of
Class B common stock.
To meet short-term capital requirements the Company maintains a $100 million
revolving credit facility to be used for acquisitions and general corporate
purposes. The agreement allows for both issuance of letters of credit and cash
borrowings. At DecemberMarch 31, 1999, $102000, $5.9 million of short-term cash borrowings were
outstanding under the 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 could have recognized a date using
"00" as the year 1900 rather than the year 2000, which could have resulted in a
major system failure or miscalculations.
Prior to the turn of the century, the Company implemented a plan to alleviate any potential problems which may
have been caused by the Year 2000 which included inventory assessment,
remediation and testing. Currently, theThe Company has not experienced any major
interruptions or malfunctions in its operations related to the Year 2000 issue,
or the leap year date of February 29, 2000, and does not anticipate any. In
addition, the
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Company has currently not experienced any interruptions caused by
a lack of Year 2000 readiness by any of its key suppliers, distributors,
customers, public infrastructure suppliers and other vendors.
While a major hurdle has passed
with the turnThe total gross cost of the century, the Company continuesYear 2000 compliance approximated $8.1 million which
favorably compares to monitor its systems for
potential problems that may still occur, particularly related to the leap year
date of February 29, 2000, and continues to keep in contact with its mission
critical suppliers on any potential problems that may arise. The Company can
provide no assurance that the systems of any third party on which the Company's
systems and operations rely will continue operating without major interruptions
and which will not have a material adverse effect on the Company. This
information is subject to the same risks and uncertainties outlinedestimated costs disclosed in the Company's Form 10-K
filing for its fiscal year ended June 30, 1999.
While the Year 2000 issue has been given the highest priority among the IT
group, any deferrals1999 of other IT projects by the Company have not had a material
effect on its financial condition or results of operations.
The total gross cost of Year 2000 compliance is estimated at approximately $8.5$9 million of which approximately 95% had been incurred as of December 31, 1999.
The remaining 5% of the costs will be incurred primarily in the January-March
2000 timeframe, as the Company fixes any minor problems that occurred with the
roll over of the Year 2000 and monitors the leap year date.to $11 million.
Existing information technology resources were redeployed, which accountaccounted for
approximately 50% of the total gross costs with the balance being incremental costs
to the Company.above. Approximately 30% of the
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above total gross costs relate to machinery and other fixed assets which were
capitalized or in certain situations leased, with the remaining costs being
expensed as incurred.
Contingency plans are in place in the unlikely event the Company would
experience problems in the future. The contingency plans include such items as
sourcing alternatives for single source suppliers and business continuity plans.
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 unexpected
hidden problems relating to the Year 2000 that may not have surfaced to this
point or delays or interruptions caused by the leap year date of February 29,
2000.point.
ACCOUNTING STANDARDS
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 periodically engages in limited forward purchases of
foreign currency 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.
________________________________________________________________________________------------------------------------------------------------------------
This document contains certain statements which could be considered
forward-looking under the Private Securities Litigation Reform Act of 1995.
Cautionary statements regarding these statements have been included in this
document, when appropriate. Additional cautionary statements regarding these
types of statements and other factors that could have an effect on the future
performance of the Company are contained in the Company's Form 10-K filing for
the period ending June 30, 1999.
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Item 3 - Quantitative and Qualitative Disclosures About Market Risk
As of DecemberMarch 31, 1999,2000, the Company had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of $108$100
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. 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 DecemberMarch 31, 19992000
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 the latest fiscal year-end,
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.
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PART II. OTHER INFORMATION
Item 4 (c) - Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Share Owners was held on October 19, 1999.
The Board of Directors was elected in its entirety, based on the following
election results:
Nominees as Directors by
Holders of Class A Common Stock Votes For* Votes Withheld
Thomas L. Habig 13,614,158 5,884
Douglas A. Habig 13,614,158 5,884
James C. Thyen 13,614,158 5,884
John B. Habig 13,614,158 5,884
Ronald J. Thyen 13,613,134 6,908
Christine M. Vujovich 13,614,158 5,884
Brian K. Habig 13,614,158 5,884
John T. Thyen 13,614,158 5,884
Gary P. Critser 13,614,158 5,884
Alan B. Graf, Jr. 13,614,158 5,884
Polly B. Kawalek 13,614,158 5,884
* Votes for nominees as Directors by holders of Class A Common Stock
represented 95% of the total 14,326,377 Class A shares outstanding
and eligible to vote.
Nominee as Director by
Holders of Class B Common Stock Votes For* Votes Withheld
Dr. Jack R. Wentworth 22,141,526 299,912
* Votes for nominee as Director by holders of Class B Common Stock
represented 85% of the total 26,047,151 Class B shares outstanding
and eligible to vote.
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Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
(3b) Restated By-laws of the Company
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated OctoberMarch 20, 1999, was filed pursuant to Item 5
(Other Events) which contained the Company's news releases dated
October 19, 1999, announcing the agreement to acquire Jackson of
Danville and the election of Nominees to the Board of Directors.
Form 8-K dated November 3, 1999,2000, was filed pursuant to Item 5
(Other Events) which contained the Company's news release dated
November 2, 1999,March 16, 2000, announcing that earnings for the completionthird quarter of
the purchase of Jackson
of Danville.fiscal 2000 would not meet analysts' estimates.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMBALL INTERNATIONAL, INC.
Douglas A. Habig
DOUGLAS A. HABIG
(Chairman, Chief Executive Officer)
Roy W. Templin
ROY W. TEMPLIN
(Vice President, Corporate Controller)
Date: February 7,May 10, 2000
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Kimball International, Inc
Exhibit Index
Exhibit No. Description
3b Restated By-laws of the Company
11 Computation of Earnings Per Share
27 Financial Data Schedule
- 1615 -