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 March 31, 1996
__ 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 April
15, 1996 were:
Class A Common Stock - 7,311,714 shares
Class B Common Stock - 13,594,281 shares
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KIMBALL INTERNATIONAL, INC.
FORM 10-Q
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Statement of Financial Condition
- March 31, 1996 (Unaudited)and June 30, 1995 . . . . . . . . . 3
Consolidated Statement of Income (Unaudited)
- Three Months and Nine Months Ended March 31, 1996 and 1995. . 4
Consolidated Statement of Cash Flows (Unaudited)
- Nine Months Ended March 31, 1996 and 1995 . . . . . . . . . . 5
Notes To Consolidated Financial Statements (Unaudited). . . . . 6-7
Item 2. Management's Discussion and Analysis Of
Financial Condition and Results of Operations . . . . . . . . . 8-11
PART II OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . 12
- Exhibit #11 - Computation of Earnings Per Share
(Part I Exhibit)
- Exhibit #27 - Financial Data Schedule
(Part I Exhibit)
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PART I.
FINANCIAL INFORMATION
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(dollars in thousands)
(unaudited)
March 31, June 30,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,244 $ 15,278
Short-term investments at cost, estimated 109,585 97,534
market value of $109,671 and $97,956.
Accounts and notes receivable, less allow-
ance for possible losses of $3,529 and
$4,245. 95,439 96,057
Inventories 92,004 76,146
Other 19,647 21,801
Total Current Assets 323,919 306,816
PROPERTY AND EQUIPMENT - at cost, less
accumulated depreciation of $221,823
and $219,395. 177,183 177,130
OTHER ASSETS 23,168 13,140
Total Assets $524,270 $497,086
LIABILITIES AND SHARE OWNERS' EQUITY
CURRENT LIABILITIES:
Loans payable to banks $ 2,565 $ 1,763
Current maturities of long-term debt 549 393
Accounts payable 48,143 35,328
Dividends payable 4,790 4,811
Accrued expenses 60,322 62,751
Total Current Liabilities 116,369 105,046
OTHER LIABILITIES:
Long-term debt, less current maturities 3,104 924
Deferred income taxes and other 20,006 19,779
Total Other Liabilities 23,110 20,703
SHARE OWNERS' EQUITY:
Common stock 6,723 6,723
Additional paid-in capital 873 812
Foreign currency translation adjustment 1,541 1,981
Retained earnings 390,000 373,704
Less: Treasury stock, at cost (14,346) (11,883)
Total Share Owners' Equity 384,791 371,337
Total Liabilities and Share Owners' Equity $524,270 $497,086
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands except per share amounts)
(unaudited) (unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
Net Sales $ 223,915 $ 236,819 $ 677,387 $ 676,318
Cost of Sales 159,791 172,931 492,682 488,542
Gross Profit 64,124 63,888 184,705 187,776
Selling, Administrative 46,535 47,101 139,016 140,734
and General Expenses
Product Line Exit Costs 3,400 - 3,400 -
Operating Income 14,189 16,787 42,289 47,042
Other Income (Expense):
Interest Expense (121) (60) (336) (118)
Interest Income 1,836 1,609 5,605 3,912
Other - net 1,124 703 3,540 2,109
2,839 2,252 8,809 5,903
Income Before Taxes on Income 17,028 19,039 51,098 52,945
Taxes on Income 7,059 8,208 20,420 22,031
Net Income $ 9,969 $ 10,831 $ 30,678 $ 30,914
Earnings Per Share of Common Stock:
Class A Common Stock $.47 $.51 $1.46 $1.46
Class B Common Stock $.48 $.52 $1.47 $1.47
Dividends Per Share of Common Stock:
Class A Common Stock $.22 3/4 $.20 3/4 $.68 1/4 $.62 1/4
Class B Common Stock $.23 $.21 $.69 $.63
Average total number of shares
outstanding Class A and B
Common Stock 20,905,962 21,040,406 20,929,633 21,093,203
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months Ended
March 31,
1996 1995
Cash Flows From Operating Activities:
Net income $ 30,678 $ 30,914
Non-cash charges (credits) to net income:
Depreciation and amortization 24,884 22,448
Gain on sales of assets (1,415) (256)
Deferred income tax and other deferred charges 619 1,343
Product line exit costs 3,400 -
(Increase) Decrease in current assets:
Accounts and notes receivable 618 (4,310)
Inventories (15,858) 207
Other current assets 734 (1,318)
Increase (Decrease) in current liabilities:
Accounts payable 12,815 5,780
Accrued expenses (5,385) 4,465
Net Cash Provided By Operating Activities 51,090 59,273
Cash Flows From Investing Activities:
Capital expenditures (26,245) (22,065)
Proceeds from sales of assets 6,014 1,185
Increase in other assets (11,122) (1,275)
Purchases of short-term investments (66,300) (89,743)
Maturities of short-term investments 54,249 72,949
Net Cash Used For Investing Activities (43,404) (38,949)
Cash Flows From Financing Activities:
Increase in short-term borrowings 803 69
Increase (Decrease)in long-term debt 508 (1,036)
Dividends paid (14,404) (13,255)
Acquisition of treasury stock, net of sales (2,405) (3,401)
Other - net (187) 483
Net Cash Used For Financing Activities (15,685) (17,140)
Effect of Exchange Rate Change on
Cash and Cash Equivalents (35) 84
Net Increase (Decrease) in Cash and Cash Equivalents (8,034) 3,268
Cash and Cash Equivalents-Beginning of Period 15,278 15,452
Cash and Cash Equivalents-End of Period $ 7,244 $ 18,720
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income taxes $ 25,221 $ 20,126
Interest $ 284 $ 231
Total Cash, Cash Equivalents and
Short-Term Investments:
Cash and cash equivalents $ 7,244 $ 18,720
Short-term investments 109,585 93,288
Totals $116,829 $112,008
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) The interim financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. All significant intercompany
transactions and balances have been eliminated. Management believes
the financial statements include all adjustments of a normal, recurring
nature necessary to present fairly the financial statements of the interim
period. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. 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)
March 31, June 30,
1996 1995
Raw Materials $52,020 $39,527
Work-in-Process 15,583 12,681
Finished Goods 24,401 23,938
Total $92,004 $76,146
For interim reporting, LIFO inventories are computed based on estimated
year-end quantities and 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 Accounting
Principles Board Opinion No. 15 for computing earnings per share for two
class common stock due to the dividend preference of Class B Common Stock.
(4) Results of operations for the nine month period are not necessarily
indicative of the results to be expected for the entire fiscal year.
(5) Certain prior year amounts have been reclassified to conform with the
fiscal 1996 presentation.
(6) Effective March 29, 1996, the Company acquired certain assets of ELMO Semi-
conductor Corporation of California and all of the outstanding capital
stock of ELMO Semiconducteurs SARL of France, providers of semiconductor
DIE processing, testing, design and packaging. The acquisition was
accounted for as a purchase, with operating results to be in the
Company's consolidated statement of income from the date of acquisition.
The acquisition was financed with the Company's available cash on hand.
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(7) The Company announced a strategic decision in the third quarter of the
1996 fiscal year to cease production and sales of its domestic wholesale
piano product line, due to the continuing decline in the domestic piano
market. This product line accounted for less than 2% of fiscal year 1995
consolidated sales. A pretax provision of $3.4 million was established
during the third quarter to cover all estimated costs associated with
exiting this product line, including estimates for incremental selling
costs, impairment of assets and obsolete inventory. Final sales and
production are anticipated to be complete by the end of this current
fiscal year. As of March 31, 1996, incremental selling costs of
$248,000 were paid and applied against the liability account.
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Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
Net sales decreased 5% in the third quarter and remained constant in the first
nine months of the 1996 fiscal year when compared to the same periods of the
prior fiscal year. Net income for the third quarter and nine month periods
reached record levels for those time periods, increasing 9% and 5%,
respectively, when compared to the year earlier periods, excluding the effects
of the Company's cost to exit the domestic wholesale piano product line in the
current quarter. Including these product line exit costs, net income and
earnings per share decreased 8% for the third quarter and declined 1% in the
year to date period as compared to the prior year. Cash flow generated from
operations was $51 million for the current nine month period.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO
THREE AND NINE MONTHS ENDED MARCH 31, 1995.
Net sales for the third quarter of the 1996 fiscal year were $223,915,000, a
decrease of 5% when compared to the third quarter of the prior year, primarily
due to lower demand in the Company's Original Equipment Manufacturer (OEM) and
Electronic Contract Assemblies product lines. Net sales for the first nine
months of the 1996 fiscal year were $677,387,000, as compared to $676,318,000
one year earlier.
Net sales in the Company's largest segment, Furniture and Cabinets, remained
constant with last year's level for the three and nine month periods. Sales
increased in the Company's office furniture product line, with sales of value
oriented wood casegoods and steel office furniture product lines leading the
increase. The Company completed the conversion of an existing facility,
previously used by the Contract Electronics Assemblies segment, to a facility
that produces systems office furniture during the third quarter. This facility
was dedicated to fulfill the long-term growth that management anticipates in the
Company's systems office furniture product line. Start-up costs for this
facility have been charged to operating expense during the 1996 fiscal year.
Operating income in the office furniture product line increased for the three
and nine month periods due primarily to reduced losses on steel office furniture
product lines, as volume increases and improved manufacturing efficiencies were
partially offset by increased selling costs as this product line was expanded
into select new markets. The Company's steel office furniture production fac-
ility continues to improve efficiencies since its start-up in the prior fiscal
year. Sales of Original Equipment Manufacturer (OEM) product lines, primarily
television cabinets and residential furniture, decreased in the three and nine
month periods when compared to one year earlier, due to lower than usual demand
experienced in the cyclically-low third quarter. This lower demand was due in
part to the distribution channel aligning inventory levels with less aggressive
retail sales forecasts of certain products. Management anticipates normal
demand should resume once inventory levels are properly aligned with sales
estimates. Some production capacity was utilized for production of other
product lines sold within this segment. Production flexibility is inherent in
the OEM supplier market and may cause short-term fluctuations in any given
quarter.
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The decrease in OEM sales volume, and to a lesser extent an unfavorable sales
mix towards lower margin products, caused operating profits to be lower when
compared to the prior year for both the third quarter and year-to-date periods.
Sales of hospitality furniture continued to increase in the three and nine month
periods when compared to the same periods one year earlier, due to greater
volumes of standard and high-end products targeted to the hospitality renovation
market. These additional volumes increased operating profits in the three and
nine month periods when compared to the year earlier periods. Product offering
expansion costs were incurred during the earlier part of this fiscal year,
allowing additional sales to be realized in the third quarter as the result of
an expanded product offering. The Company's European subsidiaries continued to
sharply reduce their operating losses as compared to the year earlier periods
when facility combination costs were incurred, primarily due to the benefits
derived from the combining of two production facilities into one at the end of
the prior fiscal year and other manufacturing efficiency improvements.
Net sales in the Company's second largest segment, Electronic Contract
Assemblies, declined 9% in the third quarter when compared to the same period in
the prior fiscal year. The decline in the quarter was due primarily to a
softening demand in the telecommunications market and production rescheduling
resulting from the General Motors strike. Management anticipates that some of
these lost third quarter sales will be regained in the fourth quarter.
Rescheduling, production flexibility and material availability are inherent in
the contract electronic assemblies market and may cause short-term fluctuations
in any given quarter. Year-to-date sales have increased 11% from the prior year
due to higher volumes from existing automotive, computer and computer peripheral
customers in addition to products manufactured for new computer customers,
despite purchasing limitations on certain raw material components. Third
quarter operating profits declined from the prior year due to lower sales
volumes. Operating profits increased in the nine month period from the prior
year due primarily to additional sales volumes which were produced with less
facility square footage as the result of re-engineering assembly and support
processes. Included in this segment is one customer which accounted for 15% of
consolidated revenue in the third quarter and 14% in the year-to-date period of
the current fiscal year, as compared to 14% of consolidated revenue in both
periods of the prior year. The Company purchased certain assets of ELMO
Semiconductor and all the capital stock of ELMO Semiconductuers, SARL as of
March 29, 1996. The design, testing and packaging technologies acquired,
including multichip modules, will be combined to enhance and expand the
Company's existing core competencies in servicing the contract electronics
market. The acquisition was accounted for as a purchase, with ELMO's results of
operations to be included in consolidated results of operations from the
date of acquisition.
Net sales in the Company's smallest segment, Processed Wood Products and Other,
declined 33% from the prior year's third quarter and 29% from the nine month
period, due in part to the Company reducing its production capacity of processed
wood products sold to outside customers and an industry-wide softening in demand
for processed wood products, which management believes to be temporary.
Operating income in this segment declined for the three and nine month periods
when compared to the prior year, reflecting the lower sales volumes. This
segment continues to supply a significant amount of production output for use in
the Furniture and Cabinets segment.
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Consolidated cost of sales as a percent of sales decreased 1.6 percentage points
for the third quarter when compared to the prior year, primarily due to a shift
in product line mix to products which carry a lower material content and
improvements in manufacturing efficiency. Consolidated cost of sales as a
percent of sales increased 0.5 percentage point for the nine month period,
primarily due to a shift in product line mix to products which carry a higher
material content, which was partially offset by improvements in labor
efficiency. The effect of material price increases has diminished when
compared to the prior year.
Consolidated selling, general and administrative expense as a percent of sales
increased 0.9 percentage point for the three month period, primarily due to the
lower sales volume having no effect on the fixed portion of these costs,
although cost reduction initiatives provided some relief. Selling, general and
administrative expense, as a percent of sales, decreased 0.3 percentage point
for the nine month period when compared to the prior year, due in part to cost
reduction initiatives. In dollar terms, these costs were lower than the prior
year level for both the three and nine month periods, despite general
inflationary cost increases.
The Company announced a strategic decision in the third quarter of the current
fiscal year to cease production and sales of its domestic wholesale piano
product line, due to the continuing decline in the domestic piano market. A
provision of $3.4 million was established during the third quarter to cover all
estimated costs associated with exiting this product line, including estimates
for incremental selling costs, impairment of assets and obsolete inventory. The
after-tax earnings per share effect of this charge amounted to $0.09 per share.
Planning for this exit was managed to minimize disruption and allow employees to
transfer to other areas of the company where possible. As such, a minimal
amount of employee-related costs were provided for. Final sales and production
are anticipated to be complete by the end of this current fiscal year. This
product line accounted for less than 2% of consolidated sales for fiscal year
1995. The decision allows this facility to target higher margin products in the
future, including sales and production of OEM products.
Excluding the product line exit costs, operating income for the third quarter of
1996 was $17,589,000, an increase of 5% when compared to the third quarter of
1995, primarily due to manufacturing efficiency improvements at the steel office
furniture production facility and in the Company's European operations.
Operating income for the nine month period, excluding the product line exit
costs, was $45,689,000, a decrease of 3% when compared to the same period in the
prior year, due in part to an unfavorable sales mix being partially offset by
manufacturing efficiency improvements. Including the product line exit costs,
operating profit was $14,189,000 for the three month period and $42,289,000 for
the nine month period, decreases of 15% and 10%, respectively.
Investment income increased in the three and nine month periods when compared to
the same periods in the previous year due primarily to higher average investment
balances. Other, net increased in the three and nine month period when compared
to the prior year due primarily to gains realized on the sale of certain assets.
The effective income tax rate decreased 1.6 percentage points in both the three
and nine month periods when compared to the prior year due primarily to larger
European operating losses in the prior year which provided no tax benefit.
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The Company achieved net income, excluding the effects of the product line exit
costs, of $11,839,000 for the third quarter of the 1996 fiscal year, a 9%
increase over the prior year's third quarter income of $10,831,000. Net income
for the first nine months of the 1996 fiscal year, excluding the effects of the
product line exit costs, totaled $32,548,000, a 5% increase over the same period
in the prior year of $30,914,000. Excluding the effects of the Company's cost
to exit the domestic wholesale piano product line, net income for the third
quarter and nine month periods ended March 31 was a record for both of those
periods. Net income for the third quarter, including the effects of the product
line exit costs, was $9,969,000 or $0.48 per Class B share, a decrease of 8%
when compared to the prior year. Net income for the nine month period amounted
to $30,678,000 or $1.47 per Class B share, a decrease of 1% when compared to the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents and Short-Term Investments totaled $117 million at March
31, 1996 as compared to $112 million one year earlier. Working capital and the
current ratio continued to be strong at $208 million and 2.8 to 1, respectively,
at March 31, 1996 as compared to $202 million and 2.9 to 1, respectively, one
year earlier.
Operating activities continued to generate positive cash flow, which amounted to
$51 million for the nine months ended March 31, 1996. The Company reinvested
$37 million of this amount in capital investments for the future, including the
acquisition of certain assets of ELMO Semiconductors and the capital stock of
ELMO Semiconductuers, SARL, production equipment upgrades, facility upgrades,
facility conversion costs for planned redeployment and trucking fleet upgrades.
$16 million was used for financing activities, primarily to pay dividends. Net
cash flow, excluding the purchases and maturities of short-term investments,
amounted to a positive $4 million for the nine month period ended March 31,
1996.
The Company anticipates maintaining a strong liquidity position throughout the
1996 fiscal year with cash needs being met by cash flows provided by operations,
available cash balances and short-term investments on hand. Based upon the
Company's strong financial condition and ability to generate cash, management
believes that there is a substantial amount of unused short-term and long-term
borrowing capacity which could be utilized, if necessary.
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PART II.
OTHER INFORMATION
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 February 5, 1996, was filed pursuant to Item
5 (Other Events) which contained the Company's news release
dated February 5, 1996, announcing the Company's intent to
acquire California-based ELMO Semiconductor Corporation and
France-based ELMO Semiconducteurs SARL, subject to certain
conditions.
Form 8-K dated February 13, 1996, was filed pursuant to Item
5 (Other Events) which contained the Company's news release
dated February 13, 1996, announcing the Company's intention to
cease domestic wholesale piano sales and assembly.
Form 8-K dated March 29, 1996, was filed pursuant to Item 5
(Other Events) which contained the Company's news release dated
March 29, 1996, announcing the completion of the Company's
purchase of California-based ELMO Semiconductor Corporation and
France-based ELMO Semiconductuers SARL.
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
(President and Chief Executive Officer)
Gary P. Critser
GARY P. CRITSER
(Senior Exec. Vice President, Chief
Accounting Officer and Secretary)
Date: April 26, 1996
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