KBALB

Kimball International, Inc. (KBALB)

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Kimball International, Inc. (KBALB)

F2Q 2014 Earnings Conference Call

February 5, 2014 1:00 PM ET

Executives

James C. Thyen – President and Chief Executive Officer

Donald D. Charron – Executive Vice President, President-Kimball Electronics Group

Robert F. Schneider – Executive Vice President and Chief Financial Officer

Donald W. Van Winkle - Executive Vice President, President-Office Furniture Group

Analysts

Todd Schwartzman – Sidoti & Company, Inc.

Richard L. Greenberg – Donald Smith & Co., Inc

Presentation

Operator

Good morning, ladies and gentlemen. My name is Glenn, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball International's Second Quarter Fiscal 2014 Financial Results Conference Call. All lines have been placed on listen-only mode to prevent any background noise. After the Kimball speakers' opening remarks, there will be a question-and-answer period where Kimball will respond to questions from analysts. (Operator Instructions).

As with prior conference calls, today's call, February 5, 2014, will be recorded and may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Risk factors that may influence the outcome of forward-looking statements can be seen in the Kimball Form 10-K and today's release.

The panel for today's call is Jim Thyen, President and Chief Executive Officer of Kimball International; Bob Schneider, Executive Vice President and Chief Financial Officer, and Don Charron, Executive Vice President and President of Kimball Electronics Group.

I would now like to turn today’s call over to Jim Thyen. Mr. Thyen, you may begin.

James C. Thyen

Thank you, Glenn. Welcome everyone to our second quarter conference call. Our earnings release was issued this morning on the results of our quarter ended December 31, 2013. We have posted a financial summary presentation to our website to accompany this conference call. Presentation can be found on our Investor Relations website along the Webcast link. We also issued a press release on January 20, 2014 announcing our plans to spin-off our Electronics Manufacturing Services segment as an independent public company along with a plan conversion to a single-class of stock.

For these reasons, Don Charron, Executive Vice President and President of Electronics Group is joining Bob and myself on the call today.

You are all keenly aware of the dynamics of the ever-changing landscape. These are economic governance on our business markets. Digitalization of our lives brings a constant need for organizational and personal adaptability, flexibility, agility, innovation and a continuous re-examination of business models and roles. Intensity and speed of these changed dynamics is driven by the markets that we choose to serve and compete within.

Those of you, who have followed us for a number of years, know of our ability and conviction to adapt, and our constant re-invention of our company and the service of our shareholders. We are proud of the organization and the business platforms we have developed in the Furniture segment and the Electronics segment. We are also confident in the strategic focus within the two segments and that the investments made or balanced, in appropriate for future growth and profitability in these markets.

The Board believes that recapitalization and separating our company into two public companies is the best strategic alternative to enable investors and shareholders to properly value our different business separately. We expect the spin-off to be completed in the next 8 months to 12 months. I will continue my overview comments on the results of the second quarter. That will be followed by a comment from Don Charron, followed by Bob’s more detailed financial review, then we will open the call to your questions.

Consolidated sales in the second quarter increased 9% while our net income climbed to $9.2 million with both of our segments contributing to the solid performance for the quarter. Furniture segment sales increased 6% in the second quarter. Our furniture markets for the most part are gaining strength with the exception of office furniture sales to the federal government. Furniture projects are often influenced by the balance of confidence and anxiety in the business climate. I know you all know this. Heading into our third quarter, which is the normal seasonal low period for furniture, we are encouraged by the 28% increase in our furniture order backlog as of December 31 compared to December of 2012.

Looking ahead, BIFMA’s currently forecasting an increase in office furniture sales of 4.9% for the calendar 2014, forecasts for one of the leading indicators in the hospitality industry. RevPAR or Revenue per Available Room is a 6.6% growth for calendar year 2014. Other key economic indicators, including GDP growth in the U.S., a recent pickup in the recovery of the U.S. office market, employment growth, strong corporate balance sheets among others are generally encouraging. These positive data points continue to give us an increased sense of optimism albeit with caution for our Furniture segment going through the calendar year of 2014.

With improving markets, we had been and will continue to increase investment in new product introductions along with sales, marketing initiatives, business development initiatives to further stimulate our growth. We saw a significant margin improvement in the Furniture segment during the second quarter. As you know from prior calls, one of our key priorities within the segment has been profitability improvement.

We made very nice progress toward reaching our operating income goal during the second quarter and will continue our focus on project execution and process discipline. One other item I would like to mention with respect to our Furniture segment is that recently we made a noteworthy addition to our furniture team, Mike Wagner has been appointed to the position of Vice President, General Manager for Kimball Office Furniture.

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