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Kimball International, Inc. (KBALB)

Q4 2014 Results Earnings Conference Call

August 1, 2014, 11:00 AM ET

Executives

James Thyen - President and CEO

Donald Charron - President, Kimball Electronics Group

Robert Schneider - CFO

Analysts

Todd Schwartzman - Sidoti & Company

Presentation

Operator

Good morning, ladies and gentlemen. My name is Whitley, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball International Fourth Quarter Fiscal 2014 Financial Results Conference Call.

All lines have been placed on listen-only mode to prevent any background noise. After the Kimball's 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, August, 1, 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's 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 Thyen

Thank you, Whitley. And welcome everyone to our fourth quarter conference call. Our earnings release was issued this morning on the results of our fourth quarter ended June 30, 2014. We have posted a financial summary presentation on our website to accompany this conference call. It can be found on our Investor Relations website along the Webcast link.

My overview comments will be followed by Bob's financial review. We will then open the call for questions. Don Charron, Executive Vice President and President of the Electronics Group, is joining us on the call today and will participate in the question-and-answer segment of the call.

Approximately 13 months ago we began our fiscal year 2014 operations. In our Electronics segment, we were carrying positive momentum from a successful fiscal year 2013. In our Furniture segment, we were challenged from a marginal fiscal year 2013. I will overview both segments starting with Furniture.

We finished fiscal year 2013 in Furniture with declining revenue and net income, vary above breakeven. At the end of fiscal year 2013, we were deep in the implementing corrective actions to address the performance problems.

These corrective actions were very important to our turnaround and our Furniture team delivered quite well with very successful execution.

We have positive net income in each quarter during fiscal year 2014, and each quarter's earnings shortened improvement over the prior year. The positive improvement in the Furniture segment generated over $10 million of net income for fiscal year 2014.

Several factors are contributing to the Furniture segment. First, we made several key management changes and fill these key furniture positions with outstanding talent.

We are very pleased with the progress made and the positive impact these management changes have had in our organization. Additionally, we increase investments in product development and marketing.

The new product offerings showcase that the offers in hospitality furniture trade shows have been very well received in this market.

Our increased scope of new product offerings, along with our qualitative improvement in marketing and product development, positions us well as we enter fiscal year 2015.

The increase focus on growth combined, with greater process discipline to ensure an outstanding customer experience was also a key one in the improved performance in the Furniture segment in fiscal year 2014.

All of these factors along with sales growth of 10% in the fourth quarter and 9% for the fiscal year when compared to prior year, contributed to the improved profitability of the Furniture segment in our fiscal year 2014.

As mentioned earlier, our Electronics segment had positive momentum coming into fiscal year 2014 after a strong finish to fiscal year 2013. Our EMS team capitalized on that momentum and continue its aggressive focus on growth and diversification of our customer and product base throughout fiscal year 2014.

As you recall mid-year we announced the future ramp down of business from our largest customer Johnson Controls or JCI, which is one of our automotive customers in the Electronics segment.

As an update to this announcement, we did begin to see the reduction in sales to JCI in the fourth quarter as originally anticipated and as report. The phase out of this product will continue in the first and the second quarters of fiscal year 2015.

While this is a change in our both business, we have invested appropriately in our business development effort over the years and that investment is being successful. As we monitor our new business connectivity pipeline, we are pleased with the potential that we see developing.

It is likely that it will take a couple of quarters after the JCI business transition is completed for that sales reduction to be filled completely and for us to again see year-over-year organic growth overall for the business.

We feel confident that we have the right activity in place to continue to drive the organic growth and take advantage of the opportunities in this market. Despite this phase-out of the JCI business, our experienced management team, our track record for quality and reliability combined with our highly integrated global footprint, and our process discipline, all come together and are contributing to another successful year in the EMS segment for crystal year 2014, with sales growth and net income improvement.

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