Good morning, ladies and gentlemen. My name is Mel, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball Electronics Fourth Quarter Fiscal Call 2019. Conference Call. All lines have been placed on listen only mode to prevent any background noise.
After the Kimbell speakers' opening remarks, there will be a question and answer period where Kimbell will respond to questions from analysts analysts can ask and questions will be taken in other order that they are received. Today's call, August 1, 2019 will be recorded. And may contain forward looking statements as defined under the Private Securities Litigation Reform Act of 1995. These factors that may influence the outcome of forward looking statements can be seen in Tymbo's annual report on Form 10 K for the year ended June 30, 2018, and in today's release. The panel for today's call is Don Sharon, Chairman of the Boyd And Chief Executive Officer and Mike Surgess Ketter, Vice President and Chief Financial Officer of Kimball Electronics.
I would now like to turn this call over to Don Sharon. Mr. Sharon, you may begin.
Thank you, Mel, and welcome everyone to our fourth quarter conference call. Our earnings release was issued yesterday afternoon on the results of our fourth quarter fiscal year ended June 30, 2019. We have posted a financial summary presentation to accompany this conference call. The presentation can be found on our Investor Relations website within the Events and Presentations tab. Or if you are listening via the webcast, you can follow along by advancing the slides or download them from the downloads tab on the webcast portal.
I will begin by making a few remarks on the overall quarter, then I will turn it over to Mike for the financial overview. After that, we will answer any questions that you may have. We delivered record sales in our fourth quarter of fiscal year 2019 and the full fiscal year 2019 was another record breaking year for our company. As we achieved double digit sales growth for the fourth time in the past 5 years. Since fiscal year 2015, Our first year as a standalone public company, our net sales have increased 44%.
We are extremely pleased with the success that we have had We recognize that there is still work to do to achieve our profitability goals as new programs ramp up to projected run rate and we drive improvements in the GES operations, we expect to realize With the dedication and commitment of our associates around the world, we will continue our relentless pursuit strong double digit growth in 3 of our 4 end market verticals helped us set a new quarterly record for the fourth quarter of fiscal year 2019. New program launches and ramp ups more than offset continued softness in certain other programs, primarily caused by Global macroeconomic conditions and trade uncertainties. Our newly acquired GES business continues to be sluggish, as we cycle through the downturn of the semiconductor and smart mobile device manufacturing end markets, which are the primary end markets that GES serves today. Our acquisition integration work with GES, including our growth and diversification strategy, continues as we remain focused on our overall strategy, to become a multi faceted manufacturing solutions company. Our operating margin came in below our target and our expectations, which was disappointing given our exceptional performance in the third quarter of fiscal year 2019.
In addition to the impact from the slow start from GES, We experienced lower margins with the increase Across all of our units, improvement in our margins. Margin expansion and capital efficiency will continue to be priorities of focus for us going forward. In general, component availability continues to improve, and we are experiencing fewer component shortages. We increased our inventory levels during the prior periods to minimize ruptions. As supply catches up to demand, we expect to work our inventory back down to normal levels.
Our cash conversion days increased to 77 days for the quarter ended June 30, 2019. Which is up from 63 days in Our accounts payable or AP days decreased 5 days, while inventory or PDSOH plus CAD increased 7 days. Thus far, we have managed to minimize the direct impact of the China tariffs. However, the indirect impact the overall demand in China and the added strain on supplier and customer relationships continues to be a concern. During the fourth quarter of fiscal year 2019, over $1,000,000 of tariffs on purchased raw material were revealed to our customers.
We are anxiously awaiting expenditures in the fourth quarter of fiscal year 2019, bringing our total for fiscal year 2019 to $25,800,000. I remind you the majority of these capital investments were for capacity expansion and the support to launch and ramp up of new programs. During fiscal year 2019, we also returned $23,400,000 stock, which brings our total to 67,900,000 since October 2015 under our board authorized share repurchase program. And finally, as I stated earlier, we continue to work diligently on the integration of GES. The acquisition of GES brings us new technologies abilities in automation, tests and measurement, industrial applications and is a significant step in our strategy, as a multi faceted manufacturing solutions provider.
We are excited about the opportunities to present the GES capabilities to our existing customers and to deploy these technologies and solutions in our own manufacturing facilities. Now I will turn it over to Mike to discuss our 4th quarter results in more detail.
Thanks, Don. During my comments, I will be referring to the slide deck Don mentioned, which can be found on our Investor Relations website within the Events and Presentations tab. Or if you're listening via the webcast, you can follow along by advancing the slides on the webcast portal. As shown on quarter net sales were a new quarterly record of $318,600,000, which was a 15% increase compared to net sales of 2.70 $800,000 in the prior year fourth quarter. Adversely affecting our net sales for the quarter were foreign exchange rates, which reduced our net sales 3% during the fourth quarter a year ago.
However, partially offsetting the impact of foreign currency rates acquisition, which added 2% to our consolidated net sales in the quarter. Slide 4 represents our net sales mix by vertical market. 3 of our 4 end market verticals experienced double digit growth over the prior year quarter. Our automotive vertical was up 12% compared to the same quarter a year ago as higher demand in North America, largely from new program introductions and to a lesser extent Europe. More than offset lower demand in China.
To a new quarterly record of over $100,000,000. The year over year increase was primarily related to strong demand for existing programs. Our industrial vertical was up 20% from a year ago as a result of additional revenue associated with the current year GES acquisition, new program introductions and an increase in slightly from the prior year fourth quarter. Was 7.3%, which declined from 8.2% in fourth quarter of last fiscal year. Our decrease in gross margin in the current year quarter compared to a year ago included an adverse impact from GES on the lower than expected volumes as well as unfavorable mix Selling and administrative expenses, slide 6 in the deck were $13,100,000 in the 4th quarter, which were up approximately $1,600,000 in absolute dollars and relatively flat as a percentage of net sales compared to the prior year fourth quarter The increase in selling and administrative absolute dollars was partly related to the amortization of finite lived intangible assets, which were acquired with the GES acquisition.
We also incurred higher warranty expense and technology related costs during the quarter. Adjusted operating income for the 4th quarter on Slide 7 in the deck came in at $10,100,000 or 3.2 percent of net sales, This compares to operating income of $11,300,000 The current quarter operating income was adjusted for from class action lawsuits, of which $6,000,000 in this fourth quarter, which compares to an expense of $1,000,000 in the fourth quarter of fiscal year 2018. Other expense net in the current year fourth quarter was primarily the result of $1,400,000 of interest expense, on increased borrowings on our credit facilities, including the financing of Other expense net in the prior year fourth quarter was primarily the result of net foreign currency losses from unfavorable exchange rate fluctuations. The effective tax rate for the current year by approximately $400,000 in both state tax credits and adjustments and federal R and D tax credit adjustments. In the prior year fourth quarter, the effective tax related to the U.
S. Tax Cut And Jobs Act, our tax reform, as well as our higher fiscal year 2018 blended U. S. Federal tax corporate rate of 28 percent and evaluation allowance recorded related to state tax credits. Slide 8 reflects our adjusted net income trend.
Our GAAP net income in the fourth quarter of fiscal year 2019 came in at $7,500,000, and we had adjusted net income of $7,400,000 after adjusting for the after tax impact of proceeds received from the class action lawsuits. This compares to GAAP net income of $5,800,000 and adjusted net income of $7,200,000 in the fourth quarter of fiscal fiscal 2018. The non GAAP adjusted net income of $7,200,000 a year ago excluded adjustments related to tax reform. Diluted earnings per share ended up at $0.29 for the fourth quarter of this fiscal year, which is up $2.2 of GAAP diluted EPS reported in the same quarter last year and $0.27 after adjusting for the impact from tax reform. Cash and cash equivalents at June 30, 2019 were $49,300,000.
Operating cash flow $2,000,000 as cash provided by net income plus non cash items and a decrease in inventories more than offset a decrease in our accounts payable. Our cash flow provided by $3,000,000. Our cash conversion days increased 14 prior year, largely related to an increase in the current tight supply environment. Our cash conversion day calculation compared to the prior year quarter includes 15 days for contract asset days recognized as a result of the new revenue recognition guidance that we adopted during the first quarter of the current fiscal year. Which was only partially offset by an 8 day reduction in our PDSOH, our production based sales on hand, our inventory metric.
The contract asset days are a new metric this fiscal year and relate to the acceleration of revenue for work performed to date and recognized over time as we manufacture the product. The majority of our contracts and revenue are now recognized over time in accordance with the new revenue recognition guidance. Primarily be nice over time under the new revenue guidance. Also contributing to the increase in cash conversion days compared to the same period a year ago, was a 5 day reduction in our accounts payable days and a 2 day increase in our DSO or days sales outstanding receivables metric. Slide 12 reflects our capital and depreciation trends.
Capital investments in the 4th quarter totaled $9,800,000 largely related to manufacturing equipment to increase capacity and to support new production awards. Borrowings on our credit facilities at June 30, 2019 were $126,000,000, which were up from $8,000,000 on June 30, 2018. The increase in borrowings during the current years in large part related to funding the GES acquisition for working capital needs and for other domestic cash needs including for the repurchases of common stock. Our short term liquidity available represented as cash and cash equivalents plus the unused amount of our credit facilities totaled $111,000,000 June 30, 2019. In conclusion, our financial condition is strong and we are in excellent position to continue the solid growth trend while also driving hard to achieve our operating margin and return on invested capital goals.
With that, I would like to open up today's
you. You. We have the first question from Mr. Mike Morales of Walthausen Company. You may ask your question.
Thinking about gross margins a little bit, you called out some headwinds from GES, some from a mix shift. Can you help qualitatively help me think about those buckets as it relates to being headwind to gross margins in the quarter? And what was the biggest impact?
Yes, certainly the GES performance was a significant portion of the decline in gross margin. But I would also say we saw in at least a similar size decline in gross margin caused by the other headwinds that we mentioned in terms of increases in labor and benefit costs and a shift in mix.
So, in thinking about GES, if I think back to the second quarter, I think the commentary around then was that the second quarter of our fiscal 2019 was kind of the trough for GS and then expectations for the fourth quarter would be stronger. I know the semi end markets have been weak. Has your expectation changed on GES heading into 2020 at all?
Well, we know that all of this in terms of these end markets is new to us. These aren't end markets that we've traditionally played in And again, it's we're not the primary drivers for the acquisition, the technology and what the capabilities of GES would bring to our business ambitions is why we drove the acquisition clearly, we were expecting from a seasonality standpoint, looking at GES' historic results, we were entering into what has traditionally been stronger seasons for them, speaking about, the June ending quarter, for example, The cyclicality part of their business, we're still studying. And, yes, the semiconductor end market vertical and the smart mobile device, assembly areas have been areas that they've traditionally served, and those are both down right now. And we would expect they'll cycle back eventually. Don't know that we have an accurate prediction on when they would cycle back.
But this, I will say, as good news is they remain solidly positioned with some really key customers in the Bay Area and their pipeline looks really good in terms of the opportunities there. What we've been experiencing is really more related to push outs and delays in some of those programs that they're actively working in. So So we're excited about what is to come, but we are also watching and learning as we go through this downside for them in these core markets they serve.
Sure, sure. That color was helpful. Thank you. Thinking about the mix shift, is that would I be accurate in saying that that's primarily in the auto from the mature Chinese programs to the ramping U. S.
Programs in auto?
That's a good significant majority of it. Yes, we the impacts of the utilization within the footprint. So China, obviously, we've been talking about for the last four quarters in terms of the downturn in the automotive end market demand there. And we've been offsetting it with primarily new program ramp ups in North America, which we knew were coming and we're excited about our progress there. But as we've explained in the past, during these calls, we were most challenged during the startup ramp up phase of these programs And the majority of the programs that we were producing in China were in what we would call a fairly mature state.
Sure, sure. So I guess directionally speaking as these U. S. Programs ramp, would it be fair to think about them at comparable to potentially better margins than the Chinese programs that you had? Comparable.
Okay. Comparable, yes. Yes.
And then last for me, as you see it today, the commentary on the component availability was helpful. Would it be fair to characterize the environment as no longer a headwind? Maybe not a tailwind at this point on the availability, but at least no longer headwind as you look into fiscal 20
Yes, we would say that. We're seeing improvement in several component categories. Now we also had, been working through some in deflationary pressure on some of those same components that were hard to get. I would say that those headwinds have not subsided, but we look forward to the, let's say, prices of some of those components that we did see inflation on during the past, let's say, four or five quarters as a result of availability, we would expect that to subside in this period coming up over the next, let's say, 4 to 6 quarters, but we'll see there's a lot of factors that depend on whether or not we'll go back to, let's say, pre shortage pricing on some of these component categories.
No further question at this time. Please go ahead, Mr. Sharon.
Thank you. That brings us to the end of today's call. We appreciate your interest and look forward to speaking with you on our next call. Thank you, and have a great day.
At this time, listeners may simply hang up to disconnect from the call. Thank you and have a nice day.