UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q(Mark
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31,September 30, 2000__OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the transition period from to Commission File Number 0-3279 KIMBALL INTERNATIONAL, INC.
(Exact(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)
Indiana 35-0514506 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1600 Royal Street, Jasper, Indiana 47579-1001 (Address of principal executive offices) (Zip Code) (812) 482-1600
Registrant's telephone number, including area code (812) 482-1600Not 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)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___X NoThe number of shares outstanding of the Registrant's common stock as of
May 8,October 26, 2000 were:Class A Common Stock -14,279,15514,147,470 shares
Class B Common Stock -25,917,57225,111,886 shares-1
-KIMBALL INTERNATIONAL, INC.
FORM 10-Q
INDEX-2
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PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (amounts in thousands)(unaudited) March 31, June 30,2000 1999 AssetsCurrent Assets: Cash and cash equivalents $ 4,625 $ 16,775 Short-term investments 100,395 114,996 Receivables, less allowances of $4,244 and $3,816, respectively 153,499 132,284 Inventories 112,245 96,157 Other 25,417 26,129 Total current assets 396,181 386,341 Property And Equipment - net of accumulated depreciation of $284,314 and $265,141, respectively 235,690 221,498 Other Assets 58,768 53,547 Total assets $690,639 $661,386 Liabilities And Share Owners' Equity Current Liabilities: Loans payable $ 9,312 $ 3,518 Current maturities of long-term debt 798 1,185 Accounts payable 85,357 77,976 Dividends payable 6,386 6,380 Accrued expenses 79,684 79,505 Total current liabilities 181,537 168,564 Other Liabilities: Long-term debt, less current maturities 2,389 1,730 Deferred income taxes and other 26,980 26,815 Total other liabilities 29,369 28,545 Share Owners' Equity: Common stock 2,151 2,151 Additional paid-in capital 8,111 6,379 Retained earnings 515,121 498,962 Accumulated other comprehensive income 335 1,312 Less: Treasury stock, at cost (45,985) (44,527) Total Share Owners' Equity 479,733 464,277 Total liabilities and Share Owners' equity $690,639 $661,386 See Notes to Consolidated Financial Statements- 3 -
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands except for per share data)(unaudited) (unaudited) Three Months Ended Nine Months Ended March 31, March 31, 2000 1999 2000 1999Net Sales $309,495 $288,054 $882,172 $832,780 Cost of Sales 228,693 201,621 642,127 584,737 Gross Profit 80,802 86,433 240,045 248,043 Selling, General and Administrative Expenses 63,755 64,241 192,390 190,938 Operating Income 17,047 22,192 47,655 57,105 Other Income (Expense): Interest expense (128) (102) (365) (375) Interest income 1,114 1,530 3,788 5,064 Other - net 510 744 2,956 4,896 Other income - net 1,496 2,172 6,379 9,585 Income Before Taxes on Income 18,543 24,364 54,034 66,690 Taxes on Income 6,992 9,175 18,697 24,003 Net Income $ 11,551 $ 15,189 $ 35,337 $ 42,687 Earnings Per Share of Common Stock: Basic: Class A $ .28 $ .37 $ .87 $1.04 Class B $ .29 $ .38 $ .88 $1.06 Diluted: Class A $ .28 $ .37 $ .86 $1.03 Class B $ .29 $ .38 $ .88 $1.05 Dividends Per Share of Common Stock: Class A $ .155 $ .155 $ .465 $ .465 Class B $ .160 $ .160 $ .480 $ .480 Average Total Number of Shares Outstanding Class A and B Common Stock: Basic 40,416 40,536 40,389 40,721 Diluted 40,476 40,710 40,527 40,952 See Notes to Consolidated Financial Statements- 4-
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)(unaudited) Nine Months Ended March 31, 2000 1999Cash Flows From Operating Activities: Net income $ 35,337 $ 42,687 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32,741 29,276 Gain on sales of assets (821) (424) Deferred income tax and other deferred charges (122) 3,242 Change in current assets and liabilities: Receivables (18,413) (23,017) Inventories (11,987) (2,648) Other current assets 390 (55) Accounts payable 5,896 (1,961) Accrued expenses (3,723) 6,546 Net cash provided by operating activities 39,298 53,646 Cash Flows From Investing Activities: Capital expenditures (40,725) (43,482) Proceeds from sales of assets 2,183 1,204 Increase in other assets (5,398) (21,612) Purchases of held-to-maturity investments -0- (400) Maturities of held-to-maturity investments 400 5,415 Purchases of available-for-sale securities (94,510) (23,799) Sales and maturities of available-for-sale securities 107,969 48,080 Net cash used for investing activities (30,081) (34,594) Cash Flows From Financing Activities: Net change in short-term borrowings 3,210 (201) Net change in long-term debt 272 638 Acquisition of treasury stock, net of sales (6,274) (16,921) Dividends paid to share owners (19,172) (19,403) Proceeds from exercise of stock options 712 940 Other - net (98) 82 Net cash used for financing activities (21,350) (34,865) Effect of Exchange Rate Change on Cash and Cash Equivalents (17) (5) Net Decrease in Cash and Cash Equivalents (12,150) (15,818) Cash and Cash Equivalents-Beginning of Period 16,775 16,757 Cash and Cash Equivalents-End of Period $ 4,625 $ 939 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Income taxes $ 22,491 $ 21,617 Interest $ 328 $ 386 Total Cash, Cash Equivalents and Short-Term Investments: Cash and cash equivalents $ 4,625 $ 939 Short-term investments 100,395 125,626 Totals $105,020 $126,565 See Notes to Consolidated Financial Statements- 5 -PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
(unaudited)
September 30,
2000
June 30,
2000Assets Current Assets: Cash and cash equivalents $ 7,908 $ 5,223 Short-term investments 79,912 79,366 Receivables, less allowances
of $4,890 and $4,713, respectively182,571 180,929 Inventories 132,961 117,058 Other 31,943 30,944 Total current assets 435,295 413,520 Property and Equipment - net of
accumulated depreciation of $298,129and $292,498, respectively 247,154 248,210 Other Assets 59,649 61,921 Total Assets $742,098 $723,651 Liabilities and Share Owners' Equity Current Liabilities: Loans payable $ 46,104 $ 37,400 Current maturities of long-term debt 951 1,021 Accounts payable 107,032 102,835 Dividends payable 6,214 6,205 Accrued expenses 74,981 75,934 Total current liabilities 235,282 223,395 Other Liabilities: Long-term debt, less current maturities 2,644 2,599 Deferred income taxes and other 30,801 29,130 Total other liabilities 33,445 31,729 Share Owners' Equity: Common stock 2,151 2,151 Additional paid-in capital 8,143 8,056 Retained earnings 526,668 522,041 Accumulated other comprehensive income 290 326 Less: Treasury stock, at cost (63,881) (64,047) Total Share Owners' Equity 473,371 468,527 Total Liabilities and Share Owners' Equity $742,098 $723,651 See Notes to Consolidated Financial Statements
3
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
(unaudited)
Three Months Ended
September 30,2000 1999 Net Sales $312,948 $278,402 Cost of Sales 234,115 201,627 Gross Profit 78,833 76,775 Selling, General and Administrative Expenses 63,417 62,640 Operating Income 15,416 14,135 Other Income (Expense):
Interest expense(537) (92) Interest income 852 1,443 Other - net 1,218 1,467 Other income - net 1,533 2,818 Income Before Taxes on Income 16,949 16,953 Taxes on Income 6,105 5,394 Net Income $ 10,844 $ 11,559 Earnings Per Share of Common Stock:
Basic:Class A $ .27 $ .28 Class B $ .28 $ .29 Diluted: Class A $ .27 $ .28 Class B $ .28 $ .29 Dividends Per Share of Common Stock: Class A $ .155 $ .155 Class B $ .160 $ .160 Average Total Number of Shares Outstanding Class A and B Common Stock:
Basic
39,271
40,374Diluted 39,363 40,619 See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(unaudited)
Three Months Ended
September 30,2000 1999 Cash Flows From Operating Activities: Net income $ 10,844 $ 11,559 Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization 11,371 10,677 Gain on sales of assets (226) (911) Deferred income tax and other deferred charges 385 (1,100) Change in current assets and liabilities: Receivables (1,642) (5,373) Inventories (15,903) (7,656) Other current assets 286 (1,111) Accounts payable 4,186 5,313 Accrued expenses (806) (2,168) Net cash provided by operating activities 8,495 9,230 Cash Flows From Investing Activities: Capital expenditures (8,875) (11,503) Proceeds from sales of assets 325 1,331 Decrease in other assets 580 328 Maturities of held-to-maturity securities -0- 400 Purchases of available-for-sale securities (17,981) (46,986) Sales and maturities of available-for-sale securities 17,706 41,590 Net cash used for investing activities (8,245) (14,840) Cash Flows From Financing Activities: Net change in short-term borrowings 8,704 3,556 Net change in long-term debt 100 (319) Acquisition of treasury stock (613) (435) Dividends paid to share owners (6,205) (6,380) Proceeds from exercise of stock options 592 689 Other - net (32) 151 Net cash provided by (used for) financing activities 2,546 (2,738) Effect of Exchange Rate Change on Cash and Cash Equivalents (111) -0- Net Increase (Decrease) in Cash and Cash Equivalents 2,685 (8,348) Cash and Cash Equivalents-Beginning of Period 5,223 16,775 Cash and Cash Equivalents-End of Period $ 7,908 $ 8,427 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Income taxes $ 737 $ 360 Interest $ 499 $ 98 Total Cash, Cash Equivalents and Short-Term Investments: Cash and cash equivalents $ 7,908 $ 8,427 Short-term investments 79,912 119,749 Totals $87,820 $128,176 See Notes to Consolidated Financial Statements
5
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 in the United States 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:
March 31, June 30, 2000 1999 (in thousands)Finished Products $ 32,462 $33,262 Work-in-Process 17,237 14,471 Raw Materials 62,546 48,424 Total inventory $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.
September 30, June 30, (in thousands) 2000 2000 Finished Products $ 34,322 $ 31,251 Work-in-Process 20,863 18,149 Raw Materials 77,776 67,658 Total inventory $132,961 $117,058 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.
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Note 3. Segment InformationEffective 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
manufacturedmanufacturer 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 Nine Months Ended March 31, March 31, 2000 1999 2000 1999 (in thousands)Net Sales: Furniture and Cabinets $214,736 $200,835 $617,134 $588,199 Electronic Contract Assemblies 94,743 87,204 264,981 244,539 Unallocated Corporate and Eliminations 16 15 57 42 Consolidated $309,495 $288,054 $882,172 $832,780 Net Income: Furniture and Cabinets $ 6,867 $ 9,221 $ 19,998 $ 24,772 Electronic Contract Assemblies 3,350 5,335 9,870 12,110 Unallocated Corporate and Eliminations 1,334 633 5,469 5,805 Consolidated $ 11,551 $ 15,189 $ 35,337 $ 42,687 Total Assets: Furniture and Cabinets $423,657 $373,477 Electronic Contract Assemblies 155,838 141,043 Unallocated Corporate and Eliminations 111,144 121,801 Consolidated $690,639 $636,321In the nine 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.2000.
Three Months Ended
September 30,(in thousands) 2000 1999 Net Sales: Furniture and Cabinets $215,946 $193,686 Electronic Contract Assemblies 96,981 84,700 Unallocated Corporate and Eliminations 21 16 Consolidated $312,948 $278,402 Net Income: Furniture and Cabinets $ 6,406 $ 5,293 Electronic Contract Assemblies 3,382 3,440 Unallocated Corporate and Eliminations 1,056 2,826 Consolidated $ 10,844 $ 11,559 Total Assets: Furniture and Cabinets $468,362 $399,461 Electronic Contract Assemblies 191,534 148,706 Unallocated Corporate and Eliminations 82,202 127,581 Consolidated $742,098 $675,748 7
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 ninemonthperiodsperiod endingMarch 31,September 30, 2000 and 1999 is as follows:
Three Months Ended Nine Months Ended March 31, March 31, 2000 1999 2000 1999 (in thousands)Net Income $11,551 $15,189 $35,337 $42,687 Net Change in Unrealized Gains/Losses on Securities (4) (250) (742) (1,088) Foreign Currency Translation Adjustment (212) (87) (235) 74 Comprehensive Income $11,335 $14,852 $34,360 $41,673
Three Months Ended
September 30,(in thousands) 2000 1999 Net Income $10,844 $11,559 Net Change in Unrealized Gains/Losses
on Securities271 (243) Foreign Currency Translation Adjustment (307) 187 Comprehensive Income $10,808 $11,503 Note 5. Acquisition
On September 21, 2000, the Company announced it had acquired the manufacturing assets of Alcatel located in Poznan, Poland. The Company will lease the facility and initially manufacture telecommunications equipment under a supply agreement with Alcatel. The acquisition was accounted for as a purchase and was financed with available cash on hand. The acquisition price and operating results of this acquisition were not material to the Company's first quarter consolidated operating results.
Note 6. New Accounting
Standard In June, 1998,StandardsEffective July 1, 2000, the
Financial Accounting Standards Board issuedCompany adopted 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.ThisThe Company had no derivative instruments outstanding as of September 30, 2000.
In July and September 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue 00-10 "Accounting for Shipping and Handling Fees and Costs." EITF Issue 00-10 requires that all amounts billed to a customer in a sale transaction for shipping and handling be classified as sales, and recommends that shipping and handling expenses be classified as cost of sales. The Company currently classifies most shipping and handling revenues and costs, on a net basis, in selling and administrative expense. Accordingly, the Company has determined that EITF Issue 00-10 will require reclassification of shipping and handling revenues and costs, but does not believe EITF Issue 00-10 will impact its financial condition or net income. The effective date of this standardwill be effective foris the fourth quarter of 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 are not material to the Company's fiscal year 2000 consolidated operating results. - 7 -8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Net sales for thethirdfirst quarter of fiscal year20002001 increased7%12% over the prior year to$309,495,000 setting$312,948,000, a newquarterly record.record for first quarter net sales. Excluding prior year acquisitions, net sales increased 11% over the year earlier period. Net income and Class B diluted earnings per share were$11,551,000$10,844,000 and$0.29,$0.28, respectively, for thethirdfirst quarter of fiscal2000, bothyear 2001, decreasing24% from the prior year. Net sales for the nine-month period ending March 31, 2000 of $882,172,000 surpassed the prior year sales by6%. Current year net incomeandClass B diluted earnings per share for the nine-month period were $35,337,000 and $0.88, respectively, a decrease of 17% and 16%3%, respectively, from thepriorsame quarter last year.Fiscal year 1999 nine-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 NINEMONTHS ENDEDMARCH 31,SEPTEMBER 30, 2000 COMPARED TO THREEAND NINEMONTHS ENDEDMARCH 31,SEPTEMBER 30, 1999
Net sales for the Company for thethree and nine-month periods of fiscal yearthree-month period ending September 30, 2000 surpassedfiscalthe comparable period last year1999 levels onwith double-digit increases from both of the Company's segments - -- the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment. Net incomedeclined in both segmentsfor thethreefirst quarter of fiscal year 2001 increased for the Furniture andnine-month periodsCabinets Segment but declined slightly in the Electronic Contract Assemblies Segment when compared to the fiscal year1999.2000 first quarter.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 are not material to the Company's fiscal year 2000 consolidated operating results.Fiscal year
2000 third2001 first quarterand nine-monthnet sales increased7% and 5%, respectively,11% in the Furniture and Cabinets Segment when compared to the prior year. Excluding prior year acquisitions, net sales increased 9% from the same quarter last year. Sales increased in all product lines compared to the year earlier period including the office furniture, OEM furniture and cabinets, home furniture,and furniture component product lines while sales in thelodging and healthcare and furniture components productline declined for both periods.lines.Net sales for
boththethree and nine-month periodsfirst quarter of fiscal year20002001 increased in the office furniture product line over the prior yeardriven by increased sales offrom increases in the casegoods, systems andsystemsseating product groups. The Company's office furniture sales for both August and September grew at double-digit rates over the same periods last year. However, due to a seasonally slow start in July, office furniture sales, for the two-month period endingFebruaryAugust 2000, lagged the industry'sestimated growth in shipments. However, for the eight-month period ending February 2000 the Company's office furniture sales, excluding acquisitions, equaled the industry's estimated10% growth rateof 2% as reportedin shipments estimated by the Business and Institutional Furniture Manufacturer's Association (BIFMA)for the same eight-month period ending February 2000compared to the same two-month period endingFebruaryAugust 1999.- 8 -Net sales for
boththethree and nine-month periodsfirst quarter of fiscal year 2001 in the lodging and healthcare product linedeclined fromincreased over the prioryear.year period. Sales of the Company's standard product offerings increased over the same period last year as a strategic shift in focus on standard product began to show positive results. The increase in sales of our standard product offerings more than offset a slight decrease in the sales of custom-made products,increased while sales of standard product offerings declined in the third quarter. While sales declinedwhich generally carry a lower margin, when compared toprior year, third quarter sales increased over boththe firstand second quarters of the current year as projected in the Company's secondquarterForm 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 third quarter and for the first nine-monthsof fiscal year2000 as lower margin custom-made projects account for a greater percentage of the product mix.2000.Net sales of OEM furniture and cabinets
for bothachieved a new quarterly record in thethirdfirst quarterand nine-month period exceededof fiscal year 2001. While sales of large-screen projection television cabinets continued its double-digit growth trend over the prior year,sales. Thirdshipments were lower than anticipated in the current quarterand nine-month sales of television cabinets, residential contract furniture, and metaldue to electronic componentparts all increased over the prior year.shortages experienced by several key customers.Net sales of furniture components increased in
boththethirdfirst quarterand nine-month periodof fiscal year20002001 when compared to thepriorsame period last year primarily on increased sales of lumber products.9
Net income in the Furniture and Cabinets Segment
decreasedincreased in thethirdfirst quarter of fiscal year20002001 when compared to one year ago.Gross profit in this segment,Increased sales from all major product lines and lower selling, general and administrative expenses, as a percent of sales,decreased due to pricing competitionwithin the Furniture andincreased material and overhead costs,Cabinets Segment more than offset higher cost of goods sold, as a percent of sales.LowerIncreases in material and labor costs, as a percent of sales, resulted in a lower gross profit percentage compared to the same period last year. Higher lumber commodity prices, manufacturing inefficiencies and overall lower yields within the furniture components product line, partly from a wetter than normal summer in regions of the United States, was the primary contributor to the increase in material costs. Despite increased sales volumes at the Company's large-screen projection television cabinet manufacturing operation located in Juarez, Mexico, gross profit at this facility declined due to an unfavorable product mix shift to cabinets with lower gross margins as well as manufacturing inefficiencies associated with customer-driven schedule changes and order delays due to electronic component shortages. The net losses experienced in the furniture components product line and at the Juarez facility partially offset improved profits in other product lines within this segment. Appropriate actions are being addressed to reduce theincreased materiallosses in the furniture components product line andoverhead costs. The Company'sat the JuarezMexico facility continuesoperation tonegatively impact the grossimprove overall profitability in the Furniture and Cabinets Segment. Lower freight expenses, marketing incentive costs and incentive compensation costs linked to company profitability contributed to the decrease in selling, general and administrative costs, as a percent of sales.ELECTRONIC CONTRACT ASSEMBLIES SEGMENT
Net sales for the first quarter of fiscal year 2001 in the Electronic Contract Assemblies Segment increased over the prior year by 14%. First quarter sales increased over the same period last year primarily on increased sales of electronic transportation components. Sales of telecommunication components and industrial controls also increased over the prior year while medical components and computer related components declined when compared to the year earlier period.On September 21, 2000, the Company announced it had acquired the manufacturing assets of Alcatel located in Poznan, Poland. The Company will lease the facility and initially manufacture telecommunications equipment under a supply agreement with Alcatel. The acquisition was accounted for as a purchase and was financed with available cash on hand. The acquisition price and operating results of this
segmentacquisition were not material to the Company's first quarter consolidated operating results.Net income for the first quarter decreased slightly from the same quarter last year. Gross profit, as a percent of net sales, decreased from the prior year as a result of a strategic diversification of this segment's customer mix and the migration from a mature product line to the next generation of anti-lock braking components, which carry lower margins. In addition, lighter sales of medical components as well as anticipated costs associated with the global expansion efforts within the Electronic Contract Assemblies Segment contributed to the lower net income. Higher costs at the Company's Reynosa, Mexico manufacturing facility, due to inefficiencies caused partially by the start up of several more technically advanced products, also contributed to the lower profitability compared to the same quarter last year. Selling, general and administrative costs for the first quarter decreased, as a percent of sales, when compared to the prior
year third quarteryear. Selling expenses decreased in both dollars andnine-month periods. However, bothas a percent to sales primarily from decreases in sales compensation costs.Included in this segment are sales to one customer, TRW Inc., which accounted for 17% and
gross profit have increased16% of consolidated net sales in thethirdfirst quarterfor the Juarez operation, when compared to the first two quartersof fiscal year2000. Significant improvements2001 and 2000, respectively. Sales to this customer represent approximately one half of total sales inlabor efficienciesthe Electronic Contract Assemblies Segment.10
This segment's investment capital carries a higher degree of risk than the Company's other segment due to rapid technological changes, component availability, the contract nature of this industry and
overhead costs,the importance of sales to one customer.CONSOLIDATED OPERATIONS
Consolidated selling, general and administrative expenses for the first quarter decreased, as a percent of sales,were2.2 percentage points from thefactors driving the third quarter improvement for the Juarez operation. Higher commodity pricessame period last year. Selling expenses decreased in both dollars andlow yields, at the Juarez operation, prevented improvement in material costs,as a percent ofsales.sales as a result of lower selling compensation costs, marketing incentive costs and freight expenses as a result of continued cost management efforts. Incentive compensation costs, which are linked to company profitability, declined in both dollars and as a percent of sales from the same quarter last year.Other income decreased in the first quarter from the prior year on lower interest income caused by lower average investment balances and higher interest expense as the company has drawn on its revolving line of credit since the first quarter of last year. Other income in the first quarter of fiscal year 2000 included gains from the sale of real estate.
The effective income tax rate increased in the first quarter compared to one year ago on increases in both the federal and state effective tax rates. The increase in the federal effective tax rate was caused by lower tax-free municipal bond interest, lower realized research and development tax credits and lower capital loss carryforward benefits compared to the first quarter of last year. Higher foreign income taxes also contributed to the higher effective tax rate as a result of a foreign tax gain caused by currency fluctuation.
Net income and Class B diluted earnings per share of $10,844,000 and $0.28, respectively, for the first quarter of fiscal year 2001 decreased 6% and 3%, respectively, from the prior year levels of $11,559,000 and $0.29.
LIQUIDITY AND CAPITAL RESOURCES
The Company's aggregate of cash, cash equivalents, and short-term investments increased from $85 million at June 30, 2000 to $88 million at September 30, 2000. Working capital at September 30, 2000 was $200 million compared to working capital of $190 million at June 30, 2000. The current ratio of 1.9 remained unchanged from June 30, 2000.Operating activities generated $8 million of cash flow in the first three months of fiscal year 2001 compared to $9 million in the same period of fiscal year 2000. The Company
anticipates continued improvementreinvested $8 million into capital investments for the future including production equipment and facility improvements. Financing cash flow activities included $6 million insales growthdividend payments.At September 30, 2000, the Company had $44 million of short-term borrowings outstanding under its $100 million revolving credit facility that allows for both issuance of letters of credit and
gross profitabilitycash borrowings. The Company had $35 million of short-term borrowings outstanding under this credit facility at June 30, 2000. The credit facility requires the Company to comply with certain debt covenants including debt-to-total capitalization, interest coverage ratio, minimum net worth, and other terms and conditions. The Company is in compliance with these covenants at September 30, 2000 and does not expect these covenants to limit or restrict the Company's ability to borrow from the credit facility thisfacility.fiscal year. The preceding statementconcerning the Company's Juarez, Mexico facilityis 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 tocustomer order changes, unexpected manufacturing inefficiencies or material price changes. Selling, general and administrative expenses decreased, asapercent of sales,downturn in thethird quarter compared to the same period last year on lower incentive compensation costs which are linked to company profitability. Net income for the nine-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. ELECTRONIC CONTRACT ASSEMBLIES SEGMENT Net sales for the third quartereconomy, loss offiscal year 2000 in the Electronic Contract Assemblies Segment exceeded the prior year by 9%. Third quarter saleskey customers or suppliers, availability ofelectronic transportation components, telecommunication components and medical components increased while sales of computer related components and industrial controls declined when compared to the prior year. Segment sales for the nine-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 nine-month results. - 9 -Net income for both the third quarter and nine-month periods decreased from the prior year. Gross profit, asraw materials, or apercent of net sales, decreased for both the quarter and nine-month comparisons. With a planned diversification of its customer base into a variety of new 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 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 the third quarter decreased as a percent of sales when compared to the prior year. Selling, general and administrative costs for the nine-month period decreased in total dollars and as a percent of sales when compared to the prior year primarily as a result of lower incentive compensation which is linked to company profitability. Included in this segment are sales to one customer, TRW Inc., which accounted for 17% of consolidated net sales in the third quarter of both fiscal year 2000 and 1999, and 16% and 15% of consolidated net sales in the nine-month period ending March 31, 2000 and 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 (1.7 percentage points). For the nine-month period ending March 31, 2000 consolidated selling, general, and administrative expenses decreased as a percent of sales by 1.1 percentage points when compared to the prior period. The decreases in consolidated selling, general, and administrative expenses for both the three and nine-month periods are related to continued cost management efforts along with lower incentive compensation costs which are linked to company profitability. Other income decreased from the prior year for the third quarter on lower interest income caused by lower average investment balances. 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 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 remained unchanged in the third quarter compared to one year ago as a decrease in the state tax rate offset an increase in the federal tax rate. The fiscal year 2000 nine-month effective tax rate declined 1.4 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. - 10 -Net income and Class B diluted earnings per share of $11,551,000 and $0.29, respectively, for the third quarter of fiscal year 2000 both decreased 24% from the prior year levels of $15,189,000 and $0.38. Fiscal 2000 year-to-date net income and Class B diluted earnings per share of $35,337,000 and $0.88, decreased 17% and 16%, respectively, from the prior year levels of $42,687,000 and $1.05. Fiscal year 1999 nine-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 $105 million at March 31, 2000. Working capital at March 31, 2000 was $215 million with a current ratio of 2.2, compared to working capital of $218 million and a current ratio of 2.3 at June 30, 1999. Operating activities generated $39 million of cash flow in the first nine months of fiscal year 2000 compared to $54 million in 1999. The Company reinvested $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 $25 million in dividend 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 March 31, 2000, $5.9 million of short-term cash borrowings were outstanding under the revolving credit facility.natural disaster or similar unforeseen event.The Company anticipates maintaining a strong liquidity position for the
20002001 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.YEAR11
ACCOUNTING STANDARDS
Effective July 1, 2000,DISCLOSURE 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. The 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 Companyhas 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. The total gross cost of Year 2000 compliance approximated $8.1 million which favorably compares to estimated costs disclosed in the Company's Form 10-K filing for its fiscal year ended June 30, 1999 of $9 million to $11 million. Existing information technology resources were redeployed, which accounted for approximately 50% of the total gross costs above. Approximately 30% of the - 11 -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. 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. ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issuedadopted 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.ThisThe Company had no derivative instruments outstanding as of September 30, 2000.In July and September 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue 00-10 "Accounting for Shipping and Handling Fees and Costs." EITF Issue 00-10 requires that all amounts billed to a customer in a sale transaction for shipping and handling be classified as sales, and recommends that shipping and handling expenses be classified as cost of sales. The Company currently classifies most shipping and handling revenues and costs, on a net basis, in selling and administrative expense. Accordingly, the Company has determined that EITF Issue 00-10 will require reclassification of shipping and handling revenues and costs, but does not believe EITF Issue 00-10 will impact its financial condition or net income. The effective date of this standard
will be effective foris the fourth quarter of 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. -2000.12
-Item
3 -3. Quantitative and Qualitative Disclosures About Market RiskAs of
March 31,September 30, 2000, the Company had an investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of$100$80 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 atMarch 31,September 30, 2000 would cause the fair value of these short-term investments to decline by an immaterial amount.The Company's earnings are also affected by changes in short-term interest rates as a result of borrowings under its line of credit facility. Based on the outstanding balance of the Company's credit facility at September 30, 2000, a hypothetical 100 basis point increase in interest rates prevailing at this date would not affect the consolidated operating results of the Company by a material 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, theThe effect of movements in the exchange rateshave been immaterialwere not material to the consolidated operating results of theCompany. -Company in the first quarter of fiscal year 2001. The Company estimates that a hypothetical 10% adverse change in foreign currency exchange rates would not affect the consolidated operating results of the Company by a material amount.13
-PART II. OTHER INFORMATION
Item 2. Recent Sales of Unregistered Securities
On July 6, 2000, 8,475 shares of unregistered restricted Class B Common Stock were issued to one individual purchaser as part of the August 1998 agreement to purchase substantially all of the assets of Transwall, Inc. The Common Stock in this transaction was issued in reliance on the private placement exemption under Section 4(2) of the Securities Act of 1933, as amended.
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-KForm 8-K dated March 20, 2000, was filed pursuant to Item 5 (Other Events) which contained the Company's news release dated March 16, 2000, announcing that earnings for the third quarter of fiscal 2000 would not meet analysts' estimates.
None14
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrantregistrant has duly caused this report to be signed on its behalf by the undersignedthereuntohereto 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)
KIMBALL INTERNATIONAL, INC. By: /s/ Douglas A. Habig DOUGLAS A. HABIG
Chairman, Chief Executive OfficerBy: /s/ Roy W. Templin ROY W. TEMPLIN
Vice President, Finance and
Chief Accounting Officer
Date:May 10,November 13, 2000- 14 -15
Kimball International, Inc.
Exhibit Index
Kimball International, Inc Exhibit IndexExhibit No. Description 3b Restated By-laws of the Company 11 Computation of Earnings Per Share 27 Financial Data Schedule - 15 -
16