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(Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes x    No o

The number of shares outstanding of the Registrant's common stock as of April 23, 2004 were:

Class A Common Stock - 13,655,619 shares
Class B Common Stock - 24,454,909 shares

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KIMBALL INTERNATIONAL, INC.
FORM 10-Q
INDEX

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)

See Notes to Condensed Consolidated Financial Statements

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

See Notes to Condensed Consolidated Financial Statements

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KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Kimball International, Inc. (the "Company") have been prepared in accordance with the instructions to Form 10-Q.  As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading. All significant intercompany transactions and balances have been eliminated. Management believes the financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly the financial statements for the interim periods. The results of operations for the interim periods shown in this report are not necessarily indicative of results for any future interim period or for the entire year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K.

Certain prior year information has been reclassified to conform to the current year presentation.

Stock-Based Compensation
The Company accounts for stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, because all stock options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant, no expense related to employee stock options is recognized in income.  The Company recognizes expense associated with restricted share units and performance shares, which compensate employees with common stock.  Included in compensation expense for the third quarter of 2004 is $0.2 million related to the grant of 322,150 restricted share units under the Company's 2003 Stock Option and Incentive Plan which was approved in the second quarter of 2004.  At March 31, 2004, there was $5.4 million in deferred stock-based compensation related to restricted share unit grants recorded in the Share Owners' Equity section of the Condensed Consolidated Balance Sheet.  The Company's stock-based employee compensation plans are described in the Company's Annual Report on Form 10-K for the year ended June 30, 2003 and in the Company's proxy statement filed September 10, 2003.  The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	Three Months Ended March 31,			Nine Months Ended March 31,
	2004	2003		2004	2003
(Amounts in Thousands, Except for Per Share Data)
Net Income, as reported	$4,367	$2,764		$14,049	$2,753
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects	151	9		277	114
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	292	476		1,102	1,570
Pro forma net income	$4,226	$2,297		$13,224	$1,297
Earnings per share:
As reported:
Basic:
Class A	$0.11	$0.07		$0.36	$0.06
Class B	$0.12	$0.07		$0.37	$0.08
Diluted:
Class A	$0.11	$0.07		$0.36	$0.06
Class B	$0.12	$0.07		$0.37	$0.08
Pro Forma:
Basic:
Class A	$0.11	$0.06		$0.34	$0.02
Class B	$0.11	$0.06		$0.35	$0.04
Diluted:
Class A	$0.11	$0.06		$0.34	$0.02
Class B	$0.11	$0.06		$0.35	$0.04
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Note 2. Inventories

Inventory components of the Company are as follows:

	March 31,		June 30,
(Amounts in Thousands)	2004		2003
Finished Products	$32,001		$29,639
Work-in-Process	13,304		14,709
Raw Materials	41,238		42,951
Total Inventory, net	$86,543		$87,299

For interim reporting, LIFO inventories are computed based on year-to-date quantities and interim changes in price levels. Changes in quantities and price levels are reflected in the interim financial statements in the period in which they occur.

Note 3. Comprehensive Income

Comprehensive income includes all changes in equity during a period except those resulting from investments by, and distributions to, Share Owners. Comprehensive income, shown net of tax if applicable, for the three and nine month periods ended March 31, 2004 and 2003 is as follows:

		Three Months Ended		Nine Months Ended
		March 31,		March 31,

	2004		2003		2004		2003
(Amounts in Thousands)
Net Income	$4,367		$ 2,764		$14,049		$2,753
Change in Unrealized Losses on Securities [1]	(43)		(41)		(274)		(41)
Change in Gains/Losses on Derivatives [2]	(409)		5		279		(14)
Foreign Currency Translation Adjustment	18		(1,419)		65		174
Comprehensive Income	$3,933		$ 1,309		$14,119		$2,872

[1] Net of tax expense/(benefit) of ($23) and ($22) for the three months ended March 31, 2004 and 2003, respectively, and ($147) and ($21) for the nine months ended March 31, 2004 and 2003, respectively.

[2] Net of tax expense/(benefit) of ($151) for the three months ended March 31, 2004 and $107 for the nine months ended March 31, 2004. The Company's use of derivatives is generally limited to forward purchases of foreign currency designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in forecasted transactions denominated in a foreign currency.

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Note 4. Segment Information

Management organizes the Company into segments based upon differences in products and services offered in each segment. The Furniture and Cabinets segment provides furniture for the office, residential, and hospitality industries, all sold under the Company's family of brand names. The Furniture and Cabinets segment also provides engineering and manufacturing services which utilize common production and support capabilities on a contract basis to customers in the residential furniture and cabinets, office furniture, and retail infrastructure industries, as well as forest products. The Electronic Contract Assemblies segment provides engineering and manufacturing services which utilize common production and support capabilities to a variety of industries globally. The Company's focus is on electronic assemblies that have high durability requirements and are sold on a contract basis and produced to customers' specifications. The Company currently sells primarily to customers in the transportation, industrial controls, computer, telecommunications and medical industries. Intersegment sales are insignificant. Unallocated corporate assets include cash and cash equivalents, short-term investments and other assets not allocated to segments. Unallocated corporate net income consists of net income not allocated to segments for purposes of evaluating segment performance and includes income from corporate investments and other non-operational items. The basis of segmentation and accounting policies of the segments are consistent with those as disclosed in the Company's Annual Report on Form 10-K for the year ended June 30, 2003.

	Three Months Ended		Nine Months Ended
	March 31,		March 31,

	2004		2003		2004		2003
(Amounts in Thousands)
Net Sales:
Furniture and Cabinets	$170,379		$165,917		$532,715		$532,042
Electronic Contract Assemblies	114,587		119,814		326,975		346,111
Unallocated Corporate and Eliminations	413		125		934		158
Consolidated	$285,379		$285,856		$860,624		$878,311
Net Income (Loss):
Furniture and Cabinets	$         28		$  (4,441)		$  (1,445)		$(12,059)
Electronic Contract Assemblies	4,368		6,373		12,957		12,070
Unallocated Corporate and Eliminations	(29)		832		2,537		2,742
Consolidated	$    4,367	[1]	$     2,764	[2]	$  14,049	[1]	$     2,753	[2]
Total Assets:
Furniture and Cabinets	$330,722		$340,125
Electronic Contract Assemblies	195,974		202,504
Unallocated Corporate and Eliminations	86,577		79,622
Consolidated	$613,273		$622,251

[1] Net Income includes after-tax restructuring charges of $264 and $1,417 in the three and nine months ended March 31, 2004, respectively.  On a segment basis, in the three and nine months ended March 31, 2004, the Furniture and Cabinets segment recorded $303 and $1,056 of restructuring charges, and Unallocated Corporate recorded $39 of restructuring income and $361 of restructuring charges, respectively.  See Note 5 of the Condensed Consolidated Financial Statements for more information on restructuring.

[2] Net Income includes after-tax restructuring and other charges of $611 and $10,569 in the three and nine months ended March 31, 2003, respectively.  On a segment basis, in the three and nine months ended March 31, 2003, the Furniture and Cabinets segment recorded $1,405 and $8,893 of restructuring and other charges and the Electronic Contract Assemblies segment recorded $640 of restructuring income and a $1,830 restructuring charge, respectively.  Unallocated Corporate recorded $154 of restructuring income in both the three and nine months ended March 31, 2003.  See Note 5 of the Condensed Consolidated Financial Statements for further discussion.

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Sales by Product Line

The Furniture and Cabinets segment produces and sells a broad range of similar products and services. Net sales to external customers by product line within the Furniture and Cabinets segment are as follows:

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2004		2003		2004		2003
(Amounts in Thousands)
Net Sales:
Furniture and Cabinets
Branded Furniture	$128,705		$119,641		$397,739		$379,937
Contract Furniture and Cabinets	25,928		34,788		90,352		119,952
Forest Products	15,746		11,488		44,624		32,153
Total	$170,379		$165,917		$532,715		$532,042

Note 5. Restructuring Expense

Fiscal Year 2004 Charges
During the second quarter of fiscal year 2003, the Company announced incremental cost scaling actions to more closely align its operating capacities and capabilities with reduced demand levels related to the prolonged nature of the global economic slowdown in many of the Company's markets and the resulting continuation of underutilized manufacturing capacity. The actions include the consolidation of capabilities and operations, selling and/or exiting redundant facilities, aligning personnel costs and adjusting associated assets to their current fair values.

As a result of the restructuring plans, the Company recognized consolidated pre-tax restructuring expense of $0.9 million and $3.3 million in the three and nine months ending March 31, 2004, respectively. Included in the third quarter of fiscal 2004 restructuring charge is $0.4 million for asset write-downs, $0.1 million for employee transition and other employee costs, and $0.4 million for plant closure and other exit costs. Included in the year-to-date restructuring charge is $1.6 million for asset write-downs, $0.1 million for employee transition and other employee costs, and $1.6 million for plant closure and other exit costs. These charges are included in the Restructuring and Other Expense line item on the Company's Condensed Consolidated Statements of Income. The Company accounts for restructuring costs in accordance with Statement of Financial Accounting Standards No. 146, Accounting for Cost Associated with Exit or Disposal Activities. Based on the costs incurred since inception of $24.7 million and the latest cost estimates, the Company estimates total pre-tax restructuring and other costs to be approximately $25 million.

On a segment level, during the quarter ended March 31, 2004 within the Furniture and Cabinets segment, the Company recorded pre-tax restructuring charges of $0.5 million, primarily related to employee transition and other employee costs, and plant closure and other exit costs, and Unallocated Corporate recorded pre-tax restructuring charges of $0.4 million, primarily related to asset write-downs.  During the nine-month period ended March 31, 2004, the Furniture and Cabinets segment recorded pre-tax restructuring charges of $1.7 million primarily related to asset write-downs, and plant closure and other exit costs, and Unallocated Corporate recorded $1.6 million of pre-tax restructuring charges, primarily related to asset write-downs.

The Company has executed most activities relative to the restructuring plan, and expects the remaining activities to be substantially complete within six months.

Fiscal Year 2003 Charges
The consolidated operating results included pre-tax restructuring charges of $2.1 million and $11.5 million for the third quarter and nine months ended March 31, 2003, respectively.  For the third quarter, $3.4 million of pre-tax restructuring charges were recorded in the Furniture and Cabinets segment, $1.0 million of pre-tax restructuring income related to adjustments to original cost estimates was recorded in the Electronic Contract Assemblies segment, and $0.3 million of pre-tax restructuring income related to adjustments to original cost estimates was recorded in Unallocated Corporate.  For the nine months ended March 31, 2003, $7.7 million of pre-tax restructuring charges were recorded in the Furniture and Cabinets segment, $4.1 million of pre-tax restructuring charges were recorded in the Electronic Contract Assemblies segment, and $0.3 million of pre-tax restructuring income was recorded in Unallocated Corporate. These charges are included in the Restructuring and Other Expense line item on the Company's Condensed Consolidated Statements of Income.

The consolidated operating results for the nine months ended March 31, 2003 also included a pre-tax charge of $8.0 million for asset impairment within the Furniture and Cabinets segment to align the carrying values of long-lived assets with their fair values. The charge was unrelated to the above described restructuring plan and was pursuant to the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The charge was included in the Restructuring and Other Expense line item on the Company's Condensed Consolidated Statements of Income.

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Accrued Restructuring:
At March 31, 2004, a total of $0.4 million of restructuring liabilities related to the 2003 restructuring plan remained on the Condensed Consolidated Balance Sheet. The restructuring charge, utilization and cash paid to date, and ending reserve balances at March 31, 2004 were as follows:
 

(Amounts in Thousands)	Transition and Other Employee Costs		Asset Write-downs		Plant Closure and Other Exit Costs		Total
Accrued Restructuring at June 30, 2003	$     17		$     -0-		$   575		$   592
Amounts Charged - Cash	113		-0-		1,385		1,498
Amounts Charged - Non-Cash	-0-		1,616		-0-		1,616
Subtotal	113		1,616		1,385		3,114
Amounts Utilized / Cash Paid	(113)		(1,616)		(1,796)		(3,525)
Amounts Adjusted	(17)		-0-		208		191
Accrued Restructuring at March 31, 2004	$    -0-		$     -0-		$   372		$   372

Note 6. Guarantees and Product Warranties

As of March 31, 2004, the Company had guarantees issued which are contingent on the future performance of another entity. The guarantees include customer lease financing with recourse, whereby the Company may become liable to a third party leasing company if the customer defaults on its lease, and guarantees of third party dealer facility leases and bank loans, whereby the Company may become liable if the dealer defaults on a lease or bank loan. At the inception of a guarantee, the Company recognizes a liability for obligations the Company may incur if specified triggering events or conditions occur. The liability is recorded at fair value which is estimated based on various factors including risk that the Company may have to perform under a guarantee, and ability to recover against payments made on a guarantee. The maximum potential liability and carrying amount recorded for these guarantees is immaterial to the Company's financial position.

The Company estimates product warranty liability at the time of sale based on historical repair cost trends in conjunction with the length of the warranty offered. Management may refine the warranty liability in cases where specific warranty issues become known.

Changes in the product warranty accrual for the nine months ended March 31, 2004 and 2003 were as follows:

	Nine Months Ended March 31,
(Amounts in Thousands)	2004		2003
Product Warranty Liability at the beginning of the period	$ 5,011		$ 6,156
Accrual for warranties issued	1,457		1,181
Accruals related to pre-existing warranties (including changes in estimates)	60		(85)
Settlements made (in cash or in kind)	(1,513)		(1,482)
Product Warranty Liability at the end of the period	$ 5,015		$ 5,770

 

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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS OVERVIEW
Kimball International, Inc. 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 provides furniture for the office, residential and hospitality industries, all sold under the Company's family of brand names. The Furniture and Cabinets segment also provides engineering and manufacturing services which utilize common production and support capabilities on a contract basis to customers in the residential furniture and cabinets, office furniture, and retail infrastructure industries, as well as forest products. The Electronic Contract Assemblies segment provides engineering and manufacturing services which utilize common production and support capabilities to a variety of industries globally.

Management currently considers the following events, trends and uncertainties to be most important to understanding its financial condition and operating performance:

• Recent increases in capital investments in the general economy appear to indicate improvement in most end markets, which in part is evident in increased demand for furniture sold by the Company since the beginning of fiscal year 2004. Competitive pricing continues to put pressure on operating margins.
   
• The Electronic Contract Assemblies segment continues to increase sales to the transportation industry, while also striving to diversify its customer base. Competitive pricing continues to put pressure on operating margins as consumer incentive programs are promoted by the automotive industry.
   
• Suppliers of several key components, including steel and wood composite sheet stock, are increasing prices which the Company is attempting to manage to minimize the impact on margins.
   
• Cost increases relating to audit fees, healthcare and commercial insurance are challenges that the Company continues to face, and as a result, relentless focus is placed on cost reduction and productivity gains throughout the Company.

FINANCIAL OVERVIEW
Net sales in the third quarter of fiscal year 2004 were $285,379,000, which approximated third quarter net sales posted in fiscal year 2003 as a net sales decrease within the Electronic Contract Assemblies segment offset an increase in sales in the Furniture and Cabinets segment. Third quarter fiscal year 2004 net income was $4,367,000, or $0.12 per Class B diluted share, inclusive of after-tax restructuring charges of $264,000, which is less than $0.01 per Class B diluted share. The third quarter fiscal year 2003 net income was $2,764,000, or $0.07 per Class B diluted share, including after-tax restructuring charges of $611,000, or $0.02 per Class B diluted share. Consolidated third quarter fiscal year 2004 net earnings improved from the prior year same period as net earnings improvements in the Furniture and Cabinets segment more than offset a net earnings decline in the Electronic Contract Assemblies segment.

Net sales for the nine-month period ended March 31, 2004 of $860,624,000 were down 2% from the same period in the prior year due to a decrease in net sales in the Electronic Contract Assemblies segment. Furniture and Cabinets segment net sales for the same nine-month period were flat with the prior year nine-month period. Current year net income for the nine-month period ended March 31, 2004 totaled $14,049,000, or $0.37 per Class B diluted share, inclusive of after-tax restructuring charges of $1,417,000, or $0.04 per Class B diluted share. Prior year net income for the nine-month period ended March 31, 2003 totaled $2,753,000, or $0.08 per Class B diluted share, inclusive of $10,569,000, or $0.28 per Class B diluted share of after-tax restructuring charges and a one-time asset impairment charge. For the nine-month period ended March 31, 2004, consolidated net earnings improved in both the Furniture and Cabinets segment and the Electronic Contract Assemblies segment compared to the prior year same period.

During the second quarter of fiscal year 2003, the Company's Board of Directors approved a restructuring plan comprised of incremental cost scaling actions to more closely align the Company's operating capacities and capabilities with reduced demand levels related to the prolonged nature of the global economic slowdown in many of the Company's markets and the resulting continuation of underutilized manufacturing capacity within both of the Company's segments. The Company has executed most activities relating to the restructuring plan, with remaining activities expected to be substantially complete within six months. Management estimates that once the restructuring actions are completed, they will reduce the Company's total cost structure by approximately $20 million on an annualized pre-tax basis, with part of the savings to be redeployed into strategic initiatives designed to accelerate sales growth and improve quality and efficiencies. (See Note 5 to the condensed consolidated financial statements for more information on restructuring.)

Consolidated selling, general and administrative (SG&A) expenses increased in absolute dollars and as a percent of sales in the third quarter of fiscal year 2004 when compared to the prior year same quarter due to costs relating to investment in business development and higher incentive compensation costs. For the nine-month period ended March 31, 2004, consolidated SG&A expenses increased as a percent of sales, but decreased in absolute dollars compared to the prior year same period.

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Other income increased from the prior year for the nine-month period ended March 31, 2004 in part due to an increase in rental income for idled manufacturing space.

The effective income tax rate for the third quarter of fiscal year 2004 decreased 6.2 percentage points from the same quarter last year in part due to the tax effect of the Company's foreign operations and increased tax benefits associated with research and development activities. The fiscal year 2004 nine-month effective tax rate increased 4.1 percentage points from the prior year same period due primarily to the prior year benefits associated with the donation of an idled facility which was partially offset by current year tax effects of the Company's foreign operations.

RESULTS OF OPERATIONS BY SEGMENT - THREE AND NINE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE AND NINE MONTHS ENDED MARCH 31, 2003

FURNITURE AND CABINETS SEGMENT
The Furniture and Cabinets segment provides furniture for a variety of industries, sold under the Company's family of brand names and on a contract basis. 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.

When compared to fiscal 2003 third quarter net sales of $165.9 million, third quarter fiscal year 2004 net sales of $170.4 million increased 3% in the Furniture and Cabinets segment as net sales increases in the forest products and branded furniture product lines were partially offset by a net sales decrease in the contract furniture and cabinets product line. Furniture and Cabinets segment nine-month net sales for fiscal year 2004 were flat as compared to the prior year same period as net sales increases in the forest products and branded furniture product lines were offset by a net sales decrease in the contract furniture and cabinets product line.

Net sales for the three and nine-month periods ended March 31, 2004 of the Company's branded furniture products, which include office, residential and hospitality furniture, increased 8% and 5%, respectively, from the same periods last year primarily from an increase in net sales of office furniture. The net sales increase is attributable to an increase in sales volume and to a lesser degree, a price increase on select branded furniture products. Branded furniture products open orders at March 31, 2004 were lower than open orders at March 31, 2003 as an increase in office furniture open orders were offset by a decrease in open orders for hospitality furniture.

Net sales of contract furniture and cabinets, which includes residential furniture and cabinets, office furniture, and retail infrastructure, for the current year third quarter and fiscal year-to-date both declined 25%, compared to the prior year same periods. The net sales decreases within this product line are primarily due to residential furniture and cabinets experiencing a sales decline when compared with the prior year same quarter and year-to-date as per unit sales revenues were down due to customer design and product changes as well as continued customer pricing pressures. At March 31, 2004, open orders for the contract furniture and cabinets product line were flat with open orders at March 31, 2003.

Net sales in the forest products product line increased 37% and 39%, respectively, in the third quarter and year-to-date fiscal year 2004, compared to the prior year same periods. Net sales of lumber have increased in the current year third quarter which is partially due to price increases on select products as well as greater exporting to Europe. Open orders for forest products as of March 31, 2004 were higher than open orders at March 31, 2003.

The Furniture and Cabinets segment produced slight net income in the third quarter of fiscal year 2004, inclusive of after-tax restructuring charges of $0.3 million, which was an improvement over the $4.4 million net loss of the prior year third quarter, which included $1.4 million after-tax expense relating to restructuring activities. The year over year third quarter improvement is the result of improved net earnings in all product lines within this segment. Gross profit, as a percent of net sales, improved in the third quarter of fiscal year 2004 when compared to the third quarter last year as material, labor, and overhead each improved, as a percent of net sales. Furniture and Cabinets segment third quarter fiscal 2004 selling, general, and administrative spending decreased in absolute dollars and as a percent of net sales as compared to the third quarter of fiscal 2003. The contract manufacturing product line experienced operating inefficiencies during the current year third quarter which were more than offset by other improvements in this segment. Net income for the current year third quarter benefited from price increases on select products within this segment. In addition, losses in the forest products product line in the fiscal 2004 third quarter, which totaled $0.03 per Class B diluted share, improved from the loss incurred in the same quarter of the prior year which totaled $0.06 per Class B diluted share as gross profit improved within this product line. When compared to the third quarter of last year, the current quarter net income also includes benefits associated with the exit of underperforming facilities related to the restructuring activities that were initiated in fiscal year 2003. For the nine-month period ended March 31, 2004, the Furniture and Cabinets segment recorded a net loss of $1.4 million, inclusive of $1.1 million of after-tax restructuring charges as compared to a year-to-date fiscal year 2003 net loss of $12.1 million, inclusive of $8.9 million of after-tax restructuring charges and the one-time asset impairment charge. The fiscal 2004 year-to-date net earnings improvement over prior year-to-date is attributable to improvements in all product lines within this segment.

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Risk factors within this segment include, but are not limited to, general economic and market conditions, increased global competition, supply chain cost pressures, and relationships with strategic customers and product distributors. Additional risk factors that could have an effect on the Company's performance are contained in the Company's Form 10-K filing for the period ended June 30, 2003.

ELECTRONIC CONTRACT ASSEMBLIES SEGMENT
Electronic Contract Assemblies segment net sales of $114.6 million for the third quarter of fiscal year 2004 declined 4% from net sales of $119.8 million for the prior year third quarter, due primarily to lower electronic assembly sales to customers in the computer industry which more than offset sales increases to customers in the transportation, telecommunications, medical, and industrial controls industries. Electronic Contract Assemblies segment net sales for the nine-month period ended March 31, 2004 decreased 6% from the same period in the prior year due primarily to lower electronic assembly sales to customers in the computer and telecommunications industries which more than offset increased sales to customers in the transportation, medical, and industrial controls industries.

Electronic Contract Assemblies segment third quarter fiscal year 2004 net income totaled $4.4 million, which is a decrease from the prior year third quarter net income of $6.4 million, which included $0.6 million of after-tax restructuring income related to adjustments to original cost estimates. Gross profit, as a percent of net sales, in the Electronic Contract Assemblies segment decreased in the third quarter compared to the prior year third quarter due in part to competitive price discounting pressures and a shift in product mix to lower margined product . Selling, general and administrative expenses for this segment increased in absolute dollars and as a percent of net sales for the third quarter of fiscal year 2004 when compared to the same quarter last year primarily due to costs relating to business development. For the nine-month period ended March 31, 2004, this segment recorded net income of $13.0 million as compared to a year-to-date fiscal year 2003 net income of $12.1 million, inclusive of $1.8 million of after-tax restructuring charges.

Included in this segment are sales to one customer, TRW Automotive, Inc., a full-service automotive supplier, which accounted for the following portions of consolidated net sales and Electronic Contract Assemblies segment net sales:
 

The reduced percentages of segment and consolidated net sales are a result of certain TRW products reaching end of life in addition to the Company's on-going efforts to diversify its customer base. TRW Automotive, Inc. 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 are offset by higher profitability as the program matures and becomes established. The Company continues to have a high concentration of new customer and program start-ups due to its focused customer and program diversification efforts and capability expansion, both domestically and internationally.

Risk factors within this segment include, but are not limited to, general economic and market conditions, increased globalization, rapid technological changes, component availability, the contract nature of this industry, supply chain cost pressures, and the importance of sales to one customer. The continuing success of this segment is dependent upon its ability to replace expiring customers/programs with new customers/programs. Additional risk factors that could have an effect on the Company's performance are contained in the Company's Form 10-K filing for the period ended June 30, 2003.

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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and short-term investments were $89 million at March 31, 2004 compared to $82 million at June 30, 2003. Working capital at both March 31, 2004 and June 30, 2003 was $201 million. The current ratio was 2.4 at March 31, 2004 and 2.5 at June 30, 2003.

Operating activities generated $53 million of cash flow in the first nine months of fiscal year 2004 compared to $51 million in the same period of fiscal year 2003. The Company reinvested $34 million into capital investments for the future, including the previously leased building which houses the electronics operation in Poland, manufacturing equipment as well as improvements to the Company's information technology systems. The Company expects to continue to invest in resources for leveraging new and improved information technology systems and solutions in fiscal year 2004. Financing cash flow activities included $18 million in dividend payments, which remained flat with the prior year nine months ended March 31, 2003.

At March 31, 2004 and June 30, 2003, the Company had no short-term borrowings outstanding under its $100 million revolving credit facility that allows for both issuances of letters of credit and cash borrowings. The Company issued $4.0 million in letters of credit against the credit facility which reduces total availability to borrow to $96.0 million as of March 31, 2004. 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 March 31, 2004.

The Company believes its principal sources of liquidity from available funds on hand, cash generated from operations and the availability of borrowing under the Company's revolving credit facility will be sufficient in fiscal year 2004 for working capital needs and investments in the Company's future, including potential acquisitions. The Company's primary source of funds is its ability to generate cash from operations to meet its 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, and the Company does not expect the covenants to limit or restrict its ability to borrow on the facility in fiscal year 2004. The Company anticipates maintaining a strong liquidity position for the 2004 fiscal year. The Company is currently renegotiating a credit facility to replace the current credit facility when it expires in May 2004.

OFF-BALANCE SHEET ARRANGEMENTS
Other than operating leases entered into in the normal course of business, the Company's off-balance sheet arrangements are limited to guarantees, which are contingent on the future performance of another entity. However, these arrangements do not have a material current effect and are not reasonably likely to have a material future effect on the Company's financial condition, results of operations, liquidity, capital expenditures or capital resources. The Company does not have material exposures to trading activities of non-exchange traded contracts or transactions with related parties.

CRITICAL ACCOUNTING POLICIES
The Company's consolidated 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 consolidated 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. 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 are the policies that 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.

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Revenue recognition - The Company recognizes revenue when title and risk transfer to the customer, which under the terms and conditions of the sale may occur either at the time of shipment or when the product is delivered to the customer. Service revenue is recognized as services are rendered. Shipping and handling fees billed to customers are recorded as sales while the related shipping and handling costs are included in cost of goods sold. 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 both March 31, 2004 and June 30, 2003, the reserve for returns and allowances was $2.8 million. Over the past three years, the returns and allowances reserve has been approximately 1% to 2% of gross trade receivables.
   
• Allowance for doubtful accounts - Allowance for doubtful accounts is generally based on a percentage of aged accounts receivable, where the percentage increases as the accounts receivable 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 March 31, 2004 and June 30, 2003 was $3.7 million and $4.9 million, respectively, and over the past three years, this reserve has trended between approximately 2% and 4% of gross trade accounts receivable.

Excess and obsolete inventory - Inventories were valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 51% of consolidated inventories at March 31, 2004 and June 30, 2003, including approximately 83% and 91% of the Furniture and Cabinets segment inventories at March 31, 2004 and June 30, 2003, respectively. The remaining inventories are valued at lower of first-in, first-out (FIFO) cost or market value. Inventories recorded on the Company's balance sheet are 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 has 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.

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 a number of factors including known claims, estimated incurred but not reported claims and actuarial analyses, which are based on historical information along with certain assumptions about future events. 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 March 31, 2004 and June 30, 2003, the Company's accrued liabilities for self-insurance exposure were $7.3 million and $4.3 million, respectively, excluding amounts funded in a voluntary employees' beneficiary association (VEBA) trust. The June 30, 2003 balance is lower due to the Company's funding of the VEBA trust near the end of the fiscal year.

FORWARD-LOOKING STATEMENTS
Certain statements contained within this document are considered forward-looking under the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of words such as "believes", "estimates", "projects", "expects", "anticipates" and similar expressions. These forward-looking statements are subject to risks and uncertainties including, but not limited to, general economic conditions, significant volume reductions from key contract customers, loss of key customers or suppliers within specific industries, availability or cost of raw materials, increased competitive pricing pressures reflecting excess industry capacities, or similar unforeseen events. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of the Company are contained in the Company's Form 10-K filing for the period ended June 30, 2003.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk: As of March 31, 2004, the Company had an investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $31 million. These securities are classified as available-for-sale and are stated at market value with unrealized gains and losses recorded net of tax related effect 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 March 31, 2004 would cause the fair value of these short-term investments to decline by an immaterial amount.

Foreign Exchange Rate Risk: The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency rate changes. The Company's risk management strategy includes the use of derivative financial instruments to hedge certain foreign currency exposures. Derivatives are used only to manage underlying exposures of the Company and are not used in a speculative manner. The effect of movements in the exchange rates were not material to the consolidated operating results of the Company on a year-to-date basis. The Company estimates that a hypothetical 10% adverse change in foreign currency exchange rates relative to its financial instruments would not affect the consolidated operating results of the Company by a material amount.

Item 4.  Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of March 31, 2004, the Chief Executive Officer and Chief Financial Officer of the Company concluded, based upon their best judgement, that the Company's disclosure controls and procedures were effective.

(b) Changes in internal control over financial reporting.

There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2004 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits (numbered in accordance with Item 601 of Regulation S-K)

(10)   Supplemental Employee Retirement Plan (2004 Revision)

(11)  Computation of Earnings Per Share

(31.1) Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(31.2) Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32.1)  Certification furnished by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(32.2)  Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K filed during the quarter ended March 31, 2004

None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized.

Date: May 6, 2004

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Kimball International, Inc.
Exhibit Index

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