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 September 30,December 31, 1998
__ 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 October 20, 1998February
9, 1999 were:
Class A Common Stock - 14,370,55914,310,351 shares
Class B Common Stock - 26,319,51926,326,110 shares
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KIMBALL INTERNATIONAL, INC.
FORM 10-Q
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
- September 30,December 31, 1998 (Unaudited) and June 30, 1998 . . . . . . . 3
Consolidated Statements of Income (Unaudited)
- Three Months and Six Months Ended September 30,December 31, 1998 and 1997. . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited)
- ThreeSix Months Ended September 30,December 31, 1998 and 1997 . . . . . . . .5. . 5
Notes To Consolidated Financial Statements (Unaudited). . . . . 6
Item 2. Management's Discussion and Analysis ofOf
Financial Condition and Results of Operations . . . . . . . . . 7-11
Item 3. Quantitative and& Qualitative Disclosures about Market Risk. . . . 12
PART II OTHER INFORMATION:
Item 4(c). Submission of Matters to a Vote of Security Holders. . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 1314
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 1314
Exhibit IndexIndex. . . . . . . . . . . . . . . . . . . . . . . . 1415
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PART I.
FINANCIAL INFORMATION
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
September 30,December 31, June 30,
1998 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,328784 $ 16,757
Short-term investments 131,014132,988 156,010
Receivables, less allowances
of $4,088$4,523 and $4,023, respectively 132,233134,747 119,170
Inventories 99,73995,675 96,303
Other 25,45823,460 24,697
Total Current Assets 389,772387,654 412,937
PROPERTY AND EQUIPMENT - at cost, less
accumulated depreciation of $252,269$258,986
and $245,751, respectively 192,715195,329 182,798
OTHER ASSETS 49,87948,509 33,903
Total Assets $632,366$631,492 $629,638
LIABILITIES AND SHARE OWNERS' EQUITY
CURRENT LIABILITIES:
Loans payable $ 8,39310,310 $ 4,318
Current maturities of long-term debt 442446 434
Accounts payable 62,74365,772 60,907
Dividends payable 6,441 6,521
Accrued expenses 81,96867,668 81,030
Total Current Liabilities 159,987150,637 153,210
OTHER LIABILITIES:
Long-term debt, less current maturities 2,3522,391 1,856
Deferred income taxes and other 25,22525,688 25,949
Total Other Liabilities 27,57728,079 27,805
SHARE OWNERS' EQUITY:
Common stock 2,151 2,151
Additional paid-in capital 6,0186,380 6,022
Retained earnings 471,002479,497 464,880
Foreign currency translation adjustment 1,5231,696 1,535
Unrealized gain on available-for-sale
securities 1,9171,336 2,174
Less: Treasury stock, at cost (37,809)(38,284) (28,139)
Total Share Owners' Equity 444,802452,776 448,623
Total Liabilities and Share Owners' Equity $632,366$631,492 $629,638
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except per share amounts)
(unaudited) (unaudited)
Three Months Ended September 30,Six Months Ended
December 31, December 31,
1998 1997 1998 1997
Net Sales $264,646 $245,857$280,080 $264,524 $544,726 $510,381
Cost of Sales 186,089 171,577197,027 184,572 383,116 356,149
Gross Profit 78,557 74,28083,053 79,952 161,610 154,232
Selling, Administrative
and General Expenses 61,982 56,27764,715 60,134 126,697 116,411
Operating Income 16,575 18,00318,338 19,818 34,913 37,821
Other Income (Expense):
Interest Expense (105) (95)(168) ( 98) (273) (193)
Interest Income 1,964 2,2781,570 2,309 3,534 4,587
Other - net 1,057 6463,095 2,661 4,152 3,307
Other Income - net 2,916 2,8294,497 4,872 7,413 7,701
Income Before Taxes on Income 19,491 20,83222,835 24,690 42,326 45,522
Taxes on Income 6,928 7,8037,900 9,205 14,828 17,008
Net Income $ 12,56314,935 $ 13,02915,485 $ 27,498 $ 28,514
Earnings Per Share of Common Stock:
Basic:
Class A Common Stock $ .31.36 $ .31.37 $ .67 $ .68
Class B Common Stock $ .31.37 $ .31.38 $ .68 $ .69
Diluted:
Class A Common Stock $ .30.36 $ .31.36 $ .66 $ .67
Class B Common Stock $ .31.37 $ .31.37 $ .67 $ .68
Dividends Per Share of Common Stock:
Class A Common Stock $ .155 $ .14375.145 $ .310 $ .28875
Class B Common Stock $ .160 $ .145.150 $ .320 $ .295
Average total number of shares
outstanding Class A and B
Common Stock:
Basic 40,930 41,47440,698 41,523 40,814 41,499
Diluted 41,179 41,87240,971 41,930 41,073 41,942
See Notes to Consolidated Financial Statements. Share data has been adjusted for the 2-for-1
common stock split effective on November 12, 1997.Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
ThreeSix Months Ended
September 30,December 31,
1998 1997
Cash Flows From Operating Activities:
Net income $ 12,56327,498 $ 13,02928,514
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,252 8,19419,103 16,516
Gain on sales of assets (208) (148)(231) (1,835)
Deferred income tax and other deferred charges (2,338) 640(51) (652)
Change in current assets and liabilities:
Receivables (13,063) (14,686)(15,577) (10,814)
Inventories (3,436) (7,756)(4,334) (7,143)
Other current assets 469 7751,027 1,096
Accounts payable 1,836 2,9754,865 (1,993)
Accrued expenses 1,029 (3,056)(8,089) (1,228)
Net Cash Provided/(Used)Provided By Operating Activities 6,104 (33)24,211 22,461
Cash Flows From Investing Activities:
Capital expenditures (17,977) (8,639)(29,341) (16,490)
Proceeds from sales of assets 340 298737 374
Proceeds from sale of division/subsidiary -0- 3,150
Increase in other assets (17,357) (585)(17,485) (2,132)
Purchases of held-to-maturity investments (400) (4,415)(21,413)
Maturities of held-to-maturity investments 5,410 17,40234,932
Purchases of available-for-sale securities (13,462) (20,149)(24,405) (20,000)
Sales and maturities of available-for-sale securities 33,575 15,00041,580 23,000
Net Cash Used For(Used For)/Provided By Investing Activities (9,871) (1,088)(23,904) 1,421
Cash Flows From Financing Activities:
Net increaseChange in short-term borrowings 4,075 1215,992 (49)
Net change in long-term debt 504 (156)547 (281)
Dividends paid to share owners (6,521) (5,989)(12,962) (11,988)
Acquisition of treasury stock, net of sales (10,475) ---(10,738) -0-
Proceeds from exercise of stock options 797 622818 1,039
Other - net (29) (161)62 (14)
Net Cash Used For Financing Activities (11,649) (5,563)(16,281) (11,293)
Effect of Exchange Rate Change on
Cash and Cash Equivalents (13) 441 (10)
Net Decrease(Decrease)/Increase in Cash and Cash Equivalents (15,429) (6,640)(15,973) 12,579
Cash and Cash Equivalents-Beginning of Period 16,757 18,818
Cash and Cash Equivalents-End of Period $ 1,328784 $ 12,17831,397
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income taxes $ 12514,210 $ 22515,750
Interest $ 125287 $ 121207
Total Cash, Cash Equivalents and
Short-Term Investments:
Cash and cash equivalents $ 1,328784 $ 12,17831,397
Short-term investments 131,014 142,196132,988 133,639
Totals $132,342 $154,374$133,772 $165,036
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) 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.
(2) Inventories consist of: (in thousands)
September 30,December 31, June 30,
1998 1998
Raw Materials $48,551$49,418 $51,967
Work-in-Process 12,83312,390 12,971
Finished Goods 38,35533,867 31,365
Total $99,739$95,675 $96,303
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.
(3) Earnings per share are computed under the method prescribed in Financial
Accounting Standards Board Statement No. 128 for computing earnings per
share for two class common stock due to the dividend preference of Class B
Common Stock. The Company adopted FASB Statement No. 128 effective with
the second quarter of fiscal year 1998, disclosing both basic and diluted
earnings per share. The Company's outstanding stock options are
considered when calculating diluted earnings per share.
Prior period
amounts have been restated to compute EPS on this method.
(4) At the annual meeting held on October 28, 1997, the Company's Share Owners
approved a two-for-one stock split on the Company's Class A and Class B
Common Stock. The stock split became effective on November 12, 1997.
Financial information contained in this report, including prior period
share and per share amounts, has been adjusted to reflect the impact of
the common stock split. Additional information may be found in the
Company's 10-K for the twelve month period ended June 30, 1998, under
the caption Part II: Item 8 - Financial Statements and Supplementary Data.
(5) Effective July 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 - 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 month periodand six month periods
ending September
30,December 31, 1998 and 1997 is as follows: (in thousands)
Three Months Ended September 30,Six Months Ended
December 31, December 31,
1998 1997 1998 1997
Net Income $12,563 $13,029$14,935 $15,485 $27,498 $28,514
Unrealized (Loss)/Gain on
Available-For-Sale-Securities (257) 358(581) 123 (838) 481
Foreign Currency Translation Adjustment (12) (174)173 70 161 (104)
Comprehensive Income $12,294 $13,213$14,527 $15,678 $26,821 $28,891
(6)(5) On September 15, 1998, the Company acquired with available cash on hand,
the assets of Transwall, Inc. ofOf Pennsylvania, manufacturers of systems
office furniture products. The acquisition was accounted for as a purchase
with operating results included in the Company's Consolidated Statement of
Income from the date of acquisition. Transwall's results of operations
were immaterial to the Company's Consolidated StatementStatements of Income for
the three month and six month periods ending December 31, 1998.
(6) The Company recorded a $2.1 million pretax gain on the sale of a stock
investment of which the Company held a minor interest, during the second
quarter of the current quarter.fiscal year. This pretax gain is reported in
Other-net, and added $1.3 million to net income, or $0.03 per common share.
The per share amount applies to both basic and diluted earnings per share.
(7) The Company recorded a $1.8 million pretax gain on the sale of
real estate in the second quarter of the prior fiscal year. This
pretax gain was reported in Other-net, and added $1.0 million to net
income, or $0.02 per common share. The per share amount applies to
both basic and diluted earnings per share.
- 6 -
Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
FirstNet sales for the second quarter of fiscal year 1999 set a new quarterly record
of $280,080,000, an increase of 6% over the prior year second quarter. Net
sales of $264,646,000$544,726,000 for the six month period ending December 31, 1998
surpassed first quarter
1998the prior year sales by 8%.7% and also set a record for six month sales.
Net income was $12,563,000,and Class B diluted earnings per share were $14,935,000 and $0.37,
respectively, for the second quarter of fiscal 1999, a decrease of 4% from the
prior year. Current year net income and Class B diluted earnings per share remained constant withfor
the six month period were $27,498,000 and $0.67, respectively, a decrease of 4%
from the prior year. Fiscal year at $0.31.1999 second quarter net income 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. Fiscal 1998 second
quarter results include a $1,008,000 after tax gain ($0.02 per diluted share) on
the sale of real estate.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED SEPTEMBER 30,DECEMBER 31, 1998 COMPARED TO
THREE AND SIX MONTHS ENDED SEPTEMBER 30,DECEMBER 31, 1997
FirstSecond quarter and six month period fiscal 1999 net sales increased in two of
the Company's three business segments when compared to the prior year - the
Furniture and Cabinets segment and the Processed Wood ProductProducts and Other
segment. The Electronic Contract Assemblies segment experienced a decline in
net sales during thisthese same time period. Duringperiods. Current year second quarter operating
income declined 7% to $18,338,000, from $19,818,000 in the first quarter, a product mix shift occurred away from
Electronic Contract Assemblies to Furniture and Cabinets,same period of 1998.
Operating income of $34,913,000 for the six month period declined 8% when
compared to the first quarter of fiscal 1998. Current year first quarterprior year's operating income slipped 8% to $16,575,000, from $18,003,000 in 1998.of $37,821,000.
FURNITURE AND CABINETS
The Furniture and Cabinets segment,Net sales in the Company's largest segment, saw a 14%
increase in first quarter netFurniture and Cabinets, increased 9%
and 11%, respectively, for the three and six month periods when compared to one
year ago.
Net sales of office furniture increased for both the three and six month periods
of fiscal 1999 over the prior year. Quarterly sales in the
major product groups within this segment surpassed first quarter 1998 sales,
including office furniture, original equipment manufacturer's (OEM) cabinets and
furniture, and lodging furniture.
Increased volumes resulted in record quarterly office furniture sales in the
first quarter of fiscal 1999. Sales of casegoods, seating and systems products all exceeded the prior year,experienced
double-digit growth while sales of storagecasegoods products declined. Firstshowed a moderate increase
in both periods. Second quarter office furniture sales growth significantly outpaced the most
recent Business and Institutional Furniture Manufacturer's Association (BIFMA)
industry statistics for the three-month period ending AugustNovember 1998. On
September 15, 1998, the Company finalized the purchase of Transwall, Inc., a
manufacturer of stackable panel systems and floor-to-ceiling products, which
will increaseincreased its already extensive office furniture product offering. The
acquisition was accounted for as a purchase, with results of operations included
in consolidated results from the date of acquisition, and was financed with
available cash on hand. Transwall's first quarterthree and six month results were not
material to the consolidated operating results.
First quarter fiscalFiscal 1999 net sales for both the three and six month periods for cabinets and
furniture product lines surpassedoutpaced 1998 levels, with volume increases inlevels. Increased volumes of television
cabinets and stands
more than offsetting declines in audio speaker cabinets. Whileattributed largely to the sales of
Kimball-branded home furniture increasedgrowth, as calendar year 1998 sales
were up in the first quarter of fiscal 1999,
total sales of residential furniture, which includes contract residential
furniture sales, decreased in comparison to 1998.television industry as a whole. In the first quarterthree and six month
periods of the prior year, the Company's sales of OEM cabinets and stands in the home entertainment market were negatively
impacted by the relocation of a large customer and its longer than anticipated
start up time, resulting in lower volumes in fiscal 1998. The
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Company's production flexibility allows it to utilize portions of available
production capacity within this group to support and balance increased
production schedules of other product lines within this segment.
Net sales of lodging furniture declined in the firstsecond quarter of fiscal 1999
increased
from 1998. Both the1998 levels on lower volumes of both standard product offering as well asofferings and
custom-made product
experienced double digit growth when compared toproduct. Select segments of the lodging industry have recently been
experiencing a softening in demand. Lodging furniture net sales for the current
year six month period are ahead of the prior year.
Higher
volumes, particularly in the Company's standard product offering, are partially
the result of value-reengineering of products, which reduced costs and helped to
lower prices to the customer while still meeting customer defined quality,
making the product more competitive in the marketplace.
Increased sales helped attribute to slightly higher first quarter 1999 operatingOperating income in the Furniture and Cabinets segment over 1998 levels.for the second quarter of
fiscal 1999 decreased from one year ago. Operating income for the six month
period remained flat with one year ago. Cost of goods sold, was higher in 1999 as increased material costs, as a percent of net
sales, particularly evidentwas higher in the second quarter of fiscal 1999 as material costs
increased, as a percent of net sales. Cost of goods sold, as a percent of net
sales, for the six month period also increased, as increased price discounting
in the office furniture group due to sales discounting,
were partially offset by lower direct labor and overhead costs, as a percent of
sales.product lines reduced profit margins. Both selling and
administrative costs for the three and six month periods were higher in dollar
terms over the prior year. Selling expenses were lower, as a percent of net
sales, in the current year second quarter primarily the result of focused cost reduction initiatives. Asreduced sales
incentive costs in the office furniture group's market share grows inproduct lines and a price competitive marketplace,
sales-based incentivemore aggressive
focus on cost reductions. Administrative costs were higher on increased people
and price discounts remain at elevated levels.technology investments.
ELECTRONIC CONTRACT ASSEMBLIES
Net sales in the first quarter in the Electronic Contract Assemblies segment fell 6% belowfor the three and six
month periods decreased 3% and 4%, respectively, from the prior year, primarilyyear. The sales
mix in this segment has been shifting more toward electronic automotive products
and away from computer related products, as evidenced by an increase in sales of
automotive products and a decrease in computer related products in both the
result of decreased volumes in
computer-related products. To a lesser extent, fiscalthree and six month periods. Fiscal 1999 first quartersix month results were unfavorably
impacted by the General Motors (GM) labor strike which was settled in July 1998,
as the Electronic Contract Assemblies segment assemblesmanufactures components that are
installed in GM vehicles.
Included in this segment
are sales to one customer which accounted for 13% and 15% of consolidated sales
in the first quarter of fiscal 1999 and 1998, respectively.
As first quarter salesOperating income declined in this segment operating income also decreased
when comparedin both the three and six month
periods, on lower sales. Due to the prior year.competitiveness of the marketplace, the
selling prices of selected products have been reduced, therefore adversely
affecting both sales and operating margins. Cost of goods sold, as a percent of
net sales, increased for both the three and six month periods as lower material
costs, as a percent of sales, were more than offset by higher direct labor and
overhead costs. SellingBoth selling and administrative costs remained fairly stable
withincreased for the three
and six month periods when compared to the prior year, while administrativeon higher people and
technology costs, as well as increased frombad debt allowance relating to a former
customer.
Included in this segment are sales to one customer, Lucas Varity, PLC, which
accounted for 16% and 14%, respectively, of consolidated net sales in the three
and six month periods of fiscal 1999. This same customer accounted for 16%
of consolidated net sales in both the three and six month periods one year ago on
increased investmentsago.
Sales to this customer represent approximately one half of total sales in people andthe
Electronic Contract Assemblies segment, which has historically carried a higher
technology costs.operating income margin than the Company's other two business segments.
Consistent with the general trend of consolidation in the automotive supplier
business, this customer has recently announced tentative plans to sell its
operations to TRW, Inc. The Company continuesis uncertain at this time what effect,
if any, this announcement may have on the contract production levels for this
customer. This statement is a forward-looking statement under the Private
Securities Litigation Reform Act of 1995 and is subject to build its infrastructurecertain risks and
uncertainties including, but not limited to, support growth opportunities, as
evidencedstrategic business actions taken
by the recent expansion of its Mexican production facility.this customer.
- 8 -
This segment's workinginvestment capital carries a higher degree of risk than the
Company's other segments due to rapid technological changes, and the contract nature
of this industry.industry and the importance of sales to one customer.
PROCESSED WOOD PRODUCTS AND OTHER
Outside sales in the Processed Wood Products and Other segment which accountedincreased 23% and
18%, respectively, for 6% of consolidated outsidethe three and six month periods compared to the prior
year. The increase in sales resulted primarily from new product offerings and
an increased focus to grow external sales in this segment. Sales of most major
products within this segment increased in both the first quarter of fiscal 1999,
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increased 14%three and six month periods
over the prior year. An increased emphasis by the Company to
grow outside sales in this segment aided first quarter results, as new product
offerings and new customers complemented the effort. First quarter sales of
dimension, veneer, and laminate products, plastic components and metal parts all
increased from one year ago. Internal sales of this segment to the Company's other
operations, particularly the Furniture and Cabinets segment, provide a key link
in the Company's vertically integrated supply chain. Operating income remained flat indeclined
for the current year on higher sales. Lower materialsecond quarter and overhead
costs,the six month period of fiscal 1999 when compared to
1998. Cost of goods sold, as a percent of net sales, wereincreased for both the
three and six month comparisons partially offset by increaseddue to higher labor costs, as a
percent of sales.
Selling expenses, as a percentIn the first quarter of sales, increased in the
current year first quarter.
On August 24, 1998,fiscal 1999, the Company completed the purchase of an
11,700-acre land parcel for $13.5 million which nearly doublesdoubled the timberland holdings of the
Company. The acquisition was made to help support the procurement of raw
materials in this segment and to provide possible future manufacturing facility
locations. The acquisition was financed with available cash on hand.
CONSOLIDATED OPERATIONS
Other income inConsolidated selling, general and administrative expenses increased, as a
percent of sales, .4 percentage point and .5 percentage point, respectively, for
the first quarterthree and six months of fiscal 1999 increased slightly over the
prior year. Interest income decreased when compared to the prior year as the
Company's investment portfolio mix is more heavily weighted in tax-free
municipal bonds with a lower pre-tax interest rate.
The effective income tax rate decreased 2.0 percentage points for the first
quarter of fiscal 1999 when compared to the prior year, due to
investments made in human resources, information technology and capacity and
product line expansions to support more aggressive, long-term growth. The
Company continues to review activities, processes and costs to assess where such
could be reduced while continuing to provide quality products and services to
the marketplace.
Other income decreased in both the three and six month periods of fiscal 1999
primarily the result of a decline in interest income caused by a combination of
lower average investment balances and a shift in the Company's investment
portfolio mix more heavily weighted toward tax-free municipal bonds with lower
pre-tax interest rates. In the second quarter of fiscal 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. Fiscal 1998 second
quarter income includes a $1,008,000 after tax gain ($0.02 per diluted share) on
the sale of real estate.
The effective
state income tax rate.rate decreased 2.7 percentage points for the second
quarter of fiscal 1999 and 2.4 percentage points for the six month period when
compared to the prior year, primarily due to a decrease in the effective federal
income tax rate for the quarter as the Company utilized capital losses to offset
part of the capital gain on the above mentioned sale of stock.
Net income was $12,563,000,and Class B diluted earnings per share for the second quarter were
$14,935,000 and $0.37, respectively, a decrease of 4% from the prior year
levellevels. Net income of $13,029,000.$27,498,000 and Class B diluted earnings per share remained constant withof
$0.67 for the six month period of fiscal 1999 decreased 4% from the prior year at $0.31. The earnings per share amounts reflect a two-for-one stock
split which occurred during the second quarter of the prior fiscal year.
All
prior year amounts have been restated.- 9 -
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 1998 to $132$134 million at the end
of the firstsecond quarter in fiscal 1999 due primarily to cash outlays during the
quarterfirst half of the fiscal year for strategic capital investments, dividends and
Class B common stock repurchases. Working capital at September 30,December 31, 1998 was $230$237
million with a current ratio of 2.4,2.6, compared to working capital of $260 million
and a current ratio of 2.7 at June 30, 1998.
Operating activities generated $6$24 million of cash flow in the first quartersix months
of fiscal 1999 compared to a breakeven$22 million in the first quartersix months of 1998. Net
income and non-cash charges to net income were partially offset by increases in
receivables of $13 million and inventory of $3$16 million. The Company reinvested $35$47 million into capital
investments for the future, including the purchase of 11,700 acres of timber and
harvest land, Transwall, Inc., computer equipment, production equipment, and production equipment.a
child development facility. Financing cash flows were primarily in the form of
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$10$11 million in share repurchases and $7$13 million in dividend payments. Net cash
flow, excluding the purchases and maturities of short-term investments was a
negative $41an
outflow of $38 million for the first quarter of fiscal year 1999.
Thesix month period ending December 31, 1998.
As the Company anticipates maintaining a strong liquidity position forincreased investment activity in the 1999
fiscal year andfuture, it
believes itsthat available funds on hand, borrowing capacity, and cash generated
from operations will be sufficient for working capital needs and to fund
investments and acquisitions in the Company's future. This statement is a forward-looking
statement under the Private Securities Litigation Reform Act of 1995 and is
subject to certain risks and uncertainties including, but not limited to a
downturn in the economy, loss of key customers or suppliers, availability or
cost of raw materials, or a natural disaster or similar unforeseen event.
SUBSEQUENT EVENT
On January 8, 1999, the Company announced the purchase of Southeast Millworks, a
privately held manufacturer of store display fixtures. This acquisition will
allow the Company to pursue new, potentially high-volume store fixture markets.
The acquisition was accounted for as a purchase and was financed with available
cash on hand.
YEAR 2000 READINESS DISCLOSURE
The Company continues to focus on the Year 2000 issue. The Company is currently
conducting integratedIntegrated testing of
interfaces between various applications used within the Company and has begun developing contingencybeen
completed. Contingency plans outlining recovery strategies for possible
failures.failures are currently being developed. The estimated completion date for Year
2000 compliance for mission critical items for a majority of the Company's
operations is still in the January -end of March 1999 time frame, as
disclosed inwith a select few foreign operations being
compliant by the Company's Form 10-K for the period endingend of June 30, 1998.1999. The total gross cost of Year 2000 compliance
remains in the $9 million to $11 million range.range, as disclosed in the Company's
Form 10-K for the period ending June 30, 1998. Approximately 45%60% of the total
costs had been incurred as of September 30,December 31, 1998, compared to 25%45% at JuneSeptember
30, 1998. Redeployed information technology resources 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 has not identified any additional material key risk factors
associated with the Year 2000 beyond those disclosed in its Form 10-K for the
period ending June 30, 1998.
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The Year 2000 disclosure includes 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 of its
customers and suppliers to meet Year 2000 compliance, the ability to locate and
correct all relevant computer codes and time constraints.
EURO CURRENCY
The European Union's adoption of a common currency, known as the Euro, is not
expected to have a material effect on the Company's financial condition or
results of operations, as its European sales accounted for less than 2% of
consolidated net sales in the first quarter of fiscal 1999.operations. As the Company continues to explore investment
opportunities abroad, it will monitor the possible effects of this currency
conversion.
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ACCOUNTING STANDARDS
In July 1998, the Company adopted Financial Accounting Standards No. 130,
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 Note 54 of
the Consolidated Financial Statements.
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. Because theThe Company engages in limited derivative activity and currently
does not regularly engage in derivative
activity,expect this new standard is not expected to have a material effect on the Company's
financial condition or results of operations.
___________________________________________________________________________________________________________________________________________________
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
statementsStatements 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, 1998.
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Item 3.3 - Quantitative and Qualitative Disclosures About Market Risk
As of September 30,December 31, 1998, the Company had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of $131$133
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.
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 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 20, 1998.
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 13,753,921 39,440
Douglas A. Habig 13,754,561 38,800
James C. Thyen 13,754,561 38,800
John B. Habig 13,754,561 38,800
Ronald J. Thyen 13,753,537 39,824
Christine M. Vujovich 13,754,561 38,800
Brian K. Habig 13,754,561 38,800
John T. Thyen 13,754,561 38,800
Gary P. Critser 13,754,561 38,800
Alan B. Graf, Jr. 13,754,561 38,800
Polly B. Kawalek 13,754,561 38,800
* Votes for nominees as Directors by holders of Class A Common Stock
represented 96% of the total 14,382,596 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 23,397,204 365,680
* Votes for nominee as Director by holders of Class B Common Stock
represented 87% of the total 26,790,107 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
On October 21, 1998, the Company filed a Form 8-K dated August 18, 1998, was filed pursuant toreporting
its press release under Item 5 (Other Events) which contained the Company's news release dated August 17, 1998,
announcing the signing- Other Events "Kimball
International holds Annual Meeting of a definitive agreement to acquire the assets of
Transwall, Inc.
Form 8-K dated August 24, 1998, was filed pursuant to Item 5
(Other Events) which contained the Company's news release dated August 24, 1998,
announcing the acquisition of an 11,700 acre land parcel which nearly doubled
the timberland holdings of the Company.
Form 8-K dated September 16, 1998, was filed pursuant to Item
5 (Other Events) which contained the Company's news release dated September 15,
1998, announcing the completion of the purchase of Transwall, Inc.Share Owners."
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: November 2, 1998February 12, 1999
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Kimball International, Inc.Inc
Exhibit Index
Exhibit No. Description
3b Restated By-laws of the Company
11 Computation of Earnings Per Share
27 Financial Data Scheduleschedule
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