Kimball International
Annual Report 2002

Plain-text annual report

Take a closer look. 2002 Summary Annual Report 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. 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 Office Furniture product lines serve the business market with casegoods, seating and systems furniture in wood, metal and a variety of other materials, 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 business units also produce on a contract basis a variety of products such as 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 stampings and molded plastics for the Company’s furniture manufacturing operations as well as for sale to external customers, both domestically and internationally. 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. The Kimball Culture Since 1950, we have built our continued success on the deep belief in a sound, time-proven company culture, one that maintains our focus on our Corporate Vision – We Build Success. Our culture represents who we are at our very best, in the way we treat and share our success with our people, in the way we approach our customer relationships, in the way we behave as a community citizen, and in the way we are committed to generating profits for our Share Owners. A common thread bringing all these pieces of our culture together is INTEGRITY. Integrity with our customers. Integrity with our people. Integrity within our communities. Integrity with those who invest in us. Even in difficult economic times, our culture is our compass. From there, we move forward, grow stronger and continue to build success for our company, for our employees, for our suppliers, for our customers and for YOU — the Share Owner. When taking a closer look at our Kimball culture for the first time, many react in a similar way: “Wow, I didn’t know your company stood for all that. At Kimball, there is definitely more than meets the eye.” We invite you to take a closer look. 2 Letter to our Share Owners 4 Kimball – Take A Closer Look 14 Report of Management 15 Summary Financial Data 20 Board of Directors / Officers IBC Other Corporate Data BC Locations 2002 Kimball International, Inc. Summary Annual Report 1 Dear Share Owner: The world events and the economic downturn during fiscal 2002 were unprecedented, touching each of us personally and making the competitive landscape for Kimball International that much more challenging. We saw reduced customer demand in many of our markets with sales for the year totaling $1.17 billion, down from sales of $1.26 billion in fiscal 2001. Net income, exclusive of the gain on the sale of Boesendorfer and restructuring activities, was also down at $26.7 million. Douglas A. Habig Chairman of the Board, Chief Executive Officer That said, though, when looking at the past year, there’s more than really meets the eye. We are very proud of how Kimball took decisive action to better align to our markets, to complete the very difficult restructuring plan announced in June of 2001, to manage costs, and to stay the course in our business strategies. We continued to invest this past year to position Kimball for future growth and will do so again this coming year. While others retreated, we invested $56 million in capital equipment and software technology. Our cash flow generated from operations this past year totaled $77 million, affording us the opportunity to do what’s right for the long term. Our efforts to manage our costs were evidenced by an improvement in operating income performance during the year as we worked to reduce both our costs to manufacture product and our overhead cost structures. Those are just a few more reasons why we say there is more than meets the eye as you look at Kimball. It’s something we hear often. We would like for you to take a closer look at us and see how Kimball International: • represents many products, many markets, many services, and many technological James C. Thyen President • has a customer and employee base that is worldwide; and process capabilities; • is an employer of choice, and shares our success with more than 9,000 employees; • strives to help our communities be great places to live; • credits our continued success to the deep belief in a sound, time-proven company culture. In fiscal 2002, many key things happened in support of efforts to maintain our focus, expand our reach and achieve our vision – We Build Success – even though economic conditions could temporarily obscure our progress. Things could have been worse had it not been for the decisive restructuring actions taken during June 2001, which were very important in minimizing the earnings decline driven by lower volume levels. Our leadership team immediately went to work to reduce and ultimately align our cost structure with these slower demands. Several difficult decisions and quick actions were taken in an effort to appropriately align our cost structure and improve our competitive position in a global marketplace. Restructuring and other actions we took included reductions in nonessential spending, closing and streamlining some facilities, realigning some equipment, operating with shorter work weeks, and reducing our worldwide workforce by approximately 20% (2,300 employees) from January 1, 2001 to December 31, 2001. While the actions taken to reduce our organizational and operating capacities were required to position Kimball with a competitive cost structure, which is vital to our overall long-term success, we regret the impact of these actions on affected employees. There is also more than meets the eye when you look closer at the makeup of our management team. As a Share Owner, you have likely followed our press releases the past few years, in particular those announcing the hiring of our four group presidents. The hiring of each group president provided an individual piece of a puzzle, depicting the total picture of how we envision our top management team. We added depth to our team consistently over the past three years. Now, with our four operating presidents on board, we feel our team is truly in place. 2 Take A Closer Look Each one enhances our knowledge and expertise in their respective markets – Electronics, Consumer Branded Furniture, Contract Furniture, and Hardwood Forest Products. This represents an important milestone in the evolution of Kimball International. Kimball International is focused on two business segments. In the Electronic Contract Assemblies business segment, sales were up slightly, exclusive of our acquisition of an electronics facility in Auburn, Indiana. This business segment also benefited from revenue growth in its automotive market due to both the expansion of its contract customer base and relatively stable U.S. automotive sales. This segment continued to generate net income despite softness in some of its principal markets. Besides the Auburn acquisition, we also expanded our contract electronics capabilities through the opening of a microelectronics production facility in Valencia, California; a new, larger facility in Laem Chabang, Thailand; and the expansion of our electronics capabilities in Poznan, Poland, to enhance our ability to meet the global needs of proven, long-term customers. Our Furniture and Cabinets business segment experienced a sales decline; however, the decline in sales of office furniture – our largest market in this business segment – was less than the overall industry decline and remained profitable. We are pleased to note that we earned two “Best of NEOCON” Awards for best new product introductions at the annual NEOCON trade show, which spotlights the industry’s newest and best office furnishings and interior decor products. Winner of the Best of NEOCON Gold Award in the Software Technologies category was e-magine, Kimball Office Furniture’s and National Office Furniture’s truly revolutionary new space planning software tool for specifying and rendering office product configurations. This exclusive package promises to be the industry’s biggest breakthrough in design and visualization technology. Awarded the Best of NEOCON Silver Award in the Desk category was Evoke, Kimball Office Furniture’s newest desk series, featuring an intriguing “floating” top and an extensive range of functional and design options. Also, National Office Furniture was honored to receive the Office Furniture Dealer’s Alliance (OFDA) 2002 Choice Circle of Excellence Award - “Sales and Marketing”. This dealer poll was designed to recognize best of class performance. It’s also important to point out the selling of our Boesendorfer piano subsidiary, in Vienna, Austria, earlier this year. That, too, represents more than meets the eye. It is further indication of our commitment to focus our resources on our furniture and electronics businesses — our core competencies. We are very pleased to have executed the sale of Boesendorfer to an Austrian owner that recognizes the special place Boesendorfer holds in Austria’s tradition and culture. The new association bodes well for Boesendorfer’s future success. This sale of Boesendorfer was not an isolated action in our strategy of increasing Kimball’s focus on our core competencies. Recall the exit of the domestic Kimball brand piano market a few years ago; the sale of Herrburger Brooks, a piano key and action company in England; the sale of Kimball Furniture Reproductions, a Victorian and French reproductions business in Alabama; the sale of West Jefferson Wood Products, a raw materials business unit in North Carolina; and the sale of ToolPro, a carbide tool and saw sharpening business. All of these actions the last several years had the same strategic purpose, to greater focus our efforts on our core markets. The world economy and our primary markets continue to be challenging, and we will continue to work our strategy of aligning our cost structure where appropriate and positioning Kimball for long-term growth; and accordingly, we will continue to make appropriate investments for the future. We will continue to deploy capital so that Kimball International is poised for success and increased market share once the recession is behind us. We are fortunate to have the balance sheet strength to pursue these opportunities. And because of all this, we are positioned well for the recovery and for profitable growth across our primary markets. Before ending this Share Owners’ message, it’s important to note what is likely a noticeable change to our annual report. This year’s publication is a “summary annual report,” representing our attempt to summarize and better communicate higher level issues to you. A more detailed look at our Company is available in the 10-K and proxy statement. Finally, we cannot reflect on the past fiscal year without recognizing the recent passing of our Vice Chairman of the Board, Thomas L. Habig. Since 1950, Tom was a pillar of our Company’s culture and values. He is missed, yet his legacy lives on and is felt throughout our Company. July 29, 2002 2002 Kimball International, Inc. Summary Annual Report 3 Examining Operations 4 Take A Closer Look Upon taking a closer look, people often comment, “I didn’t know Kimball International builds all that!” We manufacture many different products, a mix linked to a common foundation of focus and logic. Our products are found at home. At the office. In your car. In hotels, military bases, assisted living centers and hospitals. Around the world. Furniture. Store display fixtures. TV cabinets and stands. Furniture components. Electronic assemblies, circuit boards, multi-chip modules and semiconductor components. We are in many markets. The office furniture industry. The residential furniture industry. The hotel, motel and healthcare furniture industries. Plastics. Our electronics business segment provides product for the transportation industry and industrial controls industry, as well as the defense, aerospace, telecommunications, computer and medical markets. Our diverse line of products is sold under the Company’s family of brand names, and we sell products on a contract basis. We have many varied customers. Multinational corporations. Small, start-up businesses. Entrepreneurs. Home owners. The Government. Since 1950, we have been the supplier of choice for thousands of customers. While we constantly seek out new customers, we continue to expand relationships with existing customers, solidifying Kimball as their supplier of choice. We will be the most preferred supplier in each of our markets, recognized for better understanding our customers’ needs and exceeding those needs with innovative solutions. We seek to consistently demonstrate a sense of warmth, humor and mutual respect in our relationships with customers, and to be the company with which they most enjoy working. Customer satisfaction at Kimball is more than our goal; it is our passion; it is our culture. Our focus on Total Quality transcends every element of our work environment to ensure that our customers’ expectations are met. True, we build products for our customers; but ultimately, we build success for them. Many products. Many markets. Many services. Many technological and process capabilities. All from a common foundation: a strong culture. All from one company with one focus — we take care of our many customers. We build success for our customers 2002 Kimball International, Inc. Summary Annual Report 5 Seeking Opportunity 6 Take A Closer Look We build success for our people Upon taking a closer look, people have commented, “I didn’t know Kimball International offers so many opportunities.” Across cultures, boundaries and markets, we are anemployer of choice. And just as we are the employer of choice for over 9,000 people, we consider each member of our hard-working, competitive workforce an employee of choice. Kimball’s success has been built upon the tradition of mutual trust, personal integrity, a spirit of cooperation, respect for dignity of the individual, a sense of family and good humor. Our open, nondefensive culture encourages people to take risks and share ideas; to accept responsibilities and make decisions; to demonstrate their abilities and grow, both personally and professionally. Our people are dedicated to Kimball’s commitment to excellence and teamwork; it is a core value to reward employees for their contributions and results, ensuring they share in our financial success. Kimball recognizes that its employees are working harder than ever to balance work and family life. Our compensation, benefits and flextime scheduling are designed to help employees establish a balanced lifestyle. One example is Kimball Kids. In partnership with Bright Horizons Family Solutions®, this child development center gives Kimball parents an additional option to one of life’s most important challenges: caring for children. The Kimball Scholarship program has provided scholarships to 297 children of employees since its inception in 1963. To date, $2.3 million have been awarded to the winners. A career with Kimball is an investment in a financially strong company. And with operations throughout the U.S. and continued international growth, it’s also an investment with room to grow. 2002 Kimball International, Inc. Summary Annual Report 7 8 Take A Closer Look We build success around the globe When people take a closer look, we often hear, “I didn’t know Kimball International is that global.” Our operations are more widespread than popularly known. We have capabilities, employees and customers throughout the world. Our manufacturing facilities and sales offices are worldwide. Mexico. Thailand. United Kingdom. Poland. Indiana. Kentucky. Pennsylvania. Mississippi. Tennessee. Idaho. Texas. California. Florida. Our company culture exists in all those places. Our showrooms are in places like New York, Chicago, Boston, Los Angeles, San Francisco, Denver, Atlanta, Dallas and London. Many of our customers are large global companies, and where they go, we will follow. Our global “footprint,” or presence, strategically positions our resources and capabilities to be where our customers need them, anywhere in the world. Our Transfer of Work (TOW) initiatives enable us to move the manufacturing of certain products from one Kimball location to another in response to business needs. This builds on a strength that Kimball has traditionally possessed: the flexibility and ability for different business units to share skills, capabilities and knowledge to better service our customers. We will consistently provide the highest quality products and services in every market we serve. 2002 Kimball International, Inc. Summary Annual Report 9 uture F e h t n o d e Focus 10 Take A Closer Look Yes, we’ve had our share of success. Since our founding in 1950 with less than 30 employees, Kimball has grown into an international, billion dollar corporation with more than 9,000 employees. We value flexibility, rewarding hard work, personal initiative, and standing by your word. These values are an indelible part of our company culture, no matter the location. Recognizing that an attitude of pride in the Company and the community are intertwined, we seek to share, but not impose, our values within the communities in which we live. We also strive to help our communities be great places to live by supporting health and human services, education, religious institutions, arts and culture, and civic and community programs that benefit the elderly, the disabled, children, schools, community centers and critical services such as local volunteer fire departments. We build success for our communities and environment Environmentally, we build success as a leader in eliminating pollution generated at the source, using safe substitutes where feasible, maximizing the reclamation and recycling of materials to eliminate any adverse impact on the environment, and developing the most sound and technologically advanced forest management practices. After all, the environment is our home — we will be leaders in not only protecting, but enhancing our world. Above all, we believe the greatest contribution we can make to the prosperity and quality of life of those communities in which we operate – locally and globally – lies in being a financially strong, dynamic, growing company. 2002 Kimball International, Inc. Summary Annual Report 11 12 Take A Closer Look We build success for our Share Owners Our foremost goal: to drive long-term Share Owner value. We build Share Owner value by focusing on and taking advantage of our competitive strengths. Profitability and financial resources give us and our Share Owners the freedom to shape our future and achieve our vision. Share Owners are the final beneficiaries of the effectiveness of all our efforts. We are committed to providing long-term returns to them and conducting our business with demonstrated values and integrity to make those Share Owners proud of the Company. It’s all about vision. Take a closer look. 2002 Kimball International, Inc. Summary Annual Report 13 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 condensed consolidated financial statements and other related information in this summary annual report. The consolidated financial statements filed by the Company and its subsidiaries, from which these condensed consolidated financial statements included herein have been derived, were prepared in accordance with accounting principles generally accepted in the United States of America and include judgements and estimates, which in the opinion of management are applied on an appropriately 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, Treasurer Report of Independent Public Accountants To the Board of Directors and Share Owners of Kimball International, Inc. We have audited the consolidated balance sheet of Kimball International, Inc. and subsidiaries as of June 30, 2002, and the related consolidated statements of income, share owners’ equity and cash flows for the year then ended. Such consolidated financial statements and our report thereon dated July 29, 2002, expressing an unqualified opinion (which are not included herein), are included in the Company’s Annual Report on Form 10-K. The accompanying condensed consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on such condensed consolidated financial statements in relation to the complete consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 2002 and the related condensed consolidated statements of income and cash flows for the year then ended is fairly stated in all material respects in relation to the basic consolidated financial statements from which it has been derived. The accompanying condensed consolidated balance sheet of Kimball International, Inc. as of June 30, 2001, and the related condensed consolidated statements of income and cash flows for each of the two years in the period ended June 30, 2001 were not audited by us and, accordingly, we do not express an opinion on them. Deloitte & Touche LLP Indianapolis, Indiana July 29, 2002 Please Note:On April 9, 2002, the Company appointed Deloitte & Touche LLP as its independent auditors, replacing Arthur Andersen LLP.Fiscal 2002 consolidated financial statements were audited by Deloitte & Touche.Fiscal 2001 and 2000 consolidated financial statements were audited by Arthur Andersen.A copy of the Arthur Andersen audit opinion on the consolidated financial statements for those periods is included in the Company’s fiscal 2002 Form 10-K.During fiscal 2002, the Company moved from an annual report with a full set of financial statements to a summary annual report format.With respect to the enclosed fiscal 2001 and 2000 condensed consolidated financial information, which is derived from the audited consolidated financial statements for fiscal 2001 and 2000, it should be noted that Arthur Andersen had not separately expressed an opinion on this condensed information, and is now unable to express such an opinion given the firm’s current status. 14 Take A Closer Look Condensed Consolidated Balance Sheets Kimball International, Inc. and Subsidiaries (Amounts in Thousands) Assets Current Assets: Cash and cash equivalents Short-term investments Receivables, less allowances of $5,515 and $6,880, respectively Inventories Other Total current assets Property and Equipment, net Capitalized Software, 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 Accrued restructuring Total current liabilities Other Liabilities: Long-term debt, less current maturities Deferred income taxes and other Total other liabilities Share Owners’ Equity: Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Less: Treasury stock, at cost Total Share Owners’ Equity June 30 2002 2001 $ 18,662 53,919 150,836 100,632 40,108 364,157 236,176 38,968 34,811 $ 11,237 68,746 150,015 117,681 33,808 381,487 241,952 27,420 28,125 $ 674,112 $ 678,984 $ – 611 104,547 6,015 62,176 2,624 175,973 2,291 43,360 45,651 2,151 7,752 524,418 604 (82,437) 452,488 $ 28,914 1,031 102,025 6,006 57,152 5,445 200,573 3,320 32,667 35,987 2,151 8,132 513,981 1,436 (83,276) 442,424 Total Liabilities and Share Owners’ Equity $ 674,112 $ 678,984 All financial data was condensed from and should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements in the Company’s Annual Report on Form 10-K. 2002 Kimball International, Inc. Summary Annual Report 15 Condensed Consolidated Statements of Income Kimball International, Inc. and Subsidiaries (Amounts in Thousands, Except for Per Share Data) Net Sales Cost of Sales Gross Profit Selling, General and Administrative Expenses Restructuring and Other Expense Operating Income Other Income (Expense): Interest expense Interest income Other, net Other income, net Income Before Taxes on Income Taxes on Income 2002 $ 1,172,504 903,666 268,838 237,512 897 30,429 (329) 2,460 19,045 21,176 51,605 17,105 Year Ended June 30 2001 $1,261,171 968,918 292,253 243,843 27,695 20,715 (1,441) 3,026 4,621 6,206 26,921 10,338 2000 $1,228,412 911,884 316,528 249,406 – 67,122 (536) 4,709 3,107 7,280 74,402 25,940 Net Income $ 34,500 $ 16,583 $ 48,462 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 $ $ $ $ 0.89 0.91 0.89 0.91 $ $ $ $ 0.41 0.43 0.41 0.43 $ $ $ $ 1.19 1.21 1.19 1.21 13,979 24,059 38,038 13,979 24,089 38,068 14,141 24,952 39,093 14,141 25,010 39,151 14,299 25,935 40,234 14,299 26,050 40,349 All financial data was condensed from and should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements in the Company’s Annual Report on Form 10-K. 16 Take A Closer Look Condensed 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, facilities and subsidiaries Restructuring and other Deferred income tax and other deferred charges Change in current assets and liabilities: Receivables Inventories Other current assets Accounts payable Accrued expenses Transfer of funds to trusteed retirement plan portfolio Net cash provided by operating activities Cash Flows From Investing Activities: Capital expenditures Proceeds from sales of assets Proceeds from sales of facilities/subsidiaries Increase in capitalized software and other assets 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 Change on Cash and Cash Equivalents Net Increase (Decrease) in Cash and Cash Equivalents Year Ended June 30 2002 2001 2000 $ 34,500 $ 16,583 $ 48,462 46,852 (8,338) (2,268) 5,059 (4,994) 10,116 809 3,213 1,313 (9,073) 77,189 (37,995) 1,976 20,238 (17,952) – (45,543) 60,326 (18,950) (26,254) (1,101) (26) (24,054) 269 299 (50,867) 53 7,425 47,652 (632) 27,040 (2,301) 30,914 (623) 2,900 (827) (18,411) – 102,295 (46,778) 3,130 – (12,482) – (56,316) 68,433 (44,013) (8,486) 856 (20,447) (24,842) 654 117 (52,148) (120) 6,014 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) Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year 11,237 $ 18,662 5,223 $ 11,237 16,775 5,223 $ All financial data was condensed from and should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements in the Company’s Annual Report on Form 10-K. 2002 Kimball International, Inc. Summary Annual Report 17 Notes to Condensed Consolidated Financial Statements Kimball International, Inc. and Subsidiaries RESTRUCTURING AND OTHER EXPENSE ACQUISITIONS AND DISPOSITIONS In the second quarter of fiscal year 2002, the Company announced it had purchased a manufacturing facility located in Auburn, Indiana from VDO North America LLC. The Company assumed ownership of the facility and most of the equipment and retained a large portion of the workforce. With the acquisition, the Company began to produce an electronics module for an automotive passenger safety system and a line of small engine ignition products. The acquisition was financed with available cash on hand. The Company sold its Boesendorfer piano subsidiary, located in Vienna, Austria, to BAWAG-Bank of Austria during the third quarter of fiscal year 2002. Included in the fiscal year 2002 Condensed Consolidated Statement of Income is an $8.2 million after tax gain on the sale of the subsidiary, which increased earnings per diluted share by $0.22. The pre-tax gain recognized in Other-net was $15.4 million. Indirect expenses relating to the sale recognized in Selling, General and Administrative Expense amounted to $5.3 million. Income taxes amounted to $1.9 million. During the fourth quarter of fiscal year 2001, the Company announced a restructuring plan designed to more closely align its operating capabilities and capacities with changing customer and market requirements and current economic conditions. The plan included consolidating manufacturing facilities and processes, and scaling capacities at other facilities. Activities outlined in the restructuring plan began in late fiscal year 2001 and were substantially complete at June 30, 2002. Fiscal Year 2001 Charges The Company recognized pre-tax restructuring charges of $25.7 million in fiscal year 2001 when the restructuring was announced. The charges consisted of $2.6 million for employee transition and other employee costs, $11.5 million for asset write-downs, $7.5 million for goodwill write-offs, $3.4 million for plant closure and other exit costs, and $0.7 million (recorded in cost of goods sold) for inventory write-downs. The net income impact of fiscal year 2001 restructuring charges and other charges unrelated to the restructuring discussed below was $19.7 million. In addition to restructuring, during the fourth quarter of fiscal year 2001, the Company recorded a pre-tax charge of $2.7 million for goodwill impairment within the Electronic Contract Assemblies Segment unrelated to the above described restructuring. This charge is included in the Restructuring and Other Expense line item on the Company's fiscal year 2001 Condensed Consolidated Statement of Income. Fiscal Year 2002 Charges During fiscal year 2002, the Company recorded additional pre- tax restructuring costs of $0.9 million as it successfully executed the restructuring plan announced in the prior year. The fiscal year 2002 charges consist of facility consolidation costs of $1.4 million, additional asset write-downs of $0.6 million, employee transition costs of $0.1 million, and $1.2 million income as adjustments to the original cost estimates. The net income impact of fiscal year 2002 restructuring costs was $0.3 million. Reserves — At June 30, 2002, a total of $2.6 million of restructuring liabilities related to the June, 2001 restructuring plan remained on the Condensed Consolidated Balance Sheet. The restructuring actions are substantially complete and the reserve balance appears adequate to cover remaining committed restructuring actions. 18 Take A Closer Look Five-Year Selected Financial Data Operations (Amounts in Thousands, Except for Per Share Data and Number of Employees) Net Sales: 2002 2001 2000 1999 1998 Year Ended June 30 Furniture and Cabinets Electronic Contract Assemblies Unallocated Corporate Total Net Sales 63% $ 736,187 37% 436,248 69 0% $1,172,504 100% 69% $ 871,835 31% 389,252 0% 84 $1,261,171 100% 70% $ 860,721 30% 367,610 81 0% $1,228,412 100% 70% $ 795,364 30% 335,853 0% 44 $1,131,261 100% 69% $ 729,513 31% 326,075 36 0% $1,055,624 100% Cost of Sales Gross Profit Selling, General and Administrative Expenses Restructuring and Other Expense Operating Income Other Income, Net Income Before Taxes on Income Taxes on Income 903,666 268,838 237,512 897 30,429 21,176 51,605 17,105 968,918 292,253 243,843 27,695 20,715 6,206 26,921 10,338 911,884 316,528 249,406 – 67,122 7,280 74,402 25,940 812,829 318,432 240,851 – 77,581 14,793 92,374 32,649 756,203 299,421 226,945 – 72,476 14,951 87,427 32,400 Net Income Earnings Per Share: Basic: Class A Class B Diluted: Class A Class B Average Shares Outstanding: Basic Diluted Financial Condition Assets: Current Assets Property and Equipment, net Capitalized Software and Other Assets Total Assets Liabilities: Current Liabilities Long-Term Debt, less Current Maturities Deferred Income Taxes and Other Total Liabilities Share Owners’ Equity Total Liabilities and $ 34,500 $ 16,583 $ 48,462 $ 59,725 $ 55,027 $ $ $ $ 0.89 0.91 0.89 0.91 38,038 38,068 $ $ $ $ 0.41 0.43 0.41 0.43 39,093 39,151 2002 2001 $ 364,157 236,176 73,779 $ 674,112 $ 175,973 2,291 43,360 221,624 $ 381,487 241,952 55,545 $ 678,984 $ 200,573 3,320 32,667 236,560 $ $ $ $ 1.19 1.21 1.19 1.21 40,234 40,349 June 30 2000 $ 413,520 248,210 61,921 $ 723,651 $ 223,395 2,599 29,130 255,124 $ $ $ $ 1.46 1.48 1.45 1.47 40,624 40,839 $ $ $ $ 1.32 1.33 1.31 1.32 41,417 41,814 1999 1998 $ 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 25,949 181,015 452,488 442,424 468,527 464,277 448,623 Share Owners’ Equity $ 674,112 $ 678,984 $ 723,651 $ 661,386 $ 629,638 Other Financial Data: Current Ratio Working Capital Return on Capital Capital Investments Long-Term Debt as Percent of Share Owners’ Equity Book Value Per Share of Common Stock Outstanding Average Number of Employees Dividends: Total Declared Per Share Dividends Declared: Class A Class B 2.1:1 $ 188,184 7.1% 1.9:1 $ 180,914 3.4% 1.9:1 $ 190,125 9.8% 2.3:1 $ 217,777 12.3% 2.7:1 $ 259,727 11.9% $ 55,947 $ 59,260 $ 71,454 $ 102,541 $ 48,672 0.5% 0.8% 0.6% 0.4% 0.4% $ 11.89 9,534 $ 11.32 10,885 $ 11.65 10,088 $ 11.43 9,884 $ 10.83 9,198 $ 24,063 $ 24,643 $ 25,383 $ 25,643 $ 24,812 $ $ 0.62 0.64 $ $ 0.62 0.64 $ $ 0.62 0.64 $ $ 0.62 0.64 $ 0.58875 0.605 $ 2002 Kimball International, Inc. Summary Annual Report 19 Board of Directors Douglas A. Habig* Chairman of the Board, Chief Executive Officer Director 29 years James C. Thyen* President, Director 21 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 46 years Ronald J. Thyen* Senior Executive Vice President, Operations Officer, Assistant Secretary Director 29 years John T. Thyen Senior Executive Vice President Director 12 years Brian K. Habig Human Resources Manager, flexcel–Danville Director 10 years Jack R. Wentworth+ # Arthur M. Weimer Professor Emeritus of Business Administration, Indiana University Director 18 years Alan B. Graf, Jr.+ # Executive Vice President and Chief Financial Officer, FedEx Corporation Director 6 years Christine M. Vujovich+ # Vice President, Environmental Policy and Product Strategy, Cummins, Inc. Director 8 years Polly B. Kawalek+ # Senior Vice President and President, U.S. Foods, Quaker Foods and Beverages Director 5 years Harry W. Bowman+ # Former President and Chief Executive Officer of The Stiffel Company Director 2 years * Member of the Executive Committee of the Board + Member of the Audit Committee of the Board # Member of the Compensation Committee of the Board Officers Corporate Officers Randall L. Catt Executive Vice President, Human Resources Donald D. Charron Executive Vice President, President, Kimball Electronics Group J. Brent Elliott Executive Vice President, President, flexcel John H. Kahle Executive Vice President, General Counsel, Secretary P. Daniel Miller Executive Vice President, President, Kimball Office Group Robert F. Schneider Executive Vice President, Chief Financial Officer, Treasurer Gary W. Schwartz Executive Vice President, Chief Information Officer Barry L. Cook Vice President, President, Raw Materials Mona K. Hoffman Vice President, General Manager, National Office Furniture T. Randall Iles Vice President, General Manager, Kimball Office Furniture R. Gregory Kincer Vice President, Business Development, Assistant Treasurer 20 Take A Closer Look Larry J. Knust Vice President, Furniture Operations, flexcel George W. Manz Vice President, General Manager, Transwall Gregory W. Kuper Vice President, Asian Operations, flexcel Ronald J. Sermersheim Vice President, Environmental, Health & Safety Roy W. Templin Vice President, Finance, Chief Accounting Officer Dean M. Vonderheide Vice President, Continuous Improvement and Innovation, flexcel Domestic Subsidiary Officers Stephen B. Ashman Vice President, Global Supply Chain Management, flexcel J. Keith Beatty Vice President, Strategic Operations Development, flexcel Gary L. Beckman Vice President, Quality Manager, flexcel William N. Dykema Vice President, General Manager, Kimball Lodging Group Jeffrey L. Fenwick Vice President, Marketing, flexcel Mark Phillips Vice President, Northeast Sales Manager, Kimball Office Furniture Stanley C. Sapp Vice President, General Manager, Kimball Home Furniture Michael K. Sergesketter Vice President, Chief Financial Officer, Kimball Electronics Group Christopher J. Thyen Vice President, Emerging Growth Opportunities, flexcel Spiro Vamvakas Vice President, European Operations, Kimball Electronics Group Don W. Van Winkle Vice President, Chief Finance and Administrative Officer, Kimball Office Group Scott D. Zinn Vice President, General Sales Manager, Kimball Office Furniture Foreign Subsidiary Managers Tosak Chobpanich Managing Director, Kimball Electronics Thailand, Ltd. Mario Piratello General Manager, Kimco S.A. de C.V. Dirk H. Manning Vice President, Western Sales Manager, Kimball Office Furniture Zygmunt Witort General Manager, Kimball Electronics Poland, Sp. Zo. o. Other Corporate Data Kimball International, Inc. and Subsidiaries Dividends: During fiscal year 2002 dividends declared were $24.1 million or $0.62 per share on Class A Common Stock and $0.64 per share on Class B Common Stock. The dividends by quarter for 2002 compared to 2001 are as follows: Transfer Agent and Registrar of the Class A and B Common Stock: Share Owners with questions concerning address changes, dividend checks, registration changes, lost share certificates or transferring shares may contact: First Quarter Second Quarter Third Quarter Fourth Quarter Total Dividends 2002 2001 Class A Class B Class A Class B $0.155 $0.16 $0.155 $0.16 $0.155 $0.16 $0.155 $0.16 $0.155 $0.16 $0.155 $0.16 $0.155 $0.16 $0.155 $0.16 $0.64 $0.62 $0.64 $0.62 Share Owners: On June 30, 2002, the Company’s Class A Common Stock was owned by approximately 640 Share Owners of record and the Company’s Class B Common Stock was owned by approximately 2,190 Share Owners of record, of which approximately 270 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: KBALB First Quarter Second Quarter Third Quarter Fourth Quarter 2002 Low High $16.290 $11.840 $15.600 $10.540 $17.150 $14.150 $14.150 $17.760 2001 Low High $18.313 $14.500 $18.000 $13.875 $15.813 $13.375 $16.250 $12.438 Annual Meeting: The annual meeting of Share Owners will be held at 9:30 a.m. Eastern Standard Time on October 22, 2002, 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 Robert F. Schneider, Executive Vice President, Chief Financial Officer and Treasurer at our corporate headquarters. Design: Black & White Design, Louisville, Kentucky National City Bank Corporate Trust Operations PO Box 92301 Cleveland, OH 44193-0900 Phone: (800) 622-6757 TDD Line: (800) 622-5571 E-Mail Address: shareholder.inquiries@nationalcity.com Analyst Contact: Financial analysts with questions concerning the Company may contact Robert F. Schneider, Executive Vice President, Chief Financial Officer and Treasurer at our corporate headquarters. Share Owner Contact: Share Owners with general questions concerning the Company may contact John H. Kahle, Executive Vice President, General Counsel, Secretary at our corporate headquarters. All members of management welcome suggestions about the Company and its performance. Corporate Headquarters: Kimball International, Inc. 1600 Royal Street Jasper, Indiana 47549-1001 (812) 482-1600 (800) 482-1616 (Toll Free) (812) 482-8500 (TDD for Hearing Impaired) Internet Address: Additional information on Kimball International is available at www.kimball.com on the internet. Private Securities Litigation Reform Act of 1995: This summary 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. In Tribute Thomas L. Habig JUNE 18, 1928 - MAY 13, 2002 “Tom made such a positive impact on so many lives through his business leadership and charitable work in so many communities. As he wished, many of his good works will never be publicly known.” – Jim Thyen, President Kimball International, Inc. Mr. Habig dedicated his career to helping build the Company founded by his father into what is today a multinational corporation: Kimball International. He had the longest active tenure of any employee of the Company, 50 years, and served until the time of his death as Vice Chairman of the Board of Directors for Kimball International. Sales, Manufacturing and Service Operations Furniture and Cabinets Segment Showrooms & Service Centers New York, Chicago, Boston, Los Angeles, San Francisco, Denver, Atlanta, Dallas, High Point, Jasper, and London Product display and regional distribution Kimball Home Furniture Jasper, Indiana Residential furniture Kimball Lodging Group Jasper, Indiana Lodging and healthcare furniture Kimball Office Furniture Jasper, Indiana High-end office furniture casegoods, systems, seating, and filing sales Kimball Store Fixtures Boca Raton, Florida Store display fixtures Kimball United Kingdom London, England Office furniture casegoods, systems, seating, and filing sales National Office Furniture Jasper, Indiana Mid-market office furniture casegoods, seating and filing sales Transwall West Chester, Pennsylvania Floor-to-ceiling systems Corporate Logistics Services Jasper, Indiana Transportation and fleet operations Product Design & Research Center Jasper, Indiana Product research, design, development, and testing flexcel–Jasper 15th Street Jasper, Indiana Office furniture systems flexcel–Batesville Batesville, Mississippi Metal stampings and assemblies and healthcare beds flexcel–Post Falls Post Falls, Idaho Office furniture casegoods, systems and filing Heritage Hills Santa Claus, Indiana and Nashville, Tennessee TV and audio cabinets, TV stands and office furniture Jasper Plastics Jasper, Indiana Molded polyurethane, polyester and elastomers flexcel–Jasper 16th and 30th Streets Jasper, Indiana Lodging and healthcare casegoods, contract furniture and components flexcel–Jasper Cherry Street Jasper, Indiana Flat, molded, postformed, and plastic-faced plywood, banded flakeboard, and veneer faces flexcel–Jasper 11th Avenue Jasper, Indiana Office, residential, lodging, and healthcare seating flexcel–Danville Danville, Kentucky Office, residential, lodging, and healthcare seating Heritage Hills–Juarez Juarez, Mexico and El Paso, Texas Projection TV cabinets Heritage Hills–Mexicali Mexicali, Mexico Projection TV cabinets flexcel–Borden Borden, Indiana Office furniture casegoods flexcel–Salem Salem, Indiana Office furniture casegoods flexcel–Fordsville Fordsville, Kentucky Office furniture casegoods flexcel–West Baden West Baden, Indiana Pool tables Evansville Veneer Chandler, Indiana Veneer Indiana Hardwoods Chandler, Indiana, Gordonsville, Tennessee and Cloverport, Kentucky Lumber Vista Wood Products Greensburg, Kentucky and Lafayette, Tennessee Dimension wood and furniture components Electronic Contract Assemblies Segment Kimball Electronics Jasper Jasper, Indiana Electronic assemblies Kimball Electronics Auburn Auburn, Indiana Electronic assemblies Kimball Microelectronics Valencia, California Electronic assemblies Kimball Electronics Poland Poznan, Poland Electronic assemblies Kimball Electronics Thailand Laem Chabang, Thailand Electronic assemblies Kimco, S.A. de C.V. Reynosa, Mexico and McAllen, Texas Electronic assemblies Elmo Semiconductuers SARL Mantes La Jolie, France Electronic assemblies Administrative, Shared, and Support Services Corporate Headquarters Jasper, Indiana Executive, administrative and sales offices, and corporate support services Education Center & Corporate Showroom Jasper, Indiana Training and product display Kimball Travel and Guest Services Huntingburg and Jasper, Indiana Flight services and guest relations Kimball Kids Jasper, Indiana Employee child development center Kimball International, Inc. 1600 Royal Street Jasper, IN 47549 812-482-1600 812-482-8500 TDD www.kimball.com 

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