KIMBALL INTERNATIONAL INC - FORM 8-K - EX-99.1 - KIMBALL INTERNATIONAL, INC. EXHIBIT 99.1 - February 5, 2014

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8-K - KIMBALL INTERNATIONAL, INC. FORM 8-K - KIMBALL INTERNATIONAL INCform8-kearningsrelease1231.htm


Exhibit 99.1
KIMBALL INTERNATIONAL, INC. REPORTS SECOND QUARTER FISCAL YEAR 2014 RESULTS
JASPER, IN (February 5, 2014) - Kimball International, Inc. (NASDAQ: KBALB) today reported net sales of $320.3 million and net income of $9.2 million, or $0.24 per Class B diluted share, for the second quarter of fiscal year 2014 which ended December 31, 2013. 
Consolidated Overview
Financial Highlights
(Amounts in Thousands, Except Per Share Data)
Three Months Ended
 
 
 
December 31,
2013
December 31,
2012
Percent Change
Net Sales
$
320,313

 
$
295,136

 
9
%
Gross Profit
$
66,846

 
$
55,157

 
21
%
Gross Profit %
20.9
%
 
18.7
%
 
 
Selling and Administrative Expenses
$
56,664

 
$
49,006

 
16
%
Selling and Administrative Expenses %
17.7
%
 
16.6
%
 
 
Operating Income
$
10,182

 
$
6,120

 
66
%
Operating Income %
3.2
%
 
2.1
%
 
 
Net Income
$
9,222

 
$
4,179

 
121
%
Earnings Per Class B Diluted Share
$
0.24

 
$
0.11

 
118
%

•
Consolidated net sales in the second quarter of fiscal year 2014 increased 9% from the prior year second quarter on increased net sales in both the Electronic Manufacturing Services (EMS) segment and the Furniture segment.

•
Second quarter gross profit as a percent of net sales increased 2.2 percentage points from the prior year second quarter on improved margins in both the EMS segment and the Furniture segment.

•
Consolidated selling and administrative expenses in the second quarter of fiscal year 2014 increased 16% in absolute dollars compared to the prior year primarily due to higher incentive compensation costs, increased warranty reserves, higher salary costs, and increased investments in sales and marketing activities. In addition, selling and administrative expenses in the second quarter of fiscal year 2014 includes expense of $1.3 million related to the normal revaluation to fair value of the Company's Supplemental Employee Retirement Plan (SERP) liability compared to only $0.3 million of expense in the second quarter of the prior fiscal year. This impact from the change in the SERP liability is exactly offset with income related to the revaluation of the SERP investment which was recorded within Other Income/Expense, and thus there was no effect on net income.

•
Other Income/Expense for the second quarter of fiscal year 2014 was income of $1.2 million compared to expense of $1.4 million in the second quarter of the prior year. The current year second quarter includes income of $1.3 million related to the revaluation of the SERP investment as discussed above. The prior year second quarter included 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 2014 was 19.2% compared to 12.3% in the prior year second quarter. The current year second quarter effective tax rate was favorably impacted by a $0.7 million tax adjustment in the EMS segment related to a tax law change in Mexico. When compared to the prior year, the fiscal year 2014 second quarter effective tax rate is higher primarily due to improvement in earnings from domestic operations which carry a higher tax rate.

•
Operating cash flow for the second quarter of fiscal year 2014 was $29.0 million compared to $20.5 million in the second quarter of the prior year.





•
The Company's cash and cash equivalents increased to $129.6 million at December 31, 2013, compared to $103.6 million at June 30, 2013. The Company had no short-term borrowings outstanding at December 31, 2013 or June 30, 2013. Long-term debt including current maturities was less than $300,000 at December 31, 2013.

James C. Thyen, President and Chief Executive Officer, stated, "Sales growth and effective operational execution drove significant earnings improvement in our Furniture segment during the second quarter with all furniture brands positively contributing. We've made notable improvements in our project execution and process discipline in this segment which is reflected in our financial performance this quarter. In our EMS segment, the 10% increase in sales was driven by the success of our business development efforts and continued strength in both the industrial and automotive markets. Overall, we were very pleased with the solid performance in both of our segments this quarter."

Electronic Manufacturing Services Segment
Financial Highlights
(Amounts in Thousands)
Three Months Ended
 
 
 
December 31,
2013
December 31,
2012
 
Percent Change
Net Sales
$
181,264

 
$
164,181

 
10
%
Operating Income
$
5,378

 
$
4,996

 
8
%
Operating Income %
3.0
%
 
3.0
%
 
 
Net Income
$
5,225

 
$
3,932

 
33
%

•
Fiscal year 2014 second quarter net sales in the EMS segment increased 10% compared to the second quarter of the prior year on solid growth to customers in the industrial and automotive industries. Net sales to the public safety and medical industries declined compared to the prior year.

•
Gross profit as a percent of net sales in the EMS segment for the second quarter of fiscal year 2014 increased 0.4 of a percentage point when compared to the second quarter of the prior year. The improvement in margin is due to the impact of a $1.1 million inventory write-down in the prior year second quarter which favorably impacts the year-over-year comparison.

•
Selling and administrative expenses in this segment increased 18% in the fiscal year 2014 second quarter when compared to the prior year primarily due to higher incentive compensation costs related to the improved earnings. As a percent of sales, selling and administrative costs in the EMS segment increased 0.5 of a percentage point for the second quarter of fiscal year 2014 compared to the prior year.

•
Earnings in this segment in the second quarter of fiscal year 2014 were favorably impacted by a $0.7 million tax adjustment related to a tax law change in Mexico.

Furniture Segment
Financial Highlights
(Amounts in Thousands)
Three Months Ended
 
 
 
December 31,
2013
 
December 31,
2012
 
Percent Change
Net Sales
$
139,049

 
$
130,955

 
6
%
Operating Income
$
6,455

 
$
1,939

 
233
%
Operating Income %
4.6
%
 
1.5
%
 
 
Net Income
$
4,457

 
$
1,504

 
196
%

•
Fiscal year 2014 second quarter net sales in the Furniture segment increased 6% compared to the prior year on increased net sales of both office and hospitality furniture. All vertical markets within the office furniture industry increased over the prior year except for sales to the federal government. Sequentially, for the third consecutive quarter, sales to the federal government increased over the immediately preceding quarter.





•
Gross profit as a percent of net sales increased 4.8 percentage points in the Furniture segment in the second quarter of fiscal year 2014 when compared to the prior year driven primarily by benefits realized from pricing adjustments, increased focus on project execution and process discipline, and operational improvements.

•
Selling and administrative expenses in the Furniture segment for the second quarter of fiscal year 2014 increased 13% compared to the prior year due to higher incentive compensation costs, increased warranty reserves, and increased investments in sales and marketing activities. As a percent of sales, selling and administrative costs in the Furniture segment increased 1.7 percentage points for the second quarter of fiscal year 2014 compared to the prior year.

Spin-off of Electronic Manufacturing Services Segment
On January 20, 2014, the Company announced that its Board of Directors unanimously approved a plan to spin off its electronic manufacturing services segment. The separation will result in two independent publicly-traded companies: Kimball International, Inc., an industry leader in the sale and manufacture of quality office and hospitality furniture; and Kimball Electronics, Inc., a leading global provider of electronic manufacturing services to the automotive, medical, industrial, and public safety markets. The Company expects the spin-off, which is intended to be tax-free to shareholders, to be completed in approximately 8 - 12 months.

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 global economic conditions, significant volume reductions from key contract customers, significant reduction in customer order patterns, loss of key customers or suppliers within specific industries, financial stability of key customers and suppliers, availability or cost of raw materials, and increased competitive pricing pressures reflecting excess industry capacities. 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, 2013 and other filings with the Securities and Exchange Commission.

Conference Call / Webcast
 
 
 
Date:
 
February 5, 2014
Time:
 
1:00 PM Eastern Time
Dial-In #:
 
877-415-3179 (International Calls - 857-244-7322)
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 and will remain there for approximately 90 days. A telephone replay of the conference call will be available within two hours after the conclusion of the live event through February 19, 2014.
Replay Dial-In #:
 
888-286-8010 (International Calls - 617-801-6888)
Replay Pass Code:
 
44661348

About Kimball International, Inc.
Recognized with a reputation for excellence, Kimball International, Inc. is committed to a high performance culture that values personal and organizational commitment to quality, reliability, value, speed, and ethical behavior. Kimball employees know they are part of a corporate culture that builds success for Customers while enabling employees to share in the Company's success through personal, professional, and financial growth.
Kimball International, Inc. provides a variety of products from its two business segments: the Electronic Manufacturing Services segment and the Furniture segment. The Electronic Manufacturing Services segment provides engineering and manufacturing services which utilize common production and support capabilities to a




variety of industries globally. The Furniture segment provides furniture for the office and hospitality industries sold under the Company's family of brand names.
For more information about Kimball International, Inc., visit the Company's website on the Internet at www.kimball.com.
"We Build Success"




Financial highlights for the second quarter ended December 31, 2013 are as follows:

Condensed Consolidated Statements of Income
 
 
 
 
 
 
(Unaudited)
Three Months Ended
(Amounts in Thousands, except per share data)
December 31, 2013
 
December 31, 2012
Net Sales
$
320,313

 
100.0
%
 
$
295,136

 
100.0
%
Cost of Sales
253,467

 
79.1
%
 
239,979

 
81.3
%
Gross Profit
66,846

 
20.9
%
 
55,157

 
18.7
%
Selling and Administrative Expenses
56,664

 
17.7
%
 
49,006

 
16.6
%
Restructuring Expense
0

 
0.0
%
 
31

 
0.0
%
Operating Income
10,182

 
3.2
%
 
6,120

 
2.1
%
Other Income (Expense), net
1,229

 
0.4
%
 
(1,357
)
 
(0.5
%)
Income Before Taxes on Income
11,411

 
3.6
%
 
4,763

 
1.6
%
Provision for Income Taxes
2,189

 
0.7
%
 
584

 
0.2
%
Net Income
$
9,222

 
2.9
%
 
$
4,179

 
1.4
%
Earnings Per Share of Common Stock:
 
 
 
 
 
 
 
    Basic Earnings Per Share:
 
 
 
 
 
 
 
        Class A
$
0.24

 
 
 
$
0.11

 
 
        Class B
$
0.24

 
 
 
$
0.11

 
 
    Diluted Earnings Per Share:
 
 
 
 
 
 
 
        Class A
$
0.23

 
 
 
$
0.11

 
 
        Class B
$
0.24

 
 
 
$
0.11

 
 
 
 
 
 
 
 
 
 
Average Number of Shares Outstanding
 
 
 
 
 
 
 
    Class A and B Common Stock:
 
 
 
 
 
 
 
        Basic
38,434

 
 
 
38,077

 
 
        Diluted
38,613

 
 
 
38,295

 
 





 
 
 
 
 
 
 
 
(Unaudited)
Six Months Ended
(Amounts in Thousands, except per share data)
December 31, 2013
 
December 31, 2012
Net Sales
$
637,752

 
100.0
%
 
$
583,326

 
100.0
%
Cost of Sales
509,582

 
79.9
%
 
472,964

 
81.1
%
Gross Profit
128,170

 
20.1
%
 
110,362

 
18.9
%
Selling and Administrative Expenses
110,881

 
17.4
%
 
97,244

 
16.7
%
Other General Income
(5,022
)
 
(0.8
%)
 
0

 
0.0
%
Restructuring Expense
402

 
0.1
%
 
91

 
0.0
%
Operating Income
21,909

 
3.4
%
 
13,027

 
2.2
%
Other Income (Expense), net
2,248

 
0.4
%
 
(1,070
)
 
(0.2
%)
Income Before Taxes on Income
24,157

 
3.8
%
 
11,957

 
2.0
%
Provision for Income Taxes
5,752

 
0.9
%
 
2,817

 
0.4
%
Net Income
$
18,405

 
2.9
%
 
$
9,140

 
1.6
%
Earnings Per Share of Common Stock:
 
 
 
 
 
 
 
    Basic Earnings Per Share:
 
 
 
 
 
 
 
        Class A
$
0.47

 
 
 
$
0.23

 
 
        Class B
$
0.48

 
 
 
$
0.24

 
 
    Diluted Earnings Per Share:
 
 
 
 
 
 
 
        Class A
$
0.47

 
 
 
$
0.22

 
 
        Class B
$
0.48

 
 
 
$
0.24

 
 
 
 
 
 
 
 
 
 
Average Number of Shares Outstanding
 
 
 
 
 
 
 
    Class A and B Common Stock:
 
 
 
 
 
 
 
        Basic
38,372

 
 
 
38,047

 
 
        Diluted
38,760

 
 
 
38,469

 
 






Condensed Consolidated Statements of Cash Flows
Six Months Ended
(Unaudited)
December 31,
(Amounts in Thousands)
2013
 
2012
Net Cash Flow provided by Operating Activities
$
45,060

 
$
29,962

Net Cash Flow used for Investing Activities
(13,674
)
 
(13,394
)
Net Cash Flow used for Financing Activities
(5,666
)
 
(4,010
)
Effect of Exchange Rate Change on Cash and Cash Equivalents
272

 
336

Net Increase in Cash and Cash Equivalents
25,992

 
12,894

Cash and Cash Equivalents at Beginning of Period
103,600

 
75,197

Cash and Cash Equivalents at End of Period
$
129,592

 
$
88,091



 
(Unaudited)
 
 
Condensed Consolidated Balance Sheets
December 31,
2013
 
June 30,
2013
(Amounts in Thousands)
 
ASSETS
 
 
 
    Cash and cash equivalents
$
129,592

 
$
103,600

    Receivables, net
163,088

 
160,767

    Inventories
130,983

 
123,998

    Prepaid expenses and other current assets
43,838

 
39,013

    Assets held for sale
1,121

 
1,521

    Property and Equipment, net
187,835

 
185,744

    Goodwill
2,564

 
2,511

    Other Intangible Assets, net
4,386

 
5,276

    Other Assets
24,505

 
22,089

        Total Assets
$
687,912

 
$
644,519

 
 
 
 
LIABILITIES AND SHARE OWNERS' EQUITY
 
 
 
    Current maturities of long-term debt
$
25

 
$
23

    Accounts payable
168,403

 
155,709

    Dividends payable
1,882

 
1,863

    Accrued expenses
65,939

 
56,856

    Long-term debt, less current maturities
273

 
294

    Other
26,120

 
25,268

    Share Owners' Equity
425,270

 
404,506

        Total Liabilities and Share Owners' Equity
$
687,912

 
$
644,519







Supplementary Information
 
 
 
 
 
 
 
Components of Other Income (Expense), net
Three Months Ended
 
Six Months Ended
(Unaudited)
December 31,
 
December 31,
(Amounts in Thousands)
2013
 
2012
 
2013
 
2012
Interest Income
$
65

 
$
121

 
$
133

 
$
231

Interest Expense
(7
)
 
(8
)
 
(14
)
 
(15
)
Foreign Currency/Derivative Gain (Loss)
116

 
(124
)
 
230

 
(516
)
Gain on Supplemental Employee Retirement Plan Investment
1,278

 
283

 
2,329

 
986

Impairment Loss on Privately-Held Investment
0

 
(735
)
 
0

 
(735
)
Gain (Loss) on Stock Warrants
4

 
(751
)
 
8

 
(752
)
Other Non-Operating Expense
(227
)
 
(143
)
 
(438
)
 
(269
)
Other Income (Expense), net
$
1,229

 
$
(1,357
)
 
$
2,248

 
$
(1,070
)

 
 
 
 




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