Kimball Profit Increases

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Japser-based Kimball International Inc. (Nasdaq: KBALB) is reporting a fiscal fourth quarter profit of $7.1 million, compared to $6.1 million for the same period a year earlier. The company is also reporting a higher full-year profit for fiscal 2013. August 1, 2013

News Release

JASPER, Ind. -- Kimball International, Inc. (NASDAQ: KBALB) today reported net sales of $318.3 million and net income of $7.1 million, or $0.18 per Class B diluted share, for the fourth quarter of fiscal year 2013 which ended June 30, 2013.

Consolidated net sales in the fourth quarter of fiscal year 2013 increased 10% from the prior year fourth quarter on increased net sales in the Electronic Manufacturing Services (EMS) segment.

Fourth quarter gross profit as a percent of net sales declined 1.3 percentage points from the prior year fourth quarter as the impact of lower margins in the Furniture segment more than offset improved margins in the EMS segment. A sales mix shift toward the EMS segment which carries a lower gross profit percent than the Furniture segment also negatively impacted the consolidated gross profit percent.

Consolidated fourth quarter selling and administrative expenses increased 15% in absolute dollars compared to the prior year. The increased costs were primarily due to higher employee incentive compensation costs, higher sales and marketing costs related to growth initiatives, and an allowance recorded for notes receivable.

Other Income/Expense for the fourth quarter of fiscal year 2013 was income of $0.7 million compared to expense of $2.1 million in the fourth quarter of the prior year. The variance in Other Income/Expense was partially driven by favorable foreign exchange movement that impacted the EMS segment. In addition, the prior year fourth quarter included a pre-tax impairment charge of $1.2 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 fourth quarter of fiscal year 2013 was 2.4% compared to 33.0% in the prior year fourth quarter. The current year fourth quarter effective tax rate was favorably impacted by a higher mix of earnings from foreign jurisdictions with lower tax rates and by favorable state tax accrual adjustments. Also the actual annual effective tax rate for fiscal year 2013 ended lower than what the Company estimated at the end of the third quarter which resulted in a favorable year-to-date adjustment in the fourth quarter of fiscal year 2013.

Operating cash flow for the fourth quarter of fiscal year 2013 was cash inflow of $22.5 million compared to $29.0 million in the fourth quarter of the prior year.

The Company's cash and cash equivalents increased to $103.6 million at June 30, 2013, compared to $75.2 million at June 30, 2012. Long-term debt including current maturities remained at $0.3 million.

Fiscal year 2013 annual consolidated net sales of $1.2 billion increased 5% from fiscal year 2012 net sales of $1.1 billion. Net income for fiscal year 2013 was $19.9 million, or $0.52 per Class B diluted share, inclusive of $0.3 million, or $0.01 per Class B diluted share, of after-tax restructuring expense. Net income for fiscal year 2012 was $11.6 million, or $0.31 per Class B diluted share, inclusive of $2.1 million, or $0.06 per Class B diluted share, of after-tax restructuring expense. Operating cash flow for fiscal year 2013 was $63.9 million compared to $59.0 million in the prior fiscal year.

James C. Thyen, President and Chief Executive Officer, stated, "One of the top priorities for our EMS segment coming into fiscal year 2013 was growth and diversification of our customer base. The team's intense focus throughout the year resulted in extraordinary execution around this strategy as evidenced by a 17% sales increase in the EMS segment for the fourth quarter when compared to last year. The growth came from both existing customers and new customers and within all four of the vertical markets in which we compete. We are pleased with the accomplishments our EMS team achieved over the past year and look forward to continued success in fiscal year 2014."

Mr. Thyen concluded, "We ended the fiscal year 2013 fourth quarter with an operating loss in the Furniture segment primarily due to a mix of lower margin projects and higher freight costs. Moving beyond these events, our continued focus in fiscal year 2014 will be profitable growth."

Electronic Manufacturing Services SegmentFiscal year 2013 fourth quarter net sales in the EMS segment increased 17% compared to the fourth quarter of the prior year on double-digit percentage sales growth to customers in all four of the key vertical markets in which this segment competes.

Gross profit as a percent of net sales in the EMS segment for the fourth quarter of fiscal year 2013 improved 1.5 percentage points when compared to the fourth quarter of the prior year primarily due to leverage gained on the higher revenue as well as benefits realized from global purchasing efforts and operating efficiencies.

Selling and administrative expenses in this segment increased 29% in the fiscal year 2013 fourth quarter when compared to the prior year primarily related to higher employee incentive compensation costs and an allowance recorded for notes receivable.

Furniture Segment

Fiscal year 2013 fourth quarter net sales in the Furniture segment increased slightly compared to the prior year as an increase in net sales of office furniture was mostly offset by a decrease in net sales of hospitality furniture. Furniture sales to the federal government in the fourth quarter continued to lag prior year.

Gross profit as a percent of net sales declined 3.6 percentage points in the Furniture segment in the fourth quarter of fiscal year 2013 when compared to the prior year. Contributing to the decline in gross profit were higher freight costs coupled with several projects that shipped during the quarter with lower margins. In addition, the prior year fourth quarter included a $2.1 million reduction in the LIFO inventory reserve which had an unfavorable impact on the year-over-year comparison. Partially offsetting the decline was a benefit realized from price increases.

Selling and administrative expenses in the Furniture segment for the fourth quarter of fiscal year 2013 increased 9% compared to the prior year primarily related to higher employee incentive compensation costs and higher sales and marketing costs related to growth initiatives.

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) operating income excluding restructuring charges, 2) net income excluding restructuring charges, and 3) earnings per Class B diluted share 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.

About Kimball International, Inc.

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