Kimball International Annual Report 1998

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FY1998 Annual Report · Kimball International

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K I M B A L L I N T E R N A T I O N A L I N C O R P O R A T E D A N N U A L R E P O R T 1 9 9 8

Heartland Virtues

Global Impact

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Kimball is Kimball Office Group. The Office Group

provides a complete variety of wood and metal
office furniture solutions for customers ranging
from small businesses through multi-national
corporations. Kimball, National and Harpers
brands offer a spectrum of flexible systems,
casegoods, seating and filing products for
value-oriented office applications through
option-rich executive settings.

f i n a n c i a l h i g h l i g h t s ( 1 ) v i r t u e s a n d i m p a c t ( 2 ) l e t t e r t o t h e s h a r e o w n e r s ( 5 )

Kimball Lodging Group. The Lodging Group
designs and manufactures custom and
standard hospitality furniture for the world’s
most prestigious hotel properties and leading
lodging chains. Related healthcare furniture
lines provide solutions for long-term care and
assisted living facilities. The Group also
provides institutional lodging pieces for
government applications.

d e d i c a t i o n ( 8 ) p e r s i s t e n c e ( 1 1 ) p r o g r e s s ( 1 2 ) p r u d e n c e ( 1 6 )

Kimball Cabinet and Furniture Group. The
Cabinet and Furniture Group manufactures
diverse collections of solid-wood residential
furniture under the Kimball Home brand, and
period reproductions under the Kimball brand.
It also produces a variety of original equipment
manufacturer (OEM) products such as
television cabinets, speaker systems, billiard
tables and furniture for companies worldwide.

l o y a l t y ( 1 9 ) i n t e g r i t y ( 2 0 ) m a n a g e m e n t ’ s d i s c u s s i o n ( 2 4 )

Kimball Electronics Group. The Electronics
Group is a leading technology company that
designs, engineers, manufactures, packages
and distributes electronics products to
companies in the automotive, computer,
telecommunications, medical, aerospace and
defense industries. These custom, high-value
OEM products include multichip modules,
semiconductor components, board assemblies
and “box build” products.

r e p o r t o f m a n a g e m e n t ( 2 8 ) f i n a n c i a l s ( 2 9 ) b o a r d o f d i r e c t o r s ( i n s i d e b a c k c o v e r )

Kimball Raw Materials Group. The Raw
Materials Group manages Kimball’s forestry
holdings and processes lumber, plywood,
veneer and other wood components for
Kimball’s furniture manufacturing operations
and a variety of other customers. In addition,
the group provides metal stamping, molded
plastics and carbide cutting tools operations.

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Financial Highlights

Founded in 1950, Kimball International manufactures and markets a broad range
of diversified consumer durable products under the family of Kimball brand names.
The Company also manufactures products for other companies.

31%

Electronic Contract Assemblies
$325.6 Million Dollars

63%

Furniture and Cabinets
$647.6 Million Dollars

Processed Wood Products
and Other
$59.1 Million Dollars

Net Sales
Net Income
Return on Capital
Earnings Per Share (Diluted)

Class A
Class B

Dividends Declared

Class A
Class B
Market Price Per Share
High
Low
Close

1998

1,032,317

55,027

11.90%

1997
992,049
57,745

13.36%

% of Change
4.1%
-4.7%
-10.9%

1.31

1.32

.587/8
.601/2

2415/16

17
181/8

-5.1%
-4.3%

11.1%
13.1%

1.38
1.38

.53
.531/2

225/8
131/4
201/8

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HeartlandVirtues. Global Impact..

Almost 50 years ago, America’s heartland witnessed the
birth of a regional cabinet-making business. With time, this

enterprise evolved into a premier manufacturer whose

furniture and electronic products are used in applications all

over the world.The products and processes have changed

since Kimball International’s beginnings, but the heartland

virtues responsible for the company’s growth and success

remain firmly rooted.

d e d i c a t i o n . p e r s i s t e n c e . p r o g r e s s . p r u d e n c e . l o y a l t y. i n t e g r i t y.

They continue to define our culture and act as the foundation

for our decisions. Our commitment to these bedrock

heartland virtues create global opportunities for ourselves

and for our customers.The success in our endeavors brings

reward to all stakeholders – customers, employees, suppliers,

communities and Share Owners.

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virtues and impact. Like the
spreading ripples in a pond,
the
heartland virtues embraced by the
people at Kimball International are
creating an impact all over the world.
It can be seen in the face of a
corporate executive, whose pride
reflects
and
dedication of workers who designed and
built his wood office furniture. It can be

craftsmanship

the

witnessed in the satisfaction of Kimball
dealers, whose product lines reflect the
progress of new and enhanced products
and sales tools. The impact is embodied
in the dedication of workers, who have
tremendous flexibility to shape their
jobs. And for the Share Owners, whose
loyalty is the foundation for long-term
results. The following pages describe how

Kimball lives by these heartland virtues.

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Thomas L. Habig

Vice Chairman

James C.Thyen

President

Douglas A. Habig

Chairman, Chief Executive Officer

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To Our Share Owners

Kimball’s fiscal 1998 performance was simultaneously gratifying and disappointing
for us. For the first time in company history, sales surpassed one billion dollars and
established yet another record.Three of the four quarters set new highs. Strong demand
continued for office furniture and some of our electronics products. Yet, from an
earnings standpoint, short-term challenges offset the positives spawned from sales growth.

We’re certainly not pleased with this decline in earnings, nor are we happy with the fourth-

quarter drop in the company’s share price. But short-term performance is secondary to

longer-term goals.

Measures are underway to reverse the earnings decline.These steps are consistent with the

long-term horizon under which Kimball is operated. As we explain in this annual report, we

believe Share Owner value is created most effectively from decisions based on a foundation of

traditional heartland virtues - not through quarter-by-quarter reactions to market

fluctuations. Our business approach nurtures our people’s skills and well-being, builds trust

with customers and suppliers, and provides an entrepreneurial environment for designing,

building and marketing a wide range of competitive products and accompanying services.

During the last twelve months, many new Kimball products have been commanding market

attention with their innovative or unique features.The strategic groundwork we’ve embedded

across the company will produce even more results in the future.

We envision great achievements. Our goals are centered around much more aggressive

growth - with top-line performance driving even faster bottom-line results.We are pushing

with newfound urgency to speed the momentum of progress.Your Board of Directors’

confidence is reflected in its stock repurchases as well as its June decision to raise the annual

dividend seven percent to 64 cents per Class B share.

The accomplishments and challenges of fiscal 1998

Record office furniture sales provided the lion’s share of Kimball’s growth, with strength

across many brands of casegoods, seating and systems. Furniture and Cabinet Segment

revenues increased by $30.3 million, or 5 percent, to $647.6 million - and would have been

higher if much lower shipments of contract TV cabinets and stands and softer lodging

furniture sales hadn’t tempered segment performance.

Consolidated sales

rose four percent to an

all-time high of $1.03

billion, reflecting record

demand for Kimball’s

office furniture and

contract electronics

products. Income declined

five percent to $55.0

million from the previous

record year.

The Board raised the

annual dividend rate

seven percent to 64 cents

per Class B share.

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To Our Share Owners (continued)

Polly Kawalek, Vice

President of The Quaker

Oats Company and

President, Hot Breakfast

Division, The Quaker

Oats Company, joined

Kimball’s Board of

Directors in December

1997. Her experience in

corporate strategic

planning, marketing

Many factors impacted earnings - lower contract cabinet sales, greater-than-anticipated start-

up costs for our Definition modular wood office casegoods, increased office furniture sales

incentives and promotional costs, and higher implementation expenses associated with the

initial phase of upgrading the office furniture order management information system.These

challenges have received very close attention and we have made excellent progress in

mitigating them as we enter fiscal 1999.

leadership and attaining

Electronics is Kimball’s other primary income engine. Sales rose three percent in that segment

profitable growth

represents a valuable

addition to the Board.

The solid foundation of

a strong financial position

provides the resources

necessary to help achieve

our more aggressive

growth goals.

to a record $325.6 million.We diversified our products and customer base in the automotive

industry - offsetting lower production of computer assemblies last year. Higher engineering

and start-up costs associated with new products, coupled with our investment in capacity to

meet anticipated growth in demand, were responsible for the operating income decline.

Sales were flat in the smallest segment, Processed Wood Products and Other, the foundation

of Kimball’s furniture vertical integration philosophy. Higher lumber, laminates and metal

part sales were offset by lower demand for plastics used in TV cabinet production.

Together, Kimball operations generated cash flow of $76.2 million - nearly two-thirds of which

was reinvested in new production equipment, enhanced information technology and expanded

electronics and furniture manufacturing capacity.We also focused on the basics - improving on-

time performance, reducing lead times, shipping damage-free goods and simplifying processes.

Fulfilling our vision as a premier manufacturer and marketer

Our quest for growth is predicated on the ability to design and build exciting products that

customers rank as their best value. In this regard, we’re pushing harder than ever.

Kimball Home Furniture’s solid wood residential collections have been turning heads. Four

new series introduced in the last eighteen months position us well in the multi-billion-dollar

residential furniture market.We continue working to broaden product lines and to apply our

craftsmanship toward future introductions.

We also made great impressions with several bold new seating lines, a mobile, modular

office system and an innovative stackable file unveiled in June at the national premier office

furniture show.

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Despite production limitations last year, both Definition and our Interworks metal office system

have been winners.We expect them to be catalysts for growth for all of our office furniture

product lines.

Kimball Lodging Group, which supplies prestigious resort properties and hotel chains alike,

will unveil a number of redesigned “in-line” suites this year.We also see signs that the market

may be recovering for TV cabinets and

stands.

In electronics, Kimball is offering

customers more than contract manufac-

turing. On the front end, we bring

engineering design and the ability to

make components smaller and lighter.

We’re also extending our services into

distribution. Leadership has been

broadened to keep pace with the

increasingly global nature of our

customers’ support requirements.

In our raw materials operations, units

are aggressively pursuing outside

business to supplement inter nal

production.

In addition, radically different processes are being implemented to

harvest hardwood in ways that are both environmentally sound and more cost-effective.

Across the company, we are dramatically building upon fiscal 1998’s progress. Our people

have the incentive to spark growth and we continue to invest in building the necessary talent

and skills. Our design capabilities add a whole new dimension to the supply chain. Our

manufacturing facilities are flexible and efficient. Our marketing and customer intimacy focus

drives customer satisfaction. Our never-ending quest for quality and value generates Economic

Profit and long-term Share Owner returns.

We appreciate your support as we integrate these resources to pursue our vision of growth.

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Dedication. Craftsmanship Applied to the Corporate Environment.

By applying international

quality standards, Kimball

improved the assembly

process for its Artec office

furniture, saving more

than $800,000 annually

and reducing customer

complaints by half.

At Kimball seating plants,

rapid-fire improvement

sessions are held every

month to help workers

perform their jobs better

and bring immediate

productivity benefits.

Kimball Electronics Group

was honored by its

customers as the best

contract manufacturer for

the third consecutive time

in a survey by the

research firm Technology

Forecasters and by

Circuits Assembly

Magazine.

A heritage of craftsmanship and quality extends from Kimball International’s very foundation.
The company’s dedication to these values was embedded in its beginnings as a regional
cabinet-maker, and has grown as operations spread across North America and into Europe.

Indeed, the role of the craftsman has changed over the decades. Simpler tools of

yesteryear have been replaced by state-of-the-art production equipment and information

systems.Yet, Kimball people carry a relentless dedication to quality and value. It is

embodied in furniture manufacturing employees. In lumbermill workers. In design engineers,

electronic component assemblers and customer service representatives.

Improving product design, manufacturing and marketing gets constant attention. One process

used repeatedly is “Kaizen”- a procedure that literally means “take apart” and “put together.”

Support teams and front-line workers join efforts to challenge the status quo.Within days,

innovative changes are boosting

capacity, reducing inventories and

raising productivity.

Kimball businesses also achieve

gains by adopting international

quality standards as their Quality

Systems (QS) model. By defining,

organizing and documenting

processes, they promote consistency

and identify areas to improve. In

fiscal 1998, four units involved in

c r a f t s m a n s h i p . TeZett, an acclaimed contemporary
lounge seating line introduced in 1998, reflects Kimball's
continuing dedication to craftsmanship.

plastics, laminates, tooling and corporate information systems achieved ISO 9000 QS

registration. In all, fifteen units now have QS registered to either ISO 9000 or ISO 25 standards. In

addition, the automotive segment of Kimball Electronics Group attained the more demanding QS

9000 quality standard, developed by Detroit automakers for direct component suppliers.

In the office furniture group, a specially trained Product Quality Assurance Team addresses

customer questions quickly- and uses feedback to bring about permanent improvements.

This dedication to quality is bringing positive results. Furniture lead times are shorter. On-

time shipping reliability has improved. Kimball Electronics Group (KEG) won IBM’s top

supplier award during 1998. And for the third consecutive time in as many attempts since

1993, KEG won the Service Excellence Award for contract electronics manufacturers based

upon an annual customer survey co-sponsored by Technology Forecasters and Circuits Assembly

Magazine. Dedication to quality permeates every part of Kimball.

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k a i z e n . In a process called Kaizen, employees literally develop new ways to work.Their efforts improve craftsmanship -
bringing faster, more efficient processes, cost savings and better productivity.

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i n t e r w o r k s . Despite early production difficulties, Kimball stood behind its long-term investment in Interworks.
Its rapidly increasing sales are a tribute to the company's persistence.

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p e r s p e c t i v e . No matter how you look at
it, persistence and a little patience is paying off
with Interworks.

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Persistence. There are no Short-Cuts to Lasting Success.

Employees are full

partners with Kimball.

Their valuable skills are

critically important to the

company's ability to

consistently build and

market quality products

over time. Thus, short-

term financial results do

not dominate decision-

making at Kimball–

flexibility does.

Kimball Electronics

Group has persisted in

the pursuit of quality.

While registering its

plants to international

quality standards known

as ISO 9000, it has

achieved the tough QS-

9000 standards that the

automobile industry

requires of suppliers.

Lasting success requires persistence. Despite the lure of quick-fix responses to market
fluctuations or challenges, reaching long-term goals demands both fortitude and vision.
Kimball’s values provide the guidance for achieving success.

The foundation under Kimball International’s vision are its Guiding Principles.These

ideals embody the spirit of Kimball’s culture, guiding relationships with customers, employees,

communities and Share Owners by defining the expectations of trust, respect, dignity

and pride the company was founded on.

The company is committed to pursuing its long-term goals

without compromising its heritage. Lasting success requires

achieving sales growth that ranks among the market leaders.

It requires the persistent pursuit of innovative, high-quality

products that outshine the competition. It means providing

a workplace and advancing a culture that attracts and retains

the very best workers, as well as a continued focus on

generating exceptional long-term returns to Share Owners.

To achieve these goals, the company has invested millions

of dollars in its people, information systems and manufacturing

capabilities.This drive to enhance their infrastructure

through world-class facilities and marketing information

systems will continue, fostered by a more aggressive

strategic leadership necessary to guide the coming phases

of growth.These changes focus Kimball on its historic

strengths-creating superior furniture solutions, maintaining

bloxx s t a c k a b l e f i l e .
By licensing an innovative design from another
company, Kimball exhibited an aggressive
approach to product development in the new
BLOXX stackable file system.

leading edge technology capabilities for electronics customers and reliably supplying its own

wood furniture operations with raw materials.

Other opportunities will drive Kimball’s growth: by expanding into related product lines, by

enhancing product and service capabilities and by broadening the customer base geographically.

Through persistence, Kimball will achieve long-term success for all of its stakeholders.

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Progress.The Pioneer Spirit Behind Marketplace Innovations.

Kimball was an

instrumental player in

launching the first Office

Furniture Design

Symposium during fiscal

1998. The successful

symposium, conducted

under the auspices of the

International Interior

Design Association, drew

hundreds of designers

and industry specialists.

Market introductions of

nonconventional seating

lines, a unique stackable

file, a mobile alternative

office system and

upscale home furniture

won Kimball acclaim

from customers, dealers,

interior designers and

others in the industry.

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The lifeblood of progress is more than innovation. It is a spirit that drives the
imagination of designers to create bold new products, modify existing furniture lines,
and fully employ their talents in the battle for a competitive edge.The pioneer spirit of
progress takes many forms at Kimball.

Progress begins with listening to the customer. As the result of this process, the furniture and

electronics marketplaces were enhanced in fiscal 1998. An abundance of market introductions

helped spur record Kimball Office Group and Kimball Electronics Group sales.

In fact, at the June 1998 NEOCON

office furniture industry trade show,

Kimball launched more products than

ever. Among the highly acclaimed

Kimball lines was Skate, a uniquely

designed modular system named for its

mobility and ease of reconfiguration in

today’s alternative workplaces. Another

new product introduced at NEOCON

was BLOXX, a stackable metal file system.

Kimball won widespread praise for the

uncharacteristic styles of its five newly

designed seating products that also

debuted at NEOCON. The company’s

largest introduction of seating products

ever at NEOCON included TeZett, a

chrome accented, contemporary lounge

seating line. The unveiling also included

e x t r e m e l y p r o g r e s s i v e . The easily
adjustable XTreme task/desk chair was one of the hits
at the NEOCON furniture industry trade show.

Zip, a retro seating line that tastefully mixes wood and metal; the futuristic Savona; the highly

adjustable and mobile XTreme

task chair; and the Navara professional task chair.

Kimball Home Furniture also created a buzz of excitement within the multi-billion-dollar home

furniture market. Kimball Home’s introductions at the High Point, North Carolina markets

over the past year-combined with current home lines-reflect distinct high-quality, solid-wood

collections designed for the lifestyles of today’s quality-conscious consumer.The Oak Meadow,

Cherry Falls, Pine Mountain and Maple Creek collections were the brainchild of renowned

designers using a successful formula of function, versatility and storage space. Additional

collections and expanded offerings can be expected regularly from Kimball Home Furniture.

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i n n o v a t i v e o f f i c e s y s t e m s . To provide the flexibility needed in today's changing office environment, Kimball
launched Skate, a highly adaptable system that can be configured to optimize productivity in today’s alternative office environment.

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b a b y s t e p s . Often, progress is measured in small steps. In this case, the progress is big for little people.The Kimball Kids
Child Development Center, when completed in early 1999, will provide an additional option for employees who need affordable and
trustworthy child care.

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Progress (continued)

Progress is also reflected in a $4 million dollar capacity expansion planned for early fiscal year

By employing designs

1999 for Definition, the award-winning modular wood casegoods line. In the Kimball

Electronics Group, multichip module (MCM) technology is being applied to make electronic

products smaller, lighter and more cost effective. Progress is represented by the decision to

double the size of Kimball Electronics Group’s Reynosa, Mexico manufacturing facility to

meet anticipated demand. Progress even means the planned addition of drying kilns at key

Kimball raw materials facilities to

maintain the quality of one very

important Kimball component:

wood. For Kimball’s contract

furniture customers, progress is

Kimball’s approach to “value

engineering”-finding the best and

most cost effective combination of

manufacturing approaches and

component materials.

Progress doesn’t stop with

products. For Kimball Office

Group dealers, it’s a CD-ROM

resource allowing instant retrieval of

information, photos, specifications

and other tools to support sales.

p r o g r e s s i v e t h i n k i n g . After evaluating its long-term
markets, Kimball began expanding its electronics plant in Reynosa,
Mexico, to keep pace with anticipated growth in demand.

For employees, it’s an innovation that touches their lives a little closer to home.When

complete, the Kimball Kids Child Development Center will provide employees another

option for child care and a resource to help balance family and work issues. Kimball selected

the country’s largest corporate childcare management organization, Bright Horizon’s Family

Solutions, to manage the facility-the first of which is being constructed in a centralized

location in Jasper, Indiana.

Progress is all about finding new and better ways to satisfy customer and employee needs.

Kimball continues to take steps on many fronts to do just that.

and technology that make

products smaller and

lighter, and by adding

distribution capabilities,

Kimball Electronics is

evolving into much more

than a contract

manufacturer.

Innovative quick-ship

programs are putting

products into customer

hands faster, and is

contributing to growth.

Most items within the

Kimball Home Furniture

collections are shipped

within 48 hours. National

and Kimball office

furniture brands also

feature accelerated

shipping programs.

Highly skilled employees

are a key ingredient in

Kimball’s furniture

manufacturing flexibility.

The company can shift

production among plants

to ensure that operations

are running at efficient

capacity, or to meet

specific customer needs.

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Prudence. Practical Management of World-Class Resources.

Prudent financial

management, combined

with strong cash flow,

provides Kimball the

flexibility to invest in

improving processes

and enhancing the skills

of its people. This

foundation of strength

allows the company to

act on opportunities–

such as growing

electronic related

business and the

addition of metal office

furniture.

Over the years, Kimball

Lodging Group has

designed and built

furniture for some of the

country’s most pres-

tigious properties. Using

this foundation of

knowledge, the Lodging

Group began offering

a catalogue of standard

products for hotel

chains, and also expanded

into the healthcare

furnishing business.

Financial strength not only provides the flexibility for a company to pursue its goals.
It also allows the freedom to respond quickly to changing markets, and take advantage of
attractive business opportunities. Kimball prudently balances these goals as it strives to
achieve long-term objectives.

Kimball has invested millions of dollars in its people, capacity and information technology
systems to build the business structure necessary to achieve long-term growth in a competitive
environment. Prudent financial management and strong cash flow provided the flexibility
to undertake those investments. Measures such as economic profit-which includes the cost of
capital investment in the profitability scorecard-help management direct capital to the
best opportunities for return.

The investment in Harpers and the
successful development of a new metal
office furniture system exemplifies
actions taken to position Kimball for
long-term success.While Kimball has
historically ranked as the industry’s
top wood office furniture producer,
the metal segment accounts for approx-
imately 75 percent of the total office
furniture market. During fiscal 1998,
sales of Kimball’s metal systems out-
paced the industry dramatically.

c o l l e c t i v e r e s o u r c e s . Kimball Lodging Group
employs various Kimball facilities to manufacture its products,
including the pieces featured in this hotel suite.

Kimball Home Furniture represents
another opportunity for growth in the residential furniture market.The solid-wood collections
graphically display the company’s furniture design and manufacturing sophistication, and
underscore Kimball’s production flexibility.

Kimball has wide-ranging furniture manufacturing capabilities that were applied to Kimball
Lodging Group’s hotel, resort and healthcare customers, and other furniture manufacturers on
a contract basis.The Lodging Group has worked to employ internal capacity by developing fully
upholstered seating manufacturing capability.

Highly skilled employees who apply carefully documented manufacturing procedures help
Kimball efficiently use its production resources.The prudent management of Kimball’s
production flexibility plays a key role in long-term achievements.

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p r u d e n c e . Kimball prudently employed its furniture building experience and available manufacturing capacity with the
launch of Kimball Home Furniture.The acclaimed Maple Creek collection, Kimball Home’s fourth introduction in the last year, is
the epitome of Kimball’s craftsmanship and its flexible capacity.

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q u a l i t y f i r s t . For years, Kimball Electronics Group has provided a major automotive supplier the key electronic
components needed for its anti-lock braking systems. Kimball’s multichip module technology is being researched to make these
systems smaller, lighter and more cost effective.

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Loyalty. Decision Making to Benefit the Larger Community.

The most effective business relationships are true partnerships. Each person or
organization on a team benefits from the knowledge and skills of the other. Over the
long run, trust and loyalty are necessary components for the relationship to thrive with
the changing opportunities and challenges of the marketplace.

Kimball Electronics Group

engineers work side-by-

side with its customer’s

technical people to find

ways to reduce the size

and cost of anti-lock

braking modules used in

Kimball’s success ultimately emerges from providing solutions to the many opportunities

automobiles.

provided by its customers: A family furnishing a new home. A business seeking office

solutions. A resort refurbishing its property. A billiards table for a recognized leader of quality

entertainment products. An automotive manufacturer seeking an electronic component for a

new vehicle model year.

These relationships thrive

because Kimball continuously

adds value to its customer

partnerships. For example,

Kimball has reduced the size

and cost of anti-lock vehicle

braking device components for

one key partner. Major hotel

chains rely on Kimball to

provide quality, cost-effective

lodging furniture. In the case

c o m m i t m e n t . Kimball builds an assortment of OEM products, including
billiard tables, nurturing long-term relationships with its customers.

Customers of the Kimball

Lodging Group can contact

any of the members in their

service team–whether it’s

in sales, finance, shipping

or production–for

information regarding

any order.

Kimball’s Cabinet and

Furniture Group “value-

engineers” products it

makes for its OEM

customers to find the most

efficient manufacturing

methods possible.

of a television manufacturer’s move from California to Mexico, Kimball followed with its just-

in-time cabinet assembly operations.

Customer intimacy is key. Office furniture customers know Kimball will recommend the

best application from any of the wood or metal products in the Kimball family.This Total Best

Solution approach is winning customers and dealers. In the Electronics Group, plans are

underway to form a pilot design engineering center to serve existing and new customers.

Internal partnerships are enhancing how products are designed, built and sold. New

operating information systems are providing better data for ordering and scheduling. In

the Lodging Group, Regional Support Teams meld the expertise of many professionals into

a seamless offering.To help Kimball engineers throughout the company, a Product Data

Management digital storage system will allow quicker, more efficient access to furniture designs.

In the end, Kimball's decisions to make investments for long-term growth are guided by loyalty.

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Integrity. Keeping Faith with Our Strategic Partners.

Kimball’s Heartland

Virtues are embodied

in a corporate philosophy

called the Guiding

Principles, which the

company uses to direct

its long-term relation-

ships with employees,

customers, suppliers and

Share Owners.

A company that operates with integrity keeps its promises. If challenges or unexpected
difficulties block the path, then the company informs its stakeholders. By adhering to
the Guiding Principles, Kimball fulfills its commitment to those whose well-being is
shaped by the company.

Revenues, economic profit, return on capital and total Share Owner return are all

measurements of a company's performance. Over time, they reflect both the successes and

the shorter-term challenges.

One such challenge involved

Definition, the highly acclaim-

ed wood casegoods product

introduced at the 1997 NEOCON

trade show. Early demand

exceeded expectations so

greatly that it overwhelmed

the company’s capacity. The

extended lead times subsequently

suppressed orders and impacted

similar product lines. Kimball

has since recovered market share

and growth momentum lost to

these difficulties.

Another c hallenge is the

difficulty implementing an

order management information

system in the office furniture

k i m b a l l e l e c t r o n i c s g r o u p . Not only manufactures
components for applications in the automotive, telecommunications and
computer industries, but it has expanded its services into product design
and distribution.

marketing group.When in full operation, the order system will more effectively organize and

share incoming customer orders with manufacturing partners, resulting in dramatically

improved product availability and shorter lead times.The lessons from this experience are

guiding the remaining phases of implementation.

Meanwhile, the volatile television manufacturing environment impacted Kimball’s contract

TV cabinet business.The industry turmoil regarding the next generation of TV technology

has been compounded by the consolidation of customer manufacturing facilities, combining

to dramatically disrupt Kimball production.

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D E F I N I T I O N Ushers in a new era in casegoods flexibility that meets every specification from the private office to the open plan.

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e n v i r o n m e n t a l i n t e g r i t y. Kimball’s responsibility to the environment is illustrated through the use of its
harvester, which allows hardwood to be removed more efficiently while protecting the forests.The machine cuts trees, gently
lowers them to the ground and slices them into sections for easy, damage-free removal.

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Integrity (continued)

Despite these occasional detours, Kimball continues to fine-tune the engine that serves

customers and drives sales and earnings.These include a systematic effort to evaluate

processes, make changes that boost efficiency and cement those gains with the speed of

technology. Another is the application of information systems that provides critical cost data

for appropriate pricing and manufacturing decisions. Ultimately, these steps help Kimball

serve customers through an industrial covenant–immediate access to world-class design and

manufacturing resources.

Kimball’s employees share in the benefits of a successfully implemented vision. Incentive

programs reward employees, in part, on the company’s progress in growing economic profit.

Because personal development is also important to the company’s success, Kimball provides

wide-ranging opportunities for education and

Dealers invited to a

roundtable discussion

highlighted successes

and concerns, resulting

in responsive programs

that reduced lead time

on orders and service.

A dramatically new

process allows Kimball

to selectively harvest

hardwood and haul it

from forests with much

less impact on the

environment. Kimball

manages its forests

and those of contract

training.The company’s flexibility with employees-

landowners so that the

which offers part-time work, family friendly

scheduling, and other innovative job approaches-

has been in place long before other corporations

found it necessary to adopt these practices.

The promise-the integrity-lies in doing what is

right. Protecting the environment for ourselves

and our communities is taken very seriously.

Kimball’s stewardship involves a gamut of superior

environmental practices. Kimball manages nearly

15,000 acres of company-owned and private

woodland forests for today’s needs, and for the

land can be used for

future generations.

Across the company,

Kimball’s creative

problem solving,

leadership and

manufacturing

excellence training

courses have produced

more than 5,000

graduates.

w h a t g o e s a r o u n d . An annual amusement park
picnic gives Kimball families a chance to have fun and visit
with one another away from the workplace.

future. Instead of clear-cutting, Kimball selects specific trees for commercial use. And innovative

harvesting and transporting equipment will further improve productivity while preserving the

natural beauty of the forests.Within manufacturing operations, new techniques are being

explored to reduce emissions and recycle by-products as a means to eliminate wastes.

Execution is the ultimate measurement for Kimball’s success.With officer stock ownership

requirements and key support personnel stock option programs, the decision makers have a

measurable stake-and incentive-to build performance and lead the company into a new, more

intense phase of growth.

The company truly is being managed for the future, steeped in the bedrock heartland virtues

that guide corporate decisions.These longstanding virtues act as the foundation for a company

whose actions are globally impacting all Kimball stakeholders.

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m a n a g e m e n t ’ s d i s c u s s i o n a n d a n a l y s i s
o f f i n a n c i a l c o n d i t i o n a n d r e s u l t s o f o p e r a t i o n s

Overview
Fiscal year 1998 net sales surpassed the $1 billion mark for
the first time, as sales increased 4% above 1997 levels to set
a new annual record of $1,032,317,000. Net income and
Class B diluted earnings per share were $55,027,000 and $1.32,
respectively, a decrease of 5% from 1997 record levels.

Results of Operations

1998 Discussion
Net sales for the 1998 fiscal year surpassed 1997 levels on
increased sales by both the Furniture and Cabinets segment and
the Electronic Contract Assemblies segment. Net sales in the
Processed Wood Products and Other segment were flat with fiscal
year 1997. Operating income in 1998 decreased 11% to
$72,476,000, from $80,992,000 in 1997.

Furniture and Cabinets
Fiscal 1998 net sales in the Furniture and Cabinets segment, the
Company’s largest segment, increased 5% over the prior year.

A double-digit increase in
office furniture sales was partially
offset by sales declines in
lodging furniture and original
equipment manufacturer
cabinets and furniture.

Office furniture experienced
record annual net sales in 1998.
Growth was achieved without
acquisitions and was distributed
across all major product
groupings - casegoods, seating,
and systems. Increases in net
sales resulted primarily from
higher volumes. Office furniture
sales growth kept pace with the
most recent twelve-month industry
trend. Price discounting remains
a competitive factor in the office
furniture industry, resulting in
lower operating margins in the
year over year comparison.

Net sales for cabinets and
furniture product lines declined
when compared to the prior
year, with volume declines in
television cabinets and stands and
audio speaker cabinets. Fiscal
1998 residential furniture sales
increased in comparison to 1997.
Sales of original equipment
manufacturer cabinets and
stands in the home entertainment
market were impacted by the
relocation of a large customer

and its longer than anticipated start up time in the early part
of the fiscal year, resulting in lower volumes in 1998. The
Company’s production flexibility allows it to utilize portions
of the available production capacity created by lower volumes
within these product lines to support and balance increased
production schedules of other product lines within this segment.
The Company continues to explore other potential external
product avenues to utilize excess capacity in this group, including
new customers and new products.

Net sales of lodging furniture in 1998 declined when compared to
1997. Increased sales in the Company’s standard product lines
were more than offset by reduced sales of custom-made product.
Lower volumes were primarily the result of competitive pricing
pressures. In the latter half of the fiscal year, the Company re-
evaluated its lodging furniture pricing structure, and initiated a
new pricing strategy to offer more competitive pricing. In addition,
based upon customer feedback certain products were
reengineered which enabled the Company to lower costs without
sacrificing customer-defined quality.

Operating income in the Furniture and Cabinets segment
decreased in 1998 when compared to 1997, despite an increase in
sales. Cost of goods sold, as a percent of sales, was lower in 1998
as favorable shifts in the product mix were partially offset by
higher labor costs, as a percent of sales. Sales and administrative
expenses rose in 1998 primarily due to increased investments in
people and technology, higher product distribution costs, and
increased sales-based incentive costs.

Electronic Contract Assemblies
The Electronic Contract Assemblies segment achieved record net
sales in fiscal 1998 with an increase of 3% over the prior year.
Increased demand for electronic automotive products was
partially offset by decreased volumes in computer-related products.
Fiscal 1998 fourth quarter results were unfavorably impacted
by the General Motors (GM) labor strike, as the Electronic Contract
Assemblies segment assembles components that are installed in
GM vehicles. The Company estimates that the impact resulting
from the GM strike was less than 2% of fourth quarter
consolidated sales. With the settlement of the strike occurring in
late July, 1998, the Company’s expectations are that the effect on
first quarter fiscal 1999 results will be greater than the fourth
quarter 1998 impact. The information included above concerning
the General Motors labor strike is a forward-looking statement
under the Private Securities Litigation Reform Act of 1995 and is
subject to risks and uncertainties including, but not limited to
how quickly GM and it suppliers will return to full production, as
well as the ability of the Company and its suppliers to ramp up
production to respond to the anticipated acceleration in demand.
This segment's working capital carries a higher degree of risk than
the Company’s other segments due to rapid technological changes
and the contract nature of this industry. Included in this segment
are sales to one customer which accounted for 16% and 15% of
consolidated sales in fiscal 1998 and 1997, respectively.

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Operating income in 1998 decreased when compared to the
prior year. Cost of goods sold, as a percent of sales, increased
as lower material costs due to a product mix shift were more than
offset by higher direct labor and overhead costs. Selling and
administrative costs increased from one year ago on increased
investments in people and technology. The Company continues
to build its infrastructure to take advantage of the latest design
and production technologies and to support growth opportunities
within the segment.

Processed Wood Products and Other
Outside sales in the Processed Wood Products and Other segment,
which accounted for 6% of consolidated outside sales in 1998,
remained relatively consistent with the prior year as increases in
sales of lumber, laminate products and metal parts were offset by
a decline in sales of dimension product and plastic parts. In an
effort to grow additional outside sales in this segment, the Company
has invested in additional human resources focused in the sales
and marketing area. Internal sales of this segment to the Company’s
other operations, particularly the Furniture and Cabinets
segment, provide a key link in the Company’s vertically integrated

supply chain. Operating income
declined in the current year as
material costs, as a percent of
sales, increased from the prior
year.

Consolidated Operations
Other income in 1998
increased over the prior year as
interest income increased on
higher average investment
balances. In the third quarter
of the current year the
Company realized a $616,000
after tax gain ($1.2 million
pre-tax affect), or $0.01 per
diluted share, on the sale of a
stock investment of which the
Company holds a minority
interest. The Company also
recorded a $1.0 million after
tax gain ($1.8 million gross
gain affect), or $0.02 per
diluted share, on the sale of an
automotive service center in
the second quarter of the
current year. In addition, the
prior year includes a $3.8
million pretax loss (no after
tax affect) charged to Other -
net related to the sale of a
foreign subsidiary.

The effective income tax rate
increased 2.3 percentage points
in 1998 primarily due to a $3.8
million tax benefit received on
the sale of a foreign subsidiary
in the prior year. Excluding this
$3.8 million benefit, the effective
income tax rate decreased 0.4
percentage point when compared
to the prior year primarily the
result of a decrease in the state
income taxes in the current year.

Net income and Class B diluted
earnings per share of
$55,027,000 and $1.32, respec-
tively, in fiscal 1998, decreased
5% from the prior year levels of
$57,745,000 and $1.38,
respectively. The current year
earnings per share amounts
reflect a two-for-one stock split
which occurred during the
second quarter. All prior year
amounts have been restated.

1997 Discussion
Net sales for the 1997 fiscal
year, led primarily by increases
in the Furniture and Cabinets,
and Electronic Contract
Assemblies segments and, to
a lesser extent, the Processed
Wood Products and Other
segment increased 7% to
$992,049,000. Operating
income in 1997 increased to
$80,992,000, a 30% improve-
ment over the 1996 level of
$62,511,000.

Furniture and Cabinets
The Company’s largest segment, Furniture and Cabinets,
increased net sales 6% above the prior year as double-digit increases
in office furniture and lodging furniture were partially offset by
declines in cabinets and furniture.

Office furniture product lines realized volume growth in all three
major product groupings - casegoods, seating, and systems, with
growth particularly evident in value-oriented products which had
sales grow at a faster pace than that experienced by the industry
in general. Sales growth in systems also outpaced the industry as
a whole.

Sales of most cabinet and furniture product lines declined when
compared to the prior year, with television cabinets and stands,
audio speaker cabinets, and residential furniture all seeing lower
volumes in fiscal 1997. The Company’s fiscal 1996 decision to
exit the domestic wholesale piano market also contributed to the
declining volumes in these product lines. Lower volumes of
original equipment manufacturer cabinets and stands in the home

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entertainment market were the result of some customers realizing
lower retail sales of their products. The Company utilized the
available capacity created by the sales declines to support and balance
production schedules of other product lines within this segment.

Sales of lodging furniture increased as volumes increased
in the Company’s standard and custom-made furniture product
lines. Strongest growth was seen in product destined for use in
the lodging industry in both renovated and newly constructed
facilities. Sales growth was also achieved in product utilized
within the healthcare industry and other institutional environments.

Operating income in the Furniture and Cabinets segment
increased in 1997, when compared to 1996, as higher volumes
and lower costs, as a percent of sales, combined to improve
profitability during the year. The prior year included additional
one-time costs to exit the domestic wholesale piano product line
and certain facility start-up costs incurred to redeploy an existing
facility to the production of systems office furniture to support
increased volumes. Gross profit increased in 1997 as material
costs declined, as a percent of sales, when compared to the prior
year. Sales expense increased, as a percent of sales, partially due
to increases in volume and performance related expenses,
including commissions and incentives, and higher expenses incurred
to promote product to the customer, such as showroom, delivery,
and other expenses. Administrative expense in 1997 declined in
absolute dollars and as a percent of sales, as minimal changes were
needed within the existing administrative infrastructure to
support the increased volumes.

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 1997 net income.

Electronic Contract Assemblies
Fiscal 1997 sales in the Electronic Contract Assemblies segment
increased 11% over the 1996 level. The acquisition of ELMO
Semiconductor in the prior year third quarter contributed 2% to
the increased sales level. Certain large customers in the
automotive and computer industries increased their demand for
the Company’s products in the 1997 fiscal year, with volumes
increasing in electronic automotive products and internal and
peripheral computer products, when compared to the prior year.
Other customers, primarily in the computer networking market,
reduced order levels. Rescheduling, production flexibility and
material availability are inherent risks in the contract electronic
assemblies market. In addition, as a supplier to customers
operating within the automotive industry, the Company has a
certain degree of risk associated with labor relations within that
industry. Due to these factors, this segment’s working capital
carries a higher degree of risk than the Company as a whole.
Working capital in this segment as of June 30, 1997, had been
reduced from the elevated levels present at June 30, 1996. As in
other segments, the Company records reserves in response to
these risks as they arise based upon estimates derived from
available information known at that time. Operating income in
1997 increased primarily due to increased volumes, with product
mix also contributing to the improved results, although

competitive pricing pressures remain a constant in the industry.
Included in this segment were sales to one customer which
accounted for 15% of consolidated sales in 1997 and 14% in 1996.

Processed Wood Products and Other
Outside sales in the Processed Wood Products and Other segment
improved marginally over the prior year as increases in sales of
dimension, lumber and metal parts were offset by a decline in
sales of plastic parts, veneer and laminate products. This segment
continued to provide goods and services to the Company’s
internal operations, mainly in the Furniture and Cabinets
segment, in support of the vertically integrated supply chain
maintained by the Company. Operating income declined when
compared to the prior year due to higher costs for some raw material
commodities coupled with a changing customer mix.

Consolidated Operations
Other income declined from the prior year as an increase in
interest income earned due to higher average investment balances
during the 1997 fiscal year was more than offset by a $3.8 million
charge to Other - net, related to a pretax loss on the sale of a
foreign subsidiary in the first quarter of 1997, which was offset by
a $3.8 million income tax benefit recorded in Taxes on Income.
Other - net, also declined due to larger gains realized on sales of
assets in the prior fiscal year.

The effective income tax rate decreased 4.5 percentage points in
1997 due primarily to the $3.8 million tax benefit received on the
sale of a foreign subsidiary in the first quarter of this fiscal year.
The tax benefit was the result of a higher U.S. tax basis due to
previously nondeductible losses on the investment in this U.K.
subsidiary. Excluding this benefit, the effective income tax rate
decreased 1.8 percentage points when compared to the prior
year due to reduced European operating losses, which provide
no immediate tax benefit, and a slight reduction in the effective
state tax rate.

The sale of a foreign subsidiary in the first quarter of fiscal year
1997 resulted in a deferred tax asset for the Company due to a
capital loss recognized in the current year as previously non-
deductible losses created a higher tax basis on this investment.
Based on the Company’s prior earnings history and its expec-
tations for future earnings, the Company has determined that it is
more likely than not that the carrying value of the deferred tax asset
will be realized in the future as part of the Company’s overall tax
planning strategy under current income tax law.

The Company attained record net income and Class B diluted
earnings per share of $57,745,000 and $1.38, respectively, in
fiscal 1997, an increase of 23% over the prior year levels of
$46,965,000 and $1.13, respectively, excluding the effects of the
product line exit costs in the prior year. Including the product
line exit costs, net income and Class B earnings per share
increased 28% over the prior year. Earnings per share amounts
have been restated to reflect the two-for-one stock split effective
in the second quarter of fiscal 1998.

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Liquidity and Capital Resources
The Company’s liquidity position improved slightly from $168
million in cash, cash equivalents, and short-term investments at
the end of fiscal 1997, to $173 million at the end of fiscal 1998.
Working capital increased $16 million to $260 million and the
current ratio was 2.7 to 1 as of June 30, 1998.

Operating activities generated $76 million of cash flow in 1998,
down from $122 million in 1997. Net income and non-cash
charges to net income were partially offset by increases in
receivables of $9 million and inventory of $15 million. The
Company reinvested $49 million into capital investments for the
future, including facility renovation and expansion, production
equipment upgrades and improvements to the Company’s
information technology systems. Financing cash flows of $30
million were primarily in the form of dividend payments and share
repurchases. Net cash flow, excluding the purchases and
maturities of short-term investments was a positive $2 million for
fiscal year 1998.

The Company anticipates maintaining a strong liquidity position for
the 1999 fiscal year and believes its available funds on hand,
borrowing capacity, and cash generated from operations will be
sufficient for working capital needs and to fund investments in the
Company’s future. This statement is a forward-looking statement
under the Private Securities Litigation Reform Act of 1995 and is
subject to certain risks and uncertainties including, but not limited
to a downturn in the economy, loss of key customers or suppliers,
availability or cost of raw materials, or a natural disaster or similar
unforeseen event.

Year 2000
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company’s programs that have time-sensitive
software may recognize a date using “00” as the year 1900 rather
than the year 2000, which could result in a major system failure
or miscalculations. The Company has completed an assessment
of its computer systems and the embedded systems contained in its
machinery, equipment and other infrastructure, and is in the process
of executing a plan to resolve the Year 2000 issue. An Executive
Committee has been established to oversee completion of these
activities. Management believes the modification of its computer
information systems will be completed in adequate time to
enable proper processing of transactions relating to the Year 2000
and beyond. Integrated testing of interfaces between various
applications used within the Company is scheduled to begin
before September, 1998, with completion of Year 2000 compliance
estimated for January - March, 1999. While the Year 2000 issue
has been given the highest priority amongst the information
technology (IT) group, any deferrals of other IT projects by the
Company will not have a material effect on its financial condition
or results of operations.

The total gross cost of Year 2000 compliance is estimated to range
from $9 million to $11 million, of which approximately 25% had
been incurred as of June 30, 1998. Existing information technology
resources have been redeployed, which are anticipated to account
for approximately 50% of the total costs, with the balance being
incremental costs to the Company. Approximately 30% of the total
gross costs relate to machinery and other fixed assets which will
be capitalized, with the remaining costs being expensed as incurred.

The Company believes the key risk factors associated with Year
2000 are those it cannot directly control, primarily the readiness
of its key suppliers, distributors, customers, public infrastructure
suppliers and other vendors. The Company has initiated
discussions with these third parties to determine their Year 2000
compliance status, and is keeping the communication channels
open with respect to their readiness. The Company has mailed
correspondence to third party affiliates to assess their Year 2000
readiness based upon their representations. The Company has
received a good response to those letters and is in the process of
following up with those mission critical third parties who did not
respond. While the Company is working diligently to ensure its
mission critical third parties will be compliant, there can be no
assurance that the systems of any third party on which the Company’s
systems and operations rely will be timely converted and which
will not have a material adverse effect on the Company.

The determination of the effect on the Company’s results of
operations for its own noncompliance or for third party
noncompliance is complex and hinges on numerous unknowns.
Therefore, while the Company does not have a reasonable
estimate of the impact this could have on its results of operations,
it recognizes this noncompliance could range from the malfunction
of an embedded chip in a piece of machinery temporarily shutting
down a product line, to a select public infrastructure of one of the
Company’s outlying locations or international facilities being
unable to provide service temporarily idling one or more
production facilities. In addition, worst case scenarios could
include a key customer being unable to process transactions
halting production on one of the Company’s product lines, to a
single source supplier, as well as back-up suppliers, being unable to
provide necessary materials also suspending production on a
product line(s). Some of these individually, and in the aggregate,
could have a material effect on the Company’s results of operations.

During the first half of fiscal year 1999, contingency plans will be
developed, documented, and tested outlining recovery strategies for
possible failures. Contingency plans would include such items as
sourcing alternatives for single source suppliers, developing
business resumption plans for all of the Company’s business units,
and evaluating alternative manual processes.

This Year 2000 disclosure contains forward-looking statements
under the Private Securities Litigation Reform Act of 1995 and is
subject to risks and uncertainties including, but not limited to
such factors as the availability and cost of human resources with
expertise in this area, the ability to locate and correct all relevant
computer codes and time constraints.

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r e p o r t o f m a n a g e m e n t

To the Share Owners of Kimball International, Inc.

The management of Kimball International, Inc. is responsible for the preparation and integrity of the accompanying financial
statements and other related information in this report. The consolidated financial statements of the Company and its
subsidiaries, including the footnotes, were prepared in accordance with generally accepted accounting principles and include
judgement and estimates, which in the opinion of management are applied on a conservative basis.

The Company maintains a system of internal controls intended to provide reasonable assurance that assets are safeguarded from
loss or material misuse, transactions are authorized and recorded properly, and that the accounting records may be relied upon
for the preparation of the financial statements. This system is tested and evaluated regularly for adherence and effectiveness by
the Company’s staff of internal auditors, as well as the independent public accountants in connection with their annual audit.

The Audit Committee of the Board of Directors, which is comprised of directors who are not employees of the Company,
meets regularly with management, the internal auditors and the independent public accountants to review the work performed
and to ensure that each is properly discharging its responsibilities. The internal auditors and the independent public
accountants have free and direct access to the Audit Committee, and they meet periodically, without management present, to
discuss appropriate matters.

Douglas A. Habig
Chairman, Chief Executive Officer

James C.Thyen
President

Robert F. Schneider
Executive Vice President,
Chief Financial Officer,
Assistant Treasurer

r e p o r t o f i n d e p e n d e n t p u b l i c a c c o u n t a n t s

To the Board of Directors and Share Owners of Kimball International, Inc.

We have audited the accompanying consolidated balance sheets of Kimball International, Inc. (an Indiana corporation) and
subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of income, cash flows and share owners’
equity for each of the three years in the period ended June 30, 1998. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Kimball International, Inc. and subsidiaries as of June 30, 1998 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1998, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois
July 23, 1998

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Ta b l e o f C o n t e n t s

N e x t (cid:3)

c o n s o l i d a t e d b a l a n c e s h e e t s

(Amounts in Thousands, Except for Share Data)
Assets
Current Assets:

Cash and cash equivalents
Short-term investments
Receivables, less allowances of $4,023 and $4,017, respectively
Inventories
Other

Total current assets

Property and Equipment, net
Other Assets

Total Assets

Liabilities and Share Owners’ Equity
Current Liabilities:
Loans payable
Current maturities of long-term debt
Accounts payable
Dividends payable
Accrued expenses

Total current liabilities

Other Liabilities:

Long-term debt, less current maturities
Deferred income taxes and other
Total other liabilities

Share Owners’ Equity:

Common stock–par value $.05 per share ($.31 1/4 in 1997):

Class A– Shares authorized-49,967,000 (10,416,000 in 1997)

Shares issued-14,509,000 (7,274,000 in 1997)
Class B – Shares authorized-100,000,000 (30,000,000 in 1997)

Shares issued-28,516,000 (14,238,000 in 1997)

Additional paid-in capital
Retained earnings
Foreign currency translation adjustment
Unrealized gain/(loss) on available-for-sale securities
Less: Treasury stock-at cost:

Class A– 125,000 shares (55,000 in 1997)
Class B – 1,688,000 shares (742,000 in 1997)

Total share owners’ equity

June 30

1998

1997

$ 16,757

156,010

119,170

96,303

24,697

412,937

182,798

33,903

$ 18,818
149,677
110,142
76,142
21,994
376,773

174,010
30,800

$629,638

$581,583

$ 4,318

434

60,907

6,521

81,030

153,210

1,856

25,949

27,805

$ 2,472
471
53,063
5,989
71,263
133,258

2,313
23,186
25,499

725

2,273

1,426

6,022

464,880

1,535

2,174

(2,362)

(25,777)

448,623

4,450
1,607
434,665
1,721
(73)

(2,044)
(19,773)
422,826

Total Liabilities and Share Owners’ Equity

$629,638

$581,583

See Notes to Consolidated Financial Statements.

M
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(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

c o n s o l i d a t e d s t a t e m e n t s o f i n c o m e

(Amounts in Thousands, Except for Per Share Data)
Net Sales
Cost of Sales
Gross Profit

Selling, Administrative and General Expenses
Product Line Exit Costs
Operating Income

Other Income (Expense):
Interest Expense
Interest Income
Other, Net

Other Income, Net

Income Before Taxes on Income
Taxes on Income

Net Income

Earnings Per Share of Common Stock
Class A
Class B

Basic:

Diluted: Class A
Class B

Average Number of Shares Outstanding

Basic:

Class A
Class B

Totals

Diluted: Class A
Class B

Totals

1998

$1,032,317

723,378

308,939

236,463

—

72,476

(424)

9,458

5,917

14,951

87,427

32,400

Year Ended June 30
1997
$992,049
692,636
299,413

218,421
—
80,992

(551)
8,484
(359)
7,574

88,566
30,821

1996
$923,636
664,311
259,325

193,414
3,400
62,511

(408)
7,411
4,801
11,804

74,315
29,220

$ 55,027

$ 57,745

$ 45,095

$1.32

$1.33

$1.31

$1.32

14,413

27,004

41,417

14,413

27,401

41,814

$1.39
$1.40

$1.38
$1.38

14,498
26,952
41,450

14,498
27,265
41,763

$1.08
$1.08

$1.07
$1.08

14,616
27,194
41,810

14,616
27,240
41,856

See Notes to Consolidated Financial Statements. Share data has been adjusted for the 2-for-1 common stock split effective on November 12, 1997.

T
A

B
M

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

c o n s o l i d a t e d s t a t e m e n t s o f c a s h f l o w s

(Amounts in Thousands)
Cash Flows From Operating Activities:

Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Gain on sales of assets
Deferred income tax and other deferred charges
Product line exit costs
Change in current assets and liabilities:

Receivables
Inventories
Other current assets
Accounts payable
Accrued expenses

Net cash provided by operating activities

Cash Flows From Investing Activities:

Capital expenditures
Proceeds from sales of assets
Proceeds from sale of division/subsidiary
Increase in other assets
Purchases of held-to-maturity securities
Maturities of held-to-maturity securities
Purchases of available-for-sale securities
Sales and maturities of available-for-sale securities
Net cash used for investing activities

Cash Flows From Financing Activities:

Increase in short-term borrowings
Net change in long-term debt
Acquisition of treasury stock, net of sales
Dividends paid to share owners
Proceeds from exercise of stock options
Other-net

Net cash used for financing activities

Effect of Exchange Rate Changes on Cash
Net (Decrease) Increase in Cash and Cash Equivalents

1998

Year Ended June 30
1997

1996

$ 55,027

$ 57,745

$ 45,095

33,806

(1,986)

880

—

(9,028)

(15,174)

(1,413)

7,844

6,248

76,204

(41,313)

1,177

3,150

(7,359)

(21,415)

46,932

(97,120)

67,517

(48,431)

1,846

(494)

(8,323)

(24,280)

1,495

(63)

(29,819)

(15)

(2,061)

33,395
(597)
(1,247)
—

6,432
10,787
1,751
4,055
9,487
121,808

(32,937)
1,366
2,345
(11,810)
(34,465)
51,446
(58,305)
—
(82,360)

190
(724)
(4,878)
(21,508)
808
(132)
(26,244)

(33)
13,171

36,092
(1,235)
(939)
3,400

(18,586)
(13,343)
1,175
13,138
(2,794)
62,003

(32,793)
7,282
—
(11,658)
(17,318)
67,249
(60,822)
—
(48,060)

519
362
(5,131)
(19,193)
—
(105)
(23,548)

(26)
(9,631)

Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year

18,818

$ 16,757

5,647
$ 18,818

15,278
$ 5,647

Total Cash, Cash Equivalents and Short-Term Investments:

Cash and cash equivalents
Short-term investments

Totals

See Notes to Consolidated Financial Statements.

$ 16,757

156,010

$172,767

$ 18,818
149,677
$168,495

$ 5,647
108,425
$114,072

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P

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

c o n s o l i d a t e d s t a t e m e n t s o f s h a r e o w n e r s ’ e q u i t y

(Amounts in Thousands, Except for Per Share Data)
Amounts at June 30, 1995

Shares of Class A Common Stock converted to Class B

Common Stock pursuant to charter provisions

Three Years Ended June 30, 1998
Common Stock

Class A

Authorized
Shares
10,477

Issued
Shares Amount
$2,292
7,335

Authorized
Shares
30,000

Class B

Issued

Shares
14,177

Amount
$4,431

(24)

(7)

Amounts at June 30, 1996

10,453

7,311

$2,285

30,000

14,201

$4,438

Shares of Class A Common Stock converted to Class B

Common Stock pursuant to charter provisions

(37)

(12)

Amounts at June 30, 1997

10,416

7,274

$2,273

30,000

14,238

$4,450

Shares of Class A Common Stock converted to Class B

Common Stock pursuant to charter provisions

Increase number of authorized shares
2-for-1 stock split
Change par value from $.31 1/4 pre stock split to

$.05 post stock split

(33)

(36)

(3)

39,584

70,000

7,271

14,242

(1,545)

(3,027)

Amounts at June 30, 1998

49,967

14,509

$ 725 100,000 28,516

$1,426

Amounts at June 30, 1995

Net income for the year
Treasury stock acquired-net
Cash dividends:

Class A ($.47 per share)
Class B ($.47 1/2 per share)

Amounts at June 30, 1996

Net income for the year
Treasury stock acquired-net
Shares of Class A Common Stock converted to Class B Common Stock,

via treasury shares, pursuant to charter provisions

Exercise of stock options
Cash dividends:

Class A ($.53 per share)
Class B ($.53 1/2 per share)

Amounts at June 30, 1997

Net income for the year
Treasury stock acquired–net
Shares of Class A Common Stock converted to Class B Common Stock,

via treasury shares, pursuant to charter provisions

Exercise of stock options
Cash dividends:

Class A ($.58875 per share)
Class B ($.605 per share)

Additional
Paid-In
Capital
$ 812

Retained
Earnings
$ 373,704
45,095

Treasury Stock

Shares
(514)

Amount
$ (11,883)

(187)

(5,189)

(6,870)
(12,905)

$ 898

$ 399,024
57,745

647
28

(7,682)
(14,422)

$ 1,607

$ 434,665
55,027

(312)

(701)

$ (17,072)

(134)

(4,878)

—
38

(647)
780

(797)

$ (21,817)

(378)

(8,213)

—

117

(81)

1,972

(8,483)

(16,329)

(755)

2-for-1 stock split
Change par value from $.31 1/4 pre stock split to $.05 post stock split

4,572

Amounts at June 30, 1998

$6,022

$464,880

(1,813)

$(28,139)

See Notes to Consolidated Financial Statements. Dividends per share have been adjusted for the 2-for-1 common stock split effective on November 12, 1997.

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A

B
M

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s

Summary of Significant Accounting Policies

Note 1
Principles of Consolidation: The consolidated financial statements include the accounts of all domestic and foreign
subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation.

Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts included in the consolidated
financial statements and related footnote disclosures. While efforts are made to assure estimates used are reasonably accurate
based on management’s knowledge of current events, actual results could differ from those estimates.

Acquisition of Subsidiaries: On March 29, 1996, the Company acquired with available cash on hand, certain assets of
ELMO Semiconductor 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 Statements of Income from the date of acquisition.

Sale of Subsidiary: 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 1997 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 net
income.

Cash, Cash Equivalents and Short-Term Investments: Cash equivalents consist primarily of highly liquid investments
with original maturities of three months or less at the time of acquisition. Cash equivalents are stated at cost, which
approximates market value. Short-term investments are cash investments, primarily U.S. Government securities and municipal
bonds with maturities exceeding three months at the time of acquisition. Held-to-maturity securities are stated at amortized
cost. Available-for-sale securities are stated at market value, with unrealized gains and losses being excluded from net income
by being recorded net of related tax effect, if any, as a component of share owners’ equity.

Foreign Currency Translation: Assets and liabilities of foreign subsidiaries (except for Mexico, whose functional currency
is the U.S. dollar) are translated into U.S. dollars at fiscal year-end exchange rates, income statement accounts are translated at
the weighted average exchange rate during the year, and the resulting currency translation adjustments are recorded as a
component of share owners’ equity. Financial statements of Mexican operations are translated into U.S. dollars using both
current and historical exchange rates, with translation gains and losses included in net income.

Inventory Pricing: Inventories are stated at the lower of cost or market value. Cost includes material, labor and applicable
manufacturing overhead and is determined using the last-in, first-out (LIFO) method for approximately 52% and 59% of
consolidated inventories in 1998 and 1997, respectively. Cost of the remaining inventories is determined using the first-in,
first-out (FIFO) method.

Property, Equipment and Depreciation: Property and equipment are stated at cost. Depreciation is provided over the
estimated useful life of the assets using the straight-line method for financial reporting purposes. Maintenance, repairs and
minor renewals and betterments are expensed; major improvements are capitalized.

Research and Development: The costs of research and development are expensed as incurred. These costs were
approximately, in millions, $13.1 in 1998, $11.5 in 1997, and $10.5 in 1996.

Medical Care and Disability Benefit Plans: The Company is self-insured with respect to certain medical care and
disability benefit plans for approximately 75% of covered domestic employees. The Company carries stop-loss insurance
coverage to mitigate severe losses under these plans. The balance of domestic employees are covered under fully insured HMO
plans. The costs for such plans are charged against earnings in the year in which the incident occurred. The Company does not
provide benefits under these plans to retired employees. Employees of foreign subsidiaries are covered by local benefit plans,
the cost of which is not significant to the consolidated financial statements.

M
P

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s

Summary of Significant Accounting Policies (continued)

Note 1
Income Taxes: Unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without
giving effect to the United States taxes that may be payable on distribution to the United States because it is not anticipated
such earnings will be remitted to the United States. If remitted, the additional United States taxes paid would not be material.

Off-Balance Sheet Risk: The Company engages in several types of financing arrangements with customers, primarily certain
guarantees, and also has business and credit risks concentrated in the automotive, computer, telecommunication, consumer
electronic and wood industries.

Reclassifications: Certain prior year amounts have been reclassified to conform with the 1998 presentation.

Stock-Based Compensation: The Company continues to account for its employee stock option plans using Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, which results in no charge to earnings when
options are issued at fair market value. The Company has adopted the disclosure requirements of Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation.

Product Line Exit Costs

Note 2
The Company announced a strategic decision during 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 consolidated sales in 1996. A pretax provision of $3,400,000, which equates to a net income effect of $1,870,000,
or $0.05 per share, was established during 1996, to cover all estimated costs associated with exiting this product line. The
Company ceased production of domestic wholesale pianos as of April, 1996. Costs have been applied against this provision as
of June 30, 1998, totaling $959,000, with the remaining amount reserved for fulfilling long-term commitments.

Inventories

Note 3
Inventories are valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 52% and 59% of
consolidated inventories in 1998 and 1997, respectively. The remaining inventories are valued using the lower of first-in, first-
out (FIFO) cost or market value.

Had the FIFO method been used for all inventories, net income would have been, in millions, $0.6 higher in 1998, $0.1 lower
in 1997, and $0.7 lower in 1996. Additionally, inventories would have been, in millions, $20.3 and $19.3 higher at June 30,
1998 and 1997, respectively, if the FIFO method had been used. During 1998 and 1997, certain inventory quantity reductions
caused a liquidation of LIFO inventory values, which were immaterial.

T
A

B
M

Inventory components at June 30 are as follows:
(Amounts in Thousands)
Finished products
Work-in-process
Raw materials

Total inventory

Property and Equipment

Note 4
Major classes of property and equipment consist of the following:
(Amounts in Thousands)
Land
Buildings and improvements
Machinery and equipment
Construction-in-progress

Total

Less: Accumulated depreciation

Property and equipment, net

1998

$31,365

12,971

51,967

$96,303

1998

$ 4,471

145,880

264,316

13,882

428,549

(245,751)

$ 182,798

1997
$23,822
11,852
40,468
$76,142

1997
5,159
142,937
255,586
7,519
411,201
(237,191)
$ 174,010

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

The useful lives used in computing depreciation are based on the Company’s estimate of the service life of the classes of
property, as follows:

Buildings and improvements
Machinery and equipment
Leasehold improvements

Years
12 to 50
4 to 40
Life of Lease

Depreciation and amortization of property and equipment totaled, in millions, $29.9 for 1998, $29.4 for 1997, and $30.8 for
1996.

Commitments - Leases

Note 5
Operating leases for certain office, showroom, warehouse and manufacturing facilities, and equipment, which expire 1999 –
2007, contain provisions under which minimum annual lease payments are, in millions, $6.3, $5.5, $3.7, $2.0, and $1.6 for
the five years ended June 30, 2003, respectively, and aggregate $2.2 million from 2004 to the expiration of the leases in 2007.
The Company is obligated under certain of the real estate leases to maintain the properties and pay real estate taxes.

Total rental expenses amounted to, in millions, $6.7, $5.9, and $5.5 in 1998, 1997 and 1996, respectively.

Long-Term Debt

Note 6
Long-term debt is principally obligations under long-term capitalized leases. Aggregate maturities of long-term debt for the
next five years are, in thousands, $434, $922, $296, $92, and $92, respectively, and aggregate $454 thereafter. Interest rates
range from 0% to 10%. Interest paid was immaterial in the three years ending June 30, 1998. Based upon borrowing rates
currently available to the Company, the fair value of the Company’s debt approximates the carrying value.

Retirement Plans

Note 7
The Company has trusteed defined contribution Retirement Plans in effect for substantially all domestic employees meeting
the eligibility requirements. Company contributions are based on a percent of net income as defined in the plans; the
percent of contribution is determined by the Board of Directors up to specific maximum limits. The plans include a 401(k)
feature, thereby permitting participants to make additional voluntary contributions on a pretax basis. Payments by the
Company to the trusteed plans are vested and held for the sole benefit of participants. Total contributions to the Retirement
Plans for 1998, 1997 and 1996 were approximately, in millions, $10.1, $11.3, and $8.6, respectively.

Employees of certain foreign subsidiaries are covered by local pension or retirement plans. Annual expense and accumulated
benefits of these foreign plans are not significant to the consolidated financial statements.

Incentive Stock Options

Note 8
On August 11, 1987, the Board of Directors adopted the 1987 Stock Incentive Program, which was approved by the
Company’s Share Owners on October 13, 1987. Under this plan, 3,600,000 shares of Class B Common Stock were reserved
for incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, and performance
share awards available for grant to officers and other key employees of the Company, and to members of the Board of
Directors who are not employees. Approximately 275 employees were eligible to participate in the program during 1997 and
1996. This Stock Incentive Program expired in August 1997, with prior year grants expiring annually through July 2001.

On June 11, 1996, the Board of Directors adopted the 1996 Stock Incentive Program, which was approved by the Company’s
Share Owners on October 22, 1996. Under this plan, 4,200,000 shares of Class B Common Stock were reserved, in addition
to the approximately 2 million remaining shares currently reserved under the 1987 plan, for incentive stock options,
nonqualified stock options, stock appreciation rights, and performance share awards available for grant to officers and other
key employees of the Company, and to members of the Board of Directors who are not employees. The 1996 Stock Incentive
Program is a ten year plan. Approximately 290 employees were eligible to participate in the program during 1998.

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(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s

Incentive Stock Options (continued)

Note 8
Stock options are priced at the fair market value of the stock at the date of grant. Options granted under the plans generally are
exercisable beginning two years after the date of grant and expire five to ten years after the date of grant. Shares of stock issued by
the exercise of incentive stock options must be held for a five year period before being sold. Stock options are forfeited when
employment terminates, except in certain situations.

There are 250,000 additional shares reserved for issuance under the Directors’ Stock Compensation and Option Plan which is
available to all members of the Board of Directors. Under terms of the plan, Directors electing to receive all, or a portion, of
their fees in the form of Company stock will also be granted a number of stock options equal to 50% of the number of shares received
for compensation of fees. Option prices and vesting are similar to those of the 1996 Stock Incentive Program. The plan is
in effect through October 2006.

Stock option transactions are as follows:

Options outstanding June 30, 1995
Granted
Exercised
Forfeited
Options outstanding June 30, 1996
Granted
Exercised
Forfeited
Options outstanding June 30, 1997
Granted
Exercised
Forfeited
Options outstanding June 30, 1998

Shares available for future options

Number
of Shares
542,800
580,400
—
(23,500)
1,099,700
402,838
(90,872)
(35,600)
1,376,066

588,889

(225,769)

(89,170)

Per Share
Option Price
$ 12.22 – $14.80
$ 12.77 – $14.38
—
$ 12.22 – $14.80
$ 12.22 – $14.80
$ 13.63 – $19.64
$ 12.22 – $14.80
$ 12.22 – $14.80
$ 12.22 – $19.64

$20.40 - $23.56

$12.22 - $14.80

$12.22 - $21.83

1,650,016

$12.22 - $23.56

5,895,884

Following is a status of options outstanding at June 30, 1998:

Outstanding Options

Exercisable Options

Exercise
Price Range
$12.00 - $16.00
$16.00 - $20.00
$20.00 - $24.00
Total

Number
1,072,589
2,238
575,189
1,650,016

Weighted
Average
Remaining
Contractural
Life
2 years
3 years
5 years
3 years

Weighted
Average
Exercise
Price
$13.34
18.23
21.82
$16.30

Weighted
Average
Exercise
Price
$13.08
—
21.83
$14.25

Number
686,769
—
106,000
792,769

Share data has been adjusted for the 2-for-1 common stock split effective on November 12, 1997.

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B
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(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

The Company adopted the disclosure requirements of Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation (FAS 123) effective in fiscal year 1997. The Company has elected to continue to follow the provisions
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretations;
accordingly, no compensation cost has been reflected in the financial statements for its incentive stock options. Had
compensation cost for the Company’s incentive stock options been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of FAS 123, the Company’s net income and earnings per share would have
been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):

Net Income

As Reported
Pro Forma

Earnings per Share of Common Stock As Reported:

Basic:

Class A
Class B
Diluted: Class A
Class B

Pro Forma:
Basic:

Class A
Class B
Diluted: Class A
Class B

1998

$55,027

$53,343

$1.32

$1.33

$1.31

$1.32

$1.28

$1.29

$1.27

$1.28

Year Ended June 30
1997

$57,745
$56,765

$1.39
$1.40
$1.38
$1.38

$1.37
$1.37
$1.36
$1.36

1996

$45,095
$44,615

$1.08
$1.08
$1.07
$1.08

$1.06
$1.07
$1.06
$1.07

The pro forma effects on net income for the years ended June 30, 1997 and 1996 may not be representative of the pro forma
effect on net income in future years because FAS 123 does not take into consideration pro forma compensation expense
related to grants made prior to fiscal year 1996.

The weighted average fair value at date of grant for options granted during the years ended June 30, 1998, 1997 and 1996
was $4.84, $2.50 and $2.25 per option, respectively.

The fair value of the options at the date of grant was estimated using the Black-Scholes option pricing model with the following
weighted average assumptions: expected volatility of 31.7% in 1998, 31.4% in 1997 and 32.5% in 1996; risk-free interest rates
of 6.18% in 1998, 6.34% in 1997 and 6.25% in 1996; dividend yield of 2.9% in 1998, 2.9% in 1997 and 3.5% in 1996; and
an expected life of 3.5 years for all years.

Income Taxes

Note 9
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. A valuation reserve is provided in part for deferred
tax assets relating to foreign net operating losses and U.S. capital loss carryforward benefits, due to uncertainty surrounding the
utilization of these deferred tax assets. Income tax benefits associated with the foreign net operating losses have no expiration
period under current tax laws, while benefits associated with the capital loss carryforward all expire during the 2002 fiscal year.

The components of the deferred tax assets and liabilities as of June 30, 1998 and 1997, are as follows:
(Amounts in Thousands)
1998
Deferred tax assets:
Receivables
Inventory
Employee benefits
Other current liabilities
Miscellaneous
Foreign net operating losses
Capital loss carryforward benefit

2,338

6,579

6,507

2,581

2,597

$ 1,830

658

Valuation reserve

Total asset

Deferred tax liabilities:

Property & equipment
Miscellaneous

Total liability

(4,794)

$18,296

$15,144

255

$15,399

1997

$ 1,709
2,456
5,805
5,261
643
2,225
3,345
(4,438)
$17,006

$13,617
1,329
$14,946

M
P

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s

Note 9
The components of income before taxes on income are as follows:

Income Taxes (continued)

(Amounts in Thousands)
United States
Foreign

Total income before taxes

Taxes on income are composed of the following items:

(Amounts in Thousands)
Currently payable:
Federal
Foreign
State

Total current

Deferred Federal

Total taxes on income

1998

$87,327

100

$87,427

1998

$29,363

224

3,650

33,237

(837)

$32,400

Year Ended June 30
1997
$87,626
940
$88,566

Year Ended June 30
1997

$28,418
179
4,538
33,135

(2,314)
$30,821

1996
$75,437
(1,122)
$74,315

1996

$28,699
—
4,120
32,819

(3,599)
$29,220

A reconciliation of the statutory U.S. income tax rate to the Company’s effective income tax rate follows:

(Amounts in Thousands)

Taxes computed at statutory rate
State income taxes,

net of Federal income tax benefit

Foreign tax effect
Capital loss benefit
Other-net

1998

Year Ended June 30
1997

1996

Amount

$30,600

35.0%

Amount
$30,998

%
35.0%

Amount
$26,010

2,373

(35)

—

(538)

2.7

—

( .6)

3,179
(329)
(3,650)
623
$30,821

3.6
(.4)
(4.1)
.7
34.8%

2,678
393
—
139
$29,220

%
35.0%

3.6
.5
—
.2
39.3%

Total taxes on income

$32,400

37.1%

T
A

B
M

Cash payments for income taxes, net of refunds, were in thousands, $28,183, $37,069, and $31,353 in 1998, 1997, and 1996,
respectively.

Note 10 Common Stock
At the annual meeting held on October 28, 1997, the Company’s Share Owners approved a 2-for-1 stock split on the Company’s
Class A and Class B Common Stock. The Share Owners also approved restating the Company’s Articles of Incorporation by
increasing the number of authorized shares to 150 million shares, reducing the par value of common stock from $.3125 to
$0.05, and increasing the annual dividend preference on Class B Common Stock to $0.02 per share. The stock split became
effective on November 12, 1997. Financial information contained in this report, including prior period share and per share
amounts, has been adjusted to reflect the impact of the common stock split.

On a fiscal year basis, shares of Class B Common Stock are entitled to an additional $.02 per share dividend more than the
dividends paid on Class A Common Stock, provided that dividends are paid on the Company’s Class A Common Stock. The owners
of both Class A and Class B Common Stock are entitled to share pro-rata, irrespective of class, in the distribution of the Company’s
available assets upon dissolution.

Owners of Class B Common Stock are entitled to elect, as a class, one member of the Company’s Board of Directors. In
addition, owners of Class B Common Stock are entitled to full voting powers, as a class, with respect to any consolidation,
merger, sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the Company’s fixed assets, or
dissolution of the Company. Otherwise, except as provided by statute with respect to certain amendments to the Articles of
Incorporation, the owners of Class B Common Stock have no voting rights, and the entire voting power is vested in the Class A
Common Stock, which has one vote per share. The Habig family owns directly or shares voting power in excess of 50% of the
Class A Common Stock of Kimball International, Inc. The owner of a share of Class A Common Stock may, at their option,
convert such share into one share of Class B Common Stock at any time.

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

If any dividends are not paid on shares of the Company’s Class B Common Stock for a period of thirty-six consecutive
months, or if at any time the number of shares of Class A Common Stock issued and outstanding is less than 15% of the total
number of issued and outstanding shares of both Class A and Class B Common Stock, then all shares of Class B Common
Stock shall automatically have the same rights and privileges as the Class A Common Stock, with full and equal voting rights
and with equal rights to receive dividends as and if declared by the Board of Directors.

Note 11 Quarterly Financial Information (Unaudited)
Quarterly financial information is summarized as follows:

(Amounts in Thousands,Except for Per Share Data)
1998:

Net Sales
Gross Profit
Net Income
Basic Earnings Per Share:

Class A
Class B

Diluted Earnings Per Share:

Class A
Class B

1997:

Net Sales
Gross Profit
Net Income
Basic Earnings Per Share:

Class A
Class B

Diluted Earnings Per Share:

Class A
Class B

1996:

Net Sales
Gross Profit
Net Income
Basic Earnings Per Share:

Class A
Class B

Diluted Earnings Per Share:

Class A
Class B

September 30

December 31

March 31

June 30

Three Months Ended

$245,857

$264,524

$265,001

$256,935

74,280

13,029

79,952

15,485

77,732

13,702

76,975

12,811

$.31

.31

$.31

.31

$.37

.38

$.36

.37

$.33

.33

$.33

.33

$.31

.31

$.30

.31

$ 247,700
73,134
13,521

$ 253,780
75,169
14,621

$ 243,277
73,819
14,521

$ 247,292
77,291
15,082

$.32
.33

$.32
.32

$.35
.35

$.34
.34

$.36
.36

$ 218,933
55,856
8,418

$ 234,539
64,725
12,291

$ 223,915
64,124
9,969

$ 246,249
74,620
14,417

$.20
.20

$.29
.29

$.24
.24

$.35
.35

$.34
.35

Per share data has been adjusted for the 2-for-1 common stock split effective on November 12, 1997. Net income in the third quarter of
1996 was reduced by $1,870,000, or $.05 per share, for estimated costs associated with exiting sales and production of the Company’s
domestic wholesale piano product line. Net income in the second quarter of 1998 was increased by $1,008,000 or $0.02 per
share, representing the gain on the sale of an automotive service center. Net income in the third quarter of 1998 was increased by
$616,000 or $0.01 per share, from the gain on the sale of a stock investment of which the company holds a minority interest.

Short-Term Investments

Note 12
The Company classifies its short-term investments in accordance with Financial Accounting Standards Board Statement No. 115,Accounting
for Certain Investments in Debt and Equity Securities. Fair values are estimated based upon the quoted market values of those, or similar
instruments. Carrying costs reflect the original purchase price, with discounts and premiums amortized over the life of the security.

Held-to-maturity securities are reported at carrying cost and consist primarily of government and municipal obligations with
fair values and carrying costs of, in thousands, $5,430 and $5,429 at June 30, 1998, compared to $30,620 and $30,622 at
June 30, 1997, respectively. Unrealized holding gains and losses were immaterial at June 30, 1998 and 1997. All held-to-
maturity securities mature within a twelve month period.

M
P

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s

Short-Term Investments (continued)

Note 12
Available-for-sale securities are reported at fair value and consist primarily of government and municipal obligations with fair values
and carrying costs of, in thousands, $150,581 and $148,408 at June 30, 1998, compared to $119,055, and $119,128 at June 30, 1997,
respectively. Unrealized holding gains and losses at June 30, 1998 were, in thousands, $2,254 and ($80), respectively. Unrealized
holding gains and losses were immaterial at June 30, 1997. All available-for-sale securities mature within a four year period.

Proceeds from sales of available-for-sale securities were, in thousands, $27,236 for the year ended June 30, 1998. Gross
realized gains on the sale of available-for-sale securities amounted to, in thousands, $76; there were no realized losses. The cost
was determined on each individual security in computing the realized gain.

Note 13
Accrued Expenses
Accrued expenses at June 30 consist of:

(Amounts in Thousands)
Income taxes
Property taxes
Compensation
Retirement plan
Other expenses

Total accrued expenses

June 30

1998

$ 1,183

4,089

30,327

9,889

35,542

$81,030

1997
$ —
4,164
30,248
11,072
25,779
$71,263

Note 14 Business Segment and Geographic Area Information
The Company has three business segments which are listed below.

Furniture and Cabinets: Sales include office, hospitality, healthcare and home furniture; television and stereo cabinets;
pianos; and other miscellaneous products. Intersegment sales are insignificant.

Electronic Contract Assemblies: Sales include electronic and electro-mechanical products (electronic assemblies)
manufactured on a contract basis to customers’ specifications, semiconductor processing, testing, engineering design and
packaging services. Intersegment sales are insignificant. Included in the Electronic Contract Assemblies segment are sales
to one customer that accounted for 16% of consolidated net sales in 1998, 15% in 1997 and 14% in 1996.

Processed Wood Products and Other: Processed Wood Products include the sales of lumber, dimension lumber, plywood,
veneer, and other miscellaneous wood product sales. “Other” sales include plastic components, stamped metal products, carbide
cutting tools and related services on cutting tools, and other miscellaneous services, totaling approximately 28% in 1998, 30% in
1997, and 34% in 1996, of the total customer sales of this segment. Intersegment sales include these same basic wood products,
assembled components and miscellaneous products, which are used in the final production of office, home, hospitality and
healthcare furniture, and cabinets; thus, intersegment sales consist primarily of sales to the Furniture and Cabinets segment.

Intersegment sales are generally priced at cost plus a percentage mark-up, and are generally thought to be marginally less than
prices which would be charged for the same product to unaffiliated customers. The eliminations from operating income are
various transactions including intercompany profit in inventories. Identifiable assets eliminated generally consist of
intercompany profit in inventories and intercompany receivables.

(Amounts in Thousands)
Net Sales:

1998

Business Segment

Year Ended June 30
1997

1996

Customers Intersegment Customers Intersegment Customers Intersegment

Furniture and Cabinets
Electronic Contract Assemblies
Processed Wood Products and Other

Total Net Sales

$ 647,597

$ 1,917

325,602

—

59,118

60,871

$1,032,317

$62,788

$617,249
315,816
58,984
$992,049

$ 653
—
60,203
$60,856

$580,393 $ 170
—
58,687
$58,857

284,639
58,604
$923,636

T
A

B
M

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

(Amounts in Thousands)
Operating Income:

Furniture and Cabinets
Electronic Contract Assemblies
Processed Wood Products and Other
Total Operating Income

Business Segment

Year Ended June 30
1997

$44,159
29,748
7,085
$80,992

1998

$38,674

28,625

5,177

$72,476

1996

$33,467
21,437
7,607
$62,511

Included in Furniture and Cabinets operating income for 1996 is a pretax provision of $3.4 million, which was established to
cover all estimated costs associated with exiting the domestic wholesale piano product line.

(Amounts in Thousands)
Identifiable Assets:

Furniture and Cabinets
Electronic Contract Assemblies
Processed Wood Products and Other
Eliminations
Total
Unallocated Corporate Assets:

Cash, Cash Equivalents and Short-Term Investments

Total Assets

Business Segment

June 30

1998

1997

$285,205

128,165

46,042

(2,541)

456,871

172,767

$629,638

$261,694
114,783
39,324
(2,713)
413,088

168,495
$581,583

1998

Depreciation

and

Capital

Business Segment
1997

1996

Depreciation
and

Capital

Depreciation
and

Capital

(Amounts in Thousands)
Furniture and Cabinets
Electronic Contract Assemblies
Processed Wood Products and Other

Amortization Expenditures Amortization Expenditures Amortization Expenditures

$21,246

$23,353

8,087

4,473

12,313

5,648

$21,549
7,289
4,557

$20,237
8,827
3,873

$23,511
7,306
5,275

$22,326
7,469
8,547

Geographic Area
Total United States sales by geographic area include export sales of, in millions, $40 in 1998, $30 in 1997, and $30 in 1996. United
States export sales are primarily to European and North American customers. Foreign sales originate in Europe and are generally
sold to European customers.

(Amounts in Thousands)
Net Sales:

United States
Foreign
Eliminations

Total Net Sales

Operating Income:
United States
Foreign
Eliminations

Total Operating Income

Geographic Area

Year Ended June 30
1997

$972,335
20,344
(630)
$992,049

$ 81,027
(215)
180
$ 80,992

1996

$902,448
22,365
(1,177)
$923,636

$ 64,284
(1,952)
179
$ 62,511

1998

$1,016,584

15,773

(40)

$1,032,317

$ 73,779

(1,306)

72,476

M
P

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s

Note 14 Business Segment and Geographic Area Information (continued)
Geographic Area

(Amounts in Thousands)
Identifiable Assets:
United States
Foreign
Eliminations
Totals
Unallocated Corporate Assets:

Cash, Cash Equivalents and Short-Term Investments

Total Assets

June 30

1998

1997

$442,881

14,039

(49)

456,871

172,767

$629,638

$400,756
12,557
(225)
413,088

168,495
$581,583

Note 15 Earnings Per Share
Effective December 31, 1997, the Company adopted Financial Accounting Standards Board Statement No. 128, Earnings Per
Share. Earnings per share are computed using the two-class common stock method due to the dividend preference of Class B
Common Stock. Basic earnings per share are based on the weighted average number of shares outstanding during the period.
Diluted earnings per share are based on the weighted average number of shares outstanding plus the assumed issuance of
common shares for all potentially dilutive securities. Share data has been adjusted for the 2-for-1 common stock split effective
on November 12, 1997. Earnings per share of Class A and Class B Common Stock are as follows:

1998

Average

Earnings Per Share

Class A

Class B

(Amounts in Thousands, Except Per Share Data)
Net income

Distributed earnings:

Class A dividends declared
Class B dividends declared

Undistributed basic earnings
Basic Earnings Per Share
Basic Earnings Per Share (rounded)

Dilutive effect of stock options
Undistributed diluted earnings
Diluted Earnings Per Share
Diluted Earnings Per Share (rounded)

Available

Income

$ 55,027

(8,483)

(16,329)

$ 30,215

41,417

(240)

$ 29,975

397

41,814

$ .58875

.72953

$1.31828

$1.32

.71687

$1.30562

$1.31

$ .60500

.72953

$1.33453

$1.33

.71687

$1.32187

$1.32

468,891 of the 1,685,007 average outstanding stock options were antidilutive, and were excluded from the dilutive
computation for this period.

T
A

B
M

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

1997

Average
Shares

Earnings Per Share

Class A

Class B

Net income
Distributed earnings:

Class A dividends declared
Class B dividends declared

Undistributed basic earnings
Basic Earnings Per Share
Basic Earnings Per Share (rounded)

$ 35,641

41,450

Dilutive effect of stock options
Undistributed diluted earnings
Diluted Earnings Per Share
Diluted Earnings Per Share (rounded)
All outstanding stock options were dilutive and were included in the dilutive computation for this period.

.849
$1.379
$1.38

(167)
$ 35,474

313
41,763

1996

Average
Shares

Earnings Per Share

Class A

Class B

Available
Income
$ 57,745

(7,682)
(14,422)

Available
Income
$ 45,095

(6,870)
(12,905)

Net income
Distributed earnings:

Class A dividends declared
Class B dividends declared

Undistributed basic earnings
Basic Earnings Per Share
Basic Earnings Per Share (rounded)

Dilutive effect of stock options
Undistributed diluted earnings
Diluted Earnings Per Share
Diluted Earnings Per Share (rounded)

$ 25,320

41,810

(22)
$ 25,298

46
41,856

$ .530

.860
$1.390
$1.39

$ .535

.860
$1.395
$1.40

.849
$1.384
$1.38

$ .470

.606
$1.076
$1.08

.604
$1.074
$1.07

$ .475

.606
$1.081
$1.08

.604
$1.079
$1.08

146,660 of the 754,156 average outstanding stock options were antidilutive, and were excluded from the dilutive
computation for this period.

M
P

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

e l e v e n - y e a r s u m m a r y o f f i n a n c i a l c o n d i t i o n

(Amounts in Thousands,Except for Per Share Data and Number of Employees)
Assets:

1998

1997

1996

1995

Current Assets
Property and Equipment, net
Other Assets

Total Assets

Liabilities and Minority Interest:

Current Liabilities
Long-Term Debt, less Current Maturities
Deferred Income Taxes and Other
Minority Interest in Subsidiary

Total Liabilities and Minority Interest

Share Owners’ Equity

Total Liabilities and Share Owners’ Equity

Other Financial Data:
Current Ratio
Working Capital

$412,937

182,798

33,903

$629,638

$153,210

1,856

25,949

—

181,015

448,623

$629,638

$376,773
174,010
30,800
$581,583

$133,258
2,313
23,186
—
158,757

422,826
$581,583

$342,251
174,009
21,965
$538,225

$122,043
3,016
22,152
—
147,211

391,014
$538,225

$306,816
177,130
13,140
$497,086

$105,046
924
19,779
—
125,749

371,337
$497,086

2.7:1

$259,727

2.8:1
$243,515

2.8:1
$220,208

2.9:1
$201,770

Capital Expenditures-net of Retirements and Disposals:

Net Capital Expenditures
Depreciation and Amortization

$ 38,972

(29,913)

Net Capital Expenditures over (under) Depreciation

$ 9,059

Long-Term Debt as Percent of Share Owners’ Equity
Book Value Per Share of Common Stock Outstanding
Average Number of Employees

0.4%

$ 10.83

9,198

$ 29,823

(29,381)
$ 442

0.5%
$ 10.20
8,786

$ 28,575

(30,781)
$ (2,206)

0.8%
9.35
8,660

$ 33,011

(27,726)

$ 5,285

0.2%
$ 8.81
8,589

Dividends:

Total Declared
Per Share Dividends Declared:

Class A
Class B
Percent of Net Income

Declared in Dividends

$ 24,812

$ 22,104

$ 19,775

$ 18,039

.587/8

$ .601/2

$
.53
$ .531/2

.47

$
$ .471/2

.421/2

$
$ .43

45.1%

38.3%

43.9%

43.5%

Per share book value and dividends paid prior to 1998 were restated to give retroactive effect for a 2-for-1 common stock split during fiscal 1998.

e l e v e n - y e a r s o u r c e s o f r e v e n u e

(Amounts in Thousands)
Furniture and Cabinets

Electronic Contract Assemblies

Processed Wood Products

Other

Total Revenue

1998

$ 647,597

63%

325,602

31%

42,432

16,686

$1,032,317

100%

1997
$617,249
62%
315,816
32%
41,327
4%
17,657
2%
$992,049
100%

1996
$580,393
63%
284,639
31%
38,540
4%
20,064
2%
$923,636
100%

1995
$570,219
64%
245,101
27%
55,957
6%
24,635
3%
$895,912
100%

T
A

B
M

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

1994

1993

1992

1991

1990

1989

1988

June 30

$288,238
171,243
11,932
$471,413

$102,164
811
17,486
—
120,461

350,952
$471,413

$295,458
152,361
4,886
$452,705

$100,070
2,017
17,277
—
119,364

333,341
$452,705

$275,507
142,304
4,212
$422,023

$ 80,769
3,157
16,960
—
100,886

321,137
$422,023

$242,726
135,757
4,202
$382,685

$ 65,262
4,392
17,677
891
88,222

294,463
$382,685

$233,856
140,766
3,361
$377,983

$ 72,371
6,873
18,338
1,050
98,632

279,351
$377,983

$191,003
143,685
3,058
$337,746

$ 64,364
8,933
16,100
1,373
90,770

246,976
$337,746

$191,685
125,103
3,576
$320,364

$ 69,261
11,297
13,515
1,573
95,646

224,718
$320,364

2.8:1
$186,074

3.0:1
$195,388

3.4:1
$194,738

3.7:1
$177,464

3.2:1
$161,485

3.0:1
$126,639

2.8:1
$122,424

$ 45,992

(26,919)

$ 19,073

0.2%
8.29
8,140

$ 36,436

(26,205)

$ 10,231

0.6%
7.87
7,621

$ 31,449

(24,902)

$ 6,547

1.0%
7.56
7,641

$ 18,279

(23,288)
$ (5,009)

1.5%
$ 6.97
7,559

$ 19,756

(22,675)
(2,919)

2.5%
6.59
7,971

$ 40,109
(21,528)
$ 18,581

3.6%
$ 5.83
8,351

$ 32,499
(18,690)
$ 13,809

5.0%
$ 5.30
8,090

$ 17,704

$ 16,454

$ 14,745

$ 13,889

$ 12,218

$ 10,524

$ 8,830

$
$

.411/2
.42

$ .381/2
$

.39

$ .341/2
.35
$

$ .321/2
.33
$

$ .281/2
$

.29

$ .241/2
$ .25

$ .201/2
$ .21

48.9%

53.8%

38.2%

46.3%

28.1%

30.7%

24.8%

1994
$544,719
67%
204,149
25%
54,064
6%
19,552
2%
$822,484
100%

1993
$474,222
66%
180,464
25%
50,738
7%
16,976
2%
$722,400
100%

Year Ended June 30

1992
$421,923
68%
132,507
22%
45,114
7%
17,757
3%
$617,301
100%

1991
$401,588
72%
92,118
17%
43,648
8%
17,909
3%
$555,263
100%

1990
$421,366
69%
121,937
20%
48,842
8%
20,811
3%
$612,956
100%

1989
$408,070
69%
123,894
21%
44,444
7%
18,597
3%
$595,005
100%

1988
$368,485
69%
101,394
20%
41,916
8%
18,045
3%
$529,840
100%

M
P

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Ta b l e o f C o n t e n t s

N e x t (cid:3)

e l e v e n - y e a r s u m m a r y o f o p e r a t i o n s

(Amounts in Thousands, Except for Per Share Data)
Net Sales
Cost of Sales
Gross Profit

Selling, Administrative
and General Expenses
Product Line Exit Costs
Restructuring Expense
Operating Income

Other Income (Expense):

Interest Expense
Interest Income
Other, Net

Other Income, Net

Income Before Taxes on Income
Taxes on Income

Net Income
Percent of Net Sales
Earnings Per Share:

Basic:

Class A
Class B

Diluted:

Class A
Class B

Average Shares Outstanding:

Basic
Diluted

1998
$1,032,317
723,378
308,939

236,463
—
—
72,476

(424)
9,458
5,917
14,951

87,427
32,400

1997
$992,049
692,636
299,413

218,421
—
—
80,992

(551)
8,484
(359)
7,574

88,566
30,821

1996
$923,636
664,311
259,325

193,414
3,400
—
62,511

(408)
7,411
4,801
11,804

74,315
29,220

1995
$895,912
645,591
250,321

188,495
—
—
61,826

(273)
5,755
3,487
8,969

70,795
29,356

$ 55,027
5.3%

$ 57,745
5.8%

$ 45,095
4.9%

$ 41,439
4.6%

$1.32
$1.33

$1.31
$1.32

41,417
41,814

$1.39
$1.40

$1.38
$1.38

41,450
41,763

$1.08
$1.08

$1.07
$1.08

41,810
41,856

$0.98
$0.99

42,143
42,148

Earnings per share and average shares outstanding prior to 1998, were restated to give retroactive effect for a 2-for-1 common stock split during fiscal 1998.

m a n u f a c t u r i n g a n d s e r v i c e o p e r a t i o n s

Furniture and Cabinets

Kimball Office Group
Jasper, Indiana, and
Post Falls, Idaho
Office furniture casegoods,
systems, seating and filing

Kimball Lodging Group
Jasper, Indiana
Hospitality and healthcare furniture

Furniture Showrooms
& Service Centers
New York, Chicago, Boston, Los
Angeles, San Francisco, Denver,
Atlanta, Dallas, Seattle, Newport
Beach, High Point, Post Falls,
Tupelo, Jasper, London,Toronto,
Vienna
Product display and regional distribution

Kimball Home Furniture
Jasper, Indiana
Residential furniture

Artec Manufacturing
Jasper and French Lick, Indiana
Office furniture systems

Kimball Office
Casegoods Manufacturing
Borden, Salem and Santa Claus,
Indiana, and Fordsville, Kentucky
Office furniture casegoods

Kimball Upholstered Products
Jasper and West Baden, Indiana
Office, residential, hospitality and
healthcare seating

Harpers Manufacturing
Post Falls, Idaho
Office furniture casegoods,
systems and filing

Product Design
& Research Center
Jasper, Indiana
Product design and development

Jasper Furniture Company
Jasper and West Baden, Indiana
Hospitality and healthcare casegoods
and contract furniture and components

Kimball Furniture Reproductions
Montgomery, Alabama
Period furniture reproductions

The Jasper Corporation
Jasper, Indiana
TV and audio cabinets, hospitality,
office and residential furniture

Heritage Hills
Santa Claus, Indiana, and
Mexicali, Mexico
TV and audio cabinets,TV stands, and
office furniture

Kimball U.K., Inc.
London, England
Office and institutional furniture

L. Bösendorfer Klavierfabrik
GmbH
Vienna and Wiener Neustadt,
Austria
Grand and vertical pianos

T
A

B
M

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

1994
$822,484
588,849
233,635

179,981
—
—
53,654

(202)
2,240
3,727
5,765

59,419
23,250

1993
$722,400
512,781
209,619

161,984
—
2,850
44,785

(1,200)
4,237
5,500
8,537

53,322
22,739

Year Ended June 30

1992
$617,301
422,563
194,738

146,891
—
—
47,847

(991)
7,146
6,712
12,867

60,714
22,086

1991
$555,263
376,533
178,730

140,154
—
—
38,576

(1,085)
8,580
3,062
10,557

49,133
19,116

1990
$612,956
409,373
203,583

140,014
—
—
63,569

(1,483)
6,989
1,978
7,484

71,053
27,578

1989
$595,005
407,589
187,416

134,476
—
—
52,940

(1,379)
2,446
2,352
3,419

56,359
22,060

1988
$529,840
356,038
173,802

120,061
—
—
53,741

(1,360)
3,077
3,359
5,076

58,817
23,197

$ 36,169
4.4%

$ 30,583
4.2%

$ 38,628
6.3%

$ 30,017
5.4%

$ 43,475
7.1%

$ 34,299
5.8%

$ 35,620
6.7%

$0.85
$0.86

42,330
42,330

$0.72
$0.72

42,398
42,398

$0.91
$0.92

42,302
42,302

$0.71
$0.71

$1.02
$1.03

$0.81
$0.81

$0.84
$0.84

42,329
42,329

42,391
42,391

42,400
42,400

42,467
42,467

Electronic Contract
Assemblies
Kimball Electronics
Jasper, Indiana
Electronic assemblies

Kimco, S.A. de C.V.
Reynosa, Mexico, and
McAllen,Texas
Electronic assemblies

Elmo Semiconductor
Corporation
Burbank, California
Electronic assemblies

Elmo Semiconductuers SARL
Mantes La Jolle, France
Electronic assemblies

Processed Wood
Products & Others
Lafayette Manufacturing
Lafayette,Tennessee
Lumber, dimension wood

Lafayette Sawmill
Gordonsville,Tennessee
Lumber

Dale Wood Manufacturing
Dale, Indiana
Dimension wood

Indiana Hardwoods
Chandler, Indiana
Lumber

Indiana Hardwoods Sawmill
Cloverport, Kentucky
Lumber

Greensburg Manufacturing
Greensburg, Kentucky
Lumber, dimension wood, contract
wood products

Jasper Laminates
Jasper, Indiana
Flat, molded, postformed and plastic-
faced plywood, banded flakeboard,
veneer faces

Batesville American
Manufacturing
Batesville, Mississippi
Metal stampings and assemblies,
healthcare beds

Evansville Veneer
& Lumber Company
Evansville, Indiana
Veneer, lumber

Jasper Plastics
Jasper, Indiana
Molded polyurethane, polyester,
elastomers

Facilities/Technology
Support Group
Jasper, Indiana
Product testing, property and
woodlands management, energy
production, research in furniture
finishes

ToolPro
Jasper, Indiana
Carbide cutting tools

Corporate Logistics Services
Jasper, Indiana
Transportation and fleet operations

Corporate Headquarters
Jasper, Indiana
Executive,administrative and sales offices

Education Center
& Corporate Showroom
Jasper, Indiana
Training, product display

M
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(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

o t h e r c o r p o r a t e d a t a

Dividends:
During fiscal year 1998 dividends declared were $24.8 million or $.58875 per share on Class A Common Stock and $.605
per share on Class B Common Stock. The dividends by quarter for 1998 compared to 1997 are as follows:

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Total Dividend

1998

1997

Class A

$.14 3/8

$.14 1/2

$.15 1/2

$.58 7/8

Class B

$.14 1/2

$.15

$.16

$.60 1/2

Class A
$.12 7/8
$.12 7/8
$.12 7/8
$.14 3/8
$.53

Class B
$.13
$.13
$.13
$.14 1/2
$.53 1/2

Dividends per share have been adjusted for the 2-for-1 common stock split effective on November 12, 1997.

Share Owners:
On July 29, 1998, the Company’s Class A Common Stock was owned by approximately 650 share owners of record and the
Company’s Class B Common Stock by approximately 2,490 share owners of record, of which approximately 387 also owned
Class A Common Stock.

Market Prices:
Kimball International Class B Common Stock is traded on the Nasdaq Stock Market under the symbol: KBALB. High and
low price ranges by quarter for the last two fiscal years as quoted by the National Association of Security Dealers (NASDAQ)
are as follows:

1998

1997

High
First Quarter
$18 5/8
Second Quarter
$21 3/8
Third Quarter
$22 5/8
Fourth Quarter
$21 1/4
Market price per share has been adjusted for the 2-for-1 common stock split effective on November 12, 1997.
There is no active trading market for the Company’s Class A Common Stock.

$ 22 3/16

$ 23 7/16

$24 15/16

$ 23 3/4

$17 5/8

$18 3/8

$19 3/4

$17

High

Low

Low
$13 1/4
$17 3/8
$18 1/4
$17 1/2

Annual Meeting:
The annual meeting of Share Owners will be held at 9:30 a.m. Eastern Standard Time on October 20, 1998, at the General
Office Building, Kimball International, Inc., 1600 Royal Street, Jasper, Indiana. Share Owners are cordially invited to attend.

10-K Report:
A copy of the Company’s annual report to the Securities and Exchange Commission on Form 10-K is available, without charge,
upon written request directed to Gary P. Critser, Senior Executive Vice President, Secretary and Treasurer, at the address below.

Transfer Agent and Registrar of the Class B Common Stock:
Share Owners with questions concerning address changes, dividend checks, registration changes, lost share certificates or
transferring shares may contact:

ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660

Phone: (800) 851-9677
Internet Address: www.chasemellon.com

Analyst Contact:
Financial analysts with questions concerning the Company may contact Kenneth L. Sendelweck,Vice President,Assistant Treasurer.

Share Owner Contact:
Share Owners with general questions concerning the Company may contact Gary P. Critser, Senior Executive Vice President,
Secretary and Treasurer. All members of management welcome suggestions about the Company and its performance.

Corporate Headquarters:
1600 Royal Street
Jasper, Indiana 47549-1001
Phone: (812) 482-1600

Internet Address:

Additional information on Kimball International
is available at www.kimball.com on the Internet.

Private Securities Litigation Reform Act of 1995
This annual report contains forward-looking statements that involve risks and uncertainties regarding Kimball International’s
operations and future results. In accordance with the “safe harbor” provisions of the Private Securities Litigation Reform
Act of 1995, Kimball provides cautionary statements, detailed in the Company’s Securities and Exchange Commission filings
including, without limitation, the Company’s Form 10-K, which indentifies specific factors that could cause actual results or
events to differ materially from those described in the forward-looking statements.

T
A

B
M

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

N e x t (cid:3)

b o a r d o f d i r e c t o r s

Douglas A. Habig* #
Chairman of the Board,
Chief Executive Officer
Director 25 years
Thomas L. Habig*
Vice Chairman of the Board
Director 48 years
James C. Thyen* #
President
Director 17 years
John B. Habig*
Senior Executive Vice President,
Operations Officer, Electronics
Director 42 years

Ronald J. Thyen*
Senior Executive Vice President,
Operations Officer,
Furniture and Cabinets
Director 25 years
John T. Thyen*
Senior Executive Vice President,
Marketing and Sales
Director 8 years
Gary P. Critser* #
Senior Executive Vice President,
Secretary,Treasurer
Director 8 years

Brian K. Habig
Executive Vice President,
Sales and Marketing,
Kimball Office Group
Director 6 years
Jack R. Wentworth+ #
Arthur M.Weimer Professor
Emeritus of Business
Administration, Indiana
University
Director 14 years
Christine M. Vujovich+ #
Vice President,
Worldwide Marketing, Bus and
Light Commercial Automotive
and Environmental Management,
Cummins Engine Company, Inc.
Director 4 years

Alan B. Graf, Jr.+
Executive Vice President,
Chief Financial Officer,
FDX Corporation
Director 2 years
Polly B. Kawalek+
Vice President of The Quaker
Oats Company and President,
Hot Breakfast Division,
The Quaker Oats Company
Director 1 year

* Member of the Executive
Committee of the Board

+ Member of the Audit

Committee of the Board
# Member of the Compensation
and Stock Option Committees
of the Board

From left to right: Jack R.Wentworth, John B. Habig, Brian K. Habig, Ronald J.Thyen, Christine M.Vujovich, Gary P. Critser, James C.Thyen,
John T.Thyen, Douglas A. Habig, Alan B. Graf, Jr.,Thomas L. Habig, Polly B. Kawalek

e x e c u t i v e o f f i c e r s

Corporate Officers
Arnold F. Habig
Assistant to the
Chief Executive Officer
H. E. Thyen
Assistant to the President
Randall L. Catt
Executive Vice President,
Human Resources
Alan B. Hoffman
Executive Vice President,
Corporate Logistics
John H. Kahle
Executive Vice President,
General Counsel,
Assistant Secretary
Lawrence J. Kuntz
Executive Vice President,
Electronics Group
Gregory W. Kuper
Executive Vice President,
Manufacturing,
Office Furniture Group

Robert F. Schneider
Executive Vice President,
Chief Financial Officer,
Assistant Treasurer
Gary W. Schwartz
Executive Vice President,
Chief Information Officer
J. Keith Beatty
Vice President, Manufacturing,
Office Furniture Casegoods
Gary L. Beckman
Vice President,
Quality Systems
James A. Birk
Vice President,
Marketing and Sales,
Kimball Lodging Group
James R. Hampton
Vice President,
Raw Materials Group

Kenneth L. Sendelweck
Vice President,
Assistant Treasurer
Ronald J. Sermersheim
Vice President, Environment,
Health and Safety
Roy W. Templin
Vice President,
Corporate Controller
Kenneth J. Van Winkle
Vice President,
Manufacturing Systems
Dean M. Vonderheide
Vice President, Manufacturing,
Kimball Upholstered Products
Danny W. Wehr
Vice President, Manufacturing,
Contract and Furniture Groups

Subsidiary Officers
Mark S. Belk
Vice President,
Director of Marketing
Information Systems
Robert R. Burke
Vice President,
Sales, Kimball Office Group
Frank J. Fabiano
Vice President,
Chief Information Officer,
Electronics Group
George W. Manz
Vice President,
Product Marketing,
Kimball Office Group
James R. McIntyre
Vice President,
Sales, Electronics Group
Elie J. Moreno
Vice President,
Elmo Semiconductor
Corporation
Michael K. Sergesketter
Vice President,
Chief Financial Officer,
Electronics Group

(cid:2) P r e v i o u s

Ta b l e o f C o n t e n t s

1600 Royal Street Jasper , Indiana 47549 812.482.1600 812.482.8500 TDD