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Kimball International, Inc. Reports Fourth Quarter and Fiscal Year 2017 Results — Fourth Quarter Sales Up 4%; Adjusted Net Income Up 48%

JASPER, Ind., Aug. 02, 2017 (GLOBE NEWSWIRE) -- Kimball International, Inc. (NASDAQ:KBAL) today announced the following results for the quarter and fiscal year ended June 30, 2017:

  • Fourth quarter revenue was $172.0 million, an increase of 4% over the prior year.  Annually, net sales of $669.9 million increased 5% over the prior year, falling within our mid-term outlook of revenue growth in the mid-single digits.

  • Fourth quarter operating income was $15.4 million, or 9.0% of net sales.  Annually, GAAP operating income as a percent of net sales was 8.5%, and excluding a restructuring gain was 8.2%, falling within our mid-term outlook of 8% to 9%. 

  • Fourth quarter net income was $10.6 million, a 68% increase over the prior year fourth quarter GAAP net income, or a 48% increase over prior year adjusted net income excluding restructuring.

  • Quarterly diluted earnings per share was $0.28.

  • Quarterly return on capital equaled 23.0%, the best in the industry, where public data is available.

/EIN News/ -- Bob Schneider, Chairman and CEO, stated, “Our performance during the fourth quarter and fiscal year was at the high end of our expectations, with strong sales growth and improving operating income that reflect our customers' continued confidence in Kimball International.  This marks the 16th consecutive quarter of year-over-year sales growth, with a significant portion of that growth being in new products with better margins.  A 48% increase in adjusted net income on a 4% sales increase is incredible, and a testament to the hard work and dedication of our employees to improve results.  We are entering fiscal year 2018 with a solid foundation to execute our strategies and take advantage of the many opportunities before us.”

Overview

Financial Highlights      
(Amounts in Thousands, Except Per Share Data) Three Months Ended    
  June 30,
 2017
  June 30,
 2016
    Percent
Change
Net Sales $ 171,983     $ 164,676     4 %
Gross Profit $ 57,808     $ 53,635     8 %
Gross Profit % 33.6 %   32.6 %    
Selling and Administrative Expenses $ 42,413     $ 42,809     (1 %)
Selling and Administrative Expenses % 24.6 %   26.1 %    
Restructuring Expense $ 0     $ 1,367      
Operating Income $ 15,395     $ 9,459     63 %
Operating Income % 9.0 %   5.7 %    
Adjusted Operating Income * $ 15,395     $ 10,826     42 %
Adjusted Operating Income % * 9.0 %   6.6 %    
Net Income $ 10,560     $ 6,275     68 %
Adjusted Net Income * $ 10,560     $ 7,135     48 %
Diluted Earnings Per Share $ 0.28     $ 0.17      
Adjusted Diluted Earnings Per Share * $ 0.28     $ 0.19      
Adjusted Return on Capital * 23.0 %   18.4 %    
Adjusted EBITDA * $ 19,481     $ 14,750      

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

  • The increase in net sales was driven by double digit increases in several vertical markets, including the finance vertical (up 37%) from an increased strategic focus on this market, the government vertical (up 29%) from new business activity in both federal and state governments, and the education vertical (up 18%) from a strong push during the peak educational buying season.  Partially offsetting these increases were declines in the hospitality vertical (down 13%) due to a very strong prior year fourth quarter, and the healthcare vertical (down 9%) due to political uncertainty around replacement of the Affordable Care Act.

  • Sales from new office furniture products introduced in the last three years increased 14% over the prior year fourth quarter.  New product sales approximated 29% of total office furniture sales in both the current and prior year fourth quarters.

  • Orders received during the fourth quarter of fiscal year 2017 were flat with the prior year fourth quarter, with increases in the education vertical (up 18%), the government vertical (up 11%), the finance vertical (up 9%), offsetting declines in the healthcare vertical (down 13%) and the commercial vertical (down 12%).  Excluding the hospitality vertical, orders received by office furniture verticals declined 1% compared to the prior year fourth quarter.  One of the Company’s brands implemented a price increase effective April 1st, which the Company believes had the effect of pulling orders into the third quarter that would have otherwise been received in the fourth quarter of the current year.  Excluding the estimated effect of the price increase, orders increased approximately 4% over the prior year fourth quarter, both on a consolidated basis and for the office furniture vertical markets.

  • Fourth quarter gross profit as a percent of net sales improved 100 basis points over the prior year fourth quarter, due to leverage on higher sales volumes and cost savings initiatives, including operational productivity improvements and benefits from the Company's restructuring plan involving the transfer of metal fabrication production from Idaho into facilities in Indiana.

  • Selling and administrative expenses in the fourth quarter of fiscal year 2017 decreased 150 basis points as a percent of net sales and decreased 1% in absolute dollars compared to the prior year fourth quarter.  The decrease in selling and administrative expense was primarily driven by gains on the sale of land, reversal of bad debt reserves upon successful collection of notes, partially offset 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 fourth quarter of fiscal year 2017.  Pre-tax restructuring expenses in the prior year fourth quarter were $1.4 million.

  • Operating cash flow for the fourth quarter of fiscal year 2017 was $15.1 million compared to operating cash flow of $9.3 million in the fourth quarter of the prior year, an increase of $5.8 million.  The increase was primarily driven by improved earnings during the current year quarter.

  • The Company's balance in cash, cash equivalents, and short-term investments was $98.6 million at June 30, 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 other properties during the fiscal year, and improved conversion of working capital to cash, and was partially offset by the return of capital to share owners in the form of share repurchases and dividends totaling $15.4 million during fiscal year 2017.

Fiscal year 2017 net sales of $669.9 million increased 5% from fiscal year 2016 net sales of $635.1 million.  Fiscal year 2017 operating income of $56.7 million increased 69% compared to fiscal year 2016 operating income of $33.5 million.  Excluding restructuring, adjusted operating income for fiscal year 2017 was $54.8 million, an increase of 34% over fiscal year 2016 adjusted operating income of $40.8 million.  Net Income for fiscal year 2017 was $37.5 million, or $0.99 per diluted share, compared to net income for fiscal year 2016 of $21.2 million, or $0.56 per diluted share.  Excluding restructuring, adjusted net income for fiscal year 2017 was $36.4 million, or $0.96 per share, and adjusted net income for fiscal year 2016 was $25.7 million, or $0.68 per share.

Financial Targets
Mr. Schneider stated, “Since the spin-off of Electronics several years ago, we have set intermediate targets for improvement and have hit each of them.  We are now updating our financial targets to reflect our latest strategies.  Our sales growth target over the next two fiscal years is organic growth in the mid-single digits annually, which we estimate will enable us to reach operating income as a percent of sales between 9.5% and 10.5% in fiscal year 2019.  This target compares to fiscal year 2014, 2015, 2016, and 2017 adjusted pro forma operating income as a percent of sales, respectively, of 1.6%, 4.8%, 6.4%, and 8.2%.  We expect our projected return on capital to continue to exceed 20%, which is among the best in the office furniture industry.”

The Company's financial targets assume that economic conditions do not significantly worsen, negatively affecting the industries which it serves.  It also does not include any potential impact to sales and earnings related to acquisitions or the government's review of our subcontract reporting process.

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; (2) net income excluding restructuring; (3) diluted earnings per share excluding restructuring; (4) return on capital excluding restructuring; (5) EBITDA excluding restructuring; and (6) adjusted pro forma operating income as of percent of sales.  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 and 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 items 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:   August 3, 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 fourth quarter and fiscal year ended June 30, 2017 are as follows:

               
Condensed Consolidated Statements of Income              
(Unaudited) Three Months Ended
(Amounts in Thousands, except per share data) June 30, 2017   June 30, 2016
Net Sales $ 171,983     100.0 %   $ 164,676     100.0 %
Cost of Sales 114,175     66.4 %   111,041     67.4 %
Gross Profit 57,808     33.6 %   53,635     32.6 %
Selling and Administrative Expenses 42,413     24.6 %   42,809     26.1 %
Restructuring Expense 0     0.0 %   1,367     0.8 %
Operating Income 15,395     9.0 %   9,459     5.7 %
Other Income, net 456     0.2 %   127     0.1 %
Income Before Taxes on Income 15,851     9.2 %   9,586     5.8 %
Provision for Income Taxes 5,291     3.1 %   3,311     2.0 %
Net Income $ 10,560     6.1 %   $ 6,275     3.8 %
               
Earnings Per Share of Common Stock:              
Basic $ 0.28         $ 0.17      
Diluted $ 0.28         $ 0.17      
               
Average Number of Total Shares Outstanding:              
Basic 37,261         37,473      
Diluted 37,729         37,792      


                 
(Unaudited)   Fiscal Year Ended
(Amounts in Thousands, except per share data)     June 30, 2017   June 30, 2016
Net Sales   $ 669,934     100.0 %   $ 635,102     100.0 %
Cost of Sales   446,629     66.7 %   431,298     67.9 %
Gross Profit   223,305     33.3 %   203,804     32.1 %
Selling and Administrative Expenses   168,474     25.1 %   162,979     25.6 %
Restructuring (Gain) Expense   (1,832 )   (0.3 %)   7,328     1.2 %
Operating Income   56,663     8.5 %   33,497     5.3 %
Other Income (Expense), net   1,355     0.2 %   (107 )   0.0 %
Income Before Taxes on Income   58,018     8.7 %   33,390     5.3 %
Provision for Income Taxes   20,512     3.1 %   12,234     2.0 %
Net Income   $ 37,506     5.6 %   $ 21,156     3.3 %
                 
Earnings Per Share of Common Stock:                
Basic   $ 1.00         $ 0.56      
Diluted   $ 0.99         $ 0.56      
                 
Average Number of Total Shares Outstanding:                
Basic   37,334         37,462      
Diluted   37,833         37,852      


  (Unaudited)    
Condensed Consolidated Balance Sheets June 30,
 2017
  June 30,
 2016
(Amounts in Thousands)  
ASSETS      
  Cash and cash equivalents $ 62,882     $ 47,576  
  Short-term investments 35,683     0  
  Receivables, net 53,909     51,710  
  Inventories 38,062     40,938  
  Prepaid expenses and other current assets 8,050     10,254  
  Assets held for sale 4,223     9,164  
  Property and Equipment, net 80,069     87,086  
  Intangible Assets, net 2,932     3,021  
  Deferred Tax Assets 14,487     12,790  
  Other Assets 13,450     11,031  
  Total Assets $ 313,747     $ 273,570  
       
LIABILITIES AND SHARE OWNERS' EQUITY      
  Current maturities of long-term debt $ 27     $ 29  
  Accounts payable 44,730     41,826  
  Customer deposits 20,516     18,625  
  Sale-leaseback financing obligation 3,752     0  
  Dividends payable 2,296     2,103  
  Accrued expenses 49,018     44,292  
  Long-term debt, less current maturities 184     212  
  Other 17,020     16,615  
  Share Owners' Equity 176,204     149,868  
  Total Liabilities and Share Owners' Equity $ 313,747     $ 273,570  


Condensed Consolidated Statements of Cash Flows     Fiscal Year Ended
(Unaudited)   June 30,
(Amounts in Thousands)   2017   2016
Net Cash Flow provided by Operating Activities   $ 64,844     $ 49,352  
Net Cash Flow used for Investing Activities   (36,176 )   (16,883 )
Net Cash Flow used for Financing Activities   (13,362 )   (19,554 )
Net Increase in Cash and Cash Equivalents   15,306     12,915  
Cash and Cash Equivalents at Beginning of Period   47,576     34,661  
Cash and Cash Equivalents at End of Period   $ 62,882     $ 47,576  


Net Sales by End Market Vertical            
    Three Months Ended       Fiscal Year Ended    
(Unaudited)   June 30,       June 30,    
(Amounts in Millions)     2017   2016   % Change   2017   2016   % Change
Commercial   $ 52.0     $ 50.5     3 %   $ 203.6     $ 201.0     1 %
Education   23.2     19.7     18 %   77.9     68.7     13 %
Finance   17.2     12.6     37 %   68.0     59.6     14 %
Government   23.1     17.9     29 %   80.5     74.4     8 %
Healthcare   19.2     21.2     (9 %)   86.1     83.5     3 %
Hospitality   37.2     42.8     (13 %)   153.8     147.9     4 %
Total Net Sales   $ 171.9     $ 164.7     4 %   $ 669.9     $ 635.1     5 %


Orders Received by End Market Vertical            
    Three Months Ended       Fiscal Year Ended    
(Unaudited)   June 30,       June 30,    
(Amounts in Millions)     2017   2016   % Change   2017   2016   % Change
Commercial   $ 49.5     $ 56.4     (12 %)   $ 212.1     $ 214.7     (1 %)
Education   31.6     26.7     18 %   84.6     75.2     13 %
Finance   16.1     14.8     9 %   68.8     61.6     12 %
Government   24.3     21.8     11 %   87.0     78.0     12 %
Healthcare   20.2     23.2     (13 %)   89.1     90.3     (1 %)
Hospitality   33.9     33.5     1 %   143.6     139.1     3 %
Total Orders Received   $ 175.6     $ 176.4     0 %   $ 685.2     $ 658.9     4 %

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   Fiscal Year Ended
(Unaudited) June 30,   June 30,
(Amounts in Thousands) 2017   2016   2017   2016
Interest Income $ 191     $ 55     $ 536     $ 275  
Interest Expense (22 )   (5 )   (37 )   (22 )
Foreign Currency Gain (Loss) 46     (5 )   18     (17 )
Gain (Loss) on Supplemental Employee Retirement Plan Investment 346     157     1,215     (13 )
Other Non-Operating Expense (105 )   (75 )   (377 )   (330 )
Other Income (Expense), net $ 456     $ 127     $ 1,355     $ (107 )


               
Reconciliation of Non-GAAP Financial Measures 
(Unaudited) 
(Amounts in Thousands, except per share data) 
 
Operating Income excluding Restructuring        
  Three Months Ended   Fiscal Year Ended
  June 30,   June 30,
  2017   2016   2017   2016
Operating Income, as reported $ 15,395     $ 9,459     $ 56,663     $ 33,497  
Pre-tax Restructuring Expense (Gain) 0     1,367     (1,832 )   7,328  
Adjusted Operating Income $ 15,395     $ 10,826     $ 54,831     $ 40,825  
               
See Exhibit 99.2 Fourth Quarter and Fiscal Year 2017 Investor Presentation for a fiscal year 2014, 2015, 2016, and 2017 
non-GAAP reconciliation of Adjusted Pro Forma Operating Income from Continuing Operations as a Percent of Net Sales.
               
Net Income excluding Restructuring        
  Three Months Ended   Fiscal Year Ended
  June 30,   June 30,
  2017   2016   2017   2016
Net Income, as reported $ 10,560     $ 6,275     $ 37,506     $ 21,156  
Pre-tax Restructuring Expense (Gain) 0     1,367     (1,832 )   7,328  
Tax on Restructuring Expense (Gain) 0     (507 )   713     (2,825 )
After-tax Restructuring Expense (Income) 0     860     (1,119 )   4,503  
Adjusted Net Income $ 10,560     $ 7,135     $ 36,387     $ 25,659  
               
Diluted Earnings Per Share excluding Restructuring        
  Three Months Ended   Fiscal Year Ended
  June 30,   June 30,
  2017   2016   2017   2016
Diluted Earnings Per Share, as reported $ 0.28     $ 0.17     $ 0.99     $ 0.56  
After-tax Restructuring Expense (Gain) 0.00     0.02     (0.03 )   0.12  
Adjusted Diluted Earnings Per Share $ 0.28     $ 0.19     $ 0.96     $ 0.68  
               
Return on Capital excluding Restructuring        
  Three Months Ended   Fiscal Year Ended
  June 30,   June 30,
  2017   2016   2017   2016
Adjusted Operating Income — see non-GAAP reconciliation above $ 15,395     $ 10,826     $ 54,831     $ 40,825  
Median Effective Income Tax Rate for trailing four quarters 35.1 %   37.3 %   35.1 %   37.3 %
Median Income Tax Expense 5,404     4,038     19,246     15,228  
Net Operating Profit After-Tax (NOPAT) 9,991     6,788     35,585     25,597  
Average Capital * 173,776     147,421     165,138     145,941  
Adjusted Return on Capital (annualized) 23.0 %   18.4 %   21.5 %   17.5 %
  * Capital is defined as Total Equity plus Total Interest-Bearing Debt              


Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) excluding Restructuring
  Three Months Ended   Fiscal Year Ended
  June 30,   June 30,
  2017   2016   2017   2016
Net Income $ 10,560     $ 6,275     $ 37,506     $ 21,156  
Provision for Income Taxes 5,291     3,311     20,512     12,234  
Income Before Taxes on Income 15,851     9,586     58,018     33,390  
Interest Expense 22     5     37     22  
Interest Income (191 )   (55 )   (536 )   (275 )
Depreciation and Amortization 3,799     3,847     15,553     14,996  
Pre-tax Restructuring Expense (Gain) 0     1,367     (1,832 )   7,328  
Adjusted EBITDA $ 19,481     $ 14,750     $ 71,240     $ 55,461  
                               
Contact:
                    Dennis Gerber
                    Investor Relations
                    812-482-8619
                    Dennis.Gerber@kimball.com

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