Financial Highlights

(Amounts in Thousands, Except Per Share Data)

  Three Months Ended      
   

September 30,
2014

  September 30,
2013
 

Percent
Change

Net Sales   $ 348,249       $ 317,439     10 %
Gross Profit   $ 72,562       $ 61,324     18 %
Gross Profit %   20.8 %     19.3 %      
Selling and Administrative Expenses   $ 58,888       $ 54,217     9 %
Selling and Administrative Expenses %   16.9 %     17.1 %      
Other General Income   $ 0       $ (5,022 )   (100 %)
Restructuring Expense   $ 0       $ 402     (100 %)
Operating Income   $ 13,674       $ 11,727     17 %
Operating Income %   3.9 %     3.7 %      
Adjusted Operating Income *   $ 15,248       $ 7,107     115 %
Adjusted Operating Income % *   4.4 %     2.2 %      
Net Income   $ 7,996       $ 9,183     (13 %)
Adjusted Net Income *   $ 9,545       $ 6,405     49 %
Earnings Per Class B Diluted Share   $ 0.21       $ 0.24     (13 %)
Adjusted Earnings Per Class B Diluted Share *   $ 0.25       $ 0.17     47 %

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

 
  • 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

Financial Highlights
(Amounts in Thousands)   Three Months Ended      
   

September 30,
2014

  September 30,
2013
 

Percent
Change

Net Sales   $ 144,446     $ 141,803     2 %
Operating Income   $ 6,351     $ 4,787     33 %
Operating Income %   4.4 %   3.4 %      
Net Income   $ 3,709     $ 2,899     28 %
  • 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

Financial Highlights
(Amounts in Thousands)   Three Months Ended      
    September 30,
2014
  September 30,
2013
 

Percent
Change

Net Sales   $ 203,803     $ 175,636     16 %
Operating Income   $ 8,669     $ 9,996     (13 %)
Operating Income %   4.3 %   5.7 %      
Adjusted Operating Income *   $ 8,669     $ 5,046     72 %
Adjusted Operating Income % *   4.3 %   2.9 %      
Net Income   $ 5,917     $ 7,462     (21 %)
Adjusted Net Income *   $ 5,917     $ 4,486     32 %
* Items indicated represent Non-GAAP measurements. See “Reconciliation of Non-GAAP Financial Measures” below.
 
  • 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.

 

Condensed Consolidated Statements of Income
(Unaudited)   Three Months Ended
(Amounts in Thousands, except per share data)   September 30, 2014   September 30, 2013
Net Sales   $ 348,249     100.0 %   $ 317,439     100.0 %
Cost of Sales   275,687     79.2 %   256,115     80.7 %
Gross Profit   72,562     20.8 %   61,324     19.3 %
Selling and Administrative Expenses   58,888     16.9 %   54,217     17.1 %
Other General Income   0     0.0 %   (5,022 )   (1.6 %)
Restructuring Expense   0     0.0 %   402     0.1 %
Operating Income   13,674     3.9 %   11,727     3.7 %
Other Income (Expense), net   (795 )   (0.2 %)   1,019     0.3 %
Income Before Taxes on Income   12,879     3.7 %   12,746     4.0 %
Provision for Income Taxes   4,883     1.4 %   3,563     1.1 %
Net Income   $ 7,996     2.3 %   $ 9,183     2.9 %
Earnings Per Share of Common Stock:                        
Basic Earnings Per Share:                        
Class A   $ 0.20           $ 0.24        
Class B   $ 0.21           $ 0.24        
Diluted Earnings Per Share:                        
Class A   $ 0.20           $ 0.23        
Class B   $ 0.21           $ 0.24        
                         
Average Number of Shares Outstanding                        
Class A and B Common Stock:                        
Basic   38,712           38,310        
Diluted   38,746           38,596        
                         
Condensed Consolidated Statements of Cash Flows   Fiscal Year Ended
(Unaudited)   September 30,
(Amounts in Thousands)   2014   2013
Net Cash Flow (used for) provided by Operating Activities   $ (6,720 )   $ 16,025  
Net Cash Flow used for Investing Activities   (11,029 )   (6,425 )
Net Cash Flow used for Financing Activities   (4,513 )   (3,784 )
Effect of Exchange Rate Change on Cash and Cash Equivalents   (1,167 )   214  
Net (Decrease) Increase in Cash and Cash Equivalents   (23,429 )   6,030  
Cash and Cash Equivalents at Beginning of Period   136,624     103,600  
Cash and Cash Equivalents at End of Period   $ 113,195     $ 109,630  
                 
         
    (Unaudited)    
Condensed Consolidated Balance Sheets   September 30,
2014
  June 30,
2014
(Amounts in Thousands)    
ASSETS          
Cash and cash equivalents   $ 113,195     $ 136,624
Receivables, net   180,992     175,695
Inventories   150,295     140,475
Prepaid expenses and other current assets   49,928     46,998
Property and Equipment, net   189,137     188,833
Goodwill   2,564     2,564
Other Intangible Assets, net   4,015     4,191
Other Assets   27,738     26,766
Total Assets   $ 717,864     $ 722,146
           
LIABILITIES AND SHARE OWNERS' EQUITY          
Current maturities of long-term debt   $ 27     $ 25
Accounts payable   181,719     174,436
Dividends payable   1,903     1,883
Accrued expenses   63,277     77,256
Long-term debt, less current maturities   248     268
Other   26,714     26,745
Share Owners' Equity   443,976     441,533
Total Liabilities and Share Owners' Equity   $ 717,864     $ 722,146
               
Supplementary Information            
Components of Other Income (Expense), net   Three Months Ended
(Unaudited)   September 30,
(Amounts in Thousands)   2014   2013
Interest Income   $ 45     $ 68  
Interest Expense   (10 )   (7 )
Foreign Currency/Derivative Gain (Loss)   (352 )   118  
Gain (Loss) on Supplemental Employee Retirement Plan Investment   (279 )   1,051  
Other Non-Operating Expense   (199 )   (211 )
Other Income (Expense), net   $ (795 )   $ 1,019  
                 
 
Furniture Segment Net Sales by End Market Vertical
         
  Three Months Ended      
  September 30      
(Amounts in Millions) 2014   2013   % Change
Education $ 12.8     $ 15.2    

(16

)%

Finance 15.4     14.2     8 %
Government 27.2     25.4     7 %
Healthcare 14.6     16.4     (11 )%
Hospitality 25.2     28.6     (12 )%
Other Commercial 49.2     42.0     17 %
Total Furniture Net Sales $ 144.4     $ 141.8     2 %
 
EMS Segment Net Sales by Vertical Market
         
  Three Months Ended      
  September 30      
(Amounts in Millions) 2014   2013   % Change
Automotive $ 71.2     $ 63.3     13 %
Medical 61.6     49.0     26 %
Industrial 53.6     47.8     12 %
Public Safety 14.2     12.6     12 %
Other 3.2     2.9     11 %
Total EMS Net Sales $ 203.8     $ 175.6     16 %
                     
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Amounts in Thousands, except per share data)
           
Operating Income excluding Spin-off Expenses, Settlement Proceeds from Lawsuits, and Restructuring Charges
    Three Months Ended
    September 30,
Kimball International, Inc.   2014   2013
Operating Income, as reported   $ 13,674     $ 11,727
Add: Pre-tax Spin-off Expenses   1,574     0
Less: Pre-tax Settlement Proceeds from Lawsuits   0     5,022
Add: Pre-tax Restructuring Charges   0     402
Adjusted Operating Income   $ 15,248     $ 7,107
           
Electronic Manufacturing Services Segment          
Operating Income, as reported   $ 8,669     $ 9,996
Less: Pre-tax Settlement Proceeds from Lawsuits   0     5,022
Add: Pre-tax Restructuring Charges   0     72
Adjusted Operating Income   $ 8,669     $ 5,046
           
Net Income excluding Spin-off Expenses, Settlement Proceeds from Lawsuits, and Restructuring Charges
    Three Months Ended
    September 30,
Kimball International, Inc.   2014   2013
Net Income, as reported   $ 7,996     $ 9,183
Add: After-tax Spin-off Expenses   1,549     0
Less: After-tax Settlement Proceeds from Lawsuits   0     3,020
Add: After-tax Restructuring Charges   0     242
Adjusted Net Income   $ 9,545     $ 6,405
           
Electronic Manufacturing Services Segment          
Net Income, as reported   $ 5,917     $ 7,462
Less: After-tax Settlement Proceeds from Lawsuits   0     3,020
Add: After-tax Restructuring Charges   0     44
Adjusted Net Income   $ 5,917     $ 4,486
           
Earnings Per Class B Diluted Share excluding Spin-off Expenses, Settlement Proceeds from Lawsuits, and Restructuring Charges
    Three Months Ended
    September 30,
    2014   2013
Earnings per Class B Diluted Share, as reported   $ 0.21     $ 0.24
Add: Impact of Spin-off Expenses   0.04     0.00
Less: Impact of Settlement Proceeds from Lawsuits   0.00     0.08
Add: Impact of Restructuring Charges   0.00     0.01
Adjusted Earnings Per Class B Diluted Share   $ 0.25     $ 0.17

 

 

Source:Kimball International, Inc.

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