UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 6, 2014
KIMBALL INTERNATIONAL, INC.
________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
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Indiana | | 0-3279 | | 35-0514506 |
(State or other jurisdiction of | | (Commission File | | (IRS Employer Identification No.) |
incorporation) | | Number) | | |
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1600 Royal Street, Jasper, Indiana | | 47549-1001 |
(Address of principal executive offices) | | (Zip Code) |
Registrant's telephone number, including area code (812) 482-1600
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Not Applicable |
(Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On November 6, 2014, Kimball International, Inc. issued an earnings release for the quarter ended September 30, 2014. The earnings release is attached as Exhibit 99.1.
Item 7.01 Regulation FD Disclosure
Attached hereto as Exhibit 99.2 is an investor presentation that supplements the information to be discussed on the Kimball International, Inc. earnings call to be held on November 7, 2014 at 11:00 a.m. Eastern Time. The presentation attached as Exhibit 99.2 is incorporated into this Item 7.01 by reference.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
The following exhibits are furnished as part of this report:
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Exhibit | | |
Number | | Description |
99.1 | | Earnings Release dated November 6, 2014 |
99.2 | | First Quarter Fiscal Year 2015 Investor Presentation dated November 6, 2014 |
The information in this Current Report on Form 8-K set forth in Item 2.02, Item 7.01, and Exhibits 99.1 and 99.2, is being furnished in accordance with the provisions of General Instruction B.2 of Form 8-K and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. The information contained in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, that is being furnished under Item 2.02 and Item 7.01 shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, except as shall be expressly set forth by specific reference in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| KIMBALL INTERNATIONAL, INC. |
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By: | /s/ Michelle R. Schroeder |
| MICHELLE R. SCHROEDER Vice President, Chief Financial Officer |
Date: November 6, 2014
EXHIBIT INDEX
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Exhibit | | |
Number | | Description |
99.1 | | Earnings Release dated November 6, 2014 |
99.2 | | First Quarter Fiscal Year 2015 Investor Presentation dated November 6, 2014 |
Exhibit 99.1
KIMBALL INTERNATIONAL, INC. ANNOUNCES FIRST QUARTER FISCAL YEAR 2015 RESULTS
Adjusted Earnings per Class B Diluted Share Increased 47% to $0.25 ($0.21 GAAP)
JASPER, IN (November 6, 2014) - Kimball International, Inc. (NASDAQ: KBAL) today announced net sales of $348.2 million and net income of $8.0 million, or $0.21 per Class B diluted share, for the first quarter of fiscal year 2015 which ended September 30, 2014. Excluding incremental after-tax costs related to the spin-off of the Company's EMS segment of $1.5 million ($0.04 per Class B diluted share), the adjusted net income for the first quarter of fiscal year 2015 was $9.5 million, or $0.25 per Class B diluted share.
Consolidated Overview
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Financial Highlights (Amounts in Thousands, Except Per Share Data) | Three Months Ended | | |
| September 30,
2014 | September 30,
2013 | Percent Change |
Net Sales | $ | 348,249 |
| | $ | 317,439 |
| | 10 | % |
Gross Profit | $ | 72,562 |
| | $ | 61,324 |
| | 18 | % |
Gross Profit % | 20.8 | % | | 19.3 | % | | |
Selling and Administrative Expenses | $ | 58,888 |
| | $ | 54,217 |
| | 9 | % |
Selling and Administrative Expenses % | 16.9 | % | | 17.1 | % | | |
Other General Income | $ | 0 |
| | $ | (5,022 | ) | | (100 | %) |
Restructuring Expense | $ | 0 |
| | $ | 402 |
| | (100 | %) |
Operating Income | $ | 13,674 |
| | $ | 11,727 |
| | 17 | % |
Operating Income % | 3.9 | % | | 3.7 | % | | |
Adjusted Operating Income * | $ | 15,248 |
| | $ | 7,107 |
| | 115 | % |
Adjusted Operating Income % * | 4.4 | % | | 2.2 | % | | |
Net Income | $ | 7,996 |
| | $ | 9,183 |
| | (13 | %) |
Adjusted Net Income * | $ | 9,545 |
| | $ | 6,405 |
| | 49 | % |
Earnings Per Class B Diluted Share | $ | 0.21 |
| | $ | 0.24 |
| | (13 | %) |
Adjusted Earnings Per Class B Diluted Share * | $ | 0.25 |
| | $ | 0.17 |
| | 47 | % |
* Items indicated represent Non-GAAP measurements. See “Reconciliation of Non-GAAP Financial Measures” below.
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• | Consolidated net sales in the first quarter of fiscal year 2015 increased 10% from the prior year first quarter on increased net sales in both the Furniture segment and the Electronic Manufacturing Services (“EMS”) segment. |
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• | First quarter gross profit as a percent of net sales increased 1.5 percentage points from the prior year first quarter on improved margins in both the Furniture segment and the EMS segment. |
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• | Consolidated selling and administrative expenses in the first quarter of fiscal year 2015 increased 9% in absolute dollars compared to the prior year partially due to higher profit-based incentive compensation costs, higher salaries and benefits, increased investments in sales and marketing activities, and $1.6 million of incremental pre-tax costs related to the spin-off of the Company's EMS segment. Partially offsetting these higher first quarter of fiscal year 2015 costs was a favorable year over year variance driven by a $1.2 million pre-tax impairment charge ($0.7 million after-tax impact) recognized in the first quarter of the prior year, related to the decision to downsize the plane fleet from three jets to two and the resulting reclassification as held for sale. In addition, the Company recorded $0.3 million of income in the first quarter of fiscal year 2015 related to the normal revaluation to fair value of its Supplemental Employee Retirement Plan (“SERP”) liability compared to $1.1 million of expense in the first quarter of the prior fiscal year. The revaluation of the SERP liability is offset by a corresponding revaluation of the SERP investment which was recorded in Other Income/Expense, and thus there was no effect on net income. |
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• | No Other General Income was recorded during the first quarter of fiscal year 2015. Other General Income in the first quarter of fiscal year 2014 included $5.0 million of pre-tax income resulting from settlement proceeds related to two antitrust class action lawsuits of which the Company was a class member. The class actions alleged that certain EMS segment suppliers illegally conspired over a number of years to raise and fix the prices of electronic components, resulting in overcharges to purchasers of those components several years ago. |
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• | Other Income/Expense was expense of $0.8 million for the first quarter of fiscal year 2015 compared to income of $1.0 million for the first quarter of the prior year. The variance was primarily related to the revaluation to fair value of the Company's Supplemental Employee Retirement Plan, which as discussed above is offset in the selling and administrative expenses. |
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• | The Company's effective tax rate for the first quarter of fiscal year 2015 of 37.9% was higher than the prior year first quarter effective tax rate of 28.0%. Primary reasons for the higher rate were the current year negative effect of non-deductible spin-off related costs (driving a 3.2% tax rate increase) and the prior year favorable adjustment of a foreign jurisdiction deferred tax asset valuation allowance (driving a 4.1% tax rate increase). |
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• | Operating cash flow for the first quarter of fiscal year 2015 was a cash outflow of $6.7 million compared to a cash inflow $16.0 million in the first quarter of the prior year. The current quarter cash outflow was primarily driven by the payment of accrued profit-based incentive compensation. |
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• | The Company's cash and cash equivalents declined to $113.2 million at September 30, 2014, compared to $136.6 million at June 30, 2014. During the first quarter of fiscal year 2015 we reinvested $11.2 million into capital investments for the future with the largest investments being made for manufacturing equipment in the EMS segment. The Company had no short-term borrowings outstanding at September 30, 2014 or June 30, 2014. Long-term debt including current maturities was less than $300,000 at September 30, 2014. |
Robert F. Schneider, Chief Executive Officer, stated, “Our first quarter of fiscal year 2015 delivered sales and earnings improvement within both segments resulting in a 47% increase in adjusted EPS over last year first quarter, excluding the impact of spin-off expenses, settlement proceeds from lawsuits, and restructuring charges. Within the Furniture segment, sales grew in several key vertical markets including our largest market which provides furniture for commercial business and professional services customers. Orders received during the quarter were very strong in all furniture verticals, including hospitality, which had the third best order quarter in the history of the Company. I am very encouraged by the 33% increase in Furniture segment operating income over the first quarter of last year, along with improving operating income as a percent of sales to 4.4% during the quarter. The EMS segment produced record sales during the first quarter of fiscal year 2015, showing double-digit growth in all of the segment's vertical markets. EMS adjusted operating income, excluding the prior year impact of lawsuit income and restructuring, improved a substantial 72% compared to the prior year as we were able to leverage increased volume.”
Mr. Schneider concluded, “In October, we achieved a significant milestone with the completion of the spin-off of our Kimball Electronics subsidiary, creating a new independent publicly traded company. At the same time we continued to maintain strong positive momentum, focusing on our customers' needs, sustaining our culture, and delivering Share Owner value. Both companies are well positioned for future success, with sound business models and strong balance sheets. We look forward to the increased focus that the spin-off allows, enabling both companies to execute specific strategies that are most effective within their particular markets.”
Furniture Segment
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Financial Highlights (Amounts in Thousands) | Three Months Ended | | |
| September 30,
2014 | | September 30,
2013 | | Percent Change |
Net Sales | $ | 144,446 |
| | $ | 141,803 |
| | 2 | % |
Operating Income | $ | 6,351 |
| | $ | 4,787 |
| | 33 | % |
Operating Income % | 4.4 | % | | 3.4 | % | | |
Net Income | $ | 3,709 |
| | $ | 2,899 |
| | 28 | % |
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• | Fiscal year 2015 first quarter net sales in the Furniture segment increased 2% compared to the prior year. Increased net sales in the other commercial, finance, and government vertical markets were partially offset by declines in the education, hospitality, and healthcare vertical markets. |
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• | Orders received during the fiscal year 2015 first quarter increased 2% over the prior year. Increased orders in other commercial, healthcare and government verticals were primarily offset by lower orders in the hospitality vertical. Orders in the hospitality vertical declined compared to the prior year due to a large order received in the prior year; however, despite the decline, hospitality orders received during the quarter represented the third best in the history of the Company. Without the impact of the large prior year hospitality order ($10.2 million), fiscal year 2015 first quarter orders received increased 9% over the prior year first quarter, and excluding the entire hospitality vertical, orders increased 10% over the prior year first quarter. |
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• | Furniture segment gross profit as a percent of net sales increased 2.8 percentage points in the first quarter of fiscal year 2015 when compared to the prior year. The Furniture segment is focused on increasing its operating income margin, which was 4.4% during the quarter, with an operating income goal of 8%. Improvement was driven by operational improvements, realized benefits from price increases, and a favorable mix of higher margin projects. |
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• | Selling and administrative expenses in the Furniture segment for the first quarter of fiscal year 2015 increased 9% compared to the prior year as a result of higher profit-based incentive compensation costs, salaries and employee benefits, and increased investments in sales and marketing activities. As a percent of net sales, selling and administrative costs in the Furniture segment increased 1.8 percentage points for the first quarter of fiscal year 2015. |
Electronic Manufacturing Services Segment
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Financial Highlights (Amounts in Thousands) | Three Months Ended | | |
| September 30,
2014 | September 30,
2013 | | Percent Change |
Net Sales | $ | 203,803 |
| | $ | 175,636 |
| | 16 | % |
Operating Income | $ | 8,669 |
| | $ | 9,996 |
| | (13 | %) |
Operating Income % | 4.3 | % | | 5.7 | % | | |
Adjusted Operating Income * | $ | 8,669 |
| | $ | 5,046 |
| | 72 | % |
Adjusted Operating Income % * | 4.3 | % | | 2.9 | % | | |
Net Income | $ | 5,917 |
| | $ | 7,462 |
| | (21 | %) |
Adjusted Net Income * | $ | 5,917 |
| | $ | 4,486 |
| | 32 | % |
* Items indicated represent Non-GAAP measurements. See “Reconciliation of Non-GAAP Financial Measures” below.
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• | Fiscal year 2015 first quarter net sales in the EMS segment increased 16% compared to the first quarter of the prior year on double-digit sales growth within all of the segment's vertical markets, with the largest increase in the medical industry. |
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• | Gross profit as a percent of net sales in the EMS segment for the first quarter of fiscal year 2015 increased 1.5 percentage points compared to the first quarter of the prior year, primarily benefiting from leverage gained on the higher sales and a favorable variance resulting from the prior year first quarter $0.6 million inventory write-down relating to products specific to a former customer. |
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• | Selling and administrative expenses in this segment increased 19% in the fiscal year 2015 first quarter when compared to the prior year, primarily driven by higher profit-based incentive compensation and higher salary and employee benefit expense. As a percent of sales, selling and administrative costs in the EMS segment increased 0.2 of a percentage point for the first quarter of fiscal year 2015 compared to the prior year. |
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• | Operating income in the first quarter of fiscal year 2014 includes the $5.0 million of Other General Income related to the proceeds from the antitrust lawsuits mentioned above. The Adjusted Operating Income and Adjusted Net Income amounts in the EMS segment table above exclude this income for a better comparison to last year. No Other General Income was recorded during the first quarter of fiscal year 2015. |
Spin-off of Electronic Manufacturing Services Segment
On October 31, 2014 (“Distribution Date”), we completed the previously announced spin-off of our EMS segment by distributing the related shares of Kimball Electronics, Inc. (“Kimball Electronics”), on a pro rata basis, to the Company's Share Owners of record as of October 22, 2014 (the Record Date). On the Distribution Date, each of the Company's shareholders received three shares of Kimball Electronics for every four shares of the Company held by such shareholder on the Record Date. After the Distribution Date, the Company does not beneficially own any Kimball Electronics shares and Kimball Electronics is an independent publicly traded company. Kimball International, Inc. trades on the NASDAQ under the ticker symbol “KBAL” and Kimball Electronics, Inc. trades on the NASDAQ under the ticker symbol “KE”.
A Form 8-K filed on November 6, 2014 discloses the pro forma financial statements of Kimball International, showing the financial results as if the spin-off had occurred at the beginning of the periods presented.
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, statement of comprehensive 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 spin-off expenses, settlement proceeds from lawsuits, and restructuring charges, 2) net income excluding spin-off expenses, settlement proceeds from lawsuits, and restructuring charges, and 3) earnings per Class B diluted share excluding spin-off expenses, settlement proceeds from lawsuits, and restructuring charges. The non-GAAP financial measures in the EMS segment used within this release include 1) operating income excluding settlement proceeds from lawsuits and restructuring charges, and 2) net income excluding settlement proceeds from lawsuits and 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 spin-off expenses, the effects of the lawsuit income, and costs incurred in 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 charges to enable meaningful trending of core operating metrics.
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, our ability to fully realize the expected benefits of the spin-off, adverse changes in 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, 2014 and other filings with the Securities and Exchange Commission.
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Conference Call / Webcast |
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Date: | | November 7, 2014 |
Time: | | 11:00 AM Eastern Time |
Dial-In #: | | 866-314-5232 (International Calls - 617-213-8052) |
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. is a leading manufacturer of design driven, technology savvy, high quality furnishings sold under the Company’s family of brands, National Office Furniture, Kimball Office and Kimball Hospitality. Our diverse portfolio provides solutions for the workplace, learning, healing and hospitality environments. Customers can access our products globally through a variety of distribution channels. Recognized with a reputation for excellence and a recipient of the Forbes 2014 America’s Most Trustworthy Companies designation, Kimball International is committed to a high performance culture that is committed to sound ethics, continuous improvement and social responsibility.
Prior to the October 31, 2014 spin-off of its Kimball Electronics, Inc. subsidiary, Kimball International, Inc. also operated an Electronic Manufacturing Services segment which provided engineering, manufacturing, and supply chain services, and specialized in producing durable electronics for the automotive, medical, industrial, and public safety markets globally.
To learn more about Kimball International, Inc. (NASDAQ: KBAL) visit www.kimball.com.
"We Build Success"
Financial highlights for the first quarter ended September 30, 2014 are as follows:
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Condensed Consolidated Statements of Income | | | | | | |
(Unaudited) | Three Months Ended |
(Amounts in Thousands, except per share data) | September 30, 2014 | | September 30, 2013 |
Net Sales | $ | 348,249 |
| | 100.0 | % | | $ | 317,439 |
| | 100.0 | % |
Cost of Sales | 275,687 |
| | 79.2 | % | | 256,115 |
| | 80.7 | % |
Gross Profit | 72,562 |
| | 20.8 | % | | 61,324 |
| | 19.3 | % |
Selling and Administrative Expenses | 58,888 |
| | 16.9 | % | | 54,217 |
| | 17.1 | % |
Other General Income | 0 |
| | 0.0 | % | | (5,022 | ) | | (1.6 | %) |
Restructuring Expense | 0 |
| | 0.0 | % | | 402 |
| | 0.1 | % |
Operating Income | 13,674 |
| | 3.9 | % | | 11,727 |
| | 3.7 | % |
Other Income (Expense), net | (795 | ) | | (0.2 | %) | | 1,019 |
| | 0.3 | % |
Income Before Taxes on Income | 12,879 |
| | 3.7 | % | | 12,746 |
| | 4.0 | % |
Provision for Income Taxes | 4,883 |
| | 1.4 | % | | 3,563 |
| | 1.1 | % |
Net Income | $ | 7,996 |
| | 2.3 | % | | $ | 9,183 |
| | 2.9 | % |
Earnings Per Share of Common Stock: | | | | | | | |
Basic Earnings Per Share: | | | | | | | |
Class A | $ | 0.20 |
| | | | $ | 0.24 |
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Class B | $ | 0.21 |
| | | | $ | 0.24 |
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Diluted Earnings Per Share: | | | | | | | |
Class A | $ | 0.20 |
| | | | $ | 0.23 |
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Class B | $ | 0.21 |
| | | | $ | 0.24 |
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Average Number of Shares Outstanding | | | | | | | |
Class A and B Common Stock: | | | | | | | |
Basic | 38,712 |
| | | | 38,310 |
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Diluted | 38,746 |
| | | | 38,596 |
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Condensed Consolidated Statements of Cash Flows | Fiscal Year Ended |
(Unaudited) | September 30, |
(Amounts in Thousands) | 2014 | | 2013 |
Net Cash Flow (used for) provided by Operating Activities | $ | (6,720 | ) | | $ | 16,025 |
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Net Cash Flow used for Investing Activities | (11,029 | ) | | (6,425 | ) |
Net Cash Flow used for Financing Activities | (4,513 | ) | | (3,784 | ) |
Effect of Exchange Rate Change on Cash and Cash Equivalents | (1,167 | ) | | 214 |
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Net (Decrease) Increase in Cash and Cash Equivalents | (23,429 | ) | | 6,030 |
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Cash and Cash Equivalents at Beginning of Period | 136,624 |
| | 103,600 |
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Cash and Cash Equivalents at End of Period | $ | 113,195 |
| | $ | 109,630 |
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| (Unaudited) | | |
Condensed Consolidated Balance Sheets | September 30,
2014 | | June 30,
2014 |
(Amounts in Thousands) | |
ASSETS | | | |
Cash and cash equivalents | $ | 113,195 |
| | $ | 136,624 |
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Receivables, net | 180,992 |
| | 175,695 |
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Inventories | 150,295 |
| | 140,475 |
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Prepaid expenses and other current assets | 49,928 |
| | 46,998 |
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Property and Equipment, net | 189,137 |
| | 188,833 |
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Goodwill | 2,564 |
| | 2,564 |
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Other Intangible Assets, net | 4,015 |
| | 4,191 |
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Other Assets | 27,738 |
| | 26,766 |
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Total Assets | $ | 717,864 |
| | $ | 722,146 |
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LIABILITIES AND SHARE OWNERS' EQUITY | | | |
Current maturities of long-term debt | $ | 27 |
| | $ | 25 |
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Accounts payable | 181,719 |
| | 174,436 |
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Dividends payable | 1,903 |
| | 1,883 |
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Accrued expenses | 63,277 |
| | 77,256 |
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Long-term debt, less current maturities | 248 |
| | 268 |
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Other | 26,714 |
| | 26,745 |
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Share Owners' Equity | 443,976 |
| | 441,533 |
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Total Liabilities and Share Owners' Equity | $ | 717,864 |
| | $ | 722,146 |
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Supplementary Information | | | |
Components of Other Income (Expense), net | Three Months Ended |
(Unaudited) | September 30, |
(Amounts in Thousands) | 2014 | | 2013 |
Interest Income | $ | 45 |
| | $ | 68 |
|
Interest Expense | (10 | ) | | (7 | ) |
Foreign Currency/Derivative Gain (Loss) | (352 | ) | | 118 |
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Gain (Loss) on Supplemental Employee Retirement Plan Investment | (279 | ) | | 1,051 |
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Other Non-Operating Expense | (199 | ) | | (211 | ) |
Other Income (Expense), net | $ | (795 | ) | | $ | 1,019 |
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Furniture Segment Net Sales by End Market Vertical |
| Three Months Ended | | |
| September 30 | | |
(Amounts in Millions) | 2014 | | 2013 | | % Change |
Education | $ | 12.8 |
| | $ | 15.2 |
| | (16 | )% |
Finance | 15.4 |
| | 14.2 |
| | 8 | % |
Government | 27.2 |
| | 25.4 |
| | 7 | % |
Healthcare | 14.6 |
| | 16.4 |
| | (11 | )% |
Hospitality | 25.2 |
| | 28.6 |
| | (12 | )% |
Other Commercial | 49.2 |
| | 42.0 |
| | 17 | % |
Total Furniture Net Sales | $ | 144.4 |
| | $ | 141.8 |
| | 2 | % |
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EMS Segment Net Sales by Vertical Market |
| Three Months Ended | | |
| September 30 | | |
(Amounts in Millions) | 2014 | | 2013 | | % Change |
Automotive | $ | 71.2 |
| | $ | 63.3 |
| | 13 | % |
Medical | 61.6 |
| | 49.0 |
| | 26 | % |
Industrial | 53.6 |
| | 47.8 |
| | 12 | % |
Public Safety | 14.2 |
| | 12.6 |
| | 12 | % |
Other | 3.2 |
| | 2.9 |
| | 11 | % |
Total EMS Net Sales | $ | 203.8 |
| | $ | 175.6 |
| | 16 | % |
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Reconciliation of Non-GAAP Financial Measures | | | |
(Unaudited) | | | |
(Amounts in Thousands, except per share data) | | | |
| | | |
Operating Income excluding Spin-off Expenses, Settlement Proceeds from Lawsuits, and Restructuring Charges |
| Three Months Ended |
| September 30, |
Kimball International, Inc. | 2014 | | 2013 |
Operating Income, as reported | $ | 13,674 |
| | $ | 11,727 |
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Add: Pre-tax Spin-off Expenses | 1,574 |
| | 0 |
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Less: Pre-tax Settlement Proceeds from Lawsuits | 0 |
| | 5,022 |
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Add: Pre-tax Restructuring Charges | 0 |
| | 402 |
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Adjusted Operating Income | $ | 15,248 |
| | $ | 7,107 |
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| | | |
Electronic Manufacturing Services Segment | | | |
Operating Income, as reported | $ | 8,669 |
| | $ | 9,996 |
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Less: Pre-tax Settlement Proceeds from Lawsuits | 0 |
| | 5,022 |
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Add: Pre-tax Restructuring Charges | 0 |
| | 72 |
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Adjusted Operating Income | $ | 8,669 |
| | $ | 5,046 |
|
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Net Income excluding Spin-off Expenses, Settlement Proceeds from Lawsuits, and Restructuring Charges |
| Three Months Ended |
| September 30, |
Kimball International, Inc. | 2014 | | 2013 |
Net Income, as reported | $ | 7,996 |
| | $ | 9,183 |
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Add: After-tax Spin-off Expenses | 1,549 |
| | 0 |
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Less: After-tax Settlement Proceeds from Lawsuits | 0 |
| | 3,020 |
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Add: After-tax Restructuring Charges | 0 |
| | 242 |
|
Adjusted Net Income | $ | 9,545 |
| | $ | 6,405 |
|
| | | |
Electronic Manufacturing Services Segment | | | |
Net Income, as reported | $ | 5,917 |
| | $ | 7,462 |
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Less: After-tax Settlement Proceeds from Lawsuits | 0 |
| | 3,020 |
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Add: After-tax Restructuring Charges | 0 |
| | 44 |
|
Adjusted Net Income | $ | 5,917 |
| | $ | 4,486 |
|
| | | |
Earnings Per Class B Diluted Share excluding Spin-off Expenses, Settlement Proceeds from Lawsuits, and Restructuring Charges |
| Three Months Ended |
| September 30, |
| 2014 | | 2013 |
Earnings per Class B Diluted Share, as reported | $ | 0.21 |
| | $ | 0.24 |
|
Add: Impact of Spin-off Expenses | 0.04 |
| | 0.00 |
|
Less: Impact of Settlement Proceeds from Lawsuits | 0.00 |
| | 0.08 |
|
Add: Impact of Restructuring Charges | 0.00 |
| | 0.01 |
|
Adjusted Earnings Per Class B Diluted Share | $ | 0.25 |
| | $ | 0.17 |
|
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 First Quarter Fiscal Year 2015 Investor Presentation Basis of Presentation is Pro Forma Post-Spin of Kimball Electronics to Enable Understanding of Kimball International Performance Excluding Kimball Electronics. Financial information included throughout is unaudited. Exhibit 99.2
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 2 Safe Harbor Statement Certain statements contained within this presentation may be 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 ability to fully realize the expected benefits of the spin-off of our EMS segment, adverse changes in 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 components, increased competitive pricing pressures reflecting excess industry capacities, changes in regulatory environment, or similar unforeseen events. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of Kimball are contained in our Annual Report on Form 10-K filing for the fiscal year ended June 30, 2014.
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 3 Brand names in the furniture sector recognized for commitment to customer service and highest quality products Favorable furniture industry dynamics driven by moderate US growth, changing office workspace, and pent up demand in the hospitality vertical Strong balance sheet with little debt (<$300k), ample cash, and $30M credit facility Significant Operating Income Margin opportunity More than doubled New Product Introductions. Eighteen introductions in past year. Average of seven the previous three years. Poised for growth. Summary - Key Investment Highlights Excellent Foundation: World-Class operations with reputation for quality & reliability
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 4 Now a Focused Furniture Company 60+ Year History of Quality and Craftsmanship Founded in 1950 as a small contract furniture manufacturing company. Through acquisitions and strategic initiatives, Kimball International grew into the streamlined furniture provider that it is today - In the mid-2000s, Kimball re-aligned its furniture segment into one organization, focused on serving customers in the office, healthcare, education and hospitality furniture markets Today, Kimball Office, National Office Furniture and Kimball Hospitality are all recognized brands in their respective furniture categories Celebrated 60 year anniversary Made first acquisition, a kitchen cabinet manufacturer, which kicked off a decade long pursuit of vertical integration Jasper Corporation was formed and began manufacturing wood products, including TV cabinets Acquired W.W. Kimball, a 102-year old manufacturer of pianos and organs Decided to manufacture and design office furniture as Kimball Office Company name changed from Jasper Corporation to Kimball International Kimball International became a publicly-held company by offering for sale 500,000 shares of Class B Common Stock. Class A was privately held. Restructured and focused Furniture solely on Office and Hospitality furniture National Office Furniture formed to serve the growing middle-market 1950 1952 1959 1974 1970 1985 1980 2007 2010 1976 Entered the lodging market forming Kimball Hospitality Kimball International returns to a furniture focused company with the spin-off of Kimball Electronics 2014 and Beyond Kimball International has evolved, changed and grown into a pre-eminent international corporation over the last 64 years Then Now To Stock Unification NasdaqGS:KBAL
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 5 Plan to Support Long-term Growth and Margin Improvement Our strategic plan is divided into four major areas to support long-term growth & margin improvement. Published Operating Margin Goal = 8% Pro-Forma Q1’15 Adjusted Operating Income from Continuing Operations (1) = 4.6% From 2.0% in FY 2014. Extend product platforms to deliver full-facility solutions to our customers Become best in class in delivering complex project solutions Accelerate thought leading product solutions that inspire great design and delight our customers Build brand equity to drive product demand and improve pricing power Leverage new technologies that enhances flexibility and provides ‘industry leading’ lead times Maximize opportunities of our multi-channel strategy while leveraging shared assets across the enterprise Leverage operational strength and new technologies to make the complex, simple for our customers Improve margins through continuous improvement and capacity utilization Continue enhancement of a performance-oriented culture with a fast, flat and flexible organization Create a culture of success and maintain market momentum that attracts top talent in the industry Foster a creative environment that inspires people to do the extraordinary in ordinary ways Live our Guiding Principles Leverage digital information and technologies to drive sales growth and margin improvement Maintain an environment that encourages communication and collaboration leading to innovation and productivity Develop and execute effective change management practices Enhance our communities through corporate social responsibility leadership Growth and Diversification Operational Excellence People and Systems Communication and Collaboration _____________________ (1) Unaudited. See Appendix for Non-GAAP reconciliation.
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 6 Brands Representative Customers Design driven, tech savvy brand tailoring solutions that provide better workplace, learning and healing environments. Our broad product portfolio offers unlimited possibilities that are inspiring, productive, and environmentally responsible In-room and public space furniture solutions for hotel properties, condominiums, and mixed use developments. Largest hotel in-room casegoods and seating mfg in the US. Furniture solutions to address a variety of industries and price points, including private offices, open/collaborative, conference/training rooms, lobby and dining/lounge areas Who We Are and Who We Serve _____________________ (1) Unaudited. See Appendix for Non-GAAP reconciliation.
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 7 Benching Desks Seating Systems Tables Storage & Filing Fu rni tur e S ub typ es ¡ Panel Based ¡ Benching / Collaboration ¡ Freestanding ¡ Reception ¡ Hoteling / Touchdown ¡ Individual ¡ Multi-person ¡ Benching / Collaboration ¡ Reception ¡ Table desks ¡ Task ¡ Executive ¡ Conference seating ¡ Side seating ¡ Lounge ¡ Benches ¡ Stools ¡ Panel based ¡ Benching / Collaboration ¡ Freestanding ¡ Reception ¡ Hoteling/Touchdown ¡ Conference ¡ Teaming / Collaboration ¡ Occasional ¡ Learning ¡ Dining ¡ Lateral files ¡ Mobile pedestals ¡ Wardrobes ¡ Storage cubbies ¡ Technology storage ¡ Bookcases ¡ Wall mount Comprehensive Product Offering Priority™ Definition™ Priority™ Xsede™ Fluent® Wish™ Beo® Villa™ Traxx ® & Tiles Xsite® Xsede™ Dock™ Multi-Purpose Dock™ Training Dock™ Conference Storage Metal Filing Priority™ Xsede™
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 8 Desks Seating Tables Wall Rail Solution Presentation Products Dividers Fu rni tur e S ub typ es ¡ Private office ¡ Collaborative spaces ¡ Lobby/Reception ¡ Executive ¡ Task ¡ Side/Guest ¡ Conference ¡ Lobby/Reception ¡ Stacking ¡ Stools ¡ Conference room ¡ Training ¡ Lobby/Reception ¡ Cafeteria ¡ Private office ¡ Collaborative spaces ¡ Private office ¡ Collaborative spaces ¡ Training ¡ Lobby ¡ Conference room ¡ Cafeteria ¡ Private office ¡ Training ¡ Lobby ¡ Conference room ¡ Collaborative spaces ¡ Lobby Comprehensive Product Offering Epic™ WaveWorks® Davari® Mix-it® Mesh & Jiminy™ Reception Fringe™ Captivate® Tables WaveWorks® Training Tables Café & Dining Tables Collaborative / Open Spaces Classroom & Training Private Office Mio™ Collaborative Technology Universal Media Walls Collaborative / Open Spaces Shared Workstations Touchdowns Universal Mobile TV Cart
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 9 Comprehensive Product Offering Casegoods Seating Cutomer Service Fu rni tur e Su bty pe s / Se rvi ce s Custom Program Collections Fabric Finishes Upholstered headboards Custom Individual Multi-person Product Development Project Management Order Fulfillment Supply Chain Quality Logistics Service
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Furniture Industry Indicators
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 11 Historical and Estimated U.S. Production (BIFMA) Cubicle Culture Driven by employee preference for more privacy and personalization than in previous work environments U.S. Office Furniture Industry Trend ($ in billions) Dot-Com Boom Founding of new Internet-based companies spurred demand for office furniture Financial Services Hiring associated with the financial bubble supported growth in the office furniture industry New Workplace Collaboration and mobility technologies are changing the traditional office environment ’80 - ‘90 CAGR: 9.1% ’92 - ‘00 CAGR: 7.0% ’04 - ‘08 CAGR: 5.6% ’10 - ‘15 CAGR: 5.0% 1 2 3 4 1 2 3 4 $0.0 $3.0 $6.0 $9.0 $12.0 $15.0 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 E 20 15 P S h ip m en ts 4.9% and 9.6% Forecasted Growth in 2014 and 2015
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 12 Economic Landscape Office Furniture Demand Drivers U.S. Furniture Leading Indicators are Improving $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 3/ 1/ 20 01 10 /1 /2 00 1 5/ 1/ 20 02 12 /1 /2 00 2 7/ 1/ 20 03 2/ 1/ 20 04 9/ 1/ 20 04 4/ 1/ 20 05 11 /1 /2 00 5 6/ 1/ 20 06 1/ 1/ 20 07 8/ 1/ 20 07 3/ 1/ 20 08 10 /1 /2 00 8 5/ 1/ 20 09 12 /1 /2 00 9 7/ 1/ 20 10 2/ 1/ 20 11 9/ 1/ 20 11 4/ 1/ 20 12 11 /1 /2 01 2 6/ 1/ 20 13 1/ 1/ 20 14 US Corporate Profit After Tax With IVA and CCA adjustment ($billions) 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 4.9% 9.6% -35.0% -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 F 20 15 F BIFMA ($ millions) Consumption Growth S ou rc e: A IA Architectural Billing Index Sept at 55.2. 5 Months in row above 50. 100 102 104 106 108 110 112 114 116 118 120 122 6/ 1/ 20 02 1/ 1/ 20 03 8/ 1/ 20 03 3/ 1/ 20 04 10 /1 /2 00 4 5/ 1/ 20 05 12 /1 /2 00 5 7/ 1/ 20 06 2/ 1/ 20 07 9/ 1/ 20 07 4/ 1/ 20 08 11 /1 /2 00 8 6/ 1/ 20 09 1/ 1/ 20 10 8/ 1/ 20 10 3/ 1/ 20 11 10 /1 /2 01 1 5/ 1/ 20 12 12 /1 /2 01 2 7/ 1/ 20 13 2/ 1/ 20 14 9/ 1/ 20 14 M ill ion s Service Sector Employment (million workers)
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 13 US Economic Landscape Hospitality Metrics Hospitality Leading Indicators are Strong 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% Luxury Upper Scale Upscale Upper Middle Scale Midscale Economy Independents US 2014 2015 Source: PWC Hospitality Directions August 2014 Revenue Per Available Room (RevPAR) Growth Rates (Estimated)
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Kimball International Financial Overview Basis of Presentation is Pro Forma Post-Spin of Kimball Electronics to Enable Understanding of Kimball International Performance Excluding Kimball Electronics. Financial information included throughout is unaudited.
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 15 Sales Growth Each Quarter Net Sales ($ in millions) $141.8 $139.0 $125.1 $137.9 $144.4 14.4% 6.1% 4.8% 9.8% 1.8% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% $0 $50 $100 $150 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Net Sales Year Over Year Growth Excludes Electronics
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 16 Order Levels Orders (1) ($ in millions) $159.0 $131.0 $113.1 $150.3 $161.9 18.3% 0.9% -4.3% 4.2% 1.8% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% $0 $50 $100 $150 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Orders Year Over Year Growth _____________________ (1) Unaudited. Or +9% excluding unusually large ($10.2M) hospitality vertical order in Q1’14 Excludes Electronics
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 17 Gross Profit Improving Pro Forma Gross Profit from Continuing Operations (1) ($ in millions) $42.2 $45.8 $36.6 $42.1 $47.2 29.8% 32.9% 29.3% 30.5% 32.7% 27.0% 28.0% 29.0% 30.0% 31.0% 32.0% 33.0% 34.0% $30 $40 $50 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Pro Forma Gross Profit % of Net Sales _____________________ (1) Unaudited. Excludes Electronics
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 18 $42.1 $42.8 $37.3 $41.1 $42.4 $38.5 $39.9 $35.5 $40.5 $40.2 27.2% 28.7% 28.4% 29.4% 27.8% 26.0% 26.5% 27.0% 27.5% 28.0% 28.5% 29.0% 29.5% 30.0% $30 $35 $40 $45 $50 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Pro Forma SGA (1) Adjusted Pro Forma SGA (1) Adjusted Pro Forma SGA % of Sales (1) SGA as a Percentage of Sales ($ in millions) _____________________ (1) Unaudited. Excludes Electronics
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 19 $0.1 $3.0 $(0.7) $1.0 $4.8 $3.5 $5.5 $0.8 $1.3 $6.7 2.5% 4.0% 0.6% 0.9% 4.6% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% -$1 $0 $1 $2 $3 $4 $5 $6 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Pro Forma Operating Profit (1) Adjusted Pro Forma Operating Profit (1) Adjusted Pro Form Operating Profit as a % of Sales Operating Profit Improving ($ in millions) _____________________ (1) Unaudited. See appendix for Non-GAPP reconciliation. Excludes Electronics
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 20 [Y VALUE] -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% Pro Forma Operating Profit from Continuing Operations (1) Progress Being Made Towards Published 8% Operating Profit Goal (millions $) 2011 2012 2013 2014 Q1’15 Goal Net Sales $ $481 $525 $500 $544 144.4 Pro Forma Operating Profit $ from Continuing Operations (1) -$7.9 $5.0 -$10.6 $3.4 $4.8 Adjusted Pro Forma Operating Profit $ (1) -$3.9 $6.9 -$5.2 $11.0 $6.7 $12.8 Adjusted Pro Forma (1) Operating Profit % -0.8% 1.3% -1.0% 2.0% 4.6% 8.0% Goal Bridge to Quarterly OP$ Goal Margin Improvement Growth $6.7 $12.8 _____________________ (1) Unaudited. See Appendix for Non-GAAP reconciliation. $160 Estimated Quarterly Sales To Reach 8% Op Income Gap Excludes Electronics
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 21 Pro-Forma Free Cash Flow – Last 4 Quarters (1) _____________________ (1) Unaudited. Defined as adjusted pro-forma operating profit, less pro-forma taxes, plus depreciation and amortization, less capital expenditures, plus non-cash stock comp. Pro forma taxes are reported taxes adjusted for the tax effect of the adjustments to operating profit to arrive at pro forma operating profit as shown in the appendix. See Appendix for Non-GAAP adjustments. $3.1 $3.0 $1.8 $5.3 Q2'14 Q3'14 Q4'14 Q1'15 -$6.0 -$4.0 -$2.0 $0.0 $2.0 $4.0 $6.0 Adjusted Pro-Forma Operating Profit After Tax Depreciation/Amortization Capital Expenditures Non-Cash Stock Comp Pro-Forma Free Cash Flow Excludes Electronics
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 22 Sales by Vertical – Good Diversification FY Sales Mix by End Market Vertical (1) _____________________ (1) Unaudited. $42.0 $49.2 $25.4 $27.2 $28.6 $25.2 $14.2 $15.4 $16.4 $14.6 $15.2 $12.8 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 Q1'14 Q1'15 Other Commercial Government Hospitality Finance Healthcare Education Excludes Electronics
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Appendix
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 24 Annual Non-GAAP Reconciliation (Unaudited) (millions $) 2011 2012 2013 2014 Kimball International Inc. Operating Profit – As Reported (Includes both Furniture and Electronics) $2.4 $18.4 $23.0 $40.6 Discontinued Electronics Operations Income -$10.3 -$13.4 -$33.6 -$38.7 Add: Spin Cost – Included in SGA (1) $1.5 Pro Forma Operating Profit from Continuing Operations (5) -$7.9 $5.0 -$10.6 $3.4 Pro Forma Operating Profit from Continuing Operations as a % of Sales -1.6% 1.0% -2.1% .6% Add: Employee Retirements – Included in SGA (2) Add: Other Non-operational – Included in SGA (3) Add: SERP –Included in SGA (4) $2.8 $2.5 $3.2 $0 $5.0 $1.7 $6.8 -$.5 $2.6 Adjusted Pro Forma Operating Profit from Continuing Operations before External Reverse Synergies -$2.6 $8.2 -$3.9 $12.3 Deduct: External Reverse Synergies (5) -$1.3 -$1.3 -$1.3 -$1.3 Adjusted Pro Forma Operating Profit from Continuing Operations (5) -$3.9 $6.9 -$5.2 $11.0 Adjusted Pro Forma Operating Profit from Continuing Operations as a % of Sales -.8% 1.3% -1.0% 2.0% _____________________ (1) Total spin cost is estimated to be ~ $7.5M. Spin cost through FY 2014 equaled $3M of which $1.5M reduces reported operating profit from continuing operations and $1.5M is included in discontinued operations. (2) Estimated cost associated with the retirement and separation of people due to spin. Cost include that for salary, incentive compensation, performance shares, retirement contribution, and payroll tax. (3) Includes: pre-tax airplane write-off $1.2M and gain from sale of idle property of $1.7M in FY’14. (4) SERP expense is added back to adjusted operating profit because amount is offset in other income (expense) section of income statement. Net Income is not effected by SERP. (5) Pro forma operating profit 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 profit 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 cost 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 pro forma results included in the reconciliation above. Excludes Electronics
176 0 0 137 132 126 237 23 23 46 46 46 51 132 156 252 202 59 Page 25 Quarterly Non-GAAP Reconciliation (Unaudited) (millions $) Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Kimball International Inc. Operating Profit – As Reported (Includes both Furniture and Electronics) $11.7 $10.2 $8.4 $10.3 $13.7 Discontinued Electronics Operations Income -$11.6 -$7.2 -$9.5 -$10.4 -$10.0 Add: Spin Cost – Included in SGA (1) $.4 $1.1 $1.1 Pro Forma Operating Profit from Continuing Operations (5) $.1 $3.0 -$.7 $1.0 $4.8 Pro Forma Operating Profit from Continuing Operations as a % of Sales .1% 2.2% -.5% .7% 3.3% Add: Employee Retirements – Included in SGA (2) Add: Other Non-operational – Included in SGA (3) Add: SERP –Included in SGA (4) $1.6 $1.2 $.9 $1.8 $1.0 $1.6 $.2 $1.8 -$1.7 $.5 $2.4 -$.2 Adjusted Pro Forma Operating Profit from Continuing Operations before External Reverse Synergies $3.8 $5.8 $1.1 $1.6 $7.0 Deduct: External Reverse Synergies (5) -$.3 -$.3 -$.3 -$.3 -$.3 Adjusted Pro Forma Operating Profit from Continuing Operations (5) $3.5 $5.5 $.8 $1.3 $6.7 Adjusted Pro Forma Operating Profit from Continuing Operations as a % of Sales 2.5% 4.0% .6% .9% 4.6% _____________________ (1) Total spin cost is estimated to be ~ $7.5M. Spin cost through Q1’15 equaled $4.6M of which $2.6M reduces reported operating profit from continuing operations and $2.0M is included in discontinued operations. (2) Estimated cost associated with the retirement and separation of people due to spin. Cost include that for salary, incentive compensation, performance shares, retirement contribution, and payroll tax. (3) Includes: pre-tax airplane write-off $1.2M and gain from sale of idle property of $1.7M in FY’14. (4) SERP expense is added back to adjusted operating profit because amount is offset in other income (expense) section of income statement. Net Income is not effected by SERP. (5) Pro forma operating profit 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 $.3M per quarter reflected in the table above is a mid-point of a range estimated to be from $1.0M to $1.5M per year adjusting the adjusted pro forma operating profit 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 cost 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 per year. 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 pro forma results included in the reconciliation above. Excludes Electronics
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