Kimball International, Inc. Reports Third Quarter Fiscal Year 2008 Results

Kimball International, Inc. (NASDAQ: KBALB) today reported net sales of $332.1 million and a net loss from continuing operations of ($0.9) million, or a loss of ($0.02) per Class B diluted share, for the third quarter of fiscal year 2008, which ended March 31, 2008. Excluding restructuring costs, the Company recorded net income from continuing operations of $1.5 million, or $0.04 per Class B diluted share. The following discussion excludes the results of discontinued operations for all periods presented. Consolidated Overview Financial Highlights(Dollars in millions, Except Per Share Data) Three Months Ended       March 31, 2008   % of Sales   March 31, 2007   % ofSales   PercentChange Net Sales $332.1         $311.6       7 % Gross Profit $56.1     16.9 %   $60.4   19.4 %     Selling, General and Administrative Expense (SG&A) $55.8     16.8 %   $55.6   17.9 %     Restructuring Expense $4.0     1.2 %   $0.6   0.2 %     Income (Loss) from Continuing Operations ($0.9 )   (0.3 %)   $4.4   1.4 %   (120 %) Earnings (Loss) Per Share from Continuing Operations ($0.02 )       $0.11       (118 %)                     Non-GAAP Financial Measures                   Income from Continuing Operations excluding Restructuring Charges $1.5     0.4 %   $4.8   1.5 %   (69 %) Earnings Per Share from Continuing Operations excluding Restructuring Charges $0.04         $0.12       (67 %) Consolidated third quarter fiscal year 2008 net sales included $35.5 million of net sales from an acquisition in the Electronic Manufacturing Services (EMS) segment that was completed midway through the third quarter of the prior year. Prior year third quarter net sales include $18.9 million related to the acquisition. Third quarter fiscal year 2008 net sales increased 3% in the Furniture segment and 10% in the EMS segment when compared to the same quarter a year ago. Consolidated third quarter gross profit as a percent of net sales declined compared to last year due to lower margins in both the EMS segment and the Furniture segment. To a lesser extent, consolidated gross profit as a percent of net sales also declined due to a higher mix of sales in the current year third quarter from the EMS segment, which carries a lower margin. Consolidated third quarter SG&A remained flat in dollars compared to the prior year as advertising and product promotion costs and incentive compensation costs declined while business development and sales staff labor costs increased. Additionally, SG&A costs of the fiscal year 2007 EMS segment acquisition were higher because such costs were only included for half of the quarter in the prior year. As a percent of net sales, SG&A costs were down 1.1 percentage points in the third quarter of fiscal year 2008 when compared to the prior year due to the leverage of the higher sales volume. Pre-tax restructuring costs in the third quarter of fiscal year 2008 totaled $4.0 million primarily related to costs recognized for a workforce reduction effort announced in March 2008, costs to exit two facilities within the EMS segment, and costs related to the reorganization of business functions in the Furniture segment. This compared to $0.6 million of pre-tax restructuring costs in the third quarter of fiscal year 2007. Other income for the third quarter declined $2.5 million from the prior year primarily as a result of lower pre-tax interest income on lower cash and investment balances, higher interest expense and the recording of a loss on investments for the Company’s Supplemental Employee Retirement Plan (SERP) resulting from the normal revaluation of the investments to fair value for the quarter. The loss on the SERP investment that was recognized in other income was exactly offset by a reduction in the SERP liability which was recorded in SG&A as compensation expense with no effect on net earnings. The Company recorded $0.7 million of favorable one-time tax accrual adjustments in the third quarter of fiscal year 2008 compared to $0.5 million in the prior year third quarter. Operating cash flow for the third quarter of fiscal year 2008 was a positive $3.1 million compared to a cash outflow of ($4.5) million in the third quarter of last year. The Company’s net cash position from an aggregate of cash and short-term investments less short-term borrowings decreased to $42.5 million at March 31, 2008 compared to $80.4 million at June 30, 2007, partially the result of Company share repurchases during the fiscal year. James C. Thyen, Chief Executive Officer and President, stated, "Our third quarter results were disappointing. We are facing sales growth challenges with the weakening economy and increasing commodity costs. We are aggressively reviewing our processes and our entire cost structure to eliminate complexity, redundancy and inefficiencies to improve profitability. In March 2008, we announced a workforce reduction effort which will eliminate approximately 150 administrative positions worldwide over the next few months. When fully implemented, we anticipate annual savings of approximately $12.0 to $13.0 million. Also, in April 2008 we announced a plan to consolidate our three European manufacturing facilities currently located in Ireland, Wales and Poland into one new facility in Poznan, Poland. This consolidation includes the transfer of product to the new facility and will occur over the next 3.5 years. Savings will be realized incrementally as the consolidation occurs. We have confidence that our team will successfully execute these restructuring actions resulting in improvement in our profitability. We remain cautious about the potential future impact of the weakening economy.” Electronic Manufacturing Services Segment Financial Highlights(Dollars in millions) Three Months Ended       March 31, 2008   March 31, 2007   PercentChange Net Sales $181.1     $165.3   10 % Income (Loss) from Continuing Operations ($2.2 )   $1.2   (283 %) Restructuring Charges, Net of Tax $1.3     $0     Income (Loss) from Continuing Operations, Excluding Restructuring Charges ($0.9 )   $1.2   (174 %) Net sales to customers in the medical, industrial controls, and public safety industries were higher in the third quarter of fiscal year 2008 compared to last year while net sales to customers in the automotive industry declined compared to the prior year. Earnings in this segment in the fiscal year 2008 third quarter continued to be negatively impacted by excess capacity costs and inefficiencies associated with the exit of two U.S. facilities and the related transfer of product into other facilities within this segment, although not to the extent experienced in the second quarter of this fiscal year. The consolidation of these facilities is expected to be completed by June 30, 2008. The product mix shifted to lower margin product which lowered earnings for the current year third quarter when compared to the prior year. In addition, this segment had increased investments in business development resources in the current year third quarter when compared to the prior year. In the fiscal year 2008 third quarter, the EMS segment recorded $2.2 million pre-tax, or $1.3 million after-tax, restructuring charges related to the workforce reduction plan and the exit of two facilities. There were no restructuring costs in this segment in the prior year third quarter. Third quarter employee profit incentive compensation costs declined compared to the prior year. Furniture Segment Financial Highlights(Dollars in millions) Three Months Ended       March 31, 2008   March 31, 2007   PercentChange Net Sales $151.0   $146.2   3 % Income from Continuing Operations $1.2   $2.0   (39 %) Restructuring Charges, Net of Tax $0.9   $0.4     Income from Continuing Operations, Excluding Restructuring Charges $2.1   $2.4   (10 %) Fiscal year 2008 third quarter net sales of branded furniture products, which include office and hospitality furniture, were $151.0 million, an increase of 4% compared to the prior year net sales of $145.1 million, due to higher sales in both the office furniture and hospitality furniture industries. The Company completed the planned exit of the contract private label products in fiscal year 2007 and therefore there were no net sales of contract private label products during the third quarter of fiscal year 2008 compared to net sales of $1.1 million in the prior year third quarter. Income from continuing operations in the current year third quarter was negatively impacted by competitive market pricing pressures coupled with supply chain cost increases particularly in the hospitality industry, a sales mix shift to lower margin product, higher commodity and fuel charges, and increased investments in this segment’s sales force. Partially offsetting these higher costs were price increases on select product, lower product marketing and promotion costs, savings realized through various cost reduction initiatives, and lower employee profit incentive compensation costs. In the fiscal year 2008 third quarter, the Furniture segment recorded $1.5 million pre-tax, or $0.9 million after-tax, restructuring charges primarily related to the workforce reduction plan. Restructuring charges in the prior year third quarter were $0.6 million pre-tax, or $0.4 million after-tax. 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 used within this release include income from continuing operations excluding restructuring charges and earnings per share from continuing operations excluding restructuring charges. Reconciliations of the reported GAAP numbers to these non-GAAP financial measures are included in the Financial Highlights table below for consolidated results or in the tables above for the segment results. For the income and earnings per share non-GAAP measures, management believes it is useful for investors to understand how its core operations performed without the effects of costs incurred in executing its restructuring plans. Excluding these costs 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 costs associated with executing its restructuring plans 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, significant volume reductions from key contract customers, loss of key customers or suppliers within specific industries, availability or cost of raw materials, increased competitive pricing pressures reflecting excess industry capacities, and successful execution of restructuring plans. 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 period ended June 30, 2007. Conference Call / Webcast Kimball International will conduct its third quarter financial results conference call beginning at 11:00 AM Eastern Time today, May 7, 2008. To listen to the live conference call, dial 866-761-0749, or for international calls, dial 617-614-2707. 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 and will remain there for approximately 90 days. A telephone replay of the conference call will be available within two hours after the conclusion of the live event through May 20, 2008, at 888-286-8010 or internationally at 617-801-6888. The pass code to access the replay is 71041796. About Kimball International, Inc. Recognized with a reputation for excellence, Kimball International is committed to a high performance culture that values personal and organizational commitment to quality, reliability, value, speed and ethical behavior. Kimball employees know they are part of a corporate culture that builds success for Customers while enabling employees to share in the Company’s success through personal, professional and financial growth. Kimball International, Inc. provides a variety of products from its two business segments: the Electronic Manufacturing Services segment and the Furniture segment. The Electronic Manufacturing Services segment provides engineering and manufacturing services which utilize common production and support capabilities to a variety of industries globally. The Furniture segment provides furniture for the office and hospitality industries sold under the Company’s family of brand names. For more information about Kimball International, Inc., visit the Company’s website on the Internet at www.kimball.com. "We Build Success” Financial Highlights for the third quarter ended March 31, 2008, follow: Condensed Consolidated Statements of Income       (Unaudited) Three Months Ended (000's, except per share data) March 31, March 31, 2008 2007 Net Sales $332,091 100.0 % $311,582 100.0 % Cost of Sales 276,018   83.1 % 251,227   80.6 % Gross Profit 56,073 16.9 % 60,355 19.4 % Selling, General & Administrative Expenses 55,816 16.8 % 55,589 17.9 % Restructuring Expense 3,958   1.2 % 648   0.2 % Operating Income (Loss) (3,701 ) (1.1 %) 4,118 1.3 % Other Income - Net 265   0.1 % 2,751   0.9 % Income (Loss) from Continuing Operations Before Taxes on Income (3,436 ) (1.0 %) 6,869 2.2 % Provision (Benefit) for Income Taxes (2,547 ) (0.7 %) 2,481   0.8 % Income (Loss) from Continuing Operations (889 ) (0.3 %) 4,388 1.4 % Loss from Discontinued Operations, Net of Tax 0   0.0 % (572 ) (0.2 %) Net Income (Loss) ($889 ) (0.3 %) $3,816   1.2 %     Earnings (Loss) Per Share of Common Stock: Basic from Continuing Operations: Class A ($0.02 ) $0.11 Class B ($0.02 ) $0.12   Diluted from Continuing Operations: Class A ($0.02 ) $0.10 Class B ($0.02 ) $0.11   Basic: Class A ($0.02 ) $0.09 Class B ($0.02 ) $0.10   Diluted: Class A ($0.02 ) $0.09 Class B ($0.02 ) $0.10   Average Shares Outstanding Basic 36,942 38,791 Diluted 36,942 39,454 (Unaudited) Nine Months Ended ($000's, except per share data) March 31,   March 31, 2008 2007 Net Sales $1,013,822   100.0 % $948,629 100.0 % Cost of Sales 823,289   81.2 % 756,228   79.7 % Gross Profit 190,533 18.8 % 192,401 20.3 % Selling, General & Administrative Expenses 175,490 17.3 % 168,445 17.8 % Restructuring Expense 4,902   0.5 % 1,265   0.1 % Operating Income 10,141 1.0 % 22,691 2.4 % Other Income - Net 2,914   0.3 % 8,068   0.9 % Income from Continuing Operations Before Taxes on Income 13,055 1.3 % 30,759 3.3 % Provision for Income Taxes 3,142   0.3 % 11,928   1.3 % Income from Continuing Operations 9,913 1.0 % 18,831 2.0 % Loss from Discontinued Operations, Net of Tax (124 ) (0.0 %) (4,140 ) (0.4 %) Net Income $9,789   1.0 % $14,691   1.6 %     Earnings Per Share of Common Stock: Basic from Continuing Operations: Class A $0.27 $0.48 Class B $0.27 $0.49   Diluted from Continuing Operations: Class A $0.26 $0.47 Class B $0.27 $0.48   Basic: Class A $0.26 $0.37 Class B $0.26 $0.38   Diluted: Class A $0.26 $0.36 Class B $0.26 $0.38   Average Shares Outstanding Basic 37,167 38,567 Diluted 37,662 39,267 Condensed Consolidated Statements of Cash Flows     (Unaudited) Nine Months Ended ($000's) March 31, March 31, 2008   2007 Net Cash Flow provided by Operating Activities $32,961 $24,614 Net Cash Flow used for Investing Activities (11,223 ) (16,836 ) Net Cash Flow used for Financing Activities (29,599 ) (15,040 ) Effect of Exchange Rates 3,462   757   Net Decrease in Cash & Cash Equivalents (4,399 ) (6,505 ) Cash & Cash Equivalents at Beginning of Period 35,027   64,857   Cash & Cash Equivalents at End of Period $30,628   $58,352   Condensed Consolidated Balance Sheets           (Unaudited) ($000's) March 31, June 30, 2008   2007 Assets Cash, Cash Equivalents and Short-Term Investments $81,239 $102,377 Receivables, Net 178,279 172,190 Inventories 159,531 135,901 Prepaid Expenses and Other Current Assets 38,835 34,348 Assets Held for Sale 1,454 3,032 Property & Equipment, Net 183,249 173,800 Capitalized Software, Net 13,464 18,763 Goodwill 15,357 15,518 Other Assets 36,827 38,812 Totals $708,235 $694,741   Liabilities & Share Owners' Equity Current Liabilities $284,029 $249,237 Long-Term Debt, Less Current Maturities 512 832 Deferred Income Taxes & Other 16,925 17,224 Share Owners' Equity 406,769 427,448 Totals $708,235 $694,741 Reconciliation of Non-GAAP Financial Measures       Income from Continuing Operations, Excluding Restructuring Charges   (Unaudited) Three Months Ended ($ in millions) March 31, March 31, 2008   2007 Income/(Loss) from Continuing Operations, as reported ($0.9 ) $4.4 Restructuring Charges, Net of Tax 2.4   0.4 Income from Continuing Operations, Excluding Restructuring Charges $1.5   $4.8     Earnings Per Share of Common Stock, Excluding Restructuring Charges   (Unaudited)   Diluted from Continuing Operations, Class B, as reported ($0.02 ) $0.11 Diluted Impact of Restructuring Charges, Class B $0.06   $0.01 Diluted from Continuing Operations, Class B, Excluding Restructuring Charges $0.04   $0.12 Supplementary Information               Components of Other Income, Net   (Unaudited) Three Months Ended Nine Months Ended ($ in millions) March 31, March 31, March 31, March 31, 2008     2007 2008   2007 Interest Income $0.7 $1.3 $2.3 $4.3 Interest Expense (0.6 ) (0.3 ) (1.5 ) (0.7 ) Foreign Currency/Derivative Gain 0.9 0.6 1.6 0.9 Gain/(Loss) on Supplemental Employee Retirement Plan Investment (1.0 ) 0.2 (1.2 ) 1.5 Polish offset credit program - - 1.3 - Other Non-Operating Income 0.3     1.0   0.4     2.1   Other Income, Net $0.3     $2.8   $2.9     $8.1