Kimball International, Inc. Wednesday announced third quarter fiscal year 2017 net sales of $153.1 million, an increase of 2% over the prior year third quarter, and net income of $7.2 million, an increase of 162% over the prior year third quarter. Excluding prior year restructuring charges, adjusted net income increased 63%. Earnings per diluted share for the third quarter was $0.19 compared to $0.07 per share earned in the prior year quarter, or $0.12 per share earned in the prior year quarter excluding restructuring charges.

Bob Schneider, Chairman and CEO, stated, “The third quarter is typically the seasonally low period for the office furniture industry, but we were pleased with the relatively strong quarter. To have achieved a 7.2% operating income in a third quarter is very encouraging at this point in our turnaround efforts. The significant increase in our net income, despite the seasonally low sales level, is testament to our efforts the last couple years to right-size our cost structure. Our employees have focused on controlling costs through productivity gains and cost savings initiatives, including the broad-based savings we are experiencing from the consolidation of our metal fabrication production from Idaho into Indiana facilities. We've also focused on coming to market with new and innovative products, which are resonating well with customers. Sales of new office furniture products introduced in the last three years were up a strong 21% over the third quarter last year.”

Net sales in the third quarter of fiscal year 2017 increased 2% from the prior year third quarter. The increase was primarily driven by the finance vertical (up 24%) and the hospitality vertical (up 9%), partially offset by a decline in the healthcare vertical (down 21%). An increased focus on strategic accounts and assisting financial institutions with refreshing their facilities contributed to the significant increase in sales in the finance vertical. The improvement in the hospitality vertical was primarily driven by non-custom business and to a lesser extent by custom business. Uncertainty surrounding the Affordable Care Act impacted sentiment in the healthcare market which the Company believes is causing a delay in spending in the healthcare vertical. Office furniture sales, which includes all verticals except hospitality, were flat compared to the prior year third quarter.
Sales from new office furniture products introduced in the last three years increased 21% over the prior year third quarter. New product sales approximated 29% of total office furniture sales in the current year third quarter compared to 25% in the prior year third quarter.
Orders received during the third quarter of fiscal year 2017 increased 12% from the prior year third quarter, with increases in all vertical markets, except healthcare and hospitality which had very strong orders in the prior year quarter. Excluding the hospitality vertical, orders received by office furniture verticals increased 18% compared to the prior year third quarter. One of the Company’s brands implemented a price increase effective April 1st, which the Company believes had the effect of pulling some orders forward into the current year third quarter. Excluding the estimated effect of the price increase, consolidated orders increased approximately 7% instead of 12% and orders received by the office verticals increased approximately 12% instead of 18%.
Third quarter gross profit as a percent of net sales improved 290 basis points over the prior year third quarter, due to lean initiatives, including benefits from the Company's restructuring plan involving the transfer of metal fabrication production from Idaho into facilities in Indiana, and lower employee benefit costs. Gross profit also increased as a result of higher pricing, including both price increases as well as more favorable pricing on select new products.
Selling and administrative expenses in the third quarter of fiscal year 2017 increased 40 basis points as a percent of net sales and increased 3% in absolute dollars compared to the prior year third quarter. The increase in selling and administrative expense was primarily driven by increases in incentive compensation as a result of higher earnings levels.
As a result of completing restructuring activities during the first quarter, including the sale of the Post Falls, Idaho facility and land, no restructuring costs were incurred during the third quarter of fiscal year 2017. Pre-tax restructuring expenses in the prior year third quarter were $2.8 million.
Operating cash flow for the third quarter of fiscal year 2017 was $17.6 million compared to operating cash flow of $24.5 million in the third quarter of the prior year, a decrease of $6.9 million. The decrease was primarily driven by a lower amount of working capital converted to cash as compared to the prior year quarter, only partially offset by the improved earnings during the current year quarter.
The Company's balance in cash, cash equivalents, and short-term investments was $84.5 million at March 31, 2017, compared to June 30, 2016 cash and cash equivalents of $47.6 million. The increase was primarily driven by current year profitability, proceeds from the sale of the Post Falls building and land in August 2016, and improved conversion of working capital balances to cash, and was partially offset by the return of capital to share owners in the form of share repurchases and dividends totaling $13.1 million during the first nine months of fiscal year 2017. During the current year third quarter, the Company did not repurchase shares.