Kimball Nearly Doubles Quarterly Profit
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowJasper-based Kimball International Inc. (Nasdaq: KBALB) is reporting a fiscal third quarter profit of $7.2 million, compared to $3.7 million during the same period a year earlier. Chief Executive Officer James Thyen says the planned spin-off of its electronic manufacturing services segment is on pace to be complete by the end of the calendar year. May 5, 2014
News Release
JASPER, Ind. – Kimball International, Inc. (NASDAQ: KBALB) today reported net sales of $310.8 million and net income of $7.2 million, or $0.19 per Class B diluted share, for the third quarter of fiscal year 2014 which ended March 31, 2014.
Consolidated net sales in the third quarter of fiscal year 2014 increased 3% from the prior year third quarter on increased net sales in both the Electronic Manufacturing Services (EMS) segment and the Furniture segment.
Third quarter gross profit as a percent of net sales increased 1.6 percentage points from the prior year third quarter on improved margins in both the EMS segment and the Furniture segment.
Consolidated selling and administrative expenses in the third quarter of fiscal year 2014 increased 4% in absolute dollars compared to the prior year primarily due to higher incentive compensation costs and higher salary and employee benefit costs. Selling and administrative expenses in the third quarter of fiscal year 2014 also included $0.9 million of incremental external costs related to the spin-off of the Company's EMS segment. Partially offsetting these higher costs, the Company recorded $0.7 million less expense related to the normal revaluation to fair value of its Supplemental Employee Retirement Plan (SERP) liability compared to the third quarter of the prior fiscal year. This impact from the change in the SERP liability is offset with less 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. Also favorably impacting the comparison to prior year was a bad debt allowance related to one customer that was recorded in the third quarter of the prior fiscal year.
Other General Income included $0.7 million of pre-tax income resulting from settlement proceeds related to an antitrust class action lawsuit that alleged the defendant sellers illegally conspired to fix prices of electronic components purchased several years ago by some of our manufacturing facilities in the EMS segment. This receipt of funds is in addition to the $5.0 million in funds received in the first quarter of this fiscal year for class action lawsuits.
Other Income/Expense was income of $0.1 million for both the third quarter of fiscal year 2014 and the third quarter of the prior year.
The Company's effective tax rate for the third quarter of fiscal year 2014 was 15.4% compared to (6.0)% in the prior year third quarter. The current year third quarter effective tax rate was favorably impacted by a higher mix of earnings in foreign jurisdictions which carry a lower tax rate than the U.S. and $0.7 million of other discrete tax adjustments including a decrease in a foreign deferred tax asset valuation allowance and state tax accrual adjustments. The prior year third quarter effective tax rate was favorably impacted by the mix of earnings between U.S. and foreign jurisdictions (pre-tax loss in the high-tax U.S. jurisdiction coupled with pre-tax income in lower tax rate countries) and tax benefits related to the extension of the research and development tax credit during that period.
Operating cash flow for the third quarter of fiscal year 2014 was $19.8 million compared to $11.4 million in the third quarter of the prior year.
The Company's cash and cash equivalents increased to $138.3 million at March 31, 2014, compared to $103.6 million at June 30, 2013. The Company had no short-term borrowings outstanding at March 31, 2014 or June 30, 2013. Long-term debt including current maturities was less than $300,000 at March 31, 2014.
James C. Thyen, President and Chief Executive Officer, stated, “Our margin improvement in the Furniture segment in the third quarter was encouraging. As we focus on continued margin improvement, we are increasing our efforts in product development and making other strategic investments to accelerate growth and further strengthen our position in the furniture markets.”
Mr. Thyen concluded, “Our EMS segment continued to perform very well during the third quarter. We are confident in the strategic focus within both of our segments and that the investments we are making are balanced and appropriate for future growth and profitability in all of the markets we serve. We continue to execute, as planned, the spin-off of the EMS segment into a separate public company.”
Fiscal year 2014 third quarter net sales in the EMS segment increased 2% compared to the third quarter of the prior year. Net sales to customers in the automotive, medical and industrial markets increased while sales to the public safety market declined compared to the prior year.
Gross profit as a percent of net sales in the EMS segment for the third quarter of fiscal year 2014 was consistent with the third quarter of the prior year.
Selling and administrative expenses in this segment increased 10% in the fiscal year 2014 third quarter when compared to the prior year primarily due to higher incentive compensation costs. As a percent of sales, selling and administrative costs in the EMS segment increased 0.6 of a percentage point for the third quarter of fiscal year 2014 compared to the prior year.
Fiscal year 2014 third quarter net income in the EMS segment included $0.4 million of after-tax income resulting from settlement proceeds related to the antitrust class action lawsuit discussed above.
Fiscal year 2014 third quarter net sales in the Furniture segment increased 5% compared to the prior year on increased net sales of both hospitality and office furniture. All vertical markets within the office furniture industry increased over the prior year except for sales to the federal government.
Gross profit as a percent of net sales increased 3.2 percentage points in the Furniture segment in the third 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 third quarter of fiscal year 2014 increased 3% compared to the prior year due to higher incentive compensation costs and increased salary and employee benefit costs. The prior year third quarter included a bad debt allowance related to one customer which favorably impacted the third quarter year-over-year comparison. As a percent of sales, selling and administrative costs in the Furniture segment declined 0.5 of a percentage point for the third 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 before the end of the calendar year.
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. Kimb