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Kimball International, Inc. Reports Third Quarter Results — GAAP Net Income Increases 162% (Non-GAAP Increases 63%) on Sales Increase of 2%

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JASPER, Ind., May 03, 2017 (GLOBE NEWSWIRE) -- Kimball International, Inc. (NASDAQ:KBAL) today announced third quarter fiscal year 2017 net sales of $153.1 million, an increase of 2% over the prior year third quarter, and net income of $7.2 million, an increase of 162% over the prior year third quarter.  Excluding prior year restructuring charges, adjusted net income increased 63%.  Earnings per diluted share for the third quarter was $0.19 compared to $0.07 per share earned in the prior year quarter, or $0.12 per share earned in the prior year quarter excluding restructuring charges.

Bob Schneider, Chairman and CEO, stated, "The third quarter is typically the seasonally low period for the office furniture industry, but we were pleased with the relatively strong quarter.  To have achieved a 7.2% operating income in a third quarter is very encouraging at this point in our turnaround efforts.  The significant increase in our net income, despite the seasonally low sales level, is testament to our efforts the last couple years to right-size our cost structure.   Our employees have focused on controlling costs through productivity gains and cost savings initiatives, including the broad-based savings we are experiencing from the consolidation of our metal fabrication production from Idaho into Indiana facilities.  We've also focused on coming to market with new and innovative products, which are resonating well with customers.  Sales of new office furniture products introduced in the last three years were up a strong 21% over the third quarter last year."

Overview

Financial Highlights
(Amounts in Thousands, Except Per Share Data)
Three Months Ended    
    March 31,
 2017
      March 31,
 2016
    Percent
Change
Net Sales $ 153,068     $ 150,038     2 %
Gross Profit $ 51,052     $ 45,819     11 %
Gross Profit % 33.4 %   30.5 %    
Selling and Administrative Expenses $ 40,106     $ 38,763     3 %
Selling and Administrative Expenses % 26.2 %   25.8 %    
Restructuring Expense $ 0     $ 2,761      
Operating Income $ 10,946     $ 4,295     155 %
Operating Income % 7.2 %   2.9 %    
Adjusted Operating Income * $ 10,946     $ 7,056     55 %
Adjusted Operating Income % * 7.2 %   4.7 %    
Net Income $ 7,231     $ 2,757     162 %
Adjusted Net Income * $ 7,231     $ 4,445     63 %
Adjusted Return on Capital * 17.2 %   12.2 %    
Diluted Earnings Per Share $ 0.19     $ 0.07      
Adjusted Diluted Earnings Per Share * $ 0.19     $ 0.12      

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

  • Net sales in the third quarter of fiscal year 2017 increased 2% from the prior year third quarter.  The increase was primarily driven by the finance vertical (up 24%) and the hospitality vertical (up 9%), partially offset by a decline in the healthcare vertical (down 21%).  An increased focus on strategic accounts and assisting financial institutions with refreshing their facilities contributed to the significant increase in sales in the finance vertical.  The improvement in the hospitality vertical was primarily driven by non-custom business and to a lesser extent by custom business.  Uncertainty surrounding the Affordable Care Act impacted sentiment in the healthcare market which the Company believes is causing a delay in spending in the healthcare vertical.  Office furniture sales, which includes all verticals except hospitality, were flat compared to the prior year third quarter.

  • Sales from new office furniture products introduced in the last three years increased 21% over the prior year third quarter.  New product sales approximated 29% of total office furniture sales in the current year third quarter compared to 25% in the prior year third quarter.

  • Orders received during the third quarter of fiscal year 2017 increased 12% from the prior year third quarter, with increases in all vertical markets, except healthcare and hospitality which had very strong orders in the prior year quarter.  Excluding the hospitality vertical, orders received by office furniture verticals increased 18% compared to the prior year third quarter.  One of the Company's brands implemented a price increase effective April 1st, which the Company believes had the effect of pulling some orders forward into the current year third quarter.  Excluding the estimated effect of the price increase, consolidated orders increased approximately 7% instead of 12% and orders received by the office verticals increased approximately 12% instead of 18%.

  • Third quarter gross profit as a percent of net sales improved 290 basis points over the prior year third quarter, due to lean initiatives, including benefits from the Company's restructuring plan involving the transfer of metal fabrication production from Idaho into facilities in Indiana, and lower employee benefit costs.  Gross profit also increased as a result of higher pricing, including both price increases as well as more favorable pricing on select new products.

  • Selling and administrative expenses in the third quarter of fiscal year 2017 increased 40 basis points as a percent of net sales and increased 3% in absolute dollars compared to the prior year third quarter.  The increase in selling and administrative expense was primarily driven by increases in incentive compensation as a result of higher earnings levels.

  • As a result of completing restructuring activities during the first quarter, including the sale of the Post Falls, Idaho facility and land, no restructuring costs were incurred during the third quarter of fiscal year 2017.  Pre-tax restructuring expenses in the prior year third quarter were $2.8 million.

  • Operating cash flow for the third quarter of fiscal year 2017 was $17.6 million compared to operating cash flow of $24.5 million in the third quarter of the prior year, a decrease of $6.9 million.  The decrease was primarily driven by a lower amount of working capital converted to cash as compared to the prior year quarter, only partially offset by the improved earnings during the current year quarter.

  • The Company's balance in cash, cash equivalents, and short-term investments was $84.5 million at March 31, 2017, compared to June 30, 2016 cash and cash equivalents of $47.6 million.  The increase was primarily driven by current year profitability, proceeds from the sale of the Post Falls building and land in August 2016, and improved conversion of working capital balances to cash, and was partially offset by the return of capital to share owners in the form of share repurchases and dividends totaling $13.1 million during the first nine months of fiscal year 2017.  During the current year third quarter, the Company did not repurchase shares.

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 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, statement of comprehensive income, balance sheet, or statement of cash flows of the Company.  The non-GAAP financial measures used within this release include (1) operating income excluding restructuring expense; (2) net income excluding restructuring expense; (3) diluted earnings per share excluding restructuring expense; and (4) return on capital excluding restructuring expense.  Reconciliations of the reported GAAP numbers to these non-GAAP financial measures are included in the Reconciliation of Non-GAAP Financial Measures table below.  Management believes it is useful for investors to understand how its core operations performed without gains or expenses related to executing its restructuring plans.  Excluding these amounts 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 gains/expenses to enable meaningful trending of core operating metrics.

The orders received metric is a key performance indicator used to evaluate general sales trends and develop future operating plans.  Orders received represent firm orders placed by our customers during the current quarter which are expected to be recognized as revenue during current or future quarters.  The orders received metric is not intended to be presented as an alternative measure of revenue recognized in accordance with GAAP.

Forward-Looking Statements
Certain statements contained within this release are considered forward-looking under the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties including, but not limited to, the risk that any projections or guidance, including revenues, margins, earnings, or any other financial results are not realized, the outcome of a governmental review of our subcontractor reporting practices, adverse changes in the global economic conditions, significant volume reductions from key contract customers, significant reduction in customer order patterns, financial stability of key customers and suppliers, and availability or cost of raw materials.  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 fiscal year ended June 30, 2016 and other filings with the Securities and Exchange Commission.

Conference Call / Webcast
     
Date:   May 4, 2017
Time:   11:00 AM Eastern Time
Dial-In #:   844-602-5643 (International Calls - 574-990-3014)
Pass Code:   Kimball

A webcast of the live conference call may be accessed by visiting Kimball's Investor Relations website at www.ir.kimball.com.

For those unable to participate in the live webcast, the call will be archived at www.ir.kimball.com within two hours of the conclusion of the live call.

About Kimball International, Inc.
Kimball International, Inc. creates design driven, innovative furnishings sold through our family of brands: Kimball Office, National Office Furniture, and Kimball Hospitality. Our diverse portfolio offers solutions for the workplace, learning, healing, and hospitality environments. Dedicated to our Guiding Principles, our values and integrity are evidenced by public recognition as a highly trusted company and an employer of choice. "We Build Success" by establishing long-term relationships with customers, employees, suppliers, share owners and the communities in which we operate. To learn more about Kimball International, Inc. (NASDAQ:KBAL), visit www.kimball.com.

Financial highlights for the third quarter ended March 31, 2017 are as follows:

Condensed Consolidated Statements of Income            
(Unaudited) Three Months Ended
(Amounts in Thousands, except per share data) March 31, 2017   March 31, 2016
Net Sales $ 153,068     100.0 %   $ 150,038     100.0 %
Cost of Sales 102,016     66.6 %   104,219     69.5 %
Gross Profit 51,052     33.4 %   45,819     30.5 %
Selling and Administrative Expenses 40,106     26.2 %   38,763     25.8 %
Restructuring Expense 0     0.0 %   2,761     1.8 %
Operating Income 10,946     7.2 %   4,295     2.9 %
Other Income, net 492     0.3 %   149     0.1 %
Income Before Taxes on Income 11,438     7.5 %   4,444     3.0 %
Provision for Income Taxes 4,207     2.8 %   1,687     1.2 %
Net Income $ 7,231     4.7 %   $ 2,757     1.8 %
               
Earnings Per Share of Common Stock:              
Basic $ 0.19         $ 0.07      
Diluted $ 0.19         $ 0.07      
               
Average Number of Total Shares Outstanding:              
Basic 37,236         37,439      
Diluted 37,642         37,707      


               
(Unaudited) Nine Months Ended
(Amounts in Thousands, except per share data) March 31, 2017   March 31, 2016
Net Sales $ 497,951     100.0 %   $ 470,426     100.0 %
Cost of Sales 332,454     66.8 %   320,257     68.1 %
Gross Profit 165,497     33.2 %   150,169     31.9 %
Selling and Administrative Expenses 126,061     25.3 %   120,170     25.5 %
Restructuring (Gain) Expense (1,832 )   (0.4 %)   5,961     1.3 %
Operating Income 41,268     8.3 %   24,038     5.1 %
Other Income (Expense), net 899     0.2 %   (234 )   0.0 %
Income Before Taxes on Income 42,167     8.5 %   23,804     5.1 %
Provision for Income Taxes 15,221     3.1 %   8,923     1.9 %
Net Income $ 26,946     5.4 %   $ 14,881     3.2 %
               
Earnings Per Share of Common Stock:              
Basic $ 0.72         $ 0.40      
Diluted $ 0.71         $ 0.39      
               
Average Number of Total Shares Outstanding:              
Basic 37,360         37,458      
Diluted 37,860         37,869      



  (Unaudited)    
Condensed Consolidated Balance Sheets March 31,
 2017
  June 30,
 2016
(Amounts in Thousands)  
ASSETS      
  Cash and cash equivalents $ 59,977     $ 47,576  
  Short-term investments 24,492     0  
  Receivables, net 42,274     51,710  
  Inventories 37,784     40,938  
  Prepaid expenses and other current assets 9,713     10,254  
  Assets held for sale 217     9,164  
  Property and Equipment, net 82,118     87,086  
  Intangible Assets, net 2,929     3,021  
  Deferred Tax Assets 13,698     12,790  
  Other Assets 13,311     11,031  
  Total Assets $ 286,513     $ 273,570  
       
LIABILITIES AND SHARE OWNERS' EQUITY      
  Current maturities of long-term debt $ 30     $ 29  
  Accounts payable 35,904     41,826  
  Customer deposits 20,848     18,625  
  Dividends payable 2,328     2,103  
  Accrued expenses 44,060     44,292  
  Long-term debt, less current maturities 184     212  
  Other 15,989     16,615  
  Share Owners' Equity 167,170     149,868  
  Total Liabilities and Share Owners' Equity $ 286,513     $ 273,570  


             
Condensed Consolidated Statements of Cash Flows           Nine Months Ended
(Unaudited)           March 31,
(Amounts in Thousands)           2017   2016
Net Cash Flow provided by Operating Activities           $ 49,738     $ 39,781  
Net Cash Flow used for Investing Activities           (23,070 )   (13,699 )
Net Cash Flow used for Financing Activities           (14,267 )   (16,895 )
Net Increase in Cash and Cash Equivalents           12,401     9,187  
Cash and Cash Equivalents at Beginning of Period           47,576     34,661  
Cash and Cash Equivalents at End of Period           $ 59,977     $ 43,848  


             
Net Sales by End Market Vertical            
  Three Months Ended       Nine Months Ended    
(Unaudited) March 31,       March 31,    
(Amounts in Millions) 2017   2016   % Change   2017   2016   % Change
Commercial $ 48.7     $ 48.4     1 %   $ 151.6     $ 150.5     1 %
Education 13.5     13.0     4 %   54.7     49.0     12 %
Finance 17.3     14.0     24 %   50.8     47.0     8 %
Government 18.4     17.2     7 %   57.4     56.5     2 %
Healthcare 19.4     24.5     (21 %)   66.9     62.3     7 %
Hospitality 35.8     32.9     9 %   116.6     105.1     11 %
Total Net Sales $ 153.1     $ 150.0     2 %   $ 498.0     $ 470.4     6 %


             
Orders Received by End Market Vertical            
  Three Months Ended       Nine Months Ended    
(Unaudited) March 31,       March 31,    
(Amounts in Millions) 2017   2016   % Change   2017   2016   % Change
Commercial $ 54.7     $ 47.3     16 %   $ 162.6     $ 158.3     3 %
Education 19.4     15.1     28 %   53.0     48.5     9 %
Finance 15.0     11.4     32 %   52.7     46.8     13 %
Government 24.3     17.0     43 %   62.7     56.2     12 %
Healthcare 20.6     23.1     (11 %)   68.9     67.1     3 %
Hospitality 32.4     34.5     (6 %)   109.7     105.6     4 %
Total Orders Received $ 166.4     $ 148.4     12 %   $ 509.6     $ 482.5     6 %
                                           

At the beginning of fiscal year 2017 we redefined our vertical market reporting to better reflect the end markets that we serve. The largest shifts among vertical markets were sales to certain government-affiliated customers such as state universities, which were previously classified in the government vertical market and are now classified in the education vertical market.  Prior period information was estimated to reflect the new vertical market definitions on a comparable basis.


               
Supplementary Information              
Components of Other Income (Expense), net Three Months Ended   Nine Months Ended
(Unaudited) March 31,   March 31,
(Amounts in Thousands) 2017   2016   2017   2016
Interest Income $ 136     $ 104     $ 345     $ 220  
Interest Expense (5 )   (6 )   (15 )   (17 )
Foreign Currency Gain (Loss) (13 )   28     (28 )   (12 )
Gain (Loss) on Supplemental Employee Retirement Plan Investment 473     108     869     (170 )
Other Non-Operating Expense (99 )   (85 )   (272 )   (255 )
Other Income (Expense), net $ 492     $ 149     $ 899     $ (234 )


       
Reconciliation of Non-GAAP Financial Measures      
(Unaudited)      
(Amounts in Thousands, except per share data)      
       
Operating Income excluding Restructuring Expense
  Three Months Ended
  March 31,
  2017   2016
Operating Income, as reported $ 10,946     $ 4,295  
Pre-tax Restructuring Expense 0     2,761  
Adjusted Operating Income $ 10,946     $ 7,056  
       
Net Income excluding Restructuring Expense
  Three Months Ended
  March 31,
  2017   2016
Net Income, as reported $ 7,231     $ 2,757  
Pre-tax Restructuring Expense 0     2,761  
Tax on Restructuring Expense 0     (1,073 )
After-tax Restructuring Expense 0     1,688  
Adjusted Net Income $ 7,231     $ 4,445  
       
Return on Capital excluding Restructuring Expense
  Three Months Ended
  March 31,
  2017   2016
Adjusted Operating Income — see non-GAAP reconciliation above $ 10,946     $ 7,056  
Median Effective Income Tax Rate for trailing four quarters 35.7 %   38.1 %
Median Income Tax Expense 3,908     2,688  
Net Operating Profit After-Tax (NOPAT) 7,038     4,368  
Average Capital * 164,129     143,750  
Adjusted Return on Capital (annualized) 17.2 %   12.2 %
  * Capital is defined as Total Equity plus Total Interest-Bearing Debt      
       
Diluted Earnings Per Share excluding Restructuring Expense
  Three Months Ended
  March 31,
  2017   2016
Diluted Earnings Per Share, as reported $ 0.19     $ 0.07  
After-tax Restructuring Expense 0.00     0.05  
Adjusted Diluted Earnings Per Share $ 0.19     $ 0.12  
               

 

Contact:
Dennis Gerber
Investor Relations
812-482-8619
Dennis.Gerber@kimball.com

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