KIMBALL INTERNATIONAL, INC. Business Overview
Kimball International (the "Company," "Kimball International ," "we," "us," or "our") is a leading omnichannel commercial furnishings company with deep expertise in the Workplace, Health, and Hospitality markets. We combine our bold entrepreneurial spirit, a history of craftsmanship and today's design-driven thinking alongside a commitment to our culture of caring and lasting connections with our customers, shareholders, employees, and communities. For over 70 years, our brands have seized opportunities to customize solutions into personalized experiences, turning ordinary spaces into meaningful places. Our family of brands includes Kimball, National, Etc., Interwoven,Poppin ,Kimball Hospitality , and D'style.
Management currently considers the following events, trends, and uncertainties to be most important to understanding our financial condition and operating performance:
•OnMarch 8, 2023 we jointly announced the acquisition ofKimball International, Inc. by HNI Corporation. The transaction is expected to close by mid-calendar year 2023, subject to the approval of Company shareholders and the satisfaction of other customary closing conditions.
•Operating Environment - While we are mindful of the challenging macroeconomic environment and heightened recessionary risks, through our focused set of strategic choices we are successfully delivering in-demand products and solutions to end markets and geographies with higher growth, resiliency and favorable return-to-office dynamics.
•Goodwill Impairment - During our second quarter endedDecember 31, 2022 , we recorded goodwill impairment of$36.7 million as the carrying value ofPoppin exceeded its fair value as of theOctober 31, 2022 testing date. No goodwill remains on thePoppin goodwill reporting unit. •Transformation Restructuring Plan - Current year actions under our transformation restructuring plan are focused on activities such as the streamlining of manufacturing facilities, the consolidation of showrooms, and the closure of our manufacturing facility inTijuana, Mexico which was completed during the first quarter of fiscal year 2023. This phase of the transformation restructuring plan began in the first quarter of our fiscal year 2021, and we expect a substantial majority of the restructuring actions to be completed by the end of fiscal year 2023. In addition to the savings already generated from the first phase of the transformation restructuring plan, the efforts of this second phase of the transformation restructuring plan are expected to generate annualized pre-tax savings of approximately$20.0 million when it is fully implemented. See Note 3 - Restructuring of Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. •Due to the contract and project nature of furniture markets, fluctuation in the demand for our products and variation in the gross margin on those projects is inherent to our business, which in turn impacts our operating results. Effective management of our manufacturing capacity is and will continue to be critical to our success. See below for further details regarding current sales and order backlog trends.
•We expect to continue to invest in capital expenditures prudently, particularly for projects that will enhance our capabilities and diversification while providing an opportunity for growth and improved profitability.
•We continue to maintain a strong balance sheet. Our short-term liquidity
available, represented as cash and cash equivalents plus the unused amount of
our revolving credit facility, was
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Financial Overview
At or for the For the
Three Months Ended Nine Months Ended
March 31 March 31
(Amounts in Millions, Except for Per
Share Data) 2023 2022 % Change 2023 2022 % Change
Net Sales $ 166.1 $ 180.9 (8 %) $ 526.9 $ 488.9 8 %
Gross Profit 62.5 55.1 13 % 188.2 150.7 25 %
Gross Profit % 37.6 % 30.5 % 35.7 % 30.8 %
Selling and Administrative Expenses 57.5 48.8 18 % 167.7 150.9 11 %
Other General (Income) Expense - (4.5) - (4.5)
Contingent Earn-out (Gain) Loss - 2.2 (3.2) (15.8)
Restructuring Expense 0.8 1.7 2.8 4.2
Goodwill Impairment - - 36.7 34.1
Operating Income (Loss) 4.2 7.0 (40 %) (15.8) (18.2) 13 %
Operating Income (Loss) % 2.5 % 3.9 % (3.0 %) (3.7 %)
Adjusted Operating Income (Loss) *
54 %$ 29.7 $ 7.3 306 % Adjusted Operating Income (Loss) % * 6.6 % 3.9 % 5.6 % 1.5 % Net Income (Loss)$ 5.7 $ 6.3 (10 %)$ (23.8) $ (20.1) (19 %) Net Income (Loss) as a Percentage of Net Sales 3.4 % 3.5 % (4.5 %) (4.1 %) Adjusted Net Income (Loss) * 11.2 7.6 48 %$ 19.0 $ 3.8 395 %
Diluted Earnings (Loss) Per Share
(12 %)$ (0.65) $ (0.55) (18 %) Adjusted Diluted Earnings (Loss) Per Share*$ 0.30 $ 0.21 43 %$ 0.52 $ 0.11 373 % Return on Invested Capital ** 28.6 % 14.1 % 25.1 % 5.2 % Adjusted EBITDA *$ 15.4 $ 11.5 34 %$ 43.0 $ 20.5 110 % Adjusted EBITDA % * 9.3 % 6.4 % 8.2 % 4.2 % Order Backlog **$ 134.5 $ 178.5 (25 %) * Items indicated represent Non-GAAP (Generally Accepted Accounting Principles) measurements. ** Items indicated represent Key Performance Indicators. See the "Non-GAAP Financial Measures and Other Key Performance Indicators" section below.Net Sales by End Market Three Months Ended Nine Months Ended March 31 March 31 (Amounts in Millions) 2023 2022 % Change 2023 2022 % Change Workplace$ 112.0 $ 119.8 (7 %)$ 368.3 $ 336.3 10 % Health 25.2 26.6 (5 %) 82.3 76.2 8 % Hospitality 28.9 34.5 (16 %) 76.3 76.4 - % Total Net Sales$ 166.1 $ 180.9 (8 %)$ 526.9 $ 488.9 8 %
Our Workplace end market includes sales to the commercial, financial,
government, and education vertical markets and eBusiness. The revenue of
Third quarter fiscal year 2023 consolidated net sales decreased$14.8 million , or (8%) compared to third quarter fiscal year 2022 net sales driven by lower volume in all our markets which were partially offset by increased pricing of workplace and healthcare products. Consolidated net sales for the year-to-date period of fiscal year 2023 increased 8% compared to the same year-to-date 24 -------------------------------------------------------------------------------- period in fiscal year 2022 driven by increased pricing of workplace and health products. Each of our end market sales levels can fluctuate depending on overall demand and mix of projects in a given period. Order backlog atMarch 31, 2023 decreased$44.0 million , or 25%, when compared to the backlog level as ofMarch 31, 2022 driven by softening demand which drove declines in workplace and health order rates in the quarter endedMarch 31, 2023 . In addition, our manufacturing lead times have improved from the elevated levels experienced in the prior year which allowed us to fulfill orders quicker thus also reducing our backlog. Backlog at a point in time may not be indicative of future sales trends. Gross profit as a percent of net sales increased 710 basis points to 37.6% for the third quarter of fiscal year 2023 from 30.5% for the third quarter of fiscal year 2022. The increased third quarter gross profit as a percent of net sales was driven by price increases, the impact of LIFO accounting which generated income during the current year compared to expense in the prior year, and savings realized from our operational excellence initiatives. Gross profit as a percent of net sales increased 490 basis points to 35.7% for the year-to-date period of fiscal year 2023 from 30.8% for the year-to-date period of fiscal year 2022. The increased year to date gross profit as a percent of net sales was driven by price increases, the impact of LIFO accounting which generated income during the current year compared to expense in the prior year, and savings realized from our operational excellence initiatives which more than offset inflationary pressure on materials, increased freight costs, and other manufacturing expense increases. The prior year-to-date gross profit also included the costs associated with the one-time COVID vaccine incentive which did not repeat in the current year. Selling and administrative ("S&A") expenses in the third quarter of fiscal year 2023 compared to the third quarter of fiscal year 2022 increased$8.7 million and increased 770 basis points as a percent of net sales. S&A expenses in the year-to-date period of fiscal year 2023 compared to the year-to-date period of fiscal year 2022 increased$16.8 million and increased 110 basis points as a percent of net sales. Increased S&A expenses in the third quarter and year-to-date period were driven by HNI merger costs of$3.9 million and increased incentive compensation costs, which were partially offset by lower healthcare expenses. In addition, our S&A expenses in the year-to-date period of fiscal year 2023 included increased salary expense driven by inflation, increased advertising and marketing expense, and higher warranty expense. During the third quarter and year-to-date period of fiscal year 2022 we recorded S&A expenses related to the normal revaluation to fair value of our Supplemental Employee Retirement Plan ("SERP") liability while we recorded income related to SERP in the prior year periods. The impact from the change in the SERP liability that was recognized in S&A expenses was offset with the change in fair value of the SERP investments which was recorded in Other Income (Expense), and thus there was no effect on net income. We recognized pre-tax restructuring expense of$0.8 million and$2.8 million for the three and nine months endedMarch 31, 2023 and$1.7 million and$4.2 million for the three and nine months endedMarch 31, 2022 . See Note 3 - Restructuring of Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. In connection with our annual goodwill impairment test, we assessed goodwill at the reporting unit level for impairment during our second quarter endedDecember 31, 2022 and based on our analysis determined ourPoppin reporting unit had carrying value in excess of the calculated fair value. The decline in the fair value of the reporting unit was driven by revised sales and profitability forecasts primarily attributable to changes in demand due to uncertainty in the macroeconomic environment. As a result, we recorded a pre-tax, non-cash charge to reduce the carrying value of goodwill by$36.7 million during the second quarter of fiscal year 2023. During the second quarter endedDecember 31, 2021 , we also recorded a pre-tax, non-cash charge to reduce the carrying value of goodwill by$34.1 million primarily attributable to changes in demand due to the ongoing COVID-19 pandemic and supply chain constraints. We recorded non-cash pre-tax contingent earn-out benefit during the year-to-date periods of fiscal year 2023 and 2022 of$3.2 million and$15.8 million , respectively, which partially offset the goodwill impairment, as there is a lower likelihood ofPoppin achieving targeted milestones during the earn-out period.
Other General (Income) Expense consisted of a
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--------------------------------------------------------------------------------Other Income (Expense) consisted of the following:
Three Months Ended Nine Months Ended
March 31 March 31
(Amounts in Thousands) 2023
2022 2023 2022
Interest Income $ 165 $ 25 $ 354 $ 77
Interest Expense (668) (390) (2,045) (922)
Gain on Supplemental Employee Retirement Plan
Investments 613 (887) 773 (300)
Other 12 17 32 (47)
Other Income (Expense), net $ 122 Our effective tax rate for the three and nine months endedMarch 31, 2023 were negative tax rates of (32.3%) and (42.3%), respectively, which were lower than the combined federal and state statutory tax rate primarily due to the book versus tax treatment of nondeductible goodwill impairment and nondeductible merger costs which were partially offset by the positive impact of earn-out valuation adjustments. Our effective tax rate for the three and nine months endedMarch 31, 2022 were negative tax rates of (9.3%) and (3.3%), respectively, driven by the book versus tax treatment of nondeductible goodwill impairment and earn-out valuation adjustments. Comparing the balance sheet as ofMarch 31, 2023 toJune 30, 2022 , our accounts receivable decreased due to the lower sales levels and also several larger projects were finalized and the payment was received. Our prepaid expenses decline was driven by receipt of prepaid inventory in transit. As uncertainty in the macroeconomic environment was impacting customer order patterns, we revised ourPoppin sales growth expectations and during our second quarter endedDecember 31, 2022 , recognized a goodwill impairment charge which reduced our goodwill balance. Our accounts payable balance has declined as we have decelerated inventory purchases. Our long-term debt declined as we paid down our borrowings.
Liquidity and Capital Resources
Our total cash and cash equivalents was$18.8 million atMarch 31, 2023 and$10.9 million atJune 30, 2022 . Our total debt was$50.0 million atMarch 31, 2023 and$68.1 million atJune 30, 2022 . During the first nine months of fiscal year 2023, cash flows provided by operations of$56.0 million more than offset capital expenditures including capitalized software of$17.1 million , the return of capital to shareholders in the form of dividends which totaled$9.9 million and stock repurchases which totaled$3.9 million .
Working capital at
Our short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our revolving credit facility, totaled$92.0 million atMarch 31, 2023 . AtMarch 31, 2023 , we had$1.8 million in letters of credit outstanding, which reduced our borrowing capacity on the revolving credit facility. We had$50.0 million and$68.0 million of borrowings on our revolving credit facility atMarch 31, 2023 andJune 30, 2022 , respectively. Total availability to borrow under the credit facility totaled$73.2 million atMarch 31, 2023 .
Cash Flows
The following table reflects the major categories of cash flows for the first nine months of fiscal years 2023 and 2022.
Nine Months Ended
March 31
(Amounts in Thousands) 2023 2022
Net cash provided by (used for) operating activities
$ (16,599)
Cash Flows from Operating Activities
For the first nine months of fiscal year 2023 net cash provided by operating
activities was
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operating activities was $6.6 million inclusive of a net loss of $20.1 million
which included $34.1 million of goodwill impairment and $15.8 million of
contingent earn-out liability gains. Changes in working capital balances
provided $26.9 million of cash in the first nine months of fiscal year 2023 and
used $21.2 million of cash in the first nine months of fiscal year 2022.
The $26.9 million of cash provided by changes in working capital balances in the
first nine months of fiscal year 2023 was driven by a $29.7 million decrease in
receivables as several larger projects were finalized and the payment was
received coupled with a decline in sales, and a $14.4 million decrease in
prepaid expenses and other current assets as prepaid in-transit inventory was
received which were partially offset by a $21.2 million decline in our accounts
payable as we decelerated inventory purchases.
The $21.2 million of cash used by changes in working capital balances in the
first nine months of fiscal year 2022 was driven by a $29.3 million increase in
inventory and a $12.8 million increase in receivables which were partially
offset by a $27.6 million increase in accounts payable. The inventory,
receivables, and accounts payable increases were due to the increased net sales
and associated increase in material purchases and production to fulfill our
order backlog and to cushion against supply chain disruptions.
Our measure of accounts receivable performance, also referred to as Days Sales
Outstanding ("DSO"), for the nine-month periods ended March 31, 2023 and
March 31, 2022 were 31 and 32 days, respectively. We define DSO as the average
of monthly accounts and notes receivable divided by an average day's net sales.
Our Production Days Supply on Hand ("PDSOH") of inventory measure for the
nine-month periods ended March 31, 2023 and March 31, 2022 were 99 and 72 days,
respectively. The increase in PDSOH was driven by increases in average inventory
levels outpacing the sales ramp up with the majority of the inventory increase
related to made-to-stock inventory in our eBusiness segment. We define PDSOH as
the average of the monthly net inventory divided by an average day's cost of
sales.
Cash Flows from Investing Activities
During the first nine months of fiscal years 2023 and 2022, our capital investments totaled$17.1 million and$15.8 million , respectively. The current and prior year capital investments include manufacturing equipment upgrades to increase automation in production facilities, the construction of a warehouse, software upgrades, and facility improvements.
Cash Flows from Financing Activities
During the nine months endedMarch 31, 2023 , we had proceeds from borrowings on our revolving credit facility of$106.0 million and during the same period we repaid$124.0 million on our revolving credit facility. During the nine months endedMarch 31, 2022 we had proceeds from borrowings on our credit facility of$45.0 million and repaid$27.0 million on our revolving credit facility. We paid dividends of$9.9 million in both the nine-month periods endedMarch 31, 2023 andMarch 31, 2022 . Consistent with our historical dividend policy, our Board of Directors evaluates the appropriate dividend payment on a quarterly basis. We repurchased shares pursuant to a previously announced stock repurchase program, which drove cash outflow of$3.9 million and$2.4 million in the year-to-date periods of fiscal year 2023 and 2022, respectively. Future debt payments may be paid out of cash flows from operations or from future refinancing of our debt.
Revolving Credit Facility
During the second quarter of fiscal year 2023, we entered into a Third Amendment to Amended and Restated Credit Agreement which provides, among other items, amendments to the Credit Agreement to extend the maturity date of the Credit Facility fromOctober 24, 2024 toDecember 21, 2025 , and establish SOFR ("Secured Overnight Financing Rate") as a pricing benchmark for dollar borrowings in replacement of LIBOR. As ofMarch 31, 2023 we had a$125.0 million revolving credit facility with a maturity date ofDecember 2025 that allowed for both issuances of letters of credit and cash borrowings. We also have an option to request an increase of the amount available for borrowing to$200.0 million , subject to participating banks' consent. The loans under the Credit Agreement could consist of, at our election, advances inU.S. dollars or advances in any other currency that was agreed to by the lenders. The proceeds are to be used for general corporate purposes including acquisitions. A portion of the revolving credit facility, not to exceed$10 million of the principal amount, was available for the issuance of letters of credit. AtMarch 31, 2023 , we had$1.8 million in letters of credit outstanding, which reduced our borrowing capacity on the revolving credit facility. AtMarch 31, 2023 andJune 30, 2022 , we had$50.0 million and$68.0 million , respectively, in borrowings outstanding. The revolving credit facility requires us to comply with certain debt covenants, the most significant of which is the adjusted leverage ratio and the interest coverage ratio. The adjusted leverage ratio is defined as (a) consolidated total indebtedness minus unencumberedU.S. cash equivalents in excess of$15,000,000 provided that the maximum subtraction does not exceed 27 --------------------------------------------------------------------------------$35,000,000 to (b) adjusted consolidated EBITDA, determined as of the end of each of our fiscal quarters for the then most recently ended four fiscal quarters, to not be greater than 3.00 to 1.00. The interest coverage ratio, for any period, of (a) Consolidated EBITDA for such period to (b) cash interest expense for such period, calculated on a consolidated basis in accordance with GAAP for the trailing four quarter period then ending, to not be less than 3.00 to 1.00. We were in compliance with all debt covenants of the revolving credit facility during the nine-month period endedMarch 31, 2023 .
The table below compares the adjusted leverage ratio and the interest coverage ratio with the limits specified in the credit agreement.
At or For the Period Ended Limit As Specified in
Covenant March 31, 2023 Credit Agreement Excess
Adjusted Leverage Ratio 0.84 ? 3.00 2.16
Interest Coverage Ratio 22.00 ? 3.00 19.00
Future Liquidity
We believe our principal sources of liquidity from available funds on hand, cash
generated from operations, and the availability of borrowing under our revolving
credit facility will be sufficient to meet our working capital and other
operating needs for at least the next twelve months. Our Board of Directors
declared quarterly dividends of $0.09 per share for payment during April of our
fourth quarter of fiscal year 2023. Future cash dividends are subject to
approval by our Board of Directors and may be adjusted as business needs or
market conditions change.
During the remainder of fiscal year 2023 we expect to invest approximately $8
million in capital expenditures, particularly for projects such as machinery and
equipment upgrades and automation, software, and showroom related expenses. As
of March 31, 2023 , there have been no material changes to our short-term and
long-term contractual obligations as discussed in Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of our
Annual Report on Form 10-K for the fiscal year ended June 30, 2022 outside the
ordinary course of business. We are also assessing the potential of selling
unused parcels of land.
Our ability to generate cash from operations to meet our liquidity obligations
could be adversely affected in the future by factors such as general economic
and market conditions, lack of availability of raw material components in the
supply chain, lack of availability or cost of manufacturing labor, loss of key
contract customers, and other unforeseen circumstances. In particular, should
demand for our products decrease significantly over the next 12 months, the
available cash provided by operations could be adversely impacted.
Non-GAAP Financial Measures and Other Key Performance Indicators
This Management's Discussion and Analysis ("MD&A") 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 U.S. GAAP in the statements of operations, statements of comprehensive
income, balance sheets, statements of cash flows, or statements of shareholders'
equity of the company. The non-GAAP financial measures used within this MD&A
include:
•adjusted operating income (loss), defined as operating income (loss) excluding
HNI merger-related charges, restructuring expenses, goodwill impairment, a gain
on sale of a warehouse, market valuation adjustments related to our SERP
liability, Poppin acquisition-related amortization and inventory valuation
adjustments, contingent earn-out gain or loss, and COVID vaccine incentive
costs;
•adjusted operating income (loss) percentage, defined as adjusted operating income as a percentage of net sales;
•adjusted net income (loss), defined as net income (loss) excluding HNI
merger-related charges, restructuring expenses, goodwill impairment, a gain on
sale of a warehouse,
•adjusted diluted earnings (loss) per share, defined as diluted earnings (loss) per share excluding HNI merger-related charges, restructuring expenses, goodwill impairment, a gain on sale of a warehouse,Poppin acquisition-related amortization and inventory valuation adjustments, contingent earn-out gain or loss, and COVID vaccine incentive costs; 28 -------------------------------------------------------------------------------- •adjusted EBITDA, defined as earnings before interest, statutory income tax impacts for taxable after-tax measures, depreciation, and amortization and excluding HNI merger-related charges, restructuring expenses, goodwill impairment, a gain on sale of a warehouse,Poppin acquisition-related inventory valuation adjustments, contingent earn-out gain or loss, and COVID vaccine incentive costs; and
•adjusted EBITDA percentage, defined as adjusted EBITDA as a percentage of net sales.
Reconciliations of the reported GAAP numbers to these non-GAAP financial measures are included in the tables below. Management believes it is useful for investors to understand and to be able to meaningfully trend, analyze and benchmark how our core operations performed without market value adjustments related to our SERP liability, without HNI merger-related charges, without expenses incurred in executing our transformation restructuring plan, without goodwill impairment costs, without gain on sale of a warehouse, withoutPoppin acquisition-related costs, and without COVID vaccine incentive costs. Many of our internal performance measures that management uses to make certain operating decisions exclude these expenses to enable meaningful trending of core operating metrics. These non-GAAP financial measures should not be viewed as an alternative to the GAAP measures and are presented as supplemental information.
Reconciliation of Non-GAAP Financial Measures and Other Key Performance Indicators (Amounts in Thousands, Except for Per Share Data)
Adjusted Operating Income (Loss) Three Months Ended Nine Months Ended
March 31 March 31
2023 2022 2023 2022
Operating Income (Loss), as reported $ 4,178
3,853 - 3,853 -
Add: Pre-tax Restructuring Expense 793 1,730 2,842 4,195
Add: Pre-tax Goodwill Impairment - - 36,684 34,118
Add: Pre-tax Other General (Income) Expense(1) - (4,523) - (4,523)
Add: Pre-tax Expense Adjustment to SERP Liability 613 (887) 773 (300)
Add: Pre-tax Poppin Acquisition-related Amortization 1,502 1,610 4,506 4,830
Add: Pre-tax Poppin Acquisition-related Inventory Valuation Adjustment
- 48 - 253
Add: Pre-tax Contingent Earn-Out (Gain) Loss - 2,150 (3,160) (15,750)
Add: Pre-tax COVID Vaccine Incentive - - - 2,709
Adjusted Operating Income $ 10,939 $ 166,184
6.6 % 3.9 % 5.6 % 1.5 %
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Adjusted Net Income (Loss) Three Months Ended Nine Months Ended
March 31 March 31
2023 2022 2023 2022
Net Income (Loss), as reported $ 5,691 $ 6,295 $ (23,816) $ (20,068)
Pre-tax HNI Merger-related charges 3,853 - 3,853 -
Tax on HNI Merger-related charges - - - -
Add: HNI Merger-related charges 3,853 - 3,853 -
Pre-tax Restructuring Expense 793 1,730 2,842 4,195
Tax on Restructuring Expense (204) (445) (731) (1,079)
Add: After-tax Restructuring Expense 589 1,285 2,111 3,116
Pre-tax Goodwill Impairment - - 36,684 34,118
Tax on Goodwill Impairment - - - -
Add: After-tax Goodwill Impairment - - 36,684 34,118
Pre-tax Other General (Income) Expense(1) - (4,523) - (4,523)
Tax on Other General (Income) Expense - 1,164 - 1,164
Add: After-tax Other General (Income) Expense - (3,359) - (3,359)
Pre-tax Poppin Acquisition-related Amortization 1,502 1,610 4,506 4,830
Tax on Poppin Acquisition-related Amortization (387) (414) (1,160) (1,243)
Add: After-tax Poppin Acquisition-related
Amortization 1,115 1,196 3,346 3,587
Pre-tax Poppin Acquisition-related Inventory
Valuation Adjustment - 48 - 253
Tax on Poppin Acquisition-related Inventory
Valuation Adjustment - (12) - (65)
Add: After-tax Poppin Acquisition-related Inventory Adjustment
- 36 - 188
Pre-tax Contingent Earn-Out (Gain) Loss - 2,150 (3,160) (15,750)
Tax on Contingent Earn-Out (Gain) Loss - - - -
Add: After-tax Contingent Earn-Out (Gain) Loss - 2,150 (3,160) (15,750)
Pre-tax COVID Vaccine Incentive - - - 2,709
Tax on COVID Vaccine Incentive - - - (697)
Add: After-tax COVID Vaccine Incentive - - - 2,012
Adjusted Net Income $ 11,248 $ 7,603 $ 19,018 $ 3,844
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Adjusted Diluted Earnings (Loss) Per Share Three Months Ended Nine Months Ended
March 31 March 31
2023 2022 2023 2022
Diluted Earnings (Loss) Per Share, as reported $ 0.15 $ 0.17 $ (0.65) $ (0.55)
Add: After-tax HNI Merger-related charges 0.11 - 0.11 -
Add: After-tax Restructuring Expense 0.01 0.04 0.06 0.09
Add: After-tax Goodwill Impairment - - 1.00 0.93
Add: After-tax Other General (Income) Expense(1) - (0.09) - (0.09)
Add: After-tax Poppin Acquisition-related
Amortization 0.03 0.03 0.09 0.10
Add: After-tax Poppin Acquisition-related Inventory Adjustment
- - - 0.01
Add: After-tax Contingent Earn-Out (Gain) Loss - 0.06 (0.09) (0.43)
Add: COVID Vaccine Incentive - - - 0.05
Adjusted Diluted Earnings Per Share $ 0.30 $ 0.21 $ 0.52 $ 0.11
Adjusted EBITDA
Three Months Ended Nine Months Ended
March 31 March 31
2023 2022 2023 2022
Net Income (Loss) $ 5,691 $ 6,295 $ (23,816) $ (20,068)
Provision for Income Taxes (1,391) (534) 7,084 650
Income (Loss) Before Taxes on Income 4,300 5,761 (16,732) (19,418)
Interest Expense 668 390 2,045 922
Interest Income (165) (25) (354) (77)
Depreciation 3,720 3,635 11,160 10,820
Amortization 2,268 2,358 6,682 7,212
Pre-tax HNI Merger-related charges 3,853 - 3,853 -
Pre-tax Restructuring Expense 793 1,730 2,842 4,195
Pre-Tax Goodwill Impairment - - 36,684 34,118
Pre-tax Other General (Income) Expense(1) - (4,523) - (4,523)
Pre-tax Poppin Acquisition-related Inventory
Valuation Adjustment - 48 - 253
Pre-tax Contingent Earn-Out (Gain) Loss - 2,150 (3,160) (15,750)
Pre-tax COVID Vaccine Incentive - - - 2,709
Adjusted EBITDA $ 15,437 $ 11,524 $ 43,020 $ 20,461
Net Income (Loss) % 3.4 % 3.5 % (4.5 %) (4.1 %)
Adjusted EBITDA % 9.3 % 6.4 % 8.2 % 4.2 %
(1) Third quarter fiscal year 2022 Other General (Income) Expense consists of a
gain realized on the sale of a warehouse totaling
The order backlog metric is a key performance indicator representing firm orders
placed by our customers which have not yet been fulfilled and are expected to be
recognized as revenue during future quarters. The timing of shipments can vary,
but generally the backlog of orders is expected to ship within a six-month
period.
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Return on Invested Capital is a key performance indicator calculated as:
[(Earnings Before Interest, Taxes, Amortization, HNI Merger-related charges,
Restructuring Expense, Goodwill Impairment, a Gain on Sale of a Warehouse,
Acquisition-related Inventory Valuation Adjustments, Contingent Earn-out Gain or
Loss, and COVID Vaccine Incentive costs ) multiplied by (1 minus Effective Tax
Rate)] divided by (Total Shareholders' Equity plus Net Debt). Net Debt is
defined as current maturities of long-term debt plus long-term debt less cash,
cash equivalents, and short-term investments.
Critical Accounting Policies
Our Condensed Consolidated Financial Statements have been prepared in accordance withU.S. GAAP. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the Condensed Consolidated Financial Statements and related notes. Actual results could differ from these estimates and assumptions. Management continually reviews the accounting policies and financial information disclosures. A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 . During the first nine months of fiscal year 2023, there were no material changes in the accounting policies and assumptions previously disclosed.
New Accounting Standards
See Note 2 - Recent Accounting Pronouncements and Supplemental Information of Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for information regarding New Accounting Standards.
Forward-Looking Statements
This communication contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, which involve inherent risks and uncertainties. Any statements about HNI's, Kimball's or the combined company's plans, objectives, expectations, strategies, beliefs, or future performance or events constitute forward-looking statements. Such statements are identified as those that include words or phrases such as "believes," "expects," "anticipates," "plans," "trend," "objective," "continue," or similar expressions or future or conditional verbs such as "will," "would," "should," "could," "might," "may," or similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates, and other important factors that change over time and could cause actual results to differ materially from any results, performance, or events expressed or implied by such forward-looking statements. Such forward-looking statements include but are not limited to statements about the benefits of the business combination transaction between HNI and Kimball (the "Transaction"), including future financial and operating results, the combined company's plans, objectives, expectations and intentions, and other statements that are not historical facts. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. In addition to factors previously disclosed in HNI's and Kimball's reports filed with theU.S. Securities and Exchange Commission (the "SEC") and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: the occurrence of any event, change, or other circumstance that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between HNI and Kimball; the outcome of any legal proceedings that may be instituted against HNI or Kimball; the possibility that the Transaction does not close when expected or at all because required regulatory, shareholder, or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the Transaction); the risk that the benefits from the Transaction may not be fully realized or may take longer to realize than expected, including as a result of changes in, or problems arising from, general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which HNI and Kimball operate; the ability to promptly and effectively integrate the businesses of HNI and Kimball; the possibility that the Transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; reputational risk and potential adverse reactions of HNI's or Kimball's customers, employees or other business partners, including those resulting from the announcement or completion of the Transaction; the dilution caused by HNI's issuance of additional shares of its capital stock in connection with the Transaction; the diversion of management's attention and time from ongoing business operations and opportunities on merger-related matters; and the impact of the global COVID-19 pandemic on HNI's or Kimball's businesses, the ability to complete the Transaction or any of the other foregoing risks. 32 -------------------------------------------------------------------------------- These factors are not necessarily all of the factors that could cause HNI's, Kimball's or the combined company's actual results, performance, or achievements to differ materially from those expressed in or implied by any of the forward-looking statements. Other unknown or unpredictable factors also could harm HNI's, Kimball's or the combined company's results. All forward-looking statements attributable to HNI, Kimball, or the combined company, or persons acting on HNI's or Kimball's behalf, are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made and HNI and Kimball do not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions, or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If HNI or Kimball update one or more forward-looking statements, no inference should be drawn that HNI or Kimball will make additional updates with respect to those or other forward-looking statements. Further information regarding HNI, Kimball and factors which could affect the forward-looking statements contained herein can be found in HNI's Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, and its other filings with theSEC , and in Kimball's Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, and its other filings with theSEC .
No Offer or Solicitation
This communication is for informational purposes only and is not an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities, nor the solicitation of any vote or approval in any jurisdiction pursuant to the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Additional Information About the Transaction and Where to Find It
In connection with the Transaction, HNI filed with theSEC a Registration Statement on Form S-4 onApril 17, 2023 (as amended onApril 19, 2023 ) to register the shares of HNI capital stock to be issued in connection with the Transaction. The Registration Statement includes a proxy statement of Kimball that also constitutes a prospectus of HNI. OnApril 27, 2023 , the registration statement was declared effective by theSEC , and onApril 28, 2023 HNI filed the definitive joint proxy statement/prospectus, and Kimball filed the definitive proxy statement, in connection with the proposed transaction with theSEC . Kimball commenced mailing the definitive proxy statement to its shareholders onApril 28, 2023 . INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4, AS WELL AS ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE TRANSACTION OR INCORPORATED BY REFERENCE INTO THE JOINT PROXY STATEMENT/PROSPECTUS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION REGARDING HNI, KIMBALL, THE TRANSACTION AND RELATED MATTERS. Investors and security holders may obtain free copies of these documents and other documents filed with theSEC by HNI or Kimball through the website maintained by theSEC at http://www.sec.gov or from HNI at its website, www.hnicorp.com, or from Kimball at its website, www.kimballinternational.com.
Participants in the Solicitation
HNI, Kimball, and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Kimball in connection with the Transaction under the rules of theSEC . Information about the interests of the directors and executive officers of HNI and Kimball and other persons who may be deemed to be participants in the solicitation of shareholders of Kimball in connection with the Transaction and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the joint proxy statement/prospectus related to the Transaction, which will be filed with theSEC . Additional information about HNI, the directors and executive officers of HNI and their ownership of HNI common stock is also set forth in the definitive proxy statement for HNI's 2023 Annual Meeting of Shareholders, as filed with theSEC on Schedule 14A onMarch 21, 2023 , and other documents subsequently filed by HNI with theSEC . Additional information about Kimball, the directors and executive officers of Kimball and their ownership of Kimball common stock can also be found in Kimball's definitive proxy statement in connection with its 2022 Annual Meeting of Shareholders, as filed with theSEC onSeptember 7, 2022 , and other documents subsequently filed by Kimball with theSEC . Free copies of these documents may be obtained as described above. 33
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