• Consolidated net sales in the first quarter of fiscal year 2015 increased 10% from the prior year first quarter on increased net sales in both the Furniture segment and the Electronic Manufacturing Services (“EMS”) segment.
• First quarter gross profit as a percent of net sales increased 1.5 percentage points from the prior year first quarter on improved margins in both the Furniture segment and the EMS segment.
• Consolidated selling and administrative expenses in the first quarter of fiscal year 2015 increased 9% in absolute dollars compared to the prior year partially due to higher profit-based incentive compensation costs, higher salaries and benefits, increased investments in sales and marketing activities, and $1.6 million of incremental pre-tax costs related to the spin-off of the Company's EMS segment. Partially offsetting these higher first quarter of fiscal year 2015 costs was a favorable year over year variance driven by a$1.2 million pre-tax impairment charge ($0.7 millionafter-tax impact) recognized in the first quarter of the prior year, related to the decision to downsize the plane fleet from three jets to two and the resulting reclassification as held for sale. In addition, the Company recorded $0.3 million of income in the first quarter of fiscal year 2015 related to the normal revaluation to fair value of its Supplemental Employee Retirement Plan (“SERP”) liability compared to$1.1 million of expense in the first quarter of the prior fiscal year. The revaluation of the SERP liability is offset by a corresponding revaluation of the SERP investment which was recorded in Other Income/Expense, and thus there was no effect on net income.
• No Other General Income was recorded during the first quarter of fiscal year 2015. Other General Income in the first quarter of fiscal year 2014 included $5.0 million of pre-tax income resulting from settlement proceeds related to two antitrust class action lawsuits of which the Company was a class member. The class actions alleged that certain EMS segment suppliers illegally conspired over a number of years to raise and fix the prices of electronic components, resulting in overcharges to purchasers of those components several years ago.
• Other Income/Expense was expense of $0.8 million for the first quarter of fiscal year 2015 compared to income of $1.0 million for the first quarter of the prior year. The variance was primarily related to the revaluation to fair value of the Company's Supplemental Employee Retirement Plan, which as discussed above is offset in the selling and administrative expenses.
• The Company's effective tax rate for the first quarter of fiscal year 2015 of 37.9% was higher than the prior year first quarter effective tax rate of 28.0%. Primary reasons for the higher rate were the current year negative effect of non-deductible spin-off related costs (driving a 3.2% tax rate increase) and the prior year favorable adjustment of a foreign jurisdiction deferred tax asset valuation allowance (driving a 4.1% tax rate increase).
• Operating cash flow for the first quarter of fiscal year 2015 was a cash outflow of $6.7 million compared to a cash inflow $16.0 million in the first quarter of the prior year. The current quarter cash outflow was primarily driven by the payment of accrued profit-based incentive compensation.
• The Company's cash and cash equivalents declined to $113.2 million at September 30, 2014, compared to $136.6 million at June 30, 2014. During the first quarter of fiscal year 2015 we reinvested $11.2 million into capital investments for the future with the largest investments being made for manufacturing equipment in the EMS segment. The Company had no short-term borrowings outstanding at September 30, 2014 or June 30, 2014. Long-term debt including current maturities was less than $300,000 at September 30, 2014.

Robert F. Schneider, Chief Executive Officer, stated, “Our first quarter of fiscal year 2015 delivered sales and earnings improvement within both segments resulting in a 47% increase in adjusted EPS over last year first quarter, excluding the impact of spin-off expenses, settlement proceeds from lawsuits, and restructuring charges. Within the Furniture segment, sales grew in several key vertical markets including our largest market which provides furniture for commercial business and professional services customers. Orders received during the quarter were very strong in all furniture verticals, including hospitality, which had the third best order quarter in the history of the Company. I am very encouraged by the 33% increase in Furniture segment operating income over the first quarter of last year, along with improving operating income as a percent of sales to 4.4% during the quarter. The EMS segment produced record sales during the first quarter of fiscal year 2015, showing double-digit growth in all of the segment's vertical markets. EMS adjusted operating income, excluding the prior year impact of lawsuit income and restructuring, improved a substantial 72% compared to the prior year as we were able to leverage increased volume.”

Mr. Schneider concluded, “In October, we achieved a significant milestone with the completion of the spin-off of our Kimball Electronics subsidiary, creating a new independent publicly traded company. At the same time we continued to maintain strong positive momentum, focusing on our customers' needs, sustaining our culture, and delivering Share Owner value. Both companies are well positioned for future success, with sound business models and strong balance sheets. We look forward to the increased focus that the spin-off allows, enabling both companies to execute specific strategies that are most effective within their particular markets.”

Furniture Segment

• Fiscal year 2015 first quarter net sales in the Furniture segment increased 2% compared to the prior year. Increased net sales in the other commercial, finance, and government vertical markets were partially offset by declines in the education, hospitality, and healthcare vertical markets.
• Orders received during the fiscal year 2015 first quarter increased 2% over the prior year. Increased orders in other commercial, healthcare and government verticals were primarily offset by lower orders in the hospitality vertical. Orders in the hospitality vertical declined compared to the prior year due to a large order received in the prior year; however, despite the decline, hospitality orders received during the quarter represented the third best in the history of the Company. Without the impact of the large prior year hospitality order ($10.2 million), fiscal year 2015 first quarter orders received increased 9% over the prior year first quarter, and excluding the entire hospitality vertical, orders increased 10% over the prior year first quarter.
• Furniture segment gross profit as a percent of net sales increased 2.8 percentage points in the first quarter of fiscal year 2015 when compared to the prior year. The Furniture segment is focused on increasing its operating income margin, which was 4.4% during the quarter, with an operating income goal of 8%. Improvement was driven by operational improvements, realized benefits from price increases, and a favorable mix of higher margin projects.
• Selling and administrative expenses in the Furniture segment for the first quarter of fiscal year 2015 increased 9% compared to the prior year as a result of higher profit-based incentive compensation costs, salaries and employee benefits, and increased investments in sales and marketing activities. As a percent of net sales, selling and administrative costs in the Furniture segment increased 1.8 percentage points for the first quarter of fiscal year 2015.

Electronic Manufacturing Services Segment

• Fiscal year 2015 first quarter net sales in the EMS segment increased 16% compared to the first quarter of the prior year on double-digit sales growth within all of the segment's vertical markets, with the largest increase in the medical industry.
• Gross profit as a percent of net sales in the EMS segment for the first quarter of fiscal year 2015 increased 1.5 percentage points compared to the first quarter of the prior year, primarily benefiting from leverage gained on the higher sales and a favorable variance resulting from the prior year first quarter $0.6 million inventory write-down relating to products specific to a former customer.
• Selling and administrative expenses in this segment increased 19% in the fiscal year 2015 first quarter when compared to the prior year, primarily driven by higher profit-based incentive compensation and higher salary and employee benefit expense. As a percent of sales, selling and administrative costs in the EMS segment increased 0.2 of a percentage point for the first quarter of fiscal year 2015 compared to the prior year.
• Operating income in the first quarter of fiscal year 2014 includes the $5.0 million of Other General Income related to the proceeds from the antitrust lawsuits mentioned above. The Adjusted Operating Income and Adjusted Net Income amounts in the EMS segment table above exclude this income for a better comparison to last year. No Other General Income was recorded during the first quarter of fiscal year 2015.

Spin-off of Electronic Manufacturing Services Segment

On October 31, 2014 (“Distribution Date”), we completed the previously announced spin-off of our EMS segment by distributing the related shares of Kimball Electronics, Inc. (“Kimball Electronics”), on a pro rata basis, to the Company's Share Owners of record as of October 22, 2014 (the Record Date). On the Distribution Date, each of the Company's shareholders received three shares of Kimball Electronics for every four shares of the Company held by such shareholder on the Record Date. After the Distribution Date, the Company does not beneficially own any Kimball Electronics shares and Kimball Electronics is an independent publicly traded company. Kimball International, Inc. trades on the NASDAQ under the ticker symbol “KBAL” and Kimball Electronics, Inc. trades on the NASDAQ under the ticker symbol “KE”.

A Form 8-K filed on November 6, 2014 discloses the pro forma financial statements of Kimball International, showing the financial results as if the spin-off had occurred at the beginning of the periods presented.

Source:Kimball International, Inc.