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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 August 16, 2002 were:

Class A Common Stock - 13,787,944 shares
Class B Common Stock - 24,237,921 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 August 16, 2002, was $335.8 million, based upon an estimate that 92.2% of Class B Common Stock is held by non-affiliates.

Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on October 22, 2002, are incorporated by reference into Part III.

The exhibit index is located on page 56.

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KIMBALL INTERNATIONAL, INC.
FORM 10-K
INDEX

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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 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 the following:

• Demand for the Company's product

• Relationships with strategic customers, suppliers and product distributors

• Competition in each of the Company's product lines

• Product sales mix

• Material and component availability

• Domestic and international business legislation and regulation

• The ability to utilize deferred tax assets

• Technology

• General economic conditions

• Cost and/or assumptions underlying strategic decisions

• Successful implementation of new information technology systems and solutions

• 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, except as required by law.

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 where factors could cause actual results to differ materially from forward-looking statements.

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PART I

Item 1 - Business

GENERAL

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 provides a vast array of products from its two business segments: the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment.  The Furniture and Cabinets Segment manufactures furniture for the office, residential, and lodging and healthcare industries, all sold under the Company's family of brand names.  Other products produced by the Furniture and Cabinets Segment on a contract basis include store fixtures, television cabinets and stands, residential furniture and furniture components.  The Electronic Contract Assemblies Segment provides design engineering, manufacturing, packaging and distribution of electronic assemblies, circuit boards, multi-chip modules and semiconductor components on a contract basis to a variety of industries on a global scale.

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, France, Thailand and Poland.  In the United States, the Company has facilities and showrooms in 15 states.

Sales by segment, after elimination of intersegment sales, for each of the three years in the period ended June 30, 2002 are as follows:

Financial information by segment and geographic area for each of the three years in the period ended June 30, 2002 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.

RESTRUCTURING

In June 2001, the Company's Board of Directors approved a plan to restructure certain operations to more closely align the Company's capabilities and capacities with changing market requirements and economic conditions as well as position the Company with a more competitive cost structure vital for overall long-term success.  The plan included consolidating manufacturing facilities and processes, and scaling capacities at other facilities.  The status of the plan is discussed in further details in "Management's Discussion and Analysis" in Item 7 and in Note 17 of Notes to the Consolidated Financial Statements.

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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 that has been manufactured and sold under the Kimball (registered trademark) trade name since 1970 and the National (registered trademark) trade name since 1980. In 1992, the Company expanded its product offering with the acquisition of Harpers, a metal office furniture manufacturer. Harpers had marketed metal office furniture under the Harpers (registered trademark) trade name since 1982. Harpers office furniture began to be marketed under the Kimball brand name in fiscal 2001. 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 office furniture systems have broad market application, while Transwall movable, demountable partitions products are focused more toward the office construction applications that demand a high degree of flexibility and reconfiguration. The Kimball and National casegoods and seating lines are more focused to the wood segment of the office furniture industry while utilizing other materials to an increasing extent. 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) product line, formerly a Harpers office furniture system, began being marketed under the Kimball brand in fiscal year 2001 and is designed to integrate easily with existing Kimball systems products and provide more flexibility and functionality in office design. The Reasons line of Kimball office furniture systems, marketed under Transwall prior to fiscal year 2001, provides interchangeable panels that stack vertically and allow the flexibility of stacking from floor to ceiling. The Corporate Wall and recently introduced ZWall (registration pending) lines of Transwall floor-to-ceiling movable wall systems combine the privacy and security of a full height partition with the flexibility of an open plan system.

The Company has expanded its sales and manufacture of furniture over the years to include home furniture and lodging and healthcare furniture. The Company expanded its offering of fully upholstered and wood framed seating products to the lodging and healthcare market with the purchase of Jackson of Danville in fiscal year 2000.

Other products within this segment include furniture and cabinets produced on a contract basis, including cabinets for televisions, television stands, pool tables, home furniture, store fixtures and other related products sold to leading manufacturers and retailers primarily in the home entertainment, home furniture and retail industries. The Company also produces other products including plywood, polyurethane and polyester molded products and stamped metal components and welded assemblies and sells them to both internal and external customers. Contract furniture manufacturing services and capabilities began being marketed under the flexcel name in fiscal year 2002. The flexcel group of manufacturing units provides rapid, customized manufacturing solutions to the commercial, government, institutional and entertainment market segments. Services of the Company's trucking fleet are also sold to unaffiliated customers.

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.

During fiscal year 2002 the Company sold its Boesendorfer piano subsidiary, which had originally been acquired in 1966. 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.

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LOCATIONS

Office, home, lodging and healthcare furniture, furniture and cabinets produced on a contract basis and related products, which make up the largest part of this segment, as of June 30, 2002 are produced at twenty plants; thirteen located in Indiana, two in Kentucky, and one each in Idaho, Pennsylvania, Florida, Mississippi, and Mexico. As a result of the restructuring plan announced in the fourth quarter of fiscal year 2001, four manufacturing facilities not included above, two in Indiana and one each in Kentucky and North Carolina, ceased operations under the plan with three of the facilities being held for sale or lease. One of the manufacturing facilities in Indiana that ceased operations under the plan was converted to a distribution and warehouse facility in fiscal year 2002, which replaced a previously leased facility. This segment's production flexibility would allow numerous facilities to interchange production between different products based on a change in customer or product demand, if needed.

The Company also owns and operates three sawmills, three lumberyards, two dimension lumber plants, two plants that manufacture contract wood products and a technologically advanced veneer mill. These facilities are located in Indiana, Tennessee and Kentucky. Property located in Indiana, where the Company's idle sliced veneer plant was located, was sold in June 2001.

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 nine cities for office furniture and two cities for home furniture. In addition, an office furniture showroom is maintained in London, England. In certain showrooms other Company products are also on display.

MARKETING CHANNELS

Kimball and National brands of office furniture are marketed through Company salespersons to office furniture dealers, wholesalers, and rental companies and catalog houses throughout North America and England. Certain Kimball brands of office furniture systems are manufactured and distributed locally in Central America, South America, Australia, and the Middle East through license arrangements with unaffiliated partners. The Transwall products are marketed through Company salespersons to the government, select office furniture dealers and to construction contractors. Home furniture is generally marketed through independent sales representatives to independent furniture dealers throughout the United States. Lodging and healthcare furniture is marketed through Company sales representatives and independent manufacturers' representatives. Contract furniture and cabinets are generally marketed through Company salespersons and, to a lessor extent, independent representatives. 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.

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, supplier 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 believes it is well positioned to capitalize on an emerging trend for turnkey integrated solutions in the office furniture industry. The Company maintains sufficient finished goods inventories to be able to offer prompt shipment of certain lines of Kimball and National 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 product, 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, reliability, supplier 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 home furniture market are style and aesthetics, quality, performance history, price, on-time delivery and supplier lead-time. The Company's own line of home furniture is offered for sale on an immediate ship basis.

The major competitive factors in the contract furniture and cabinet product markets are quality, performance history, price, on-time delivery, flexibility, speed, and providing customized manufacturing solutions. Contract home furniture, television cabinets and television stands are produced to customer specifications from specific orders. Finished goods inventories are generally small, consisting primarily of goods awaiting shipment to customers. The major competitive factors in the store fixtures industry are quality, supplier lead-time, price, service and installation, flexibility and on-time performance. Store fixtures are produced to customer specifications from specific orders.

Competitive factors in the furniture component products market are price, quality, availability, on-time delivery and supplier lead-time.

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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 itself, with the acquisitions of Harpers and Transwall, to strengthen its market share in the non-wood segment of the industry, and compliments the Company's wood product offerings.

There are many manufacturers of home furniture and the Company does not have a significant share of this market.

The Company believes that it is one of the largest independent domestic manufacturers of wood television cabinets, but certain manufacturers of televisions, including some customers of the Company, produce cabinets for their own use. There are many manufacturers of store fixtures and the Company does not have a significant share of this market.

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.

RAW MATERIAL AVAILABILITY

Many components used in the production of furniture and cabinets are manufactured internally within the segment, including processed wood parts, stamped metal components and certain polyurethane and polyester molded plastics, all of which are generally readily available. Other raw materials used in the production of wood furniture, cabinets and fixtures 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, have been readily available in the world market. Certain fabricated seating components and wood frame assemblies are currently sourced from Europe and Asia and are readily available. The Company has begun to source a limited number of finished furniture products from Asia for resale in the United States and abroad, which the Company expects to be generally readily available.

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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.

As of June 30, 2002 the Company's electronic contract assemblies segment consists of eight manufacturing facilities with three located in Indiana and one each in California, Mexico, France, Thailand and Poland. One additional facility located in Texas is utilized to receive inbound materials and distribute finished goods for the Mexican facility. One of the facilities, located in Auburn, Indiana, which was purchased in fiscal year 2002 from Siemens VDO produces an electronics module for an automotive passenger safety system and a line of small engine ignition products. The two other Indiana facilities, including a former warehouse facility that was converted to a high-flexibility production facility in fiscal year 2000, manufacture a variety of electronic assemblies and assemble products for sale to outside customers. The California facility assembles product and also provides semiconductor DIE processing, design, testing and packaging services. The facility located in Mexico provides services similar to those provided from the Indiana facilities. The fully automated Thailand operation, started in fiscal year 2000, offers board level assembly as well as box-build capability of products for sale to outside customers in the global market. The leased Poland facility, secured in fiscal year 2001 as part of an agreement to purchase certain manufacturing assets of Alcatel, produces electronic assemblies and telecommunication equipment for outside customers primarily in the eastern European market. As part of the restructuring plan announced in the fourth quarter of fiscal year 2001, the Company decided to exit the business of providing DIE processing and assembly services to the European market and as a result the Company, as of June 30, 2002, plans to sell its manufacturing facility located in France. Engineering design and support services are provided to the manufacturing facilities within this segment and to outside customers through the Kimball Electronics Design Services company, which is based in Indiana.  The contract electronics manufacturing industry in general has been faced with excess capacity due to the slowing economy.  The Company has not been immune and continually evaluates its operations as to the most optimum capacity and service levels by geographic region.

Manufacturing and design services are marketed by Company salespersons. 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, test capability, 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 competence 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 automotive (automobiles and light trucks), industrial controls, medical, computer and telecommunications, and defense industries. Included in this segment are sales of electronic assemblies to one customer, TRW Inc., a full-service automotive supplier, which accounted for approximately 43% of this segment's net sales in fiscal year 2002, compared to 49% and 56% in fiscal years 2001 and 2000, respectively. Sales to TRW Inc. accounted for approximately 16% of consolidated net sales in fiscal year 2002, compared to 15% and 17% in fiscal years 2001 and 2000, respectively.  TRW in turn sells complete braking assemblies, in part manufactured by the Company, to several major automotive companies, most with multiple braking assembly programs that span multiple vehicles, which partially mitigates the Company's exposure to a single customer.

The nature of the contract electronics manufacturing industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. New customer and program start-ups generally cause losses early in the life of a program which is offset by higher profitability as the program matures and becomes established. Presently, the Company has a higher concentration of new customer and program start-ups than in prior years due to its focused customer and program diversification efforts and capability expansion, both domestically and internationally, which reduced current year earnings.

This segment's operations carry a higher degree of risk than the Company's other segment due to increased globalization, rapid technological changes, component availability, capacity utilization given the contract nature of this industry, and the importance of established program sales to one customer. The continuing success of this segment is dependent upon its ability to replace expiring customers/programs with new customers/programs.
 

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OTHER INFORMATION

BACKLOG
At June 30, 2002, the aggregate sales price of production pursuant to worldwide open orders, which may be canceled by the customer, were $247 million as compared to $292 million at June 30, 2001.

Open orders as of June 30, 2002 are expected to be filled within the next fiscal year.  Open orders generally may not be indicative of future sales trends.

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.

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), Traxx (registered trademark), and Interworks (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.

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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, 2004, 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.

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.

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, 2002, are as follows:

Excluded from the above listing are two idle facilities in Indiana and one each in Kentucky and North Carolina within the Furniture and Cabinets Segment, of which three were closed as a result of the restructuring plan announced in June 2001 and are being held for sale or lease as of June 30, 2002.  Another Furniture and Cabinets Segment facility not included above is a newly leased facility in Tennessee, which was not yet in operation as of June 30, 2002.  In the Electronics Segment, one facility located in France is included above and as of June 30, 2002 is planned to be sold.

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The listed facilities occupy approximately 7,912,000 square feet in aggregate, of which approximately 7,424,000 square feet are owned and 488,000 square feet are leased.  Square footage of these facilities are summarized as follows:

Including certain leased furniture showroom areas and idle facilities excluded from the above listing, total facilities approximate 8.7 million square feet. (See Note 5 - Lease Commitments of the Notes to Consolidated Financial Statements in Item 8, for additional information concerning leases.)

Included in Unallocated Corporate are executive, national sales and administrative offices, a former energy center that is being converted to a recycling storage facility, a child development facility for employees' children, and an education center and corporate showroom.

Generally, properties are utilized at normal capacity levels on a single shift basis with certain properties utilizing second shifts and third shifts.  At times, certain facilities utilize a reduced second or third shift.  Due to sales fluctuations, not all facilities were utilized at normal capacity during the fiscal year.

Significant loss of income resulting from a facility catastrophe would be partially offset by business interruption insurance coverage.

Operating leases for all facilities, including idle facilities, total 862,000 square feet and expire from fiscal year 2003-2010 with many of the leases subject to renewal options.  Also included are 10 leased showroom facilities totaling 100,000 square feet, which are in 8 states in the United States and one location in London, England.

The Company owns approximately 27,829 acres of land which includes land where various Company facilities reside, including approximately 26,850 acres generally for hardwood timber reserves, approximately 180 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 Manufacturing plant is located.  The Company leases approximately six acres of land in Laem Chabang, Thailand where it has an Electronics manufacturing facility, with the lease expiring in 2030.

Item 3 - Legal Proceedings

The registrant and its subsidiaries are not parties to any pending legal proceedings, other than ordinary routine litigation incidental to the business, which individually, or in aggregate, are not expected to be material.

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Item 4 - Submission of Matters to Vote of Security Holders
None to report in the fourth quarter of fiscal year 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant as of August 31, 2002 are as follows: 
(Age as of August 31, 2002)

Executive officers are elected annually by the Board of Directors.  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.  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.  P. Daniel Miller was employed with International Knife and Saw, Inc. as President and CEO from April 1999 to April 2000, with the Overhead Door Corporation as President from May 1998 to April 1999, and from January 1987 to December 1997 with the Whirlpool Corporation in various capacities including President Latin American Appliance Group, Executive Vice President Whirlpool Corporation, President Kenmore Appliance Group, Vice President Sales and Distribution Whirlpool Appliance Group, and Division Vice President Builder Marketing. Roy W. Templin was appointed to his current position in July 2000, having previously served the company as Vice President, Corporate Controller.

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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:

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 2002 dividends declared were $24.1 million or $0.62 per share on Class A Common Stock and $0.64 per share on Class B Common Stock.  Dividends by quarter for 2002 compared to 2001 are as follows:

Share Owners
On July 31, 2002, the Company's Class A Common Stock was owned by approximately 649 Share Owners of record and the Company's Class B Common Stock by approximately 2,185 Share Owners of record, of which approximately 276 also owned Class A Common Stock.

Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes the Company's equity compensation plans as of June 30, 2002:

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Item 6 - Selected Financial Data

Fiscal year 2002 net income includes an $8.2 million after tax gain ($0.22 per diluted share) from the gain on the sale of the Company's Boesendorfer subsidiary and after tax expenses related to restructuring of $0.3 million or ($0.01 per diluted share).

Fiscal year 2001 net income was reduced by $19.7 million ($0.51 per diluted share) for restructuring and other charges.

Fiscal year 1999 results include a $1.3 million 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 $2.7 million after tax gain ($0.06 per diluted share) on the disposition of two non-core operating facilities.

Fiscal year 1998 results include a $1.0 million after tax gain ($0.02 per diluted share) on the sale of real estate and a $0.6 million after tax gain ($0.01 per diluted share) on the sale of a stock investment of which the Company held a minor interest.

Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW
Net sales of $1,172,504,000 were recorded in fiscal year 2002, compared to net sales of $1,261,171,000 in fiscal 2001. Net income and Class B diluted earnings per share for fiscal year 2002 were $34,500,000 and $0.91, respectively, including restructuring costs and a gain on the sale of a piano subsidiary. Exclusive of restructuring charges and the gain on the subsidiary sale, net income and Class B diluted earnings per share in fiscal year 2002, were $26,666,000 and $0.70, respectively. Net income and Class B diluted earnings per share in fiscal year 2001 were $16,583,000 and $0.43, respectively, including costs associated with restructuring actions and a one-time charge for impaired goodwill unrelated to the restructuring. Exclusive of restructuring and other expense, net income and Class B diluted earnings per share in fiscal year 2001 were $36,251,000 and $0.94, respectively.

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RESTRUCTURING AND OTHER EXPENSE
During the fourth quarter of fiscal year 2001, the Company's Board of Directors approved a plan to restructure certain operations to more closely align the Company's capabilities and capacities with changing market requirements and economic conditions as well as position the Company with a more competitive cost structure vital for overall long-term success. The following actions took place related to the plan:

• Closed four furniture and cabinet manufacturing facilities, a Company owned energy center and an administrative office location, all in the United States.
• Scaled capacities at additional manufacturing locations allowing for consolidation and/or alignment of operations in reaction to, or in anticipation of, changing market conditions.

The activities associated with this plan were substantially complete as of June 30, 2002. As a result of the above outlined activities, the Company recorded pre-tax restructuring charges in fiscal year 2002, which net to $0.9 million. Included in the fiscal 2002 restructuring charges were pre-tax facility consolidation costs of $1.4 million, additional asset write-downs of $0.6 million, employee transition costs of $0.1 million and $1.2 million of income, which resulted from adjustments to original cost estimates. In fiscal year 2001 the Company incurred pre-tax restructuring charges of $25.7 million including $11.5 million for asset write-downs, $7.5 million for the impairment of goodwill, $3.4 million for plant closure and other exit costs, and $2.6 million for transition and other employee costs. Also included was a charge of $0.7 million against cost of goods sold for the write-down of inventory. Other expenses recorded in fiscal year 2001 included $2.7 million for the impairment of goodwill that was unrelated to the restructuring plan. Approximately 570 hourly and salaried employees were affected by the restructuring plan and have been redeployed or released from the Company as of June 30, 2002. As of June 30, 2002, $2.6 million in restructuring reserves remain, which appears adequate to cover remaining committed restructuring actions to finalize the plan. Primary remaining actions include the sale or sub-lease of three idle manufacturing facilities in the furniture and cabinets segment and the sale of an electronics manufacturing facility in France. See note 17 to the consolidated financial statements for more information regarding restructuring.

Management estimated that once the restructuring plan was complete, these actions, along with cost reduction efforts that were taken beginning in mid-fiscal year 2001 to right size its workforce in response to lower sales volumes, would generate annual pre-tax savings of approximately $35 to $40 million. It is estimated the majority of the cost savings are being realized. A large part of the savings is related to the right sizing of the workforce to the lower volume levels, which can be expected to fluctuate with future sales volumes. Part of the savings is being redeployed into strategic initiatives designed to accelerate top-line revenue growth and quality and efficiency improvements.

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RESULTS OF OPERATIONS
2002 DISCUSSION
Net sales in fiscal year 2002 declined from the prior year in the Company's Furniture and Cabinets Segment while net sales in the Electronic Contract Assemblies Segment increased over fiscal year 2001. Net income in fiscal 2002 declined from fiscal 2001 in the Furniture and Cabinets Segment when excluding restructuring costs and the 2002 gain on the sale of a subsidiary. The Electronic Contract Assemblies Segment's net income in fiscal year 2002 declined from fiscal year 2001 when excluding operating results from a current year acquisition, restructuring charges in both years and a fiscal 2001 charge for impaired goodwill unrelated to the restructuring.

FURNITURE AND CABINETS
Product line offerings included in the Furniture and Cabinets Segment are office furniture, residential furniture, lodging and healthcare furniture, furniture and cabinets produced on a contract basis and furniture components. The Company's production flexibility allows it to utilize portions of the available production capacity created by lower volumes within these product lines to support and balance increased production schedules of other product lines within this segment.

In the third quarter of fiscal year 2002, the Company sold its Boesendorfer piano subsidiary, located in Vienna, Austria, to BAWAG-Bank of Austria. Included in the Company's fiscal year 2002 Consolidated Statement of Income is an $8.2 million after tax gain on this sale, which increased Class B diluted earnings per share by $0.22. Proceeds from this sale are to be used for general corporate purposes, including funding for strategic initiatives designed to accelerate sales growth and improve operations.

The Furniture and Cabinets Segment's net sales for fiscal year 2002 declined by 16% from the record sales reported in fiscal year 2001 as the Company experienced double-digit percentage sales declines in all the major product lines within this segment.

Sales in the office furniture product line decreased from the sales volumes recorded in fiscal year 2001 primarily as a result of an overall shrinking of the office furniture market. Overall price discounting increased in fiscal year 2002 from last year driven by increased competitive pricing pressures resulting from the continued softness in this market. Sales of casegoods, systems and seating products all declined from a year ago. In fiscal 2002, the Company's office furniture sales declined by less than the industry's overall 25% decline for the same period compared to the year earlier, as reported by the Business and Institutional Furniture Manufacturer's Association (BIFMA).

Lodging and healthcare product line sales decreased significantly in fiscal year 2002 from the previous year, which is believed to be the result of an overall decline in construction and renovations in the lodging industry. The percentage of sales from custom-made product within this product line, which generally carries a lower margin than the Company's standard product offerings, declined in fiscal year 2002 compared to a year earlier. Open orders at June 30, 2002 were up slightly over open orders at June 30, 2001.

Net sales in contract furniture and cabinets declined from prior year sales by a low double-digit percentage rate. Within this product line however, overall sales of large-screen projection television cabinets produced on a contract basis increased slightly over the prior year assisted partly by a price increase to one of the Company's customers in mid-fiscal 2001.

Net sales in the furniture components product line decreased significantly in fiscal year 2002, compared to the prior year, driven by large decreases in sales of dimension and lumber products. Veneer sales increased in fiscal year 2002 over the same period a year ago.

Net income in the Furniture and Cabinets Segment in fiscal year 2002 increased over the prior year. Exclusive of current and prior year restructuring charges and the 2002 gain on the sale of the Boesendorfer piano subsidiary, net income declined from a year ago. Pre-tax restructuring charges of $1.7 million were recorded in the Furniture and Cabinets Segment in fiscal 2002 primarily as a result of plant consolidation costs and additional asset write-downs. A double-digit percentage sales decline in all the major product lines within this segment is the primary reason for the decline in net income from a year ago. Gross profit, as a percent of sales, increased from fiscal 2001 resulting from lower material and labor costs, as a percent of sales. Overhead costs, as a percent of sales, increased in fiscal year 2002 over the prior year as the reduction in sales outpaced cost reductions. Also contributing to the improved margins in this segment in fiscal year 2002, compared to the prior year, were inventory reduction initiatives that resulted in a liquidation of LIFO (last-in, first-out) inventory quantities carried at lower costs prevailing in prior years, the effect of which increased net income by approximately $1.4 million or $0.04 per Class B share. The furniture components product line continues to negatively affect the profitability in this segment as fiscal 2002 bottom-line results were impacted by the significant sales volume reduction in dimension and lumber products compared to the prior year. Market conditions within the furniture components product line remain very challenging based on depressed demand levels and pressures on lumber and veneer commodity prices due, in part, to excess capacity within this market.  Improvement in this product line is dependent upon the Company achieving its planned higher volume levels and associated improvements in operating efficiencies.  Gross profit at the Company's projection television cabinet operation in Juarez, Mexico improved slightly in fiscal year 2002, compared to fiscal year 2001, despite a lower sales volume. This segment's selling, general and administrative (SG&A) spending in fiscal year 2002 decreased in absolute dollars but increased as a percent of sales, compared to the prior year, as sales volume declined at a faster rate than spending.
 

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ELECTRONIC CONTRACT ASSEMBLIES
During the second quarter of fiscal year 2002, the Company purchased a manufacturing facility located in Auburn, Indiana from Siemens VDO. The Company assumed ownership of the facility and most of the equipment and retained a large portion of the workforce. With the acquisition, the Company began to produce an electronics module for an automotive passenger safety system and a line of small engine ignition products. The acquisition was financed with available cash on hand. The acquisition price was not significant in relation to the Company's consolidated financial position.

Net sales for fiscal year 2002 surpassed the prior year by 12% in the Electronic Contract Assemblies Segment. Excluding the Auburn facility acquisition, comparable sales in the Electronic Contract Assemblies Segment increased by 2% over the previous year. Sales of electronic transportation products increased over the prior year, even when excluding sales to this market from the new Auburn facility, which is attributed to the increase in automotive demand resulting largely from industry-wide consumer incentive programs. Sales of medical components and industrial controls also increased over the prior year while sales of telecommunication and computer related products declined compared to a year ago.  The contract electronics manufacturing industry in general has been faced with excess capacity due to the slowing economy.  The Company has not been immune and continually evaluates its operations as to the most optimum capacity and service levels by geographic region.

Net income in fiscal year 2002 increased over fiscal year 2001; however, when excluding current and prior year restructuring charges, a prior year charge for impaired goodwill unrelated to the restructuring, and operations from the new Auburn facility, net income declined from last year. Pre-tax restructuring income of $0.6 million was recorded in fiscal 2002 related primarily to adjustments to original cost estimates. Gross profit, as a percent of sales, declined in fiscal year 2002 from the prior year, largely related to operational inefficiencies on the production of new products primarily at the Company's Poznan, Poland operation. The current year Auburn facility acquisition provided positive bottom-line contribution along with new product and customer diversification. Selling, general and administrative expenses remained flat, as a percent of sales, with the prior year. Lower selling expenses, largely related to a prior year write-down of accounts receivable associated with a financially unstable contract customer, offset increases in administrative costs and incentive compensation costs, which are linked to company profitability.

Included in this segment are sales to one customer, TRW, Inc., a full-service automotive supplier, which accounted for 16% and 15% of consolidated net sales in fiscal years 2002 and 2001, respectively. Sales to this customer accounted for 43% and 49% of the total sales in the Electronic Contract Assemblies Segment in fiscal 2002 and 2001, respectively.  TRW in turn sells complete braking assemblies, in part manufactured by the Company, to several major automotive companies, most with multiple braking assembly programs that span multiple vehicles, which partially mitigates the Company's exposure to a single customer.

The nature of the contract electronics manufacturing industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. New customer and program start-ups generally cause losses early in the life of a program which is offset by higher profitability as the program matures and becomes established. Presently, the Company has a higher concentration of new customer and program start-ups than in prior years due to its focused customer and program diversification efforts and capability expansion, both domestically and internationally, which reduced current year earnings.

This segment's operations carry a higher degree of risk than the Company's other segment due to increased globalization, rapid technological changes, component availability, capacity utilization given the contract nature of this industry, and the importance of established program sales to one customer. The continuing success of this segment is dependent upon its ability to replace expiring customers/programs with new customers/programs.
 

17

CONSOLIDATED OPERATIONS
Consolidated sales mix by business segment in fiscal 2002 shifted by six percentage points from the Furniture and Cabinets Segment (63%) to the Electronic Contract Assemblies Segment (37%) compared to the prior year. Fiscal 2001 consolidated sales mix included 69% of sales from the Furniture and Cabinets Segment and 31% of sales from the Electronic Contract Assemblies Segment. The Furniture and Cabinets Segment generally carries a higher gross profit percentage and higher selling, general and administrative costs, as a percent of sales, compared to the Electronic Contract Assemblies Segment.

Consolidated selling, general and administrative expenses decreased in absolute dollars but increased, as a percent of sales, 0.9 percentage point, in fiscal year 2002 when compared to fiscal 2001. Lower selling expenses, in both absolute dollars and as a percent of sales, were more than offset by higher administrative and incentive compensation costs.

Other income increased from the prior year primarily from a pre-tax gain of $15.4 million related to the sale of the Boesendorfer subsidiary. Both interest income and interest expense declined from the prior year as a result of lower interest rates, lower average investment balances and lower outstanding balances on the Company's revolving line of credit. Fiscal year 2002 miscellaneous income was down from fiscal 2001.

The effective income tax rate, excluding the impact from current and prior year restructuring and other charges, decreased 0.7 percentage point in fiscal year 2002, compared to fiscal 2001. The federal effective tax rate declined from a year ago while the state effective tax rate increased in fiscal 2002, on the same comparable basis. A lower effective tax rate on the gain from the sale of Boesendorfer, resulting from a higher tax basis, favorably impacted both the federal and state effective tax rates in fiscal 2002. An overall increase in domestic tax expense and a higher percentage of foreign income in the prior year combined to increase the state effective rate in fiscal 2002 compared to last year. Including current and prior year restructuring and other charges, the combined effective tax rate decreased from the prior year by 5.3 percentage points.

Fiscal year 2002 net income and Class B diluted earnings per share, inclusive of restructuring charges and a gain on the sale of the Boesendorfer subsidiary, were $34,500,000 and $0.91, respectively. Excluding restructuring charges and the Boesendorfer gain, fiscal year 2002 net income was $26,666,000 and Class B diluted earnings per share was $0.70 compared to net income of $36,251,000 and Class B diluted earnings per share of $0.94 in fiscal year 2001, exclusive of restructuring and other charges.

Several of the Company's principal markets remain soft during a very challenging economic time. The Company cannot predict when its primary markets, or the economy in general, will begin to turnaround and stage a recovery.
 

18

2001 DISCUSSION
Net sales for fiscal year 2001 surpassed 2000 net sales on increases by both of the Company's segments - the Furniture and Cabinets Segment and the Electronic Contract Assemblies Segment. Net income exclusive of restructuring and other charges in fiscal 2001 declined from fiscal 2000 for both segments.

FURNITURE AND CABINETS
The Furniture and Cabinets Segment net sales for fiscal year 2001 increased slightly over the record sales recorded in fiscal year 2000. The sales increase over the prior year was led by sales of furniture and cabinets produced on a contract basis, primarily sales of large-screen projection television cabinets, which offset sales declines in other key product lines within this segment.

Sales in the office furniture product line decreased from the sales volumes recorded in fiscal year 2000 largely as a result of an overall slowing in the office furniture industry in the latter half of fiscal year 2001. Overall price discounting increased slightly in fiscal year 2001 over the prior year as a result of increased pricing pressures driven by the slower economy. Sales of casegoods increased over the prior year despite the overall industry reduction while sales of systems and seating products declined from fiscal year 2000. For the fiscal year ending June 2001, both the Company's office furniture sales and the overall industry, as reported by the Business and Institutional Furniture Manufacturer's Association (BIFMA), experienced a low single-digit percentage decline compared to the prior year.

Net sales in the lodging and healthcare product line decreased in fiscal year 2001 from the previous year. Sales of the Company's standard product offerings, which generally carry a higher margin, increased in fiscal year 2001, while sales of custom-made product declined when compared to the prior year. The Company's strategic shift in focus to drive more sales of the generally higher margined standard products proved successful in fiscal year 2001.

Contract furniture and cabinets experienced a double-digit growth rate in net sales in fiscal year 2001, when compared to the prior year, excluding the impact from a mid-year acquisition in fiscal year 2000. Increased sales volume of large-screen projection television cabinets produced on a contract basis was the largest single contributor to the sales growth in this product line. A price increase to one of the Company's projection television cabinet customers also contributed to the overall sales increase compared to the year earlier period.

Net sales in the furniture components product line decreased in fiscal year 2001, compared to the prior year as dimension, lumber and veneer products all decreased from fiscal year 2000.

Net income in the Furniture and Cabinets Segment decreased in fiscal year 2001, exclusive of pre-tax restructuring charges of $20.0 million recorded in fiscal 2001, from the prior year despite a slight increase in sales volume (see note 17 to the consolidated financial statements for more information on restructuring). Gross profit, as a percent of sales, declined from fiscal 2000 largely due to an increase in labor and overhead costs, as a percent of sales. Increased depreciation expense along with higher expenditures for freight and utilities associated with higher energy costs were the largest contributors to the increased overhead costs. The furniture components product line and the contract furniture and cabinets line primarily drove the lower gross margins in this segment. Lower sales volumes and continued start-up challenges and associated inefficiencies at the Company's veneer mill in Chandler, Indiana drove the lower margins within the furniture components line. Lower margins in the contract furniture and cabinets product line were primarily the result of reduced manufacturing efficiencies including those at the Company's projection television cabinet operation in Juarez, Mexico. An overall shift in sales mix to lower margined products within this segment also contributed to the lower overall profitability compared to the prior year. Selling, general and administrative (SG&A) expenses in fiscal year 2001 decreased in both dollars and as a percent of sales compared to the prior year largely from reduced incentive compensation costs, which are linked to company profitability. Exclusive of incentive compensation costs, SG&A expenses decreased, as a percent of sales, from fiscal year 2000 as a result of a focus to reign in discretionary spending.

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ELECTRONIC CONTRACT ASSEMBLIES
During fiscal year 2001, the Company continued its strategic global expansion within the Electronic Contract Assemblies Segment with the acquisition of the manufacturing assets of Alcatel located in Poznan, Poland. The Company leases the facility and initially manufactured telecommunications equipment under a supply agreement with Alcatel. The acquisition was accounted for as a purchase and was financed with available cash on hand. The Company also completed and moved into a new microelectronics facility located in Valencia, California during the latter half of fiscal year 2001. The Valencia facility, which increased capacity and enhanced technical manufacturing capabilities, replaced a previously leased facility in Burbank, California.

Net sales for fiscal year 2001 surpassed the prior year by 6% in the Electronic Contract Assemblies Segment. Excluding acquisitions, comparable sales in the Electronic Contract Assemblies Segment decreased 1% from the previous year. Sales of telecommunication components increased, as a result of the Poznan, Poland acquisition, as did sales of industrial controls compared to sales in fiscal year 2000. Sales of electronic transportation products were relatively flat compared to the prior year while sales of computer related products and medical components declined over the same comparison. Although overall sales of transportation components were relatively flat compared to the previous year, a significant change in sales mix within this product line occurred during this same period.

Net income in fiscal year 2001 declined from the reported net income in fiscal year 2000, exclusive of fiscal year 2001 pre-tax restructuring charges of $4.2 million and a $2.7 million pre-tax charge for impaired goodwill unrelated to the restructuring plan (see note 17 to the consolidated financial statements for more information on restructuring and other expense). Gross profits were lower in fiscal year 2001, largely as a result of charges for excess and obsolete material related to select contract-based customers. Product mix changes within and among the product lines in this segment, resulting partly from a planned diversification of its customer base into a variety of new products, also contributed to the lower gross profitability in fiscal year 2001. Additionally, charges related to the write-down of custom equipment and working capital associated with a financially unstable contract customer impacted operating results in fiscal year 2001. On the positive side, this segment's recent global expansion initiatives proved successful in fiscal year 2001 with a significant favorable contribution to the prior year net income comparison. Selling, general and administrative expenses decreased in both dollars and as a percent of sales in fiscal year 2001 driven by lower absolute selling expenses and incentive compensation, which is linked to company profitability.

Included in this segment are sales to one customer, TRW, Inc., which accounted for 15% and 17% of consolidated net sales in fiscal year 2001 and 2000, respectively. Sales to this customer represented approximately one-half of total sales in the Electronic Contract Assemblies Segment in fiscal years 2001 and 2000.

CONSOLIDATED OPERATIONS
Consolidated selling, general and administrative expenses decreased in both dollars and as a percent of sales, 1.0 percentage point, in fiscal year 2001 when compared to fiscal year 2000. This reduction in selling, general and administrative costs is primarily due to lower absolute selling expenses and lower incentive compensation costs, which are linked to company profitability.

Pre-tax restructuring and other charges of $28.4 million were recorded in fiscal year 2001, including $25.7 million associated with restructuring activities ($0.7 million recorded in cost of goods sold for the write-down of inventory). Also included is a $2.7 million charge for impaired goodwill unrelated to the restructuring. See note 17 to the consolidated financial statements for more information on restructuring and other expense.

Other income decreased from the prior year as lower interest income, caused by lower average investment balances, and higher interest expense, from increased outstanding balances on the Company's revolving credit line, more than offset an increase in miscellaneous income. Contributing to the lower average investment balances, compared to the prior year, are repurchases of Class B Common Stock for $20 million and $24 million in fiscal years 2001 and 2000, respectively.

The effective income tax rate, excluding the impact from restructuring and other charges, decreased 0.5 percentage point in fiscal year 2001, when compared to fiscal year 2000, primarily as a result of the increase in foreign income with lower tax rates. Excluding the effect from restructuring and other charges, the federal effective tax rate remained flat with the prior year while the state effective tax rate declined. Including restructuring and other, the combined effective tax rate increased over the prior year by 3.5 percentage points.

Fiscal year 2001 net income and Class B diluted earnings per share, inclusive of restructuring and other charges, were $16,583,000 and $0.43, respectively. Excluding restructuring and other charges, fiscal year 2001 net income was $36,251,000 and Class B diluted earnings per share was $0.94 compared to net income of $48,462,000 and Class B diluted earnings per share of $1.21 in fiscal year 2000.
 

20

LIQUIDITY AND CAPITAL RESOURCES
The Company's aggregate of cash, cash equivalents, and short-term investments decreased from $80 million at the end of fiscal year 2001 to $73 million at the end of fiscal year 2002. Net cash used for investing and financing activities, excluding purchases and sales of securities, more than offset cash provided from operating activities during fiscal year 2002. Working capital at June 30, 2002 was $188 million compared to working capital of $181 million at June 30, 2001. The current ratio was 2.1 at June 30, 2002 compared to 1.9 at June 30, 2001.

Operating activities generated $77 million of cash flow in fiscal year 2002 compared to $102 million in fiscal year 2001. Net income, exclusive of non-cash charges, and a $10 million decrease in inventories contributed to the operating cash flow in fiscal 2002. In fiscal 2001, higher net income, exclusive of restructuring and other charges, and a $31 million decrease in accounts receivable were the primary reasons for the higher operating cash flow compared to fiscal 2002. The Company reinvested $56 million into capital investments for the future, including the acquisition of the Auburn, Indiana facility, a new larger electronics manufacturing facility in Laem Chabang, Thailand, production equipment primarily related to new contract business, and improvements to the Company's information technology systems and solutions. The Company expects to continue to invest in resources for leveraging new and improved enterprise-wide information technology systems and solutions. Investing activities included $20 million provided by the sale of facilities and subsidiaries, including the sale of the Boesendorfer subsidiary. Financing cash flow activities included $24 million in dividend payments and a $26 million net reduction in short-term debt.

At June 30, 2002, the Company did not have any short-term borrowings outstanding under its $100 million revolving credit facility, which expires in May 2004, that allows for both issuance of letters of credit and cash borrowings. The Company had $28 million of debt outstanding under this credit facility at June 30, 2001. The credit facility requires the Company to comply with certain debt covenants including debt-to-total capitalization, interest coverage ratio, minimum net worth, and other terms and conditions. The Company is in compliance with these covenants at June 30, 2002.

The Company believes its principle sources of liquidity from available funds on hand, cash generated from operations and the $100 million available under the Company's revolving credit facility will be sufficient in fiscal year 2003 for working capital needs and for funding investments in the Company's future. The Company's first source of funds is largely based on its ability to generate cash from operations to meet its liquidity obligations, which could be affected by factors such as a decline in demand for the Company's products, loss of key contract customers, the ability of the Company to generate profits, and other unforeseen circumstances. The Company's secondary source of funds is its revolving credit facility, which is contingent on complying with certain debt covenants. The Company is in compliance with these covenants at June 30, 2002 and does not expect the covenants to limit or restrict its ability to borrow on the facility in fiscal year 2003. The Company anticipates maintaining a strong liquidity position for the 2003 fiscal year.

The Company does not have material exposures to off-balance sheet arrangements including special purpose entities, trading activities of non-exchange traded contracts, or transactions with related parties.

21

CRITICAL ACCOUNTING POLICIES
The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from these estimates and assumptions. Management uses its best judgement in the assumptions used to value these estimates, which are based on current facts and circumstances, prior experience, and other assumptions that are believed to be reasonable. Kimball management overlays a fundamental philosophy of valuing its assets and liabilities in an appropriately conservative manner. A summary of Kimball's significant accounting policies is disclosed in Note 1 to the consolidated financial statements beginning on page 32. Management believes the following critical accounting policies reflect the more significant judgements and estimates used in preparation of the Company's consolidated financial statements, and/or, are the policies which are most critical in the portrayal of the Company's financial position and results of operations. Management has discussed these critical accounting policies and estimates with the Audit Committee of the Company's Board of Directors and with the Company's independent auditors.

Revenue recognition - The Company recognizes revenue when title and risk transfer to the customer, which is generally when the product is shipped. Guidelines regarding revenue recognition are strictly adhered to and volatility resulting from estimates or judgement is minimal.

• Allowance for sales returns - At the time revenue is recognized certain provisions may also be recorded, including returns and allowances, which involve estimates based on current discussions with applicable customers, historical experience with a particular customer and/or product, and other relevant factors. As such, these factors may change over time causing the provisions to be adjusted accordingly. At June 30, 2002 and June 30, 2001 the reserve for returns and allowances was $1.4 million and $1.7 million, respectively. Historically, over the past three years, the returns and allowances reserve has been approximately 1% of gross trade receivables.
• Allowance for doubtful accounts - Allowance for doubtful accounts is generally based on a percentage of aged receivables, where the percentage increases as the receivables become older. However, management judgement is utilized in the final determination of the allowance based on several factors including specific analysis of a customer's credit worthiness, changes in a customer's payment history, historical bad debt experience, and general economic and market trends. The allowance for doubtful accounts at June 30, 2002 and 2001 was $4.2 million and $4.6 million, respectively, and over the past three years this reserve has trended between approximately 2% and 5% of gross trade receivables.

Excess and obsolete inventory - Inventories were valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 37% and 38% of consolidated inventories in 2002 and 2001, respectively, including approximately 85% and 75% of the Furniture and Cabinets Segment inventories in 2002 and 2001, respectively. The remaining inventories are valued at lower of first-in, first-out (FIFO) cost or market value. FIFO inventory recorded on the Company's balance sheet is adjusted for excess and obsolete inventory. In general, the Company purchases materials for contract-based business from customer orders and projections, primarily in the case of long lead-time items, and is transitioning to a general philosophy to only purchase materials to the extent covered by a written commitment from its customers. However, there are times when inventory is purchased beyond customer commitments where minimal lot sizes, component allocation or other component procurement issues may exist. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover, inventory levels, and product demand levels. Factors considered when evaluating inventory obsolescence include the age of on-hand inventory and reduction in value due to damage, use as showroom samples, design changes or cessation of product lines. These factors may change over time causing the reserve level to adjust accordingly.

Self-insurance reserves - The Company is self-insured up to certain limits for auto and general liability, workers' compensation and certain employee health benefits including medical, short-term disability and dental with the related liabilities included in the accompanying financial statements. The Company's policy is to estimate reserves based upon periodic actuarial valuations, and known or estimated future claims. The Company uses independent outside actuaries to assist in the valuation of medical reserves on an annual basis and on a bi-annual basis for workers compensation. Actuarial studies support the development of claim growth factors, including factors for incurred but not reported claims, which are then applied to the Company's actual claims history. The actuarial valuations are based on historical information along with certain assumptions about future events. Ultimately, the Company adjusts its reserve levels to align with these periodic independent actuarial studies. Changes in assumptions for such matters as increased medical costs and changes in actual experience could cause these estimates to change and reserve levels to be adjusted accordingly. At June 30, 2002 and 2001 the Company's accrued liabilities for self-insurance exposure was $4.1 million and $3.3 million, respectively, excluding amounts funded in a voluntary employees' beneficiary association (VEBA) trust.

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ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146 (FAS 146), Accounting for Costs Associated with Exit or Disposal Activities, which nullifies Emerging Issues Task Force Issue No. 94-3 (Issue 94-3), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. The provisions of FAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect adoption of this statement to have a material impact on the Company's financial position or results of operations.

In August 2001, the Financial Accounting Standards Board issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which is effective for the Company's fiscal year beginning July 1, 2002. FAS 144 establishes a single model to account for impairment of assets to be held or disposed, incorporating guidelines for accounting and disclosure of discontinued operations. The adoption of FAS 144 will not have a material effect on the Company's financial position or results of operations.

In June 2001, the Financial Accounting Standards Board issued Statement No. 141, Business Combinations (FAS 141), and Statement No. 142, Goodwill and Other Intangible Assets (FAS 142). FAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting. Under FAS 142, amortization of goodwill will cease and the goodwill carrying values will be tested periodically for impairment. The Company is required to adopt FAS 142 effective July 1, 2002 for goodwill and intangible assets acquired prior to July 1, 2001. Goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to the goodwill nonamortization and intangible amortization provisions of this statement. The adoption of FAS 142 will not have a material impact on the Company's financial position or results of operations.

Effective with the fourth quarter of fiscal year 2001, the Company changed its income statement classification of shipping and handling fees and costs in accordance with EITF 00-10, Accounting for Shipping and Handling Fees and Costs. As a result of this adoption of EITF 00-10, the Company now reflects all shipping and handling fees billed to customers as sales while the related shipping and handling costs are included in cost of goods sold. Prior to the adoption of EITF 00-10 some fees and costs were netted in selling, general and administrative expenses. Shipping and handling fees and costs for all prior periods presented have been reclassified to conform to the new income statement presentation. The reclassification had no impact on the Company's financial position or net income.

Item 7a - Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2002 and 2001, the Company had an investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $54 million and $69 million respectively.  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.  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, 2002 and 2001 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.  The effect of movements in the exchange rates was not material to the consolidated operating results of the Company in fiscal years 2002 and 2001.  The Company estimates that a hypothetical 10% adverse change in foreign currency exchange rates would not affect the consolidated operating results of the Company by a material amount.

23

Item 8 - Financial Statements and Supplementary Data

24

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 accounting principles generally accepted in the United States of America and include judgements and estimates, which in the opinion of management are applied on an appropriately conservative basis.

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

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

25

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

We have audited the accompanying consolidated balance sheet of Kimball International, Inc. and subsidiaries (the "Company") as of June 30, 2002, and the related consolidated statements of income, share owners' equity and cash flows for the year ended June 30, 2002.  Our audit also included the financial statement schedule listed in the index at item 14.  These financial statements and financial statement schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  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 audit provides a reasonable basis for our opinion.

In our opinion, such 2002 consolidated financial statements present fairly, in all material respects, the financial position of Kimball International, Inc. and subsidiaries as of June 30, 2002, and the results of their operations and their cash flows for the year ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, the 2002 financial statement schedule, when considered in relation to the basic 2002 consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

26

THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

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, 2001 and 2000, 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, 2001.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kimball International, Inc. and subsidiaries as of June 30, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States.

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.

27

KIMBALL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share Data)

See Notes to Consolidated Financial Statements

28

KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data) 

See Notes to Consolidated Financial Statements

29

KIMBALL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS' EQUITY
(Amounts in Thousands, Except for Share Data)

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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.

Revenue Recognition: Revenue from product sales is recognized when title and risk transfer to the customer, which is generally when the product is shipped.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.  Available-for-sale securities are stated at market value, with unrealized gains and losses excluded from net income and recorded net of related tax effect, if any, in Accumulated Other Comprehensive Income, as a component of Share Owners' Equity.

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

Inventories: Inventories are stated at the lower of cost or market value.  Cost includes material, labor and applicable manufacturing overhead and is determined using the last-in, first-out (LIFO) method for approximately 37% and 38% of consolidated inventories in 2002 and 2001, 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.  The Company performs reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

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Computer Software:  Internal-use software is stated at cost less accumulated amortization and is amortized using the straight-line method over its estimated useful life ranging from 2 to 8 years.  Software assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets.  During the software application development stage, capitalized costs include external consulting costs, cost of software licenses, and internal payroll and payroll-related costs for employees who are directly associated with a software project.  Upgrades and enhancements are capitalized if they result in added functionality which enable the software to perform tasks it was previously incapable of performing.  Software maintenance, training, data conversion and business process reengineering costs are expensed in the period in which they are incurred.

Research and Development: The costs of research and development are expensed as incurred.  These costs were approximately, in millions, $15.1 in 2002, $14.5 in 2001, and $13.5 in 2000.

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 is covered under fully insured HMO plans.  The costs for such plans are charged against earnings in the year in which the incident occurred.  The Company does not provide benefits under these plans to retired employees.  Employees of foreign subsidiaries are covered by local benefit plans, the cost of which is not significant to the consolidated financial statements.

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

Off-Balance Sheet Risk and Concentration of Credit Risk: The Company engages in financing arrangements with customers on a limited basis and has business and credit risks concentrated in the transportation, computer, telecommunications, consumer electronics and furniture industries.  One customer, TRW, Inc., represented 26% of consolidated accounts receivable at June 30, 2002 and 2001.  The Company currently does not foresee a credit risk associated with these receivables.

Derivatives:  Derivative financial instruments are recognized on the balance sheet as either assets or liabilities and are measured at fair value.  Changes in the fair value of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is designated and effective as part of a hedge transaction, and if it is, the type of hedge transaction.  Gains and losses on derivative instruments reported in accumulated other comprehensive income are included in earnings in the periods in which earnings are affected by the hedged item.  The Company's use of derivatives is currently limited to forward purchases of foreign currency to manage exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of future inventory and fixed asset purchases denominated in foreign currency.  Derivative financial instruments did not have a material effect on the Company's financial position or results of operations.

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

Stock-Based Compensation:  The Company accounts for its employee stock option plans in accordance with 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.

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New Accounting Standards:  In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146 (FAS 146), Accounting for Costs Associated with Exit or Disposal Activities, which nullifies Emerging Issues Task Force Issue No. 94-3 (Issue 94-3), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).  FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred.  Under Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan.  The provisions of FAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002.  The Company does not expect adoption of this statement to have a material impact on the Company's financial position or results of operations.

In August 2001, the Financial Accounting Standards Board issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which is effective for the Company's fiscal year beginning July 1, 2002.  FAS 144 establishes a single model to account for impairment of assets to be held or disposed, incorporating guidelines for accounting and disclosure of discontinued operations.  The adoption of FAS 144 will not have a material effect on the Company's financial position or results of operations.

In June 2001, the Financial Accounting Standards Board issued Statement No. 141, Business Combinations (FAS 141), and Statement No. 142, Goodwill and Other Intangible Assets (FAS 142). FAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting. Under FAS 142, amortization of goodwill will cease and the goodwill carrying values will be tested periodically for impairment. The Company is required to adopt FAS 142 effective July 1, 2002 for goodwill and intangible assets acquired prior to July 1, 2001. Goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to the goodwill nonamortization and intangible amortization provisions of this statement. The adoption of FAS 142 will not have a material impact on the Company's financial position or results of operations.

Effective with the fourth quarter of fiscal 2001, the Company changed its income statement classification of shipping and handling fees and costs in accordance with EITF 00-10, Accounting for Shipping and Handling Fees and Costs.  As a result of this adoption of EITF 00-10, the Company now reflects all shipping and handling fees billed to customers as sales while the related shipping and handling costs are included in cost of goods sold.  Prior to the adoption of EITF 00-10 some fees and costs were netted in selling, general and administrative expenses.  Shipping and handling fees and costs for all prior periods presented have been reclassified to conform to the new income statement presentation.  The reclassifications had no impact on the Company's financial position or net income.

NOTE 2    ACQUISITIONS AND DISPOSITIONS

Acquisitions of Subsidiaries:
In the second quarter of fiscal year 2002, the Company announced it had purchased a manufacturing facility located in Auburn, Indiana from Siemens VDO.  The Company assumed ownership of the facility and most of the equipment and retained a large portion of the workforce.  With the acquisition, the Company began to produce an electronics module for an automotive passenger safety system and a line of small engine ignition products.  The acquisition was financed with available cash on hand.  The new facility is not a significant subsidiary, and accordingly, pro forma results of operations have not been provided.

In the first quarter of fiscal year 2001, the Company acquired the manufacturing assets of Alcatel located in Poznan, Poland.  The Company leases the facility and initially manufactured telecommunications equipment under a supply agreement with Alcatel.  The acquisition was accounted for as a purchase and was financed with available cash on hand.  The new facility is not a significant subsidiary, and accordingly, pro forma results of operations have not been provided.

In the second quarter of fiscal year 2000, the Company purchased Jackson of Danville, a privately held manufacturer of custom and in-line fully upholstered seating products and wood framed chairs.  The acquisition was accounted for as a purchase with operating results included in the Company's Consolidated Statements of Income from the date of acquisition, and was financed with available cash on hand and the Company's Class B Common Stock.  The acquisition price and operating results of this acquisition were not material to the Company's fiscal year 2000 consolidated financial position and operating results.

Disposition of Subsidiary:
The Company sold its Boesendorfer piano subsidiary, located in Vienna, Austria, to BAWAG-Bank of Austria during the third quarter of fiscal year 2002.  Included in the fiscal year 2002 Consolidated Statement of Income is an $8.2 million after tax gain on the sale of the subsidiary, which increased earnings per diluted share by $0.22.  The pre-tax gain recognized in Other-net was $15.4 million.  Indirect expenses relating to the sale recognized in Selling, General and Administrative Expense amounted to $5.3 million.  Income taxes amounted to $1.9 million.

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NOTE 3    INVENTORIES

Inventories are valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 37% and 38% of consolidated inventories in 2002 and 2001, respectively, including approximately 85% and 75% of the Furniture and Cabinets Segment inventories in 2002 and 2001, respectively.  The cost of Electronic Contract Assemblies Segment inventories and the remaining inventories in the Furniture and Cabinets Segment are valued using the lower of first-in, first-out (FIFO) cost or market value.

Had the FIFO method been used for all inventories, net income would have been $1.5 million lower in 2002, $0.3 million lower in 2001, and $1.5 million higher in 2000.  Additionally, inventories would have been, in millions, $19.3 and $22.1 higher at June 30, 2002 and 2001, respectively, if the FIFO method had been used.  Certain inventory quantity reductions caused liquidations of LIFO inventory values, which increased net income by $1.4 million in 2002 and $0.7 million in 2001, and which were immaterial in 2000.

Inventory components at June 30 are as follows:

NOTE 4    PROPERTY AND EQUIPMENT

Depreciation and amortization of property and equipment totaled, in millions, $39.3 for 2002, $46.9 for 2001, and $37.5 for 2000.

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NOTE 5    LEASE COMMITMENTS

Operating leases for certain office, showroom, warehouse and manufacturing facilities, land and equipment, which expire from fiscal year 2003 to 2030, contain provisions under which minimum annual lease payments are, in millions, $6.6, $5.8, $3.9, $1.6, and $0.9 for the five years ended June 30, 2007, respectively, and aggregate $1.9 million from fiscal year 2008 to the expiration of the leases in fiscal year 2030.  The Company is obligated under certain real estate leases to maintain the properties and pay real estate taxes.

Total rental expenses amounted to, in millions, $7.1, $5.6, and $7.4 in 2002, 2001 and 2000, 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, $611, $1,458, $448, $38, and $8, respectively, and aggregate $339 thereafter.  Interest rates range from 0% to 9.25%.  Interest paid was immaterial in each of the three years ending June 30, 2002.  Based upon borrowing rates currently available to the Company, the fair value of the Company's debt approximates the carrying value.

The Company maintains a five year revolving credit facility which expires in fiscal 2004 and provides for up to $100 million in borrowings.  The Company uses this facility for acquisitions and general corporate purposes.  A commitment fee is payable on the unused portion of the credit facility.  The interest rate applicable to borrowings under the agreement is based on the London Interbank Offered Rate (LIBOR) plus a margin.  The Company is in compliance with debt covenants requiring it to maintain certain debt-to-total capitalization, interest coverage ratio, minimum net worth, and other terms and conditions.  At June 30, 2002, the Company did not have any borrowings outstanding under this facility.  At June 30, 2001, the Company had $27.5 million of short-term borrowings outstanding under this facility.

NOTE 7    RETIREMENT PLANS

The Company has a trusteed defined contribution retirement plan in effect for substantially all domestic employees meeting the eligibility requirements. The plan includes a 401(k) feature, thereby permitting participants to make additional voluntary contributions on a pre-tax basis.  Payments by the Company to the trusteed plan are vested and held for the sole benefit of participants.

The Company maintains a supplemental employee retirement plan (SERP) for executive employees which enables them to defer cash compensation on a pre-tax basis in excess of IRS limitations.  The SERP is structured as a rabbi trust and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy.

Company contributions are based on a percent of net income as defined in the plans; the percent of contribution is determined by the Board of Directors up to specific maximum limits.  Total contributions to the retirement plans for 2002, 2001 and 2000 were approximately, in millions, $6.1, $5.0, and $9.1, respectively.

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

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NOTE 8    STOCK OPTIONS

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

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 2.8 million remaining shares carried forward from the 1987 plan, for incentive stock options, nonqualified stock options, stock appreciation rights, and performance share awards available for grant to officers and other key employees of the Company, and to members of the Board of Directors who are not employees.  The 1996 Stock Incentive Program is a ten year plan.  The number of employees participating in the program was 250 in fiscal year 2002, and 270 in fiscal year 2001 and 2000.

On August 13, 1996, the Board of Directors approved 250,000 shares reserved for issuance under the Directors' Stock Compensation and Option Plan available to all members of the Board of Directors, which was approved by the Company's Share Owners on October 22, 1996.  Under terms of the plan, Directors electing to receive all, or a portion, of their fees in the form of Company stock will also be granted a number of stock options equal to 50% of the number of shares received for compensation of fees.  Option prices and vesting are similar to those of the 1996 Stock Incentive Program.  The plan is in effect through October 2006.

Stock options are priced at the fair market value of the stock at the date of grant.  Options granted under the plans generally are exercisable from six months to two years after the date of grant and expire five to ten years after the date of grant.  Stock options are forfeited when employment terminates, except in case of retirement, death or permanent disability.

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The Company adopted the disclosure requirements of Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (FAS 123).  The Company has elected to continue to follow the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretations; accordingly, no compensation cost has been reflected in the financial statements for its stock options.  Had compensation cost for the Company's 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:

The weighted average fair value at date of grant for options granted during the years ended June 30, 2002, 2001 and 2000 was $4.30, $4.38 and $5.49 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 40.6% in 2002, 38.2% in 2001 and 38.5% in 2000; risk-free interest rates of 4.8% in 2002, 6.1% in 2001 and 5.9% in 2000; dividend yield of 4.4% in 2002, 4.2% in 2001 and 3.9% in 2000; and an expected life of 6.0 years for 2002, 4.0 years for 2001 and 3.5 years for 2000.

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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.  Income tax benefits associated with foreign net operating losses expire from fiscal year 2007 to 2012.  A valuation reserve was provided as of June 30, 2001 for deferred tax assets relating to foreign net operating losses, but no longer is necessary as of June 30, 2002 because of the sale of a foreign subsidiary.

The components of the deferred tax assets and liabilities as of June 30, 2002 and 2001, are as follows:

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

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Taxes on income are composed of the following items:

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

Cash payments for income taxes, net of refunds, were in thousands, $4,665, $17,413 and $29,826 in 2002, 2001 and 2000, respectively.

NOTE 10    COMMON STOCK

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.  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.

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NOTE 11    QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Net income in the third quarter of fiscal 2002 includes an $8.2 million after tax gain, or $0.22 per share, on the sale of the Company's Boesendorfer piano subsidiary.

Net income in the fourth quarter of fiscal 2001 includes $19.7 million, or $0.51 per share, for restructuring and other charges.

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NOTE 12    SHORT-TERM INVESTMENTS

The Company's short-term investment portfolio consists of available-for-sale securities in fiscal year 2002 and 2001.  Fair values are estimated based upon the quoted market values of those, or similar instruments.  Carrying costs reflect the original purchase price, with discounts and premiums amortized over the life of the security.

Available-for-sale securities are reported at fair value and consist primarily of government and municipal obligations with fair values and carrying costs of, in thousands, $53,919 and $52,952 at June 30, 2002, compared to $68,746, and $67,735 at June 30, 2001, respectively.  Unrealized holding gains and losses at June 30, 2002 were, in thousands, $967 and $0, compared to $1,011 and $0 at June 30, 2001, respectively.  All available-for-sale securities mature within a four year period.

Proceeds from sales of available-for-sale securities were, in thousands, $19,870 and $44,514 for the years ended June 30, 2002 and 2001, respectively.  Gross realized gains and losses on the sale of available-for-sale securities at June 30, 2002 were, in thousands, $363 and ($8) respectively, compared to gross realized gains and losses of, in thousands, $265 and ($48) respectively, at June 30, 2001.  The cost was determined on each individual security in computing the realized gains and losses.

The Company maintains a self-directed supplemental employee retirement plan (SERP) for executive employees which holds investments of $8.8 million at June 30, 2002.  The SERP is structured as a rabbi trust and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy.  The Company recognizes SERP assets on the balance sheet at current fair value.  A SERP liability of the same amount is recorded on the balance sheet representing the Company's obligation to distribute SERP funds to participants.  The SERP investment assets are classified as trading, and accordingly, realized and unrealized gains and losses are recognized in income.  Adjustments made to revalue the SERP liability are also recognized in income, and exactly offset valuation adjustments on SERP investment assets.  The change in net unrealized holding gains and losses at June 30, 2002 was, in thousands, ($398).  The SERP portfolio as of June 30, 2001 was invested in cash equivalents.

NOTE 13    ACCRUED EXPENSES

Accrued expenses at June 30 consist of:

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NOTE 14   SEGMENT AND GEOGRAPHIC AREA INFORMATION

Management organizes the Company into segments based upon differences in products and services offered in each segment.  The segments and their principal products and services are as follows:

The Furniture and Cabinets Segment manufactures furniture for the office, residential, and lodging and healthcare industries, all sold under the Company's family of brand names.  Other products produced by the Furniture and Cabinets Segment on a contract basis include store fixtures, television cabinets and stands, residential furniture and furniture components.  Intersegment sales are insignificant.

The Electronic Contract Assemblies Segment provides design engineering, manufacturing, packaging and distribution of electronic assemblies, circuit boards, multi-chip modules and semiconductor components on a contract basis to a variety of industries on a global scale.  Intersegment sales are insignificant.  Included in the Electronic Contract Assemblies Segment are sales to one customer, TRW, Inc., totaling in millions, $185.7, $192.2 and $205.0 in 2002, 2001 and 2000, respectively, representing 16%, 15% and 17% 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 accounting principles generally accepted in the United States of America.  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.  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.

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(1) Includes after tax restructuring charges of $0.3 million in fiscal year 2002.  On a segment basis, the Furniture and Cabinets Segment recorded a $1.0 million restructuring charge, the Electronic Contract Assemblies Segment recorded $0.6 million of restructuring income, and Unallocated Corporate recorded $0.1 million of restructuring income.  See Note 17 of the Consolidated Financial Statements for further discussion.

(2) Net income in the Furniture and Cabinets Segment for fiscal year 2002 includes an $8.2 million after tax gain on the sale of the Company's Boesendorfer piano subsidiary.

(3) Includes after tax restructuring and other charges of $19.7 million in fiscal year 2001.  On a segment basis, the Furniture and Cabinets Segment recorded a $13.2 million restructuring charge, the Electronic Contract Assemblies Segment recorded $5.6 million of restructuring and other charges, and Unallocated Corporate recorded a $0.9 million restructuring charge.  See Note 17 of the Consolidated Financial Statements for further discussion.

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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.

   

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NOTE 15   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 and related payment of assumed dividends for all potentially dilutive securities.  Earnings per share of Class A and Class B Common Stock are as follows:

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