Kimball International
Annual Report 2000

Plain-text annual report

Ta b l e o f C o n t e n t s N e x t (cid:3) • A N N U A L R E P O R T • 0 M A I N TA I N I N G O U R F O C U S 0 0 2 • EXPANDING OUR REACH (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) 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 on an original equipment manufacturer basis. focus I innovation I commitment I loyalty I dedication I progress I integrity I reach The products and processes have changed since Kimball International’s beginnings, but the founding principles remain the same—consistently exceeding our customers’ expectations and delivering quality products to the world. We have continued to maintain our focus and commitment to our core values. Our passion of maintaining our focus while expanding our reach will see us through another successful fifty years. (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) f i n a n c i a l highlights Kimball International, Inc. is a preeminent manufacturer of furniture, furniture components and electronic assemblies, serving customers around the world. Our customers, both large and small, receive our undivided attention, as we treat every one as the only one. Our touch is felt throughout daily life in both the workplace and in the home. Sales by Business Segments 69% 31% Furniture and Cabinets Segment $833.8 million dollars Electronic Contract Assemblies Segment $367.1 million dollars Furniture and Cabinets Segment The Furniture and Cabinets Segment of Kimball International, Inc. provides a vast array of products for the office, residential, hospitality and healthcare industries. Kimball’s Office Furniture product lines serve the business market with casegoods, seating and systems furniture in both wood and metal, from traditional to contemporary in style, produced and marketed under the family of Kimball brand names. Extensive product lines cover all businesses, from multinational corporations to small start-up companies. Kimball Home supplies the residential market with fine furnishings for the home, as well as home office furniture to meet the specialized needs of the growing work-at-home market. Kimball Lodging and Healthcare designs and manufactures furniture for the hospitality, healthcare and government markets. Kimball Store Fixtures designs, manufactures and installs wood and laminate store display fixtures for some of the largest retail chains in the United States. Net Sales In Millions of Dollars Net Income In Millions of Dollars continued > Earnings Per Share Of Common Stock Diluted Class B $ 924 $ 992 $ 1,032 $ 1,107 $ 1,201 $ 45.1 $ 57.7 $ 55.0 $ 59.7 $ 48.5 $ 1.08 $ 1.38 $ 1.32 $ 1.47 $ 1.21 $ 1,500 1,200 900 600 300 0 $ 60 50 40 30 20 10 0 $ 1.50 1.20 0.90 0.60 0.30 0.00 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 (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) Kimball International, Inc. and Subsidiaries 2OOOf i n a n c i a l highlights Electronic Contract Assemblies Segment The Electronic Contract Assemblies Segment provides design engineering, manufacturing, packaging and distribution of electronic assemblies, circuit boards, multi-chip modules and semiconductor components on a contract basis to customers in the transportation, industrial, telecommunications, computer and medical industries. table of contents letter to our share owners operational highlights md&a report of management financials board of directors/officers 2 4 16 20 21 40 other corporate data inside back cover (Amounts in Thousands, Except for Per Share Data) Net Sales Net Income Return on Capital Earnings Per Share (Diluted) 2000 1,200,945 48,462 9.76% 1999 1,106,967 59,725 12.32% % of Change 8.5% (18.9%) (20.8%) Class A Class B Dividends Declared Class A Class B Market Price Per Share High Low Close (17.9%) (17.7%) 1.19 1.21 .62 .64 21.00 10.75 14.75 1.45 1.47 .62 .64 21.50 14.56 16.88 Kimball business units also produce a variety of original equipment manufacturer (OEM) products such as home audio systems, television cabinets and stands, store display fixtures, kitchen and bath cabinet components, pool tables and home furnishings which are marketed under some of the world’s leading brand names. Kimball offers a variety of products and services such as dimension lumber, plywood, veneer and wood components, metal stamping and molded plastics for the Company’s furniture manufacturing operations as well as for sale to external customers, both domestically and internationally. Share Owner Total Return Based on $100 Investment on June 30, 1995 (including reinvested dividends) $ 100 $ 105 $ 157 $ 146 $ 141 $ 128 $ 200 150 100 50 0 June 95 June 96 June 97 June 98 June 99 June 00 (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) focus I innovation I commitment I loyalty I dedication I progress I integrity I reach (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) • K I M B A L L I N T E R N A T I O N A L , I N C • t o o u r share owners Maintaining our focus. Expanding our reach. This remained the focal point of our endeavors during fiscal 2000. It was a year marked with many milestones and accomplishments and also marked our 50 years of providing the world with superior quality products and service. After completing a very challenging year, we think it is important that we open this year’s message with a brief review of our long-term goals and strategies and a status update on our priorities of focus. Despite disappointing results, we did accomplish a great deal during this past fiscal year, which gives us confidence that our financial performance in fiscal 2001 will improve. What, as our Vision Statement points out, is Kimball doing to “build success”? We are positioning your Company: 1) For accelerated growth. 2) For increased profitability. 3) To create greater Share Owner value. In other words, we have maintained our focus on growing our core businesses for long-term success and provided the groundwork to expand our reach. What is meant by “maintaining our focus”? Simple. Despite the temptation to sacrifice our long-term goals for the attainment of short-term results, we remained focused in fiscal 2000. We continued to focus on opportunities for healthy, long-term growth, rather than taking a short-term, “harvesting” approach. We continued to emphasize quality, reliability, value and speed in our markets – the four ingredients to profitable growth. We continued to expand our global footprint and North American operations. We continued to introduce new products and offerings. These examples boil down to our deeply-held philosophy that “staying the same is not an option” if we want to keep our customers. We must invest in new facilities and products even when profits aren’t where we’d like them to be and must invest in future growth opportunities for long-term success building. What is meant by “expanding our reach”? We are expanding our reach in different ways. For example, we are expanding our geographical presence domestically and internationally. In response to meeting customers’ needs, we opened an electronics facility in Laem Chabang, Thailand. Our new technologically advanced veneer mill in Chandler, Indiana, will open new markets and expand existing ones, both domestically and internationally. We opened our Kimball Electronics Group New Product Introduction Center in Jasper, Indiana, to grow customer relationships through our specialized high-flexibility manufacturing capabilities. We broke ground for a new microelectronics facility in Valencia, California, to strengthen our west coast based operations. Continuing our acquisition strategy, we acquired Jackson of Danville to bolster our strength in the sales and marketing of seating products to the healthcare and hospitality markets. Expanding our reach also means expanding our product offerings. Kimball Office Furniture and National Office Furniture introduced a variety of new casegoods and seating products and enhancements at this year’s NeoCon office furniture show. Our expansive product lines marketed under our “Power of the Package” umbrella offer customers interfacing and integration opportunities with our diverse range of office furniture product selections. Kimball Home unveiled more collections for the residential furniture market, including “Mission Viejo” and “Madison Avenue.” Kimball Lodging established a relationship with a well-known chain of hotels and resorts during fiscal 2000. More importantly, our association with this company’s worldwide renovation program will continue into fiscal 2001. Bösendorfer recently introduced a new piano series, named “Conservatory.” Customer interest has been so great that we have had to increase our production to meet demand. Expanding our reach also means growing our key leadership base. We announced several new officer and business unit manager appointments during fiscal 2000 to further enhance our management team and succession planning. These leaders were selected because of their demonstrated leadership and managerial skills. We also expanded our reach by increasing our sales during the past year. Sales in fiscal 2000 reached a record $1.2 billion, an 8% increase in sales from fiscal 1999. Sales within our Furniture and Cabinets Segment increased 8% to $833.8 million. Sales of our office furniture product lines registered an increase in fiscal 2000 while establishing a new record for annual sales. Our office furniture sales also exceeded the overall growth rate of the office furniture industry according to the Business and Institutional Furniture Manufacturer’s Association, for the twelve-month period ended June 30, 2000. We continued to see robust sales of cabinets produced for large-screen projection televisions and our furniture components product lines m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m | |2 (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) • 2 0 0 0 • A N N U A L R E P O R T • achieved a double-digit sales increase. We are also encouraged by the continued rise in sales of our residential furniture. introductions and a planned diversification of its customer base impacted Kimball Electronics Group’s results in fiscal 2000. Our Electronic Contract Assemblies Segment sales increased 9% to $367.1 million. Demand for our durable electronics, including components produced for the transportation and medical industries, remained healthy during fiscal 2000. We have been successful in establishing a solid reputation for producing durable electronic components that require high reliability and exacting tolerances. Staying the same is not an option. At Kimball, we are constantly challenging ourselves to find better low-cost solutions to satisfy the needs of our customers. Despite record sales, fiscal 2000 did not meet our earnings expectations. Net income in fiscal 2000 was $48.5 million, a 15% decrease from net income of $57.1 million in fiscal 1999. Our earnings per diluted share of Class B common stock were $1.21, a decline of 14% from earnings of $1.41 per diluted share of Class B common stock in fiscal 1999. Net income in fiscal 1999 excludes a $2.7 million non-operating gain from the sale of two business units. Contributing to the decline in our net income were start-up issues at our Juarez, Mexico manufacturing facility. It is important to note that the brunt of the start-up issues occurred during early fiscal 2000 and we have seen an improvement in this facility’s financial performance on a sequential basis each quarter through- out fiscal 2000. Start-up costs associated with our electronics facilities in Laem Chabang, Thailand and Jasper, Indiana also impacted our financial results. We expect production to ramp up at these facilities in early fiscal 2001. Softness in the lodging and healthcare markets hampered sales of our lodging and healthcare product lines. We have increased our focus on introducing new product lines to better position us in the lodging and healthcare markets. Competitive pricing pressures affected the net income of our office furniture, lodging and furniture components product lines. Investments in new technology, new product Considering the challenges encountered in fiscal 2000, our focus on Kimball’s long-term growth strategies has not diminished. We are confident that the many positive efforts being made to grow our business and the progress we have made in reducing our cost structure will result in an improvement in our financial performance in fiscal 2001. Our selling, general and administrative costs as a percentage of sales declined during fiscal 2000 for the second consecutive year. We are proud of this accomplishment, but we realize that we must continue to find additional opportunities to reduce our cost structure. Our global procurement strategy has been enhanced to help us to reduce our raw material and component costs. Continuous improvement processes on the manufacturing floor are helping us reduce costs and improve efficiency. Labor inefficiencies are being eliminated. We are continuously driven to create Share Owner value and we are not satisfied with the trend in our stock price. We will have a strong focus on increasing profits in fiscal 2001 and increasing value to our Share Owners. Through dividends and our record setting stock buy-back program, we returned $50.0 million to our Share Owners in fiscal 2000. In June, your Board of Directors authorized the repurchase of an additional 2,000,000 shares of our common stock as a sign of our long-term confidence. Fiscal 2000 was a year of maintaining our focus and expanding our reach. Fiscal 2001 will be a year of continued focus and further expansion of our reach with an emphasis on executing our business plans. We are confident that our recent investments and acquisitions will continue to improve our profitability and you can be confident in our commitment to increasing Share Owner value. We would like to thank our 10,000 employees and our Share Owners for their continued loyalty. We also hope you find the insert in this year’s annual report regarding your Company’s 50th anniversary enjoyable. August 2, 2000 Thomas L. Habig Vice Chairman of the Board Douglas A. Habig Chairman of the Board, Chief Executive Officer James C. Thyen President m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m | |3 (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) • 2 0 0 0 • A N N U A L R E P O R T • Now in its 50th year, Kimball International, Inc. has grown from Kimball’s drive is stronger than ever to be the supplier of a regional cabinetmaker recognized for its quality and choice in its markets, to achieve sales growth ranked among craftsmanship for solid wood and veneer casegoods to a multi- the best in these markets, to understand its capabilities and national corporation with consolidated sales that exceeded $1.2 customer needs, and to come up with solutions that add billion in fiscal 2000. The attention to detail that has helped build value and build success for the Company, its people and its Kimball’s solid reputation for all of its product lines from office Share Owners. furniture to durable electronic contract assemblies provides Kimball a key competitive advantage in all of its markets. To help achieve its long-term goals of increased sales and Kimball International is expanding its global reach as part of profitability, Kimball has its sights now focused on several important markets within the Furniture and Cabinets Segment its strategy to increase its sales growth and profitability. and the Electronic Contract Assemblies Segment. The Furniture and Cabinets Segment markets include office furniture, lodging The achievements of the past and the goals for the future are and healthcare furniture, residential furniture, products the result of the direction and insight of Kimball’s leaders and its manufactured on an original equipment manufacturer (OEM) employees, both past and present, and their dedication to success. basis, furniture components and store display fixtures. The Electronic Contract Assemblies Segment is focused on providing For Kimball International, “Maintaining our Focus” was a focal durable electronic components for the transportation, point for the entire Company in fiscal 2000 as it embarked on industrial, medical, computer and telecommunications markets. an ambitious campaign to expand its global reach. Overcoming the temptation to sacrifice its goals of increasing growth, Today, more than ever before, Kimball’s products are finding profitability and creating greater Share Owner value for the their way into consumers’ lifestyles. Whether it is a Kimball- achievement of short-term results, Kimball continued to branded office furniture product, a collection of fine furniture maintain its focus during fiscal 2000 on its long-term strategies. found in the home, an anti-lock braking component providing safety for millions of drivers today or one of many other While Kimball offers a very diverse range of products, it is consumer products produced by Kimball, the Company is dedicated to selective business segments and their related rapidly expanding its global reach as part of its strategy to markets, for these segments and markets exemplify the increase growth and profitability. products and services which Kimball is best at providing. In other words, within these markets are Kimball’s existing core In fiscal 2000, Kimball took a major step to expand its global competencies and where its focus must be dedicated. footprint. In response to meeting the needs of its customers, Kimball Electronics Group (KEG) opened an electronics In the best interest of the Company and its Share Owners, manufacturing facility in the Export Zone of Laem Chabang, Kimball maintains a close, on-going, undivided attention to its Thailand. Laem Chabang, located on the eastern seaboard of markets, measuring and evaluating its performance to ensure the Thailand, is known as “Detroit of the East” due to the number of highest level of competitiveness and growth. automotive manufacturers and suppliers now located in this region m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m | |4 (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) maintaining ourfocusDuring fiscal 2000, Kimball International maintained its focus on executing its long-term business plans and strategies. With its focus on quality, reliability, value and speed in each of the markets it serves, Kimball is well positioned to succeed. >Featured: “Change,” contemporary styled, modular casegoods from Kimball Office Furniture (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) • 2 0 0 0 • A N N U A L R E P O R T • of Thailand. This new facility is fully automated and offers a variety manufacturing operation, which is recognized for its ability to of manufacturing capabilities to support Kimball’s global expansion design, manufacture, package and test microelectronic components initiatives. KEG is well respected in the transportation market for its that must meet demanding standards for high reliability and durable electronic components, including electronic control durability. The new facility will also increase manufacturing capacity units for light and heavy trucks and sport utility vehicles. Also, and offer expanded capabilities, including board level assembly in a Kimball will have an international purchasing office located high-flexibility production environment, and serve as a new product there to lend additional support to its global procurement strategy. introduction center to support KEG’s high volume manufacturing Kimball International unveiled its “Power of the Package” facilities located in Jasper, Indiana and Reynosa, Mexico. theme at this year’s NeoCon office furniture show along with Continuing its strategy to grow its business through strategic new casegoods and seating products. acquisitions, Kimball acquired Jackson of Danville in November 1999. Jackson of Danville, based in Danville, Kentucky, In fiscal 2000, Kimball took an important strategic measure to manufactures custom and fully-upholstered seating products expand its manufacturing operations and strengthen its vertical and wood framed chairs for the hospitality and healthcare integration strategy with the completion of a new, markets. This acquisition will help Kimball and Jackson of technologically advanced veneer mill located in Chandler, Danville strengthen sales and marketing of seating products to Indiana. The 130,000 square-foot facility will lead to increased the healthcare and hospitality markets. yields and efficiency, reduced shipping and handling costs and lower maintenance costs while helping to open new markets In addition to acquisitions and new manufacturing facilities, both domestically and internationally that Kimball was unable Kimball also expanded its reach during fiscal 2000 with the to serve in the past due to age and capacity restraints at its introduction of several new products and enhancements to former veneer facility. Kimball provides high-quality wood existing product lines in both the Furniture and Cabinets veneer for a variety of Kimball branded products, including Segment and the Electronic Contract Assemblies Segment. office, lodging and healthcare, and residential furniture, as well as to other customers on a contract basis. To further market Kimball as a single source supplier of choice in the office furniture market, Kimball Office Furniture unveiled its In keeping its commitment to meeting the needs of its “Power of the Package” theme at this year’s NeoCon office customers, Kimball Electronics Group opened a new high- furniture show. “Power of the Package” supports Kimball’s focus flexibility manufacturing facility located in Jasper, Indiana. The on offering customers interfacing and integration opportunities fully automated facility will allow KEG to manufacture high with its diverse range of office furniture product selections. mix/low volume durable electronic assemblies for its customers with the intent to then transfer production to KEG’s high volume A prime example of Kimball’s “Power of the Package” was the manufacturing facility located on the same campus in Jasper. introduction of “Change”; contemporary styled modular casegoods promising wide appeal to a variety of users. With Kimball Electronics Group also announced the groundbreaking features and aesthetics capable of attracting more user-specified for a new 40,000 square foot microelectronics facility in Valencia, options as compared to other direct competitors, “Change” also California. The new facility will replace KEG’s present, smaller occupies an attractive moderate price point. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m | |6 (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 x p i g n d n a our our reach Kimball International continues to expand its reach with new products and new manufacturing facilities located around the globe as a sign of its commitment to serving its customers wherever they are located. >Featured: “Mix-it,” a dynamic, ergonomic management chair from National Office Furniture (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) • 2 0 0 0 • A N N U A L R E P O R T • Kimball also announced enhancements to “Skate,” its mobile, motorized scooters and chairs for the healthcare industry. table-based system that is compatible with a variety of other These products give those with limited or no capacity to walk Kimball office furniture product lines. the capability to move freely around their total environment. During fiscal 2000, Kimball Electronics Group continued to Kimball Lodging designed and manufactured a complete collection benefit from further diversification of its customer base and a of hospitality furniture for Starwood Lodging and Resorts’ chain of broadening of its product offerings. Sheraton Hotels during fiscal 2000. Kimball Lodging provided beds, tables and desks for nearly 8,000 Starwood Sheraton rooms To complement an already impressive portfolio of wood side designed specifically for Starwood’s worldwide renovation project. chairs, Kimball unveiled “Acapella” at this year’s NeoCon. Featuring three distinct visual designs and maple hardwood Kimball Electronics Group continued to benefit from frames, this collection can be used in any office environment. diversification of its customer base and broadening of its National Office Furniture introduced its “Mix-it” seating enhance its reputation as a top-quality manufacturer of durable collection at NeoCon 2000. “Mix-it” is a dynamic, ergonomic electronics for the transportation, industrial and medical management chair. This collection, complete with guest seating, markets that require high reliability. Many of the products provides a solution for all users in the workplace. In addition, produced today by KEG ultimately help to make peoples’ lives manufacturing capabilities during fiscal 2000. KEG continues to National Office Furniture also introduced a veneer option for its safer and more fulfilling. popular “WaveWorks” modular casegoods product. Also playing an important role in KEG’s business strategy is Kimball continued to expand its impressive collections of Kimball Electronics Design Services (KEDS). In only its second residential furniture produced by Kimball Home Furniture. During year in existence, KEDS is making great strides in providing fiscal 2000, Kimball Home introduced “Mission Viejo,” featuring immediate access to world-class design engineering services solid hardwood construction and the distinctive look and feel for its customers from the initial design stage right through to associated with every Kimball Home collection. At this year’s High the final stages of testing and production. Point International Home Furnishings Market, Kimball Home unveiled its latest collection of furniture for the home named A good example of Kimball Electronics Group providing a total “Madison Avenue.” This 40-piece contemporary collection is solution to meet the needs of one of its customers was the crafted in cherry veneers and select solid hardwoods as well as collaboration between KEG, KEDS and its customer in developing metal accents reminiscent of classic design traditions. a revolutionary disposable hearing aid. Working closely with its To further live up to part of Kimball International’s Vision that concept, develop the microelectronics circuitry, software and states, “our touch is felt throughout daily life,” Kimball Upholstered the accompanying prescription selector device used by Products, seeking to increase sales to its outside customers, audiologists, manufacture, test and package the finished began producing seating for a manufacturer and assembler of product. The disposable hearing aid was launched in May 2000. customer, KEG and KEDS were able to take the initial design m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m | |8 (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) Durable electronic components that make automobiles safer, components that help people cope with medical problems, new products and enhancements to existing product lines. Kimball International continues to expand its products and services that in|novation product touch peoples’ lives everyday. >Featured: Kimball Electronics Group manufactures durable electronic components such as this anti-lock braking device (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) • 2 0 0 0 • A N N U A L R E P O R T • Kimball Electronics Group is also producing electronic For the second year in a row, Honeywell-Bendix Commercial components for an affordable medical device that measures Vehicle Systems selected Kimball Electronics Group for their blood insulin levels. This device, which can be purchased at “Supplier of the Year” due to accomplishments in quality, most drug or department stores, was also a joint effort delivery, productivity and group support. between KEG’s engineering and manufacturing teams. When it comes to Kimball’s progress towards achieving its long-term goals and strategies, staying the same is not an option. In fiscal 2000, Kimball Electronics Group earned the State of Indiana Quality Improvement Award, given in recognition of outstanding leadership and achievement. Winning this award for the third time demonstrates the dedication of Kimball’s In addition to the array of new products that were unveiled by employees towards continuous improvement. Kimball throughout fiscal 2000, a number of Kimball’s business units were recognized for their keen focus on producing a Developing and adhering to a formal quality system helps quality product and providing excellent customer service. Every Kimball achieve such recognition. Kimball’s quality systems Kimball employee takes great pride in providing customers with were developed to document all production processes and outstanding service and quality. provide its business units with the ability to exceed their customers’ expectations by being able to pinpoint opportunities Kimball’s Heritage Hills manufacturing facility won the Toshiba for quality improvement. Quality Award for the third time in four years, the highest honor achievable by a Toshiba supplier in the production of large- Over the last few years, Kimball has been actively involved in screen projection television cabinets. The award was created to quality systems activities. Eighteen Kimball business units, the acknowledge companies that rank the highest in their latest being Jasper Furniture Company and Springs Valley commitment to quality in the manufacturing of large-screen Manufacturing, have quality systems modeled after and registered projection television cabinets. to ISO 9000, QS9000, or ISO 25 international standards. Kimball has “raised the bar” to use its quality systems effectively for For the fourth consecutive time, Kimball Electronics Group won improving quality, customer satisfaction and profitability. an award in the 2000 Service Excellence Awards for Contract Electronics Manufacturers in the category of dependability/ Kimball was also recognized for the quality of its child timely delivery. This is the only contest for contract electronics developmental center, called Kimball Kids. In June, Kimball Kids manufacturers in which the customers themselves rate suppliers and Kimball International were honored with the first-ever in various service areas. The Service Excellence Awards are an Indiana Business-Childcare Award. The awards were established exceptional opportunity for KEG to gain additional input from by the Indiana Department of Commerce Community its customers for continuous improvement. Development Division to honor Indiana companies whose support allows parents to work knowing that their children are Kimball Lodging captured the Vendor Excellence Award presented cared for and safe. Kimball was one of only 24 companies by Starwood Hotels and Resorts Worldwide in recognition for its statewide to receive the award. Kimball is especially proud of quality and design. Kimball Lodging was one of only four this award because its corporate culture has historically chosen from more than 120 vendors eligible for this honor. understood the importance of family life. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |10 | (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) A key ingredient to the success of Kimball International is the long- commitment to quality term relationships that it has established with its customers, suppliers, employees and Share Owners. >Featured: Kimball Lodging designed and manufactured this sleigh bed for Sheraton Hotels (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) • 2 0 0 0 • A N N U A L R E P O R T • Kimball also earned recognition for its commitment to the Kimball Electronics Group has embraced “Six Sigma,” a safety and wellness of its employees when Springs Valley demanding management system aimed at reducing Manufacturing and Artec Manufacturing earned the Indiana manufacturing defects. “Sigma” is a statistical term that relates Department of Labor Commission’s VPP STAR status, a rare to quality. Six Sigma is the Kimball Electronics Group goal, achievement when it comes to plant safety in the United which means its products and processes will experience only States. Since 1982, approximately 600 employers nationwide 3.4 defects per million opportunities. With Six Sigma, Kimball have achieved this status. It is awarded by the Federal Electronics’ fundamental objective is customer satisfaction Government’s Occupational Safety and Health Administration’s through continuous improvement in quality. Voluntary Protection Program (VPP). Kimball International builds success for its customers, Information technology has always played an important role in Kimball’s progress. Information technology is changing the way employees, communities and Share Owners. Why? Simple. Kimball designs, develops and builds its products. It is also It’s all about loyalty. changing the way Kimball interacts with its customers. When it comes to Kimball’s progress towards achieving its long- Kimball’s willingness to understand the uses of new technology term goals and strategies, staying the same is not an option. and its willingness to implement that technology to take advantage of its uses have been critical to Kimball’s Supporting Kimball’s progress are the various strategic progress.. .and will continue to shape its future. One of initiatives and tools that its business units have access to in Kimball’s latest information technology investments is its order to improve Kimball’s quality, reliability, value and speed; decision to utilize SAP as its global enterprise resource the key elements that enable Kimball to build success and planning (ERP) solution. SAP gives Kimball the foundation from achieve profitability. a data perspective for its electronic business planning and is a great example of various business units selecting a single Of course, none of this is possible without a disciplined, solution for the benefit of the whole Company. undying focus on managing Kimball’s cost structure, of which its global procurement effort is a good example. Several commodity Kimball builds success for its customers, employees, communities teams have reduced costs involving preferred vendors that and Share Owners. Why? Simple. It’s all about loyalty. supply Kimball with various components and materials needed to make its products. These efforts will help Kimball to reduce Loyalty to its customers is part of Kimball’s heritage. its cost structure in fiscal 2001. Throughout its history, Kimball has demonstrated its loyalty by establishing long-term relationships with its customers and Another example of Kimball’s progress in fiscal 2000 was the suppliers. Kimball has relocated manufacturing operations and, implementation of Demand Flow Technology (DFT) by Harpers in some cases, ventured across the globe to establish new Manufacturing, Artec Manufacturing and Kimball Upholstered manufacturing facilities in order to be closer to the customer, Products to help Kimball achieve increased efficiencies while thus enhancing Kimball’s relationship with them. improving quality. DFT is a manufacturing, quality and design technology strategy driving change and continuous improvement. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |12 | (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 dedication of Kimball’s employees can be seen in the quality and craftsmanship that is woven into the array of products that it manufactures. Kimball International “Builds Success.” dedication >Featured: Variable speed, high efficiency motor control for heating, ventilation and air conditioning (HVAC) applications manufactured by Kimball 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 N e x t (cid:3) • 2 0 0 0 • A N N U A L R E P O R T • Since the Company was founded 50 years ago, Kimball has Kimball Lodging donated various pieces of furniture, including demonstrated its loyalty to the many communities it serves and beds for nurse dormitories to the Princess Margaret Hospital, to the employees that reside there. During fiscal 2000, located in Morant Bay, Jamaica. Kimball International helped Kimball’s long-standing tradition of community service and provide the financial support and Kimball employees donated corporate citizenship continued. their time and skills to construct a Habitat for Humanity home Kimball’s loyalty to its employees is evident in its “work- located near Jasper, Indiana late last year. friendly” environment, which plays a major role in attracting Loyalty to its employees and their families is another trademark of and retaining valuable people. Kimball. Kimball International continues to support higher education through its scholarship programs. During fiscal 2000, qualified, Kimball International made a financial grant to help build a new dependent children of full-time Kimball employees earned college Workforce Development/ Training Center in Batesville, scholarships through the Kimball International Scholarship Program. Mississippi. Kimball has operated a metal stamping and Kimball’s ongoing Excellence through Education Trust helps assembly facility, Batesville American Manufacturing, in the Kimball reach a more diverse group of students. Once again in community since 1969. The new center will provide industrial fiscal 2000, Kimball International awarded scholarship money to training for about 100 graduating high school students each dozens of students through this trust in support of their efforts to year, who might otherwise enter the local workforce without attain a higher education. Since 1963, nearly $2.4 million in Kimball industrial training or skills. The grant is yet another way that scholarships have been awarded through these two programs. Kimball International supports its goal of helping make the communities in which it operates better places to live, one of Kimball’s loyalty to its employees is also evident in its work- its key Guiding Principles. friendly environment, which plays a major role in attracting and retaining valuable people. Kimball strives to be a flexible, Through participation in the national “Log a Load for Kids” family-friendly company. Flexible so that it maintains focus on the program, Kimball International continued to donate funds to “real needs” of its people rather than its policies. Family-friendly the James Whitcomb Riley Hospital in Indianapolis, Indiana and so that its policies can accommodate employee needs by balancing Camp Riley for Youth With Physical Disabilities in Martinsville, work and family issues. Kimball offers various time-off practices Indiana. “Log a Load for Kids” is a fundraising opportunity for – flexible scheduling, flexible vacations – without jeopardizing loggers and other forestry industry personnel in conjunction quick response and quality service to its customers. These with forestry organizations and associations to raise money for innovative employment policies will play an important role in local Children’s Miracle Network Hospitals. Kimball’s future success as it continues to expand its global reach. Kimball Office Furniture recently announced their affiliation with As Kimball International, Inc. celebrates its 50th anniversary, it the Design With Care program, a cause-related marketing fund- continues to operate under the same Guiding Principles, Vision raiser for DIFFA (Design Industry Foundation Fighting AIDS). and Mission statements that are responsible for the Company’s Kimball will donate a portion of the sales of “Definition,” its success and growth. Kimball remains focused on executing its highly successful and award-winning casegoods product, to strategies to guarantee its long-term success for the benefit of DIFFA in the name of design firms nationwide. its customers, employees and Share Owners. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |14 | (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) loyaltyto the customer, The word “Loyalty” takes on a variety of meanings the employee and the Share Owner at Kimball International. Whether it involves a customer, supplier, or an employee and their family, Kimball International has always maintained a deep sense of loyalty to all who contributed to its success. h c a e r r u o i g n d n a p x e | s u c o f r u o i i g n n a t n a m i >Featured: “Mission Viejo,” featuring clean, pure, classic lines manufactured by Kimball Home Furniture (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) Management’s Discussion And Analysis Of Financial Condition And Results Of Operations Overview Net sales of $1,200,945,000 reached record levels in fiscal year 2000, topping the prior year by 8%. Net income and Class B diluted earnings per share were $48,462,000 and $1.21, respectively, a decrease of 13% and 12%, respectively, from fiscal year 1999, excluding non- operating gains recorded in fiscal year 1999. Fiscal year 1999 non-operating items include a $1,337,000 after tax gain ($0.03 per diluted share) on the sale of a stock investment of which the Company held a minor interest and a $2,674,000 after tax gain ($0.06 per diluted share) on the disposition of two non-core operating facilities within the Furniture and Cabinets Segment. Including fiscal year 1999 non- operating gains, net income decreased 19% and Class B diluted earnings per share decreased 18% in fiscal year 2000 when compared to the year earlier. Results of Operations 2000 Discussion Net sales for fiscal year 2000 surpassed 1999 net sales on increases by both of the Company’s segments — the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment. Net income for fiscal year 2000 declined from fiscal year 1999 in both segments. Furniture and Cabinets Product line offerings included in the Furniture and Cabinets Segment are office furniture, home furniture, lodging and healthcare furniture, store fixtures, original equipment manufacturer (OEM) furniture and cabinets and furniture components. 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. In fiscal year 2000, the Company purchased Jackson of Danville, a privately held manufacturer of custom and in-line fully upholstered seating products and wood framed chairs. The acquisition was accounted for as a purchase with operating results included in the Company’s consolidated results from the date of acquisition, and was financed with available cash on hand and the Company’s Class B Common Stock. The acquisition price and operating results of this acquisition were not material to the Company’s fiscal year 2000 consolidated operating results. The Furniture and Cabinets Segment set a new annual net sales record in fiscal year 2000 with an increase of 8% from the prior year. Sales increased over fiscal year 1999 for all product lines, except lodging and healthcare, within this segment. Increased volumes in the office furniture product line resulted in record sales in fiscal year 2000. Sales of casegoods, systems, and seating products within the office furniture line all increased over fiscal year 1999. Office furniture sales growth, excluding prior year acquisitions, outpaced the 5% growth in shipments reported by the Business and Institutional Furniture Manufacturer’s Association (BIFMA) for the Company’s fiscal year ending June 2000. Furniture and Cabinets Segment Net Sales In Millions of Dollars Furniture and Cabinets Segment Net Income In Millions of Dollars $706.7 $771.5 $833.8 $27.9 $34.6 $27.7 $ 35 30 25 20 15 10 5 0 98 99 00 98 99 00 Net sales of the lodging and healthcare product line decreased in fiscal year 2000 from the previous year. Sales of both the Company’s custom-made products and standard product offerings declined in fiscal year 2000 when compared to fiscal year 1999. Product mix continued to shift toward lower margin custom-made products in fiscal year 2000. Lodging and healthcare sales are expected to improve beginning with the first quarter of fiscal year 2001 as evidenced by an increase in open orders as of June 30, 2000 compared with open orders at June 30, 1999. The preceding 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 customer order changes, a downturn in the lodging and healthcare markets, loss of key customers, availability of raw materials, or a natural disaster or similar unforeseen event. Fiscal year 2000 outside net sales of OEM furniture and cabinets, excluding the acquisition of Jackson of Danville, experienced double-digit growth when compared to 1999. Increased volume of OEM large-screen projection television cabinets, including those produced at the Company’s Juarez, Mexico facility, was the largest single contributor to the sales growth. Outside net sales of furniture components increased in fiscal year 2000 primarily as a result of increased sales of lumber products. Net income in the Furniture and Cabinets Segment decreased in fiscal year 2000 from fiscal year 1999 despite increased sales. Fiscal year 1999 net income includes an after tax gain of $2.7 million from the sale of two non-core operating facilities. Gross profit, as a percent of sales, declined from 1999 primarily due to an increase in material costs, as a percent of sales. Lower sales margins on the furniture components and lodging and healthcare product lines contributed to the decline in gross profit in fiscal year 2000 when compared to fiscal year 1999. Also contributing to the reduced gross profitability in fiscal year 2000 were start up costs and inefficiencies early in fiscal year 2000 related to the Company’s Juarez, Mexico facility that was acquired in m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |16 | $ 800 600 400 200 0 (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) fiscal year 1999. The Company, however, has seen continued improvement in gross profitability in each quarter of fiscal year 2000 from the Juarez facility and is expecting continued improvement in gross profitability from this facility in fiscal year 2001. The preceding statement concerning the Company’s Juarez, Mexico facility 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, material price changes, unexpected manufacturing inefficiencies, a downturn in the economy or similar unforeseen event. Selling, general and administrative expenses increased in dollars in fiscal year 2000 but decreased as a percent of sales partially resulting from efforts to manage costs. Incentive compensation costs, which are linked to company profitability, decreased in both dollars and as a percent of sales also contributing to the lower selling, general and administrative costs, as a percent of sales. Electronic Contract Assemblies Net sales for fiscal year 2000 surpassed the prior year by 9% in the Electronic Contract Assemblies Segment. Sales of electronic transportation products and medical components increased while sales of computer related products declined when compared to the prior year. In fiscal year 2000, the Company embarked on a number of strategic expansion opportunities in the Electronic Contract Assemblies Segment. In April 2000, the Company announced the opening of a new manufacturing facility in the export zone of Laem Chabang, Thailand. This fully automated facility will serve the global requirements of its customers and includes future expansion possibilities. In May 2000, the Company announced the opening of a new high- flexibility manufacturing facility located in Jasper, Indiana that will allow the manufacture of high mix/low volume assemblies as well as test capabilities to meet the needs of its customers. The Company also broke ground for a new microelectronics facility located in Valencia, California during June 2000. The new Valencia facility will replace a current facility located in Burbank, California and will increase capacity and expand manufacturing capabilities. Net income in fiscal year 2000 decreased from the prior year despite higher sales. Gross profits were lower in fiscal year 2000, compared to historic margins that were achieved on more mature product lines, resulting from a planned diversification of its customer base into a variety of new products as well as production of the next generation of anti-lock braking components. Start up costs associated with the new manufacturing facilities in Jasper, Indiana and Laem Chabang, Thailand also contributed to the lower gross profitability in fiscal year 2000. Selling, general and administrative expenses increased in dollars but decreased as a percent of sales in fiscal year 2000 driven by lower incentive compensation which is linked to company profitability. Included in this segment are sales to Electronic Contract Assemblies Segment Net Sales In Millions of Dollars Electronic Contract Assemblies Segment Net Income In Millions of Dollars $325.6 $335.4 $367.1 $18.1 $18.2 $14.2 $ 350 300 250 200 150 100 50 0 $ 20 15 10 5 0 98 99 00 98 99 00 Kimball International, Inc. and Subsidiaries one customer, TRW, Inc. which accounted for 17% and 16% of consolidated net sales in fiscal year 2000 and 1999, respectively. Sales to this customer represent approximately one half of total sales in the Electronic Contract Assemblies Segment. This segment’s investment capital carries a higher degree of risk than the Company’s other segment due to rapid technological changes, component availability, the contract nature of this industry and the importance of sales to one customer. Consolidated Operations Consolidated selling, general and administrative expenses decreased, as a percent of sales, 1.1 percentage points in fiscal year 2000 when compared to fiscal year 1999. This reduction in selling, general, and administrative costs, as a percent of sales, is primarily due to lower incentive compensation costs which are linked to company profitability as well as lower selling expenses and lower administrative employee compensation costs, as a percent of sales. Other income decreased from the prior year on lower interest income caused by lower average investment balances. In addition, fiscal year 1999 results include a $1,337,000 after tax gain ($0.03 per diluted share) on the sale of a stock investment of which the Company held a minor interest and a $2,674,000 after tax gain ($0.06 per diluted share) on the disposition of two non-core facilities. The effective income tax rate decreased 0.4 percentage point in fiscal year 2000 when compared to fiscal year 1999. Decreases in both state and federal effective tax rates contributed to the lower overall effective income tax rate. Fiscal year 2000 net income and Class B diluted earnings per share of $48,462,000 and $1.21, respectively, decreased 13% and 12%, respectively, from fiscal year 1999 net income of $55,714,000 and Class B diluted earnings per share of $1.38, excluding fiscal year 1999 non-operating gains. Including fiscal year 1999 non-operating gains, net income and Class B diluted m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |17 | (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) earnings per share declined 19% and 18%, respectively, from prior year levels of $59,725,000 and $1.47, respectively. 1999 Discussion Net sales for the 1999 fiscal year surpassed 1998 levels on increases by both of the Company’s segments — the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment. Net income for fiscal year 1999 also increased over the prior year in both segments. Furniture and Cabinets In fiscal year 1999, the Company completed a number of acquisitions included within the Furniture and Cabinets Segment. In September 1998, the Company acquired the assets and assumed certain liabilities of Transwall, Inc., a privately held manufacturer of stackable panel office furniture systems and floor-to-ceiling products, which increased its already extensive office furniture product offering. In January 1999, the Company purchased the assets and assumed certain liabilities of Southeast Millwork, a privately held manufacturer of store display fixtures. This acquisition provided an entry point for the Company to pursue the store fixtures markets. These two acquisitions were accounted for as purchases with results of operations included in the Company’s consolidated results from the date of purchase. In April 1999, the Company purchased a manufacturing facility located in Juarez, Mexico. The results of these acquisitions were not material to fiscal year 1999 consolidated operating results. The Company also completed the sale of two of its non-core facilities in fiscal year 1999. In May 1999, the Company sold Kimball Furniture Reproductions, a furniture manufacturing facility located in Montgomery, Alabama. In June 1999, the Company sold ToolPro, a carbide cutting tools production operation located in Jasper, Indiana. Proceeds from the divestitures will be used to help fund future acquisitions and general corporate purposes to support the Company’s growth strategy. An after tax gain of $2,674,000 was recorded on these two dispositions. Fiscal year 1999 net sales increased 9% in the Furniture and Cabinets Segment, including acquisitions, when compared to the prior year. Sales increased for all product lines within this segment. Increased volumes in the office furniture product line resulted in record sales in fiscal year 1999. Casegoods and systems products within the office furniture line both increased over fiscal year 1998, while sales of seating products declined slightly. Excluding acquisitions, office furniture sales growth outpaced the 2% growth in shipments reported by the Business and Institutional Furniture Manufacturer’s Association (BIFMA) for the twelve- month period ending May 1999. The lodging and healthcare product line experienced increased net sales in fiscal year 1999 over the prior year. Increased sales of the Company’s custom-made products more than offset sales declines of standard product offerings. The latter part of the fiscal year showed a general slowing in orders from the lodging industry. Fiscal year 1999 outside net sales of OEM furniture and cabinets experienced double- digit growth when compared to 1998. Increased volume of OEM large-screen projection television cabinets was the major contributor to the sales growth. Fiscal year 1998 sales of these cabinets were lower due to the relocation of a large customer and its longer than anticipated start up time. Outside net sales of furniture components increased in fiscal year 1999 primarily as a result of volume increases in furniture component parts, mainly kitchen cabinet doors. Net income in the Furniture and Cabinets Segment increased in 1999 when compared to 1998. Gross profit, as a percent of sales, decreased from 1998 primarily due to deeper discounting and increased material costs, as a percent of sales. Selling, general and administrative expenses increased in dollars in 1999 but decreased as a percent of sales as focused cost reductions resulted in lower freight, sales incentives and people costs, as a percent of sales. Electronic Contract Assemblies Net sales for fiscal year 1999 in the Electronic Contract Assemblies Segment exceeded the prior year by 3%. Sales of electronic transportation products increased while sales of computer related products declined when compared to the prior year. The Company continued to expand its product line offering in the Electronic Contract Assemblies Segment including components for consumer electronics, appliances, and industrial controls. Net income in fiscal year 1999 increased slightly over the prior year, primarily due to higher sales volumes. Gross profit, as a percent of net sales, remained relatively consistent in 1999 when compared to 1998. Selling, general and administrative costs increased in dollars but decreased slightly, as a percent of sales, in fiscal year 1999. Net income was also affected by a higher effective state income tax rate. Included in this segment are sales to one customer, TRW, Inc. which accounted for 16% of consolidated net sales in both fiscal year 1999 and 1998. Sales to this customer represented approximately one half of total sales in the Electronic Contract Assemblies Segment. This segment’s investment capital carries a higher degree of risk than the Company’s other segment due to rapid technological changes, component availability, the contract nature of this industry and the importance of sales to one customer. Consolidated Operations Consolidated selling, general and administrative expenses decreased, as a percent of sales, 0.2 percentage point in fiscal year 1999 when compared to 1998. The Company focused on reducing costs and continued to review activities and processes to assess where costs could further be reduced in fiscal year 1999 while providing quality products and services to the marketplace. Other income decreased from the prior year on lower interest income caused by lower average investment balances and a shift in the Company’s investment portfolio to a mix more heavily weighted toward tax-free municipal bonds with lower pre- tax interest rates. Partially offsetting the decline in interest income was an increase in miscellaneous income. In fiscal year 1999 the Company recorded a $1,337,000 after tax gain ($0.03 per diluted share) on the sale of a stock investment of which the Company held a minor interest and a $2,674,000 after tax gain ($0.06 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |18 | (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) per diluted share) on the disposition of two non-core facilities. Fiscal year 1998 results include a $1,008,000 after tax gain ($0.02 per diluted share) on the sale of real estate and a $616,000 after tax gain ($0.01 per diluted share) on the sale of a stock investment of which the Company held a minor interest. The effective income tax rate decreased 1.8 percentage points in fiscal year 1999 in comparison to 1998. An increase in state tax rates was more than offset by a decrease in the federal effective tax rate as the Company utilized available capital loss carryforwards to offset capital gains. Net income and Class B diluted earnings per share of $59,725,000 and $1.47, respectively, in fiscal year 1999 increased 9% from the prior year levels of $55,027,000 and $1.32, respectively. Liquidity and Capital Resources The Company’s aggregate of cash, cash equivalents, and short-term investments decreased from $132 million at the end of fiscal year 1999 to $85 million at the end of fiscal year 2000 due primarily to cash outlays for strategic capital investments and repurchases of the Company’s Class B Common Stock. Working capital at June 30, 2000 was $190 million with a current ratio of 1.9, compared to working capital of $218 million and a current ratio of 2.3 at June 30, 1999. Operating activities generated $41 million of cash flow in fiscal year 2000 compared to $98 million in fiscal year 1999. Net income and non-cash charges to net income were partially offset by increases in receivables of $46 million and inventories of $17 million. The Company reinvested $71 million into capital investments for the future, including new manufacturing facilities in Chandler, Indiana and Laem Chabang Thailand, computer equipment, production equipment, and office facilities. Financing cash flow activities were primarily in the form of $26 million in dividend payments and $24 million of Class B Common Stock repurchases. Net cash flow, excluding the purchases and maturities of short-term investments was an outflow of $47 million. At June 30, 2000, the Company had $35 million of short-term borrowings outstanding under its $100 million revolving credit facility that allows for both issuance of letters of credit and cash borrowings. The Company did not have any debt outstanding under this credit facility at June 30, 1999. The credit facility requires the Company to comply with certain debt covenants including debt- to-total capitalization, interest coverage ratio, minimum net worth, and other terms and conditions. The Company is in compliance with these covenants at June 30, 2000 and does not expect these covenants to limit or restrict the Company’s ability to borrow from the credit facility in fiscal year 2001. The preceding 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 increased costs of raw materials, or a natural disaster or similar unforeseen event. The Company anticipates maintaining a strong liquidity position for the 2001 fiscal year and believes its available funds on hand, unused credit line available under the revolving credit facility and cash generated from operations will be sufficient for working capital needs and for funding 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 increased costs of raw materials, or a natural disaster or similar unforeseen event. Year 2000 Disclosure The Company implemented a plan to alleviate any potential problems which may have been caused by the Year 2000 which included inventory assessment, remediation and testing. The Company has not experienced any major interruptions or malfunctions in its operations related to the Year 2000 issue but will continue to monitor throughout the remainder of the calendar year. In addition, the Company has currently not experienced any interruptions caused by a lack of Year 2000 readiness by any of its key suppliers, distributors, customers, public infrastructure suppliers and other vendors. Kimball International, Inc. and Subsidiaries The total gross cost of Year 2000 compliance approximated $8.1 million which favorably compares to estimated costs disclosed in the Company’s Form 10-K filing for its fiscal year ended June 30, 1999 of $9 million to $11 million. Existing information technology resources were redeployed, which accounted for approximately 50% of the total gross costs above. Approximately 30% of the above total gross costs relate to machinery and other fixed assets which were capitalized or in certain situations leased, with the remaining costs being expensed as incurred. Accounting Standards In June 1998, the Financial Accounting Standards Board issued Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, which requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. The Company did not have any derivative instruments at June 30, 2000, however the Company periodically engages in limited forward purchases of foreign currency and does not expect this new standard to have a material effect on the Company’s financial condition or results of operations. This standard will be effective for the Company’s fiscal year 2001. In July 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue 00-10 “Accounting for Shipping and Handling Fees and Costs.” EITF Issue 00-10 requires that all amounts billed to a customer in a sale transaction for shipping and handling be classified as revenue. The EITF did not reach a consensus with respect to the classification of costs related to shipping and handling. The Company currently classifies most all shipping and handling revenues and costs, on a net basis, in selling and administrative expense. Accordingly, the Company has determined that EITF Issue 00-10 will require reclassification of shipping and handling revenues and costs, but does not believe EITF Issue 00-10 will impact its financial position or net income. The effective date of this standard is the fourth quarter of the Company’s fiscal year 2001. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |19 | (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) Report of Management 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 in the United States and include judgements 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 of the Board, Chief Executive Officer James C. Thyen President Robert F. Schneider Executive Vice President, Chief Financial Officer, Assistant Treasurer Report of Independent Public Accountants 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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted in the United States. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Chicago, Illinois August 2, 2000 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |20 | (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) Consolidated Balance Sheets Kimball International, Inc. and Subsidiaries (Amounts in Thousands, Except for Share Data) Assets Current Assets: Cash and cash equivalents Short-term investments Receivables, less allowances of $4,713 and $3,816, 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: Class A- Shares authorized-49,909,000 (49,945,000 in 1999) Shares issued-14,451,000 (14,486,000 in 1999) Class B- Shares authorized-100,000,000 Shares issued-28,574,000 (28,538,000 in 1999) Additional paid-in capital Retained earnings Accumulated other comprehensive income Less: Treasury stock-at cost: Class A- 172,000 shares (156,000 in 1999) Class B- 3,621,000 shares (2,542,000 in 1999) Total Share Owners’ Equity June 30 2000 1999 $ 5,223 79,366 180,929 117,058 30,944 413,520 248,210 61,921 $ 16,775 114,996 132,284 96,157 26,129 386,341 221,498 53,547 $723,651 $661,386 $ 37,400 1,021 102,835 6,205 75,934 223,395 2,599 29,130 31,729 722 1,429 8,056 522,041 326 (3,144) (60,903) 468,527 $ 3,518 1,185 77,976 6,380 79,505 168,564 1,730 26,815 28,545 724 1,427 6,379 498,962 1,312 (2,877) (41,650) 464,277 Total Liabilities and Share Owners’ Equity $723,651 $661,386 See Notes to Consolidated Financial Statements. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |21 | (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) Consolidated Statements of Income (Amounts in Thousands, Except for Per Share Data) Net Sales Cost of Sales Gross Profit Selling, General and Administrative Expenses Operating Income Other Income (Expense): Interest expense Interest income Other, net Other income, net Income Before Taxes on Income Taxes on Income 2000 $1,200,945 873,954 326,991 259,864 67,127 (536) 4,709 3,102 7,275 74,402 25,940 Year Ended June 30 1999 $1,106,967 778,551 328,416 250,839 77,577 (476) 6,554 8,719 14,797 92,374 32,649 1998 $1,032,317 723,378 308,939 236,463 72,476 (424) 9,458 5,917 14,951 87,427 32,400 Net Income $ 48,462 $ 59,725 $ 55,027 Earnings Per Share of Common Stock Basic: Class A Class B Diluted: Class A Class B Average Number of Shares Outstanding Basic: Class A Class B Totals Diluted: Class A Class B Totals See Notes to Consolidated Financial Statements. $1.19 $1.21 $1.19 $1.21 14,299 25,935 40,234 14,299 26,050 40,349 $1.46 $1.48 $1.45 $1.47 14,338 26,286 40,624 14,338 26,501 40,839 $1.32 $1.33 $1.31 $1.32 14,413 27,004 41,417 14,413 27,401 41,814 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |22 | (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) Consolidated Statements of Cash Flows Kimball International, Inc. and Subsidiaries (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 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 sales of divisions/subsidiaries 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: Net change in short-term borrowings Net change in long-term debt Acquisition of treasury stock 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 and cash equivalents Net (Decrease) Increase in Cash and Cash Equivalents Year Ended June 30 2000 1999 1998 $ 48,462 $59,725 $ 55,027 43,801 (1,059) (595) (45,843) (16,800) (2,510) 23,374 (7,434) 41,396 (61,124) 2,689 — (10,330) — 400 (112,101) 146,772 (33,694) 31,298 (1,103) (24,427) (25,558) 801 (284) (19,273) 19 (11,552) 39,710 (3,917) 1,964 (13,114) (4,816) (2,529) 17,069 3,936 98,028 (76,568) 820 7,156 (25,973) (400) 5,425 (23,191) 57,080 (55,651) (800) 625 (17,184) (25,784) 986 (176) (42,333) (26) 18 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) Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year 16,775 $ 5,223 16,757 $ 16,775 18,818 $ 16,757 Total Cash, Cash Equivalents and Short-Term Investments: Cash and cash equivalents Short-term investments Totals See Notes to Consolidated Financial Statements. $ 5,223 79,366 $ 84,589 $ 16,775 114,996 $131,771 $ 16,757 156,010 $172,767 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |23 | (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) Consolidated Statements of Share Owners’ Equity Common Stock (Amounts in Thousands, Except for Share Data) Amounts at June 30, 1997 Comprehensive income: Class A $2,273 Class B $4,450 Three Years Ended June 30, 2000 Accumulated Other Additional Retained Comprehensive Paid-In Income Capital Earnings $1,648 $ 1,607 $434,665 Net income Net change in unrealized gains and losses on securities Foreign currency translation adjustment Comprehensive income Treasury stock activity (378,000 shares) Shares of Class A Common Stock converted to Class B Common Stock (36,000 shares) Exercise of stock options (117,000 shares) Cash dividends: Class A ($.58875 per share) Class B ($.605 per share) Change par value from $.3125 pre stock split 55,027 2,247 (186) (3) 3 74 81 (312) (8,483) (16,329) to $.05 post stock split (1,545) (3,027) 4,572 Total Share Owners’ Equity ($21,817) $422,826 Treasury Stock 55,027 2,247 (186) 57,088 (8,213) (8,139) (81) 1,972 — 1,660 (8,483) (16,329) — $ 725 $1,426 $6,022 $464,880 $3,709 ($28,139) $448,623 Amounts at June 30, 1998 Comprehensive income: Net income Net change in unrealized gains and losses on securities Foreign currency translation adjustment Comprehensive income Amounts at June 30, 1999 Comprehensive income: Net income Net change in unrealized gains and losses on securities Foreign currency translation adjustment Comprehensive income Treasury stock activity (973,000 shares) Shares of Class A Common Stock converted to Class B Common Stock (22,000 shares) Exercise of stock options (88,000 shares) Cash dividends: Class A ($.62 per share) Class B ($.64 per share) (1) 1 77 311 (31) (8,891) (16,752) Treasury stock activity (1,182,000 shares) Shares of Class A Common Stock converted to Class B Common Stock (35,000 shares) Exercise of stock options (87,000 shares) Cash dividends: Class A ($.62 per share) Class B ($.64 per share) (2) 2 1,413 27 237 (8,863) (16,520) 59,725 (2,100) (297) 48,462 (560) (426) 59,725 (2,100) (297) 57,328 (17,094) (17,017) (311) 1,017 — 986 (8,891) (16,752) 48,462 (560) (426) 47,476 (20,294) (18,881) (27) 801 — 1,038 (8,863) (16,520) $ 724 $1,427 $6,379 $498,962 $1,312 ($44,527) $464,277 Amounts at June 30, 2000 $ 722 $1,429 $8,056 $522,041 $ 326 ($64,047) $468,527 See Notes to Consolidated Financial Statements. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |24 | (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) Notes to Consolidated Financial Statements Kimball International, Inc. and Subsidiaries 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. Revenue Recognition: Revenue from product sales is recognized when title passes to the customer which is generally when goods are shipped. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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. 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 municipal bonds and U.S. Government securities 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 excluded from net income and recorded net of related tax effect, if any, in Accumulated Other Comprehensive Income, as a component of Share Owners’ Equity. Foreign Currency Translation: Assets and liabilities of foreign subsidiaries (except for Mexico and Thailand operations, 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 in Accumulated Other Comprehensive Income, as a component of Share Owners’ Equity. Financial statements of Mexico and Thailand operations are translated into U.S. dollars using both current and historical exchange rates, with translation gains and losses included in net income. Inventories: 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 45% and 51% of consolidated inventories in 2000 and 1999, 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, $13.5 in 2000, $11.6 in 1999, and $13.1 in 1998. 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. 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 and Concentration of Credit Risk: The Company engages in financing arrangements with customers on a limited basis and has business and credit risks concentrated in the transportation, computer, telecommunications, consumer electronics and furniture industries. One customer, TRW, Inc., represented a significant portion of consolidated accounts receivable at June 30, 2000. The Company currently does not foresee a credit risk associated with these receivables. Reclassifications: Certain prior year amounts have been reclassified to conform with the current year 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. New Accounting Standards: In 1998, the Financial Accounting Standards Board issued Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, which requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. The Company currently engages in limited derivative activity and currently does not expect this new standard to have a material effect on the Company’s financial condition or results of operations. This standard will be effective for the Company’s fiscal year 2001. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |25 | (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) Notes to Consolidated Financial Statements Summary of Significant Accounting Policies (continued) Note 1 New Accounting Standards (continued): In July 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue 00-10 “Accounting for Shipping and Handling Fees and Costs.” EITF Issue 00-10 requires that all amounts billed to a customer in a sale transaction for shipping and handling be classified as revenue. The EITF did not reach a consensus with respect to the classification of costs related to shipping and handling. The Company currently classifies most all shipping and handling revenues and costs, on a net basis, in selling and administrative expense. Accordingly, the Company has determined that EITF Issue 00-10 will require reclassification of shipping and handling revenues and costs, but does not believe EITF Issue 00-10 will impact its financial position or net income. The effective date of this standard is the fourth quarter of the Company's fiscal year 2001. Acquisitions and Dispositions Note 2 Acquisitions of Subsidiaries: In the second quarter of fiscal year 2000, the Company purchased Jackson of Danville, a privately held manufacturer of custom and in-line fully upholstered seating products and wood framed chairs. 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, and was financed with available cash on hand and the Company’s Class B Common Stock. The acquisition price and operating results of this acquisition were not material to the Company’s fiscal year 2000 consolidated financial position and operating results. During fiscal year 1999, the Company completed a number of acquisitions related to its core competencies aimed at penetrating new markets and expanding existing markets. In the first quarter, the Company acquired the assets and assumed certain liabilities of Transwall, Inc., a privately held manufacturer of stackable panel office furniture systems and floor-to-ceiling products. In the third quarter, the Company acquired the assets and assumed certain liabilities of Southeast Millwork, a privately held manufacturer of store display fixtures. These acquisitions were accounted for as purchases with operating results included in the Company’s Consolidated Statements of Income from the date of acquisition. The results of these acquisitions were not material to fiscal year 1999 consolidated financial position and operating results. In the fourth quarter of fiscal year 1999, the Company purchased a manufacturing facility located in Juarez, Mexico. The Juarez facility produces projection television cabinets and will provide additional capacity for other manufacturing operations in the future. Dispositions of Subsidiaries: The Company sold Kimball Furniture Reproductions, a furniture manufacturing facility located in Montgomery, Alabama, and ToolPro, a carbide cutting tools production operation located in Jasper, Indiana in the fourth quarter of fiscal year 1999. The sale of these subsidiaries generated a $2.7 million after-tax gain which is included in 1999 consolidated financial position and operating results. Inventories Note 3 Inventories are valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 45% and 51% of consolidated inventories in 2000 and 1999, respectively, including approximately 80% and 85% of the Furniture and Cabinet Segment inventories in 2000 and 1999, respectively. The cost of Electronic Contract Assemblies Segment inventories and the remaining inventories in the Furniture and Cabinet Segment 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 $1.5 million higher in 2000, $0.2 million lower in 1999, and $0.6 million higher in 1998. Additionally, inventories would have been, in millions, $22.7 and $20.0 higher at June 30, 2000 and 1999, respectively, if the FIFO method had been used. During 2000 and 1999, certain inventory quantity reductions caused a liquidation of LIFO inventory values, which were immaterial. 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 |26 | Less: Accumulated depreciation Property and equipment, net 2000 $ 31,251 18,149 67,658 $117,058 2000 $ 7,326 182,587 335,396 15,399 540,708 (292,498) $ 248,210 1999 $ 33,262 14,471 48,424 $ 96,157 1999 $ 6,931 171,504 291,432 16,772 486,639 (265,141) $221,498 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a 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) 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: Kimball International, Inc. and Subsidiaries Buildings and improvements Machinery and equipment Leasehold improvements Years 12 to 50 2 to 20 Life of Lease Depreciation and amortization of property and equipment totaled, in millions, $37.5 for 2000, $33.4 for 1999, and $29.9 for 1998. Lease Commitments Note 5 Operating leases for certain office, showroom, warehouse and manufacturing facilities, land and equipment, which expire from fiscal year 2000 to 2030, contain provisions under which minimum annual lease payments are, in millions, $5.1, $4.6, $3.9, $3.0, and $1.5 for the five years ended June 30, 2005, respectively, and aggregate $1.8 million from 2005 to the expiration of the leases in 2030. The Company is obligated under certain real estate leases to maintain the properties and pay real estate taxes. Total rental expenses amounted to, in millions, $7.4, $7.1, and $6.7 in 2000, 1999 and 1998, respectively. Long-Term Debt and Credit Facility 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, $1,021, $850, $450, $907, and $37, respectively, and aggregate $355 thereafter. Interest rates range from 0% to 9.74%. Interest paid was immaterial in the three years ending June 30, 2000. Based upon borrowing rates currently available to the Company, the fair value of the Company’s debt approximates the carrying value. In fiscal year 1999, the Company established a five year revolving credit facility that provides for up to $100 million in borrowings. The Company uses this facility for acquisitions and general corporate purposes. A commitment fee is payable on the unused portion of the credit facility. The interest rate applicable to borrowings under the agreement is based on the London Interbank Offered Rate (LIBOR) plus a margin. The Company is in compliance with debt covenants requiring it to maintain certain debt-to-total capitalization, interest coverage ratio, minimum net worth, and other terms and conditions. At June 30, 2000, the Company had $35.4 million of short-term borrowings outstanding under this facility. No debt was outstanding under this agreement at June 30, 1999. Retirement Plans Note 7 The Company has a trusteed defined contribution Retirement Plan 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 plan; the percent of contribution is determined by the Board of Directors up to specific maximum limits. The plan includes a 401(k) feature, thereby permitting participants to make additional voluntary contributions on a pretax basis. Payments by the Company to the trusteed plan are vested and held for the sole benefit of participants. Total contributions to the Retirement Plans for 2000, 1999 and 1998 were approximately, in millions, $9.1, $10.8, and $10.1, 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. Note 8 Stock Options 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. 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. The number of employees participating in the program was 270 in fiscal year 2000 and 290 in fiscal years 1999 and 1998. 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 from six months to two years after the date of grant and expire five to ten years after the date of grant. Stock options are forfeited when employment terminates, except in case of retirement, death or permanent disability. 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 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |27 | (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) Notes to Consolidated Financial Statements Note 8 Stock Options (continued) 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, 1997 Granted Exercised Forfeited Options outstanding June 30, 1998 Granted Exercised Forfeited Expired Options outstanding June 30, 1999 Granted Exercised Forfeited Expired Options outstanding June 30, 2000 Shares available for future options Number Weighted Average Exercise Price $13.37 21.82 13.35 14.89 16.30 18.20 13.78 16.57 14.80 17.05 19.66 12.62 18.19 12.22 $18.07 of Shares 1,376,066 588,889 (225,769) (89,170) 1,650,016 551,521 (141,993) (180,716) (20,871) 1,857,957 517,418 (179,050) (236,383) (23,386) 1,936,556 5,265,511 Following is a status of options outstanding at June 30, 2000: Outstanding Options Exercisable Options Exercise Price Range $12.00-$16.00 $16.00-$20.00 $20.00-$24.00 Total Number 546,043 924,224 466,289 1,936,556 Weighted Average Remaining Contractual Life 1 year 6 years 3 years 4 years Weighted Average Exercise Price $13.38 18.96 21.82 $18.07 Weighted Average Exercise Price $13.38 18.96 21.82 $17.49 Number 542,190 157,677 461,505 1,161,372 The Company adopted the disclosure requirements of Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (FAS 123). 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 2000 $48,462 $46,001 Year Ended June 30 1999 $59,725 $57,444 1998 $55,027 $53,343 $1.19 $1.21 $1.19 $1.21 $1.13 $1.15 $1.13 $1.15 $1.46 $1.48 $1.45 $1.47 $1.40 $1.42 $1.40 $1.42 $1.32 $1.33 $1.31 $1.32 $1.28 $1.29 $1.27 $1.28 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |28 | (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) Kimball International, Inc. and Subsidiaries The weighted average fair value at date of grant for options granted during the years ended June 30, 2000, 1999 and 1998 was $5.49, $3.72 and $4.84 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 38.5% in 2000, 34.0% in 1999 and 31.7% in 1998; risk-free interest rates of 5.9% in 2000, 5.4% in 1999 and 6.2% in 1998; dividend yield of 3.9% in 2000, 3.7% in 1999 and 2.9% in 1998; 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 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 U.S. capital loss carryforward all expire during the 2002 fiscal year. The components of the deferred tax assets and liabilities as of June 30, 2000 and 1999, are as follows: (Amounts in Thousands) Deferred tax assets: Receivables Inventory Employee benefits Other current liabilities Miscellaneous Foreign net operating losses Capital loss carryforward benefit $ 1,899 4,375 6,568 6,233 202 1,784 199 (1,983) $ 19,277 2000 1999 Valuation reserve Total asset Deferred tax liabilities: Property & equipment Miscellaneous Total liability The components of income before taxes on income are as follows: (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 $ 14,730 1,618 $16,348 Year Ended June 30 1999 $90,674 1,700 $92,374 Year Ended June 30 1999 $26,347 565 5,333 32,245 404 $32,649 2000 $ 73,717 685 $74,402 2000 $ 22,110 192 4,074 26,376 (436) $25,940 $ 1,690 2,311 6,690 5,920 587 2,253 627 (2,880) $ 17,198 $14,366 339 $14,705 1998 $87,327 100 $87,427 1998 $29,363 224 3,650 33,237 (837) $32,400 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |29 | (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) Notes to Consolidated Financial Statements Income Taxes (continued) Note 9 A reconciliation of the statutory U.S. income tax rate to the Company’s effective income tax rate follows: (Amounts in Thousands) 2000 Taxes computed at statutory rate State income taxes, net of Federal income tax benefit Foreign tax effect Capital loss benefit Tax-exempt interest income Other-net Total taxes on income Amount $26,041 2,648 (240) (427) (1,448) (634) $25,940 % 35.0% 3.6 (0.3) (0.6) (2.0) (0.8) 34.9% Year Ended June 30 1999 Amount $32,331 3,466 (595) (1,586) (1,412) 445 $32,649 % 35.0% 3.7 (0.6) (1.7) (1.5) 0.4 35.3% 1998 Amount $30,600 % 35.0% 2,373 (35) — (454) (84) $32,400 2.7 — — (0.5) (0.1) 37.1% Cash payments for income taxes, net of refunds, were in thousands, $29,826, $28,884 and $28,183 in 2000, 1999 and 1998, respectively. Note 10 Common Stock 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. 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. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |30 | (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) Note 11 Quarterly Financial Information (Unaudited) Quarterly financial information is summarized as follows: (Amounts in Thousands, Except for Per Share Data) 2000: September 30 December 31 March 31 June 30 Three Months Ended Kimball International, Inc. and Subsidiaries Net Sales Gross Profit Net Income Basic Earnings Per Share: Class A Class B Diluted Earnings Per Share: Class A Class B 1999: Net Sales Gross Profit Net Income Basic Earnings Per Share: Class A Class B Diluted Earnings Per Share: Class A Class B 1998: Net Sales Gross Profit Net Income Basic Earnings Per Share: Class A Class B Diluted Earnings Per Share: Class A Class B $278,402 76,775 11,559 $.28 .29 $.28 .29 $264,646 78,557 12,563 $.31 .31 $.30 .31 $245,857 74,280 13,029 $.31 .31 $.31 .31 $294,275 82,468 12,227 $309,495 80,802 11,551 $.30 .30 $.30 .30 $.28 .29 $.28 .29 $280,080 83,053 14,935 $288,054 86,433 15,189 $.36 .37 $.36 .37 $.37 .38 $.37 .38 $318,773 86,946 13,125 $.33 .33 $.33 .33 $274,187 80,373 17,038 $.42 .42 $.42 .42 $264,524 79,952 15,485 $265,001 77,732 13,702 $256,935 76,975 12,811 $.37 .38 $.36 .37 $.33 .33 $.33 .33 $.31 .31 $.30 .31 Net income in the second quarter of fiscal 1998 was increased by, in thousands, $1,008 or $0.02 per share, representing the gain on the sale of real estate. Net income in the third quarter of fiscal 1998 was increased by, in thousands, $616 or $0.01 per share, from the gain on the sale of a stock investment of which the Company held a minor interest. Net income in the second quarter of fiscal 1999 was increased by, in thousands, $1,337 or $0.03 per share, representing the gain on the sale of a stock investment of which the Company held a minor interest. Net income in the fourth quarter of fiscal 1999 was increased by, in thousands, $2,674 or $0.06 per share, representing the gain on the sale of two subsidiaries. Note 12 Short-Term Investments The Company’s short-term investment portfolio consists of available-for-sale securities in fiscal year 2000 and both available-for-sale and held-to-maturity securities in fiscal year 1999. 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. 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, $79,366 and $79,852 at June 30, 2000, compared to $114,597, and $114,523 at June 30, 1999, respectively. Unrealized holding gains and losses at June 30, 2000 were, in thousands, $22 and ($508), compared to $277 and ($203) at June 30, 1999, respectively. All available-for-sale securities mature within a four year period. Proceeds from sales of available-for-sale securities were, in thousands, $73,087 and $17,273 for the years ended June 30, 2000 and 1999, respectively. Gross realized gains and losses on the sale of available-for-sale securities at June 30, 2000 were, in thousands, $107 and ($283) respectively, compared to gross realized gains and losses of, in thousands, $172 and ($2) respectively, at June 30, 1999. The cost was determined on each individual security in computing the realized gain. Held-to-maturity securities are reported at carrying cost and consist primarily of government obligations with fair value equal to carrying cost. The Company did not have any held-to-maturity securities at June 30, 2000. At June 30, 1999 held-to-maturity securities were, in thousands, $399. Unrealized holding gains and losses were immaterial at June 30, 1999. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |31 | (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) Notes to Consolidated Financial Statements 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 2000 $ 1,027 4,912 25,895 8,904 35,196 $75,934 1999 $ 2,292 4,290 31,938 10,529 30,456 $79,505 Note 14 Segment and Geographic Area Information Effective for the year ended June 30, 1999, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information. The adoption of SFAS 131 requires the presentation of segment information which is consistent with information utilized by management for purposes of allocating resources and assessing performance. Management organizes the Company into segments based upon differences in products and services offered in each segment. The segments and their principal products and services are as follows: The Furniture and Cabinets Segment manufactures furniture for the office, residential, lodging and healthcare industries and store display fixtures, all sold under the Company’s family of brand names. Other products produced by the Furniture and Cabinets Segment on an original equipment manufacturer basis include store fixtures, television cabinets and stands, audio speaker systems, residential furniture and furniture components. Intersegment sales are insignificant. The Electronic Contract Assemblies Segment is a global provider of design engineering, manufacturing, packaging and distribution of electronic assemblies, circuit boards, multi-chip modules and semiconductor components on a contract basis to customers in the transportation, industrial, telecommunications, computer, and medical industries. Intersegment sales are insignificant. Included in the Electronic Contract Assemblies Segment are sales to one customer totaling in millions, $205.0, $178.9 and $168.2 in 2000, 1999 and 1998, respectively, representing 17%, 16% and 16% of consolidated net sales. The accounting policies of the segments are the same as those described in the “Summary of Significant Accounting Policies” with additional explanation of segment allocations as follows. Corporate operating costs are allocated to the segments based on the extent to which each segment uses a centralized function, where practicable. However, certain common costs have been allocated among segments less precisely than would be required for stand alone financial information prepared in accordance with generally accepted accounting principles. Unallocated corporate assets include cash and cash equivalents, short-term investments and other assets not allocated to segments. The Company evaluates segment performance based upon several financial measures, although the two most common include economic profit, which incorporates a segment’s cost of capital when evaluating financial performance, and net income. Pursuant to SFAS 131, net income is reported for each segment as it is the measure most consistent with the measurement principles used in the Company’s consolidated financial statements. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |32 | (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) Kimball International, Inc. and Subsidiaries Furniture and Cabinets $833,801 32,972 — 284 16,237 27,656 458,946 44,055 Furniture and Cabinets $771,528 29,763 — 412 19,566 34,569 389,725 67,141 Furniture and Cabinets $706,679 25,719 — 386 17,917 27,904 331,247 29,000 Electronic Contract Assemblies $367,063 10,829 — — 9,221 14,218 181,147 17,069 Electronic Contract Assemblies $335,395 9,947 — — 11,856 18,185 140,905 9,427 Electronic Contract Assemblies $325,602 8,087 — — 10,932 18,050 128,165 12,313 2000 Unallocated Corporate and Eliminations $ 81 — 4,709 252 482 6,588 83,558 — 1999 Unallocated Corporate and Eliminations $ 44 — 6,554 64 1,227 6,971 130,756 — 1998 Unallocated Corporate and Eliminations $ 36 — 9,458 38 3,551 9,073 170,226 — Consolidated $1,200,945 43,801 4,709 536 25,940 48,462 723,651 61,124 Consolidated $1,106,967 39,710 6,554 476 32,649 59,725 661,386 76,568 Consolidated $1,032,317 33,806 9,458 424 32,400 55,027 629,638 41,313 (Amounts in Thousands) Net sales Depreciation and amortization Interest income Interest expense Taxes on income Net income Total assets Capital expenditures (Amounts in Thousands) Net sales Depreciation and amortization Interest income Interest expense Taxes on income Net income Total assets Capital expenditures (Amounts in Thousands) Net sales Depreciation and amortization Interest income Interest expense Taxes on income Net income Total assets Capital expenditures Geographic Area The following geographic area data include net sales based on product shipment destination and long-lived assets based on physical location. Long-lived assets include property and equipment and other long-term assets such as software. (Amounts in Thousands) Net Sales: United States Foreign Total Net Sales Long-Lived Assets: United States Foreign Total Long-Lived Assets Year Ended June 30 2000 1999 1998 $ 1,104,705 96,240 $1,200,945 $ 261,792 27,328 $ 289,120 $1,022,943 84,024 $1,106,967 $ 233,132 26,172 $ 259,304 $ 977,716 54,601 $1,032,317 $ 199,043 7,762 $ 206,805 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |33 | (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) Notes to Consolidated Financial Statements 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. Earnings per share of Class A and Class B Common Stock are as follows: 2000 Average Shares 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) (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) $ 23,079 40,234 (74) $ 23,005 115 40,349 Available Income $48,462 (8,863) (16,520) Available Income $59,725 (8,891) (16,752) $34,082 40,624 (138) $33,944 215 40,839 $ .620 .574 $1.194 $1.19 .570 $1.190 $1.19 $ .640 .574 $1.214 $1.21 .570 $1.210 $1.21 $ .620 .839 $1.459 $1.46 .831 $1.451 $1.45 $ .640 .839 $1.479 $1.48 .831 $1.471 $1.47 1,377,270 of the 2,020,697 average outstanding stock options were antidilutive, and were excluded from the dilutive computation for this period. 1999 Average Shares Earnings Per Share Class A Class B 981,902 of the 1,901,947 average outstanding stock options were antidilutive, and were excluded from the dilutive computation for this period. m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |34 | (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, 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 (240) $29,975 Kimball International, Inc. and Subsidiaries 1998 Average Shares Earnings Per Share Class A Class B 41,417 397 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. Note 16 Comprehensive Income Effective July 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, Reporting Comprehensive Income, which establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption had no impact on the Company’s net income or Share Owners’ Equity. Comprehensive income includes all changes in equity during a period except those resulting from investments by, and distributions to, Share Owners. Comprehensive income consists of net income and other comprehensive income, which includes the net change in unrealized gains and losses on securities, and foreign currency translation adjustments. The Company has elected to disclose comprehensive income in the Consolidated Statements of Share Owners’ Equity. Accumulated balances of other comprehensive income are as follows: Balance at June 30, 1997 Current year change Balance at June 30, 1998 Current year change Balance at June 30, 1999 Current year change Balance at June 30, 2000 Accumulated Other Comprehensive Income (Net of tax if applicable) Net Change in Unrealized Gains and Losses on Securities (73) Accumulated Other Comprehensive Income $ 1,648 Foreign Currency Translation Adjustments $1,721 $ (186) 1,535 (297) 1,238 (426) $ 812 2,247 2,174 (2,100) 74 (560) $ (486) 2,061 3,709 (2,397) 1,312 (986) $ 326 m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |35 | (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) Eleven-Year Summary of Financial Condition (Amounts in Thousands, Except for Per Share Data and Number of Employees) Assets: 2000 1999 1998 1997 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 $413,520 248,210 61,921 $723,651 $223,395 2,599 29,130 — 255,124 $386,341 221,498 53,547 $661,386 $168,564 1,730 26,815 — 197,109 $ 412,937 182,798 33,903 $629,638 $ 153,210 1,856 25,949 — 181,015 $376,773 174,010 30,800 $581,583 $133,258 2,313 23,186 — 158,757 Share Owners’ Equity 468,527 464,277 448,623 422,826 Total Liabilities and Share Owners’ Equity $723,651 $661,386 $629,638 $581,583 Other Financial Data: Current Ratio Working Capital Capital Investments 1.9:1 $190,125 2.3:1 $ 217,777 2.7:1 $259,727 2.8:1 $243,515 $ 71,454 $ 102,541 $ 48,672 $ 44,747 Long-Term Debt as Percent of Share Owners’ Equity Book Value Per Share of Common Stock Outstanding Average Number of Employees 0.6% $ 11.65 10,088 0.4% $ 11.43 9,884 0.4% $ 10.83 9,198 $ 0.5% 10.20 8,786 Dividends: Total Declared Per Share Dividends Declared: Class A Class B Percent of Net Income Declared in Dividends $ 25,383 $ 25,643 $ 24,812 $ 22,104 $ .62 $ .64 $ .62 $ .64 $ .58875 $ .605 $ .530 $ .535 52.4% 42.9% 45.1% 38.3% Eleven-Year Sources of Revenue (Amounts in Thousands) Furniture and Cabinets Electronic Contract Assemblies Unallocated Corporate Total Revenue 2000 $ 833,801 69% 367,063 31% 81 0% $1,200,945 100% 1999 $ 771,528 70% 335,395 30% 44 0% $1,106,967 100% 1998 $ 706,679 69% 325,602 31% 36 0% $1,032,317 100% 1997 $ 676,218 68% 315,816 32% 15 0% $992,049 100% m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |36 | (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) 1996 1995 1994 $ 342,251 174,009 21,965 $538,225 $122,043 3,016 22,152 — 147,211 $306,816 177,130 13,140 $497,086 $ 105,046 924 19,779 — 125,749 $288,238 171,243 11,932 $ 471,413 $ 102,164 811 17,486 — 120,461 Kimball International, Inc. and Subsidiaries 1992 1991 1990 $275,507 142,304 4,212 $422,023 $ 80,769 3,157 16,960 — 100,886 $242,726 135,757 4,202 $382,685 $ 65,262 4,392 17,677 891 88,222 $233,856 140,766 3,361 $377,983 $ 72,371 6,873 18,338 1,050 98,632 June 30 1993 $295,458 152,361 4,886 $452,705 $ 100,070 2,017 17,277 — 119,364 391,014 371,337 350,952 333,341 321,137 294,463 279,351 $538,225 $497,086 $ 471,413 $452,705 $422,023 $382,685 $377,983 2.8:1 $220,208 2.9:1 $ 201,770 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 $ 44,451 $ 37,278 $ 53,213 $ 38,154 $ 33,486 $ 20,358 $ 20,925 $ 0.8% 9.35 8,660 0.2% $ 8.81 8,589 0.2% $ 8.29 8,140 $ 0.6% 7.87 7,621 1.0% $ 7.56 7,641 1.5% $ 6.97 7,559 $ 2.5% 6.59 7,971 $ 19,775 $ 18,039 $ 17,704 $ 16,454 $ 14,745 $ 13,889 $ 12,218 $ .470 $ .475 .425 $ $ .430 $ .415 .420 $ $ .385 $ .390 $ .345 $ .350 $ .325 $ .330 $ $ .285 .290 43.9% 43.5% 48.9% 53.8% 38.2% 46.3% 28.1% 1996 $638,943 69% 284,639 31% 54 0% $923,636 100% 1995 $650,756 73% 245,101 27% 55 0% $895,912 100% 1994 $ 618,243 75% 204,149 25% 92 0% $822,484 100% Year Ended June 30 1993 $ 541,871 75% 180,464 25% 65 0% $722,400 100% 1992 $484,779 78% 132,507 22% 15 0% $ 617,301 100% 1991 $463,085 83% 92,118 17% 60 0% $555,263 100% 1990 $490,999 80% 121,937 20% 20 0% $612,956 100% m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |37 | (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) Eleven-Year Summary of Operations (Amounts in Thousands, Except for Per Share Data) Net Sales Cost of Sales Gross Profit 2000 $1,200,945 873,954 326,991 1999 $1,106,967 778,551 328,416 1998 $1,032,317 723,378 308,939 1997 $992,049 692,636 299,413 Selling, General and Administrative 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 259,864 — — 67,127 (536) 4,709 3,102 7,275 74,402 25,940 250,839 — — 77,577 (476) 6,554 8,719 14,797 92,374 32,649 236,463 — — 72,476 (424) 9,458 5,917 14,951 87,427 32,400 218,421 — — 80,992 (551) 8,484 (359) 7,574 88,566 30,821 $ 48,462 4.0% $ 59,725 5.4% $ 55,027 5.3% $ 57,745 5.8% $1.19 $1.21 $1.19 $1.21 40,234 40,349 $1.46 $1.48 $1.45 $1.47 40,624 40,839 $1.32 $1.33 $1.31 $1.32 41,417 41,814 $1.39 $1.40 $1.38 $1.38 41,450 41,763 Manufacturing and Service Operations Furniture and Cabinets Artec Manufacturing Jasper and French Lick, Indiana Office furniture systems Batesville American Manufacturing Batesville, Mississippi Metal stampings and assemblies, healthcare beds Corporate Logistics Services Jasper, Indiana Transportation and fleet operations Evansville Veneer Chandler, Indiana Veneer m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |38 | Facilities/Technology Support Group Jasper, Indiana Product testing, property and woodlands management, energy production, research in furniture finishes 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 Greensburg Manufacturing Greensburg, Kentucky Lumber, dimension wood, furniture components Harpers Manufacturing Post Falls, Idaho Office furniture casegoods, systems and filing Heritage Hills Santa Claus, Indiana TV and audio cabinets, TV stands, and office furniture Indiana Hardwoods Chandler, Indiana Lumber Indiana Hardwoods Sawmill Cloverport, Kentucky Lumber Jackson of Danville Danville and Greensburg, Kentucky Lodging and healthcare seating Jasper Furniture Company Jasper and West Baden, Indiana Lodging and healthcare casegoods, contract furniture and components Jasper Laminates Jasper, Indiana Flat, molded, postformed and plastic-faced plywood, banded flakeboard, veneer faces Jasper Plastics Jasper, Indiana Molded polyurethane, polyester, elastomers Kimball de Juarez, S.A. de C.V. Juarez and Mexicali, Mexico and El Paso, Texas Projection television cabinets Kimball Home Furniture Jasper, Indiana Residential furniture Kimball Lodging Group Jasper, Indiana Lodging and healthcare furniture (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) 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 1994 $822,484 588,849 233,635 Year Ended June 30 1993 $722,400 512,781 209,619 179,981 — — 53,654 (202) 2,240 3,727 5,765 59,419 23,250 161,984 — 2,850 44,785 (1,200) 4,237 5,500 8,537 53,322 22,739 Kimball International, Inc. and Subsidiaries 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 $ 45,095 4.9% $ 41,439 4.6% $ 36,169 4.4% $ 30,583 4.2% $ 38,628 6.3% $ 30,017 5.4% $ 43,475 7.1% $1.08 $1.08 $1.07 $1.08 41,810 41,856 $0.98 $0.99 $0.98 $0.99 42,143 42,148 $0.85 $0.86 $0.85 $0.86 42,330 42,330 $0.72 $0.72 $0.72 $0.72 42,398 42,398 $0.91 $0.92 $0.91 $0.92 $0.71 $0.71 $0.71 $0.71 42,302 42,302 42,329 42,329 $1.02 $1.03 $1.02 $1.03 42,391 42,391 Kimball Northeast Manufacturing West Chester, Pennsylvania Office furniture, stackable panel and floor-to-ceiling systems Kimball Office Casegoods Manufacturing Borden and Salem, Indiana and Fordsville, Kentucky Office furniture casegoods Kimball Office Group Jasper, Indiana and Post Falls, Idaho Office furniture casegoods, systems, seating and filing Kimball Store Fixtures Boca Raton, Florida and Weaverville, North Carolina Store display fixtures Kimball U.K. London, England Office furniture casegoods, systems, seating and filing Kimball Upholstered Products Jasper, Indiana Office, residential, lodging and healthcare seating Transwall West Chester, Pennsylvania Office furniture, stackable panel and floor-to-ceiling systems L. Bösendorfer Klavierfabrik GmbH Vienna and Wiener Neustadt, Austria Grand and vertical pianos Electronic Contract Assemblies Elmo Semiconductuers SARL Mantes La Jolie, France Electronic assemblies Lafayette Manufacturing Lafayette, Tennessee Lumber, dimension wood Lafayette Sawmill Gordonsville, Tennessee Lumber Product Design & Research Center Jasper, Indiana Product design and development The Jasper Corporation Jasper, Indiana TV and audio cabinets, lodging, office and residential furniture Elmo Semiconductor Corporation Burbank, California Electronic assemblies Kimball Electronics Design Services Jasper, Indiana Contract electronic component design services Kimball Electronics Thailand Laem Chabang, Thailand Electronic assemblies Kimball Electronics Jasper, Indiana Electronic assemblies Kimco, S.A. de C.V. Reynosa, Mexico and McAllen, Texas Electronic assemblies Corporate Corporate Headquarters Jasper, Indiana Executive, administrative and sales offices Education Center & Corporate Showroom Jasper, Indiana Training, product display Kimball Flight Operations Huntingburg, Indiana Flight services Kimball Kids Jasper, Indiana Child development center m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |39 | (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) Board of Directors Douglas A. Habig* Chairman of the Board, Chief Executive Officer Director 27 years Thomas L. Habig* Vice Chairman of the Board Director 50 years James C. Thyen* # ‡ President Director 19 years John B. Habig Chairman of the Board of Directors of SVB&T Corporation, a Bank Holding Company of Springs Valley Bank & Trust Company Director 44 years Ronald J. Thyen* Senior Executive Vice President, Operations Officer, Furniture and Cabinets Segment Director 27 years Corporate Officers Randall L. Catt Executive Vice President, Human Resources Donald D. Charron Executive Vice President, President, Kimball Electronics, Electronics Segment John H. Kahle Executive Vice President, General Counsel, Assistant Secretary Gregory W. Kuper Executive Vice President, Components Group P. Daniel Miller Executive Vice President, President, Kimball Office Group Furniture and Cabinets Segment 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, Casegoods Group Gary L. Beckman Vice President, Strategic Planning and Quality Systems Officers m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m |40 | Alan B. Hoffman Vice President, Corporate Risk John T. Thyen* Senior Executive Vice President, Strategic Marketing Director 10 years Gary P. Critser* # ‡ Senior Executive Vice President, Corporate Secretary and Treasurer Director 10 years Brian K. Habig Proposal Center Manager for Kimball Electronics Group Director 8 years Jack R. Wentworth+ # ‡ Arthur M. Weimer Professor Emeritus of Business Administration, Indiana University Director 16 years Alan B. Graf, Jr.+ # ‡ Executive Vice President and Chief Financial Officer, FedEx Corporation Director 4 years Christine M. Vujovich+ # ‡ Vice President, Environmental Policy and Product Strategy, Cummins Engine Company, Inc. Director 6 years Polly B. Kawalek+ Vice President of The Quaker Oats Company and President, Hot Breakfast Division Director 3 years HHaarrrryy WW.. BBoowwmmaann+ Former President and Chief Executive Officer of The Stiffel Company, Appointed to the Board on August 8, 2000 * Member of the Executive Committee of the Board + Member of the Audit Committee of the Board # Member of the Compensation Committee of the Board ‡ Member of the Stock Option Committee of the Board Mona K. Hoffman Vice President, General Manager, National Office Furniture George W. Manz Vice President, Marketing and Sales, Transwall R. Gregory Kincer Vice President, Assistant Treasurer, Business Development Dirk H. Manning Vice President, Western Sales Manager, Kimball Office Furniture Ronald J. Sermersheim Vice President, Environmental, Health & Safety Roy W. Templin Vice President, Finance and Chief Accounting Officer Kenneth J. Van Winkle Vice President, Global Procurement Furniture and Cabinets Segment Dean M. Vonderheide Vice President, Seating Group Subsidiary Officers Dr. Rudolf Arlt Managing Director, Bösendorfer William N. Dykema Vice President, General Manager, Kimball Lodging Group James R. Hampton Vice President, Raw Materials Larry J. Knust Vice President, Systems Group James R. McIntyre Vice President, Sales, Electronics Group Mark Phillips Managing Director, Kimball United Kingdom Ronald J. Pronyk Vice President, Store Fixture Group Michael K. Sergesketter Vice President, Chief Financial Officer, Electronics Group Christopher J. Thyen Vice President, Lodging/Healthcare Group Mark D. Valois Vice President, Northeast Sales Manager, Kimball Office Furniture Spiro Vamvakas Vice President, Director Design Engineering, Electronics Group Don W. Van Winkle Vice President, Chief Finance and Administrative Officer, Kimball Office Group Lawrence J. Kuntz Vice President, Organization Development, Electronics Group Scott D. Zinn Vice President, General Sales Manager, Kimball Office Furniture (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) Other Corporate Data Kimball International, Inc. and Subsidiaries Dividends: During fiscal year 2000 dividends declared were $25.4 million or $.62 per share on Class A Common Stock and $.64 per share on Class B Common Stock. The dividends by quarter for 2000 compared to 1999 are as follows: First Quarter Second Quarter Third Quarter Fourth Quarter Total Dividends 2000 1999 Class A $.155 $.155 $.155 $.155 $.62 Class B $.16 $.16 $.16 $.16 $.64 Class A $.155 $.155 $.155 $.155 $.62 Class B $.16 $.16 $.16 $.16 $.64 Share Owners: On July 31, 2000, the Company’s Class A Common Stock was owned by approximately 640 Share Owners of record and the Company’s Class B Common Stock by approximately 2,390 Share Owners of record, of which approximately 380 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: First Quarter Second Quarter Third Quarter Fourth Quarter There is no active trading market for the Company’s Class A Common Stock. $21.00 $19.938 $16.75 $17.50 2000 High Low $16.75 $15.125 $10.75 $11.00 1999 High $20.375 $21.50 $20.0625 $18.8125 Low $14.875 $14.9375 $14.75 $14.5625 Annual Meeting: The annual meeting of Share Owners will be held at 9:30 a.m. Eastern Standard Time on October 17, 2000, 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, Corporate Secretary and Treasurer, at the address below. Transfer Agent and Registrar of the Common Stock: Share Owners with questions concerning address changes, dividend checks, registration changes, lost share certificates or transferring shares may contact: Class A Share Owners: Hannah Prior Kimball International, Inc. 1600 Royal Street Jasper, IN 47549 Phone: (800) 482-1616 E-mail: hprior@kimball.com Class B Share Owners: 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 Gregory J. Shields, Director of Investor Relations at (812) 482-8353. Share Owner Contact: Share Owners with general questions concerning the Company may contact Gary P. Critser, Senior Executive Vice President, Corporate 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 identifies specific factors that could cause actual results or events to differ materially from those described in the forward-looking statements. Design: Stewart Lopez Bonilla & Associates, Louisville, Ky Photography: Casalini Photography, Zionsville, In m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a 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 1600 Royal Street Jasper, Indiana 47549 812-482-1600 812-482-8500 TDD www.kimball.com • 2 0 0 0 • A N N U A L R E P O R T • m o c . l l a b m i k . w w w | h c a e r i r u o g n d n a p x e | s u c o f i r u o g n n i a t n i a m • 0 0 0 2 • 0 9 9 1 • 0 8 9 1 • 0 7 9 1 • 0 6 9 1 • 0 5 9 1 • 

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