Kimball International, Inc.
Q1 2015 Earnings Call Transcript

Published: 7 Nov 2014

[Operator:]

Good morning, ladies and gentlemen. My name is Chris, and I will be your conference moderator for today. At this time, I would like to welcome everyone to the Kimball International First Quarter Fiscal 2015 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, November 7, 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 include, 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 Mr. Bob Schneider, Chief Executive Officer of Kimball International and Michelle Schroeder Vice President and Chief Financial Officer of Kimball International. Now I would turn today’s call over to Bob Schneider. Mr. Schneider, you may begin.

[Bob Schneider:]

Thank you, Chris. And welcome everyone to our first quarter conference call. Our prepared comments today will be a little longer than usual due to the complexities of the spin and the fact that electronics is in our Q1 numbers I have reported yesterday, but is no longer a part of Kimball International. In future calls as we get the spin behind us we will be able to have more succinct opening comments. Our earnings release was issued late yesterday on the results of our first quarter ended September 30, 2014. We have posted an investor presentation slide deck to our Web site to accompany this conference call. The presentation can be found on our Investor Relations Web site along the webcast link. Based on feedback from some of you in the past you’ll see we added some additional clarity in the presentation regarding our progress to meeting our furniture 8% operating income goal. Our end-market verticals that we sell into and our strategies. A new day has certainly dawned at Kimball as of the end of the day last Friday October 31 Kimball International is now a furniture company exclusively. The spin-off our electronics segment was completed on schedule and frankly at a cost much lower than other spin companies that we have benchmarked, which I’ll talk more about shortly. I am very happy to join you on the call today as the new CEO and Chairman of Kimball International. It is truly humbling to follow in the footsteps of our founders and Doug Habig and Jim Thyen. Also joining me this morning is Michelle Schroeder who has been promoted to the CFO role for Kimball, Michelle previously served as our Vice President, Chief Accounting Officer. Michelle and I and our whole leadership team are very excited about the opportunities that lie ahead for Kimball International as a pure play furniture company. Because the completion of the spin-off occurred after September 30th our first quarter results that were reported in our press release last night as I mentioned still include the electronics operations. However given the spin-off is complete we will not be discussing the EMS results in detail. Kimball Electronics will be disseminating their results later in November as an independent company. In addition to the press release that was just issued yesterday we also filed a Form 8-K that included a pro forma first quarter 2015 income statement. It is important to note the segment results included in our press release allocate corporate expenses to the furniture and EMS segments based on various drivers. These allocations are not indicative of what results would like had each segment been a separate independent company. The pro forma financial statements are intended to provide an estimated view of what results would have looked like had the spin-off occurred prior to the beginning of the quarter or in other words the pro forma statements remove all of the general corporate allocations and then push to electronics only the cost related to those previous corporate people who transferred to Kimball Electronics with the spin-off. However, that methodology which is driven by accounting regulations weaves cost in Kimball International historical results for employees that will be retiring or separating due to the spin-off and therefore will not be included in Kimball International’s future results. So we will actually have savings going forward in this area compared to this method. On the other hand, we will have reverse synergies that are normal with the spin-off such as higher insurance costs, et cetera. I know this gets somewhat complicated, so we try to simplify the concept in the investor presentation slide deck that was posted on our Web site this morning. Page 25, in the slide deck provides a non-GAAP reconciliation showing pro forma operating profit plus the additional adjustments to pullout the cost that will not continue in the future. When Michelle discusses the first quarter results, she will provide more detail on the impact of these items on the first quarter results and walk through Page 25 of the presentation slide deck. Importantly, you will see our first quarter adjusted pro forma operating income percent reach to 4.6%. That is huge improvement over the average of all fiscal year 2014 of 2%. We still need much additional improvement of course, but I was quite pleased with the quick progress. Michelle will walk you through that shortly and it would be helpful if you have that presentation in front of you for her discussion. Again you can find the presentation in our Investor Relations Web site alongside the webcast link. Before we get into the financial results, I want to share with you a few of the strategic actions we are pursuing to drive growth and shareholder value. The first is enhanced focus on new product development. This past year is a great example where we really hot the gas pedal on new product introductions, more than doubling the number of introductions over the prior year. We introduced 18 new products this past year compared to seven in prior years. New products are the life blood of any company and so this bodes well for the future and future growth. We expect to see heightened orders from these new products in the second half of this fiscal year and we will continue significant investments in new product introductions going forward. Second there is a huge push in the hospitality market to have product made domestically. The shortened lead times and reduced supply chain risk and so we are currently expanding U.S. production at our hospitality case goods facility and in some cases have used office furniture manufacturing capacity to meet this new need as well. The ability to meet shorter lead times will open new opportunities for our hospitality vertical. And lastly many of you know our operating margin goal is 8%, we are very focused on improving our margins through greater capacity utilization and higher volumes to reach that goal. As part of the margin improvement effort, we announced a restructuring plan on Wednesday of this week aimed at reducing cost and excess capacity within our furniture operations. As part of this plan we will consolidate our office furniture metal fabrication and manufacturing facility in Post Falls, Idaho into our existing facilities in Southern Indiana. The consolidation is due to a combination of factors including supply chain efficiencies, transportation optimization and manufacturing capacity management. We have an exceptional team at our Post Falls facility that is very dedicated and so this decision was not an easy one. However, we believe we can better optimize our supply chain and manufacturing footprint to more effectively serve our markets with this consolidation. Strategically with a footprint as better matches market requirements and use of industry supply partners, we will be able to more cost efficiently deliver product solutions that match the needs of our market. The consolidation efforts will take approximately seven quarters to eight quarters to complete. We want to ensure a smooth transition for our customers and assist our employees in every way possibly in this transition. We are actively marketing the Post Falls Building for sale. We expect to incur restructuring costs of approximately $8.9 million related to the plan, of which $235,000 is non-cash charges including impairment on our equipment. We expect approximately $3 million of this will be recognized in our second quarter with the remainder spread over the remaining six quarters to seven quarters. Our total savings anticipated after all restructuring actions are complete is estimated at approximately $5 million per year. We will recognize some savings incrementally as we work through the consolidation but the majority of the savings are back ended as the initial stages of plan include prepping our Indiana facilities for the consolidation. Looking now at the overall markets, moderate U.S. economic growth after several sluggish years is positioning our markets for nice expected growth in 2015 in both the office and hospitality markets. For the year ended June 30, 2014, which is our fiscal year the office furniture market as reported by BIFMA grew less than 2%. As just one frame of reference and by the way we grew our office furniture business during that same timeframe 5% taking market share. In calendar 2015, the office furniture industry is expected to grow a strong 9.6% and almost all the hospitality industry metrics are expected to be very strong, it’s been many years since the horizon in our markets has lift this break. I mentioned earlier that our cost to do this spin-off benchmark very well. We estimate our total spin related expenses to be approximately $7.5 million made up mostly of legal investment banking and auditing fees as well as IT separation costs, $4.6 million of that has been recognized as of September 30th and rest will be expensed over the coming year. We estimate our costs at well under half of what we have benchmarked for other spin companies. We were able to keep our costs much lower than other spin companies in part because our electronics and furniture businesses were already quite separate in many ways and also because of the work done by our employees over the last nine months. We occasionally used consulting help but for the most part our very dedicated employees spend a lot of their evenings and weekends basically doing two jobs, their usual role and also working on separating our company. It’s been a lot of work to our team and there still remains much work to be done for the complete IT and process separation which will continue for roughly nine more months. Our employees have addressed this spin-off with the same dedication and enthusiasm they do day in and day out with our customers in making sure we exceed their expectations. It is quite an honor to work with such dedicated people. As we come of spin-off as a furniture only company, we have a very solid foundation from which to build upon our outstanding brand, our employees and their focus on customer service and high quality have been our hallmark for many years, coupled that with markets that are appeared to be getting wind in their sale and I believe our future is very bright. Now I will turn it over to Michelle for a brief financial overview of our results. We will then open the call to your questions. Michelle?

[Michelle Schroeder:]

Thanks Bob. First I’ll touch on the consolidated first quarter results as reported in our press release which does include electronics operations and does not take into account the spin-off and then I’ll turn my focus to the financial information that was provided in the 8-K that we filed yesterday with our Kimball International pro forma results which focuses on furniture only results, and then also I’ll talk about page 25 of the investor presentation packet that Bob mentioned. Our first quarter consolidated net sales including electronics were $348.2 million, which was an increase of 10% from the first quarter of last year. Sales in the furniture segment increased 2% in the first quarter and we saw strong growth during the quarter in the commercial business vertical increasing 17% over the prior year as corporate businesses remain financially strong and we have increased our focus in this area. Sales to the finance and government verticals also increased and partially offsetting those increases sales to the hospitality, education and healthcare verticals declined. We are very encouraged by the increase in the new orders received during the first quarter in furniture while at a high level new orders received in this segment increased only few percent compared to last year. We do have a tough comparison to the prior year. We received $10.2 million order last year in the hospitality vertical that masks the improved order rate we really experienced in the quarter. We don’t receive a lot of $10 million orders so last year’s first quarter orders were exceptional. And if you exclude this order from last year, our first quarter new orders increased 9% over last year with orders increasing in all of our verticals except for finance which declined only 3%. And if you look at all of our verticals except the hospitality vertical which really effectively reflects our office furniture our orders were up strong 10% which exceeded the 7% increase in the office furniture industry according to BIFMA’s latest report for September. Our open order backlog as of September 30th was 1% higher than September 30 of last year, but remember last year includes about $10 million order. And our backlog was 16% higher than where we ended just last quarter. Sales increased 16% in the EMS segment and did set a quarterly record on double-digit percentage sales growth within all four vertical markets in that segment. Our consolidated gross margin improved 1.5 percentage points for the first quarter compared to last year on improved margins in both the furniture segment and the EMS segment. Consolidated selling administrative expenses increased 9% in the first quarter compared to last year. Employee compensation cost which include both salary and incentive compensation increased in both segments, in addition we also increased our investment in sales and marketing activities in the furniture segment to drive growth. And we also recognized 1.6 million of incremental costs related to the spin-off of EMS segment most of which are non-deductable for tax purposes, and we will continue to incur some incremental costs after this spin as we work through the transition service agreement. The effective tax rate for the first quarter was 37.9% the tax rate was negatively impacted by the non-deductable nature of the spin-off cost that I just mentioned. And that drove the effective tax rate up by 3.2 percentage point. Excluding the spin-off cost impact to the effective tax rate for the first quarter would have been 34.7%. And we anticipate our tax rate post spin will run in the high 30s and that’s without R&D credit as that credit has not yet been extended. Consolidate net income in the first quarter of fiscal year 2015 includes 1.5 million of after tax spinoff expenses. While net income in the first quarter of the prior year includes 3 million of after tax income from the settlement of two class action lawsuits and 242,000 of after tax restructuring cost. So when you exclude these unusual items in both years our non-GAAP net income in the first quarter of fiscal year 2015 was 9.5 million which was an increase of 3.1 million from net income was in the prior year. Also excluding the above mentioned unusual items earnings per share was $0.25 in the first quarter of this fiscal year compared to $0.17 in the prior year. And you can refer to our press release for the non-GAAP net income in EPS reconciliation. On a segment basis net income in the furniture segment was 3.7 million in the first quarter of fiscal year 2015, compared to 2.9 million in the prior year. And the EMS segment recorded net income of 5.9 million in the first quarter compared to net income of 4.5 million last year excluding the lawsuit income. We were very pleased with the performance in both of the segments during the quarter. For all of that prior discussion was based on our normal pre-spin GAAP segment reporting which as Bob mentioned allocates cooperate shared cost between the two segments. Now I want to take a few minutes to discuss our first quarter fiscal year 2015 pro forma result for Kimball International to give you a better perspective of how Kimball would have looked at the spin-off occurred at the beginning of the quarter. And as Bob mentioned those pro forma financial results were filed in an 8-K yesterday. And as you look at those financial statements it is very important that you also reference the foot notes to this financial statements because of the costs that are included in Kimball International historical results that will not continue in fall of the spin-off activities are complete. And we’ve highlighted those costs in the foot notes and again these are costs for retirements or terminations that are resulting because of the spin. A majority of these separations have occurred already with a few to occur in the next couple of quarters as we complete our transition services agreement. So we’ve tried to simply all of the information in the investor presentation packet that was also posted to our Web site late yesterday afternoon. On page 25 of that slide deck we are providing additional non-GAAP information for the first quarter of fiscal 2015 and also the fourth quarter of last fiscal year. So on a pro forma basis our operating income for the first quarter of 2015 for Kimball International excluding the EMS segment and also excluding the spin-off cost was 4.8 million and that equates to 3.3% operating income as a percent of sales, and this compares to a pro forma operating income of approximately breakeven for the first quarter of last year. And so this is shown in the middle of Page 25 of that slide deck, and that’s what you’ll see in our pro forma 8-K that we filed yesterday. So taking another step further I know want to talk about the cost I mentioned earlier that are included in these historical results that will not continue going forward. Those costs include payroll, incentive compensation, retirement contribution and payroll taxes for those retirements in separation resulting from the spin. We estimate those costs were approximately 1.6 million in the first quarter of last year and approximately 2.4 million in the first quarter of this fiscal year again as shown on page 25 of that slide deck. Again a majority of this cost went away from the spin was complete last week and the remainder will go away after the TSAs are complete. We also have some non-operational items included in our results. The first quarter of last year included a 1.2 million pretax write down on an aircraft that we sold and then also 900,000 of expense related to our supplemental employee retirement plan. The first quarter of fiscal 2015 included 200,000 of income related to that supplemental employee retirement plan. And as you recall we've discussed in prior calls, this SERP expense is offset in other income, so it doesn't impact our bottom-line but it does impact operating income. Those adjustments as well are on Page 25 and we are adjusting for those non-operational items just to get a better comparison of true operations. And then the final adjustment that we show on Page 25 is the negative adjustment for dissynergies resulting from the spin-off. As Bob mentioned, our insurance costs will be increasing that’s just one example. So we are estimating approximately 325 of additional costs per quarter as a result of the spin. So after adjusting for the non-operational items, the cost of the employee retirements and separations and the dissynergies, our adjusted pro forma operating income was 4.6% in the current year first quarter compared to 2.5% in the first quarter of last year. The improvement in margins year-over-year is driven by the benefit we gained from price increases on select products over the year. Operational improvements including labor productivity and other variable cost productivity improvements, as well as efficiencies that we gained from process improvements, and then we also had a favorable mix of higher margin projects that ship during the quarter. So while this is a significant improvement from the prior year, we still have work to do to get to our 8% operating income goal and Bob discussed earlier some of the strategic actions that we’re taking to accelerate growth and improved margins including the restructuring plans that we announced on Wednesday to consolidate our Post Falls manufacturing facility into existing Indiana facilities. So we believe these actions are moving us into the right direction to achieving that goal. And as Bob mentioned, the entire management team at Kimball is focused on growth and margin improvement. So now moving to the balance sheet, our cash and cash equivalents at September 30, 2014 was a 113.2 million compared to a 136.6 million at June 30. Now with the spin-off last week, Kimball Electronics received 63 million in cash with Kimball International keeping approximately 54 million. Our consolidated operating cash flow in the first quarter was an outflow of 6.7 million compared to a cash inflow of 16 million in the first quarter of last year. And the cash outflow in the current year was primarily driven by the payment of accrued profit based incentive compensation that related to the prior year. Capital investments for the first quarter totaled 11.2 million of which 3.2 million was related to the furniture business and the remaining 8 million was in the EMS segment. And we continue to have almost no long-term debt which stood at 275,000 at September, 30. Now with the spin-off complete our previous $75 million credit facility was cancelled and we entered into a new $30 million credit facility for Kimball International. So our balance sheet remains very strong even after the spin-off. Now with that, I'd like to open up today's calls to questions from analysts. Chris, do we have any analyst with questions?

[Operator:]

(Operator Instructions). Our first question comes from the line of Todd Schwartzman with Sidoti & Company. You may proceed.

[Todd Schwartzman:]

I do appreciate the detail on the vertical markets, that's helpful, it would be nice to see orders as well the take we can get. First question on just the reconciliation Michelle. The 1.4 million net after tax number regarding the spin cost shown in the 8-K. How much of that lives in the roughly 1.5 million shown in the press release under Kimball International?

[Michelle Schroeder:]

Can you say that again, the 1.4 million from where?

[Todd Schwartzman:]

Yes. So looking at the footnote of the 8-K the pro forma continuing ops estimated pre-tax cost of 2.4 million or 1.4 million after tax so $0.04 share. Is that included, and if so how much is included in the 1.549 shown in the table in the earnings release.

[Michelle Schroeder:]

The 1.5 million is the total that’s shown in the release that was our total spin-off cost in the quarter.

[Todd Schwartzman:]

So furniture incurred the bulk of that and the balance is about insignificant?

[Michelle Schroeder:]

If you look at our pro forma financial statements that we filed on yesterday 1.1 million of that is a pro forma adjustment that we're backing out to get to the pro forma continuing operations. So what we're doing is in the pro forma statements the 4.8 million of operating income that you see there, that includes no spin-off cost.

[Todd Schwartzman:]

Right, but in terms of adjustments, I just wanted to make sure that that I wasn't double counting the 1.5 million roughly net number with the 1.4 million net number shown in the foot note in the 8-K? So that exclusion of 1.4 million after tax $0.04 per share, does that live within the 1.5 million after tax number referenced in the press release's table?

[Michelle Schroeder:]

Yes, it does.

[Todd Schwartzman:]

And the balance it was represented by -- was it just a rounding thing?

[Michelle Schroeder:]

Yes, if you look at again the pro forma that is excluding all spin-off cost, so that pro forma number should be a clean number.

[Todd Schwartzman:]

Regarding the sales by vertical, I guess that the hospitality business face that was very challenging comp. But could you speak to any noise that that might have existed a year ago in Q1 on the education or healthcare side that we maybe should be mindful of?

[Bob Schneider:]

Yes, Todd, good question. There is really there is nothing unusual given the choppiness of the business it's just normal variation, and so when you look at our Q1 of '15 and you see education and healthcare being down in actual shipments you made reference to maybe we got to show orders, but from an order standpoint those two verticals are actually up over the prior year, so it's just its normal variation in terms of what we shift and a very good news in terms of the outlook going forward because the orders in those two verticals were actually quite a bit up over a year ago.

[Todd Schwartzman:]

So the consolidated number was 2% order growth you did speak to that a little bit. Is there any outliers, any standouts to callout otherwise regarding the verticals?

[Bob Schneider:]

The only big item is hospitality and the huge order that we won a year ago, you stripped that out and the overall business was up 9% in orders and if you strip out hospitality entirely what's left is essentially office and that was up 10% which is very strong.

[Todd Schwartzman:]

Does the strength in the government surprise you or did you pretty much expect that?

[Bob Schneider:]

Pretty much expected it and it really wasn't that strong, it was up a little bit but not up significantly. We hit bottom a while back and I wouldn't say that it's not rebounding, it's just not declining further and we've had a little bit of improvement which is encouraging but I wouldn't view it as a strong rebound.

[Todd Schwartzman:]

You had mentioned share gains earlier in the prepared statements Bob, are you taking share are you referring to the office side or hospitality or both?

[Bob Schneider:]

That was office and compared to this and the last year last fiscal year which was up 2% we were up 5% in office, it's so hard to look at it from the hospitality standpoint since all of our competitors are private and it's hard to get information.

[Todd Schwartzman:]

So at whose expense do you think your gain was?

[Bob Schneider:]

Very good question, I don't know how to answer that, we compete against everybody and from a 2% market growth to our 5, I would anticipate we were taking it from everybody, but not sure who specifically.

[Todd Schwartzman:]

Can you speak to the pricing environment a little bit?

[Bob Schneider:]

We had a price increase roughly a year ago which one of our businesses, we have won right now that is occurring. Generally speaking Todd it's pretty consistent with what's going on in the industry in terms of the office market, generally low single-digits and it's reflecting cost structure changes overtime and just the general overall environment, but the industry itself over the last actually three years or so has been fairly accommodating to the cost structure changes and therefore allowing price increases.

[Todd Schwartzman:]

And what about commodity pricing, what are you seeing there?

[Bob Schneider:]

We're seeing a lot of volatility, there are some commodities we're seeing going up and we’ve got teams working on all kinds of projects try to get our costs in line from a commodity standpoint, generally speaking higher Todd, but there is a lot of variation.

[Todd Schwartzman:]

With regard to the restructuring you always felt that things go smoothly but do you have a reason to expect any type of near-term disruption if you could just kind of maybe give us a timeline as far as any inefficiencies that you may expect and at what rate that improves over that seven quarter to eight quarter period that you referenced?

[Bob Schneider:]

We did a lot of analysis trying to estimate everything in terms of what it’s going to take to move those facilities into three facilities in Southern Indiana and actually other facilities within Jasper, Indiana for example will have product moving throughout manufacturing. So it’s a complex tool, because of that that’s why we’re looking at seven to eight quarters to do it and we think with that kind of timeframe we’re going to be able to mange any kind of issues that might come up, but in terms of our estimating the cost that we referred to earlier, there are costs in there for duplicate labor and things like that as we’re hiring people in Southern Indianan to start up the production processes, and then the ramped down at Post Falls. So we tried our best to estimate it and we tried our best to try to allow ample time to make sure that this works really well from a customer standpoint, so we have no disruption. And also from an employee standpoint, because it actually is I think quite beneficial from an employee standpoint as these things go because they are so difficult of course, but it’s beneficial from the standpoint that this gives a lot more runway for our employees to be able to seek employment elsewhere and to help from that front. So lot of things in play, our teams have done a lot of study and I think we’re very in good shape in terms of our estimates for timeline.

[Todd Schwartzman:]

And in terms of that $5 million estimated savings at annual run rate 5 million, does that really kick in fully on a quarterly basis in Q1 or Q2 of fiscal ‘17?

[Bob Schneider:]

It is the first quarter -- it's quarter nine which is roughly right that you indicated.

[Michelle Schroeder:]

It would be Q2.

[Bob Schneider:]

Q2 of our fiscal ‘17 and Todd from this point forward just give you a little bit of rundown on that, the quarter we’re in right we’ll have a restructuring expense of about $3 million. The rest of restructuring will occur over those seven to eight quarters and of course it drops down in the quarter ending in Q3 it cuts roughly in half. But it’ll work its way to that full restructuring amount. But from an operating standpoint in the quarter we’re in right now for the next several quarters, there is really not that much change from an operating standpoint, and we start seeing the operating benefits until we get into the roughly quarter seven and eight. And then when you get the quarter nine is when we start reaping the full benefit. And in quarter nine, the facility is hopefully by that time sold. It it’s not it’s totally exited, cleaned up ready to be sold and mitigating any kinds of overhead cost to the extent we can at that point. But as we’ve indicated in release we’re actively marketing the facility and we certainly expect to have that facility sold before the seven to eight quarters are finished.

[Todd Schwartzman:]

And what is you carrying cost of that facility?

[Bob Schneider:]

Todd we haven’t mentioned that publically and I really do want to mention it until we have it sold, because clearly it effects in terms of pricing and someone knowing what our gain or loss is on that facility and we rather keep that private until it’s actually closed.

[Todd Schwartzman:]

And any outlook for CapEx or D&A for fiscal ‘15?

[Bob Schneider:]

Fiscal ‘15 D&A will be around 14 million. The CapEx we’re anticipating somewhere in mid 20s maybe around 25 million or so. And that excludes the restructuring that we just announced, but let me talk about the 25 million first. The 25 million includes roughly 6 million or so spin related CapEx some of it has to do with new IT infrastructure costs that’s roughly about 2 million and roughly about 4 million as we’re remodeling and renovating a part of our corporate headquarters as we are relocating one of our office buildings into the corporate headquarters and then electronics we’ll be moving out of the corporate headquarters into that separate facility on the south side of Jasper. So those are two amounts roughly $6 million that are of course non-repeating and significant, so that’s in the 25. When you factor in the restructuring we just announced that’s roughly another $3.1 million that will happen between now and next June. So that’s get it up about 28 million this year.

[Todd Schwartzman:]

And lastly what could you say about project size increase that you receiving, orders that you’ve booked just in terms of commercial customers. Is that pretty constant year-over-year or you’re seeing more of a willingness to spend?

[Bob Schneider:]

There is a more of willingness to spend from day-to-today business standpoint that is pretty solid for both our office furniture companies. The project businesses really it’s choppy. There are big projects that we’re looking at but the business and orders are choppy. When you look at hospitality that business started picking up about I guess it was maybe two years ago with a noticeable increase in large orders. And that is continuing to this day, and I expect that to continue. Actually I believe this cycle has got several years to go yet in terms of the hospitality industry improving and growing, and then moving into new construction where as today we’re more in the remodeling aspect to that cycle. So generally speaking in summary for office its choppy difficult to assess trends but the day-to-day looks very, very good and in hospitality it’s been good for some time and it still is.

[Todd Schwartzman:]

Well is there anything either in hospitality or on the office side that you expected to deliver in Q1, that won’t ship until a later date.

[Bob Schneider:]

Nothing significant Todd.

[Operator:]

(Operator Instructions). And we have no further questions at this time.

[Bob Schneider:]

Thank you Chris. Thanks everyone and that bring us to the end of today’s call. I want to close by reiterating how excited I am about the future of Kimball International as a pure play furniture company. And be assured our entire management team is committed to grow and reaching our 8% operating income goal. We appreciate your interest and look forward to speaking with you on our next call. Thank you and have a great day.

[Operator:]

Ladies and gentleman that concludes today’s conference. Thank you so much for your participation. You may know disconnect. Have a great day.