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, 1997
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-3279
KIMBALL INTERNATIONAL, INC.
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 (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
14, 1997 were:
Class A Common Stock - 7,234,649 shares
Class B Common Stock - 13,461,988 shares
The exhibit index appears on page 13.
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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
- March 31, 1997 and June 30, 1996. . . . . . . . . . . . . . . 3
Consolidated Statement of Income
- Three Months and Nine Months Ended March 31, 1997 and 1996. . 4
Consolidated Statement of Cash Flows
- Nine Months Ended March 31, 1997 and 1996 . . . . . . . . . . 5
Notes To Consolidated Financial Statements. . . . . . . . . . . 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 Index . . . . . . . . . . . . . . . . . . . . . . . . . 13
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PART I.
FINANCIAL INFORMATION
KIMBALL INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(dollars in thousands)
(unaudited)
March 31, June 30,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,075 $ 5,647
Short-term investments 146,570 108,425
Accounts and notes receivable, less allow-
ance for possible losses of $3,908
and $4,075 116,104 117,140
Inventories 76,100 89,489
Other 22,542 21,550
Total Current Assets 367,391 342,251
PROPERTY AND EQUIPMENT - at cost, less
accumulated depreciation of $232,557
and $221,569 179,029 174,009
OTHER ASSETS 21,112 21,965
Total Assets $567,532 $538,225
LIABILITIES AND SHARE OWNERS' EQUITY
CURRENT LIABILITIES:
Loans payable to banks $ 2,840 $ 2,282
Current maturities of long-term debt 361 492
Accounts payable 50,353 50,963
Dividends payable 5,363 5,393
Accrued expenses 70,083 62,913
Total Current Liabilities 129,000 122,043
OTHER LIABILITIES:
Long-term debt, less current maturities 2,542 3,016
Deferred income taxes and other 23,159 22,152
Total Other Liabilities 25,701 25,168
SHARE OWNERS' EQUITY:
Common stock, $.3125 par value 6,723 6,723
Additional paid-in capital 1,632 898
Retained earnings 425,573 399,024
Cumulative translation adjustment 1,800 1,441
Unrealized loss on securities available for sale (738) -
Less: Treasury stock, at cost (22,159) (17,072)
Total Share Owners' Equity 412,831 391,014
Total Liabilities and Share Owners' Equity $567,532 $538,225
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands except per share amounts)
(unaudited) (unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
Net Sales $243,277 $223,915 $744,757 $677,387
Cost of Sales 169,458 159,791 522,635 492,682
Gross Profit 73,819 64,124 222,122 184,705
Selling, Administrative
and General Expenses 53,282 46,535 162,236 139,016
Product Line Exit Costs - 3,400 - 3,400
Operating Income 20,537 14,189 59,886 42,289
Other Income (Expense):
Interest Expense (212) (121) (444) (336)
Interest Income 2,200 1,836 6,195 5,605
Other - net 802 1,124 (757) 3,540
Other Income - net 2,790 2,839 4,994 8,809
Income Before Taxes on Income 23,327 17,028 64,880 51,098
Taxes on Income 8,806 7,059 22,217 20,420
Net Income $ 14,521 $ 9,969 $ 42,663 $ 30,678
Earnings Per Share of Common Stock:
Class A Common Stock $ .69 $ .47 $ 2.05 $ 1.46
Class B Common Stock $ .70 $ .48 $ 2.06 $ 1.47
Dividends Per Share of Common Stock:
Class A Common Stock $ .25 3/4 $ .22 3/4 $ .77 1/4 $ .68 1/4
Class B Common Stock $ .26 $ .23 $ .78 $ .69
Average total number of shares
outstanding Class A and B
Common Stock 20,696,470 20,905,962 20,732,822 20,929,633
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months Ended
March 31,
1997 1996
Cash Flows From Operating Activities:
Net income $ 42,663 $ 30,678
Non-cash charges (credits) to net income:
Depreciation and amortization 25,116 24,884
Gain on sales of assets (438) (1,415)
Deferred income tax and other deferred charges 1,007 619
Product line exit costs - 3,400
(Increase) Decrease in current assets:
Accounts and notes receivable 470 618
Inventories 10,830 (15,858)
Other current assets (1,112) 734
Increase (Decrease) in current liabilities:
Accounts payable 1,345 12,815
Accrued expenses 8,216 (5,385)
Net Cash Provided By Operating Activities 88,097 51,090
Cash Flows From Investing Activities:
Capital expenditures (30,069) (26,245)
Proceeds from sales of assets 889 6,014
Proceeds from sale of subsidiary 2,345 --
Net increase in other assets (1,317) (11,122)
Purchases of short-term investments (78,328) (66,300)
Maturities of short-term investments 39,445 54,249
Net Cash Used For Investing Activities (67,035) (43,404)
Cash Flows From Financing Activities:
Net increase in short-term borrowings 558 803
Net (decrease) increase in long-term debt (605) 508
Dividends paid (16,144) (14,404)
Acquisition of treasury stock, net of sales (4,440) (2,405)
Other - net 28 (187)
Net Cash Used For Financing Activities (20,603) (15,685)
Effect of Exchange Rate Change on
Cash and Cash Equivalents (31) (35)
Net Increase (Decrease) in Cash and Cash Equivalents 428 (8,034)
Cash and Cash Equivalents-Beginning of Period 5,647 15,278
Cash and Cash Equivalents-End of Period $ 6,075 $ 7,244
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income taxes $ 28,072 $ 25,221
Interest $ 468 $ 284
Total Cash, Cash Equivalents and
Short-Term Investments:
Cash and cash equivalents $ 6,075 $ 7,244
Short-term investments 146,570 109,585
Totals $152,645 $116,829
See Notes to Consolidated Financial Statements
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KIMBALL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) The interim condensed consolidated 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 nine 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 condensed 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) Consolidated Inventories consist of: (in thousands)
March 31, June 30,
1997 1996
Raw Materials $40,854 $50,110
Work-in-Process 11,120 14,743
Finished Goods 24,126 24,636
Total $76,100 $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 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 nine 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 nine month net income.
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Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
In the three and nine month periods ended March 31, 1997, net sales increased 9%
and 10%, respectively, while net income and Class B earnings per share rose 23%
and 31%, respectively, when compared to the same periods in the prior fiscal
year, excluding the effects of the Company's decision to exit the domestic
wholesale piano product line in the prior year. Cash flow of $88,097,000 was
generated by operating activities over the nine month period. Open orders as of
March 31, 1997, were $185,683,000.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO
THREE AND NINE MONTHS ENDED MARCH 31, 1996
Net sales of $243,277,000 in the third quarter and $744,757,000 for the first
nine months of the 1997 fiscal year were increases of 9% and 10%, respectively,
over the same periods in the prior fiscal year. Net sales in the Company's
largest two segments, Furniture and Cabinets and Electronic Contract Assemblies,
increased in both the three and nine month periods when compared to one year
ago. Net sales in the Company's smallest segment, Processed Wood Products and
Other, also improved in the third quarter, while remaining flat for the nine
month period, when compared to the same periods in the prior year. Operating
income, excluding the above mentioned product line exit costs in the prior year,
improved 17% to $20,537,000 in the third quarter and improved 31% to $59,886,000
in the nine month period, when compared to the same periods in the prior year,
as increases in volume were assisted by manufacturing efficiency improvements.
SEGMENT ANALYSIS
Net Sales in Furniture and Cabinets, the Company's largest segment, increased 3%
and 8%, respectively, for the three and nine month periods compared to one year
ago, primarily on volume increases in office furniture and lodging furniture
product lines. Office furniture sales growth was distributed across a wide
spectrum of wood and metal product offerings in both the three and nine month
periods. Increases in net sales in the office furniture lines were primarily
obtained through higher volumes, with selective increases in selling prices also
contributing to the increase. Operating income in the office furniture product
lines also increased in both the three and nine month periods as higher volumes,
lower material costs, and manufacturing efficiencies created additional marginal
profit in the current fiscal year periods. The prior year three and nine month
periods also included facility conversion and start-up costs. Material costs,
as a percent of sales, continued to remain lower than in the prior fiscal year.
Operating margins, as a percent of sales, continued to improve in metal office
furniture product lines as volumes increased.
Original Equipment Manufacturer (OEM) product lines, primarily television
cabinets and stands, audio cabinets, and residential furniture experienced lower
net sales in the three and nine month periods when compared to the same periods
one year ago. Some major customers, primarily in the television and audio
industries, decreased orders due to higher inventory levels caused by lower than
expected seasonal demand. The Company maintains production flexibility
sufficient to support pursuit of new business and fluctuating customer order
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requirements by utilizing available capacity to balance production schedules of
other product lines within this segment. Operating income declined compared to
the prior year's three and nine month periods primarily due to the lower sales
volume and, to a lesser extent, the transition to different product lines at
some of the OEM production facilities.
Net sales of lodging furniture continued to increase in the three and nine month
periods when compared to the same periods in the prior year, as the refurbishing
initiative within the lodging industry and construction of new facilities
continue to create demand for the Company's products. Volume growth in standard
and high-end product lines is the primary contributor to the increased sales
levels, with price increases being a minor factor. Operating income in both
the three and nine month periods increased over the prior year as additional
volumes generated incremental operating income improvements in both periods and
increases in costs were partly reflected in pricing in the third quarter.
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
nine month period.
Net sales in Electronic Contract Assemblies, the Company's second largest
segment, increased 23% over the third quarter in the prior year and increased
17% in the first nine months when compared to the same periods a year ago, as
volume increases were realized in electronic automotive products and computer
related products. The acquisition of ELMO Semiconductor during the prior year's
third quarter contributed 3% and 4%, respectively, of the three and nine month
period improvements over the prior year. Operating income in the three and nine
month periods improved due to increased volumes, favorable product mix, and more
efficient use of physical resources. Prior year nine month results also
included additional product start-up costs. The Company maintains flexibility
within its production capacity to help minimize the impact of the rescheduling
and material availability factors that can impact the electronic contract
assemblies market and create short-term volume fluctuations in any given period.
The electronic contract assemblies market is a very price competitive industry
and the Company continuously strives to provide a high quality product at a
competitive price in order to expand within this industry. Included in this
segment are sales to three customers which combined accounted for 26.5% and
25.4% of consolidated sales, respectively, in the three and nine month periods
ended March 31, 1997. Prior year results in this segment included sales to
three customers which combined accounted for 24.6% and 24.0%, respectively, in
the three and nine month periods. One of these customers accounted for 16.8% of
consolidated sales in the third quarter and 15.3% of consolidated sales in the
nine month period. This same customer accounted for 14.7% and 14.0%,
respectively, in the three and nine month periods of the prior fiscal year.
Working capital is being managed at a level lower than the elevated level
experienced at June 30, 1996.
The Company's smallest segment, Processed Wood Products and Other, achieved a 7%
increase in net sales in the third quarter over the same period in the prior
year. Sales for the nine month period were flat in the year to year
comparisons. Volume increases in processed wood products in both current
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periods were offset to varying extents by a decline in sales of plastic
components and also by a change in customer mix from serving outside customers
to providing necessary services to the Company's internal operations. Net sales
for this segment do not reflect increases in inter-company activity in the year
over year comparisons. Operating income declined for both the three and nine
month periods as higher raw material prices were not fully reflected in selling
prices and the sales mix was unfavorable. 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 STATEMENT OF INCOME ANALYSIS
Consolidated cost of sales, as a percent of sales, decreased 1.7 percentage
points for the third quarter and 2.5 percentage points for the nine month period
when compared to the same periods in the prior year due to the combined effects
of lower material prices, favorable sales mix, and improvements in manufacturing
efficiency. Labor and overhead costs, as a percent of sales, were down in both
the three and nine 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 1.1 and 1.3 percentage points, respectively, in the three and nine
month periods when compared to the prior year, as additions were made to the
Company's existing infrastructure to support higher sales volumes and the
acquisition of ELMO Semiconductor in the latter half of the prior fiscal year.
The Company announced a strategic decision in the third quarter of the prior
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 of the prior
year to cover all estimated costs associated with exiting this product line.
The after-tax earnings per share effect of this charge amounted to $0.09 per
Class B share in the prior year.
Operating income in the third quarter of fiscal 1997 increased to $20,537,000,
or 17% over the third quarter of fiscal 1996, excluding the prior year product
line exit costs, due primarily to increased sales volumes, favorable sales mix,
improved manufacturing efficiencies and, to lesser extent, lower material costs.
Operating income in the nine month period was $59,886,000, an increase of 31%
when compared to the same period one year ago, excluding the product line exit
costs in the prior year, on increased sales volumes, favorable product mix,
lower material costs, and improvement in manufacturing efficiency. Including
the product line exit costs, operating income increased 45% and 42%,
respectively, for the three and nine month periods, when compared to the prior
year.
Investment income increased in the three and nine month periods, when compared
to the previous year, as positive cash flow generated by operations increased
the average investment balances. Other - net, in the current nine month period,
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 nine
month period when compared to the prior year, is primarily due to larger gains
realized on the sales of assets in the prior year.
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The effective income tax rate decreased 3.7 percentage points in the third
quarter when compared to the prior year due in part to a reduction in the
effective state tax rate and reduced European operating losses which provided no
immediate tax benefit. The effective income tax rate for the nine month period
decreased 5.8 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 2.2 percentage points in the nine month period when
compared to the prior year.
The Company achieved net income of $14,521,000 or $0.70 per Class B share, in
the third quarter of the 1997 fiscal year, a 23% increase over the prior year's
third quarter net income of $11,839,000 or $0.57 per Class B share, excluding
the effects of the product line exit costs in the prior year. Net income for
the nine months ended March 31 totaled $42,663,000 or $2.06 per Class B share, a
31% increase when compared to $32,548,000 or $1.56 per Class B share in the
prior year, excluding the effects of the product line exit costs in the prior
year. Including the product line exit costs, net income increased 46% for the
third quarter, and 39% for the nine months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents and Short-Term Investments totaled $153 million at March
31, 1997 compared to $117 million one year earlier. The Company had a strong
working capital level of $239 million and current ratio of 2.9 to 1 at March 31,
1997 as compared to $220 million and 2.8 to 1, respectively, at June 30, 1996.
Operating activities generated $88 million of cash in the first nine months of
the 1997 fiscal year with $30 million invested in production equipment upgrades
and improvements in the Company's business information systems and another $21
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 $39 million in the nine month period ended March 31,
1997.
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.
__________________
This discussion 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
discussion, when appropriate. Additional cautionary statements regarding these
statements and other factors that could have an effect on the future performance
of the Company are contained in the Company's 8-K filing of April 10, 1997.
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PART II.
OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page 13
(b) Reports on Form 8-K
Form 8-K dated April 10, 1997, was filed pursuant to Item 5
(Other Events) which contained the Company's "Safe Harbor"
Statements under the Private Securities Litigation Reform Act
Of 1995.
SIGNATURES
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 24, 1997
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KIMBALL INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit No. Description
11 Computation of Earnings Per Share
27 Financial Data Schedule
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