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, 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 January
22, 1997 were:
Class A Common Stock - 7,253,389 shares
Class B Common Stock - 13,448,248 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
- December 31, 1996 (Unaudited) and June 30, 1996 . . . . . . . 3
Consolidated Statement of Income (Unaudited)
- Three Months and Six Months Ended December 31, 1996 and 1995. 4
Consolidated Statement of Cash Flows (Unaudited)
- Six Months Ended December 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 4(c). Submission of Matters to a Vote of Security Holders. . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 12-13
SIGNATURES . . . . . . . . . . . . . . 13
- 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)
December 31, June 30,
1996 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,178 $ 5,647
Short-term investments at cost, estimated
market value of $135,137 and $108,164 135,111 108,425
Accounts and notes receivable, less allow-
ance for possible losses of $4,383
and $4,075 109,251 117,140
Inventories 76,880 89,489
Other 23,306 21,550
Total Current Assets 358,726 342,251
PROPERTY AND EQUIPMENT - at cost, less
accumulated depreciation of $228,756
and $221,569 175,699 174,009
OTHER ASSETS 21,082 21,965
Total Assets $555,507 $538,225
LIABILITIES AND SHARE OWNERS' EQUITY
CURRENT LIABILITIES:
Loans payable to banks $ 2,778 $ 2,282
Current maturities of long-term debt 427 492
Accounts payable 49,761 50,963
Dividends payable 5,364 5,393
Accrued expenses 66,938 62,913
Total Current Liabilities 125,268 122,043
OTHER LIABILITIES:
Long-term debt, less current maturities 2,740 3,016
Deferred income taxes and other 22,470 22,152
Total Other Liabilities 25,210 25,168
SHARE OWNERS' EQUITY:
Common stock 6,723 6,723
Additional paid-in capital 1,631 898
Foreign currency translation adjustment 2,196 1,441
Retained earnings 416,415 399,024
Less: Treasury stock, at cost (21,936) (17,072)
Total Share Owners' Equity 405,029 391,014
Total Liabilities and Share Owners' Equity $555,507 $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) (unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
Net Sales $253,780 $234,539 $501,480 $453,472
Cost of Sales 178,611 169,814 353,177 332,891
Gross Profit 75,169 64,725 148,303 120,581
Selling, Administrative
and General Expenses 55,003 47,321 108,954 92,481
Operating Income 20,166 17,404 39,349 28,100
Other Income (Expense):
Interest Expense (115) (127) (232) (215)
Interest Income 2,082 1,872 3,995 3,769
Other - net 1,238 952 (1,559) 2,416
Other Income - net 3,205 2,697 2,204 5,970
Income Before Taxes on Income 23,371 20,101 41,553 34,070
Taxes on Income 8,750 7,810 13,411 13,361
Net Income $ 14,621 $ 12,291 $ 28,142 $ 20,709
Earnings Per Share of Common Stock:
Class A Common Stock $ .71 $ .59 $ 1.36 $ .99
Class B Common Stock $ .71 $ .59 $ 1.36 $ .99
Dividends Per Share of Common Stock:
Class A Common Stock $ .25 3/4 $ .22 3/4 $ .51 1/2 $ .45 1/2
Class B Common Stock $ .26 $ .23 $ .52 $ .46
Average total number of shares
outstanding Class A and B
Common Stock 20,706,750 20,910,895 20,750,998 20,941,469
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
Six Months Ended
December 31,
1996 1995
Cash Flows From Operating Activities:
Net income $ 28,142 $ 20,709
Non-cash charges (credits) to net income:
Depreciation and amortization 16,533 16,326
Gain on sales of assets (446) (1,625)
Deferred income tax and other deferred charges 318 512
(Increase) Decrease in current assets:
Accounts and notes receivable 7,889 (184)
Inventories 12,609 354
Other current assets (2,690) 390
Increase (Decrease) in current liabilities:
Accounts payable (1,202) 4,674
Accrued expenses 4,207 (7,260)
Net Cash Provided By Operating Activities 65,360 33,896
Cash Flows From Investing Activities:
Capital expenditures (18,825) (17,265)
Proceeds from sales of assets 573 5,672
Proceeds from sale of subsidiary 2,345 --
Increase in other assets (515) (1,797)
Purchases of short-term investments (54,106) (45,291)
Maturities of short-term investments 27,420 36,249
Net Cash Used For Investing Activities (43,108) (22,432)
Cash Flows From Financing Activities:
Increase in short-term borrowings 496 903
Decrease in long-term debt (341) (202)
Dividends paid (10,780) (9,614)
Acquisition of treasury stock, net of sales (4,111) (2,405)
Other - net 1,008 (135)
Net Cash Used For Financing Activities (13,728) (11,453)
Effect of Exchange Rate Change on
Cash and Cash Equivalents 7 (38)
Net Increase (Decrease) in Cash and Cash Equivalents 8,531 (27)
Cash and Cash Equivalents-Beginning of Period 5,647 15,278
Cash and Cash Equivalents-End of Period $ 14,178 $ 15,251
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income taxes $ 17,173 $ 17,315
Interest $ 258 $ 184
Total Cash, Cash Equivalents and
Short-Term Investments:
Cash and cash equivalents $ 14,178 $ 15,251
Short-term investments 135,111 106,576
Totals $149,289 $121,827
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. Results of operations for the six
month period are not necessarily indicative of the results to be
expected for the entire fiscal year. 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)
December 31, June 30,
1996 1996
Raw Materials $40,834 $50,110
Work-in-Process 11,114 14,743
Finished Goods 24,932 24,636
Total $76,880 $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.
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(4) 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.
(5) The Company sold its piano key and action production facility located in the
United Kingdom, Herrburger Brooks, PLC, during the first quarter of fiscal
year 1997. Included in the six month consolidated statement of income is a
$3.8 million pretax loss on the sale reported in Other-net, with an
offsetting $3.8 million income tax benefit reported in Taxes on Income.
This tax benefit was the result of a higher U.S. tax basis in this
subsidiary due to previously nondeductible losses on the investment in this
U.K. subsidiary. This transaction resulted in no impact to fiscal year 1997
consolidated six month net income.
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Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
Net sales in the second quarter of the 1997 fiscal year increased 8% over the
same quarter of the prior fiscal year to reach a new quarterly record of
$253,780,000. Sales for the first six months of the current fiscal year
exceeded the prior year total by 11%. Net Income of $14,621,000 and Class B
earnings per share of $.71 in the second quarter increased 19% over the same
period in the prior year and set all time quarterly highs for the Company. Net
income and Class B earnings per share for the six months ended December 31, 1996
were 36% ahead of the prior year amount for the same period. Cash flow
generated from operations totaled $65,360,000 for the six month period. Open
orders as of December 31, 1996 were $184,205,000.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO
THREE AND SIX MONTHS ENDED DECEMBER 31, 1995
Net sales for the three and six month periods ended December 31, 1996, were
$253,780,000 and $501,480,000, respectively, an increase of 8% and 11%,
respectively, above the same periods one year earlier. Sales increased in the
second quarter and six month period in both the Furniture and Cabinets and
Electronic Contract Assemblies segments of the company, which are the larger
two of the Company's three business segments. Net Sales in the Processed Wood
Products and Other segment were flat when compared to the prior year's second
quarter, while declining for the six month period when compared to the prior
year. Operating Income for the second quarter of fiscal 1997 was $20,166,000,
and for the six month period was $39,349,000, an increase of 16% and 40%,
respectively, over the prior year's results due primarily to increased sales
volumes and manufacturing efficiency improvements.
Net Sales in the Company's largest segment, Furniture and Cabinets, increased 7%
for the three month period and 10% for the six month period, when compared to
the prior year, led by increased sales in the office furniture and lodging
furniture product lines. Office furniture experienced sales growth across a
broad product offering of wood and metal product lines in both the three and six
month periods. Increases in net sales of office furniture lines are attributed
to volume increases on both new and mature products and, to a lesser extent, an
increase in selling prices. Operating income in the office furniture product
line increased for both the three and six month periods due primarily to volume
increases, lower material costs, and improved manufacturing efficiencies. The
prior year's three and six month periods also included certain facility
preparation costs to add capacity for the production of office furniture
systems. The rate of decline in material costs as a percent of sales slowed in
the second quarter of this fiscal year as prices for some raw components
increased during the quarter. Operating margins, as a percent of sales,
continued to improve in metal office furniture product lines as increased
volumes improved manufacturing efficiency, despite incremental expenses incurred
to launch a new product line late in the second quarter.
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Net sales of Original Equipment Manufacturer (OEM) product lines, primarily
television cabinets and stands, audio cabinets, and residential furniture
decreased in the three and six month periods when compared to the same period
one year earlier, as some customers experienced lower market demand for their
products. Production flexibility is inherent in the OEM supplier market as
customers shift schedules creating short-term fluctuations between any given
periods. Some of the capacity created by lower cabinet demand and exiting the
piano market in the prior fiscal year was utilized by producing other product
lines within this segment. Operating income for OEM products declined primarily
due to the reduction in sales volume and, to a lesser extent, a shift in product
mix towards lower margin products.
Lodging furniture sales increased in the second quarter and six month period
when compared to the same periods a year ago, as greater volumes were achieved
in the sales of standard and high-end products for lodging facilities. Demand
is being created through continuation of the refurbishing initiative in the
lodging industry, as well as construction of new facilities. Expansion of the
standard line of product offerings in the first quarter of this fiscal year
contributed to the increased volume. Operating profits for the three month
period are lower than the prior year's level, primarily due to increases in
variable material costs, as a percent of sales, that were not immediately
reflected in customer pricing. Operating profits on a year-to-date basis
increased at a slower rate than sales as increases in variable material costs,
as a percent of sales, were not completely passed on to customers. Price
increases on some standard product lines occurred late in the second quarter.
The Company's European facilities experienced a decline in sales volumes and
operating margins in the second quarter, while sales and operating margins
improved for the six month period, when compared to the prior year.
Fluctuations in sales volumes and operating margins at the European facilities
do not have a material impact on the Company's consolidated results. 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, with
the transaction resulting in no impact to consolidated net income in the six
month period.
The Company's second largest segment, Electronic Contract Assemblies, reported a
12% increase in net sales in the second quarter and a 15% improvement in the
first six months when compared to the same periods a year ago, as volume
increases were experienced in computer related products and electronic
automotive products. The growth in computer related products was primarily at
the Company's Mexican facility which produces various internal and peripheral
computer products to customer specifications. New products acquired through the
acquisition of ELMO Semiconductor during the prior year's third quarter
contributed to 4% of the three month and six month improvements. The labor
strike at General Motors' Canadian operations ended during the second quarter
with no material impact on operations in the three or six months ended December
31. Rescheduling, production flexibility, and material availability are
inherent factors in the contract electronics assemblies market and may cause
short-term fluctuations in any given period. Operating profits in the three and
six month periods improved primarily due to increased volumes, favorable product
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mix, and operating efficiencies achieved through meeting higher volume levels
with existing facilities. Sustaining operating margin improvements at
meaningful levels is a significant challenge in the price sensitive industry in
which this segment competes. Prior year results included some additional
product start-up costs that were not a significant factor in the current year.
Included in this segment are sales to three customers which accounted for 25.3%
and 24.9% of consolidated sales, respectively, in the three and six month
periods ended December 31. Prior year results in this segment included sales to
three customers which accounted for 25.7% and 23.8%, respectively, in the three
and six month periods. One of these customers accounted for 14.5% of
consolidated sales in the second quarter and 14.6% of consolidated sales in the
six months period. This same customer accounted for 14.0% and 13.6%,
respectively, in the three and six month periods of the prior fiscal year. This
segment has reduced its investment in working capital from the elevated level
experienced at June 30, 1996.
Net Sales in Processed Wood Products and Other, the Company's smallest segment,
were flat in the second quarter when compared to the prior year. Volume
increases in processed wood products were offset by a decline in sales of
plastic components and also by a change in sales mix from serving outside
customers to providing necessary services to the company's internal operations.
For the six month period sales declined 4% as decreases in sales of plastic
components and the change in sales mix were only partially offset by the
increased volume in processed wood products. The general processed wood
products market the company operates in continues to experience lower demand
than in the prior year. Operating income declined for both the three and six
month periods when compared to the prior year, reflecting the declines in volume
and an unfavorable sales mix. This segment supplies a significant amount of
production output for use as material components in the Furniture and Cabinets
segment and is a vital link in the Company's vertical integration.
Consolidated cost of sales decreased 2.0 percentage points for the second
quarter and 3.0 percentage points for the six month period when compared to the
prior year as lower material prices were coupled with favorable sales mix,
improvements in manufacturing efficiency and benefits received from quality and
cost containment initiatives. Labor and overhead costs, as a percent of sales,
were down in both the three and six month periods, primarily due to improved
manufacturing methods and a continued focus on cost reductions in the
manufacturing processes. Consolidated selling, administrative and general
expense as a percent of sales increased 1.5 and 1.3 percentage points,
respectively, in the three and six month periods when compared to the prior
year, as moderate additions were made to the Company's existing infrastructure
to support higher sales volumes and a higher expense structure is associated
with the acquisition of ELMO Semiconductor in the latter half of the prior
fiscal year.
Operating income for the second quarter of fiscal 1997 was $20,166,000, an
increase of 16% when compared to the second quarter of fiscal 1996, due
primarily to increased sales volumes and, to lesser extent, lower material costs
and manufacturing efficiency improvements. Operating income for the six month
period was $39,349,000, an increase of 40% when compared to the same period one
year ago, due to increased sales volumes, favorable sales mix, and a reduced
cost structure, as a percent of sales.
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Investment income increased in the three and six month periods, when compared to
the previous year, as positive cash flow generated by operations increased the
average investment balances. Other - net includes the impact of the $3.8
million loss on the sale of a foreign subsidiary in the first quarter, which was
offset by a $3.8 million income tax benefit recorded in Taxes on Income. The
remaining decrease in Other - net in the six month period when compared to the
prior year is primarily due to larger gains realized on the sales of assets in
the prior year.
The effective income tax rate decreased 1.5 percentage points in the second
quarter when compared to the prior year due in part to a reduction in the
effective state tax rate. The effective income tax rate for the six month
period decreased 6.9 percentage points primarily as a result of the $3.8 million
tax benefit received in the first quarter of this fiscal year relating to the
sale of a foreign subsidiary. This tax benefit was the result of a higher U.S.
tax basis in this subsidiary due to previously nondeductible losses on the
investment in this U.K. subsidiary. Excluding this benefit, the effective
income tax rate decreased 1.3 percentage points in the six month period when
compared to the prior year due partially to reduced European operating losses
which provide no immediate tax benefit and a reduction in the effective state
tax rate.
The Company achieved record net income of $14,621,000 or $0.71 per Class B
share, in the second quarter of the 1997 fiscal year, a 19% increase over the
prior year's second quarter income of $12,291,000 or $0.59 per Class B share.
Net income for the six months ended December 31 totaled $28,142,000 or $1.36 per
Class B share, a 36% increase when compared to $20,709,000 or $0.99 per Class B
share in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents and Short-Term Investments totaled $149 million at
December 31, 1996 compared to $122 million one year earlier. The Company had a
strong working capital level of $233 million and current ratio of 2.9 to 1 at
December 31, 1996 as compared to $211 million and 3.0 to 1, respectively, one
year earlier.
Operating activities generated $65 million of cash in the first six months of
the 1997 fiscal year with $19 million invested in production equipment upgrades
and improvements in the Company's business information systems and another $14
million used for financing activities, primarily dividends paid to stockholders.
Net cash flow, excluding purchases and maturities of short-term investments,
amounted to a positive $35 million in the six month period ended December 31,
1996.
The Company anticipates maintaining a strong liquidity position throughout the
remainder of the 1997 fiscal year with cash needs being met by cash flows
provided by operations, available cash balances and short-term investments on
hand.
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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 22, 1996.
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 6,794,912 4,559
Douglas A. Habig 6,794,912 4,559
James C. Thyen 6,794,912 4,559
John B. Habig 6,794,912 4,559
Ronald J. Thyen 6,794,400 5,071
Christine M. Vujovich 6,794,192 5,279
Brian K. Habig 6,794,912 4,559
John T. Thyen 6,794,912 4,559
Gary P. Critser 6,794,192 5,279
* Votes for nominees as Directors by holders of Class A Common Stock
totaled either 6,794,192, 6,794,400 or 6,794,912 shares,
with each amount representing 93.4% of the total 7,276,270
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 11,919,426 105,570
* Votes for nominee as Director by holders of Class B Common Stock
totaled 11,919,426 shares, or 88.1% of the total 13,535,475 Class B
shares outstanding and eligible to vote.
The 1996 Stock Incentive Program was approved to replace the 1987 Stock
Incentive Program, based on the following election results:
Votes For* Votes Against Abstentions
6,762,385 11,768 22,654
* Votes for the Stock Incentive Program by holders of Class A Common Stock
totaled 6,762,385 shares, representing 92.9% of the total 7,276,270 Class A
shares outstanding and eligible to vote.
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The 1996 Director Stock Compensation and Option Plan was approved, based
on the following election results:
Votes For* Votes Against Abstentions
6,747,565 25,628 23,614
* Votes for the Director Stock Compensation and Option Plan by holders of
Class A Common Stock totaled 6,747,565 shares, representing 92.7% of the
total 7,276,270 Class A shares outstanding and eligible to vote.
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 December 31, 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: February 3, 1997
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