-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KnDcHbEgSgPtEwTB4gKWJ+y28sJnds5T9mWQ7H95ixnqpJzxrsT8B//mjLrem0yw uI6tH7FfuYMYaUsUIGyESQ== 0000055772-99-000007.txt : 19990921 0000055772-99-000007.hdr.sgml : 19990921 ACCESSION NUMBER: 0000055772-99-000007 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990920 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIMBALL INTERNATIONAL INC CENTRAL INDEX KEY: 0000055772 STANDARD INDUSTRIAL CLASSIFICATION: OFFICE FURNITURE [2520] IRS NUMBER: 350514506 STATE OF INCORPORATION: IN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-03279 FILM NUMBER: 99714088 BUSINESS ADDRESS: STREET 1: 1600 ROYAL ST CITY: JASPER STATE: IN ZIP: 47549 BUSINESS PHONE: 8124821600 MAIL ADDRESS: STREET 1: 1600 ROYAL STREET STREET 2: 1600 ROYAL STREET CITY: JASPER STATE: IN ZIP: 47549 FORMER COMPANY: FORMER CONFORMED NAME: JASPER CORP DATE OF NAME CHANGE: 19740826 10-K405 1 1999 FORM 10-K405 FOR KIMBALL INTERNATIONAL, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004 (mark one) FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______. Commission file number 0-3279 KIMBALL INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Indiana 35-0514506 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1600 Royal Street, Jasper, Indiana 47549-1001 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (812) 482-1600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered Class A Common Stock, par value $.05 per share None Class B Common Stock, par value $.05 per share NASDAQ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The number of shares outstanding of the Registrant's common stock as of September 8, 1999 were: Class A Common Stock - 14,318,177 shares Class B Common Stock - 26,065,320 shares Class A Common Stock is not publicly traded and, therefore, no market value is available. The aggregate market value of the Class B Common Stock held by non-affiliates, as of September 8, 1999, was $443.4 million, based upon an estimate that 85.2% of Class B Common Stock is held by non-affiliates. -1- Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on October 19, 1999, are incorporated by reference into Part III. The exhibit index is located on page 54. -2-
TABLE OF CONTENTS KIMBALL INTERNATIONAL, INC. FORM 10-K YEAR ENDED JUNE 30, 1999 Pages PART I. Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 5-12 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 13-14 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 14 Item 4. Submission of Matters to Vote of Security Holders . . . 15 PART II. Item 5. Market for the Registrant's Common Stock and Related Share Owner Matters . . . . . . . . . . . . . . 16 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 18-24 Item 7a. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . . . . . 25 Item 8. Financial Statements and Supplementary Data . . . . . . 26-48 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures . . . . . . . . . . 49 PART III. Item 10. Directors and Executive Officers of the Registrant . . . 49 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 49 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . 49 Item 13. Certain Relationships and Related Transactions . . . . . 49 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 50 Signatures . . . . . . . . . . . . . . . . . . . . . . . 51-52
-3- Forward-Looking Statements This document may contain certain forward-looking statements. These are statements made by management, using their best business judgement based upon facts known at the time of the statements or reasonable estimates, about future results, events and the like. They should not be construed as a guarantee that such results or events will, in fact, occur or be realized. The statements may be identified by specific reference or by the use of words such as "believes", "anticipates", "expects", "intends", "projects" and similar expressions. Such statements involve risk, uncertainty, and their ultimate validity is affected by a number of factors, both specific and general. Specific risk factors may be noted along with the statement itself. However, other more general risks and uncertainties which are inherent in any forward-looking statement include, but are not necessarily limited to changes in: - - Demand for the Company's product - - Relationships with strategic customers, suppliers and product distributors - - Competition in each of the Company's product lines - - Domestic and International business legislation and regulation - - Technology - - General economic conditions - - Cost and/or assumptions underlying strategic decisions - - Operational capabilities due to natural disasters or other similar unforeseen events This listing of factors is NOT intended to include ALL potential risk factors. The Company makes no commitment to update these factors or to revise any forward-looking statements for events or circumstances occurring after the statement is issued. At any time when the Company makes forward-looking statements, it desires to take advantage of the "safe harbor" which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. -4- PART I Item 1. - Business As used herein, the term "Company" refers to Kimball International, Inc., the Registrant, and its subsidiaries unless the context indicates otherwise. The Company was incorporated in Indiana in 1939, and present management assumed control in 1950. The corporate headquarters is located at 1600 Royal Street, Jasper, Indiana. The Company adopted Financial Accounting Standards Board Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, for its fiscal year 1999 reporting. This new standard requires the presentation of segment information consistent with information utilized by management for purposes of allocating resources and assessing performance. Upon adopting the new standard, aligning the requirements of the standard with the Company's operational and organizational structure, the Company now discloses two reportable segments, the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment. The previous industry segment, Processed Wood Products and Other, has been integrated into the Furniture and Cabinets reportable segment, consistent with the aggregation criteria outlined in Statement No. 131. The Company utilizes a substantial degree of vertical integration. It does not consider seasonal fluctuations to be significant. Production is carried on in facilities located in the United States, Mexico, Austria and France. In the United States, the Company has facilities and showrooms in 16 states. Sales by segment, after elimination of intersegment sales, for each of the three years in the period ended June 30, 1999 are as follows:
SALES BY SEGMENT (dollars in thousands) 1999 1998 1997 Furniture and Cabinets $ 771,528 $ 706,679 $676,218 Electronic Contract Assemblies 335,395 325,602 315,816 Unallocated Corporate 44 36 15 --------- -------- ------- Total $1,106,967 $1,032,317 $992,049
Financial information by segment and geographic area for each of the three years in the period ended June 30, 1999 is included in Note 14, Segment and Geographic Area Information, of the Notes to Consolidated Financial Statements, which can be found in Item 8, and is incorporated herein by reference. -5- Segments FURNITURE AND CABINETS Historical Overview Since 1950, the Company has produced wood furniture and cabinets, which continue to be a significant part of the business. Included in this segment are sales of office furniture which has been manufactured and sold under the Kimball (registered trademark) trade name since 1970. In 1992, the Company expanded its product offering with the acquisition of Harpers, a metal office furniture manufacturer. Harpers has marketed metal office furniture under the Harpers (registered trademark) trade name since 1982. In fiscal year 1999, the Company further expanded its office furniture product offering with the acquisition of Transwall, a manufacturer of stackable panel systems and floor-to-ceiling products. Kimball and Harpers office furniture systems have broad market application, while Transwall office furniture systems are focused more toward technical applications where wiring capabilities need to be flexible. The Kimball and National (registered trademark) casegoods and seating lines are focused to the wood segment of the office furniture industry. The Cetra (registered trademark) and Footprint (registered trademark) lines of Kimball office furniture systems provide flexible configurations and help architects and designers optimize space planning by utilizing Traxx (registered trademark), which increases space efficiency and eliminates the need for a secondary support structure by using existing walls. The Interworks (registered trademark) line of Harpers office furniture systems is designed to integrate easily with existing Kimball systems products and provide more flexibility and functionality in office design. The Corporate Wall line of Transwall office furniture combines the privacy and security of a full height partition with the versatility of an open plan system. Transwall's Reasons line of office furniture systems provide interchangeable panels that stack vertically and allow the flexibility of stacking from floor to ceiling. The Company has expanded its sales and manufacture of furniture over the years to include home furniture, lodging and healthcare furniture and most recently store fixtures through the acquisition of Southeast Millwork in fiscal year 1999. Other products within this segment are original equipment manufacturer (OEM) furniture and cabinets, including cabinets for televisions, audio speakers, television stands, and other wood related products manufactured on a contract basis and sold to leading manufacturers in the home entertainment and home furniture industries. Also included in the Furniture and Cabinets segment are sales of furniture component products including unprocessed lumber, dimension lumber, veneer, wood panels and cabinet doors to both internal and external customers. The Company also manufactures various miscellaneous products including plywood, polyurethane and polyester molded products and stamped metal parts and sells them to both internal and external customers. Through a predecessor acquired in 1966, L. Bosendorfer of Vienna, Austria, the Company has been engaged in acoustical piano manufacturing and sales since 1828. The prestigious Bosendorfer line of high-end pianos is sold and recognized worldwide. The Company was also engaged in the manufacture and sales of a domestically produced piano product line since 1857 through a predecessor, W. W. Kimball Co., acquired in 1959, until cessation of this product line in 1996. Services of the Company's trucking fleet are also sold to unaffiliated customers. -6- Locations Office, home, lodging and healthcare furniture, store fixtures and OEM furniture and cabinets and related products, which make up the largest part of this segment, are produced at twenty-three plants, sixteen located in Indiana and one each in Kentucky, Idaho, Pennsylvania, North Carolina, Florida, Mississippi and Mexico. Nine of the twenty-three plants presently producing furniture and cabinets could interchange production between these two basic products, if needed. In 1999, the Company purchased a manufacturing facility in Mexico to produce television cabinets and to provide additional capacity for other manufacturing operations in the future. The Company also owns and operates three sawmills, three lumber yards, two dimension lumber plants, two plants which manufacture contract wood products and a sliced veneer plant. The Company owns a fourth sawmill which is currently idle. These facilities are located in Indiana, Tennessee and Kentucky. Acoustical pianos are produced at a facility located in Austria. The Company sold its piano key and action production facility located in the United Kingdom during fiscal year 1997. The Company sold its period reproduction furniture production facility located in Alabama, and its carbide cutting tools operation located in Indiana during fiscal year 1999. A facility in Jasper, Indiana houses an Education Center for dealer and employee training, the Product Design and Research Center, and a Corporate showroom for product display. In the United States, showrooms are maintained in eleven cities for office furniture and two cities for home furniture. In addition, office furniture is maintained in showrooms in London, England and Toronto, Canada. In certain showrooms other Company products are also on display. A piano showroom and service facility is located in Vienna, Austria. Marketing Channels Kimball, National, and Harpers brands of office furniture are marketed through Company salespersons to office furniture dealers, wholesalers, rental companies and catalog houses throughout North America and England. Transwall brands of office furniture are marketed through Company salespersons and independent sales representatives to office furniture dealers throughout North America. Home furniture is generally marketed through independent sales representatives to independent furniture dealers throughout the United States. Lodging and healthcare furniture is marketed through independent manufacturers' representatives. Store fixtures are generally sold directly to retail businesses. Cabinets and contract furniture are generally marketed through Company salespersons. The Company's marketing strategy facilitates the sale of related office furniture, residential furniture and upholstery product within the lodging and healthcare channels. Furniture component products manufactured by the Company are used internally as well as sold to others. Products sold to others are marketed principally to furniture manufacturers, primarily through Company personnel. Bosendorfer (registered trademark) pianos are marketed through Company salespersons and agents to independent dealers. -7- Major Competitive Factors The major competitive factors in the office furniture industry are price in relation to quality and appearance, the utility of the product, customer lead time, and ability to respond to requests for special and non-standard products. Certain market segments are more price sensitive than others, but all segments expect on-time, damage-free delivery. The Company maintains sufficient finished goods inventories to be able to offer prompt shipment of certain lines of Kimball, National and Harpers office furniture to domestic dealers, thereby permitting the dealers to maintain smaller inventories. Many products are shipped through the Company's delivery system, which the Company believes offers it the ability to reduce damage to shipments, enhance scheduling flexibility, and improve the capability for on-time deliveries, which are all key competitive factors in the office furniture industry. The lodging and healthcare furniture markets compete on quality, performance history, on-time delivery, customer lead time and price. The Company offers its own line of lodging and healthcare furniture as well as producing contract lodging and healthcare furniture to customers' specifications. The major competitive factors in the store fixtures industry are quality, customer lead time, price, service and installation. Store fixtures are produced to customer specifications from specific orders. The major competitive factors in the home furniture, cabinet and OEM product markets are quality, performance history, price, on-time delivery and customer lead time. Contract home furniture, television and audio speaker cabinets, and television stands, are produced to customer specifications from specific orders and finished goods inventories are generally small, consisting primarily of goods awaiting shipment to customers. The Company's own lines of home furniture are offered for sale on an immediate ship basis. Competitive factors in the furniture component products market are price, quality, availability, on-time delivery and customer lead time. The major competitive factors in the high-end acoustical piano industry are quality, acoustical tone and appearance. Competitors There are numerous manufacturers of office, home, lodging, and healthcare furniture competing within the marketplace. The Company believes, however, that there are a limited number of relatively large producers of wood office and lodging furniture, of which the Company believes that it is one of the larger in net sales. In many instances wood office furniture competes in the market with metal office furniture. Based on available industry statistics, metal office furniture has a larger share of the total office furniture market. The Company has positioned Harpers and Transwall as vehicles to strengthen its market share in the non-wood segment of the industry. -8- There are many manufacturers of both home furniture and store fixtures and the Company does not have a significant share of either of these markets. The Company believes that it is one of the largest independent domestic manufacturers of television and audio speaker cabinets, but certain manufacturers of televisions and audio speakers, including some customers of the Company, produce cabinets for their own use. For furniture and cabinet components, the Company competes with many integrated forest and specialty hardwood product companies and does not have a significant share of the market for such products. The high-end acoustical piano industry is characterized by a limited number of competitors, including one major competitor. Raw Material Availability Many components used in the production of furniture and cabinets are manufactured internally within the segment, including processed wood parts, metal stamped parts and certain polyurethane and polyester molded plastics, all of which are generally readily available. Other raw materials used in the production of wood furniture and cabinets are generally readily available. Certain metal components, such as precision slide mechanisms, used in various wood office furniture products are purchased in a pre-fabricated stage with additional fabrication and finishing performed by the Company. Raw materials used in the manufacture of metal office furniture, primarily rolled steel and aluminum, are readily available in the world market. The Company is beginning to increase its purchases from Asia for certain component parts for home furniture. Raw materials used in the manufacture of store fixtures are readily available. Certain pre-fabricated components used in the Company's piano line are available from a limited number of sources, although no interruptions in supplies have been experienced. -9- ELECTRONIC CONTRACT ASSEMBLIES The Company entered the electronic contract assemblies market in 1985 with knowledge acquired from the production of electronic keyboards for musical instruments, which were first produced in 1963. Electronics and electro-mechanical products (electronic assemblies) are sold on a contract basis and produced to customers' specifications. The Company expanded its capabilities to include semiconductor DIE processing, design, testing and packaging through an acquisition in 1996. Production takes place at four manufacturing facilities located in Indiana, California, Mexico, and France. One additional facility located in Indiana was utilized for warehousing space in fiscal year 1999 and will be converted to a manufacturing facility in fiscal year 2000, while another facility in Texas is utilized to receive inbound materials for the Mexican facility. The Company expanded its Mexican facility in fiscal 1998, which more than doubled production space at that location. The Indiana facility assembles electronic components and products for sale to outside customers. The facility located in Mexico assembles electronic components and other electronic products for sale to outside customers. The facility in California assembles product and also provides semiconductor DIE processing, design, testing and packaging services. The French facility provides DIE processing and assembly services for the European market. Engineering design and support services are also provided to the manufacturing facilities within this segment and to outside customers through the Kimball Electronics Design Services company, which is based in Indiana. Products are normally marketed by Company salespersons and independent sales representatives on a contract basis. Contract electronic assemblies are manufactured based on specific orders, generally resulting in a small amount of finished goods consisting primarily of goods awaiting shipment to specific customers. Raw materials are normally acquired for specific customer orders and may or may not be interchangeable among products. Inherent risks associated with rapid technological changes within this contract industry are mitigated by procuring raw materials, for the most part, based on firm orders. Key competitive factors in the electronic contract assemblies market are competitive pricing on a global basis, quality, engineering design services, production flexibility, reliability of on-time delivery, customer lead time, testing, and global presence. Growth in the electronic contract assemblies industry is created through the proliferation of electronic components in today's advanced products along with the continuing trend of OEM's in the electronic industry to subcontract the assembly process to companies with a core competency in this area. The electronics industry is very competitive as numerous manufacturers of contract electronic assemblies compete for business from existing and potential customers. The Company does not have a significant share of the market for such products. Raw materials utilized in the manufacture of contract electronic products are generally readily available from both domestic and foreign sources, although from time to time the industry experiences allocations of certain components due to supply and demand forces, combined with rapid product life cycles of certain components. While the total electronic assemblies market has broad applications, the Company's customers are concentrated in the transportation (automobiles and light trucks), computer, telecommunications, defense, industrial controls, and medical industries. Included in this segment are sales of electronic assemblies to one customer, Lucas Varity, PLC, which accounted for approximately 16% of consolidated net sales in fiscal year 1999, compared to 16% and 15% in fiscal years 1998 and 1997, respectively. In May 1999, TRW, Inc. acquired Lucas Varity. The success of this segment is contingent on the success of our customers' products. This segment's investment capital carries a higher degree of risk than the Company's other segments due to rapid technological changes, the contract nature of this industry and the importance of sales to one customer. -10- OTHER INFORMATION BACKLOG At June 30, 1999, the aggregate sales price of production pursuant to worldwide open orders, which may be canceled by the customer, were $272 million as compared to $254 million at June 30, 1998. BACKLOG BY SEGMENT
(dollars in millions) June 30, 1999 June 30, 1998 Furniture and Cabinets $113 $125 Electronic Contract Assemblies 159 129 --- --- Total Backlog $272 $254 Open orders as of June 30, 1999 are expected to be filled within the next fiscal year. Open orders generally may not be indicative of future sales trends. Segment data has been adjusted to reflect the change in segments resulting from the adoption of Financial Accounting Standards Board Statement No. 131, Disclosures about Segments of an Enterprise and Related Information.
RESEARCH, PATENTS, AND TRADEMARKS Research and development activities include the development of manufacturing processes, major process improvements, new product development, information technology initiatives and electronic, wood and plastic technologies.
(dollars in millions) fiscal years ended June 30, 1999 1998 1997 Research and Development Costs $11.6 $13.1 $11.5
The Company owns the Kimball (registered trademark) trademark, which it believes is significant to its office, electronic, lodging, healthcare and home furniture businesses, and owns the following trademarks which it believes are significant to its furniture business only: National (registered trademark), Cetra (registered trademark), Footprint (registered trademark), Artec (registered trademark), Traxx (registered trademark), Harpers (registered trademark) and Interworks (registered trademark); and to the piano business only: Bosendorfer (registered trademark). The Company also owns certain patents and other trademarks and has certain other patent applications pending, which in the Company's opinion are not significant to its business. - 11- ENVIRONMENT AND ENERGY MATTERS The Company's operations are subject to various foreign, federal, state and local laws and regulations with respect to environmental matters. The Company believes that it is in substantial compliance with present laws and regulations and that there are no material liabilities related to such items. The Company is dedicated to excellence, leadership and stewardship in matters of protecting the environment and communities in which the Company has operations. The Company believes that continued compliance with foreign, federal, state and local laws and regulations which have been enacted relating to the protection of the environment will not have a material effect on its capital expenditures, earnings or competitive position. Management believes capital expenditures for environmental control equipment during the two fiscal years ending June 30, 2001, will not represent a material portion of total capital expenditures during those years. The Company's manufacturing operations require significant amounts of energy, including natural gas and oil. Federal and state statutes and regulations control the allocation of fuels available to the Company, but to date the Company has experienced no interruption of production due to such regulations. In its wood processing plants, significant energy requirements are satisfied internally by the use of the Company's own wood waste products. EMPLOYEES
June 30, 1999 June 30, 1998 United States 7,765 7,807 Foreign Countries 2,138 1,749 ----- ----- Total Full Time Employees at June 30 9,903 9,556
The Company has no collective bargaining agreements with respect to its domestic employees. All of the Company's foreign operations are subject to collective bargaining arrangements. The Company believes that its employee relations are good. -12- Item 2. - Properties The location and number of the Company's major manufacturing, warehousing, and service facilities, including the executive and administrative offices, as of June 30, 1999, are as follows:
-------------- Number of Facilities ------------- Furniture Electronic and Contract Unallocated Cabinets Assemblies Corporate Total Indiana 27 2 6 35 Kentucky 3 3 Tennessee 3 3 California 1 1 2 Pennsylvania 1 1 North Carolina 1 1 Florida 1 1 Idaho 1 1 Mississippi 1 1 Texas 1 1 Austria 2 2 France 1 1 Mexico 2 1 3 -- -- -- -- Total Facilities 43 6 6 55 These facilities occupy approximately 7,945,000 square feet in aggregate, of which approximately 7,289,000 square feet are owned in fee and 656,000 square feet are leased. Square footage of these facilities are summarized as follows: ------------- Approximate Square Footage ------------- Furniture Electronic and Contract Unallocated Cabinets Assemblies Corporate Total Fee 6,561,000 470,000 258,000 7,289,000 Leased 507,000 89,000 60,000 656,000 --------- ------- ------- --------- Sub-total 7,068,000 559,000 318,000 7,945,000 Sub-leased -0- -0- -0- -0- --------- ------- ------- --------- Total 7,068,000 559,000 318,000 7,945,000 Including certain leased furniture showroom areas excluded from the above listing, total facilities approximate 8.1 million square feet. (See Note 5 - Lease Commitments of the Notes to Consolidated Financial Statements in Item 8, for additional information concerning leases.) Segment data has been adjusted to reflect the change in segments resulting from the adoption of Financial Accounting Standards Board Statement No. 131, Disclosures about Segments of an Enterprise and Related Information.
-13- Included in Unallocated Corporate are executive, national sales and administrative offices, an energy center for the Kimball Industrial Park consisting of 3 trifuel boilers, and a child development facility for employees' children. Properties are generally utilized at normal capacity levels on a single shift basis, with certain facilities operating a second shift, while other facilities utilize a reduced second or third shift to meet increased demand levels. At times, certain facilities were not utilized at normal capacity levels during the fiscal year, because of declines in sales. The energy center is not operating at full capacity. Significant loss of income resulting from a facility catastrophe would be partially offset by business interruption insurance coverage. Operating leases totaling 656,000 square feet expire from fiscal year 2000-2008, with all leases subject to renewal options. In addition to the above production, warehouse and office properties, the Company has 14 leased showroom facilities totaling 112,000 square feet, in 9 states in the United States, one location in London, England, one location in Vienna, Austria, and one location in Toronto, Canada. The Company owns approximately 27,727 acres of land which includes land where various Company facilities reside, including approximately 26,806 acres generally for hardwood timber reserves, approximately 183 acres of land in the Kimball Industrial Park, Jasper, Indiana (a site for certain production and other facilities, and for possible future expansions), and approximately 60 acres in Post Falls, Idaho, where the Harpers plant is located. Included in the timber reserves acreage is 11,773 acres purchased in fiscal year 1999, which nearly doubled the Company's timberland holdings and provides land for potential expansion of manufacturing facilities. Item 3. - Legal Proceedings The Registrant and its subsidiaries are not parties to any material pending legal proceedings, other than ordinary routine litigation incidental to the business. -14- Item 4. - Submission of Matters to Vote of Security Holders None to report in the 4th quarter of fiscal year 1999 Executive Officers of the Registrant The executive officers of the Registrant as of August 31, 1999 are as follows: (Age as of August 31, 1999)
Office and Officer Name Age Area of Responsibility Since Douglas A. Habig 52 Chairman of the Board of Directors, 1975 and Chief Executive Officer Thomas L. Habig 71 Vice Chairman of the Board of Directors 1955 James C. Thyen 55 President and Director 1974 Ronald J. Thyen 62 Senior Executive Vice President, 1966 Operations Officer, Furniture and Cabinets Segment, and Director John T. Thyen 61 Senior Executive Vice President, 1978 Marketing and Sales, Kimball Consumer Products, Furniture and Cabinets Segment, and Director Gary P. Critser 62 Senior Executive Vice President, 1967 Corporate Secretary, Treasurer, and Director Robert F. Schneider 38 Executive Vice President, Chief Financial 1992 Officer and Assistant Treasurer Donald D. Charron 36 Executive Vice President, and President, 1999 Kimball Electronics Group Executive officers are elected annually by the Board of Directors. Thomas L. Habig and Douglas A. Habig are brothers. James C. Thyen, Ronald J. Thyen and John T. Thyen are brothers. All of the executive officers unless otherwise noted have been employed by the Company for more than the past five years in the capacity shown or some other executive capacity. Robert F. Schneider was appointed to his current position in July 1997, having previously served the company as Vice President and Director of Accounting. Donald D. Charron was employed with Rockwell Automation/Allen Bradley from December 1992 to April 1999, as Operations Manager, Director of Operations, and General Business Manager Electronic Operator Interface.
-15- PART II Item 5. - Market for the Registrant's Common Stock and Related Share Owner Matters Market Prices: The Company's Class B Common Stock trades 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:
------- 1999 ------ ------- 1998 ------ High Low High Low First Quarter. . . . . . . $20.3750 $14.8750 $23.4375 $19.7500 Second Quarter . . . . . . $21.5000 $14.9375 $22.1875 $18.3750 Third Quarter. . . . . . . $20.0625 $14.7500 $23.7500 $17.0000 Fourth Quarter . . . . . . $18.8125 $14.5625 $24.9375 $17.6250 There is no active trading market for the Company's Class A Common Stock.
Dividends: There are no restrictions on the payment of dividends except charter provisions that require on a fiscal year basis, shares of Class B Common Stock are entitled to an additional $0.02 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. During fiscal year 1999 dividends declared were $25.6 million or $.62 per share on Class A Common Stock and $.64 per share on Class B Common Stock. Dividends by quarter for 1999 compared to 1998 are as follows:
------ 1999 ------ ------ 1998 ----- Class A Class B Class A Class B First Quarter. . . . . . . $ .155 $ .16 $ .14375 $ .145 Second Quarter . . . . . . $ .155 $ .16 $ .14500 $ .150 Third Quarter. . . . . . . $ .155 $ .16 $ .14500 $ .150 Fourth Quarter . . . . . . $ .155 $ .16 $ .15500 $ .160 ----- ---- ------- ---- Total Dividends. . . . . . $ .620 $ .64 $ .58875 $ .605
Share Owners: On July 30, 1999, the Company's Class A Common Stock was owned by approximately 650 Share Owners of record and the Company's Class B Common Stock by approximately 2,470 Share Owners of record, of which approximately 390 also owned Class A Common Stock. -16- Item 6. - Selected Financial Data (dollars in thousands, except per share amounts)
-------------- Year Ended June 30, ------------- 1999 1998 1997 1996 1995 Net Sales $1,106,967 $1,032,317 $992,049 $923,636 $895,912 Net Income 59,725 $ 55,027 $ 57,745 $ 45,095 $ 41,439 Earnings Per Share Basic: Class A 1.46 $1.32 $1.39 $1.08 $ .98 Class B 1.48 $1.33 $1.40 $1.08 $ .99 Diluted: Class A 1.45 $1.31 $1.38 $1.07 $ .98 Class B 1.47 $1.32 $1.38 $1.08 $ .99 Total Assets $ 661,386 $ 629,638 $581,583 $538,225 $497,086 Long Term Debt, Less Current Maturities $ 1,730 $ 1,856 $ 2,313 $ 3,016 $ 924 Cash Dividends Per Share: Class A $ .620 $ .58875 $ .530 $ .470 $ .425 Class B $ .640 $ .60500 $ .535 $ .475 $ .430
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 operating 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. Fiscal year 1996 net income was reduced by $1,870,000, or $0.05 per share, for estimated costs associated with exiting sales and production of the Company's domestic wholesale piano product line. -17- Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Net sales of $1,106,967,000 reached record levels in fiscal year 1999, surpassing the prior year by 7%. Net income and Class B diluted earnings per share were $59,725,000 and $1.47, respectively, an increase of 9% over fiscal year 1998 net income. 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 operating 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 Company adopted Financial Accounting Standards Board Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, for its fiscal year 1999 reporting. This new standard requires the presentation of segment information consistent with information utilized by management for purposes of allocating resources and assessing performance. Upon adopting the new standard, aligning the requirements of the standard with the Company's operational and organizational structure, the Company has two reportable segments, the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment. The previous industry segment, Processed Wood Products and Other, has been integrated into the Furniture and Cabinets reportable segment consistent with the aggregation criteria outlined in Statement No. 131. The fiscal year 1998 discussion has been revised to reflect the change in segments. RESULTS OF OPERATIONS 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. Sales and Net Income by Segment (Amounts in millions)
------------ Year Ended June 30 ------------ 1999 1998 1997 Net Sales: Furniture and Cabinets. . . . . . . . . . . . $771.5 $706.7 $676.2 Electronic Contract Assemblies. . . . . . . . 335.4 325.6 315.8 Net Income: Furniture and Cabinets. . . . . . . . . . . . $ 34.6 $ 27.9 $ 32.5 Electronic Contract Assemblies. . . . . . . . 18.2 18.1 19.6
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 manufactured (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. -18- 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 Juarez facility will initially produce projection television cabinets and will provide additional capacity for other manufacturing operations in the future. 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 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. -19- 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 continues 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 the current year 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, Lucas Varity, PLC, which accounted for 16% of consolidated net sales in both fiscal year 1999 and 1998. Sales to this customer represent approximately one half of total sales in the Electronic Contract Assemblies Segment, which has historically carried a higher operating income margin than the Company's other business segment. In May 1999, Lucas Varity was acquired by TRW. This segment's investment capital carries a higher degree of risk than the Company's other segment due to rapid technological changes, 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 has been focused on reducing costs and continues to review activities and processes to assess where costs could further be reduced while continuing to provide 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 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. 1998 DISCUSSION Net sales of $1,032,317,000 for the 1998 fiscal year surpassed 1997 levels on increased sales by both of the Company's segments -- the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment. Net income in 1998 decreased 5% to $55,027,000, from $57,745,000 in 1997. -20- FURNITURE AND CABINETS Fiscal year 1998 net sales in the Furniture and Cabinets Segment, the Company's largest segment, increased 5% over the prior year. A double-digit increase in office furniture sales was partially offset by sales declines in lodging furniture and original equipment manufactured (OEM) furniture and cabinets. The office furniture product line experienced record annual net sales as of fiscal year 1998. Growth was achieved without acquisitions and was distributed across all major product groupings - casegoods, seating, and systems. Increases in net sales resulted primarily from higher volumes. Office furniture sales growth kept pace with the most recent twelve-month industry trend. Price discounting remained a competitive factor in the office furniture industry, resulting in lower operating margins in the year over year comparison. Fiscal year 1998 home furniture product line sales increased in comparison to 1997. Net sales of lodging and healthcare furniture in 1998 declined when compared to 1997. Increased sales in the Company's standard product lines were more than offset by reduced sales of custom-made product. Lower volumes were primarily the result of competitive pricing pressures. In the latter half of the fiscal year, the Company re-evaluated its lodging furniture pricing structure, and initiated a new pricing strategy to offer more competitive pricing. In addition, based upon customer feedback certain products were reengineered which enabled the Company to lower costs without sacrificing customer-defined quality. Outside net sales for the OEM furniture and cabinets product line declined when compared to the prior year, with volume declines in television cabinets and stands and audio speaker cabinets. Sales of OEM cabinets and stands in the home entertainment market were impacted by the relocation of a large customer and its longer than anticipated start up time in the early part of the fiscal year, resulting in lower volumes in 1998. Outside sales of furniture components in 1998 remained relatively flat when compared to the prior year as increased sales of lumber products were offset by a decline in sales of dimension product. In an effort to grow additional outside sales in this segment, the Company invested in additional human resources focused in the sales and marketing area. Net income in the Furniture and Cabinets Segment decreased in 1998 when compared to 1997, despite an increase in sales. Gross profit, as a percent of sales, remained flat with the prior year. Selling, general and administrative expenses rose in 1998 primarily due to increased investments in people and technology, higher product distribution costs, and increased sales-based incentive costs. ELECTRONIC CONTRACT ASSEMBLIES The Electronic Contract Assemblies Segment achieved record net sales as of fiscal year 1998 with an increase of 3% over the prior year. Increased demand for electronic transportation products was partially offset by decreased volumes in computer-related products. Fiscal year 1998 fourth quarter results were unfavorably impacted by the General Motors (GM) labor strike, as the Electronic Contract Assemblies Segment assembles components that are installed in GM vehicles. The Company estimates that the impact resulting from the GM strike was less than 2% of fourth quarter consolidated sales. This segment's investment capital carries a higher degree of risk than the Company's other segment due to rapid technological changes, the contract nature of this industry and the importance of sales to one customer. Included in this segment are sales to one customer, Lucas Varity, PLC, which accounted for 16% and 15% of consolidated sales in fiscal 1998 and 1997, respectively. -21- Net income in 1998 decreased when compared to the prior year. Gross profit, as a percent of sales, decreased as lower material costs due to a product mix shift were more than offset by higher direct labor and overhead costs. Selling and administrative costs increased from one year ago on increased investments in people and technology. The Company continued to build its infrastructure to take advantage of the latest design and production technologies and to support growth opportunities within the segment. CONSOLIDATED OPERATIONS Other income in 1998 increased over the prior year as interest income increased on higher average investment balances. In the third quarter of fiscal year 1998, the Company realized a $616,000 after tax gain, or $0.01 per diluted share, on the sale of a stock investment of which the Company held a minor interest. The Company also recorded a $1.0 million after tax gain, or $0.02 per diluted share, on the sale of real estate in the second quarter of fiscal year 1998. In addition, the prior year includes a $3.8 million pretax loss (no after tax affect) charged to Other - net related to the sale of a foreign subsidiary. The effective income tax rate increased 2.3 percentage points in 1998 primarily due to a $3.8 million tax benefit received on the sale of a foreign subsidiary in the prior year. Excluding this $3.8 million benefit, the effective income tax rate decreased 0.4 percentage point when compared to the prior year primarily the result of a decrease in the state income taxes in fiscal year 1998. Net income and Class B diluted earnings per share of $55,027,000 and $1.32, respectively, in fiscal year 1998, decreased 5% from the prior year levels of $57,745,000 and $1.38, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's aggregate of cash, cash equivalents, and short-term investments decreased from $173 million at the end of fiscal year 1998 to $132 million at the end of fiscal year 1999 due primarily to cash outlays for strategic capital investments. Working capital at June 30, 1999 was $218 million with a current ratio of 2.3, compared to working capital of $260 million and a current ratio of 2.7 at June 30, 1998. Operating activities generated $98 million of cash flow in fiscal year 1999 compared to $76 million in fiscal year 1998. Net income and non-cash charges to net income were partially offset by increases in receivables of $13 million. The Company reinvested a record $103 million into capital investments for the future, including strategic acquisitions, the purchase of 11,700 acres of timber and harvest land, computer equipment, production equipment, office facilities and a child development facility. Financing cash flow activities were primarily in the form of $17 million in share repurchases and $26 million in dividend payments. Net cash flow, excluding the purchases and maturities of short-term investments was an outflow of $39 million. In July 1999, the Company announced plans to construct a new state-of-the-art veneer mill and face operation. Over the next 12 months, the Company plans to invest approximately $13 million in capital resources constructing the new facility. To meet short-term capital requirements, in fiscal year 1999 the Company established a $100 million revolving credit facility to be used for acquisitions and general corporate purposes. The agreement allows for both -22- issuance of letters of credit and cash borrowings. At June 30, 1999, no debt was outstanding under this revolving credit facility. The Company anticipates maintaining a strong liquidity position for the 2000 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 to fund investments in the Company's future. This statement is a forward-looking statement under the Private Securities Litigation Reform Act of 1995 and is subject to certain risks and uncertainties including, but not limited to a downturn in the economy, loss of key customers or suppliers, availability or increased costs of raw materials, or a natural disaster or similar unforeseen event. YEAR 2000 READINESS DISCLOSURE The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in a major system failure or miscalculations. The Company completed an assessment of its computer systems and the embedded systems contained in its machinery, equipment and other infrastructure, and executed a plan to resolve the Year 2000 issue. The phases of the plan include inventory assessment, remediation and testing. An Executive Committee oversees completion of these activities. All phases of the Year 2000 plan have been completed for the Company's mission critical systems and equipment with the exception of the Juarez, Mexico manufacturing facility acquired late in fiscal year 1999. The Company anticipates this facility to be Year 2000 compliant by the end of September 1999. The Company also continues to make progress on Year 2000 compliance of non-critical computer and embedded systems. The Company will continue its Year 2000 assessment and testing efforts for new or modified systems throughout 1999 and will continue to test its critical systems for continued Year 2000 compliance. A corporate freeze on the introduction of certain business and information technology (IT) initiatives will occur December 1, 1999 through January 15, 2000 to maintain a stable environment through the turn of the century. While the Year 2000 issue has been given the highest priority among the IT group, any deferrals of other IT projects by the Company will not have a material effect on its financial condition or results of operations. The total gross cost of Year 2000 compliance is estimated to range from $9 million to $11 million, of which approximately 75% had been incurred as of June 30, 1999. Existing information technology resources have been redeployed, which are anticipated to account for approximately 50% of the total costs, with the balance being incremental costs to the Company. Approximately 30% of the total gross costs relate to machinery and other fixed assets which will be capitalized, with the remaining costs being expensed as incurred. The Company believes the key risk factors associated with Year 2000 are those it cannot directly control, primarily the readiness of its key suppliers, distributors, customers, public infrastructure suppliers and other vendors. The Company has initiated discussions with mission critical third parties to determine their Year 2000 compliance status through both mailings and direct contacts. The Company continues to follow up with its suppliers on their state of readiness, and where appropriate, is conducting in-depth evaluations which could lead to replacement of the supplier. While the Company is working -23- diligently to ensure its mission critical third parties will be compliant, there can be no assurance that the systems of any third party on which the Company's systems and operations rely will be timely converted and which will not have a material adverse effect on the Company. The determination of the effect on the Company's results of operations for its own noncompliance or for third party noncompliance is complex and hinges on numerous unknowns. Therefore, while the Company does not have a reasonable estimate of the impact this could have on its results of operations, it recognizes this noncompliance could range from the malfunction of an embedded chip in a piece of machinery temporarily shutting down a product line, to a select public infrastructure of one of the Company's outlying locations or international facilities being unable to provide service temporarily idling one or more production facilities. In addition, worst case scenarios could include a key customer being unable to process transactions halting production on one of the Company's product lines, to a single source supplier, as well as back-up suppliers, being unable to provide necessary materials also suspending production on a product line(s). Some of these individually, and in the aggregate, could have a material effect on the Company's results of operations. Contingency plans outlining recovery strategies for possible failures are currently being developed. Contingency plans would include such items as sourcing alternatives for single source suppliers, developing business resumption plans for all of the Company's business units, and evaluating temporary alternate manual processes. This Year 2000 disclosure contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 and is subject to risks and uncertainties including, but not limited to such factors as the availability and cost of human resources with expertise in this area, the ability to locate and correct all relevant computer codes and time constraints. ACCOUNTING STANDARDS In fiscal year 1999, the Company adopted Financial Accounting Standards No. 130, Reporting Comprehensive Income. This standard requires the disclosure of all changes in equity during a period except those resulting from investments by, and distributions to, Share Owners. Comprehensive income is reported in the Consolidated Statements of Share Owners' Equity. 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. SFAS 131 establishes new standards for defining the Company's segments and disclosing information about them. The adoption of SFAS No. 131 did not affect results of operations or financial position, but did affect the disclosure of segment information. All prior year segment information has been restated to conform with SFAS No. 131. 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 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. -24- Item 7a - Quantitative and Qualitative Disclosures About Market Risk As of June 30, 1999, the Company had an investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $115 million. The Company classifies its short-term investments in accordance with Financial Accounting Standards Board Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. Held-to-maturity securities are stated at amortized cost and available-for-sale securities are stated at market value with unrealized gains and losses being recorded net of tax related effect, if any, as a component of Share Owners' Equity. These securities, like all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase. A hypothetical 100 basis point increase in market interest rates from levels at June 30, 1999 would cause the fair value of these short-term investments to decline by an immaterial amount. The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency rate changes. As of June 30, 1999, foreign subsidiaries' sales, operating income and assets each comprised less than 3% of consolidated amounts. Historically, the effect of movements in the exchange rates have been immaterial to the consolidated operating results of the Company. - 25 - Item 8. - Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS Page Report of Management . . . . .. . . . . . . . . . . . . . . . . 27 Report of Independent Public Accountants . . . . . . . . . . . 28 Consolidated Balance Sheets as of June 30, 1999 and 1998 . . . . . . . . . . . . . . . . 29 Consolidated Statements of Income for the Three Years Ended June 30, 1999. . . . . . . . . . . 30 Consolidated Statements of Cash Flows for the Three Years Ended June 30, 1999. . . . . . . . . . . 31 Consolidated Statements of Share Owners' Equity for the Three Years Ended June 30, 1999. . . . . . . . . . . 32 Notes to Consolidated Financial Statements. . . . . . . . . . . 33-48
-26- 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 and include judgement and estimates, which in the opinion of management are applied on a conservative basis. The Company maintains a system of internal controls intended to provide reasonable assurance that assets are safeguarded from loss or material misuse, transactions are authorized and recorded properly, and that the accounting records may be relied upon for the preparation of the financial statements. This system is tested and evaluated regularly for adherence and effectiveness by the Company's staff of internal auditors, as well as the independent public accountants in connection with their annual audit. The Audit Committee of the Board of Directors, which is comprised of directors who are not employees of the Company, meets regularly with management, the internal auditors and the independent public accountants to review the work performed and to ensure that each is properly discharging its responsibilities. The internal auditors and the independent public accountants have free and direct access to the Audit Committee, and they meet periodically, without management present, to discuss appropriate matters. Douglas A. Habig Douglas A. Habig Chairman of the Board, Chief Executive Officer James C. Thyen James C. Thyen President Robert F. Schneider Robert F. Schneider Executive Vice President, Chief Financial Officer, Assistant Treasurer -27- 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, 1999 and 1998, 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, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kimball International, Inc. and subsidiaries as of June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The schedule listed under Item 14 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois July 23, 1999 -28-
KIMBALL INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (Amounts in Thousands, Except for Share Data) June 30 1999 1998 Assets Current Assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 16,775 $ 16,757 Short-term investments . . . . . . . . . . . . . . . . . . . . 114,996 156,010 Receivables, less allowances of $3,816 and $4,023, respectively . . . . . . . . . . . . . . . 132,284 119,170 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 96,157 96,303 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,129 24,697 Total current assets . . . . . . . . . . . . . . . . . . . 386,341 412,937 Property and Equipment, net. . . . . . . . . . . . . . . . . . . 221,498 182,798 Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 53,547 33,903 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $661,386 $629,638 Liabilities and Share Owners' Equity Current Liabilities: Loans payable. . . . . . . . . . . . . . . . . . . . . . . . . $ 3,518 $ 4,318 Current maturities of long-term debt . . . . . . . . . . . . . 1,185 434 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 77,976 60,907 Dividends payable. . . . . . . . . . . . . . . . . . . . . . . 6,380 6,521 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 79,505 81,030 Total current liabilities. . . . . . . . . . . . . . . . . 168,564 153,210 Other Liabilities: Long-term debt, less current maturities. . . . . . . . . . . . 1,730 1,856 Deferred income taxes and other. . . . . . . . . . . . . . . . 26,815 25,949 Total other liabilities. . . . . . . . . . . . . . . . . . 28,545 27,805 Share Owners' Equity: Common stock-par value $.05 per share: Class A- Shares authorized-49,945,000 (49,967,000 in 1998) Shares issued-14,486,000 (14,509,000 in 1998). . . . 724 725 Class B- Shares authorized-100,000,000 Shares issued-28,538,000 (28,516,000 in 1998). . . . 1,427 1,426 Additional paid-in capital . . . . . . . . . . . . . . . . . . 6,379 6,022 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 498,962 464,880 Accumulated other comprehensive income . . . . . . . . . . . . 1,312 3,709 Less: Treasury stock-at cost: Class A- 156,000 shares (125,000 in 1998) . . . . . . . . . . (2,877) (2,362) Class B- 2,542,000 shares (1,688,000 in 1998) . . . . . . . . (41,650) (25,777) Total share owners' equity . . . . . . . . . . . . . . . . 464,277 448,623 Total Liabilities and Share Owners' Equity . . . . . . . . . . . $661,386 $629,638 See Notes to Consolidated Financial Statements.
-29-
KIMBALL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except for Per Share Data) Year Ended June 30 1999 1998 1997 Net Sales. . . . . . . . . . . . . . . . . . . . . . . $1,106,967 $1,032,317 $992,049 Cost of Sales. . . . . . . . . . . . . . . . . . . . . 778,551 723,378 692,636 Gross Profit . . . . . . . . . . . . . . . . . . . . . 328,416 308,939 299,413 Selling, Administrative and General Expenses . . . . . 250,839 236,463 218,421 Operating Income . . . . . . . . . . . . . . . . . . . 77,577 72,476 80,992 Other Income (Expense): Interest Expense . . . . . . . . . . . . . . . . . . (476) (424) (551) Interest Income. . . . . . . . . . . . . . . . . . . 6,554 9,458 8,484 Other, Net . . . . . . . . . . . . . . . . . . . . . 8,719 5,917 (359) Other Income, Net . . . . . . . . . . . . . . . . . 14,797 14,951 7,574 Income Before Taxes on Income. . . . . . . . . . . . . 92,374 87,427 88,566 Taxes on Income. . . . . . . . . . . . . . . . . . . . 32,649 32,400 30,821 Net Income . . . . . . . . . . . . . . . . . . . . . . $ 59,725 $ 55,027 $ 57,745 Earnings Per Share of Common Stock Basic: Class A. . . . . . . . . . . . . . . . . . . . . . . $1.46 $1.32 $1.39 Class B. . . . . . . . . . . . . . . . . . . . . . . $1.48 $1.33 $1.40 Diluted: Class A. . . . . . . . . . . . . . . . . . . . . . . $1.45 $1.31 $1.38 Class B. . . . . . . . . . . . . . . . . . . . . . . $1.47 $1.32 $1.38 Average Number of Shares Outstanding Basic: Class A. . . . . . . . . . . . . . . . . . . . . . . 14,338 14,413 14,498 Class B. . . . . . . . . . . . . . . . . . . . . . . 26,286 27,004 26,952 Totals. . . . . . . . . . . . . . . . . . . . . . . 40,624 41,417 41,450 Diluted: Class A. . . . . . . . . . . . . . . . . . . . . . . 14,338 14,413 14,498 Class B. . . . . . . . . . . . . . . . . . . . . . . 26,501 27,401 27,265 Totals. . . . . . . . . . . . . . . . . . . . . . . 40,839 41,814 41,763 See Notes to Consolidated Financial Statements.
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KIMBALL INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Year Ended June 30 1999 1998 1997 Cash Flows From Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . $ 59,725 $ 55,027 $ 57,745 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . . 39,710 33,806 33,395 Gain on sales of assets. . . . . . . . . . . . . . . . (3,917) (1,986) (597) Deferred income tax and other deferred charges . . . . 1,964 880 (1,247) Change in current assets and liabilities: Receivables . . . . . . . . . . . . . . . . . . . . (13,114) (9,028) 6,432 Inventories . . . . . . . . . . . . . . . . . . . . (4,816) (15,174) 10,787 Other current assets. . . . . . . . . . . . . . . . (2,529) (1,413) 1,751 Accounts payable. . . . . . . . . . . . . . . . . . 17,069 7,844 4,055 Accrued expenses. . . . . . . . . . . . . . . . . . 3,936 6,248 9,487 Net cash provided by operating activities. . . . 98,028 76,204 121,808 Cash Flows From Investing Activities: Capital expenditures . . . . . . . . . . . . . . . . . . (76,568) (41,313) (32,937) Proceeds from sales of assets. . . . . . . . . . . . . . 820 1,177 1,366 Proceeds from sales of divisions/subsidiaries. . . . . . 7,156 3,150 2,345 Increase in other assets . . . . . . . . . . . . . . . . (25,973) (7,359) (11,810) Purchases of held-to-maturity securities . . . . . . . . (400) (21,415) (34,465) Maturities of held-to-maturity securities. . . . . . . . 5,425 46,932 51,446 Purchases of available-for-sale securities . . . . . . . (23,191) (97,120) (58,305) Sales and maturities of available-for-sale securities. . 57,080 67,517 --- Net cash used for investing activities . . . . . (55,651) (48,431) (82,360) Cash Flows From Financing Activities: Net change in short-term borrowings. . . . . . . . . . . (800) 1,846 190 Net change in long-term debt . . . . . . . . . . . . . . 625 (494) (724) Acquisition of treasury stock, net of sales. . . . . . . (17,184) (8,323) (4,878) Dividends paid to share owners . . . . . . . . . . . . . (25,784) (24,280) (21,508) Proceeds from exercise of stock options. . . . . . . . . 986 1,495 808 Other-net. . . . . . . . . . . . . . . . . . . . . . . . (176) (63) (132) Net cash used for financing activities . . . . . (42,333) (29,819) (26,244) Effect of exchange rate changes on cash. . . . . . . . . . (26) (15) (33) Net Increase (Decrease) in Cash and Cash Equivalents . . . 18 (2,061) 13,171 Cash and Cash Equivalents at Beginning of Year . . . . . . 16,757 18,818 5,647 Cash and Cash Equivalents at End of Year . . . . . . . . . $ 16,775 $ 16,757 $ 18,818 Total Cash, Cash Equivalents and Short-Term Investments: Cash and cash equivalents. . . . . . . . . . . . . . . . $ 16,775 $ 16,757 $ 18,818 Short-term investments . . . . . . . . . . . . . . . . . 114,996 156,010 149,677 Totals . . . . . . . . . . . . . . . . . . . . . . . $131,771 $172,767 $168,495 See Notes to Consolidated Financial Statements.
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KIMBALL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY (Amounts in thousands, except share data) Three Years Ended June 30, 1999 Accumulated ---Common Stock--- Additional Other Paid-In Retained Comprehensive Treasury Total Share Class A Class B Capital Earnings Income Stock Owners' Equity Amounts at June 30, 1996. . . . . . . . . . . $2,285 $4,438 $ 898 $399,024 $1,441 ($17,072) $391,014 Comprehensive income: Net income. . . . . . . . . . . . . . . . . 57,745 57,745 Net change in unrealized gains and losses on securities. . . . . . . . . . . . . . . (73) (73) Foreign currency translation adjustment . . 280 280 Comprehensive income. . . . . . . . . . . 57,952 Treasury stock acquired-net (134,000 shares) 34 (4,878) (4,844) Shares of Class A Common Stock converted to Class B Common Stock (37,000 shares) . . . (12) 12 647 (647) --- Exercise of stock options (38,000 shares) . 28 780 808 Cash dividends: Class A ($.53 per share) . . . . . . . . . (7,682) (7,682) Class B ($.535 per share). . . . . . . . . (14,422) (14,422) Amounts at June 30, 1997. . . . . . . . . . . $2,273 $4,450 $1,607 $434,665 $1,648 ($21,817) $422,826 Comprehensive income: Net income. . . . . . . . . . . . . . . . . 55,027 55,027 Net change in unrealized gains and losses on securities. . . . . . . . . . . . . . . 2,247 2,247 Foreign currency translation adjustment . . (186) (186) Comprehensive income. . . . . . . . . . . 57,088 Treasury stock acquired-net (378,000 shares) 74 (8,213) (8,139) Shares of Class A Common Stock converted to Class B Common Stock (36,000 shares) . . . (3) 3 81 (81) --- Exercise of stock options (117,000 shares). (312) 1,972 1,660 Cash dividends: Class A ($.58875 per share). . . . . . . . (8,483) (8,483) Class B ($.605 per share). . . . . . . . . (16,329) (16,329) Change par value from $.3125 pre stock split to $.05 post stock split . . . . . . . . . (1,545) (3,027) 4,572 --- Amounts at June 30, 1998. . . . . . . . . . . $ 725 $1,426 $6,022 $464,880 $3,709 ($28,139) $448,623 Comprehensive income: Net income. . . . . . . . . . . . . . . . . 59,725 59,725 Net change in unrealized gains and losses on securities. . . . . . . . . . . . . . . (2,100) (2,100) Foreign currency translation adjustment . . (297) (297) Comprehensive income. . . . . . . . . . . 57,328 Treasury stock acquired-net (973,000 shares) 77 (17,094) (17,017) Shares of Class A Common Stock converted to Class B Common Stock (22,000 shares) . . . (1) 1 311 (311) --- Exercise of stock options (88,000 shares) . (31) 1,017 986 Cash dividends: Class A ($.62 per share) . . . . . . . . . (8,891) (8,891) Class B ($.64 per share) . . . . . . . . . (16,752) (16,752) Amounts at June 30, 1999. . . . . . . . . . . $ 724 $1,427 $6,379 $498,962 $1,312 ($44,527) $464,277 See Notes to Consolidated Financial Statements.
-32- KIMBALL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of all domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts included in the consolidated financial statements and related footnote disclosures. While efforts are made to assure estimates used are reasonably accurate based on management's knowledge of current events, actual results could differ from those estimates. 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, 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 Mexican 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 51% and 52% of consolidated inventories in 1999 and 1998, 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, $11.6 in 1999, $13.1 in 1998, and $11.5 in 1997. -33- 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: The Company engages in several types of financing arrangements with customers, primarily certain guarantees, and also has business and credit risks concentrated in the transportation, computer, telecommunications, consumer electronics and furniture industries. Reclassifications: Certain prior year amounts have been reclassified to conform with the 1999 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 fiscal year 1999, the Company adopted Financial Accounting Standards No. 130, Reporting Comprehensive Income. This standard requires the disclosure of all changes in equity during a period except those resulting from investments by, and distributions to, Share Owners. Comprehensive income is reported in the Consolidated Statements of Share Owners' Equity. 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. SFAS 131 establishes new standards for defining the Company's segments and disclosing information about them. The adoption of SFAS No. 131 did not affect results of operations or financial position, but did affect the disclosure of segment information. All prior year segment information has been restated to conform with SFAS No. 131. 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 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. -34- NOTE 2 ACQUISITIONS AND DISPOSITIONS Acquisitions of Subsidiaries: 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 operating results. In the fourth quarter of fiscal year 1999, the Company purchased a manufacturing facility located in Juarez, Mexico. The Juarez facility will initially produce projection television cabinets and will provide additional capacity for other manufacturing operations in the future. Dispositions of Subsidiaries: The Company sold its piano key and action production facility located in the United Kingdom, Herrburger Brooks, PLC, during the first quarter of fiscal year 1997. Included in the 1997 Consolidated Statement of Income is a $3.8 million pretax loss on the sale reported in Other-net, with an offsetting $3.8 million income tax benefit reported in Taxes on Income. This tax benefit was the result of a higher U.S. tax basis in this subsidiary due to previously nondeductible losses on the investment in this U.K. subsidiary. This transaction resulted in no impact to fiscal year 1997 consolidated net income. 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 the 1999 Consolidated Statement of Income. NOTE 3 INVENTORIES Inventories are valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 51% and 52% of consolidated inventories in 1999 and 1998, respectively. The remaining inventories are valued using the lower of first-in, first-out (FIFO) cost or market value. Had the FIFO method been used for all inventories, net income would have been, in millions, $0.2 lower in 1999, $0.6 higher in 1998, and $0.1 lower in 1997. Additionally, inventories would have been, in millions, $20.0 and $20.3 higher at June 30, 1999 and 1998, respectively, if the FIFO method had been used. During 1999 and 1998, 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)
1999 1998 Finished products. . . . . . . . . . . . . $33,262 $31,365 Work-in-process. . . . . . . . . . . . . . 14,471 12,971 Raw materials. . . . . . . . . . . . . . . 48,424 51,967 Total inventory . . . . . . . . . . . $96,157 $96,303
-35- NOTE 4 PROPERTY AND EQUIPMENT Major classes of property and equipment consist of the following: (Amounts in Thousands)
1999 1998 Land . . . . . . . . . . . . . . . . . . . $ 6,931 $ 4,471 Buildings and improvements . . . . . . . . 171,504 145,880 Machinery and equipment. . . . . . . . . . 291,432 264,316 Construction-in-progress . . . . . . . . . 16,772 13,882 Total. . . . . . . . . . . . . . . . . . 486,639 428,549 Less: Accumulated depreciation . . . (265,141) (245,751) Property and equipment, net. . . . . . . $221,498 $182,798
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:
Years Buildings and improvements . . . . . . . . 12 to 50 Machinery and equipment. . . . . . . . . . 4 to 40 Leasehold improvements . . . . . . . . . . Life of Lease Depreciation and amortization of property and equipment totaled, in millions, $33.4 for 1999, $29.9 for 1998, and $29.4 for 1997.
NOTE 5 LEASE COMMITMENTS Operating leases for certain office, showroom, warehouse and manufacturing facilities, and equipment, which expire from fiscal year 2000 to 2008, contain provisions under which minimum annual lease payments are, in millions, $7.8, $6.0, $4.3, $3.7, and $2.5 for the five years ended June 30, 2004, respectively, and aggregate $2.0 million from 2005 to the expiration of the leases in 2008. 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, $7.1, $6.7, and $5.9 in 1999, 1998 and 1997, respectively. NOTE 6 LONG-TERM DEBT AND CREDIT FACILITY 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, $1,185, $629, $441, $144, and $151, respectively, and aggregate $365 thereafter. Interest rates range from 0% to 10%. Interest paid was immaterial in the three years ending June 30, 1999. 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 intends to use 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. No debt was outstanding under this agreement at June 30, 1999. -36- NOTE 7 RETIREMENT PLANS 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 1999, 1998 and 1997 were approximately, in millions, $10.8, $10.1, and $11.3, 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. Approximately 275 employees were eligible to participate in the program during 1997. This Stock Incentive Program expired in August 1997, with prior year grants expiring annually through July 2001. On June 11, 1996, the Board of Directors adopted the 1996 Stock Incentive Program, which was approved by the Company's Share Owners on October 22, 1996. Under this plan, 4,200,000 shares of Class B Common Stock were reserved, in addition to the approximately 2 million remaining shares currently reserved under the 1987 plan, for incentive stock options, nonqualified stock options, stock appreciation rights, and performance share awards available for grant to officers and other key employees of the Company, and to members of the Board of Directors who are not employees. The 1996 Stock Incentive Program is a ten year plan. Approximately 290 employees were eligible to participate in the program during 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. Shares of stock issued by the exercise of stock options granted through June 30, 1999 must be held for a five year period before being sold, except in certain situations. For stock options granted after June 30, 1999, shares of stock issued through exercise have no required holding period. 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 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. -37- Stock option transactions are as follows:
Number Weighted Average of Shares Exercise Price Options outstanding June 30, 1996. . . . . . . 1,099,700 $13.15 Granted. . . . . . . . . . . . . . . . . . . . 402,838 13.80 Exercised. . . . . . . . . . . . . . . . . . . (90,872) 12.64 Forfeited. . . . . . . . . . . . . . . . . . . (35,600) 13.31 Options outstanding June 30, 1997. . . . . . . 1,376,066 13.37 Granted. . . . . . . . . . . . . . . . . . . . 588,889 21.82 Exercised. . . . . . . . . . . . . . . . . . . (225,769) 13.35 Forfeited. . . . . . . . . . . . . . . . . . . (89,170) 14.89 Options outstanding June 30, 1998. . . . . . . 1,650,016 16.30 Granted. . . . . . . . . . . . . . . . . . . . 551,521 18.20 Exercised. . . . . . . . . . . . . . . . . . . (141,993) 13.78 Forfeited. . . . . . . . . . . . . . . . . . . (180,716) 16.57 Expired. . . . . . . . . . . . . . . . . . . . (20,871) 14.80 Options outstanding June 30, 1999. . . . . . . 1,857,957 $17.05 Shares available for future options. . . . . . 5,536,506
Following is a status of options outstanding at June 30, 1999:
Outstanding Options Exercisable Options --------------------------------------- ----------------------- Weighted Average Weighted Weighted Remaining Average Average Exercise Contractual Exercise Exercise Price Range Number Life Price Number Price - ------------- --------- ----------- --------- --------- -------- $12.00-$16.00 807,309 1 years $13.19 805,833 $13.19 $16.00-$20.00 522,759 6 years 18.20 102,738 18.24 $20.00-$24.00 527,889 4 years 21.82 123,082 21.83 Total 1,857,957 4 years $17.05 1,031,653 $14.72
The Company adopted the disclosure requirements of Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (FAS 123) effective in fiscal year 1997. The Company has elected to continue to follow the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretations; accordingly, no compensation cost has been reflected in the financial statements for its incentive stock options. Had compensation cost for the Company's incentive stock options been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):
Year Ended June 30 1999 1998 1997 Net Income As Reported . . . . . . . . . . . . . $59,725 $55,027 $57,745 Pro Forma . . . . . . . . . . . . . . $57,444 $53,343 $56,765 Earnings per Share of Common Stock As Reported: Basic: Class A. . . . . . . . . . . . . . $1.46 $1.32 $1.39 Class B. . . . . . . . . . . . . . $1.48 $1.33 $1.40 Diluted: Class A. . . . . . . . . . . . . . $1.45 $1.31 $1.38 Class B. . . . . . . . . . . . . . $1.47 $1.32 $1.38 Pro Forma: Basic: Class A. . . . . . . . . . . . . . $1.40 $1.28 $1.37 Class B. . . . . . . . . . . . . . $1.42 $1.29 $1.37 Diluted: Class A. . . . . . . . . . . . . . $1.40 $1.27 $1.36 Class B. . . . . . . . . . . . . . $1.42 $1.28 $1.36
-38- The pro forma effects on net income for the year ended June 30, 1997 may not be representative of the pro forma effect on net income in future years because FAS 123 does not take into consideration pro forma compensation expense related to grants made prior to fiscal year 1996. The weighted average fair value at date of grant for options granted during the years ended June 30, 1999, 1998 and 1997 was $3.72, $4.84 and $2.50 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 34.0% in 1999, 31.7% in 1998 and 31.4% in 1997; risk-free interest rates of 5.4% in 1999, 6.2% in 1998 and 6.3% in 1997; dividend yield of 3.7% in 1999, 2.9% in 1998 and 2.9% in 1997; and an expected life of 3.5 years for all years. NOTE 9 INCOME TAXES 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, 1999 and 1998, are as follows: (Amounts in Thousands)
1999 1998 Deferred tax assets: Receivables. . . . . . . . . . . . . . . . . $ 1,690 $ 1,830 Inventory. . . . . . . . . . . . . . . . . . 2,311 2,338 Employee benefits. . . . . . . . . . . . . . 6,690 6,579 Other current liabilities. . . . . . . . . . 5,920 6,507 Miscellaneous. . . . . . . . . . . . . . . . 587 658 Foreign net operating losses . . . . . . . . 2,253 2,581 Capital loss carryforward benefit. . . . . . 627 2,597 Valuation reserve. . . . . . . . . . . . . (2,880) (4,794) Total asset. . . . . . . . . . . . . . . $17,198 $18,296 Deferred tax liabilities: Property & equipment . . . . . . . . . . . . $14,366 $15,144 Miscellaneous. . . . . . . . . . . . . . . . 339 255 Total liability. . . . . . . . . . . . . $14,705 $15,399
-39- The components of income before taxes on income are as follows: (Amounts in Thousands)
------- Year Ended June 30 ----- 1999 1998 1997 United States . . . . . . . . . . . . . . . $90,674 $87,327 $87,626 Foreign . . . . . . . . . . . . . . . . . . 1,700 100 940 Total income before taxes. . . . . . $92,374 $87,427 $88,566
Taxes on income are composed of the following items: (Amounts in Thousands)
------- Year Ended June 30 ----- 1999 1998 1997 Currently payable: Federal. . . . . . . . . . . . . . . . $26,347 $29,363 $28,418 Foreign. . . . . . . . . . . . . . . . 565 224 179 State. . . . . . . . . . . . . . . . . 5,333 3,650 4,538 Total current. . . . . . . . . . . . 32,245 33,237 33,135 Deferred Federal. . . . . . . . . . . . . . 404 (837) (2,314) Total taxes on income. . . . . . . . $32,649 $32,400 $30,821
A reconciliation of the statutory U.S. income tax rate to the Company's effective income tax rate follows: (Amounts in Thousands)
-------------- Year Ended June 30 -------------- 1999 1998 1997 Amount % Amount % Amount % Taxes computed at statutory rate . . . . . . $32,331 35.0% $30,600 35.0% $30,998 35.0% State income taxes, net of Federal income tax benefit . . . . 3,466 3.7 2,373 2.7 3,179 3.6 Foreign tax effect . . . . . . . . . . . . . (595) (0.6) (35) -- (329) (0.4) Capital loss benefit . . . . . . . . . . . . (1,586) (1.7) -- -- (3,650) (4.1) Tax-exempt interest income . . . . . . . . . (1,412) (1.5) (454) (0.5) (531) (0.6) Other-net. . . . . . . . . . . . . . . . . . 445 0.4 (84) (0.1) 1,154 1.3 Total taxes on income . . . . . . . . . $32,649 35.3% $32,400 37.1% $30,821 34.8%
Cash payments for income taxes, net of refunds, were in thousands, $28,884, $28,183 and $37,069 in 1999, 1998 and 1997, respectively. -40- 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. -41- NOTE 11 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial information is summarized as follows: (Amounts in Thousands, Except for Per Share Data)
------------------ Three Months Ended -------------- September 30 December 31 March 31 June 30 1999: Net Sales. . . . . . . . . . . . . . . . $264,646 $280,080 $288,054 $274,187 Gross Profit . . . . . . . . . . . . . . 78,557 83,053 86,433 80,373 Net Income . . . . . . . . . . . . . . . 12,563 14,935 15,189 17,038 Basic Earnings Per Share: Class A . . . . . . . . . . . . . . . . $.31 $.36 $.37 $.42 Class B . . . . . . . . . . . . . . . . .31 .37 .38 .42 Diluted Earnings Per Share: Class A . . . . . . . . . . . . . . . . $.30 $.36 $.37 $.42 Class B . . . . . . . . . . . . . . . . .31 .37 .38 .42 1998: Net Sales. . . . . . . . . . . . . . . . $245,857 $264,524 $265,001 $256,935 Gross Profit . . . . . . . . . . . . . . 74,280 79,952 77,732 76,975 Net Income . . . . . . . . . . . . . . . 13,029 15,485 13,702 12,811 Basic Earnings Per Share: Class A . . . . . . . . . . . . . . . . $.31 $.37 $.33 $.31 Class B . . . . . . . . . . . . . . . . .31 .38 .33 .31 Diluted Earnings Per Share: Class A . . . . . . . . . . . . . . . . $.31 $.36 $.33 $.30 Class B . . . . . . . . . . . . . . . . .31 .37 .33 .31 1997: Net Sales. . . . . . . . . . . . . . . . $247,700 $253,780 $243,277 $247,292 Gross Profit . . . . . . . . . . . . . . 73,134 75,169 73,819 77,291 Net Income . . . . . . . . . . . . . . . 13,521 14,621 14,521 15,082 Basic Earnings Per Share: Class A . . . . . . . . . . . . . . . . $.32 $.35 $.35 $.36 Class B . . . . . . . . . . . . . . . . .33 .35 .35 .36 Diluted Earnings Per Share: Class A . . . . . . . . . . . . . . . . $.32 $.35 $.34 $.36 Class B . . . . . . . . . . . . . . . . .32 .35 .34 .36 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 $.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 $.06 per share, representing the gain on the sale of two subsidiaries.
NOTE 12 SHORT-TERM INVESTMENTS The Company classifies its short-term investments in accordance with Financial Accounting Standards Board Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. Fair values are estimated based upon the quoted market values of those, or similar instruments. Carrying costs reflect the original purchase price, with discounts and premium amortized over the life of the security. Held-to-maturity securities are reported at carrying cost and consist primarily of government obligations with fair value equal to carrying cost of, in thousands, $399 at June 30, 1999, compared to fair value and carrying cost of $5,430 and $5,429 at June 30, 1998, respectively. Unrealized holding gains and losses were immaterial at June 30, 1999 and 1998. All held-to-maturity securities mature within a 12 month period. 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, $114,597 and $114,523 at June 30, 1999, compared to $150,581, and $148,408 at June 30, 1998, respectively. Unrealized holding gains and losses at June 30, 1999 were, in thousands, $277 and ($203), compared to $2,254 and ($80) at June 30, 1998, respectively. All available-for-sale securities mature within a four year period. Proceeds from sales of available-for-sale securities were, in thousands, $17,273 and $27,236 for the years ended June 30, 1999 and 1998, respectively. Gross realized gains and losses on the sale of available-for-sale securities at June 30, 1999 were, in thousands, $172 and ($2) respectively, compared to gross realized gains of, in thousands, $76 at June 30, 1998. The cost was determined on each individual security in computing the realized gain. -42- NOTE 13 ACCRUED EXPENSES Accrued expenses at June 30 consist of: (Amounts in Thousands)
------ June 30 ------- 1999 1998 Income taxes . . . . . . . . . . . . . . . . . $ 2,292 $ 1,183 Property taxes . . . . . . . . . . . . . . . . 4,290 4,089 Compensation . . . . . . . . . . . . . . . . . 31,938 30,327 Retirement plan. . . . . . . . . . . . . . . . 10,529 9,889 Other expenses . . . . . . . . . . . . . . . . 30,456 35,542 Total accrued expenses. . . . . . . . . . . . $79,505 $81,030
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. Upon adopting the new standard, aligning the requirements of the standard with the Company's operational and organizational structure, the Company now discloses two reportable segments, the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment. The previous segment, Processed Wood Products and Other, has been integrated into the Furniture and Cabinets reportable segment consistent with the aggregation criteria outlined in SFAS 131. 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 produces office, lodging, healthcare and home furniture, OEM furniture and cabinet products, store fixtures, and a variety of other furniture and furniture components produced on a contract basis. Intersegment sales are insignificant. The Electronic Contract Assemblies Segment produces electronic and electro-mechanical products (electronic assemblies) manufactured on a contract basis to customers' specifications, semiconductor processing, testing, engineering design and packaging services. Intersegment sales are insignificant. Included in the Electronic Contract Assemblies Segment are sales to one customer totaling in millions, $178.9, $168.2 and $152.2 in 1999, 1998 and 1997, respectively, representing 16%, 16% and 15% 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 -43- 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.
1999 -------------------------------------------------------------- Furniture Electronic Unallocated and Contract Corporate and (Amounts in Thousands) Cabinets Assemblies Eliminations Consolidated - ------------------------------------------------------------------------------------------------ Net sales . . . . . . . . . . . . . $771,528 $335,395 $ 44 $1,106,967 Depreciation and amortization . . . 29,763 9,947 -- 39,710 Interest income . . . . . . . . . . -- -- 6,554 6,554 Interest expense . . . . . . . . . 412 -- 64 476 Taxes on income . . . . . . . . . . 19,566 11,856 1,227 32,649 Net income. . . . . . . . . . . . . 34,569 18,185 6,971 59,725 Total assets . . . . . . . . . . . 389,725 140,905 130,756 661,386 Capital expenditures . . . . . . . 67,141 9,427 -- 76,568
1998 -------------------------------------------------------------- Furniture Electronic Unallocated and Contract Corporate and (Amounts in Thousands) Cabinets Assemblies Eliminations Consolidated - ------------------------------------------------------------------------------------------------ Net sales . . . . . . . . . . . . . $706,679 $325,602 $ 36 $1,032,317 Depreciation and amortization . . . 25,719 8,087 -- 33,806 Interest income . . . . . . . . . . -- -- 9,458 9,458 Interest expense . . . . . . . . . 386 -- 38 424 Taxes on income . . . . . . . . . . 17,917 10,932 3,551 32,400 Net income. . . . . . . . . . . . . 27,904 18,050 9,073 55,027 Total assets . . . . . . . . . . . 331,247 128,165 170,226 629,638 Capital expenditures . . . . . . . 29,000 12,313 -- 41,313
-44-
1997 -------------------------------------------------------------- Furniture Electronic Unallocated and Contract Corporate and (Amounts in Thousands) Cabinets Assemblies Eliminations Consolidated - ------------------------------------------------------------------------------------------------ Net sales . . . . . . . . . . . . . $676,218 $315,816 $ 15 $ 992,049 Depreciation and amortization . . . 26,106 7,289 -- 33,395 Interest income . . . . . . . . . . -- -- 8,484 8,484 Interest expense . . . . . . . . . 486 12 53 551 Taxes on income . . . . . . . . . . 16,820 11,985 2,016 30,821 Net income. . . . . . . . . . . . . 32,451 19,595 5,699 57,745 Total assets . . . . . . . . . . . 301,018 114,783 165,782 581,583 Capital expenditures . . . . . . . 24,110 8,827 -- 32,937
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)
--------- Year Ended June 30 -------- 1999 1998 1997 Net Sales: United States. . . . . . . . . . . . . . . . $1,022,943 $ 977,716 $ 942,086 Foreign. . . . . . . . . . . . . . . . . . . 84,024 54,601 49,963 Total Net Sales . . . . . . . . . . . . . $1,106,967 $1,032,317 $ 992,049 Long-Lived Assets: United States. . . . . . . . . . . . . . . . $ 233,132 $ 199,043 $ 190,904 Foreign. . . . . . . . . . . . . . . . . . . 26,172 7,762 5,009 Total Long-Lived Assets . . . . . . . . . $ 259,304 $ 206,805 $ 195,913
-45- 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:
1999 ---------------------------------------------------------- Available Average Earnings Per Share Income Shares Class A Class B --------- ------- ------- ------- (Amounts in Thousands, Except Per Share Data) Net income . . . . . . . . . . . . . . . . . . $59,725 Distributed earnings: Class A dividends declared . . . . . . . . . (8,891) $ .620 Class B dividends declared . . . . . . . . . (16,752) $ .640 Undistributed basic earnings . . . . . . . . . $34,082 40,624 .839 .839 Basic Earnings Per Share . . . . . . . . . . . $1.459 $1.479 Basic Earnings Per Share (rounded) . . . . . . $1.46 $1.48 Dilutive effect of stock options . . . . . . . (138) 215 Undistributed diluted earnings . . . . . . . . $33,944 40,839 .831 .831 Diluted Earnings Per Share . . . . . . . . . . $1.451 $1.471 Diluted Earnings Per Share (rounded) . . . . . $1.45 $1.47 981,902 of the 1,901,947 average outstanding stock options were antidilutive, and were excluded from the dilutive computation for this period.
1998 ---------------------------------------------------------- Available Average Earnings Per Share Income Shares Class A Class B --------- ------- ------- ------- (Amounts in Thousands, Except Per Share Data) Net income . . . . . . . . . . . . . . . . . . $55,027 Distributed earnings: Class A dividends declared . . . . . . . . . (8,483) $ .58875 Class B dividends declared . . . . . . . . . (16,329) $ .60500 Undistributed basic earnings . . . . . . . . . $30,215 41,417 .72953 .72953 Basic Earnings Per Share . . . . . . . . . . . $1.31828 $1.33453 Basic Earnings Per Share (rounded) . . . . . . $1.32 $1.33 Dilutive effect of stock options . . . . . . . (240) 397 Undistributed diluted earnings . . . . . . . . $29,975 41,814 .71687 .71687 Diluted Earnings Per Share . . . . . . . . . . $1.30562 $1.32187 Diluted Earnings Per Share (rounded) . . . . . $1.31 $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.
-46-
1997 ---------------------------------------------------------- Available Average Earnings Per Share Income Shares Class A Class B --------- ------- ------- ------- (Amounts in Thousands, Except Per Share Data) Net income . . . . . . . . . . . . . . . . . . $57,745 Distributed earnings: Class A dividends declared . . . . . . . . . (7,682) $ .530 Class B dividends declared . . . . . . . . . (14,422) $ .535 Undistributed basic earnings . . . . . . . . . $35,641 41,450 .860 .860 Basic Earnings Per Share . . . . . . . . . . . $1.390 $1.395 Basic Earnings Per Share (rounded) . . . . . . $1.39 $1.40 Dilutive effect of stock options . . . . . . . (167) 313 Undistributed diluted earnings . . . . . . . . $35,474 41,763 .849 .849 Diluted Earnings Per Share . . . . . . . . . . $1.379 $1.384 Diluted Earnings Per Share (rounded) . . . . . $1.38 $1.38 All outstanding stock options were dilutive and were included in the dilutive computation for this period.
-47- 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:
Accumulated Other Comprehensive Income (Net of tax if applicable) Foreign Net Change in Accumulated Currency Unrealized Gains Other Translation and Losses on Comprehensive Adjustments Securities Income ------------ ---------------- ------------- Balance at June 30, 1996. . $1,441 $ -- $1,441 Current year change . . . . 280 (73) 207 Balance at June 30, 1997. . 1,721 (73) 1,648 Current year change . . . . (186) 2,247 2,061 Balance at June 30, 1998. . 1,535 2,174 3,709 Current year change . . . . (297) (2,100) (2,397) Balance at June 30, 1999. . $1,238 $ 74 $1,312
-48- Item 9. - Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None PART III Item 10. - Directors and Executive Officers of the Registrant Directors The information called for by this item with respect to Directors is incorporated by reference to the material contained in the Registrant's Proxy Statement for its annual meeting of Share Owners to be held October 19, 1999 under the captions - "Election of Directors"; "Information Concerning the Board of Directors and Committees"; and "Compensation of Executive Officers". Executive Officers of the Registrant The information called for by this item with respect to Executive Officers of the Registrant is included at the end of Part I and is incorporated herein by reference. Item 11. - Executive Compensation The information called for by this item is incorporated by reference to the material contained in the Registrant's Proxy Statement for its annual meeting of Share Owners to be held October 19, 1999 under the caption "Compensation of Executive Officers". Item 12. - Security Ownership of Certain Beneficial Owners and Management The information called for by this item is incorporated by reference to the material contained in the Registrant's Proxy Statement for its annual meeting of Share Owners to be held October 19, 1999 under the caption "Share Ownership Information". Item 13. - Certain Relationships and Related Transactions The information called for by this item is incorporated by reference to the material contained in the Registrant's Proxy Statement for its annual meeting of Share Owners to be held October 19, 1999 under the caption "Compensation Committee Interlocks and Insider Participation". -49- PART IV Item 14. - Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this Report: 1. Financial Statements: The following consolidated financial statements of the Registrant are found in Item 8 and incorporated herein.
Page Report of Management . . . . . . . . . . . . . . . . . . . . . . . . 27 Report of Independent Public Accountants . . . . . . . . . . . . . . 28 Consolidated Balance Sheets as of June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . 29 Consolidated Statements of Income for the Three Years Ended June 30, 1999 . . . . . . . . . . . . . 30 Consolidated Statements of Cash Flows for the Three Years Ended June 30, 1999 . . . . . . . . . . . . . 31 Consolidated Statements of Share Owners' Equity for the Three Years Ended June 30, 1999 . . . . . . . . . . . . . 32 Notes to Consolidated Financial Statements . . . . . . . . . . . . . 33-48 2. Financial Statement Schedules: Page II. Valuation and Qualifying Accounts for the Three Years Ended June 30, 1999 . . . . . . . . . 53 Schedules other than those listed above are omitted because they are either not required or not applicable, or the required information is presented in the Consolidated Financial Statements.
3. Exhibits See the Exhibit Index on page 54 for a list of the exhibits filed or incorporated herein as a part of this report. (b) Reports on Form 8-K: Form 8-K dated May 26, 1999, was filed pursuant to Item 5 (Other Events) which contained the Company's news release dated May 25, 1999, announcing a $100 million revolving credit facility. Form 8-K dated July 8, 1999, was filed pursuant to Item 5 (Other Events) which contained the Company's new release dated July 8, 1999, announcing the sales of two of the Company's business units. Form 8-K dated July 19, 1999 was filed pursuant to Item 5 (Other Events) which contained the Company's new release dated July 16, 1999, announcing the Company's intent to construct a state-of-the-art veneer mill. -50- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KIMBALL INTERNATIONAL, INC. by Robert F. Schneider ROBERT F. SCHNEIDER Executive Vice President, Chief Financial Officer and Assistant Treasurer September 9, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Douglas A. Habig DOUGLAS A. HABIG Chief Executive Officer September 13, 1999 James C. Thyen JAMES C. THYEN President September 9, 1999 Robert F. Schneider ROBERT F. SCHNEIDER Executive Vice President, Chief Financial Officer and Assistant Treasurer September 9, 1999 Roy W. Templin ROY W. TEMPLIN Vice President, Corporate Controller September 9, 1999 -51- Signature Signature THOMAS L. HABIG* DOUGLAS A. HABIG* Director Director JOHN B. HABIG* JAMES C. THYEN* Director Director JOHN T. THYEN* JACK R. WENTWORTH* Director Director GARY P. CRITSER* BRIAN K. HABIG* Director Director ALAN B. GRAF, JR.* POLLY KAWALEK* Director Director * The undersigned does hereby sign this document on my behalf pursuant to powers of attorney duly executed and filed with the Securities and Exchange Commission, all in the capacities as indicated: Date September 13, 1999 Ronald J. Thyen RONALD J. THYEN Director September 17, 1999 Christine M. Vujovich CHRISTINE M. VUJOVICH Director Attorneys-In-Fact -52- KIMBALL INTERNATIONAL, INC. Schedule II. - Valuation and Qualifying Accounts (Amounts in Thousands)
Additions Balance at Charged Charged Writeoffs Balance Beginning to to Other and at End Description of Year Expense Accounts Recoveries of Year YEAR ENDED JUNE 30, 1999: Valuation Allowance: Receivables . . . . . . $4,023 $ 662 $ 311 $(1,180) $3,816 Deferred Tax Asset. . . $4,794 $(1,914) $ --- $ --- $2,880 YEAR ENDED JUNE 30, 1998: Valuation Allowances: Receivables . . . . . . $4,017 $ 731 $(104) $ (621) $4,023 Deferred Tax Asset. . . $4,438 $ 356 --- --- $4,794 YEAR ENDED JUNE 30, 1997: Valuation Allowances: Receivables . . . . . . $4,075 $ 833 $(427) $ (464) $4,017 Deferred Tax Asset. . . $7,899 $(3,461) --- --- $4,438 ** Reductions to the deferred tax asset valuation allowance during fiscal year 1997 relate primarily to the sale of the Company's United Kingdom subsidiary and related transfer of net operating loss tax benefits to the buyer. Fiscal year 1999 reductions to the deferred tax asset valuation allowance relate primarily to the utilization of capital loss carryforwards and related reversal of the valuation allowance as a result of the sale of two subsidiaries and the sale of a stock investment of which the Company held a minor interest.
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KIMBALL INTERNATIONAL, INC. INDEX OF EXHIBITS 3(a) Amended and restated Articles of Incorporation of the Company. (Incorporated by reference to the Company's Form 10-Q for the period ended December 31, 1997.) 3(b) Restated Bylaws of the Company. (Incorporated by reference to the Company's Form 10-Q for the period ended December 31, 1998.) 10(a)* Supplemental Bonus Plan. 10(b)* Agreement with Directors who are also employees of the Company concerning $25,000 payment to a named beneficiary upon death. (Incorporated by reference to the Company's Form 10-K for the year ended June 30, 1997.) 10(c)* 1996 Stock Incentive Program. (Incorporated by reference to the Company's Schedule 14A Definitive Proxy Statement and Notice of Annual Meeting of Share Owners held October 22, 1996.) 10(d)* 1996 Director Stock Compensation and Option Plan. (Incorporated by reference to the Company's Schedule 14A Definitive Proxy Statement and Notice of Annual Meeting of Share Owners held October 22, 1996.) 10(e)* Form of Split Dollar Life Insurance Contract. (Incorporated by reference to the Company's Form 10-K for the year ended June 30, 1995.) 10(f)* Supplemental Employee Retirement Plan. (Incorporated by reference to the Company's Form 10-K for the year ended June 30, 1995.) 10(g) Credit Agreement with NBD Bank, N.A. 11 Computation of Earnings Per Share. (Incorporated by reference to Note 15, Earnings Per Share, of the Notes to Consolidated Financial Statements, which can be found in Item 8.) 21 Significant Subsidiaries of the Company. 23 Consent of Independent Public Accountants. 24 Power of Attorney. 27 Financial Data Schedule. * = constitutes management contract or compensatory arrangement.
-54- EX-10.A 2 EXHIBIT 10.A FOR KIMBALL'S 1999 FORM 10-K405 SUPPLEMENTAL BONUS PLAN The Board of Directors, on an annual basis, approves a total dollar bonus pool for a Supplemental Bonus Plan, up to a maximum of one and one-half percent (1.5%), on an after-tax basis, of the Company's consolidated net income calculated before amount payable to employees under the Company's Indirect Profit Sharing Bonus Plan. The Board of Directors empowers the Chairman of the Board and Chief Executive Officer, Vice Chairman, and President to grant individual bonuses under the plan to eligible participants up to the total dollar bonus pool approved by the Board. Supplemental bonuses are awarded based upon individual efforts not recognized under the Company's Indirect Profit Sharing Bonus Plan. Eligible participants are the Chairman of the Board and Chief Executive Officer, Vice Chairman, President, Secretary, Treasurer, Senior Executive Vice Presidents, Executive Vice Presidents, and Vice Presidents of the Company or its subsidiaries and any other salaried employees of the Company or subsidiaries as the Chairman and Chief Executive Officer, Vice Chairman, and President may select. Any bonus under this plan awarded to the Chief Executive Officer must be approved by the Compensation Committee of the Board of Directors. The payments and forfeiture provisions under this plan are under the same provisions as the Indirect Profit Sharing Bonus Plan. Exhibit 10(a) EX-10.G 3 EXHIBIT 10.G FOR KIMBALL'S 1999 FORM 10-K405 CREDIT AGREEMENT between KIMBALL INTERNATIONAL, INC. and NBD BANK, N.A. Dated as of May 25, 1999 TABLE OF CONTENTS ARTICLE I DEFINITIONS ARTICLE II THE CREDITS 2.1. Commitment 2.2. Required Payments; Termination 2.3. Types of Advances 2.4. Commitment Fee; Reductions in Commitment 2.5. Minimum Amount of Each Advance 2.6. Optional Principal Payments 2.7. Method of Selecting Types and Interest Periods for New Advances 2.8. Conversion and Continuation of Outstanding Advances 2.9. Terms Applicable to the Letters of Credit 2.9.1. Issuance of Letters of Credit 2.9.2. Letter of Credit Fees 2.9.3. Reimbursement of Letters of Credit 2.10. Changes in Interest Rate, etc 2.11. Rates Applicable After Default 2.12. Method of Payment 2.13. Evidence of Indebtedness 2.14. Telephonic Notices 2.15. Interest Payment Dates; Interest and Fee Basis 2.16. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions 2.17. Lending Installations 2.18. Request to Increase the Commitment ARTICLE III YIELD PROTECTION; TAXES 3.1. Yield Protection 3.2. Changes in Capital Adequacy Regulations 3.3. Availability of Types of Advances 3.4. Funding Indemnification 3.5. Taxes 3.6. Lender Statements; Survival of Indemnity ARTICLE IV CONDITIONS PRECEDENT 4.1. Initial Advance 4.2. Each Advance ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1. Existence and Standing 5.2. Authorization and Validity 5.3. No Conflict; Government Consent 5.4. Financial Statements 5.5. Material Adverse Change 5.6. Taxes 5.7. Litigation and Contingent Obligations 5.8. Subsidiaries 5.9. Accuracy of Information 5.10. Regulation U 5.11. Material Agreements 5.12. Compliance With Laws 5.13. Ownership of Properties 5.14. Environmental Matters 5.15. Investment Company Act 5.16. Public Utility Holding Company Act 5.17. Year 2000. ARTICLE VI COVENANTS 6.1. Financial Reporting 6.2. Use of Proceeds 6.3. Notice of Default 6.4. Conduct of Business 6.5. Taxes 6.6. Insurance 6.7. Compliance with Laws 6.8. Maintenance of Properties 6.9. Inspection 6.10. Indebtedness 6.11. Merger 6.12. Sale of Assets 6.13. Liens 6.14. Year 2000 . 6.15. Financial Covenants 6.15.1. Interest Coverage Ratio 6.15.2. Minimum Net Worth ARTICLE VII DEFAULTS ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1. Acceleration 8.2. Amendments 8.3. Deposit to Secure Reimbursement Obligations 8.4 Subrogation 8.5. Preservation of Rights ARTICLE IX GENERAL PROVISIONS 9.1. Survival of Representations 9.2. Governmental Regulation 9.3. Headings 9.4. Entire Agreement 9.5. Benefits of this Agreement 9.6. Expenses; Indemnification 9.7. Accounting 9.8. Severability of Provisions 9.9. Nonliability of the Lender 9.10. Confidentiality 9.11. Disclosure ARTICLE X SETOFF ARTICLE XI BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 11.1. Successors and Assigns 11.2. Participations 11.2.1. Permitted Participants; Effect 11.2.2. Benefit of Setoff 11.3. Dissemination of Information 11.4. Tax Treatment ARTICLE XII NOTICES 12.1. Notices 12.2. Change of Address ARTICLE XIII COUNTERPARTS ARTICLE XIV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 14.1. CHOICE OF LAW 14.2. CONSENT TO JURISDICTION 14.3. WAIVER OF JURY TRIAL The following schedules and exhibits have been omitted from this filing. Schedule 1 - Subsidiaries and Other Investments Schedule 2 - Indebtedness and Liens Schedule 3 - Existing Letters of Credit Exhibit A - Form of Opinion Exhibit B - Compliance certificate Exhibit C - Loan/Credit Related Money Transfer Instruction Exhibit D - Credit Note Exhibit E - Commitment Increase Supplement Exhibit F - Borrowing Notice CREDIT AGREEMENT This Agreement, dated as of May 25, 1999, is among Kimball International, Inc., and NBD Bank, N.A. The parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement: "Advance" means a borrowing made pursuant to Article II (or any conversion or continuation thereof). "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Agreement" means this Credit Agreement, as it may be amended or modified and in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting principles as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.4. "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the sum of the Federal Funds Effective Rate for such day plus 1/4% per annum. "Applicable Fee Rate" means, at any time, the percentage rate per annum at which Commitment Fees are accruing on the unborrowed portion of the Commitment at such time as set forth in the Pricing Schedule. "Applicable Margin" means, with respect to Advances of any Type at any time, the percentage rate per annum which is applicable at such time with respect to Advances of such Type, and the percentage rate per annum applicable to Standby Letters of Credit, all as set forth in the Pricing Schedule. "Article" means an article of this Agreement unless another document is specifically referenced. "Authorized Officer" means any of the President, Chief Financial Officer, Treasurer, and Assistant Treasurer of the Borrower, acting singly. "Borrower" means Kimball International, Inc., an Indiana corporation, and its successors and assigns. "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in Section 2.7. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Indianapolis and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Indianapolis for the conduct of substantially all of their commercial lending activities. "Capital Expenditures" means, without duplication, any expenditures for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with Agreement Accounting Principles "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Captalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Change in Control" means (i) the Family Group owns less than 35% of the Class A voting stock, or (ii) the acquisition by any Person (other than a member of the Family Group), or two or more Persons (other than members of the Family Group) acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of more of the Class A voting stock of the Borrower than that owned by the Family Group. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Commercial Letter of Credit Application" means each Application for Irrevocable Commercial Letter of Credit, in the form prescribed by the Lender, from time to time, to govern a Letter of Credit, as any of the same may be amended from time to time. "Commercial Letters of Credit" means a letter of credit now or hereafter issued pursuant to a Commercial Letter of Credit Application by the Lender from time to time at the request of, and for the account of, the Borrower pursuant to this Agreement. "Commitment" means the obligation of the Lender to make Advances up to but not exceeding $100,000,000, as such amount may be modified from time to time pursuant to the terms hereof. "Commitment Fee" is defined in Section 2.4. "Commitment Increase Supplement" is defined in Section 2.18. "Consolidated EBIT" means Consolidated Net Income plus, to the extent deducted from revenues in determining Consolidated Net Income, (i) Consolidated Interest Expense, (ii) expense for taxes paid or accrued, and (iii) extraordinary losses incurred other than in the ordinary course of business, minus, to the extent included in Consolidated Net Income, extraordinary gains realized other than in the ordinary course of business, all calculated for the Borrower and its Subsidiaries on a consolidated basis. "Consolidated Funded Indebtedness" means at any time the aggregate dollar amount of Consolidated Indebtedness which has actually been funded and is outstanding at such time, whether or not such amount is due or payable at such time. "Consolidated Indebtedness" means at any time the Indebtedness of the Borrower and its Subsidiaries calculated on a consolidated basis as of such time. "Consolidated Interest Expense" means, with reference to any period, the interest expense of the Borrower and its Subsidiaries calculated on a consolidated basis for such period. "Consolidated Net Income" means, with reference to any period, the net income (or loss) of the Borrower and its Subsidiaries calculated on a consolidated basis for such period. "Consolidated Net Worth" means at any time the consolidated stockholders' equity of the Borrower and its Subsidiaries calculated on a consolidated basis as of such time. "Consolidated Total Capitalization" means at any time the sum of Consolidated Indebtedness and Consolidated Net Worth, each calculated at such time. "Contingent Obligations" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any operating agreement, take-or-pay contract or the obligations of any such Person as general partner of a partnership with respect to the liabilities of the partnership. "Controlled Group" means all members of a controlled group of corporations or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Conversion/Continuation Notice" is defined in Section 2.8. "Default" means an event described in Article VII. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means an Advance which, except as otherwise provided in Section 2.11, bears interest at the applicable Eurodollar Rate. "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the rate determined by the Lender to be the rate at which NBD offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of the Lender's relevant Eurodollar Advance and having a maturity equal to such Interest Period. "Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Excluded Taxes" means, in the case of the Lender or applicable Lending Installation, taxes imposed on its overall net income, real estate property taxes and franchise taxes imposed on it, by (i) the jurisdiction under the laws of which the Lender is incorporated or organized or (ii) the jurisdiction in which the Lender's principal executive office or the Lender's applicable Lending Installation is located. "Exhibit" refers to an exhibit to this Agreement, unless another document is specifically referenced. "Facility Termination Date" means May 25, 2004 or any earlier date on which the Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. "Family Group" means all Persons who are members of the combined, extended families of Mr. Arnold Habig and Mr. Herbert Thyen, both of Dubois County, Indiana, including, but not limited to: (i) the spouses of Mr. Habig and Mr. Thyen; (ii) the descendants, no matter the degrees of relationship, of Mr. Habig and Mr. Thyen; (iii) the nieces and nephews, no matter the degrees of relationship, of Mr. Habig and Mr. Thyen; (iv) in-laws of Mr. Habig and Mr. Thyen; (v) the in-laws of any Person who is a member of (i), (ii) or (iii) above; (vi) any trust created for the benefit of a Person described in (i), (ii), (iii), (iv) or (v) above; and (vii) a corporation all of the outstanding capital stock of which is owned by, or a partnership all of the partners of which are, or any other organization all of the members of which are, members of the Family Group. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 11:00 a.m. (Indianapolis time) on such day on such transactions received by the Lender from three Federal funds brokers of recognized standing selected by the Lender in its sole discretion. "Floating Rate" means, for any day, a rate per annum equal to (i) the Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance which, except as otherwise provided in Section 2.11, bears interest at the Floating Rate. "Indebtedness" of a Person means such Person's (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) obligations of such Person to purchase securities or other Property arising out of or in connection with the sale of the same or substantially similar securities or Property, (vi) Capitalized Lease Obligations, (vii) Contingent Obligations, (viii) Letters of Credit, and (ix) any other obligation for borrowed money or other financial accommodation which in accordance with Agreement Accounting Principles would be shown as a liability on the consolidated balance sheet of such Person. "Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three, four, five, six, nine or twelve months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three, four, five, six, nine or twelve months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third, fourth, fifth, sixth, ninth or twelfth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third, fourth, fifth, sixth, ninth or twelfth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Investment" of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) or contribution of capital by such Person; stocks, bonds, mutual funds, partnership interests, notes, debentures or other securities owned by such Person; any deposit accounts and certificate of deposit owned by such Person; and structured notes, derivative financial instruments and other similar instruments or contracts owned by such Person. "Lender" means NBD Bank, N.A. and its successors and assigns. "Lending Installation" means the office, branch, subsidiary or affiliate of the Lender listed on the signature pages hereof or on a Schedule or otherwise selected by the Lender pursuant to Section 2.17. "Letter of Credit Applications" means, collectively, each Commercial Letter of Credit Application and each Standby Letter of Credit Application. "Letters of Credit" means Standby Letters of Credit and Commercial Letters of Credit and those letters of credit previously issued by the Lender for the account of the Borrower as described on Schedule 3. "Leverage Ratio" means, as of any date of calculation, the ratio of (i) Consolidated Funded Indebtedness outstanding on such date to (ii) Consolidated Total Capitalization on such date. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan Documents" means this Agreement, the Note, any Letter of Credit Applications and any other documents or instruments now or hereafter executed and delivered by or on behalf of the Borrower to the Lender to further evidence or govern the Obligations. "Material Adverse Effect" means a material (as such term is interpreted in accordance with Agreement Accounting Principles) adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Lender thereunder. "NBD" means NBD Bank, N.A. in its individual capacity, and its successors. "Note" means the credit note, in substantially the form of Exhibit D, duly executed by the Borrower to the Lender to evidence Advances under the Commitment, including any renewals, extensions, replacements, and modifications thereof. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Advances, actual and contingent reimbursement obligations under the Letters of Credit, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lender, or any indemnified party arising under the Loan Documents, including, without limitation, all reasonable costs of collection and enforcement of any and all thereof, including reasonable attorneys' fees. "Other Taxes" is defined in Section 3.5(ii). "Participants" is defined in Section 11.2.1. "Payment Date" means the 10th day of each month. "Person" means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "Pricing Schedule" means the Schedule attached hereto identified as such. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reserve Requirement" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "Schedule" refers to a specific schedule to this Agreement, unless another document is specifically referenced. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Standby Letter of Credit" means a letter of credit now or hereafter issued pursuant to a Standby Letter of Credit Application by the Lender from time to time at the request of, and for the account of, the Borrower pursuant to this Agreement. "Standby Letters of Credit Application" means each Application for Irrevocable Standby Letter of Credit, in the form prescribed by the Lender, duly executed by the Borrower in favor of the Lender, from time to time, to govern a Letter of Credit, as any of the same may be amended from time to time. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Substantial Portion" means, with respect to the Property of the Borrower and its Subsidiaries, Property which represents more than 25% of the consolidated assets of the Borrower and its Subsidiaries as would be shown in the consolidated financial statements of the Borrower and its Subsidiaries on a cumulative basis. "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes. "Transferee" is defined in Section 11.3. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurodollar Advance. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited liability Borrower, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. "Year 2000 Issues" means anticipated costs, problems and uncertainties associated with the inability of certain computer applications to effectively handle data including dates on and after January 1, 2000, as such inability affects the business, operations and financial condition of the Borrower and its Subsidiaries and of the Borrower's and its Subsidiaries' material customers, suppliers and vendors. "Year 2000 Program" is defined in Section 5.17. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDITS 2.1. Commitment. From and including the date of this Agreement and until the Facility Termination Date, the Lender agrees, on the terms and conditions set forth in this Agreement, to make Advances to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow at any time prior to the Facility Termination Date. The Commitment to lend hereunder shall expire on Facility Termination Date. 2.2. Required Payments; Termination. Any outstanding Advances and all other unpaid Obligations shall be paid in full by the Borrower on the Facility Termination Date. 2.3. Types of Advances. The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.7 and 2.8. 2.4. Commitment Fee; Reductions in Commitment. The Borrower agrees to pay to the Lender a commitment fee (the "Commitment Fee") at a per annum rate equal to the Applicable Fee Rate on the daily unborrowed portion of the Commitment from the date hereof to and including the Facility Termination Date, payable quarterly in arrears within 15 days of receipt by the Borrower of an invoice therefor in respect of the immediately preceding calendar quarter. For purposes of calculating the daily unborrowed portion of the Commitment, each Letter of Credit shall count against and reduce the Commitment. The Borrower may permanently reduce the Commitment in whole, or in part in integral multiples of $5,000,000, upon at least five Business Days' written notice to the Lender, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Commitment may not be reduced below the aggregate principal amount of the outstanding Advances. All accrued Commitment Fees shall be payable on the effective date of any termination of the obligations of the Lender to make Advances hereunder. 2.5. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess thereof), and each Floating Rate Advance shall be in the minimum amount of $250,000 (and in multiples of $50,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the unborrowed portion of the Commitment. 2.6. Optional Principal Payments. The Borrower may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $250,000 or any integral multiple of $50,000 in excess thereof, any portion of the outstanding Floating Rate Advances. The Borrower may from time to time pay, subject to the payment of any funding indemnification amounts required by Section 3.4 but without penalty or premium, all outstanding Eurodollar Advances, or, in a minimum aggregate amount of $1,000,000 or any integral multiple of $100,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon three Business Days' prior notice to the Lender. 2.7. Method of Selecting Types and Interest Periods for New Advances. The Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable thereto from time to time. The Borrower shall give the Lender irrevocable telephonic or written notice in the form attached hereto as Exhibit F (a "Borrowing Notice") not later than 10:00 a.m. (Indianapolis time) on the proposed Borrowing Date of each Floating Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Advance, (ii) the aggregate amount of such Advance, (iii) the Type of Advance selected, and (iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto. The Lender will make the applicable Advance available to the Borrower by deposit to the account of the Borrower with the Lender by the end of the Borrowing Date. 2.8. Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances pursuant to this Section 2.8 or are repaid in accordance with Section 2.6. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with Section 2.6 or (y) the Borrower shall have given the Lender a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance continue as a Eurodollar Advance for the same or another Interest Period. Subject to the terms of Section 2.5, the Borrower may elect from time to time to convert all or any part of a Floating Rate Advance into a Eurodollar Advance. The Borrower shall give the Lender irrevocable telephonic or written notice in the form attached hereto as Exhibit F (a "Conversion/Continuation Notice") of each conversion of a Floating Rate Advance into a Eurodollar Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Indianapolis time) at least three Business Days prior to the date of the requested conversion or continuation, specifying: (i) the requested date, which shall be a Business Day, of such conversion or continuation, (ii) the aggregate amount and Type of the Advance which is to be converted or continued, and (iii) the amount of such Advance which is to be converted into or continued as a Eurodollar Advance and the duration of the Interest Period applicable thereto. 2.9. Terms Applicable to the Letters of Credit. 2.9.1. Issuance of Letters of Credit. Subject to the terms and conditions hereof, the Lender agrees, upon proper submission of a Letter of Credit Application, to issue from time to time prior to the Facility Termination Date, Letters of Credit for the account of the Borrower. The Letters of Credit shall have an expiration date not later than the earlier of twenty-four (24) months from the date of issuance or three Business Days before the Facility Termination Date. The aggregate of the Letters of Credit outstanding plus the aggregate amount of unreimbursed drawings under the Letters of Credit shall not exceed Twenty Million Dollars ($20,000,000). The amount of any Letter of Credit outstanding at any time for all purposes hereof shall be the maximum amount which could be drawn thereunder under any circumstances from and after the date of determination. Each Letter of Credit issued pursuant to this Agreement and each unreimbursed drawing thereunder shall count against and reduce the available amount of the Commitment by the amount of such Letter of Credit outstanding unless and until such Letter of Credit expires by its terms or otherwise terminates or the amount of a drawing thereunder is reimbursed, in which event the available amount of the Commitment shall be reinstated by the amount of such Letter of Credit or the amount of such reimbursement, as the case may be. Each such Letter of Credit shall be issued pursuant to a Letter of Credit Application, shall conform to the general requirements of the Lender for the issuance of such credits, as to form and substance, shall be subject to the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 and shall be a letter of credit which the Lender may lawfully issue. If and to the extent a drawing is at any time made under any Letter of Credit, the Lender shall notify the Borrower of such draw and the Borrower agrees to pay to the Lender immediately and unconditionally upon demand for reimbursement, in lawful money of the United States, an amount equal to each amount which shall be so drawn, together with interest from the date of such drawing to and including the date such payment is reimbursed to the Lender or converted to an Advance as provided herein at a variable rate per annum equal to the Floating Rate. All such interest shall be calculated on the basis that an entire year's interest is earned in Three Hundred Sixty (360) days. In the event that a drawing under any Letter of Credit is not reimbursed by the Borrower by 1:00 p.m. (Indianapolis time) on the first Banking Day after notice to the Borrower, such unreimbursed Letter of Credit shall be reimbursed by an Advance under the Commitment evidenced by the Note. The Borrower hereby irrevocably authorizes the Lender to refinance, without further notice to the Borrower, the reimbursement Obligation of the Borrower arising out of any such drawing into a Floating Rate Advance, evidenced by the Note and for all purposes under, on and subject to the terms and conditions of this Agreement, but without regard to the conditions precedent to making an Advance under the Commitment or to any requirement of this Agreement that each Advance be in a minimum amount or multiple; provided, however, that an Advance under the Commitment in spite of the Borrower's failure to satisfy any conditions precedent to making an Advance shall not constitute a waiver of any Default by the Lender. This Agreement and the other Loan Documents shall supersede any terms of any letter of credit applications or other documents which are irreconcilably inconsistent with the terms hereof or thereof. 2.9.2. Letter of Credit Fees. The Borrower agrees to pay to the Lender, Letter of Credit fees of 1/8% of the face amount of each Commercial Letter of Credit and the Applicable Fee per annum of the face amount of each Standby Letter of Credit at the time of issuance. The Borrower shall also pay the Lender a negotiating fee of 1/8% for drafts of Commercial Letters of Credit presented for payment. The Standby Letter of Credit fees shall be calculated on the basis that an entire year consists of Three Hundred Sixty (360) days. The Lender shall also be entitled to charge to the Borrower its standard and customary fees for issuing, servicing and negotiating draws under letters of credit. 2.9.3. Reimbursement of Letters of Credit. The obligation of the Borrower to reimburse any drawing under any Letter of Credit shall be absolute, unconditional and irrevocable and shall be paid and performed strictly in accordance with the terms of this Agreement under all circumstances, whatsoever, including, without limitation, the following circumstances (other than in the case of gross negligence or conduct constituting malfeasance of the Lender): (a) any lack of validity or enforceability of any Letter of Credit, or any Loan Document; (b) any amendment or waiver of or consent to departure from the terms of any Letter of Credit, or any Loan Document; (c) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against the beneficiary of any Letter of Credit, any transferee of any Letter of Credit, the Lender or any other Person, whether in connection with the Loan Documents, such Letter of Credit, or any unrelated transaction; (d) any statement, draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (e) the surrender or impairment of any security for the performance or observance of the terms of the Loan Documents, or such Letter of Credit; or (f) any circumstance, happening or admission whatsoever, whether or not similar to any of the foregoing, including, without limitation, those matters described below. The parties benefitted by any Letter of Credit shall be deemed to be the agents of the Borrower, and except as expressly set forth herein, the Borrower assumes all risks for their acts, omissions, or misrepresentations. The Lender shall not be responsible for the validity, sufficiency, truthfulness or genuineness of any document required to draw under any Letter of Credit even if such document should in fact prove to be in any and all respects invalid, insufficient, fraudulent or forged, provided only that the document appears on its face to be in accordance with the terms of the Letter of Credit and provided the Lender is not grossly negligent or engaging in conduct constituting malfeasance. The Lender shall not be responsible for any failure of any draft to bear reference or adequate reference to the applicable Letter of Credit or for the failure of any Person to note the amount of any draft on any Letter of Credit or to surrender or take up any Letter of Credit, each of which provision may be waived by the Lender, or for errors, omissions, interruptions, or delays in transmission or delivery of any messages or documents, provided, however, that the Borrower shall have a claim against the Lender, and the Lender shall be liable to the Borrower, to the extent of any compensatory, as opposed to consequential, damages suffered by the Borrower which the Borrower proves were caused by (i) the Lender's failure to act in good faith or to observe general banking usage in connection with the Letter of Credit or failure to examine documents presented under such Letter of Credit with care to determine whether they comply with the terms of such Letter of Credit (it being understood that the Lender assumes no liability or responsibility for the genuineness, falsification or effect of any document which appears on such examination to be regular on its face) or (ii) the gross negligence or conduct constituting malfeasance of the Lender. Without limiting the generality of the foregoing, the Borrower agrees that any action taken by the Lender under or in connection with any Letter of Credit, if taken in good faith and without gross negligence, shall be binding upon the Borrower and shall not put the Lender under any such resulting liability to the Borrower. The Lender shall not be liable for action or failure to take action under or in connection with any Letter of Credit except for any such action or failure to take action which constitutes gross negligence or malfeasance of the Lender. The Lender shall not be liable for consequential damages in connection with any Letter of Credit. The Lender is expressly hereby authorized to honor any request for payment which is made under or in compliance with the terms of any Letter of Credit without regard to and without any duty on its part to inquire into the existence of any disputes or controversies between the Borrower and any beneficiary of any Letter of Credit or any other Person or into respective rights, duties or liabilities of any of them or whether any facts or occurrences represented in any of the documents presented under any Letter of Credit are true and correct. No Person, other than the parties hereto, shall have any rights of any nature under this Agreement or by reason hereof. In no event shall the Lender's reliance and payment against documents presented under a Letter of Credit appearing on its face to substantially comply with the terms thereof be deemed to constitute gross negligence or malfeasance. 2.10. Changes in Interest Rate, etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is automatically converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.8, to but excluding the date it is paid or is converted into a Eurodollar Advance pursuant to Section 2.8 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined by the Lender as applicable to such Eurodollar Advance based upon the Borrower's selections under Sections 2.7 and 2.8 and otherwise in accordance with the terms hereof. No Interest Period may end after the Facility Termination Date. 2.11. Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.7 or 2.8, during the continuance of a Default or Unmatured Default the Lender may, at its option, by notice to the Borrower, declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Lender may, at its option, by notice to the Borrower, declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate in effect from time to time plus 2% per annum, provided that, during the continuance of a Default under Section 7.6 or 7.7, the interest rates set forth in clauses (i) and (ii) above shall be applicable to all Advances without any election or action on the part of the Lender. 2.12. Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Lender at the Lender's address specified pursuant to Article XIII, or at any other Lending Installation of the Lender specified in writing by the Lender to the Borrower, by 1:00 p.m. (Indianapolis time) on the date when due. The Lender is hereby authorized to charge the account of the Borrower maintained with the Lender for each payment of principal, interest and fees if payment is not received as it becomes due hereunder. 2.13. Evidence of Indebtedness. (i) The Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to the Lender resulting from each Advance made by the Lender from time to time, including the amounts of principal and interest payable and paid to the Lender from time to time hereunder. (ii) The Lender shall also maintain accounts in which it will record (a) the amount of each Advance made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to the Lender hereunder and (c) the amount of any sum received by the Lender hereunder from the Borrower. (iii) The entries maintained in the accounts maintained pursuant to paragraphs (i) and (ii) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms. (iv) The Lender shall send the Borrower monthly statements summarizing the outstanding Advances. 2.14. Telephonic Notices. The Borrower hereby authorizes the Lender to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Lender in good faith believes to be acting on behalf of the Borrower, it being understood that the foregoing authorization is specifically intended to allow Borrowing Notices and Conversion/Continuation Notices to be given telephonically. The Borrower agrees to deliver promptly to the Lender a written confirmation, if such confirmation is requested by the Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Lender, the records of the Lender shall govern absent manifest error. 2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof and at maturity. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest and Commitment Fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.16. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. The Lender will provide the Borrower with confirmation promptly after receiving a Borrowing Notice or Conversion/Continuation Notice with respect to requested Eurodollar Advances. The Lender will provide the Borrower with written confirmation promptly after the making of each Advance (including a Floating Rate Advance used to reimburse a draw under a Letter of Credit pursuant to Section 2.9.1). Provided, however, that the failure of the Lender to provide any of the foregoing confirmations or any error in such confirmations shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms. 2.17. Lending Installations. The Lender may book its Advances at any Lending Installation selected by the Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Advances and any Notes issued hereunder shall be deemed held by the Lender for the benefit of any such Lending Installation. The Lender may, by written notice to the Borrower in accordance with Article XIII, designate replacement or additional Lending Installations through which Advances will be made by it and for whose account payments in respect of the Advances are to be made. 2.18. Request to Increase the Commitment. (a) At the request of the Borrower to the Lender, the Commitment hereunder may be increased after the date hereof on one or more occasions by not more than $50,000,000 provided that (i) the Borrower may not propose more than 2 Commitment increases each year, (ii) the minimum Commitment increase per notice shall be $5,000,000, (iii) the Borrower shall have delivered to the Lender all necessary corporate resolutions authorizing such Commitment increase, (iv) the Lender consents in writing, and (v) no Default or Unmatured Default shall have occurred and be continuing. (b) In the event that the Borrower and the Lender shall agree upon such an increase in the Commitment, the Borrower and the Lender shall enter into a Commitment Increase Supplement in the form attached as Exhibit E (the "Commitment Increase Supplement"). Upon the execution and delivery of such Commitment Increase Supplement as provided above, and upon satisfaction of such other conditions as the Lender may specify, this Agreement shall be deemed amended accordingly. ARTICLE III YIELD PROTECTION; TAXES 3.1. Yield Protection. If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) subjects the Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to the Lender in respect of its Eurodollar Advances, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to the Lender or any applicable Lending Installation of making, funding or maintaining its Eurodollar Advances or reduces any amount receivable by the Lender or any applicable Lending Installation in connection with its Eurodollar Advances, or requires the Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Eurodollar Advances held or interest received by it, by an amount deemed material by the Lender, and the result of any of the foregoing is to increase the cost to the Lender or applicable Lending Installation of making or maintaining its Eurodollar Advances or Commitment or to reduce the return received by the Lender or applicable Lending Installation in connection with such Eurodollar Advances or Commitment, then, within 30 days of demand by the Lender, the Borrower shall pay the Lender such additional amount or amounts as will compensate the Lender for such increased cost or reduction in amount received. 3.2. Changes in Capital Adequacy Regulations. If the Lender determines the amount of capital required or expected to be maintained by the Lender, any Lending Installation of the Lender or any corporation controlling the Lender is increased as a result of a Change, then, within 30 days of demand by the Lender, the Borrower shall pay the Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which the Lender determines is attributable to this Agreement, its Advances or its Commitment to make Advances hereunder (after taking into account the Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by the Lender or any Lending Installation or any corporation controlling the Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3. Availability of Types of Advances. If the Lender determines that maintenance of its Eurodollar Advances at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Lender determines that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to Eurodollar Advances does not accurately reflect the cost of making or maintaining Eurodollar Advances, then the Lender shall suspend the availability of Eurodollar Advances and require any affected Eurodollar Advances to be repaid or converted to Floating Rate Advances, subject to the payment of any funding indemnification amounts required by Section 3.4. 3.4. Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by the Borrower for any reason other than default by the Lender, the Borrower will indemnify the Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance. 3.5. Taxes. (i) All payments by the Borrower to or for the account of the Lender hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lender, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) the Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law, and (d) the Borrower shall furnish to the Lender the original copy of a receipt evidencing payment thereof within 30 days after such payment is made. (ii) In addition, the Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("Other Taxes"). (iii) The Borrower hereby agrees to indemnify the Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by the Lender and any liability (including penalties, interest and expenses) arising there from or with respect thereto. Payments due under this indemification shall be made within 30 days of the date the Lender makes demand therefore pursuant to Section 3.6. 3.6. Lender Statements; Survival of Indemnity. To the extent reasonably possible, the Lender shall designate an alternate Lending Installation with respect to its Eurodollar Advances to reduce any liability of the Borrower to the Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of Eurodollar Advances under Section 3.3, so long as such designation is not, in the judgment of the Lender, disadvantageous to the Lender. The Lender shall deliver a written statement of the Lender to the Borrower as to the amount due, if any, under Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable detail the basis upon which such amount is based and the calculations upon which the Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Advance shall be calculated as though the Lender funded its Eurodollar Advance through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to the Advance, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of the Lender shall be payable on demand after receipt by the Borrower of such written statement. The obligations of the Borrower under Sections 3.1, 3.2, 3.4 and 3.5 shall survive payment of the Obligations and termination of this Agreement. ARTICLE IV CONDITIONS PRECEDENT 4.1. Initial Advance. The Lender shall not be required to make the initial Advance hereunder or obligated to issue a Letter of Credit unless the Borrower has furnished to the Lender with the following: (i) Copies of the articles or certificate of incorporation of the Borrower, together with all amendments, and a certificate of good standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors' resolutions and of resolutions or actions of any other body authorizing the execution of the Loan Documents to which the Borrower is a party. (iii)An incumbency certificate, executed by the Secretary or Assistant Secretary of the Borrower, which shall identify by name and title and bear the signatures of the Authorized Officers and any other officers of the Borrower authorized to sign the Loan Documents to which the Borrower is a party, upon which certificate the Lender shall be entitled to rely until informed of any change in writing by the Borrower. (iv) A certificate, signed by the chief financial officer of the Borrower, stating that on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing. (v) A written opinion of the Borrower's counsel, addressed to the Lender in substantially the form of Exhibit A. (vi) The Note duly executed by the Borrower. (vii)Written money transfer instructions, in substantially the form of Exhibit C, addressed to the Lender and signed by an Authorized Officer, together with such other related money transfer authorizations as the Lender may have reasonably requested. (viii)Information satisfactory to the Lender regarding the Borrower's Year 2000 Program. (ix) An insurance certificate evidencing the catastrophic insurance carried by the Borrower and its Subsidiaries. (x) Such other documents as the Lender or its counsel may have reasonably requested except as it relates to the Borrower's trade secrets and other proprietary information. The Lender shall provide the Borrower with written confirmation upon satisfaction of the foregoing conditions. 4.2. Each Advance. The Lender shall not be required to make any Advance or obligated to issue a Letter of Credit unless on the applicable Borrowing Date: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V are true and correct as of such Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date. (iii)All legal matters incident to the making of such Advance shall be satisfactory to the Lender and its counsel. Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. The Lender may require a duly completed compliance certificate in substantially the form of Exhibit B as a condition to making an Advance. ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lender that: 5.1. Existence and Standing. Each of the Borrower and its Subsidiaries is a corporation, partnership (in the case of Subsidiaries only) or limited liability Borrower duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 5.2. Authorization and Validity. The Borrower has the power and authority and legal right to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents to which the Borrower is a party constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3. No Conflict; Government Consent. Neither the execution and delivery by the Borrower of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries or (ii) the Borrower's or any Subsidiary's articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by the Borrower or any of its Subsidiaries, is required to be obtained by the Borrower or any of its Subsidiaries in connection with the execution and delivery of the Loan Documents, the borrowings under this Agreement, the payment and performance by the Borrower of the Obligations or the legality, validity, binding effect or enforceability of any of the Loan Documents. 5.4. Financial Statements; Indebtedness. The March 31, 1999 consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lender were prepared in accordance with generally accepted accounting principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations for the period then ended. As of the date hereof, except as shown on such financial statements, except for trade debt incurred in the ordinary course of business since the date of such financial statements, and except as shown on Schedule 2, the Borrower and its Subsidiaries have no outstanding Consolidated Indebtedness exceeding Two Million Dollars ($2,000,000) in the aggregate. 5.5. Material Adverse Change. Since March 31, 1999 there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6. Taxes. The Borrower and its Subsidiaries have filed all United States federal tax returns and all other material tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles and as to which no Lien exists. The United States income tax returns of the Borrower and its Subsidiaries have been audited by the Internal Revenue Service through the fiscal year ended June 30, 1994. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7. Litigation and Contingent Obligations. There is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of the Authorized Officers, threatened against or affecting the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or which seeks to prevent, enjoin or delay the making of any Advance. Other than any liability incident to any litigation, arbitration or proceeding which could not reasonably be expected to have a Material Adverse Effect, the Borrower has no material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4. 5.8. Subsidiaries. Schedule 1 contains an accurate list of all Subsidiaries of the Borrower as of the date of this Agreement, setting forth their respective jurisdictions of organization and the percentage of their respective capital stock or other ownership interests owned by the Borrower or other Subsidiaries. All of the issued and outstanding shares of capital stock or other ownership interests of such Subsidiaries have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable. 5.9. Accuracy of Information. No information, exhibit or report furnished by the Borrower or any of its Subsidiaries to the Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.10. Regulation U. Margin stock (as defined in Regulation U) constitutes less than 25% of the value of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.11. Material Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect or (ii) any agreement or instrument evidencing or governing Indebtedness. 5.12. Compliance With Laws. The Borrower and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. 5.13. Ownership of Properties. Except as set forth on Schedule 2, on the date of this Agreement, to the best of its knowledge, the Borrower and its Subsidiaries will have good title, free of all Liens other than those permitted by Section 6.13, to all of the Property and assets reflected in the Borrower's most recent consolidated financial statements provided to the Lender as owned by the Borrower and its Subsidiaries. 5.14. Environmental Matters. In the ordinary course of its business, the officers of the Borrower consider the effect of Environmental Laws on the business of the Borrower and its Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Borrower due to Environmental Laws. On the basis of this consideration, the Borrower has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.15. Investment Company Act. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.16. Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.17. Year 2000. The Borrower has made a full and complete assessment of the Year 2000 Issues and has a realistic and achievable program for remediating the Year 2000 Issues on a timely basis (the "Year 2000 Program"). Based on such assessment and on the Year 2000 Program the Borrower does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. ARTICLE VI COVENANTS During the term of this Agreement, unless the Lender shall otherwise consent in writing: 6.1. Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Lender: (i) Within 95 days after the close of each of its fiscal years, an unqualified audit report certified by Arthur Anderson, Deloitte & Touche, Ernst & Young, KPMG or PricewaterhouseCoopers (and their respective successors) and which accountants are reasonably acceptable to the Lender, or other independent certified public accountants reasonably acceptable to the Lender, prepared in accordance with Agreement Accounting Principles on a consolidated basis for itself and its Subsidiaries, including consolidated balance sheets as of the end of such period, related consolidated profit and loss and reconciliation of surplus statements, and a consolidated statement of cash flows. (ii) Within 50 days after the close of the first three quarterly periods of each of its fiscal years, for itself and its Subsidiaries, consolidated unaudited balance sheets as at the close of each such period and consolidated profit and loss and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its chief financial officer. (iii)As soon as available, any filing with the Securities and Exchange Commission. (iv) Together with the financial statements required under Sections 6.1(i) and (ii), a compliance certificate in substantially the form of Exhibit B signed by its chief financial officer showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (v) As soon as possible and in any event within 10 days after receipt by the Borrower, a copy of (a) any specific notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (vi) Such other information (including non-financial information except as it relates to trade secrets or other proprietary information) as the Lender may from time to time reasonably request. 6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary to, use the proceeds of the Advances for acquisition related activities and general corporate purposes. The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U). 6.3. Notice of Default. The Borrower will, and will cause each Subsidiary to, give prompt notice in writing to the Lender of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues), which could reasonably be expected to have a Material Adverse Effect. 6.4. Conduct of Business. The Borrower will, and will cause each Subsidiary to (except as permitted by Section 6.11), remain duly incorporated or organized, validly existing and (to the extent such concept applies to such entity) in good standing as a domestic corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 6.5. Taxes. The Borrower will, and will cause each Subsidiary to, in all material respects, timely file complete and correct United States federal and applicable foreign, state and local tax returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with Agreement Accounting Principles. 6.6. Insurance. The Borrower will, and will cause each Subsidiary to, maintain with financially sound and reputable insurance companies catastrophic coverage insurance in such amounts as is consistent with sound business practice, and the Borrower will furnish to the Lender upon request full information as to the insurance carried. 6.7. Compliance with Laws. The Borrower will, and will cause each Subsidiary to, materially comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws. 6.8. Maintenance of Properties. The Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times provided that the Borrower may discontinue operations and dispose of property in the normal conduct of business. 6.9. Inspection. The Borrower will, and will cause each Subsidiary to, discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lender may designate. At any time there exists a Default or Unmatured Default, the Borrower will, and will cause each Subsidiary to, permit the Lender, by its respective representatives and agents, to inspect any of the Property, books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary. 6.10. Indebtedness. The Borrower will not, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except Consolidated Indebtedness of the Borrower or any Subsidiary in an aggregate principal amount not to exceed 30% of the Consolidated Total Capitalization at any one time outstanding. 6.11. Merger. The Borrower will not, nor will it permit any Subsidiary to, merge or consolidate with or into any other Person, except, so long as there then exists no Default or Unmatured Default and no Default or Unmatured Default will be occasioned thereby, (i) a Subsidiary may merge into the Borrower or a Wholly-Owned Subsidiary, and (ii) mergers in which the Borrower is the surviving party. 6.12. Sale of Assets. The Borrower will not, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of its Property to any other Person, except: (i) Sales of inventory in the ordinary course of business. (ii) Leases, sales or other dispositions of its Property that, together with all other Property of the Borrower and its Subsidiaries previously leased, sold or disposed of (other than inventory in the ordinary course of business) as permitted by this Section during the period commencing on the date of this Agreement and ending with the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Borrower and its Subsidiaries. (iii)Any transfer of an interest in accounts or notes receivable on a limited recourse basis, provided that such transfer qualifies as a sale under Agreement Accounting Principles and that the amount of such financing does not exceed $100,000,000 at any one time outstanding. 6.13. Liens. The Borrower will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books. (iii)Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation. (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or its Subsidiaries. (v) Liens arising in connection with the transactions permitted by Section 6.12(ii). (vi) Liens on Property of the Borrower or any of its Subsidiaries created solely for the purpose of securing purchase money Indebtedness and Capitalized Lease Obligations in an aggregate principal amount not to exceed 10% of the Borrower's total assets at any one time outstanding, representing or incurred to finance, refinance or refund the purchase price of the Property, provided that no such Liens shall extend to or cover other Property of the Borrower or such Subsidiary so acquired, and the principal amount of Indebtedness secured by such Lien shall at no time exceed the original purchase price of the Property. (vii) Liens existing on the date hereof and described in Schedule 2. 6.14. Year 2000. The Borrower will take and will cause each of its Subsidiaries to take all such actions as are reasonably necessary to successfully implement the Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Lender, the Borrower will provide a description of the Year 2000 Program, together with any updates or progress reports with respect thereto. 6.15. Financial Covenants. 6.15.1. Interest Coverage Ratio. The Borrower will not permit the ratio, determined as of the end of each of its fiscal quarters for the then most-recently ended four fiscal quarters, of (i) Consolidated EBIT to (ii) Consolidated Interest Expense to be less than 3.0 to 1.0. 6.15.2. Minimum Net Worth. The Borrower will at all times maintain Consolidated Net Worth of not less than $364,150,400 as of March 31, 1999 through and including June 29, 2000, and not less than $386,909,800 as of June 30, 2000 and at all times thereafter. ARTICLE VII DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries to the Lender under or in connection with this Agreement, any Advance, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 7.2. Nonpayment of principal of any Advance when due, or nonpayment of interest upon any Advance or of any commitment fee or other obligations under any of the Loan Documents within ten days after the same becomes due. 7.3. The breach by the Borrower of any of the terms or provisions of Section 6.2, 6.10, 6.11, 6.12, 6.13, 6.14 or 6.15. 7.4. The breach by the Borrower (other than a breach which constitutes a Default under another Section of this Article VII) of any of the terms or provisions of this Agreement which is not remedied within ten days after written notice from the Lender. 7.5. Failure of the Borrower or any of its Subsidiaries to pay when due any Indebtedness, or the default by the Borrower or any of its Subsidiaries in the performance (beyond the applicable grace period with respect thereto, if any) of any term, provision or condition contained in any agreement under which any such Indebtedness was created or is governed, or any other event shall occur or condition exist, the effect of which default or event is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof; or the Borrower or any of its Subsidiaries shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6. The Borrower or any of its Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate or partnership action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7. Without the application, approval or consent of the Borrower or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 30 consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of, all or any portion of the Property of the Borrower and its Subsidiaries which, when taken together with all other Property of the Borrower and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the period commencing on the date of this Agreement and ending with the month in which any such action occurs, constitutes a Substantial Portion. 7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to pay, bond or otherwise discharge one or more (i) judgments or orders for the payment of money in excess of $10,000,000 (or the equivalent thereof in currencies other than U.S. Dollars) in the aggregate, or (ii) nonmonetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgment(s), in any such case, is/are not stayed on appeal or otherwise being appropriately contested in good faith. 7.10. Any reportable event (as defined in Section 4043 of ERISA) shall occur in connection with any Plan. 7.11. The Borrower or any of its Subsidiaries shall (i) be the subject of any proceeding or investigation pertaining to the release by the Borrower, any of its Subsidiaries or any other Person of any toxic or hazardous waste or substance into the environment, or (ii) violate any Environmental Law, which, in the case of an event described in clause (i) or clause (ii), could reasonably be expected to have a Material Adverse Effect. 7.12. Any Change in Control shall occur. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligations of the Lender to make, renew or convert Advances or to issue Letters of Credit hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Lender. If any other Default occurs, the Lender may terminate or suspend the obligations of the Lender to make, renew or convert Advances or to issue Letters of Credit hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. In either event, the Obligations shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which Borrower hereby expressly waives. The remedies of the Lender specified in this Agreement and the other Loan Documents shall not be exclusive and the Lender may avail itself of any of the remedies provided by law as well as any equitable remedies available to the Lender, and each and every remedy shall be cumulative and concurrent and shall be in addition to every other remedy now or hereafter existing at law or in equity. If, within 30 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lender to make Advances hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Lender (in its sole discretion) by notice to the Borrower, may rescind and annul such acceleration and/or termination. 8.2. Amendments. Subject to the provisions of this Article VIII, the Lender and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lender or the Borrower hereunder or waiving any Default hereunder. 8.3. Deposit to Secure Reimbursement Obligations. When any Default or Unmatured Default has occurred and is continuing, the Lender may demand that the Borrower immediately pay to the Lender an amount equal to the aggregate outstanding amount of the Letters of Credit and the Borrower shall immediately upon any such demand make such payment. The Borrower hereby irrevocably grants to the Lender a security interest in all funds deposited to the credit of or in transit to any deposit account or fund established pursuant to this Section 8.3, including, without limitation, any investment of such fund. In the event the Lender makes a demand pursuant to this Section 8.3, and the Borrower makes the payment demanded, the Lender agrees to invest the amount of such payment for the account of the Borrower and at the Borrower's risk and direction in short-term investments acceptable to the Lender. 8.4. Subrogation. The Lender shall, to the extent of any payments made by the Lender under any Letter of Credit, be subrogated to all rights of the beneficiary of such Letter of Credit as to all obligations of the Borrower and its Subsidiaries with respect to which such payment shall have been made by the Lender. 8.5. Preservation of Rights. No delay or omission of the Lender to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of an Advance notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Advance shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lender, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Lender until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS 9.1. Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive the making of the Advances herein contemplated. 9.2. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, the Lender shall not be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.4. Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower and the Lender and supersede all prior agreements and understandings among the Borrower and the Lender relating to the subject matter thereof. 9.5. Benefits of this Agreement. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 9.6. Expenses; Indemnification. (i) The Borrower shall reimburse the Lender for reasonable direct costs and expenses (including reasonable attorneys' fees and time charges of attorneys for the Lender, which attorneys may be employees of the Lender) paid or incurred by the Lender in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Lender for reasonable costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Lender, which attorneys may be employees of the Lender) paid or incurred by the Lender in connection with the collection and enforcement of the Loan Documents. (ii) The Borrower hereby further agrees to indemnify the Lender, its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Lender is a party thereto) which it may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Advance hereunder except to the extent that they are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or malfeasance of the party seeking indemnification. The obligations of the Borrower under this Section 9.6 shall survive the termination of this Agreement. 9.7. Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles, except that any calculation or determination which is to be made on a consolidated basis shall be made for the Borrower and all its Subsidiaries, including those Subsidiaries, if any, which are unconsolidated on the Borrower's audited financial statements. 9.8. Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.9. Nonliability of the Lender. The relationship between the Borrower on the one hand and the Lender on the other hand shall be solely that of borrower and lender. The Lender shall not have any fiduciary responsibilities to the Borrower. The Lender undertakes no responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. The Borrower agrees that the Lender shall have no liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or malfeasance of the party from which recovery is sought. 9.10. Confidentiality. The Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates, (ii) to legal counsel, accountants, and other professional advisors to the Lender or to a Transferee, (iii) to regulatory officials, (iv) to any Person as requested pursuant to or as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which the Lender is a party, and (vi) permitted by Section 11.3. 9.11. Disclosure. The Borrower and the Lender hereby acknowledge and agree that the Lender and/or its Affiliates from time to time may hold other investments in, make other loans to or have other relationships with the Borrower or its Subsidiaries. ARTICLE X SETOFF In addition to, and without limitation of, any rights of the Lender under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by the Lender or any Affiliate of the Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to the Lender, whether or not the Obligations, or any part hereof, shall then be due. ARTICLE XI BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 11.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or obligations under the Loan Documents. Any assignee or transferee of the rights to any Advance or any Note agrees by acceptance of such transfer or assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Advance (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder, transferee or assignee of the rights to such Advance. 11.2. Participations. 11.2.1. Permitted Participants; Effect. The Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Advance owing to the Lender, any Note held by the Lender, any Commitment of the Lender or any other interest of the Lender under the Loan Documents. 11.2.2. Benefit of Setoff. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Article X in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as the Lender under the Loan Documents, provided that the Lender shall retain the right of setoff provided in Article X with respect to the amount of participating interests sold to each Participant. 11.3. Dissemination of Information. The Borrower authorizes the Lender to disclose to any Participant or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in the Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.10 of this Agreement. 11.4. Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of applicable United States tax withholding rules and regulations. ARTICLE XII NOTICES 12.1. Notices. Except as otherwise permitted by Sections 2.14 and 2.16 with respect to borrowing notices and confirmations, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party at its address or facsimile number set forth on the signature pages hereof, or at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Lender and the Borrower in accordance with the provisions of this Section 12.1. Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Lender under Article II shall not be effective until received. 12.2. Change of Address. The Borrower and the Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIII COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower and the Lender. ARTICLE XIV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 14.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (BUT WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF INDIANA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 14.2. CONSENT TO JURISDICTION. THE BORROWER AND THE LENDER HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR INDIANA STATE COURT SITTING IN INDIANAPOLIS, INDIANA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER AND THE LENDER HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE ANY OBJECTION THEY MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE LENDER OR ANY AFFILIATE OF THE LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN INDIANAPOLIS, INDIANA. 14.3. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. IN WITNESS WHEREOF, the Borrower and the Lender have executed this Agreement as of the date first above written. KIMBALL INTERNATIONAL, INC. By: Robert F. Schneider, Executive Vice President, C.F.O. & Asst. Treasurer Address: 1600 Royal Street Jasper, Indiana 47549 Attention: Jim Kane Telephone: (812) 482-8492 FAX: (812) 634-4606 NBD BANK, N.A. By: Randall K. Stephens, First Vice President Address: One Indiana Square, Suite IN1-7028 Indianapolis, Indiana 46266 Attention: Randall K. Stephens Telephone: (317) 266-6704 FAX: (317) 266-6042 Exhibit 10(g) EX-21 4 EXHIBIT 21 FOR KIMBALL'S 1999 FORM 10-K405 KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES SIGNIFICANT SUBSIDIARIES OF REGISTRANT As of June 30, 1999 the significant subsidiaries of the Registrant were as follows:
Percent of State of Voting Stock Owned Incorporation By the Registrant Kimball International Marketing, Inc. Indiana 100% Kimball International Manufacturing, Inc. Indiana 100% Kimball Electronics, Inc. Delaware 100% Kimball, Inc. Delaware 100% Kimball Hospitality Furniture, Inc. Indiana 100% McAllen-American Corporation Texas 100% Elmo Semiconductor Corporation Indiana 100% Kimball International Transit, Inc. Indiana 100% Kimball U.K., Inc. Indiana 100% Kimco, S.A. de C.V. Mexico 100% L. Bosendorfer Klavierfabrik GmbH Austria 100% Elmo Semiconducteurs SARL France 100% Kepco, Inc Indiana 100% Kimball de Juarez, S.A. de C.V. Mexico 100%
Exhibit 21 EX-23 5 EXHIBIT 23 FOR KIMBALL'S 1999 FORM 10-K405 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Numbers 33-20125 and 333-14591. Arthur Andersen LLP Chicago, Illinois September 20, 1999 Exhibit 23 EX-24 6 EXHIBIT 24 FOR KIMBALL'S 1999 FORM 10-K405 POWER OF ATTORNEY The undersigned does hereby constitute and appoint CHRISTINE M. VUJOVICH and RONALD J. THYEN, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him in his name, place and stead, to sign the Form 10-K Annual Report of Kimball International, Inc. (and each amendment thereto, if any) pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended June 30, 1999, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto the attorneys-in-fact full power and authority to sign such document on behalf of the undersigned and to make such filing, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that the attorneys-in-fact, or their substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 10, 1999 Thomas L. Habig Douglas A. Habig Thomas L. Habig Douglas A. Habig James C. Thyen Brian K. Habig James C. Thyen Brian K. Habig John B. Habig John T. Thyen John B. Habig John T. Thyen Ronald J. Thyen Gary P. Critser Ronald J. Thyen Gary P. Critser Christine M. Vujovich Jack R. Wentworth Christine M. Vujovich Jack R. Wentworth Alan B. Graf, Jr. Polly B. Kawalek Alan B. Graf, Jr. Polly B. Kawalek Exhibit 24 EX-27 7 EXHIBIT 27 FOR KIMBALL'S 1999 FORM 10-K405
5 This schedule contains summary financial information extracted from Kimball International, Inc. 1999 Form 10-K405 and is qualified in its entirety by reference to such Form 10-K405 filing. 1,000 12-MOS JUN-30-1999 JUN-30-1999 16,775 114,996 136,100 3,816 96,157 386,341 486,639 265,141 661,386 168,564 0 0 0 2,151 462,126 661,386 1,106,967 1,106,967 778,551 778,551 0 662 476 92,374 32,649 59,725 0 0 0 59,725 1.48 1.47
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