Kimball Intl. Reports Second Quarter Fiscal Year 2013 Results

Posted: 02/04/2013 1:33PM

 


JASPER, IN -- Kimball International, Inc. today reported net sales of $295.1 million and net income of $4.2 million, or $0.11 per Class B diluted share, for the second quarter of fiscal year 2013 which ended Dec. 31, 2012.

Consolidated Overview

Financial Highlights

(Amounts in Thousands, Except Per Share Data)

 



Three Months Ended



December 31,
2012


December 31,
2011


Percent
Change

Net Sales
$ 295,136


$ 296,904

(1 %)
Gross Profit
$ 55,157


$ 54,320

2 %
Gross Profit %
18.7 %

18.3 %

Selling and Administrative Expenses
$ 49,006


$ 48,597

1 %
Selling and Administrative Expenses %
16.6 %

16.4 %

Restructuring Expense
$ 31


$ 1,480

(98 %)
Operating Income
$ 6,120


$ 4,243

44 %
Operating Income %
2.1 %

1.4 %

Adjusted Operating Income *
$ 6,151


$ 5,723

7 %
Adjusted Operating Income % *
2.1 %

1.9 %

Net Income
$ 4,179


$ 3,197

31 %
Adjusted Net Income *
$ 4,198


$ 4,087

3 %
Earnings Per Class B Diluted Share
$ 0.11


$ 0.09

22 %
Adjusted Earnings Per Class B Diluted Share *
$ 0.11


$ 0.11

0 %
* Items indicated represent Non-GAAP measurements. See "Reconciliation of Non-GAAP Financial Measures" below.

Consolidated net sales in the second quarter of fiscal year 2013 decreased 1% from the prior year second quarter as increased net sales in the Electronic Manufacturing Services (EMS) segment were more than offset by lower net sales in the Furniture segment. The Furniture segment saw growth in several market verticals offset by a double digit decline in office furniture sales to the federal government and a decline in hospitality furniture sales due to the prior year including sales from two unusually large projects.

Second quarter gross profit as a percent of net sales improved 0.4 percentage points from the prior year second quarter on improved margins in both the EMS segment and the Furniture segment. The Company recorded a $1.1 million inventory reserve in the EMS segment in the second quarter of fiscal year 2013 relating to a customer that notified the Company they are going out of business. Sales to this customer were immaterial.

Consolidated second quarter selling and administrative expenses increased 1% compared to the prior year. Lower sales and marketing costs and lower commissions related to the volume declines in the Furniture segment were more than offset by increased incentive compensation costs.

Other Income/Expense for the second quarter of fiscal year 2013 was expense of $1.4 million compared to income of $1.4 million in the prior year second quarter. During the current year second quarter, the Company recorded a non-cash pre-tax impairment charge of $1.5 million on an investment in non-marketable equity securities and stock warrants of a privately-held company.

The Company's effective tax rate for the second quarter of fiscal year 2013 was 12.3% compared to 43.8% in the prior year second quarter. The current year effective tax rate was favorably impacted by the mix of earnings between U.S. and foreign jurisdictions as the Company had a greater share of income from foreign operations with lower tax rates.

Operating cash flow for the second quarter of fiscal year 2013 was a cash inflow of $20.5 million compared to an operating cash inflow of $7.8 million in the second quarter of the prior year.

The Company's cash and cash equivalents increased to $88.1 million at December 31, 2012, compared to $75.2 million at June 30, 2012. The Company had no short-term borrowings outstanding at December 31, 2012 or June 30, 2012. Long-term debt including current maturities remains at less than $0.3 million.

James C. Thyen, president and Chief Executive Officer, stated, "We were very pleased with the strong second quarter results in spite of the earnings charges for the customer that notified us they are going out of business and the impaired investment in a start-up company. These two charges had an after-tax impact of 4 cents per share and offset nice progress in the EMS segment. During the second quarter, our EMS segment continued its trend of gaining traction with double-digit sales growth and improved margins. We again saw sales growth to customers in the automotive market during the quarter as the overall U.S. automotive industry experienced steady growth in calendar year 2012. Sales to the industrial and public safety vertical markets also increased compared to last year partially resulting from the ramp up of sales to new customers. Quote activity in this segment has been strong, and we are optimistic in this segment going into the second half of our fiscal year."

Thyen concluded, "Sales in the Furniture segment declined compared to last year primarily due to lower office furniture sales to the federal government, and the effect of higher sales in hospitality furniture last year resulting from two unusually large projects. We were encouraged, though, by a 7% increase in orders received during the quarter over last year. This increase is in spite of a continued decline in orders from the federal government and continued fiscal uncertainty in Washington, D.C. which has caused customers to delay implementation of planned projects. We are heading into the normal seasonal slowdown within the office furniture industry and anticipate our third quarter to again be challenging. We continue to aggressively manage our costs to align with the fluctuating volumes within this segment."

Electronic Manufacturing Services Segment

Financial Highlights

(Amounts in Thousands) Three Months Ended

December 31, 2011      December 31, 2011

Percent         Change

Net Sales $ 164,181 $ 148,112 11 %

Operating Income $ 4,996 $ 225 2,120 %

Operating Income % 3.0 % 0.2 %

Adjusted Operating Income * $ 5,025 $ 1,680 199 %

Adjusted Operating Income % * 3.1 % 1.1 %

Net Income $ 3,932 $ 315 1,148 %

Adjusted Net Income * $ 3,950 $ 1,189 232 %

* Items indicated represent Non-GAAP measurements. See "Reconciliation of Non-GAAP Financial Measures" below.

Fiscal year 2013 second quarter net sales in the EMS segment increased 11% compared to the second quarter of the prior year related to sales growth to customers in the automotive, industrial and public safety industries. Sales to customers in the medical industry declined in the second quarter compared to the prior year.

Gross profit as a percent of net sales in the EMS segment for the second quarter of fiscal year 2013 improved 2.1 percentage points when compared to the second quarter of the prior year primarily due to leverage gained on the higher revenue as well as benefits realized from global purchasing efforts and operating efficiencies related to continuous improvement initiatives. As mentioned above, second quarter fiscal year 2013 gross profit was unfavorably impacted by a $1.1 million inventory reserve relating to a customer that announced they are going out of business.

Selling and administrative expenses in this segment increased 12% in the fiscal year 2013 second quarter when compared to the prior year primarily due to increased incentive compensation costs related to the significant improvement in earnings. As a percent of net sales, selling and administrative costs in the EMS segment increased 0.1 percentage point.

Furniture Segment

 

Financial Highlights

(Amounts in Thousands) Three Months Ended

               December 31, 2012   December 31, 2011

                Percent                        Change

 Net Sales $ 130,955 $ 148,792 (12 %)

Operating Income $ 1,939 $ 5,401 (64 %)

Operating Income % 1.5 % 3.6 %

Net Income $ 1,504 $ 3,438 (56 %)

Fiscal year 2013 second quarter net sales in the Furniture segment declined 12% compared to the prior year on decreased net sales of both hospitality and office furniture. Sales of hospitality product were lower in the second quarter of the current year primarily due to two unusually large projects that began shipping in the second quarter of last year. Sales of office furniture product to the federal and state governments lagged prior year with the largest decline to the federal government.

Gross profit as a percent of net sales improved 0.7 percentage points in the Furniture segment in the second quarter of fiscal year 2013 when compared to the prior year as benefits realized from price increases and lower commodity costs were partially offset by the loss of leverage from the lower revenue.

Selling and administrative expenses in the Furniture segment for the second quarter of fiscal year 2013 declined 1% compared to the prior year as lower sales and marketing costs and lower commission costs due to the decline in revenue were partially offset by higher incentive compensation costs.

Non-GAAP Financial Measures


Financial highlights for the second quarter ended December 31, 2012 are as follows:

Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
(Amounts in Thousands, except per share data)
December 31, 2012
December 31, 2011
Net Sales
$ 295,136

100.0 %
$ 296,904

100.0 %
Cost of Sales
239,979

81.3 %
242,584

81.7 %
Gross Profit
55,157

18.7 %
54,320

18.3 %
Selling and Administrative Expenses
49,006

16.6 %
48,597

16.4 %
Restructuring Expense
31

0.0 %
1,480

0.5 %
Operating Income
6,120

2.1 %
4,243

1.4 %
Other Income (Expense), net
(1,357 )
(0.5 %)
1,442

0.5 %
Income Before Taxes on Income
4,763

1.6 %
5,685

1.9 %
Provision for Income Taxes
584

0.2 %
2,488

0.8 %
Net Income
$ 4,179

1.4 %
$ 3,197

1.1 %
Earnings Per Share of Common Stock:







Basic Earnings Per Share:







Class A
$ 0.11



$ 0.08


Class B
$ 0.11



$ 0.09


Diluted Earnings Per Share:







Class A
$ 0.11



$ 0.08


Class B
$ 0.11



$ 0.09











Average Number of Shares Outstanding







Class A and B Common Stock:







Basic
38,077



37,891


Diluted
38,295



37,979













(Unaudited)
Six Months Ended
(Amounts in Thousands, except per share data)
December 31, 2012
December 31, 2011
Net Sales
$ 583,326

100.0 %
$ 567,539

100.0 %
Cost of Sales
472,964

81.1 %
466,249

82.2 %
Gross Profit
110,362

18.9 %
101,290

17.8 %
Selling and Administrative Expenses
97,244

16.7 %
94,565

16.6 %
Restructuring Expense
91

0.0 %
1,593

0.3 %
Operating Income
13,027

2.2 %
5,132

0.9 %
Other Income (Expense), net
(1,070 )
(0.2 %)
240

0.0 %
Income Before Taxes on Income
11,957

2.0 %
5,372

0.9 %
Provision for Income Taxes
2,817

0.4 %
2,321

0.4 %
Net Income
$ 9,140

1.6 %
$ 3,051

0.5 %
Earnings Per Share of Common Stock:







Basic Earnings Per Share:







Class A
$ 0.23



$ 0.07


Class B
$ 0.24



$ 0.08


Diluted Earnings Per Share:







Class A
$ 0.22



$ 0.07


Class B
$ 0.24



$ 0.08











Average Number of Shares Outstanding







Class A and B Common Stock:







Basic
38,047



37,863


Diluted
38,469



37,973













Condensed Consolidated Statements of Cash Flows
Six Months Ended
(Unaudited)
December 31,
(Amounts in Thousands)
2012
2011
Net Cash Flow provided by Operating Activities
$ 29,962

$ 1,185
Net Cash Flow used for Investing Activities
(13,394 )
(15,380 )
Net Cash Flow used for Financing Activities
(4,010 )
(3,966 )
Effect of Exchange Rate Change on Cash and Cash Equivalents
336

(1,651 )
Net Increase (Decrease) in Cash and Cash Equivalents
12,894

(19,812 )
Cash and Cash Equivalents at Beginning of Period
75,197

51,409
Cash and Cash Equivalents at End of Period
$ 88,091

$ 31,597







(Unaudited)

Condensed Consolidated Balance Sheets
December 31,
2012

June 30,
2012
(Amounts in Thousands)

ASSETS



Cash and cash equivalents
$ 88,091

$ 75,197
Receivables, net
127,543

139,467
Inventories
137,306

117,681
Prepaid expenses and other current assets
38,511

44,636
Assets held for sale
1,709

1,709
Property and Equipment, net
188,853

186,099
Goodwill
2,529

2,480
Other Intangible Assets, net
5,703

6,206
Other Assets
23,072

22,041
Total Assets
$ 613,317

$ 595,516





LIABILITIES AND SHARE OWNERS' EQUITY



Current maturities of long-term debt
$ 17

$ 14
Accounts payable
144,777

137,423
Dividends payable
1,862

1,843
Accrued expenses
46,305

48,460
Long-term debt, less current maturities
268

273
Other
23,143

21,275
Share Owners' Equity
396,945

386,228
Total Liabilities and Share Owners' Equity
$ 613,317

$ 595,516









Supplementary Information







Components of Other Income (Expense), net
Three Months Ended
Six Months Ended
(Unaudited)
December 31,
December 31,
(Amounts in Thousands)
2012
2011
2012
2011
Interest Income
$ 121

$ 100

$ 231

$ 220
Interest Expense
(8 )
(7 )
(15 )
(16 )
Foreign Currency/Derivative Gain (Loss)
(124 )
378

(516 )
1,152
Gain (Loss) on Supplemental Employee Retirement Plan Investment
283

1,087

986

(875 )
Impairment Loss on Privately-Held Investment
(735 )


(735 )

Loss on Stock Warrants
(751 )
(11 )
(752 )
(41 )
Other Non-Operating Expense
(143 )
(105 )
(269 )
(200 )
Other Income (Expense), net
$ (1,357 )
$ 1,442

$ (1,070 )
$ 240

















Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Amounts in Thousands, except per share data)





Operating Income excluding Restructuring Charges


Three Months Ended


December 31,
Kimball International, Inc.
2012
2011
Operating Income, as reported
$ 6,120

$ 4,243
Pre-tax Restructuring Charges
31

1,480
Adjusted Operating Income
$ 6,151

$ 5,723





Electronic Manufacturing Services Segment



Operating Income, as reported
$ 4,996

$ 225
Pre-tax Restructuring Charges
29

1,455
Adjusted Operating Income
$ 5,025

$ 1,680





Net Income excluding Restructuring Charges



Three Months Ended


December 31,
Kimball International, Inc.
2012
2011
Net Income, as reported
$ 4,179

$ 3,197
After-tax Restructuring Charges
19

890
Adjusted Net Income
$ 4,198

$ 4,087





Electronic Manufacturing Services Segment



Net Income, as reported
$ 3,932

$ 315
After-tax Restructuring Charges
18

874
Adjusted Net Income
$ 3,950

$ 1,189





Earnings Per Class B Diluted Share excluding Restructuring Charges


Three Months Ended


December 31,


2012
2011
Earnings per Class B Diluted Share, as reported
$ 0.11

$ 0.09
Impact of Restructuring Charges per Class B Diluted Share
0.00

0.02
Adjusted Earnings Per Class B Diluted Share
$ 0.11

$ 0.11

 

Source: Kimball International, Inc.

 

 


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