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 December 31, 1999 __ 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, 2000 were: Class A Common Stock - 14,297,013 shares Class B Common Stock - 26,164,403 shares - 1 - KIMBALL INTERNATIONAL, INC. FORM 10-Q INDEX PAGE NO. PART I FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Balance Sheets - December 31, 1999 (Unaudited) and June 30, 1999 . . . . . . . 3 Consolidated Statements of Income (Unaudited) - Three and Six Months Ended December 31, 1999 and 1998 . . . . 4 Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended December 31, 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. . . . . . . . . . . . . . 15 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 15 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . 16 - 2 - PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (amounts in thousands) (unaudited) December 31, June 30, 1999 1999 Assets Current Assets: Cash and cash equivalents $ 2,286 $ 16,775 Short-term investments 107,693 114,996 Receivables, less allowances of $4,416 and $3,816, respectively 143,815 132,284 Inventories 109,941 96,157 Other 25,296 26,129 Total current assets 389,031 386,341 Property And Equipment - net of accumulated depreciation of $281,158 and $265,141, respectively 230,844 221,498 Other Assets 57,631 53,547 Total assets $677,506 $661,386 Liabilities And Share Owners' Equity Current Liabilities: Loans payable $ 14,092 $ 3,518 Current maturities of long-term debt 1,213 1,185 Accounts payable 81,411 77,976 Dividends payable 6,402 6,380 Accrued expenses 69,402 79,505 Total current liabilities 172,520 168,564 Other Liabilities: Long-term debt, less current maturities 1,200 1,730 Deferred income taxes and other 27,481 26,815 Total other liabilities 28,681 28,545 Share Owners' Equity: Common stock 2,151 2,151 Additional paid-in capital 8,112 6,379 Retained earnings 509,956 498,962 Accumulated other comprehensive income 551 1,312 Less: Treasury stock, at cost (44,465) (44,527) Total Share Owners' Equity 476,305 464,277 Total liabilities and Share Owners' equity $677,506 $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 Six Months Ended December 31, December 31, 1999 1998 1999 1998 Net Sales $294,275 $280,080 $572,677 $544,726 Cost of Sales 211,807 197,027 413,434 383,116 Gross Profit 82,468 83,053 159,243 161,610 Selling, General and Administrative Expenses 65,995 64,715 128,635 126,697 Operating Income 16,473 18,338 30,608 34,913 Other Income (Expense): Interest expense (145) (168) (237) (273) Interest income 1,231 1,570 2,674 3,534 Other - net 979 3,095 2,446 4,152 Other income - net 2,065 4,497 4,883 7,413 Income Before Taxes on Income 18,538 22,835 35,491 42,326 Taxes on Income 6,311 7,900 11,705 14,828 Net Income $ 12,227 $ 14,935 $ 23,786 $ 27,498 Earnings Per Share of Common Stock: Basic: Class A $ .30 $ .36 $ .58 $ .67 Class B $ .30 $ .37 $ .59 $ .68 Diluted: Class A $ .30 $ .36 $ .58 $ .66 Class B $ .30 $ .37 $ .59 $ .67 Dividends Per Share of Common Stock: Class A $ .155 $ .155 $ .31 $ .31 Class B $ .160 $ .160 $ .32 $ .32 Average Total Number of Shares Outstanding Class A and B Common Stock: Basic 40,377 40,698 40,375 40,814 Diluted 40,499 40,971 40,548 41,073 See Notes to Consolidated Financial Statements - 4- KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) (unaudited) Six Months Ended December 31, 1999 1998 Cash Flows From Operating Activities: Net income $ 23,786 $ 27,498 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,731 19,103 Gain on sales of assets (1,102) (231) Deferred income tax and other deferred charges (551) (51) Change in current assets and liabilities: Receivables (8,729) (15,577) Inventories (9,683) (4,334) Other current assets 1,443 1,027 Accounts payable 1,949 4,865 Accrued expenses (14,097) (8,089) Net cash provided by operating activities 14,747 24,211 Cash Flows From Investing Activities: Capital expenditures (25,594) (29,341) Proceeds from sales of assets 1,668 737 Increase in other assets (2,570) (17,485) Purchases of held-to-maturity investments -0- (400) Maturities of held-to-maturity investments 400 5,410 Purchases of available-for-sale securities (52,225) (24,405) Sales and maturities of available-for-sale securities 58,390 41,580 Net cash used for investing activities (19,931) (23,904) Cash Flows From Financing Activities: Net change in short-term borrowings 7,990 5,992 Net change in long-term debt (502) 547 Acquisition of treasury stock, net of sales (4,733) (10,738) Dividends paid to share owners (12,770) (12,962) Proceeds from exercise of stock options 692 818 Other - net 9 62 Net cash used for financing activities (9,314) (16,281) Effect of Exchange Rate Change on Cash and Cash Equivalents 9 1 Net Decrease in Cash and Cash Equivalents (14,489) (15,973) Cash and Cash Equivalents-Beginning of Period 16,775 16,757 Cash and Cash Equivalents-End of Period $ 2,286 $ 784 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Income taxes $ 14,131 $ 14,210 Interest $ 206 $ 287 Total Cash, Cash Equivalents and Short-Term Investments: Cash and cash equivalents $ 2,286 $ 784 Short-term investments 107,693 132,988 Totals $109,979 $133,772 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 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: December 31, June 30, 1999 1999 (in thousands) Finished Products $ 31,808 $33,262 Work-in-Process 16,881 14,471 Raw Materials 61,252 48,424 Total inventory $109,941 $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 Six Months Ended December 31, December 31, 1999 1998 1999 1998 (in thousands) Net Sales: Furniture and Cabinets $208,711 $195,677 $402,397 $387,364 Electronic Contract Assemblies 85,539 84,387 170,239 157,335 Unallocated Corporate and Eliminations 25 16 41 27 Consolidated $294,275 $280,080 $572,677 $544,726 Net Income: Furniture and Cabinets $ 7,838 $ 7,541 $ 13,131 $ 15,551 Electronic Contract Assemblies 3,080 4,331 6,520 6,775 Unallocated Corporate and Eliminations 1,309 3,063 4,135 5,172 Consolidated $ 12,227 $ 14,935 $ 23,786 $ 27,498 Total Assets: Furniture and Cabinets $423,533 $363,833 Electronic Contract Assemblies 144,608 137,320 Unallocated Corporate and Eliminations 109,365 130,339 Consolidated $677,506 $631,492 In the second quarter of fiscal 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 six month periods ending December 31, 1999 and 1998 is as follows: Three Months Ended Six Months Ended December 31, December 31, 1999 1998 1999 1998 (in thousands) Net Income $12,227 $14,935 $23,786 $27,498 Net Change in Unrealized Gains/Losses on Securities (495) (581) (738) (838) Foreign Currency Translation Adjustment (210) 173 (23) 161 Comprehensive Income $11,522 $14,527 $23,025 $26,821 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 were not material to the Company's second quarter fiscal 2000 consolidated operating results. - 7 - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Net sales for the second quarter of fiscal year 2000 increased 5% over the prior year to $294,275,000 and set a new quarterly record. Net income and Class B diluted earnings per share were $12,227,000 and $0.30, respectively, for the second quarter of fiscal 2000, a decrease of 18% and 19%, respectively, from the prior year. Net sales for the six-month period ending December 31, 1999 of $572,677,000 surpassed the prior year sales by 5%. Current year net income and Class B diluted earnings per share for the six month period were $23,786,000 and $0.59, respectively, a decrease of 13% and 12%, respectively, from the prior year. Fiscal year 1999 second quarter and six-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 SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 Net sales for the Company for the three and six-month periods of fiscal year 2000 surpassed second quarter 1999 levels on increases from both of the Company's segments -- the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment. Net income for the second quarter declined as increased profits in the Furniture and Cabinets Segment were more than offset by a decline in net income for the Electronic Contract Assemblies Segment 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. 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 were not material to the Company's second quarter fiscal year 2000 consolidated operating results. Fiscal year 2000 second quarter and six-month net sales increased 7% and 4%, 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-month periods of fiscal year 2000 increased in the office furniture product line over the prior year on increased sales of casegoods, seating and systems product groups. The Company's office furniture sales surpassed the industry's estimate of flat shipments as reported by the Business and Institutional Furniture Manufacturer's Association (BIFMA) for the - 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-month periods of fiscal year 2000 declined from the prior year in the lodging and healthcare product line. Sales of custom-made products increased while sales of standard product offerings declined in the second quarter. 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 current quarter when compared to the prior year as 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. Net sales of OEM furniture and cabinets for both the second quarter and six-month period exceeded the prior year sales. Second quarter and six-month sales of residential contract furniture and metal component parts 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 second quarter and six-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 increased in the second quarter of fiscal year 2000 when compared to one year ago partially as a result of higher sales. Gross profit, as a percent of sales, decreased as increased material and overhead costs, as a percent of sales, were partially offset by lower labor costs, as a percent of sales. The Company's recently acquired Juarez, Mexico facility continues to negatively impact the gross profitability in this segment when compared to the prior year second quarter and six-month periods. As projected, both sales and gross profit for this operation improved in the second quarter when compared to the first quarter of fiscal year 2000. However, customer schedule changes and production inefficiencies continue to impact profitability. 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. 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. Selling, general and administrative expenses increased in dollars but decreased, as a percent of sales, as a focus on cost management continues in fiscal year 2000. Net income for the six-month period declined primarily due to lower sales margins on lodging and healthcare products, lower margins on furniture components, and start-up costs at the recently acquired Mexico facility mentioned above. - 9 - ELECTRONIC CONTRACT ASSEMBLIES SEGMENT Net sales for the second quarter of fiscal year 2000 in the Electronic Contract Assemblies Segment exceeded the prior year by 1%. Second quarter sales of electronic transportation and telecommunication components, medical devices and industrial controls increased while sales of computer related components declined when compared to the prior year. Segment sales for the six-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-month results. Net income for both the second quarter and six-month periods decreased from the prior year. Gross profit, as a percent of net sales, decreased for both the quarter and six-month comparisons. With a planned diversification of its customer base into a variety of new industries, 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. Selling, general and administrative costs for both the three and six-month periods decreased in both 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 segment 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. Included in this segment are sales to one customer, TRW Inc., which accounted for 15% and 16% of consolidated net sales in the second quarter of fiscal year 2000 and 1999, respectively, and 16% and 14% of consolidated net sales in the six month period ending December 31, 1999 and 1998, 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, as a percent of sales, 0.7 percentage point in the second quarter of fiscal year 2000 from the prior year and decreased 0.8 percentage point on a year-to-date comparison related primarily to decreased selling expenses and reduced incentive compensation which is 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 comparisons on lower interest income caused by lower average investment balances and a decrease in miscellaneous 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 point in the second quarter compared to one year ago. The fiscal year 2000 six-month effective tax - 10 - rate declined 2.0 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. Net income and Class B diluted earnings per share of $12,227,000 and $0.30, respectively, for the second quarter of fiscal year 2000 decreased 18% and 19%, respectively, from the prior year levels of $14,935,000 and $0.37. Fiscal 2000 year-to-date net income and Class B diluted earnings per share of $23,786,000 and $0.59, respectively, decreased 13% and 12%, respectively, from the prior year levels of $27,498,000 and $0.67. Fiscal year 1999 second quarter and six-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 million at December 31, 1999. Working capital at December 31, 1999 was $217 million with a current ratio of 2.3, compared to working capital of $218 million and a current ratio of 2.3 at June 30, 1999. Operating activities generated $15 million of cash flow in the first six months of fiscal year 2000 compared to $24 million in 1999. The Company reinvested $28 million into capital investments for the future, including production equipment, a new veneer mill and veneer face operation, and office facilities. Financing cash flow activities include $13 million in dividend payments. 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 December 31, 1999, $10 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, the Company has not experienced any major interruptions or malfunctions in its operations related to the Year 2000 issue and does not anticipate any. In addition, the - 11 - 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 turn of the century, the Company continues 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 outlined 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 deferrals 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 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. Existing information technology resources were redeployed, which 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 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. 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. - 12 - Item 3 - Quantitative and Qualitative Disclosures About Market Risk As of December 31, 1999, the Company had an investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $108 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 December 31, 1999 would cause the fair value of these short-term investments to decline by an immaterial amount. The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency rate changes. As of 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. - 13 - 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. - 14 - Item 6. - Exhibits and Reports on Form 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K) (11) Computation of Earnings Per Share (27) Financial Data Schedule (b) Reports on Form 8-K Form 8-K dated October 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, was filed pursuant to Item 5 (Other Events) which contained the Company's news release dated November 2, 1999, announcing the completion of the purchase of Jackson of Danville. 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, 2000 - 15 - Kimball International, Inc Exhibit Index Exhibit No. Description 11 Computation of Earnings Per Share 27 Financial Data Schedule - 16 -