JASPER, Ind. - Kimball International, Inc. (NASDAQ: KBALB) today reported net sales of $284.4 million and net income of $2.5 million, or $0.07 per Class B diluted share, for the third quarter of fiscal year 2012 which ended March 31, 2012. Net income for the fiscal year 2012 third quarter included $0.5 million of after-tax restructuring expense, or $0.01 per Class B diluted share.

Consolidated Overview

Financial Highlights

(Amounts in Thousands, Except Per Share Data)

 

Three Months Ended

March 31,
2012

March 31,
2011

Percent
Change

Net Sales $ 284,414 $ 314,466 (10)%
Gross Profit $ 50,639 $ 50,691 0%
Gross Profit % 17.8% 16.1%
Selling and Administrative Expenses $ 47,650 $ 46,869 2%
Selling and Administrative Expense % 16.8% 14.9%
Restructuring Expense $ 895 $ 68 1,216%
Operating Income $ 2,094 $ 3,754 (44)%

 

Operating Income % 0.7% 1.2%
Adjusted Operating Income * $ 2,989 $ 3,822 (22)%

 

Adjusted Operating Income % * 1.0% 1.2%
Net Income $ 2,506 $ 3,306 (24)%

 

Adjusted Net Income * $ 3,045 $ 3,346 (9)%

 

Earnings Per Class B Diluted Share $ 0.07 $ 0.09 (22)%

 

Adjusted Earnings Per Class B Diluted Share * $ 0.08 $ 0.09 (11)%

 

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

Consolidated net sales in the third quarter of fiscal year 2012 declined 10% from the prior year third quarter as a 7% increase in net sales in the Furniture segment was more than offset by a 19% decline in net sales in the Electronic Manufacturing Services (EMS) segment. The decline in net sales in the EMS segment resulted from the previously announced expiration of a contract with one large medical customer (Bayer AG) late in fiscal year 2011 which accounted for a $45.7 million reduction in net sales in the current year third quarter compared to the third quarter of the prior year. Excluding sales to this customer, current year third quarter consolidated net sales increased 6% compared to the prior year.

Third quarter gross profit as a percent of net sales improved 1.7 percentage points from the prior year third quarter due to a shift in sales mix towards the Furniture segment which carries a higher gross profit percentage than the EMS segment and improved margins in the EMS segment.

Consolidated third quarter selling and administrative expenses increased 2% compared to the prior year as benefits realized from restructuring activities in the EMS segment were more than offset by increased selling and administrative costs in the Furniture segment and by an unfavorable impact of the normal revaluation to fair value of the Company's Supplemental Employee Retirement Plan (SERP) liability. The SERP liability revaluation has an exact offsetting impact in Other Income/Expense where the SERP investment revaluation is recorded resulting in no impact to the Company's consolidated net income.

Restructuring expense in the third quarter of fiscal year 2012 of $0.9 million was related to wrap-up activities associated with the facility consolidation plans within the EMS segment.

Other Income for the third quarter of fiscal year 2012 was $1.2 million compared to $0.9 million in the prior year third quarter, as the favorable impact of the SERP investment revaluation discussed above was partially offset by unfavorable net foreign currency exchange movement in the EMS segment.

Operating cash flow for the third quarter of fiscal year 2012 was a cash inflow of $28.8 million compared to an operating cash inflow of $13.4 million in the third quarter of the prior year.

The Company's cash and cash equivalents increased to $54.5 million at March 31, 2012, compared to $51.4 million at June 30, 2011. The Company had no short-term borrowings outstanding at March 31, 2012 or June 30, 2011. Long-term debt including current maturities remains at $0.3 million.

James C. Thyen, Chief Executive Officer and President, stated, "We saw solid earnings performance from our EMS segment during the third quarter, despite the 19% reduction in sales. Excluding non-operating items, this is the best quarterly net income performance from the EMS segment since the second quarter of fiscal year 2005. We are seeing the benefits from our focused margin-improvement initiatives and from our past restructuring activities favorably impacting the bottom line."

Mr. Thyen continued, "After a strong performance in the second quarter, our Furniture segment ended with a loss for the third quarter, partially resulting from the normal seasonal slowdown in the office furniture industry. New orders in this segment slowed during the third quarter, although we did see a pick-up late in the quarter. While leading order activities such as customer visits and project quotes remain strong, we believe our fourth quarter will continue to be challenging in this segment."

Electronic Manufacturing Services Segment

Financial Highlights

(Amounts in Thousands)

Three Months Ended

March 31,
2012

March 31,
2011

Percent
Change

Net Sales $ 160,959 $ 198,985 (19)%

 

Operating Income $ 5,009 $ 4,505 11%
Operating Income % 3.1% 2.3%
Adjusted Operating Income * $ 5,869 $ 4,539 29%
Adjusted Operating Income % * 3.6% 2.3%
Net Income $ 3,303 $ 3,151 5%
Adjusted Net Income * $ 3,822 $ 3,170 21%

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

Fiscal year 2012 third quarter net sales in the EMS segment decreased 19% compared to the third quarter of the prior year as decreased net sales to customers in the medical, industrial, and public safety industries more than offset an increase in net sales to customers in the automotive industry as the U.S. automotive market remains healthy. As discussed above, the decline in net sales to the medical industry resulted from the previously announced expiration of a contract with one large customer late in fiscal year 2011 which accounted for a $45.7 million reduction in net sales in the current year third quarter compared to the third quarter of the prior year. Excluding sales to this customer, current year third quarter net sales in the EMS segment increased 5% compared to the prior year.

Gross profit as a percent of net sales in the EMS segment for the third quarter of fiscal year 2012 improved 1.9 percentage points when compared to the third quarter of the prior year primarily related to a sales mix shift to higher margin product and benefits realized related to restructuring activities in which two facilities were closed during the second quarter of fiscal year 2012.

Selling and administrative costs in this segment declined 13% in the fiscal year 2012 third quarter when compared to the prior year on the benefits realized from the restructuring activities. As a percent of net sales, selling and administrative costs increased 0.5 percentage points due to the lower sales volumes.

Furniture Segment

Financial Highlights

(Amounts in Thousands)

Three Months Ended

March 31,
2012

March 31,
2011

Percent
Change

Net Sales $ 123,455 $ 115,481 7%
Operating Income (Loss) $ (1,183) $ 208 (669)%

 

Operating Income (Loss) % (1.0)% 0.2%
Net Loss $ (842) $ (12) (6,917)%

 

Fiscal year 2012 third quarter net sales of furniture products increased 7% compared to the prior year on increased net sales of hospitality furniture.

Gross profit as a percent of net sales declined 1.5 percentage points in the Furniture segment in the third quarter of fiscal year 2012 when compared to the prior year. Third quarter earnings were unfavorably impacted by excess operating capacity at select locations; a shift in sales mix; higher commodity, freight and fuel costs; and increased costs for supplier-related issues. On the favorable side, third quarter earnings in this segment benefited from recent price increases, lower discounting, and the recovery of previously paid import duties related to a retroactive change in the tariff rate.

Selling and administrative costs in the Furniture segment for the third quarter of fiscal year 2012 increased 5% when compared to the prior year on higher labor and employee benefit costs and higher incentive compensation costs. As a percent of net sales, fiscal year 2012 third quarter selling and administrative expenses improved 0.4 percentage points compared to the prior year on the leverage from the increase in revenue.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP) in the United States in the statement of income, balance sheet or statement of cash flows of the Company. The non-GAAP financial measures on a consolidated basis used within this release include 1) net sales excluding sales to Bayer AG, 2) operating income excluding restructuring charges, 3) net income excluding restructuring charges, and 4) earnings per Class B diluted share excluding restructuring charges. The non-GAAP financial measures on a segment basis used within this release include 1) net sales excluding sales to Bayer AG, 2) operating income excluding restructuring charges and 3) net income excluding restructuring charges. Reconciliations of the reported GAAP numbers to these non-GAAP financial measures are included in the Financial Highlights table below. Management believes it is useful for investors to understand how its core operations performed without the effects of the costs incurred in executing its restructuring plans. Excluding the restructuring charges allows investors to meaningfully trend, analyze, and benchmark the performance of the Company's core operations. Many of the Company's internal performance measures that management uses to make certain operating decisions exclude these charges to enable meaningful trending of core operating metrics.

Financial highlights for the third quarter ended March 31, 2012 are as follows:

Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended
(Amounts in Thousands, except per share data) March 31, 2012 March 31, 2011
Net Sales $ 284,414 100.0 % $ 314,466 100.0 %
Cost of Sales 233,775 82.2 % 263,775 83.9 %
Gross Profit 50,639 17.8 % 50,691 16.1 %
Selling and Administrative Expenses 47,650 16.8 % 46,869 14.9 %
Restructuring Expense 895 0.3 % 68 0.0 %
Operating Income 2,094 0.7 % 3,754 1.2 %
Other Income, net 1,168 0.4 % 901 0.3 %
Income Before Taxes on Income 3,262 1.1 % 4,655 1.5 %
Provision for Income Taxes 756 0.2 % 1,349 0.4 %
Net Income $ 2,506 0.9 % $ 3,306 1.1 %
Earnings Per Share of Common Stock:
Basic Earnings Per Share:
Class A $ 0.06 $ 0.08
Class B $ 0.07 $ 0.09
Diluted Earnings Per Share:
Class A $ 0.06 $ 0.08
Class B $ 0.07 $ 0.09
Average Number of Shares Outstanding
Class A and B Common Stock:
Basic 37,899 37,746
Diluted 38,005 37,845
(Unaudited) Nine Months Ended
(Amounts in Thousands, except per share data) March 31, 2012 March 31, 2011
Net Sales $ 851,953 100.0 % $ 919,774 100.0 %
Cost of Sales 700,024 82.2 % 772,360 84.0 %
Gross Profit 151,929 17.8 % 147,414 16.0 %
Selling and Administrative Expenses 142,215 16.7 % 143,206 15.5 %
Restructuring Expense 2,488 0.3 % 553 0.1 %
Operating Income 7,226 0.8 % 3,655 0.4 %
Other Income, net 1,408 0.2 % 1,888 0.2 %
Income Before Taxes on Income 8,634 1.0 % 5,543 0.6 %
Provision for Income Taxes 3,077 0.3 % 905 0.1 %
Net Income $ 5,557 0.7 % $ 4,638 0.5 %
Earnings Per Share of Common Stock:
Basic Earnings Per Share:
Class A $ 0.14 $ 0.11
Class B $ 0.15 $ 0.13
Diluted Earnings Per Share:
Class A $ 0.14 $ 0.11
Class B $ 0.15 $ 0.13
Average Number of Shares Outstanding
Class A and B Common Stock:
Basic 37,875 37,718
Diluted 38,024 37,856
Condensed Consolidated Statements of Cash Flows Nine Months Ended
(Unaudited) March 31,
(Amounts in Thousands) 2012 2011
Net Cash Flow provided by (used for) Operating Activities $ 29,999 $ (7,564)
Net Cash Flow used for Investing Activities (19,785) (22,128)
Net Cash Flow (used for) provided by Financing Activities (5,826) 115
Effect of Exchange Rate Change on Cash and Cash Equivalents (1,330) 5,487
Net Increase (Decrease) in Cash and Cash Equivalents 3,058 (24,090)
Cash and Cash Equivalents at Beginning of Period 51,409 65,342
Cash and Cash Equivalents at End of Period $ 54,467 $ 41,252
(Unaudited)
Condensed Consolidated Balance Sheets

March 31,
2012

June 30,
2011

(Amounts in Thousands)
ASSETS
Cash and cash equivalents $ 54,467 $ 51,409
Receivables, net 143,858 149,753
Inventories 127,016 141,097
Prepaid expenses and other current assets 46,840 50,215
Assets held for sale 2,281 2,807
Property and Equipment, net 190,570 196,682
Goodwill 2,542 2,644
Other Intangible Assets, net 6,871 7,625
Other Assets 22,303 24,080
Total Assets $ 596,748 $ 626,312
LIABILITIES AND SHARE OWNERS' EQUITY
Current maturities of long-term debt $ 14 $ 12
Accounts payable 140,248 149,107
Dividends payable 1,843 1,835
Accrued expenses 48,491 66,316
Long-term debt, less current maturities 273 286
Other 21,130 21,357
Share Owners' Equity 384,749 387,399
Total Liabilities and Share Owners' Equity $ 596,748 $ 626,312
Supplementary Information
Components of Other Income, net Three Months Ended Nine Months Ended
(Unaudited) March 31, March 31,
(Amounts in Thousands) 2012 2011 2012 2011
Interest Income $ 121 $ 196 $ 341 $ 587
Interest Expense (7) (40) (23) (110 )
Foreign Currency/Derivative Gain (Loss) (283) 100 828 (1,271)
Gain on Supplemental Employee Retirement Plan Investment 1,370 690 495 2,966
Other Non-Operating Expense (33) (45) (233) (284)
Other Income, net $ 1,168 $ 901 $ 1,408 $ 1,888
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

(Amounts in Thousands, except per share data)

Net Sales excluding Sales to Bayer AG
Three Months Ended
Kimball International, Inc. March 31, Variance
2012 2011 $ %
Net Sales, as reported $ 284,414 $ 314,466 $ (30,052 ) (10

)%

Net Sales to Bayer AG 669 46,380 (45,711 ) (99

)%

Net Sales excluding Sales to Bayer AG $ 283,745 $ 268,086 $ 15,659 6%
Electronic Manufacturing Services Segment
Net Sales, as reported $ 160,959 $ 198,985 $ (38,026 ) (19

)%

Net Sales to Bayer AG 669 46,380 (45,711 ) (99

)%

Net Sales excluding Sales to Bayer AG $ 160,290 $ 152,605 $ 7,685 5%
Operating Income excluding Restructuring Charges
Three Months Ended
Kimball International, Inc. March 31,
2012 2011
Operating Income, as reported $ 2,094 $ 3,754
Pre-tax Restructuring Charges 895 68
Adjusted Operating Income $ 2,989 $ 3,822
Electronic Manufacturing Services Segment
Operating Income, as reported $ 5,009 $ 4,505
Pre-tax Restructuring Charges 860 34
Adjusted Operating Income $ 5,869 $ 4,539
Net Income excluding Restructuring Charges
Three Months Ended
Kimball International, Inc. March 31,
2012 2011
Net Income, as reported $ 2,506 $ 3,306
After-tax Restructuring Charges 539 40
Adjusted Net Income $ 3,045 $ 3,346
Electronic Manufacturing Services Segment
Net Income, as reported $ 3,303 $ 3,151
After-tax Restructuring Charges 519 19
Adjusted Net Income $ 3,822 $ 3,170

Earnings Per Class B Diluted Share excluding Restructuring Charges

 

Three Months Ended

 

March 31,
2012 2011
Earnings per Class B Diluted Share, as reported $ 0.07 $ 0.09
Impact of Restructuring Charges per Class B Diluted Share 0.01 0.00
Adjusted Earnings Per Class B Diluted Share $ 0.08 $ 0.09

 

Source: Kimball International Inc.

 

 

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