Good afternoon, ladies and gentlemen. My name is Shiquana,and I will be your conference call facilitator today. At this time, I wouldlike to welcome everyone to the Kimball International First Quarter Fiscal 2008Financial Results Conference Call. All lines have been placed on listen-only mode to preventany background noise. As a reminder, today's call, November 5th, 2007, will berecorded. After the Kimball speakers opening remarks, there will be aquestion-and-answer period when Kimball will respond to questions fromanalysts, followed by responses to e-mail questions submitted during this call(Operator Instructions). For all participants listening to today's call on theInternet, you may submit e-mail questions at any time during the call byclicking the e-mail hyperlink conveniently located on the webcast stream. As with prior conference calls, please be aware that today'scall may contain forward-looking statements as defined under the PrivateSecurities Litigation Reform Act of 1995. Risk factors that may influence theoutlook of forward-looking statements can be seen in the Kimball Form 10-K andtoday's release. The panel for today's call is: Jim Thyen, President and CEOof Kimball International, Bob Schneider, Chief Financial Officer of KimballInternational, Doug Habig, Chairman of the Board of Kimball International, andDon Charron, President, Kimball Electronics Group. I would now like to turn today's call over to Jim Thyen. Mr.Thyen, you may be begin.

Thank you, Shiquana, and welcome, everyone, to our firstquarter conference call. We hope you had an opportunity to review our October16th fiscal year 2007 annual shareholders meeting presentation. It has been posted to the investor relations section of ourwebsite at www.kimball.com. We also hope you had an opportunity to review ourearnings release issued this morning on the results of the first quarter endedSeptember 30th 2007. Before we begin, I want to remind everyone that we welcomeInternet listeners to submit questions at any time during this call. As in our last conference call, our format today will startwith my overview comments on the quarter, followed by Bob's financial review.We will then open the call to your questions. As we did in prior calls, I've asked Don Charron, Presidentof our Electronics Group, to join us in support of disclosure, understanding ofour results and providing you with appropriate information. Dan Miller,President of our Furniture Group, is traveling, and could not participate intoday's call. If you have been following Kimball for a while, you knowthat we have had many changes to our business over the last two years, whichmakes comparability a bit of a challenge. In today's release, we noted how our net sales for thequarter ended September 30th, were 7.8% higher than a year ago, while incomefrom continuing operations was 4.4%. Internally, we focus more on recenttrends, which have been better comparability. We are very pleased to see the continued improvement in ourfurniture segment, which has improved each quarter since the third quarter oflast year. Specifically, net sales of our office furniture product line in thefourth quarter of fiscal 2007 was 10% higher than the third quarter, and nowour first quarter of fiscal 2008, net sales topped the fourth quarter byanother 6%. This is a tremendous successive quarter-over-quarter salesimprovement, reflecting the strong market…

Thanks, Jim. You likely have noticed that we changed theformat of our press release to include tables and bullet point explanations ofkey events. As Jim noted, it becomes challenging to compare to the prior yeardue to all of the changes in our businesses during this time. We hope theformat of this release helps in your understanding of the various changes. Overall, we had a very good first quarter. Typically, in ourfurniture markets, the quarter ended September 30th tends to be a bit slowerthan the fourth quarter. But we were very happy to see our overall consolidatedsales approximate the fourth quarter and increased 7.8% over the first quarterof the prior year. When looking at our furniture segment net sales, recall thatin the prior year first quarter, we were still in the contracts private labelbusiness and accordingly, one must remove those sales to get anapples-to-apples comparison. In doing that, our remaining sales, which are made up ofoffice and hospitality furniture, were up 7.4% over the prior year. Electronicsales were up 12.4% over the prior year first quarter, made up of $36.6 millionin additional sales from the Reptron acquisition, partially offset by $33million pricing change described in today's earnings release. Our automotive electronic sales were down compared to theprior year, in part due to the UAW strike with GM, although the effect was notsignificant to the quarter, which is a tribute to our diversification efforts. Over the years we have added a significant number of new,European and Asian automotive customers, and have expanded our medical,industrial and public safety market verticals, all of which lessened ourreliance on the domestic automotive market. Earnings per share from continuing operations for the firstquarter totaled $0.17, which included $0.01 for restructuring. Withoutrestructuring, EPS was $0.18. An important point to note is the $0.02 per shareof income recorded related…

(Operator Instructions) Also at this time, those of youlistening on the Internet may submit questions by way of the e-mail hyper linkconveniently located on your screen. One moment for the first question, please.The first question comes from Matt McCall with BB&T Capital Marketing.Please proceed Mr. McCall. Matt McCall - BB&T Capital Markets: Thank you ma'am. Good morning everybody.

Hi, Matt. Matt McCall - BB&T Capital Markets: First, trying to get an idea, you mentioned a few thingsthat can likely help your gross margin going forward. Trying to get an idea ofthe trajectory of the potential gross margin improvement. Can you talk about ina little bit more detail, your expectations going forward from China? You've now highlighted two plant closures with Reptron. Ithink that's up from one last quarter, and really what kind of time frameyou're hoping, and really what the potential benefit should be as we movetoward the latter half of the year?

Sure, Matt. I'll make a few comments, and then I'll ask DonCharron to build on those. It's clearly our growth strategy in electronics.We're focused on a greater utilization of the capacity that we have available. Clearly, China is in that space. We're looking at both newbusiness growth that comes organically, as well as we're open to acquisitionsand then we have a significant number of activities that are really focused onvariable costs productivity to improve those margins. So we're pushing bothgrowth and margin improvement. Don, you want to add some building points?

Yes. I would, Jim. First of all, we were able to get some marginimprovement in this past quarter, and Bob mentioned the selling price changesin our bear practice. That has some of the effect on the percentage, butthere's real improvement in there as well. And a lot of that improvement is coming from the lean SixSigma activities and global supply chain initiatives that we've had going on,on an ongoing basis in the business for the past several quarters. There are opportunities to take those practices, if youwill, and leverage them into the former Reptron business units and we're doingthat now and we're getting the fruits of our labor to show up a little bit, butthere's more yet to come. The operating leverage is probably the significant thingthat will come from our consolidation plan. As you mentioned, or as you saw, wedid announce the consolidation of two Reptron locations, the Gaylord, Michigan,operation and the Hibbing, Minnesota, operation. There will be some improvements in terms of margin fromleveraging our lean Six Sigma activities and global supply chain initiatives,but those consolidations more than anything will help our operating leverage. Matt McCall - BB&T Capital Markets: And I guess it's the timing that, I think, the Gaylordfacility was, I think, expected to be closed by the end of this year. Whatabout the Hibbing? And I guess if we can get any quantification of the expectedimprovement there it will be helpful.

Well, let me just speak to the timing. As we mentioned sixto nine months, and I think first thing that I think is important to note hereis that those customers and those facilities and the business that we'rerelocating is very critical to our long-term business panels. So, we have been very careful about how we have worked onthose transition plans, very open with the customers that are affected and aretaking all of the necessary steps to mitigate the risk that they see associatedwith those moves, namely continuity of supply and quality. And so what that does in the end in terms of mitigating thatrisk, which is the both the biggest concern of those customers that are beingasked to relocate in our footprint, it can in some cases add to the timing. Andif that's what it takes to make sure that we keep the business, make sure thatwe keep the customer satisfaction at the levels it is today, we'll extend asnecessary. So six to nine months is what we're thinking the timeframeis before that business is fully relocated. Matt McCall - BB&T Capital Markets: And is that going back to the Gaylord facility, are we stilltalking about the end of this calendar year and the Hibbing facility will beover the next six to nine? Or is anything changed with Gaylord?

Gaylord is on track; as we previously announced and Hibbingis a little early on, but we think that's six to nine months from now and as wefurther develop the details of those transition plans with those customers,that we'll be able to more accurately define the time line. Matt McCall - BB&T Capital Markets: I understand. Okay. And, Jim or Bob, I guess, on thefurniture side, as we look at some potential for some improvement on the grossmargin line there. Is it simply volume that's going to improve that, or I thinkyou mentioned your lean initiatives and I think you just mentioned the SixSigma lean initiatives. Are you seeing capacity open up, and potentially capacityutilization go down, and maybe open up the opportunity for consolidation from afactory standpoint?

It's a little bit of all of that, Matt. Clearly we'refocused heavily on making the investments to drive the growth, the top line. Wedo have capacity available and we're focusing on selling into that capacity andhaving a greater utilization. But also we have significant activities going on in oursupply chain, sourcing strategies that not only deal with qualifying ourcustomers, but things we've talked about in the past, rationalization,consolidation, and moving into heavy collaboration with our customers alongthat supply chain. We're continuing to make investments to keep the improvementup on quality and reliability. We're receiving acknowledgement of that from ourcustomers and we think that's transmitting itself into our increased order rateand our growth rate. And we're continuing to make investments in the sellingstrategy and the marketing strategy, both in terms of our accounts, our dodealers, our customers, our channel effectiveness, and also in expanding ourworkforce, as well as strengthening the relationships that we have for ournamed accounts or our key relationships that drive our growth. So it's a littlebit of all of that. Matt McCall - BB&T Capital Markets: Okay. I agree that good signs, I think, from the growthstandpoint. Did the SG&A line I think Bob, you mentioned some of the thingsthat hit Q4. Obviously that was big gyration in Q4 over last year. Other thanthat, is there anything that could help us understand kind of thesustainability or should we expect SG&A to kind of hover in current at theQ1 levels, or until we get to Q4? Is that that a good run rate? And then when we look at Q4,is it more of -- I think you talked about a few million dollar sequentialincrease as you focused on NeoCon spending. Is that really the only, I guess,seasonal factor we need to keep in mind when we look at our numbers?

Matt, that's probably the biggest. In the near term, as youlook forward, historically, the second quarter SG&A rate is pretty close tothe first quarter. So, a lot of things obviously impact that, a lot of movingparts. But if you look at our past, you'll see it's somewhat near that. Youtend to see a spike up in the fourth quarter. Matt McCall - BB&T Capital Markets: Okay. And then, just one clarification. You mentioned the2.1 million shares or 2 million shares. If I do the math at $12.96 that comesup to 2 million, but I think the press release said $1.7 million. I just wantto understand what I'm missing there.

It's really just -- it's few days of activity in June.That's the best way to look at it, because we bought shares back in the lastweek of June, and that was about 300,000 shares, and $1.7 million happening inQ1, and so in totality, then, that's the 2 million shares, and actually, theshares we bought in June were paid for and the cash went out in July. So thecash out flow happened in the first quarter. Matt McCall - BB&T Capital Markets: Okay. Okay. I got it. That makes sense. Okay. All right.Thank you, guys.

(Operator Instructions) Your next question comes from ChrisAgnew with Goldman Sachs. Mr. Agnew, you may go ahead with your question.

Good afternoon. This is Peter Wahlstrom on behalf of Chris.

Good afternoon, Peter.

How are you doing?

Great.

Do you provide a breakout of the mix between the hospitalityand furniture, office furniture sales as a percentage of revenue?

Peter, we do not. We look at hospitality and the officefurniture as our branded furniture product line, and we only report in total.

Okay. And could you give us a little bit of a sense, givencurrently end market trends in terms of commercial construction and what wehave seen recently in hospitality? Do you view that as still growing fairlyrobustly? Or is there some sense of a slowdown in that area?

No. We're seeing a lot of positive indicators in thatmarketplace and our outlook for the future remains positive and strong and it'sbeing demonstrated in our growth in our branded furniture book of business.

Okay. And the discounting that you mentioned in thathospitality space, has that been a more recently phenomenon, or has that beensomething that is part of this business just engrained? And if it is relatively new, what do you believe is thedriver behind this?

Peter, the margins in hospitality had been a bit tighterlast six months, last three to six months. A key driver behind it, I'm notsure. It's a competitive marketplace, but we have seen a tightening slightly inthe last three months to six months.

Okay. Have you seen any new end trends in this area?

No.

No. And one other key thing to keep in mind, Peter, that Ishould have mentioned earlier, the replacement market in the hospitalityindustry is larger and more robust than the new construction market.

Okay. Then switching to office furniture, and you mentionedsome specific discounting during the quarter. On what particular productcategories have you seen more discounting, and has this pricing stabilized, orwhat sort of trends should we expect heading into your fiscal year '08?

We've seen the greater pressure in the contract portion ofthe marketplace as opposed to the mid-market? I don't know that the pressurewill abate any or go away any. I think it's the nature of the industry. It'sthe nature of the economy that we're in right now. I think it will continue inthe contract portion.

Okay. And you've recently anniversaried your October 2006furniture price increases. Do you anticipate another price increase in thefuture?

We're going to keep watching the general economies of thiswhole marketplace, both the contract as well as the mid-market as it relates tooffice furniture. We know there's pressures there that part come from worldwidedemand, there's pressures there that come from regulations not only in thiscountry, but in areas where our supply chain is positioned, and Asia and China,and we know our economies are changing. Overall, we do see that choppiness in the credit market thatyou see, but we see a lot of strength in the economy, too. So we're going tokeep working with our suppliers to keep trying to bring variable costproductivity and continuous improvement on the materials side. But we will also work with our customers. And in those caseswhere we cannot offset some of those worldwide demand pressures, we're going towork with our customers on how we can succeed together in the marketplace.

Okay. Very good. On the EMS side, does the volume ramp up inthe new China facility require Kimball to win new business or customers, or isa fair amount of that capacity largely accounted for from the shift away fromthe Gaylord and Hibbing facilities?

We started the Greenfield in China with a book of businessin mind. I'll let Don elaborate a little further on that.

It really, it's -- Peter, it's both. In our phase-oneramp-up is really business that we already have with customers that have astrong preference to see their business transition flawlessly to the Chinafacility as part of our ramp-up there. But there's also, if you look, phases two and three of ourramp-up would be more winning new business, and we have in our minds a fairlysignificant allocation of that facility's overall capacity to automotive, andChina as being one of the faster growing automotive markets in the world. And we have customers that intend to participate in thatgrowth rate in China, and have asked us to be prepared to support them as theydevelop their plans there. So it does require us to win new business, but incases to win business with customers we already know. And of course, phase three is hopefully new customers we'venot yet met yet, and when they see our capabilities we've made there, and seethe investments we've made there, they too will be a part of our overall growthplans in China.

Okay. And if you were to think about one of your EMS marketverticals that has either been growing more quickly organically or has bettermargins, helping to potentially offset some of the drag from domesticautomotive, which one would you say that that would be?

I don't know that I could speculate on that, Peter. But Iwill say this. I think that the market opportunities, if you look at the datathat's available on our market, published by companies like technologyforecasters, iSuppli, to name a few, they will tell you that the fastestgrowing available market within the EMS industry is the medical area, and socertainly we hope to gain our share of the rapid growth there. But, ironically, the second fastest according to their datais the automotive industry. And there we have a lot of experience, more than 20years, and so maybe our view is slightly different in terms of how much of thatavailable market growth we should truly be interested in. But I think thatgiven that data and that backdrop of that data, I think we would expect to seethe same in our overall practice.

Okay. And when you look at acquisition opportunities forthis business, is that specific to EMS again, or is there some opportunity alsoin the office furniture or branded segment that you are looking at?

It's not specific to EMS, and we are open and analyzingalternates that support our growth and diversification strategy in bothsegments.

Okay. And last question for you is, I realize that you'restill analyzing what an ideal capital structure could look like, but is there acertain amount of debt or leverage that you are comfortable with at this stagein the cycle.

This is Doug Habig, and, yes, we recognize that as we goforward, our capital structure should be adjusted to reduce our cost tocapital, and also as Bob mentioned before, with our Board of Directors, wecontinually analyze our dividend, our capital expenditures, our cash flow andour share repurchases to make sure that as we go forward, we're doing the rightthings for shareholder value. But there is not a number we have pegged now interms of debt that we know is optimal.

Okay. Thank you very much.

(Operator Instructions) At this time there are no furtherquestions.

Thanks, Shiquana. Jim, we have no e-mail questions either.

Okay. That brings us to the end of today's call. In summary,we had a very good quarter. While I would like to see our segments improve morequickly, I am pleased that they are moving in the right direction. We are committed to our strategy of growth anddiversification, and driving long-term shareholder value. We appreciate yourinterest in Kimball, and we look forward to speaking with you on our next call.Thank you, and have a great day.

At this time, our listeners may simply hang up to disconnectfrom the call. Thank you, and have a nice day.