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, 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 October
15, 1996 were:
Class A Common Stock - 7,269,285 shares
Class B Common Stock - 13,519,535 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 Sheet
- September 30, 1996 (Unaudited) and June 30, 1996. . . . . . . 3
Consolidated Statement of Income (Unaudited)
- Three Months Ended September 30, 1996 and 1995. . . . . . . . 4
Consolidated Statement of Cash Flows (Unaudited)
- Three Months Ended September 30, 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 BALANCE SHEET
(dollars in thousands)
(unaudited)
September 30, June 30,
1996 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,548 $ 5,647
Short-term investments at cost, estimated
market value of $121,635 and $108,164 121,810 108,425
Accounts and notes receivable, less allow-
ance for possible losses of $4,238
and $4,075 115,397 117,140
Inventories 83,483 89,489
Other 23,041 21,550
Total Current Assets 362,279 342,251
PROPERTY AND EQUIPMENT - at cost, less
accumulated depreciation of $223,145
and $221,569 173,214 174,009
OTHER ASSETS 21,622 21,965
Total Assets $557,115 $538,225
LIABILITIES AND SHARE OWNERS' EQUITY
CURRENT LIABILITIES:
Loans payable to banks $ 2,994 $ 2,282
Current maturities of long-term debt 530 492
Accounts payable 57,127 50,963
Dividends payable 5,387 5,393
Accrued expenses 66,694 62,913
Total Current Liabilities 132,732 122,043
OTHER LIABILITIES:
Long-term debt, less current maturities 2,787 3,016
Deferred income taxes and other 22,423 22,152
Total Other Liabilities 25,210 25,168
SHARE OWNERS' EQUITY:
Common stock 6,723 6,723
Additional paid-in capital 1,481 898
Foreign currency translation adjustment 2,259 1,441
Retained earnings 407,158 399,024
Less: Treasury stock, at cost (18,448) (17,072)
Total Share Owners' Equity 399,173 391,014
Total Liabilities and Share Owners' Equity $557,115 $538,225
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)
Three Months Ended
September 30,
1996 1995
Net Sales $247,700 $218,933
Cost of Sales 174,566 163,077
Gross Profit 73,134 55,856
Selling, Administrative and General Expenses 53,951 45,160
Operating Income 19,183 10,696
Other Income (Expense):
Interest Expense (117) (88)
Interest Income 1,913 1,897
Other - net (2,797) 1,464
Other (Expense) Income - net (1,001) 3,273
Income Before Taxes on Income 18,182 13,969
Taxes on Income 4,661 5,551
Net Income $ 13,521 $ 8,418
Earnings Per Share of Common Stock:
Class A Common Stock $ .65 $ .40
Class B Common Stock $ .65 $ .40
Dividends Per Share of Common Stock:
Class A Common Stock $ .25 3/4 $ .22 3/4
Class B Common Stock $ .26 $ .23
Average total number of shares outstanding
Class A and B Common Stock 20,795,245 20,972,043
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three Months Ended
September 30,
1996 1995
Cash Flows From Operating Activities:
Net income $ 13,521 $ 8,418
Non-cash charges (credits) to net income:
Depreciation and amortization 8,269 8,044
Gain on sales of assets (341) (1,620)
Deferred income tax and other deferred charges (381) 466
(Increase) Decrease in current assets:
Accounts and notes receivable (381) (10,591)
Inventories 3,446 (2,699)
Other current assets 1,725 1,480
Increase (Decrease) in current liabilities:
Accounts payable 7,582 14,186
Accrued expenses 4,340 (2,256)
Net Cash Provided By Operating Activities 37,780 15,428
Cash Flows From Investing Activities:
Capital expenditures (8,974) (8,706)
Proceeds from sales of assets 372 3,266
Proceeds from sale of subsidiary 2,345 --
Increase in other assets (315) (716)
Purchases of short-term investments (31,805) (37,879)
Maturities of short-term investments 18,420 26,367
Net Cash Used For Investing Activities (19,957) (17,668)
Cash Flows From Financing Activities:
Increase in short-term borrowings 713 726
Decrease in long-term debt (191) (166)
Dividends paid (5,393) (4,812)
Acquisition of treasury stock, net of sales (829) (1,015)
Other - net 759 (126)
Net Cash Used For Financing Activities (4,941) (5,393)
Effect of Exchange Rate Change on
Cash and Cash Equivalents 19 (27)
Net Increase (Decrease) in Cash and Cash Equivalents 12,901 (7,660)
Cash and Cash Equivalents-Beginning of Period 5,647 15,278
Cash and Cash Equivalents-End of Period $ 18,548 $ 7,618
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income taxes $ 1,160 $ 1,306
Interest $ 150 $ 97
Total Cash, Cash Equivalents and
Short-Term Investments:
Cash and cash equivalents $ 18,548 $ 7,618
Short-term investments 121,810 109,046
Totals $140,358 $116,664
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 consisting only 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)
September 30, June 30,
1996 1996
Raw Materials $43,118 $50,110
Work-in-Process 12,687 14,743
Finished Goods 27,678 24,636
Total $83,483 $89,489
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 three month period are not necessarily
indicative of the results to be expected for the entire fiscal year.
(5) On 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 included in the
Company's consolidated statement of income from the date of acquisition.
The Company has one year in which it may adjust the initial purchase
price allocation. The acquisition was not material and was financed
with the Company's available cash on hand.
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(6) The Company sold its piano key and action production facility located in the
United Kingdom, Herrburger Brooks, PLC, during the first quarter of fiscal
1997. A $3.8 million pretax loss on the sale is included in Other-net, with
an offsetting $3.8 million income tax benefit included in Taxes on Income.
This tax benefit was the result of a higher U.S. tax basis in this
subsidiary due to previously undeductable losses on the investment in this
U.K. subsidiary. This transaction resulted in no impact to consolidated
first quarter net income.
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Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
First quarter net sales were $247,700,000 for the 1997 fiscal year, an increase
of 13% when compared to the same quarter of the prior fiscal year. First
quarter net income of $13,521,000 and Class B earnings per share of $0.65
increased 61% when compared to the year earlier period. Cash flow generated
from operations totaled $37,780,000 for the first quarter of fiscal 1997. Open
orders were $191,502,000 at September 30, 1996. A detailed discussion of the
first quarter results follows, including certain forward-looking information.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1995.
Net sales for the first quarter of the 1997 fiscal year were $247,700,000, an
increase of 13% when compared to the first quarter of the prior year, as sales
continued to grow in the larger two of the Company's three business segments -
Furniture and Cabinets, and Electronic Contract Assemblies. Net sales in the
Company's smallest business segment - Processed Wood Products and Other,
declined from the prior year's first quarter. Operating Income for the first
quarter of fiscal 1997 was $19,183,000 an increase of 79% over the prior year's
first quarter, due primarily to sales volume increases and improvements in
manufacturing efficiencies.
Net sales in the Company's largest segment, Furniture and Cabinets, increased
14% above the prior year period led by increases in office furniture and
hospitality furniture product lines. Office furniture product lines experienced
sales growth across a broad product offering of wood and metal product lines.
Volume increases on both new and mature product offerings were the primary
driver of the increase in sales, and to a lesser extent, an increase in selling
prices. Increased volumes of systems office furniture were supported by a
production facility that was converted to this product line during the latter
half of the prior fiscal year. The Company plans to introduce new office
furniture products during this fiscal year, some of which will replace existing
product offerings. Operating income in the office furniture product line
increased for the three month period on volume increases, lower material costs
as a percent of sales, and improved manufacturing efficiencies. The rate of
material price increases from suppliers has decreased from the level experienced
in last year's first quarter, and in some cases price reductions have been
realized. Benefits continued to be realized from the Company's quality and cost
containment initiatives. Operating margins continued to improve on metal office
furniture product lines, despite additional expenses being incurred during this
year's first quarter in preparation for a new product launch planned for the
second quarter.
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Sales of Original Equipment Manufacturer (OEM) product lines, primarily
television cabinets and stands, audio cabinets, and residential furniture,
decreased in the three month period when compared to one year earlier. Lower
sales volume of cabinets were due to a major cabinet customer experiencing
lower market demand for their products. While certain other cabinet customers
increased their volumes, this product line experienced an overall decline in
sales volume. Production flexibility is inherent in the OEM supplier market and
may cause short-term fluctuations in any given quarter. Volumes of contract
residential furniture increased from the prior year. Some OEM production
capacity was utilized for production of hospitality furniture during the
quarter. OEM operating income declined from the prior year's level due to the
decrease in sales volume and, to a lesser extent, an unfavorable sales mix
towards lower margin products.
Hospitality furniture sales increased in the first quarter of fiscal 1997 when
compared to the prior year, due to greater volumes of standard and high-end
products targeted to the hospitality market. The Company expanded its standard
line of product offerings from the prior year's first quarter. Increased demand
resulted from newly constructed facilities and refurbishing initiatives in the
hospitality industry. Operating profits increased from the prior year period
due primarily to additional volumes in the current year and higher product
offering expansion costs in the prior year.
The Company's European operations experienced improvements in sales volumes and
operating margins in the first quarter when compared to the prior year. The
Company sold its piano key and action production facility located in the United
Kingdom, Herrburger Brooks, PLC, during the first quarter of fiscal 1997. This
transaction resulted in no impact to consolidated first quarter net income.
Net sales in the Company's second largest segment, Electronic Contract
Assemblies, increased 17% in the first quarter when compared to the prior year,
due primarily to higher volumes of electronic automotive and computer related
products. The increased demand for electronic automotive products includes a
surge for supplying the manufacturing pipeline for the new model year with a new
generation of electronic components. While the outcome of the labor strike and
negotiations at General Motors' operations is uncertain, an extended strike
could have a negative impact on this segment's operations in future quarters.
Rescheduling, production flexibility and material availability are inherent in
the contract electronic assemblies market and may cause short-term fluctuations
in any given quarter. New customers and products acquired through the Company's
acquisition of ELMO Semiconductor during the prior year's third quarter,
accounted for 5% of the sales increase. First quarter operating profits
increased from the prior year due primarily to increased sales volumes in the
current year and high product start-up costs incurred in the prior year's first
quarter. Included in this segment is one customer which accounted for 14.6% of
consolidated revenue in the current year's first quarter, compared to 13.2% in
the prior year's first quarter. The segment has reduced its investment in
working capital from the elevated level experienced at June 30, 1996.
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Net sales in the Company's smallest segment, Processed Wood Products and Other,
declined 7% from the prior year's first quarter, due in part to lower sales of
processed wood veneer and plastic components sold to outside customers. The
portion of the processed wood products industry that the Company operates in
continues to experience a softened demand which began in the prior year. First
quarter operating income declined in this segment when compared to the prior
year, reflecting the lower sales volumes. This segment continued to supply a
significant amount of production output for use as material components in the
Furniture and Cabinets segment.
Consolidated cost of sales as a percent of sales decreased 4.0 percentage points
for the first quarter when compared to the prior year, primarily due to shifts
within product line mix to products which carry a lower material content, lower
or nonexistent material price increases, and improvements in manufacturing
efficiency including benefits from quality and cost containment initiatives.
Consolidated selling, general and administrative expense as a percent of sales
increased 1.2 percentage points for the three month period, primarily due to
moderate additions to the Company's existing infrastructure supporting the
higher sales volume, additions as the result of acquiring ELMO Semiconductor in
the latter half of the prior fiscal year, and certain other costs that are
variable with earnings.
Operating income for the first quarter of 1997 was $19,183,000 increasing 2.8
percentage points, as a percent of sales, when compared to the first quarter of
1996, primarily due to sales volume increases, the diminished effects of
material price increases that were experienced in the prior year's first
quarter, and manufacturing efficiency improvements, including benefits from
quality and cost containment initiatives.
Investment income for the first quarter remained flat when compared to the same
period in the previous year, as higher investment balances were offset by a
lower effective yield. Other - net includes $3.8 million related to a loss on
the sale of a foreign subsidiary in the current year, which is offset by a $3.8
million income tax benefit recorded in Taxes on Income. The remaining decrease
in Other - net is primarily due to larger gains realized on the sale of assets
in the prior year.
Taxes on Income includes a $3.8 million tax benefit relating to the sale of a
foreign subsidiary in the current year's first quarter. This tax benefit was
the result of a higher U.S. tax basis in this subsidiary due to previously
undeductible losses on the investment in this U.K. subsidiary. Excluding this
tax benefit, the effective income tax rate decreased 1.3 percentage point in the
three month period when compared to the prior year due in part to reduced
European operating losses which provide no immediate tax benefit.
The Company achieved net income of $13,521,000, or $0.65 per Class B share for
the first quarter of the 1997 fiscal year, a 61% increase over the prior year's
first quarter net income of $8,418,000 or $0.40 per Class B share.
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LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents and Short-Term Investments totaled $140 million at
September 30, 1996 as compared to $117 million one year earlier. Liquidity
remained strong with working capital and the current ratio at $230 million and
2.7 to 1, respectively, at September 30, 1996 as compared to $204 million and
2.7 to 1, respectively, one year earlier.
Operating activities continued to generate positive cash flow, which amounted to
$38 million for the three months ended September 30, 1996. Portions of the
Company's cash flow from operations were reinvested in the business to fund $9
million of capital investments for the future, primarily production equipment
upgrades and improvements in the Company's business information systems. $5
million was used for financing activities, primarily to pay dividends. Net cash
flow, excluding purchases and maturities of short-term investments, amounted to
a positive $26 million for the three month period ended September 30, 1996.
The Company anticipates maintaining a strong liquidity position throughout the
1997 fiscal year with cash needs being met by cash flows provided by operations,
available cash balances and short-term investments on hand.
This discussion contains certain forward-looking statements, which contain risks
and uncertainties as to the achievement of these expressed or implied results.
The Company's actual results could differ materially from those anticipated in
these forward looking statements as a result of various factors including,
competitive pricing pressures, raw material price increases and component
availability, market acceptance of the Company's proprietary products and our
OEM customers' products, a labor strike at a major customer or supplier,
a change in economic condition and other unforeseen factors.
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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
No reports on Form 8-K have been filed during the three month
period ended September 30, 1996.
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: October 23, 1996
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