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| 8-K - KIMBALL INTERNATIONAL, INC. FORM 8-K - KIMBALL INTERNATIONAL INC | kbalform8-k09142016.htm |
INVESTOR PRESENTATION
September 2016
Exhibit 99.1
SAFE HARBOR STATEMENT
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, our ability to fully realize
the expected benefits of the restructuring plan, 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.
1
COMPANY SNAPSHOT
Headquarters: Jasper, IN, USA
Founded: 1950
Employees: ~3,000
Furniture focused since Oct 31, 2014 Spin-off
FY’16 Revenue: $635M
FY’16 Adj. Pro Forma Operating Profit: $40.8M / 6.4%
FY ‘15 Revenue: $601M
FY ’15 Adj. Pro Forma Operating Profit: $29.3M / 4.9%
2
Design Driven and Award Winning Furniture Brands
Evolving Office Environment Driving Demand and Continued Hospitality Growth
Dividend Yield Approximates 2%
Accelerating Revenue From New Product Introductions - Increasing Market Share
WHY INVEST IN US
Improving Financial Performance
Capital Available for Growth
3
Strong Return on Capital Relative to Competitors
WHO WE ARE
Kimball International, Inc. creates design
driven, innovative furnishings sold through
our family of brands: Kimball Office,
National Office Furniture, and Kimball
Hospitality. Our diverse portfolio offers
solutions for the workplace, learning,
healing, and hospitality
environments. Dedicated to our Guiding
Principles, our values and integrity are
evidenced by public recognition as a
highly trusted company and an employer
of choice.
“We Build Success” by establishing long-
term relationships with customers,
employees, suppliers, share owners and the
communities in which we operate.
We are committed to sales growth,
profitability and return on capital that is
among the best in each of our markets.
We Build Success
4
5
Commercial
Government Education
Healthcare
Finance Hospitality
Contract Magazine
Top 10 Brand in
Desks/Credenzas
HOW WE ARE RECOGNIZED
6
Increased mobility/technology requires flexible
work space
Shifting to more open and collaborative office
layouts to promote teamwork
Promotion of healthy work environments
Real Estate Optimization
Change is driving furniture demand
New Work
Areas
MARKET CHANGES DRIVING OFFICE FURNITURE DEMAND
7
176
0
0
137
132
126
237
23
23
46
46
46
51
132
156
252
202
59
FURNITURE INDUSTRY INDICATORS
8
3.9%
7.2%
-35.0%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
0
2000
4000
6000
8000
10000
12000
14000
16000
BIFMA
($millions)
S
ou
rc
e
U
S
B
ur
ea
u
of
E
co
no
m
ic
A
na
ly
si
s
S
ou
rc
e:
U
S
B
ur
ea
u
of
L
ab
or
S
ta
tis
tic
s
S
ou
rc
e:
A
IA
Continued
Growth
MIXED U.S. FURNITURE LEADING INDICATORS
July marks 6th
month in a row
of positive
billings
9
0
200
400
600
800
1000
1200
1400
1600
1800
1
2
/1
/2
0
0
2
6
/1
/2
0
0
3
1
2
/1
/2
0
0
3
6
/1
/2
0
0
4
1
2
/1
/2
0
0
4
6
/1
/2
0
0
5
1
2
/1
/2
0
0
5
6
/1
/2
0
0
6
1
2
/1
/2
0
0
6
6
/1
/2
0
0
7
1
2
/1
/2
0
0
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6
/1
/2
0
0
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1
2
/1
/2
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0
8
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/1
/2
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/1
/2
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/1
/2
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/1
/2
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/1
/2
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/1
/2
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/1
/2
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/1
/2
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/1
/2
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/1
/2
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/1
/2
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/1
/2
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/1
/2
0
1
5
1
2
/1
/2
0
1
5
6
/1
/2
0
1
6
US Corporate Profit After Tax
With IVA and CCA adjustment ($billion)
100
105
110
115
120
125
130
8
/1
/2
0
0
4
2
/1
/2
0
0
5
8
/1
/2
0
0
5
2
/1
/2
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0
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/1
/2
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0
6
2
/1
/2
0
0
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8
/1
/2
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7
2
/1
/2
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0
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8
/1
/2
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0
8
2
/1
/2
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0
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/1
/2
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0
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2
/1
/2
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/1
/2
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0
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/1
/2
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1
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/1
/2
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/1
/2
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/1
/2
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2
/1
/2
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/1
/2
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3
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/1
/2
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1
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/1
/2
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1
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/1
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8
/1
/2
0
1
5
2
/1
/2
0
1
6
8
/1
/2
0
1
6
Service Sector Employement
(millions workers)
Architectural Billing Index
3.1%
2.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Luxury Upper Scale Upscale Upper Middle
Scale
Midscale Economy Independents US
2016 2017
Source: PWC Hospitality Directions May 2015
Revenue Per Available Room (RevPAR) Growth Rates Estimated (1)
Occupancy stabilizing at peak levels
GROWTH IN HOSPITALITY LEADING INDICATORS
10
2016 (1) 2017 (1)
(1) Source PWC August 2016 Hospitality Directions
KIMBALL INTERNATIONAL
FINANCIAL OVERVIEW
Basis of financial information is Continuing Operations
adjusted for certain non-operating
and non-core transactions for comparability. Financial
information included throughout is unaudited.
11
12
STRONG SALES GROWTH IN NEW PRODUCT INTRODUCTIONS
OFFICE FURNITURE (1)
5%
21%
26%
57%
33%
45%
54%
34%
0%
10%
20%
30%
40%
50%
60%
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
($ in millions)
(1) Unaudited
Year Over Year Growth
13
29% of
total
office
furniture
sales
ORDER GROWTH EACH QUARTER
14
$172.3 $165.9 $168.2 $148.4 $176.4
$130.0
$135.0
$140.0
$145.0
$150.0
$155.0
$160.0
$165.0
$170.0
$175.0
$180.0
Q4'15 Q1'16 Q2'16 Q3'16 Q4'16
Orders Received
($ in millions)
(1) Unaudited
Quarterly Orders and Year Over Year Growth (1)
Quarterly
order growth
fueled by
new product
introductions
15% 2.5% 5.8% 13.4% 2.4%
ORDER TREND RELATIVE TO OFFICE FURNITURE MARKET
15
* Sales and order data are not available for the Hospitality furniture industry (BIFMA industry data excludes Hospitality
furniture). Therefore, to get a comparable industry comparison, sales and orders for the Hospitality vertical are excluded from
the Kimball International numbers presented in this graph.
7%
8%
13%
6% 6%
4%
2%
0% -1%
3%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Q4'15 Q1'16 Q2'16 Q3'16 Q4'16
Orders *
Kimball Int'l (excluding Hospitality vertical)
Office Furniture Industry (BIFMA)
Growth in
orders
exceeded
industry
growth for
each of the
last 5 quarters
PROGRESS BEING MADE TOWARDS 8% TO 9%
OPERATING INCOME GUIDANCE
16
1.3%
-1.0%
2.0%
4.9%
6.4%
4.6%
4.0% 4.2%
6.6% 6.6%
7.5%
4.8%
6.7%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2012 2013 2014 2015 2016 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16
Fiscal Quarterly
Best Q3 in 10 years.
Seasonal lower
sales in Q3 results
in lower Operating
Healthcare cost
up $1.7M.
Impacted margin
by 100bps.
_____________________
(1) Unaudited. See Appendix for Non-GAAP reconciliation.
ADJUSTED FREE CASH FLOW(1)
17
_____________________
(1) Unaudited. Defined as adjusted net income, plus depreciation and amortization, less capital expenditures, plus non-cash stock compensation, plus
change in working capital. Adjusted net income is a non-GAAP measurement equal to GAAP net income excluding after-tax restructuring charges.
Fiscal Year 2016
Adjusted Net Income $25.7
Depreciation/Amortization 15.0
Capital Expenditures (16.2)
Non-Cash Stock Comp 5.5
Change in Working Capital 4.6
Adjusted Free Cash Flow $34.6
($ in millions)
18
CUMULATIVE QUARTERLY TOTAL RETURN
FINANCIAL OUTLOOK
19
Q1’17 Outlook
(Quarter Ending September 2016)
Sales $170 to $180 million
Operating Income 8.0% to 9.0%
Operating Income $’s $13.6 to $16.2 million
Tax Rate 35% to 38%
Earnings Per Diluted Share $0.23 to $0.27
Return on Capital* Exceeding 20%
* Defined as Annualized Adjusted Net Income Divided by Capital. Adjusted net income is a non-GAAP measurement equal to GAAP net income
excluding after-tax restructuring charges. Capital is defined as Total Equity plus Total Debt.
Economic conditions do not
significantly worsen and negatively
affect industries we serve
No Acquisitions in this time frame
Commodity Pricing
Stable
Post Falls Idaho
Restructuring benefit of
$600k in Q1 (plan is for
$1,250,000 per qtr.
when fully ramped)
Planning Assumptions
TARGETED 8% TO 9% OPERATING INCOME IN Q1’17
20
Does not include any
potential impact to
earnings related to the
government’s review
of our subcontract
reporting process as
described in 8-k filed
on 5/31/16
Guidance as of 8/2/16
APPENDIX
21
ANNUAL NON-GAAP RECONCILIATION (UNAUDITED)
22
(millions $) 2013 2014 2015 2016
Operating Income from Continuing Operations -$10.6 $1.9 $17.3 $33.5
Add: Spin Cost – Included in SGA
Add: Restructuring
$1.5 $3.2
$5.3
$7.3
Adjusted Operating Income from Continuing Operations -$10.6 $3.4 $25.8 $40.8
Adjusted Operating Income from Continuing Operations as a % of Sales -2.1% .6% 4.3% 6.4%
Add: Employee Retirements – Included in SGA (1)
Add: Other Non-operational – Included in SGA (2)
Add: SERP –Included in SGA (3)
$5.0
$1.7
$6.8
-$.5
$2.6
$3.3
$0.6
Adjusted Pro Forma Operating Income from Continuing Operations before
External Reverse Synergies
-$3.9 $12.3 $29.7 $40.8
Deduct: External Reverse Synergies (4) -$1.3 -$1.2 -$0.4
Adjusted Pro Forma Operating Income from Continuing
Operations (4)
-$5.2 $11.1 $29.3 $40.8
Adjusted Pro Forma Operating Income from Continuing
Operations as a % of Sales
-1.0% 2.0% 4.9% 6.4%
_____________________
(1) Estimated cost associated with the retirement and separation of people due to spin. Costs include that for salary, incentive compensation, performance shares, retirement contribution, and payroll tax.
(2) Includes: pre-tax airplane write-off $1.2M and gain from sale of idle property of $1.7M in FY’14.
(3) SERP expense is added back to adjusted operating income because amount is offset in other income (expense) section of income statement. Net Income is not affected by SERP.
(4) Adjusted pro forma operating income includes external reverse synergies representing estimated increases to the cost structure necessitated by the split into two companies. For example, pre-spin Kimball had one board of directors, and such
costs were allocated to Furniture and Electronics. Post spin, there are two boards with each company experiencing a cost increase merely because of the separation. Other examples include IT expenditures and certain insurance cost among
others. The $1.3M per year reflected in the table above is a mid-point of a range estimated to be from $1.0M to $1.5M adjusting the adjusted pro forma operating income from continuing operations to reflect this estimated increase in cost
structure post spin. In addition to external cost, internal reverse synergy cost also exist and are embedded in the calculation of Operating Income from continuing operations reducing income. Different than external cost, these costs do not
have to be separately deducted in this reconciliation because by way of the discontinued operation calculation this cost increase remains within the computed Operating Income from continuing operations. As an example for this type of cost,
pre-spin Kimball had an SEC financial reporting function, and such costs were allocated to Furniture and Electronics. Post spin, there are two separate functions experiencing a cost increase as it takes more resource to perform this function
for two separate companies than one. This cost increase is estimated to be $500k to $1M. So in total, it is estimated that reverse synergy cost will increase cost structure post spin by $1.5 to $2.5M per year as already reflected in the
adjusted results included in the reconciliation above.
QUARTERLY NON-GAAP RECONCILIATION (UNAUDITED)
23
(millions $) Q4’15 Q1’16 Q2’16 Q3’16 Q4’16
Operating Income from Continuing Operations $8.6 $9.7 $10.0 $4.3 $9.5
Add: Spin Cost – Included in SGA
Add: Restructuring
$.2
$1.6
$1.2
$2.0
$2.8
$1.3
Adjusted Operating Income from Continuing Operations $10.4 $10.9 $12.0 $7.1 $10.8
Adjusted Operating Income from Continuing Operations as a % of Sales 6.5% 7.0% 7.3% 4.7% 6.6%
Add: SERP –Included in SGA (1) -$.6 $.3 $.1 $.2
Adjusted Pro Forma Operating Income from Continuing Operations $10.4 $10.3 $12.3 $7.2 $11.0
Adjusted Pro Forma Operating Income from Continuing Operations
as a % of Sales
6.6% 6.6% 7.5% 4.8% 6.7%
_____________________
(1) SERP expense is added back to adjusted operating income because amount is offset in other income (expense) section of income statement. Net Income is not affected by SERP.